Christine Tuon and Charles Tsong Ma (the landlords) are the owners of a retail shop property in Chatswood.
On 24 August 2020 the landlords entered into a lease of the property for a three year term to Popo Big Bowl Noodles Pty Ltd (the tenant). The lease fixed the rent at $130,000 per annum plus GST and provided a rent-free period of 12 weeks. The lease required the tenant to pay outgoings, including strata levies. The lease further required the provision of a bank guarantee for three months' rent inclusive of GST, that is $35,750
Clause 13 of the lease provided:
"The lessee is aware National Code of Conduct for Covid-19 pandemic. The NSW Government also enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2020 to implement the National Code of Conduct.
The lessor and lessee agree that the current Code of Conduct or Regulations are not applied to this lease and lessee must not make any application of rent reduction during the Covid-19 period. The lessee cannot refuse to pay the outgoings due to Covid-19 impact."
The tenant paid rent and outgoings in accordance with the lease until July 2021.
On 26 June 2021 a lock down was imposed in the Sydney area by reason of a further outbreak of COVID-19, which prevented the tenant from providing dine-in services. It is not in issue that the tenant was able to provide takeaway and delivery services.
As Mr Li, the sole director of the tenant, stated in evidence:
"All the other shops located in the same building have permanently shut down since the lockdown took place, and we are the only business managed to survive. ... Though the COVID-19 impact to the business has been ongoing from the beginning of the business, I have managed to keep all staff employed, and exercised the agreed obligations. However, since 26 June 21, the business was ordered by the NSW Government not to open to the public at the premises. The third-party online delivery became the only trading option. The business needs to pay 25-30% of total sales income by using the online trading platforms. This proportion of income would normally be used as rent and outgoings expenses. The business has lost all geographical advantages and the just established customer group. Chatswood Chase and the surrounding offices were all closed or minimum manned. Our major customer group, the Chinese community, tend to be extra cautious with delivery food during the pandemic, and many chose to cook from home rather than ordering from online restaurants. Furthermore, the majority of public who used to attend work now are working from home, and they have the time to cook for families due to no travel time required. These are all the factors that have contributed to the significant turnover decline. Though the government has relaxed the lockdown restrictions since 11 Oct 21, with the significant increase in positive cases daily, the public are feared of coming out and eating from the restaurant. To my knowledge there is no sign of economic recovery for the entire hospitality industry."
The tenant failed to pay the rent due on 15 July 2021 and only paid $500 per week from 5 August until 17 October 2021.
The tenant sought to renegotiate the rent pursuant to the Retail and Other Commercial Leases [COVID-19] Regulation 2021 (NSW) as then in force.
Mediation under the auspices of the Registrar of Retail Tenancies took place on 28 October 2021 but the parties failed to reach agreement on a reduction in rent.
I note that both parties filed evidence of the negotiations which took place in the course of the mediation. Section 69 of the Retail Leases Act 1994 (NSW) provides:
Any statement or admission made in the course of the mediation of a retail tenancy dispute or other dispute or matter referred to in section 65 (1) (a1) pursuant to arrangements made by the Registrar under this Part is not admissible at a hearing of a claim under Division 3 or in any other legal proceeding.
In my view that provision prevents the tender or receipt in evidence in the Tribunal of any evidence concerning what occurred in the course of the mediation, even if the parties purport to waive privilege in that evidence, and I have had no regard to any evidence of what took place at the mediation.
I do not consider that the prohibition in section 69 of the Retail Leases Act applies to evidence of negotiations conducted outside the mediation, if the parties waive privilege in their negotiations, and I have considered the evidence of those further negotiations, which each of the parties tendered without objection by the other.
It was common ground that the landlords, subsequently to the mediation, offered to waive 40% of the rent up to 31 October 2021 and defer 8% of that rent until 21 January 2022. The tenant indicated that that offer was acceptable, but the landlords sought to impose a condition that the tenant waive its entitlement to seek relief under subsequent Covid-19 relief legislation. The tenant declined to accept that condition.
Neither party submitted that any binding agreement for rent reduction had been reached.
On 10 November 2021 the landlords filed proceedings COM 21/46293 in the Tribunal, seeking an order for payment of $45,506.28 in respect of rent arrears.
On 11 November 2021, the landlords served upon the tenant a notice of breach and a notice of intention to call upon the bank guarantee. The breach specified was failure to pay rent and outgoings in accordance with the lease, amounting at the date of the notice to $51,713.92.
On 26 November 2021 the landlords served notice of termination, notice to call on the bank guarantee and notice of possession. Those notices relied upon the same breach as referred to in the earlier notices, that is failing to pay rent and outgoings.
On 29 November 2021 the landlords entered the premises and changed the locks.
On 1 December 2021 the tenant filed proceedings COM 21/49263 and COM 21/49265. In COM 21/49265 the tenant sought interim orders requiring the landlord to withdraw the notice of termination and the call on the bank guarantee. In COM 21/49263 the tenant sought orders that it did not have to pay the sum of $51,713.92 and the cancellation of the call on the bank guarantee and the notice of default.
On 2 December 2022 the Tribunal made an interim order in terms:
"1. Having considered the material provided in the application, the Tribunal is satisfied that it is desirable to make the following order on an interim basis without hearing from the respondent:
The respondent is restrained from taking possession of or otherwise interfering with the applicant's occupation of the leased premises.
2. The above order will remain in force until 5.00 pm on 22 December 2021, being the date on which the application for interim orders will be listed for hearing and the application for substantive orders will be listed for directions."
It appears that the only address for the landlords provided by the tenant to the Tribunal was care of Mr Yiran Zheng, the landlords' agent, at a post office box in Chatswood. Notice of the interim order was sent by the Tribunal by post to Mr Zheng at the post office box and also by post to Mr Mark Xue, the landlords' solicitor, at his office.
The tenant recovered possession of the premises, but apparently without direct communication with the landlord or their agent.
On 3 December 2021 the landlords again attempted to lock the tenant out of the premises.
The tenant complains that this was a breach of the interim order, but it seems clear that the landlords would not have received notice of the order from the Tribunal by 3 December 2021.
The tenant does not suggest that it or any person on its behalf had informed the landlords of the orders of the Tribunal. It appears the tenant's possession of the premises was disrupted for about two hours.
On 22 December 2021 the Tribunal extended the interim order subject to two conditions:
"(a) Payment by the applicant to the respondent of the sum of $22,333.32 by 31 December 2021; and
(b) Payment towards rent of $6000 per month from 16 January 2022."
On 20 February 2022 the landlords filed an application for miscellaneous matters seeking to have the interim order set aside on the basis that the tenant had failed to make the payment due on 16 February 2022. On 24 March 2022 the landlords served a further notice of breach and possession.
The tenant vacated the premises on 4 April 2022.
On 8 April 2022 the landlords filed a further application for miscellaneous matters seeking, inter alia, "that the application for interim orders be withdrawn".
On 20 April 2022 the tenants filed an application for miscellaneous matters seeking to withdraw the application for interim orders and seeking orders for compensation in respect of the landlords' taking of possession on 29 November 2021 and 3 December 2021.
On 22 April 2022 the Tribunal made orders:
"1. The interim orders made on 22 December 2021 cease to have effect.
2. The application for interim orders is dismissed pursuant to s 55(1)(a) of the Civil and Administrative Tribunal Act 2013 NSW as the applicant has withdrawn the application.
