Xiao v Perpetual Trustee Company Limited & Anor [2008] VSC 412

Supreme Court of Victoria|2008-10-13|Before: VICKERY J

Landlord and Tenant - Option in lease for a further term - Application for relief against forfeiture made - Jurisdiction of Supreme Court conferred by s.89(4) Retail Tenancies Act 2003 - Accrued jurisdiction to deal with justiciable controversy between parties -Inherent power of Supreme Court to grant a declaration - Notice under s.28(1) Retail Tenancies Act 2003 - Obligation on landlord to notify in writing tenant of the date after which option is no longer exercisable - Obligation to "notify" different from mere service or delivery of document - Service of document provision Retail Tenancies Act 2003 (s.97) not applicable - Service by post provision Interpretation of Legislation Act 1984 (s.49) not applicable - Construction of condition precedent to exercise of option - Relief against forfeiture of option principles considered - Entitlement of tenant to exercise option to renew lease - Declaration granted.

1 The plaintiff, Mr Yousen Xiao ("Mr Xiao") since 28 April 2006 has conducted a business known as the "Saliba Café Bar and Deli". He has conducted his business at premises located at Shop 3A, 5 Queens Road, Melbourne 3004 (the "Premises"). Mr Xiao is the tenant under a lease of the Premises. The term of his lease was due to expire on 30 September 2008. Mr Xiao sought to exercise an option under the lease to renew for a further term, which he did in writing on 19 June 2008. However, on the case of the defendants (together called "the Landlord"), Mr Xiao was two weeks late in his attempt to exercise his option and as a consequence the Landlord says that the lease is now at an end and Mr Xiao must cease conducting his business and leave the Premises.

2 The first defendant Perpetual Trustee Company Limited ("Perpetual") is the registered proprietor of the whole of the 5 Queens Road, Melbourne property described in certificate of title volume 9737 folio 879 (the "5 Queens Road Property"), which includes the Premises.

3 Perpetual holds the 5 Queens Road Property as custodian on behalf of the Macquarie Office Trust (the "Trust"). The Trust is a publicly managed investment scheme, as defined in the Corporations Act 2001 (Cth), and the second defendant Macquarie Office Management Limited ("Macquarie") is the Trust's responsible entity, as required by the Corporations Act 2001.

4 Macquarie is responsible for and undertakes a role in the management of the 5 Queens Road Property, including the Premises, and employs CB Richard Ellis (V) Pty Ltd ("Richard Ellis") as a managing agent for these purposes.

5 The Premises was originally leased by the former owner Farmstone Pty Ltd to a company called D&C Investments (Aust) Pty Ltd ("D&C") for a period of four years with an option to renew for two further terms of five years each (the "Original Lease"). The 5 Queens Road Property was subsequently sold to Perpetual, subject to the Original Lease to D&C. On 19 October 2001 D&C assigned its right, title and interest in the Original Lease to Liang Yu and Wen Yu ("Mr and Mrs Yu"). Certain amendments were made to the Original Lease at this time which were contained in the assignment of the Original Lease. The Original Lease expired on 30 September 2003, however, Mr and Mrs Yu exercised their right to renew and the lease was extended for a further term of five years, making the expiry date 30 September 2008. At the time of the renewal of the Original Lease on 1 April 2004, Mr and Mrs Yu agreed to some further amendments to the Lease, which amendments survive to this day.

6 On 24 February 2006, Mr Xiao, entered into a contract of sale with Mr and Mrs Yu to purchase the business then known as Saliba Brasserie Bar & Deli which they operated out of the Premises for a total sum of $320,000, plus stock valued at $5,000. Pursuant to the contract of sale, on 28 April 2006, Mr and Mrs Yu assigned their right, title and interest in the lease (as amended) to the plaintiff Mr Xiao. This lease between the defendants and Mr Xiao (the "Lease") is the subject of the present litigation. By this means Mr Xiao became the tenant under the Lease and Perpetual and Macquarie together became the landlord.

7 Absent any valid exercise of the option to renew contained in the Lease, the present term of the lease is due to expire on 30 September 2008. On the 18 June 2008 Mr Xiao received a letter from the solicitors who acted for the defendants, Rigby Cooke, dated 12 June 2008. In this letter Rigby Cooke informed Mr Xiao that as the last date for the exercise of his option to renew the Lease had passed, he could no longer exercise his option and the Lease would expire on 30 September 2008. However, Mr Xiao purported to exercise an option under the Lease on 19 June 2008. It was the defendants' case that the last date for the exercise of the option to renew by Mr Xiao fell on 3 June 2008. On this basis Mr Xiao was 16 days late.