3. The costs of the application for interim orders are to be costs in the substantive proceeding (file no COM 21/46293).
4. The Tribunal notes that the hearing of the substantive proceeding (file no COM 21/46293) is to take place on 26 May 2022 at 9:15 PM, when all other matters (including costs) in the Lessors' Application for miscellaneous matters filed on 8 April 2022 and in the Lessee's Application for miscellaneous matters filed on 20 April 2022, will be considered and determined by the Tribunal."
It is clear that the claims made by the parties in their respective applications are "retail tenancy claims" within section 70 of the Retail Leases Act and that the Tribunal has jurisdiction to determine those claims pursuant to sections 71 and 72 of the Retail Leases Act.
[2]
Evidence
The tenant relied upon affidavits from Jianjun Li (dated 4 February 2022) and Xiaobing (Becky) Shao (dated 13 December 2021). Mr Li was the tenant's sole director. Ms Shao was the store manager.
The landlords relied upon affidavits from Christine Tuon - one of the landlords (dated 20 December 2021, 7 February 2022 and 14 April 2022) and Yiran Zheng - the landlords' agent (dated 20 December 2021, 7 February 2022 and 14 April 2022).
There was no oral evidence or cross examination. I also received in evidence two business activity statements attached to the tenant's written submissions.
[3]
Issues
Both parties filed written submissions in which they identified what they said were the issues to be determined. The landlords' submissions identified the issues as:
1 Whether the tenant should be given relief against forfeiture;
2 To what extent was the tenant in arrears of rent and how much can the landlords recover;
3 Whether the landlord was entitled to take prescribed actions against the tenant pursuant to Part 2, Section 9 of the Regulations
The tenant's submissions identified 4 issues as follows:
"Issue 1: Whether the Tenant has provided misleading documents to the NSW Government and ATO?
Issue 2: Whether the Tenant is entitled to claim a rent relief under the Code or the Regulations?
Issue 3: Whether the Landlord has the right to take prescribed actions under the Lease pursuant to Part 2, clause 6C of the Regulations?
Issue 4: Whether the Tenant is entitled to a refund of the capital works, pursuant to s 23 of the Retail Leases Act 1994?"
Issue 1 raised by the landlords is no longer relevant.
Issues 2 and 3 raised by each party are effectively the same, that is: Was the tenant entitled to rent relief under the relevant legislation, and if so how is that entitlement to be assessed? As will be seen, issue 1 raised by the tenant is also encompassed within that issue. The different references to the Regulations appear to reflect a difference concerning which Regulation is applicable to the dispute. I refer further to this issue below.
A subordinate issue is whether the Tribunal has any capacity to determine the amount of a rent reduction where the parties have not agreed.
The tenant's issue 4 was not foreshadowed until the tenant filed written submissions shortly before the hearing. Mr Xue, who appeared for the landlords, did not suggest he was not able to deal with this issue. In any event, for reasons I will set out below, I do not consider that the tenant's position is correct.
Both parties also raised a further issue, being claims for damages for breach of the lease. The tenant alleged that the two lockouts were breaches of the lease and caused the tenant loss. The landlords claimed compensation for losses alleged to have been suffered by reason of the early termination of the lease.
[4]
Relevant legislation
During the COVID-19 Pandemic, the Governor of NSW made a series of regulations governing the relationship between landlords and retail tenants. Those regulations imposed restrictions during a period identified as "the prescribed period" upon the capacity of landlords to take "prescribed action" against "impacted tenants".
The applicable legislation during the relevant period until 13 January 2022 was the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW) (the 2021 Regulation), enacted on 14 July 2021, as in force from time to time.
As the 2021 Regulation was originally enacted on 14 July 2021, the "prescribed period" ended on 20 August 2021. However the 2021 Regulation was amended on 13 August 2021 to extend the "prescribed period" to 13 January 2022.
Clause 10 of the 2021 Regulation provided that it would be repealed six months after it commenced, that is 13 January 2022. However, the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2021 (NSW), enacted on 13 December 2021, which commenced on 14 January 2022, provided:
"The Retail and Other Commercial Leases (COVID-19) Regulation 2021 continues to apply, despite the repeal of the regulation, to anything occurring in relation to a lease while the lease was an impacted lease within the meaning of the regulation."
Clause 16 of the Retail and Other Commercial Leases (COVID-19) Regulation 2022 (NSW) (2022 Regulation) repealed both 2021 regulations. However, the 2022 Regulation makes similar provision to the 2021 Regulation in respect of "prescribed action" during the "prescribed period". The prescribed period for the purposes of the 2022 Regulation, as initially enacted, ran from 13 July 2021 to 13 March 2022. However, on 14 March 2022 the "prescribed period" was extended to 30 June 2022.
In my view it is the 2022 Regulation which I must apply in determining these proceedings, however I do not consider that the outcome would differ if it were the 2021 Regulation which applied.
The landlords submitted that clause 13 of the lease, which I have set out above, precluded the tenant from relying upon the 2021 Regulation or the 2022 Regulation to claim reductions in rent or protection from adverse action by the landlords. I do not accept that submission. The clause referred only to the "current Regulations", that is those in force in 2020. It did not purport to exclude reliance upon subsequent regulations. In any event, I consider that, had the clause purported to preclude the tenant from reliance upon subsequently enacted regulations, it would have been void or ineffective. As the majority of the High Court held in Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; 247 CLR 129 at 143-144 [64]:
"It is the policy of the law that contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone. The courts will treat such arrangements as ineffective or void, even in the absence of a breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text."
In my view a contractual provision by which a lessee purports to contract out of any entitlement to rely upon future statutory provisions designed to provide relief to tenants from the consequences of the COVID-19 Pandemic is clearly designed to defeat or circumvent the statutory purpose or policy of those statutory provisions. It is also clear in my view that rights conferred upon tenants by the 2021 Regulation and the 2022 Regulation were conferred in the public interest, that is to prevent the adverse consequences of the failure of businesses whose operations were curtailed by the impact of the pandemic. I do not consider that clause 13 of the lease was effective to prevent the tenant from relying upon the provisions of the 2021 Regulation and the 2022 Regulation.
Section 3 of the 2022 Regulation defines "impacted lease", "prescribed action" and "prescribed breach" as follows:
impacted lease means a commercial lease to which an impacted lessee is a party.
prescribed action means taking action under the provisions of a commercial lease or seeking orders or issuing proceedings in a court or tribunal for any of the following -
(a) eviction of the lessee from premises or land the subject of the commercial lease,
(b) exercising a right of re-entry to premises or land the subject of the commercial lease,
(c) recovery of the premises or land,
(d) distraint of goods,
(e) forfeiture,
(f) damages,
(g) requiring a payment of interest on, or a fee or charge related to, unpaid rent otherwise payable by a lessee,
(h) recovery of the whole or part of a security bond under the commercial lease,
(i) performance of obligations by the lessee or any other person pursuant to a guarantee under the commercial lease,
(j) possession,
(k) termination of the commercial lease,
(l) any other remedy otherwise available to a lessor against a lessee at common law or under the law of this State.
prescribed breach of an impacted lease means -
(a) a failure to pay rent, or
(b) a failure to pay outgoings, or
(c) the business operating under the lease not being open for business during the hours specified in the lease.
"Commercial lease" was defined as a retail shop lease but not a lease entered into after 26 June 2021.
Those terms were defined in the same terms in the 2021 Regulation.
Fundamental to issues 2 and 3 identified by the parties is the question whether the tenant was an "impacted lessee" at relevant times.
"Impacted lessee" is defined in Section 4 of the 2022 Regulation as follows:
A lessee is an impacted lessee if -
(a) the lessee qualifies for 1 or more of the following, or would qualify but for a COVID-19 Disaster Payment made to the lessee by the Commonwealth -
(i) 2021 COVID-19 Micro-business Grant,
(ii) 2021 COVID-19 Business Grant,
(iii) 2021 JobSaver Payment,
(iv) 2022 Small Business Support Program, and
(b) the following turnover in the 2020-2021 financial year was less than $5 million -
(i) if the lessee is a franchisee - the turnover of the business conducted at the premises or land concerned,
(ii) if the lessee is a corporation that is a member of a group - the turnover of the group,
(iii) in any other case - the turnover of the business conducted by the lessee.
The relevant definition under the 2021 Regulation did not differ in any respect relevant for the purposes of these proceedings.
[5]
Was the tenant an "impacted lessee"?
There is no dispute between the parties that the turnover of the tenant was less than $5 million. Nor is there any dispute that the tenant had received the 2021 JobSaver Payment. The landlords disputed that the tenant had qualified for that payment and asserted that the tenant had understated its revenue during the period after the imposition of restrictions.
The parties were agreed that the requirement for qualification for the JobSaver Payment was, as set out in the Guidelines published on the Service NSW website:
3.1 Businesses and not-for-profit organisations impacted by the Public Health Order will be eligible if:
they have an Australian Business Number (ABN) and were operating in New South Wales on 1 June 2021;
they had an aggregated annual turnover of between $75,000 and $250 million (inclusive) for the year ended 30 June 2020;
they experienced a decline in turnover of 30% or more due to the Public Health Order over a minimum 2-week period commencing 26 June 2021, compared to:
the same period in 2019, or
the same period in 2020, or
the 2 weeks immediately prior to any restrictions, 12-25 June 2021 (inclusive);
The Public Health Order referred to in those guidelines was the Public Health (COVID-19 Temporary Movement and Gathering Restrictions) Order 2021.
The tenant relied upon records provided by its accountant which showed a reduction in revenue of 66% over the comparable fortnights in June 2021. The tenant also relied upon its Business Activity Statements for the June and September quarters of 2021, which disclosed a 48% reduction in revenue between those quarters.
I accept Mr Li's evidence, which was not challenged, that the drop in turnover was a consequence of the pandemic lockdown, that is the Public Health Order.
The landlords submitted that the tenant had understated its revenue. It is this assertion by the landlords which gives rise to the tenant's issue 1. The landlords based their submission on the fact that the tenant maintained its food delivery accounts on two third party online restaurant delivery platforms, namely Hungry Panda and EASI. The landlords submitted that those platforms were the "two dominant Chinese food delivery platforms in Sydney" and that "a considerable amount [of] the tenant's business income would be received via WeChat pay, Alipay and by cash". The landlord suggested that those payments were deposited to the tenant's Chinese bank accounts and would not have been included in the tenant's declared turnover.
Mr Li gave evidence that the proceeds of sales on the Hungry Panda and EASI platforms were included in the tenant's declared revenue. Mr Li stated that the tenant did not collect payment for food delivered on those platforms but was "obliged to adhere to the payment methods agreed in the [relevant] merchant agreements", which Mr Li attached to his statement. Those agreements provided that the platforms would collect payment and transfer the balance to the tenant after deduction of commissions and other fees. The agreement with Hungry Panda expressly stated that payment would be made to an Australian bank account. Mr Li stated that the tenant did not have a Chinese bank account.
Mr Li was not challenged on that evidence and the landlords put forward no evidence to contradict it. I have no reason not to accept that evidence. There was no other evidence or basis put before me to suggest that the tenant's revenue as recorded in the documents produced by its accountant was understated. I find that the tenant's revenue was correctly recorded in the documents produced by its accountant. I find that the tenant was an "impacted lessee" within the meaning of both the 2022 Regulation and the 2021 Regulation throughout the period from June 2021 to October 2021. The tenant did not produce evidence to establish that it was an impacted lessee after October 2021.
[6]
Were the landlords entitled to terminate the lease, call upon the guarantee or re-enter the premises?
Clauses 9 and 10 of the 2022 Regulation were as follows:
9 Compulsory mediation
(1) A lessor must not take prescribed action against an impacted lessee on the grounds of a prescribed breach of the impacted lease that has occurred during the prescribed period unless -
(a) the matter has been referred for mediation under the Act, Part 8, Division 2, and the Registrar has certified in writing that the mediation has failed to resolve the dispute, and
(b) if the lessee has requested a renegotiation under section 10, the lessor has complied with that section.
(1A) Section (1)(b) does not apply if the prescribed breach of the impacted lease occurs after 13 March 2022.
(2) Nothing in this section prevents a lessor and impacted lessee agreeing to action, including prescribed action, being taken in relation to the impacted lease without mediation or without complying with section 10.
10 Obligation to renegotiate
(1) For the purposes of section 9, a party to an impacted lease may request that the other parties renegotiate the rent payable under, and other terms of, the impacted lease.
(2) A party to the impacted lease may make a second or subsequent request under subsection (1), but, unless the parties otherwise agree, an impacted lessee may make a second or subsequent request only if the request -
(a) is made during the prescribed period, and
(b) does not relate to rent or outgoings for a period for which the rent or outgoings have already been reduced, waived or deferred following a renegotiation under this section unless the lessee ceases to be an impacted lessee during the period.
(3) A party to an impacted lease must, if requested under this section -
(a) renegotiate in good faith the rent payable under, and other terms of, the impacted lease, and
(b) commence renegotiations within -
(i) 14 days of receiving the request, or
(ii) another period agreed to by the parties.
(4) The parties must renegotiate the rent payable under, and other terms of, the impacted lease taking into consideration -
(a) the economic impacts of the COVID-19 pandemic, and
(b) the leasing principles set out in the National Code of Conduct.
(5) When renegotiating the rent payable -
(a) a grant or payment referred to in section 4(1)(a) that is made to a lessee must be treated as if it were part of the trade or turnover of the lessee, and
(b) a lessor is not required to reduce rent for periods when the lessee is not an impacted lessee, and
(c) a lessor is entitled to provide that a negotiated rent reduction will not apply at times during which the lessee ceases to be an impacted lessee.
(6) For the purposes of subsection (5)(b) and (c), after 30 November 2021, a lessee is taken to be an impacted lessee if -
(a) the lessee would have qualified for 1 of the following were it still to be available -
(i) 2021 COVID-19 Micro-business Grant,
(ii) 2021 JobSaver Payment, and
(b) the following turnover in relation to the lessee in the 2020-2021 financial year was less than $5 million -
(i) if the lessee is a franchisee - the turnover of the business conducted at the premises or land concerned,
(ii) if the lessee is a corporation that is a member of a group - the turnover of the group,
(iii) otherwise - the turnover of the business conducted by the lessee.
(7) If the impacted lessee does not comply with subsections (3) or (4) or section 7, the lessor is taken to have complied with this section.
The comparable provisions in the 2021 Regulation were clauses 6C and 6D.