8 The defendants say that Mr Xiao's attempt to exercise his option on 19 June 2008 was not a valid exercise of the option provided for under the Lease and that he has lost his rights to renew the Lease for a further term after 30 September 2008. These circumstances have given rise to the question for determination in this proceeding - was Mr Xiao's purported exercise of the option under the Lease valid and enforceable or was it of no legal effect?

9 Mr Xiao commenced this proceeding by originating motion dated 7 July 2008. He sought a declaration that he had lawfully exercised his option to renew the Lease in respect of the Premises on 19 June 2008. He also sought specific performance of the Lease to grant him a new term consequent upon his valid exercise of his option under the Lease. Alternatively, Mr Xiao sought relief against forfeiture of his option to renew the Lease in respect of the Premises for a further term of five (5) years from 1 October 2008.

10 The Retail Leases Act 2003 (the "RLA") came into operation on 1 May 2003.[1] Section 89 of the RLA limits the jurisdiction of this Court to entertain applications arising under the Act. Section 89(1) relevantly provides that the Tribunal (meaning the Victorian Civil and Administrative Tribunal[2] ("VCAT") has jurisdiction to hear and determine an application by a landlord or tenant under a retail premises lease. Section 89(4) renders a retail tenancy dispute[3] not justiciable before the Supreme Court except insofar as the proceeding constitutes (a) an application for relief against forfeiture; or (b) a claim under Part 9 (Unconscionable Conduct). To this end, s.98 RLA makes it plain that it is the intention of s.89(4) to alter or vary s.85 Constitution Act 1975 and remove the jurisdiction of the Supreme Court to entertain matters such as this, except in the limited circumstances provided for in s.89(4) RLA.

11 It is common ground that the Premises in this case are "retail premises" to which the RLA applies and the dispute is a retail tenancy dispute to which s.89(4) applies.

12 In the present case I am satisfied that there is before the Court an application for relief against forfeiture of Mr Xiao's option to renew the Lease in respect of the Premises. A claim for relief against forfeiture of an option to renew a lease is a cause of action known to the law and on the facts of this case it was arguable that equity would grant relief against the consequences at law if it was to be found that Mr Xiao had failed to exercise his option to renew the Lease strictly within time. I am therefore satisfied that this application is made in good faith and is not a colourable claim devised merely for the purpose of conferring jurisdiction on the Court. As the claim for relief against forfeiture is properly before the Court, I have jurisdiction to hear and determine that application.

13 Further, once the Court is properly seized of jurisdiction in relation to the claim for relief against forfeiture, the Court has jurisdiction to entertain the other related claims made by the plaintiff and grant the relief sought on any of the other claims, should it be found that any of them have been established. The principle of accrued jurisdiction confers jurisdiction on a Court to deal with matters incidental to but relevantly connected with the claim in respect of which the Court has jurisdiction directly conferred upon it, by entertaining all of the matters which are linked in the controversy between the parties and making such remedial orders within its power as may be necessary or convenient. As the High Court[4] said in Re Wakim; Ex Parte McNally[5]:

It must now be regarded as established that the jurisdiction of a federal court having jurisdiction in a matter arising under a law made by the Parliament is not "restricted to the determination of the federal claim or cause of action in the proceeding, but extend[s] beyond that to the litigious or justiciable controversy between parties of which the federal claim or cause of action forms part". In Stack v Coast Securities (No 9) Pty Ltd the majority said:

"In this, as in other cases, the recurrent problem is to identify what it is that falls within the Federal Court's accrued jurisdiction. The majority judgment in Fencott v Muller provides this assistance in reaching an answer:

'What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships. The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleadings in which the issues in controversy are defined and the claims for relief are set out. But in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.' " [Footnotes excluded]

The central task is to identify the justiciable controversy. In civil proceedings that will ordinarily require close attention to the pleadings (if any) and to the factual basis of each claim.
In Fencott it was said that:

"in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter."