I am satisfied that the actions taken by the landlords in issuing notices of termination, calling upon the bank guarantee and twice re-entering the premises constituted prescribed action for the purposes of the 2022 Regulation.
I also accept that the parties had attended a mediation. That they did so is established by a certificate signed by the Registrar of Retail Tenancies. I do not consider that the Tribunal can go behind that certificate. As the Tribunal is not permitted to receive evidence of events occurring at the mediation, there can be no other basis upon which the Tribunal could assess whether the parties did participate in the mediation.
The next question for consideration is whether the tenant sought a renegotiation of the rent and whether the landlord negotiated in good faith.
It does not appear to be disputed that the tenant did effectively seek a renegotiation.
The tenant submits that the landlords did not negotiate in good faith because they sought to impose an unreasonable condition upon the tenant, that is the condition requiring the tenant to waive any entitlement to rent reductions under future Covid-19 relief legislation.
I am not persuaded that the landlords' request for that condition constituted a failure to negotiate in good faith. I doubt that the condition would have been enforceable. In my view it has not been shown that the landlord was not genuinely seeking to reach a solution. As noted above, I have not considered any evidence of what happened at the mediation.
The requirement of the regulation is that landlord negotiate in good faith. The meaning of the term "in good faith" has been discussed in other contexts. See Timwin Construction v Facade Innovations [2005] NSWSC 548 at [38] and Industry Funds Management (Nominees 2) Pty Limited v James Nicholas Panagopoulos and Anor [2013] NSWSC 868 at [35] - [39] and especially [38].
In the latter case, Sackar J stated:
35 Mr Panagopoulos contends that the consent judgments were made against good faith. He does not rely on any irregularity or illegality. The meaning of the expression "against good faith" has received consideration in a number of cases.
36 In Coles v Burke (1987) 10 NSWLR 429, Kirby P (with whom Samuels and McHugh JJA agreed) said (at 437):
The genus which is involved in the phrase "irregularly, illegally or against good faith" appears to me to be misconduct or dishonourable conduct of the person who procured the judgment which it is suggested undermines the authority of that judgment warranting the exceptional course for which r 12A provides. Here, there was no such lack of good faith on the part of the claimants. The signing of the judgment was made in accordance with the authority of the order earlier consented to and after a warning had been given by the letter to which I have referred. It is perhaps undesirable, in the modern practice of the legal profession (where much give and take is required) that judgment should be signed in this way without a final telephone call or other warning. However, the failure to give such a final and further warning could not, on any view, amount to a lack of good faith. Therefore, r 12A, likewise, has no application to these circumstances.
37 In Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110, the Court of Appeal (Kirby P, Clarke and Handley JJA), in a joint judgment, considered whether certain conduct was "against good faith". The court observed (at 113-114):
In Cash v Wells (1830) 1 B & Ad 375; 109 ER 826, the Court of Kings Bench held that a default judgment signed contrary to the terms of a contract between the parties was "against good faith" and we see no reason why in this day and age the breach of a promissory representation should be treated any differently for this purpose: compare Legione v Hateley (1983) 152 CLR 406 at 421-423.
It does not matter that the legal practitioner who acted to obtain the judgment or order was not aware at the time that his or her conduct was contrary to an earlier promise or representation made by or on behalf of the client. It would still be contrary to good faith for a client to attempt to retain the benefit of an order innocently obtained by his legal practitioner if it had been obtained contrary to a promise or representation binding on the client.
Equity granted relief in cases of innocent misrepresentation because it was judged to be unconscionable for the representor to attempt to retain the benefit of a contract obtained however innocently through his misrepresentation once the truth was known. Similarly equity grants relief by way of rescission or rectification in respect of contracts entered into by one party under the influence of a material mistake if the other party "knows or ought to know" of that mistake: see Taylor v Johnson (1983) 151 CLR 422 at 432-433. Equity judged that it was unconscionable for one party to take advantage of an obvious and material mistake of another. This principle was applied by Finlay J in Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528 in setting aside a settlement of litigation.
38 The meaning of "against good faith" was further considered in Kendell v Carnegie (2006) 68 NSWLR 193 where Bryson JA (with whom Hodgson and McColl JJA agreed), after quoting from Coles v Burke and Roach v B & W Steel Pty Ltd and reviewing other relevant authorities, added (at [60]):
[60] There is not and could not, I would think, ever be an exhaustive judicial definition of what is against good faith; only very broad limits are set by proceeding by analogy from circumstances in which judicial remedies are based on good faith, unconscionability, or other concepts closely related to good faith. I would include the passage cited from Taylor v Johnson among the many conceivably available sources from which to proceed by analogy. "Against good faith" is an expression which requires the impeachment of the intention or behaviour of the person whose good faith is impugned.
39 It may be capable of being asserted that a judgment was procured irregularly, illegally or against good faith, which if it were the fact would clearly undermine the authority of the judgment warranting the setting aside of it. Clearly if a person is deliberately tricked into signing or entering a consent judgment, that would be something which, in accordance with r 36.15, would be against good faith. But if one party who consents to the judgment makes a mistake and the other side simply behaves innocently then there is no occasion to set aside a judgment in those circumstances on the basis of an absence of good faith (Kendall v Carnegie at [53]).
Mr Wong, solicitor, who appeared for the tenant, submitted that, because the requirement that the tenant waive its rights under future legislation was objectively unreasonable, the landlords, in seeking to impose that condition, were therefore not negotiating in good faith.
I am not persuaded that it is sufficient to establish lack of good faith in negotiations to show that a party sought to include in a proposed agreement a term which was objectively unreasonable. As the passages from the authorities cited by Sackar J suggest, an absence of good faith requires a subjective intention to take unconscionable advantage.
To conclude that the landlords did not negotiate in good faith, I would have to conclude that the landlords deliberately sought to impose upon the tenant a condition which they knew was unreasonable or the tenant could not accept. If such a submission were to be maintained by the tenant, it was incumbent upon the tenant to put that proposition to Ms Tuon. However, the tenant did not seek to cross-examine Ms Tuon. No concession was made by either party that the usual rule requiring adverse allegations to be put to a witness (commonly referred to as the rule in Browne v Dunn (1894) 6 R 67) would not be applicable in these proceedings. "This rule has been treated as a matter of natural justice in tribunals where oral evidence is received and cross-examination allowed." S & G Homes Pty Ltd t/as Pavilion Homes v Owen (No.2) [2016] NSWCATAP 218 at [38], citing Forbes, Justice in Tribunals 4th edition at [12.49]. (See also St Joseph's Hospital Ltd v Correy (No 2) [2009] NSWADTAP 58 at [19] and Frugtniet and Anor v Commissioner for Fair Trading; Commissioner for Fair Trading v Travel Action Pty Ltd and Anor (GD) [2004] NSWADTAP 12 at [80] - [83].)
I am satisfied that the landlords were entitled to undertake "prescribed action" both in November and December 2021 and in 2022. That prescribed action included recovering possession, calling on the bank guarantee and bringing proceedings to recover arrears of rent.
The next issue which arises is whether, in circumstances where the parties have not agreed upon a rent reduction, the Tribunal is able to consider the provisions of the Code in determining what rent is owing by the tenant.
Clause 15 of the 2022 Regulation provides:
15 Tribunal and court consideration of National Code of Conduct leasing principles
(1) The Tribunal or a court, when considering whether to make a decision or order relating to any of the following, must consider the leasing principles set out in the National Code of Conduct -
(a) the recovery of possession of premises or land from an impacted lessee,
(b) the termination of an impacted lease by a lessor,
(c) the exercise or enforcement of another right of a lessor under an impacted lease.