The references to "impression" and "practical judgment" cannot be understood, however, as stating a test that is to be applied. Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete. Necessarily, then, the question will have to be decided on limited information. But the question is not at large. What is a single controversy "depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships". There is but a single matter if different claims arise out of "common transactions and facts" or "a common substratum of facts", notwithstanding that the facts upon which the claims depend "do not wholly coincide". So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination. Conversely, claims which are "completely disparate", "completely separate and distinct" or "distinct and unrelated" are not part of the same matter. [Footnotes excluded]

14 In the present case I am satisfied that there is in essence a single controversy between the parties which is founded upon a common transaction and a common substratum of facts. The fundamental question is whether Mr Xiao had lawfully exercised his option to renew the Lease in respect of the Premises on 19 June 2008. The transactions and facts which go to this issue found his claim for relief against forfeiture as well as his claim for a declaration and for specific performance.

15 Further, the RLA does not have the effect of denying accrued jurisdiction to the Court which flows from Mr Xiao's application for relief against forfeiture, nor does it restrict the Court from exercising its general powers, once the Court is properly seized of the matter.

29 Law and equity to be concurrently administered

(1) Subject to the provisions of this or any other Act, every court exercising jurisdiction in Victoria in any civil proceeding must continue to administer law and equity on the basis that, if there is a conflict or variance between the rules of equity and the rules of the common law concerning the same matter, the rules of equity prevail.

(2) Every court referred to in subsection (1) must give the same effect as before the commencement of this Act-

(a) to all equitable estates, titles, rights, reliefs, defences and counter-claims, and to all equitable duties and liabilities; and

(b) subject thereto, to all legal claims and demands and all estates, titles, rights, duties, obligations and liabilities existing by the common law or created by any Act-

and, subject to the provisions of this or any other Act, must so exercise its jurisdiction in every proceeding before it as to secure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of proceedings concerning any of those matters is avoided.

17 In my view, I should exercise the jurisdiction of the Court so that all matters in dispute between the parties are completely and finally determined, and a potential for a multiplicity of proceedings concerning the matters before me is avoided. Rather than splitting the case between this Court and VCAT, with the possibility of inconsistent judgments arising, it would be just and convenient to hear and determine the matter in this Court.

18 Another matter concerns the power to make declarations in this Court as opposed to the power of VCAT to make a similar order under the Victorian Civil and Administrative Tribunal Act 1998. Superior courts have inherent power to grant declaratory relief. As was said by Mason CJ, Dawson, Toohey and Gaudron JJ in Ainsworth v Criminal Justice Commission[6]:

It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which "(i)t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise." Forster v Jododex Aust Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 per Gibbs J. at p.437. However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. See In re Judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257. The person seeking relief must have "a real interest" Forster v Jododex Aust Pty Ltd (1972) 127 CLR per Gibbs J at p.437; Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd (1921) 2 AC 438, per Lord Dunedin at p.448 and relief will not be granted if the question "is purely hypothetical", if relief is "claimed in relation to circumstances that (have) not occurred and might never happen" University of New South Wales v Moorhouse [1975] HCA 26; (1975) 133 CLR 1 per Gibbs J at p.10. or if "the Court's declaration will produce no foreseeable consequences for the parties". Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 per Mason J at p.188; see also per Aickin J at p.189; 18 ALR 55 at pp 69, 71 respectively. [Footnotes excluded]

19 The inherent power of the Supreme Court to grant a declaration is supplemented by s.36 of the Supreme Court Act 1986 which provides:

A proceeding is not open to objection on the ground that a merely declaratory judgment is sought, and the Court may make binding declarations of right without granting consequential relief.

20 The purpose of this provision is to put beyond doubt that the Court is not bound by the old Chancery practice where a Court of Chancery would not make a binding declaration of right unless a plaintiff demonstrated an entitlement to consequential relief, whether or not the plaintiff actually claimed such relief.[7]

21 In contrast, s.124(1) of the Victorian Civil and Administrative Tribunal Act 1998 (the "VCAT Act") limits the jurisdiction of VCAT to grant a declaration only where the declaration is made "instead of any orders it could make, or in addition to any orders it makes, in the proceeding". Given that Mr Xiao does not claim damages, in order to enliven the jurisdiction of VCAT to grant a declaration, he would have needed to claim, or demonstrate that he was entitled to claim, other relief, for example by way of a permanent injunction pursuant to s.123 of the VCAT Act, before a declaration could be granted. Given that Mr Xiao is in a position to claim a declaration as of right in the Supreme Court, it is appropriate for his case to be heard and determined before this Court to enable all matters in dispute between the parties to be completely and finally determined.