(2) This section does not apply if -
(a) the decision or order is sought in relation to a prescribed action on the grounds of a prescribed breach, and
(b) the lessor, if requested by the lessee, would not be obliged to renegotiate under section 10 in relation to the prescribed action.
Example -
if the prescribed action is for a breach of an impacted lease occurring after 13 March 2022
The leasing principles set out in the National Code of Conduct included:
1 Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
2 Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.
3 Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under "definitions," below) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant's trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
4 Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant's capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord's financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.
5 Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
Were I considering the operation of clause 15 of the Regulation, unconstrained by authority, I would have concluded that, if it is to have any operation, it permits the Tribunal to have regard to the rent reductions required by the Code of Conduct Principles in considering an application for an order for the payment of rental arrears. The alternative would be that, provided that the landlord negotiates in good faith, if no agreement is reached in negotiations, the landlord would be entitled to bring proceedings in the Tribunal to recover the whole rent payable under the lease, regardless of the impact of the pandemic upon the tenant's revenue, and the tenant would not be entitled to any reduction in rent, whether by waiver or deferral. Such an interpretation would place tenants in an invidious position in negotiations in that they would be obliged to accept whatever offer a landlord was prepared to make.
In Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 Robb J stated, at [79] - [93]:
79 It is not entirely clear what is to happen if the parties to a lease to which the COVID-19 regime applies do not succeed in renegotiating the lease, or a party refuses to enter into the renegotiation, or does not do so in good faith. Clause 8(1) of the COVID-19 Regulation clearly states that Part 8 of the Retail Leases Act extends to an impacted commercial lease dispute, as if it were a retail tenancy dispute within the meaning of that part.
80 Clause 8(2) defines "impacted commercial lease dispute" as meaning any dispute concerning the liabilities or obligations under a commercial lease which concern circumstances occurring during the prescribed period "and includes a dispute regarding a renegotiation (or a failure to take part in a renegotiation) of rent payable under the commercial lease under clause 7".
81 This inclusive definition, which only refers to disputes concerning "rent payable" does not, in my view, exclude from impacted commercial lease disputes renegotiation of "other terms of the commercial lease" required by clause 7(2) and (3).
82 Section 66(1) of the Retail Leases Act permits any party to an impacted commercial lease dispute to refer the dispute to the Registrar of Retail Tenancy Disputes (the Registrar) for mediation of the dispute. Section 68 has the effect that the dispute "may not be the subject of proceedings before any court unless and until the Registrar has certified in writing that mediation under this Part has failed to resolve the dispute or matter or the court is otherwise satisfied that mediation under this Part is unlikely to resolve the dispute or matter". That section does not apply to proceedings before a court for an order in the nature of an injunction: s 68(3).
83 Division 3 of Part 8 of the Retail Leases Act vests jurisdiction in the NSW Civil and Administrative Tribunal (the Tribunal) to resolve certain retail tenancy claims. The meaning of "retail tenancy claim" is set out in s 70, by means of a list of claims "in connection with a liability or obligation with which a retail tenancy dispute is concerned". I will not set out the list of claims, but it may be observed that the consequences of an unsuccessful renegotiation under clause 7 of the COVID-19 Regulation, or the failure of parties to participate or to participate in good faith, do not fit neatly into the claims listed. Perhaps the consequences may fit into: "(ii) a claim for relief from payment of a specified sum of money"; or "(viii) a claim for the rectification of the lease". Given the technical meaning of rectification in equity, that concept would have to be considerably stretched by the Tribunal to encompass the compulsory renegotiation of the terms of a commercial lease in the manner required by clause 7 of the COVID-19 Regulation.
84 Section 72AB of the Retail Leases Act sets out the power of the Tribunal to order rectification of a lease in a manner that is generally consistent with the concept of rectification in equity, insofar as the power concerns the correction of an error or omission, or giving effect to the intention of the parties when the lease was entered into. Consequently, the Tribunal's power to rectify a lease will not extend to correcting a failed renegotiation under clause 7 of the COVID-19 Regulation.
85 The powers of the Tribunal relating to retail tenancy claims are set out in s 72 of the Retail Leases Act. The powers effectively mirror the description of the individual types of retail tenancy claim in s 70, with the result that it is not clear that the Tribunal is given power to effectively resolve disputes concerning the failure of the renegotiation process required by clause 7 of the COVID-19 Regulation.
86 Sections 75 to 76A of the Retail Leases Act contain provisions for the removal of retail tenancy disputes from courts to the Tribunal, what happens when there is a jurisdictional overlap between a court and the Tribunal, and the removal of proceedings instituted in the Tribunal to the Supreme Court.
87 It is not necessary for the resolution of the present dispute for the Court to engage in a comprehensive analysis of the consequences of clause 8 of the COVID-19 Regulation, insofar as it has the effect that a dispute that arises out of the failure of a renegotiation conducted under clause 7 is included in the dispute resolution Part of the Retail Leases Act. As I have said, the effect of clause 8 is not entirely clear.
It is still an issue that requires some consideration however, as the determination of the conditions that the Court should impose when making an order for relief against forfeiture of a lease may be dependent on the forecast that this Court is able to make as to what will happen when the parties to a lease respond to a request for a renegotiation made by a party under clause 7(2) of the COVID-19 Regulation for the renegotiation of the rent payable under, or any other terms of, the lease.
89 The following may be said. First, it is for the parties in the first instance to comply with the obligations imposed upon them by clause 7 of the COVID-19 Regulation. The Court has no power to decide an appropriate outcome of the renegotiation, before the parties have had the opportunity to conduct the renegotiation themselves. The fact that the Court may be required, as a practical matter, to contemplate the possible outcome of a renegotiation that conforms to the requirements of clause 7, for the purpose of making appropriate orders for relief against forfeiture of a lease, do not empower the Court to determine the outcome of the renegotiation on the run, as it were. It seems at least to be clear that, if the renegotiation required by clause 7 fails, a party has a right to refer the dispute to mediation by the Registrar under the Retail Leases Act, and proceedings cannot be commenced in a court until the Registrar has certified that the mediation has failed, or the court is otherwise satisfied that the mediation it is unlikely to resolve the dispute. It is at least doubtful that the Tribunal has the necessary powers to resolve a dispute arising out of a failed renegotiation, even though it is possible that the drafters of clause 8 of the COVID-19 Regulation intended that disputes could be resolved in the Tribunal.
90 It is not necessary for the Court to decide now the circumstances in which this or any other Court might have jurisdiction to resolve any dispute arising out of a failed renegotiation under clause 7 of the COVID-19 Regulation. This Court is not given any specific power to do so, and it does not fit comfortably within this Court's historical jurisdiction that it be required remake contracts on the basis of commercial considerations, although it must be acknowledged that it may do so to some extent under the Contracts Review Act 1980 (NSW). How this problem should be resolved must be left for the future when a case comes before the Court that requires its resolution.
91 A curious aspect of the relationship between the Code and the COVID-19 Regulation is that the Code, under the heading "Binding Mediation", provides: "Where landlords and tenants cannot reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter should be referred and subjected (by either party) to applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation, including Small Business Commissioners/Champions/Ombudsman where applicable" (emphasis added). The COVID-19 regime in New South Wales does not provide for binding mediation. That is also true for the Conveyancing COVID-19 Regulation, as clause 6 thereof only provides: "Lessor must not do any one or more of the following unless and until the Small Business Commissioner has certified in writing that mediation offered to be conducted by the Small Business Commissioner has failed to resolve the dispute and given reasons for the failure…" (emphasis added).
Generally, it is not clear how failures in the required renegotiation process are to be resolved.
92 The fact sheet published by Service NSW called "NSW implementation of the National Code of Conduct for Commercial Leases" confirms this conclusion. It includes the following statement:
…
The mediator cannot impose any outcome but, if a mediation is successful, parties can enter a binding deed.
If commercial landlords breach their obligations under the NSW Regulation, the tenant must seek mediation in the first instance by contacting Service NSW, and then through the NSW Small Business Commission.
Where the landlord and tenant are unable to reach an agreement through the NSW Small Business Commission, the parties will be able to pursue action through the NSW Civil and Administrative Tribunal (NCAT), or the civil courts.
For urgent matters involving a threatened or actual eviction, interim arrangements can be sought through NCAT or the courts.
93 Service NSW is focusing on the effect of the Conveyancing COVID-19 Regulation in this fact sheet. It is not very helpful in identifying the powers of the Tribunal or the courts in respect of failed renegotiations.
In Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774 Robb J stated at [141]-[142]:
[141] In its submissions, Nolde relied on the observations that I made in Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 at [158] to the effect that the COVID-19 regime does not empower the Court to decide the appropriate rent to be paid under an impacted lease, if the parties are unable to renegotiate the lease and the dispute is not able to be resolved by mediation. I accept that there may be cases that must be addressed by the courts where this question arises in future. The difficulty is that, although it may appear to be a mathematical exercise to determine the appropriate reduction in rent by comparing the turnover figures for the current period with the equivalent figures for the 12 months prior, no principles have been established for determining the appropriate split between the waiver and deferral of rent, the appropriate period to allow the lessee to catch up on deferred rent, and whether an extension of the lease should be granted. For the reasons given above, I do not think that this question arises in the present case. That is because a failure by the lessor to comply with the requirements of clause 7 of any version of the COVID-19 Regulation will lead to a permanent prohibition on the lessor taking any prescribed action against the lessee for non-payment of rent while the lessee was an impacted lessee. The position may be different in cases where the lessor complies with clause 7 in good faith, but the parties to the impacted lease are unable to reach an agreement.
[142] It is also unnecessary in this case for the Court to consider whether the NSW Civil and Administrative Tribunal would be empowered by s 72(1)(a) and (b) of the Retail Leases Act to determine the rent payable by an impacted lessee during the prescribed period.
I note that in at least one case the Tribunal has made orders determining the appropriate reduction of rent required under the Code of Conduct Principles, although the source of such power was not discussed and its existence rather seems to be have been assumed: see Miramax Pty Ltd v Mang Yu Lo [2021] NSWCATCD 12.
In Swiss Concept Australia Pty Ltd v Diamondlite Pty Ltd [2021] NSWCATCD 106, I undertook the assessment of the rent payable during the prescribed period under earlier regulations in circumstances where the parties had failed to reach agreement by negotiation. However, in that case the parties had agreed that the Tribunal should undertake the assessment, and it was not necessary to determine whether the Tribunal had power to make such an assessment in the absence of such agreement.
In Jamaican Coffee Kitchen Pty Ltd trading as Dushan & Shelby Trust v M20 Pty Ltd [2022] NSWCATAP 203 at [249] - [250] the Appeal Panel of this Tribunal referred to the decision of Robb J in Sneakerboy (No 2) and set out paragraphs [83] - [90] of that decision which I have extracted above.
The Appeal Panel also quoted paragraphs [158] - [159] of that decision in which Robb J stated"
[158] However, for the reasons that I have given above, the Court does not have jurisdiction to make orders varying the terms of commercial leases that are subject to the COVID-19 regime. It is for the parties to renegotiate the terms, and in the absence of agreement a dissatisfied party must refer the dispute to mediation by the Registrar. Thereafter, it may be that the Tribunal or the Court has some jurisdiction to resolve the dispute, but that is not a question that is in issue in these proceedings; and in any event, the course to be taken would depend upon presently unknown future circumstances.
[159] The short minutes of order proposed by the Lessors simply includes an order that within seven days of the Court making the orders as a result of these reasons, the parties meet for the purpose of attempting to renegotiate in good faith the terms of the Lease pursuant to the COVID-19 Regulation. That is the only type of order that the Court can make in the present circumstances.
The Appeal Panel continued (at [251] - [263]):
251 In NTT [NTT Australia Digital Pty Ltd v Cover Genius Services Pty Ltd [2020] NSWSC 1378; (2020) 19 BPR 40-711] Ward CJ in Eq considered Schedule 5 ("Commercial leases - COVID-19 pandemic special provisions") to the Conveyancing (General) Regulation 2018 (NSW). Her Honour at [200]-[225] outlined the statutory regime and the decisions of Robb J in Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996 and Sneakerboy (No 2). After setting out the parties' submissions, Her Honour at [298] decided that she would not permit the tenant to rely on the COVID-19 Regulation.
252 In First Renewable [First Renewable Pty Ltd v Nastevski [2020] NSWSC 1508] at [22] Lindsay J observed:
"[22] I do not exclude the possibility that, in an appropriate case, the Court might grant, or withhold, discretionary relief or impose conditions (for example, upon an exercise of equitable jurisdiction or jurisdiction under section 129 or 130 of the Conveyancing Act) by reference to considerations of hardship identified by reference to the COVID legislation generally or, more particularly, the "leasing principles" and other provisions set forth in the "National Cabinet Mandatory Code": cf, Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No. 2) [2020] NSWSC 1141 at [97], [100] and [102]. However, care needs to be taken not to overreach the pragmatism manifested by the COVID legislation. Although the legislation invites a pragmatic approach to some questions, and encourages compromise solutions, at core it governs rights and obligations."
253 In Ryals [Re Ryals Hotels Pty Ltd [2020] NSWSC 1906] Black J dismissed a winding up application. His Honour observed at [28] "there may be uncertainty as to the extent of the consequences of non-compliance with a lessor's obligation to re-negotiate the lease, or to do so in good faith under the COVID-19 Regulation."
254 In Raju [Robin Raju & Associates Pty Ltd v Kaplan Investments Pty Ltd [2021] NSWCATCD 90] at [55] the Tribunal held it did not have jurisdiction to grant relief under the RL Act or COVID-19 Regulation because it was not satisfied that the tenant was "an impacted lessee".
255 In Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774 (Darzi) at [142]-[143] Robb J made the following observations as to the consequences of the breach of the COVID-19 Regulation:
"[142] In its submissions, Nolde relied on the observations that I made in Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 at [158] to the effect that the COVID-19 regime does not empower the Court to decide the appropriate rent to be paid under an impacted lease, if the parties are unable to renegotiate the lease and the dispute is not able to be resolved by mediation. I accept that there may be cases that must be addressed by the courts where this question arises in future. The difficulty is that, although it may appear to be a mathematical exercise to determine the appropriate reduction in rent by comparing the turnover figures for the current period with the equivalent figures for the 12 months prior, no principles have been established for determining the appropriate split between the waiver and deferral of rent, the appropriate period to allow the lessee to catch up on deferred rent, and whether an extension of the lease should be granted. For the reasons given above, I do not think that this question arises in the present case. That is because a failure by the lessor to comply with the requirements of clause 7 of any version of the COVID-19 Regulation will lead to a permanent prohibition on the lessor taking any prescribed action against the lessee for non-payment of rent while the lessee was an impacted lessee. The position may be different in cases where the lessor complies with clause 7 in good faith, but the parties to the impacted lease are unable to reach an agreement.