22 Accordingly, if I am satisfied that Mr Xiao lawfully exercised his option to renew the Lease on 19 June 2008, the Court has jurisdiction to grant relief by way of a declaration to this effect and to make an order for specific performance of the Lease should the relevant discretionary factors point to these forms of relief being convenient and just in the circumstances. Further, this would follow even if, on the merits, I was to dismiss Mr Xiao's claim for relief against forfeiture. Further, if it was appropriate to grant only a declaration, such an order could be made even though no relief other than a declaration was open to be granted.

23 By a Deed of Renewal and variation of Lease dated 1 April 2004, clause 15 of the Lease was varied by deleting the original clause and substituting a new clause 15 as follows:

Where the Retail Leases Act 2003 applies to this Lease, the terms and conditions of this Lease will be read down accordingly.

24 A feature of the RLA is the obligation imposed upon a landlord to notify the tenant of the time for any option to renew to be exercised. Section 28 RLA is central to the case. It relevantly provides that:

(1) If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable -

before that date but is not required to do so if the tenant exercises, or purports to exercise, the option before being notified of the date.

(2) If subsection (1) requires the landlord to notify the tenant but the landlord fails to do so within the time specified by that subsection -

(a) the retail premises lease is taken to provide that the date after which the option is no longer exercisable is instead 6 months after the landlord notifies the tenant as required; and ...

25 Section 49 Interpretation of Legislation Act 1984 (the "ILA") was also cited. The section provides:

(1) Where an Act or subordinate instrument authorizes or requires a document to be served by post (whether the expression "serve" or the expression "give", "send" or "deliver" or any other expression is used), the service shall-

(a) unless the contrary intention appears, be deemed to be effected by properly addressing, prepaying and posting the document as a letter to the person on whom it is to be served; and

(b) unless the contrary is proved, be deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post.

(2) Where an Act or subordinate instrument authorizes or requires a document to be served by registered post or by certified mail (whether the expression "serve" or the expression "give", "send" or "deliver" or any other expression is used), the service shall -

(a) unless the contrary intention appears, be deemed to be effected by properly addressing, prepaying and posting the document as a letter either by the registered post or through the certified mail service to the person on whom it is to be served; and

(b) unless the contrary is proved, be deemed to have been effected at the time at which the letter would ordinarily be delivered by registered post or through the certified mail service, as the case requires.

Lease Provisions Relating to the Giving of Notice to Exercise the Option

26 The crucial provisions of the Lease in relation to the exercise of the option and the giving of notice to effect the exercise are clauses 11.1 and 10.3. I accept that stipulations in an option to renew a lease as to the manner and time of its exercise are mandatory and must be strictly complied with if it is to be validly exercised.

27 Clause 11.1, which is entitled "Option for Renewal", provides:

11.1 If the Tenant [Mr Xiao] wishes to take a new Lease of the Premises from the expiry of the Term and gives to the Landlord [Perpetual] notice in writing (in this sub-clause called "the Notice") to that effect not less than six (6) months prior to the expiry of the Term (and if during the Term of the Lease the Tenant has punctually paid all moneys payable and if at the time of giving the Notice and at the expiry of the Term there is no subsisting breach by the Tenant) the Landlord will (on payment by the Tenant of the Landlord's legal costs and stamp duty on the new Lease) grant the Tenant a new Lease of the Demised Premises for the Further Term specified in Item 14 of the Reference Schedule upon the same covenants terms conditions and provisions as are contained in this Lease or such of them as shall then be capable of taking effect excluding this clause 11 from the Lease in respect of the second Further Term referred to in Item 14 of the Reference Schedule and excluding clause 15 and containing the following alterations in the Reference Schedule:-

11.1.1 Commencement Date - the day following the expiry of the Term.

11.1.2 Annual Rent - for the first Further Term, the annual rent ` determined in accordance with clause 3.2.

- for the second Further Term, the annual rent payable immediately before the Second Further Term.

28 In relation to the service of notices under the Lease, clause 10.3 of the provides as follows:

Any notice required to be served under this Lease is sufficiently served on the Tenant if served personally or if delivered to or left for the Tenant at the Demised Premises or if forwarded by prepaid post addressed to the Tenant at the Demised Premises or at the last known place of abode or business of the Tenant and is sufficiently served on the Landlord if addressed to the Landlord and left for or forwarded by prepaid post to the Landlord at its registered office for the time being (if the Landlord is a Company) or the Landlord's last known place of abode or business and a notice sent by post shall be deemed to have been served on the third weekday after posting including the date of posting.

29 There is no dispute that Mr Xiao is the Tenant, the first defendant Perpetual is the Landlord and the second defendant Macquarie is the principal of the first defendant Perpetual and all parties are bound by the terms in the Lease.

30 On the 4 December 2007 Ms Platis, an associate director of Richard Ellis, drafted a letter to be sent to Mr Xiao (the "4 December Letter"). The letter relevantly stated:

This letter constitutes notice pursuant to section 28(1) of the Retail Leases Act 2003 that the option for a further term of five (5) years is not capable of being exercised after 3 June 2008. After that date, the option lapses.

31 Ms Platis spoke with Mr Xiao on 4 December 2007 to confirm that his residential address was 5 Kadir Street, East Bentleigh. Ms Platis then instructed her assistant, Claudia Serrano to arrange for the 4 December Letter to be sent to Mr Xiao by registered post to his home address at 5 Kadir Street, East Bentleigh ("the Registered Post 4 December Letter") and by ordinary mail to his business address at Saliba Café, Part Ground Floor, 5 Queens Road, Melbourne 3004 ("the Ordinary Post 4 December Letter").

32 The weight of the evidence, which I accept, is that the 4 December Letter was in fact posted on that day in accordance with the instructions of Ms Platis by registered post to Mr Xiao's home address. However, I am not satisfied that the same letter was also posted by ordinary pre-paid post to Mr Xiao's business address at the Premises.

33 As a matter of coincidence on the same day, 4 December 2007, Mr Callan Cameron ("Mr Cameron"), who was a senior asset manager for Macquarie, also prepared a notice to Mr Xiao which set out Macquarie's assessment of the rent that was to apply under the Lease for the period 1 October 2007 to 30 September 2008 as part of the scheduled rent review and secondly Macquarie's assessment of the licence fee that was to apply from 15 December 2007 in respect of an associated parking space licence as part of a scheduled fee review under the licence. Mr Cameron arranged to post his review letters ("the Review Letters") to Mr Xiao by registered post to his home address on 4 December 2007. I accept that these letters were in fact posted on that day in accordance with Mr Cameron's directions.

34 In his affidavit dated 4 July 2008, Mr Xiao swore that he didn't receive the Registered Post 4 December Letter until "Towards the end of January 2008." He also swore in this affidavit that:

Prior to receiving the letter dated 04 December 2007 towards the end of January 2008, I do not remember receiving any letters from the first-named Defendant, or CB Richard Ellis (V) Pty Ltd at my residence at 5 Kadir Street, Bentleigh East 3165. I have only received one letter from the second-named Defendant dated 04 December 2007 some time towards the end of December 2007 which was sent to my residence. The letter from the second-named defendant dated 04 December 2007 was in relation to the rent review which was due to be determined by the 01 October 2007. [Underlining added]

35 However, in his affidavit in reply dated 8 August 2008 Mr Xiao presented a different version of the timing of relevant events. He said:

I admit that I have mistaken that it was the end of January 2008 that I received the 04 December letter from Platis, in fact it was the end of December 2007 that I received this letter. [Underlining added]

36 Mr Xiao said during his cross-examination: "I really have no recollection of time, but I do have a recollection of whatever I did." I accept Mr Xiao's evidence as to his poor memory as to the time when events happened. In my view, this explains the inconsistency between his two affidavits to which I have referred.

37 There is corroboration of Mr Xiao's corrected statement where he says that it was the end of December 2007 that he received the 4 December Letter. It was on 31 December 2007 that Mr Xiao collected from the post office the envelope containing the two Review Letters from Mr Cameron which were also dated 4 December 2007 and posted by registered post on that day. As to this, Mr Cameron swore in his affidavit dated 25 July 2008 that he initiated enquiries to be made of Australia Post as to the delivery of his review letters which were posted by registered post to Mr Xiao's home address on 4 December 2007. Mr Cameron produced the results of his enquiries in the form of an email report, which he described as follows:

Now produced and shown to me ... is a true copy of an e-mail sent by Kirsten Reddoch to Labrini [Ms Platis] on 23 July 2008 confirming the outcome of her investigation and correspondence from Australia Post showing receipt of the market review letter on 6 December 2007.

However, when the exhibit produced by Mr Cameron is closely examined, the email relevantly says:

According to Aust. Post our letter (RD52155442) was received by Coatesville Licenced Post Office on 6 December 2007 and subsequently collected on 31 December 2007. [Underlining added]

38 The email report confirms the evidence of Mr Xiao that he collected the Review Letters dated 4 December 2007 from the Post Office when he collected his registered mail on 31 December 2007. The email report also corroborates Mr Xiao's evidence that it was at the end of December 2007 that he also collected the 4 December Letter. I infer from the facts that it was likely to have been on the same day and at the same time that Mr Xiao collected all of the correspondence from the defendants which had been posted by registered mail on 4 December 2007, including the two Review Letters and the Registered Post 4 December Letter (relating to the exercise of his option under the Lease).