[143] It is also unnecessary in this case for the Court to consider whether the NSW Civil and Administrative Tribunal would be empowered by s 72(1)(a) and (b) of the Retail Leases Act to determine the rent payable by an impacted lessee during the prescribed period: see Nolde's closing submissions pars 15 and 16."
256 In Darzi Group Pty Ltd v Nolde Pty Ltd (No 2) [2022] NSWSC 643 (Darzi (No 2)) at [45] Robb J referred to the uncertainty as to the power of the Tribunal to determine the amount of the rent reduction that should be made or the period over which deferred rent should be paid.
257 We are satisfied that the purported reliance by PC on the COVID-19 (No 3) Regulation was a mistake and that it intended to refer to the COVID-19 Regulation which was in force between 24 April 2020 and 23 October 2020.
258 In Manly Council v Malouf (2004) 61 NSWLR 394; [2004] NSWCA 299 (Manly Council) at [74] Tobias JA held the objective of the RL Act was to protect tenants, the RL Act was "beneficial legislation" and accordingly it should not be construed narrowly (with Mason P at [1] agreeing).
259 In Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 at 638; [1984] HCA 55 (Khoury) Mason, Brennan, Deane and Dawson JJ made the following observation in relation to s 18 of the Insurance Act 1902 (NSW):
"Section 18 is remedial in character and its language should be construed so as to give the most complete remedy which is consistent "with the actual language employed" and to which its words "are fairly open"".
260 Notwithstanding the principles in Manly Council at [74] and Khoury at 638, we are not satisfied that the Tribunal has power under s 72(1) of the RL Act to effectively resolve disputes concerning the failure of the renegotiation process required by cl 7 of the COVID-19 Regulation in relation to the payment of rent.
261 A successful renegotiation of a lease in accordance with leasing principles 3, 4 and 5 of the National Code of Conduct will result in the variation of the lease providing for the waiver of rent and the deferral of rent.
262 Where, however, there is a failed renegotiation of a lease or a breach by a landlord of the obligation to renegotiate a lease, then the Tribunal has no power to vary the terms of a lease. The Tribunal may make orders under s 72(1)(a) and (b) of the RL Act that a party to the proceedings pay money to a person specified in the order and that a specified amount of money is not due or owing by a party to the proceedings to a specified person. We accept that an order under s 72(1)(b) of the RL Act could give effect to an agreed or determined waiver of rent and that orders under s 72(1)(a) and (b) of the RL Act would give effect to an agreed or determined deferral of rent.
263 In the absence of principles based in the relieving statutory provisions for determining the appropriate split between the waiver and deferral of rent, the appropriate period to allow the lessee to catch up on deferred rent and whether an extension of the lease should be granted as recognised in Darzi at [142], there is no basis whereby the Tribunal can determine to the split between the amount of rent to be waived and deferred, and the period of the amortisation of the deferred rent. We agree for the reasons in Sneakerboy (No 2) at [84] that s 72A of the RL Act does not confer power on the Tribunal to waive or defer rent where there is a failed renegotiation under cl 7 of the COVID-19 Regulation.
I am bound to follow that decision, which, in my view, clearly holds that it is not open to the Tribunal to determine the amount payable by an impacted tenant where the parties have failed to reach agreement on the appropriate level of reduction, the split between waiver and deferral of rent or the time allowed to the tenant to pay deferred rent. It may be that where, as occurred in Darzi Group v Nolde [2021] NSWSC 774 (at [128] - [131]), the tenant has made payments of rent in an amount calculated to reflect the Code of Conduct Principles, the Tribunal might decline to make an order permitting the landlord to take possession on the basis of the non-payment of rent, however that is not the position here.
Accordingly, I am bound to give judgment in favour of the landlords for the full amount of rent payable under the lease up to the date of termination.
The landlords calculated the rent owing up to the date when the tenant vacated the premises as $66,416.62. The tenant has not disputed that calculation. Accordingly, I will order the tenant to pay the landlords arrears of rent in that amount.
The landlords also sought payment of outgoings in the amounts of: $4,725.54 in respect of water rates and usage; $10,450.68 in respect of strata levies; $868 in respect of council rates; and $920 in respect of the parking space levy. The landlords included in their evidence supporting documentation in respect of each of these items.
I am satisfied that the tenant had, by the date of termination of the lease, accrued liability for the amounts claimed by the landlords in respect of water rates and usage, council rates and the parking space levy. The invoice for strata levies included in the landlords' evidence was not due until 1 May 2022, that is after the termination of the lease. The landlords' claim in respect of the strata levies must be addressed as part of their claim for compensation for breach of contract. I will order the tenant to pay the landlords the sum of $6,513.54 in respect of outgoings falling due before the termination of the lease.
The landlords also seek interest on the arrears of rent and unpaid outgoings. Pursuant to clause 3(g) and clause 1(g) of the schedule to the lease, the tenant is obliged to pay interest at 12% per annum on amounts outstanding under the lease. The parties did not provide any calculation of the interest payable. I will direct the landlords to file a calculation of the claim to interest, which I will give the tenant an opportunity to dispute or correct, and I will determine the amount owing in respect of interest on the basis of the parties' calculations.
Against the possibility that my conclusion, that the Tribunal does not have power to determine the rent payable in accordance with the Code of Conduct Principles, is incorrect, I will undertake that task. The presumptive position arising under the Code of Conduct Principles is that the rent would be reduced in proportion to the tenant's reduction in turnover and that the reduction would be split evenly between waiver and deferral. The Principles (clause 4) suggest that the presumptive position might be varied by reference to the parties' respective financial capacity.
The landlords tendered evidence, albeit very scant, that the landlords required the rental payments to meet their obligations under a mortgage. In my view, however, that evidence was not sufficient to displace the presumption in the Code of Conduct Principles that the reduction of rent is to be proportionate to the tenant's reduction in turnover and that 50% of the reduction in rent is to be deferred and the balance waived.
The business activity statement submitted by the tenant discloses a 48% reduction in revenue between the June and September quarters in 2021. That suggests that there should be a 24% waiver and a 24% deferral for the September quarter of 2021. The tenant did not provide any evidence of any reduction in turnover beyond September 2021. I also note the landlords' offer of a 40% waiver and 8% deferral of rent otherwise payable up to 31 October 2022. That offer was made on the basis that there would be no reduction after that date.
As the tenant did not tender any evidence to justify any reduction in rent after 31 October 2021, I could not determine any reduction in rent after that date.
Were I empowered to do so, I would therefore find that it is appropriate to require the tenant to pay the landlords and the landlords to accept the reduction in rent to which the parties agreed in principle in 2021, that is a waiver of 40% of rent due from 26 June to 31 October 2021 and the deferral of a further 8% of that rent. The parties did not provide calculations of the rent payable on that basis and, in the circumstances, it is not necessary for me to seek to do the calculation myself.