39 The matter is put beyond doubt that the registered post envelope containing the 4 December Letter (the Registered Post 4 December Letter) was collected by Mr Xiao on 31 December 2007 by the records maintained by Australia Post which were produced.

40 I accept the explanation provided by Mr Xiao for not collecting the registered mail sent to his home address prior to 31 December 2007. He said that he did not find any card from Australia Post in his home mail box until the 30 December 2007 when he cleared his mail box. He found only one card from Australia Post hidden amongst the junk mail inside his mail box and it was on the following day that he went to the post office to collect the registered letter.

41 However, I find that Mr Xiao did not receive the Ordinary Post 4 December Letter from Ms Platis which was said to have been posted by ordinary mail on that day to the Premises. Mr Xiao said that he never received any other letter from Ms Platis, similar to the Registered Post 4 December 2007 Letter, at the Premises.

42 It was not necessary to have posted the letter by ordinary post to the demised Premises in order to have achieved service of the option notice in compliance with the notice provision of the Lease. Clause 10.3 of the Lease provided that service by pre-paid post to the "abode ... of the Tenant" was sufficient. Having gone to the trouble of confirming his home address on 4 December 2007 and sending the Registered Post 4 December Letter to Mr Xiao's residence by registered post on that day, nothing was to be gained by posting a letter in similar terms to his business at the Premises. This appears to have been recognised in relation to the posting of the Review Letters which were also posted on 4 December 2007 by registered post to Mr Xiao's residential address, an exercise which was not duplicated by posting any copies of the Review Letters by ordinary post to the Premises.

43 Although I accept that Ms Platis gave written instructions to her assistant Ms Serrano to arrange for the option notice to be sent by registered post to Mr Xiao's home address and by ordinary post to his business Premises, and that Ms Serrano received this instruction, there is no proof of the actual posting of the Ordinary Post 4 December Letter. There were no office records maintained at Richard Ellis recording the posting of ordinary pre-paid mail. The highest Ms Serrano could put it was that: "I verily believe that on 4 December 2007, I caused to be sent to the Plaintiff" the Ordinary Post 4 December Letter "by ordinary post to the Plaintiff's place of business at shop 3A, 5 Queens Road, Melbourne". Ms Serrano did describe the procedure she adopted at Richard Ellis in relation to the posting of ordinary mail. Her procedure included taking a photocopy of the posted letter and placing the photocopy on the relevant file. The photocopy of the Ordinary Post 4 December Letter was in fact placed on the relevant file in this case. However, understandably, Ms Serrano had no recollection of the Ordinary Post 4 December Letter actually being posted.

44 Another factor is that the Ordinary Post 4 December Letter was in fact incomplete. The Registered Post 4 December Letter concluded with the words: "Please contact the undersigned should you have any queries." However, the file copy of the Ordinary Post 4 December Letter concluded with the words: "Please contact the". There was no explanation for this omission, however it does raise a question as to whether the letter was ever posted in this form.

45 In the face of Mr Xiao's denial, there was no satisfactory proof of the actual posting of the Ordinary Post 4 December Letter, and indeed there was evidence which tended to show that it was not likely that the letter would have been posted in its incomplete form. I am not satisfied that there wasn't an unintended slip up in the Richard Ellis postal procedure on this occasion. Accordingly, I accept Mr Xiao's corrected version of events surrounding his receipt of the 4 December Letter. The Registered Post 4 December Letter was received by Mr Xiao on the 31 December 2007 when he went to the post office to collect his registered mail and not before.

46 On 18 June 2008 Mr Xiao received a letter from the defendants' solicitors Rigby Cooke dated 12 June 2008. In this letter to Mr Xiao, Rigby Cooke advised that by reason of the sending of the 4 December Letter on that date, the option was not capable of being exercised after 3 June 2008, and that because no notice of the exercise of the option had been received, the option "has now unconditionally lapsed" and "the lease expires on 30 September 2008."

47 By facsimiles dated 19 June 2008 Mr Xiao's solicitors informed Rigby Cooke and Richard Ellis that Mr Xiao wished to exercise his option to renew the Lease for a further term of five years from 1 October 2008.

48 On 25 June 2008 Mr Xiao's solicitors also sent a further facsimile to the Perpetual to inform it that Mr Xiao wished to exercise his option to renew the Lease for a further term of five (5) years from 1 October 2008.

49 On 1 October 2007 the rent was to be revised. On 30 June 2008 the Defendants' solicitors, Rigby Cooke, informed Mr Xiao's solicitors that the rental determination had been finalised and the Mr Xiao had to pay Perpetual a sum of $13,950 plus GST by way of adjustment.

50 Mr Lim, who appeared on behalf of Mr Xiao, submitted that:

(a) According to clause 11.1 of the Lease standing alone, Mr Xiao had to exercise his option to renew the Lease by 31 March 2008.

(b) However, pursuant to s.28(1)(a) RLA, the Landlord was required to notify Mr Xiao at least 6 months before the 31 March 2008, that is by 30 September 2007, of the date after which the option was no longer exercisable.

(c) If the position is that the defendants did not give notification to Mr Xiao pursuant to s.28(1)(a) RLA, then time for the exercise of the option is at large and Mr Xiao's exercise of the option on 19 June 2008 was and remains effective in law.

(d) Alternatively, since Mr Xiao did not receive the option notice until 31 December 2007 when he collected the Registered Post 4 December Letter from the post office on that day, he had until the end of June 2008 to exercise his option, which he did validly on 19 June 2008.

(e) Further, because Perpetual was required to give written notice of default of the Lease which invited Mr Xiao to remedy any such default, and had not done so, the defendants could not rely upon any default on the part of the Tenant under the Lease in denying Mr Xiao his right to exercise his option.

51 Mr Robins, who appeared for the defendants submitted that:

(a) On the evidence, Mr Xiao received the option notice sent by Richard Ellis two days after the Registered Post 4 December Letter had been posted, namely on 6 December 2007. In these circumstances, under s. 28(2)(a) of the RLA, Mr Xiao was entitled to exercise its option to renew the Lease up until 6 June 2008. However, the Plaintiff did not exercise his right to take a new lease until 19 June 2008, and his right had lapsed.

(b) Further, because Mr Xiao had persistently defaulted under the Lease by paying his rent late, he had deprived himself of the right to exercise the option under the Lease.

The Landlord's Obligation Under s.28 (1) RLA

52 A "retail premises lease" for the purposes of the RLA is a lease of retail premises which is, subject to specified exceptions, to last for a year or more.[8] "Retail premises" are defined in s.4 of the RLA.

53 Section 28 RLA is a requirement in retail leases which is unique to Victoria. The section imposes a mandatory requirement on landlords of retail premises when a retail premises lease contains an option to renew the lease for a further term. The requirement is a notification obligation. The landlord must notify the tenant of the date after which the option is no longer exercisable. The notice, however, is not required if the tenant exercises or purports to exercise the option to renew before being notified of the date by the landlord.[9]

54 Sub-section (1) of s.28 is the keystone of the RLA scheme for requiring landlords to notify their tenants of the date after which an option to renew is no longer exercisable. It sets out the required medium for such notice, which is to be "in writing". No particular form is required. The sub-section then sets out what is required to be communicated. This is quite specific. The landlord must: "notify the tenant in writing of the date after which the option is no longer exercisable" (underlining added). The requirements for the notice to be in writing and for it to specify the relevant date are the critical twin elements of the notice required by sub-section (1). Put another way, a notification required under sub-section (1) will not occur unless it satisfies these requirements.

55 The notice under s.28(1) of the RLA must be provided to the tenant at least six months, but not more than 12 months, before the date after which the option to renew is no longer exercisable. The relevant date for the purpose of calculating the period within which the notice is to be given is not the expiry of the term of the relevant lease. It is the last day upon which notice of the exercise of the option to renew can be given as provided for under the terms of the lease.

56 The RLA provides a sanction which operates against the interests of the landlord in the event that there is a failure to give the requisite notice under s.28(1), either within the specified time or at all. In this event, an implied term is introduced into the lease by operation of s.28(2). The implied term essentially is that the date after which the option to renew is no longer exercisable in the lease is replaced by a date defined to be 6 months after the landlord notifies the tenant as required under s.28(1) of the Act. This is achieved by subs.(2)(a) of s.28 which provides that, in such a case, that the lease is taken to provide that the date after which the option is no longer exercisable is instead "6 months after the landlord notifies the tenant as required" (underlining added). However, no cure is provided for in the legislation which saves a notice that fails to satisfy what I have called the "critical twin elements", namely the requirement for the notice to be in writing and the requirement to specify the relevant date. Without these elements a notice purportedly given by a landlord will not constitute the notification required by s.28(1).