[7]
The tenant's issue 4 - the tenant's liability to pay the portion of strata levies allocated to the capital works fund account.
The tenant submitted that, pursuant to s 23 of the Retail Leases Act, the landlords were not permitted to recover from the tenant, as outgoings, the portion of the strata levies payable to the owners corporation of the strata scheme of which the premises form part which is allocated to the Capital Works Fund Account of the strata scheme.
Section 23 of the Retail Leases Act provides:
23 Capital costs not recoverable from lessee
A provision in a retail shop lease is void to the extent that it requires the lessee to pay any amount in respect of the capital costs of the building in which the retail shop is located or (in the case of a retail shop in a retail shopping centre) of any building in the retail shopping centre or any areas used in association with any such building.
The tenant submitted:
"This means that the capital works fund could not be charged to the lessee"
In my view the tenant's submissions concerning this issue involve a misunderstanding of the term "capital costs". That term does not equate to "capital works" as used in the Strata Schemes Management Act 2015 (NSW) (SSMA). Section 74 of the SSMA requires an owners corporation to establish a capital works fund and pay into it "amounts levied on, and paid by, owners for payment into the fund." Section 74(4) limits the purposes for which moneys may be paid from the capital works fund. Those purposes include "payments of the kind for which estimates have been made under section 79(2)".
Section 79(2) of the SSMA provides:
2) An owners corporation must, at each annual general meeting, estimate how much money it will need to credit to its capital works fund for actual and expected expenditure -
(a) for painting or repainting any part of the common property which is a building or other structure, and
(b) to acquire personal property, and
(c) to renew or replace personal property, and
(d) to renew or replace fixtures and fittings that are part of the common property, and
(e) to replace or repair the common property, and
(f) to meet other expenses of a capital nature.
Note -
Expenses of a capital nature would include expenses in relation to major repairs or improvements to the common property or personal property of the owners corporation, such as replacement of roofing, guttering or fences and the like.
Section 81(1) of the SSMA requires the owners corporation to "determine the amounts to be levied as a contribution to the administrative fund and the capital works fund to raise the amounts estimated as needing to be credited to those funds."
It is thus clear that the amounts levied for the capital works fund will include the funds necessary for the carrying out of repairs.
The term "capital costs" in the Retail Leases Act clearly does not include repairs. The Act contemplates that a lessor may require the lessee to pay or contribute to "outgoings". Section 22 makes express provision regarding the circumstances in which a lessee may be liable to pay amounts in respect of "outgoings".
Section 3A of the Act defines the term "outgoings". That definition includes "a lessor's outgoings on account of expenses attributable to the management, operation, maintenance or repair of the retail shop building or land". Thus, it cannot be said that amounts levied by an owners corporation as contributions to the capital works fund are necessarily for the purposes of capital improvements.
I am not persuaded on the evidence before me that the amounts levied by the owners corporation for the capital works fund, or any part of those amounts, were "capital costs", recovery of which was prohibited pursuant to section 23 of the Retail Leases Act.
The tenant's claim to reimbursement of payments made in respect of capital works fund levies must be dismissed.
[8]
Compensation Issues
I am not persuaded that the lockout by the landlords on 29 November 2021 was a breach of the lease by the landlords. For the reasons outlined above, the landlords were entitled to terminate the lease and retake possession of the premises on that date. In any event, the tenant led only the sparsest evidence of loss. Whilst an abatement of rent for the period that the tenant was excluded from the premises would have been appropriate if the lockout had been a breach of the lease, the only other evidence of damage suffered by the tenant was a bare assertion by Ms Shao that the lockout had caused the tenant to lose three and a half days of trading and had caused fresh produce spoilage in the sum of $2,276.40. No corroboration, documentation, or further detail was provided.
Similar considerations apply to the second lockout. Although that lockout was contrary to orders of the Tribunal, I am not satisfied that the landlords were aware of those orders at the time of the lockout. Ms Shao stated that she had lost two hours of trading and that the tenant had suffered "reputational damage". Again, no documentation or further detail was provided.
The landlords' claim for compensation for breach of the lease suffers from similar difficulties.
Although I accept that the tenant was in breach of the lease and the landlords were entitled to terminate the lease and recover damages for breach of the lease, the landlords led no evidence of their prospects of re-letting the premises or the costs of re-letting the premises.
I accept that it was likely to be at least two months before the landlords were able to re-let the premises and, doing the best I can, I consider that the landlords are entitled to compensation equivalent to two months rent to allow for that delay. I also consider that the landlords lost the opportunity to recover as outgoings, either from the tenant or from a replacement tenant, the strata levies payable on 1 May 2022. However, I am unable on the evidence before me to conclude that the landlords have suffered any greater loss. Accordingly, I will award the landlords damages for breach of the lease in the amounts of $23,833.32 (two months rent) and $10,450.68 (strata levies) that is $34,284.
[9]
Costs
The parties agreed that the question of costs should be determined on the basis of written submissions. I note the terms of the Tribunal's orders of 22 April 2022 which are set out above. The submissions filed by the parties should address all issues of costs arising in the proceedings and also the question whether the issues of costs may be determined on the basis of the written submissions and without a further hearing.
Accordingly, my orders are:
In proceedings COM 21/46293
1. Popo Big Bowl Noodles Pty Ltd (the lessee) is to pay Christine Tuon and Charles Tsong Ma (the lessors) arrears of rent and outgoings in the amount of $72,930.16 immediately.
2. The lessors may file and serve within 14 days of publication of this decision a document incorporating, and explaining in detail, the calculation of the interest claimed by the lessors on the arrears outstanding from time to time.
3. If the lessee disputes the lessors' calculations filed in accordance with order 2, the lessee may file a document setting out its own calculation, within a further 14 days.
4. The lessee is to pay the lessors compensation for breach of the lease in the amount of $34,284 immediately.
In proceedings COM 21/49263
1. The application is dismissed.
In both proceedings
1. Either party may file and serve written submissions within 14 days of the date of this decision seeking orders in relation to the costs of the proceedings, including the costs of the applications for miscellaneous matters filed by the lessors on 8 April 2022 and by the lessee on 20 April 2022.
2. If either party files submissions in accordance with order (6), the other party may file submissions in response within a further 14 days.
3. Any submissions filed in accordance with orders (6) and (7) must address the question whether the question of costs may be determined on the papers and without a hearing pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW).
[10]
I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.
Registrar
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
[11]
Amendments
13 September 2023 - Formatting amendments.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 13 September 2023
Legislation Cited (9)
Regulation 2021(NSW)
Retail and Other Commercial Leases (COVID-19) Regulation 2022(NSW)
Retail and Other Commercial Leases (COVID-19) Regulation 2021(NSW)
Lo [2021] NSWCATCD 12
S & G Homes Pty Ltd t/as Pavilion Homes v Owen (No.2) [2016] NSWCATAP 218
Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141
St Joseph's Hospital Ltd v Correy (No 2) [2009] NSWADTAP 58
Swiss Concept Australia Pty Ltd v Diamondlite Pty Ltd [2021] NSWCATCD 106
Timwin Construction v Facade Innovations [2005] NSWSC 548
Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; 247 CLR 129
Texts Cited: Forbes, Justice in Tribunals 4th edition
Category: Principal judgment
Parties: Christine Tuon and Charles Tsong Ma (Applicants in COM 21/46293, Respondents in COM 21/49263)