57 It is common ground in this case that the Premises were "retail premises" as defined in s.4 of the RLA and that the Lease was subject to the Act. Clause 11.1 of the Lease provided for an option for the tenant Mr Xiao to renew the Lease for a further term. Accordingly s.28 of the RLA applied to the Lease.

Requirement to "Notify" the Tenant under s.28(1) RLA

58 The communication requirement under s.28(1)of the RLA, where it applies, is for the landlord to notify the tenant in writing of the date after which the option is no longer exercisable. A question arises as to the meaning of the word "notify" as it is used in the sub-section.

59 The defendants called in aid the service by post deeming provisions in s.49 of the ILA in construing the landlord's obligation to 'notify' the tenant contained in s.28(1) of the RLA. It was submitted that these provisions should be applied in this case, with the result that the Registered Post 4 December Letter should be deemed to have been served on Mr Xiao two days after it was posted, namely on 6 December 2007, when it was recorded as having arrived at Mr Xiao's post office.

60 However, s.49 ILA only has operation where the relevant Act, in this case s.28(1) RLA, "authorizes or requires a document to be served by post (whether the expression "serve" or the expression "give", "send" or "deliver" or any other expression is used)". In my opinion, s.28(1) RLA, by use of the word "notify" in its context, does not amount to an authorization or requirement to serve the contemplated notice by post. By application of the ejusdem generis rule[10], the words "serve", "give", "send" or "deliver" in s.49(1) ILA comprise a class of activities involving the consignment of a document to a person from the perspective of the consignor of the document, not the recipient. In this context, the words "any other expression" used in s.49(1) take on a like meaning, and stop short of including the word "notify" which imports the notion of imparting information to a recipient by making the information available to a recipient by supplying the relevant information in writing to a recipient. Similarly, the "supply" of a document in writing in turn imports the notion that it has been received by the intended recipient.

61 Furthermore, there is an important exception to the operation of s.49(1) ILA. It has no application where "the contrary intention appears" in the relevant legislation. This calls for a close examination of the intention behind the use of the word "notify" as it appears in s.28(1) of the RLA.

62 The word "notify" can take on different meanings in different contexts. For example, s.93 Trade Practices Act 1974 ("TPA") provides a mechanism by which corporations can notify the Australian Competition and Consumer Commission ("ACCC") to obtain statutory protection in relation to exclusive dealing conduct which may otherwise be in breach of s.47 of the TPA. In s.93(3A)(a) the words "notified the Commission" take on their construction from s.93(1) and mean "giving to the Commission a notice". In such a case the mere delivery of the requisite notice to the Commission would be sufficient to commence the statutory process. On the other hand, and in another context, the word "notify" may mean an actual communication of the relevant subject matter to the recipient in the sense of making the information known to him or her. The issue was considered in Fast v Scruggs.[11] In that case the Supreme Court of Oklahoma was called upon to consider a provision of a statute which required a party, in the type of action concerned, to notify the other party involved in the litigation that such suit had been brought at least twenty one days before the day of the hearing, failing which the action could not proceed "except when it is clearly shown that it was impossible to make service of such notice". Riley CJ said:[12]

Delivery by mail has been held sufficient where the statute specifically provides that a case-made shall be served. Furthermore, there is a clear distinction between the term "notify" and "serve notice". Generally, the word "notify" is defined as meaning to give notice to; inform by words or in writing in person or by message, or by any signs which are understood; to make known.

To notify one of a fact is to make it known to him, to inform him by notice. [Citations omitted]

63 The word "notify" as it is used in s.28(1) RLA therefore needs to be construed in the light of the purpose of the section and the consequences which are likely to flow from a failure to comply with the statutory requirements it provides for.

64 There must be many a case where a tenant, who builds up and wishes to continue a business out of retail premises, becomes completely dependant upon the valid exercise of an option to renew clause in his or her lease for the continuation of the business into the future. The manner, and in particular the timing, of the exercise of the option becomes critical. A tenant who seeks to exercise an option for a further term must act in strict compliance with all applicable conditions precedent and must exercise the option precisely as required by the lease for the exercise of the option to be valid.[13] Section 28 of the RLA needs to be considered in its context, and that context includes the potential for quite drastic consequences for a tenant of retail premises who is not able to continue in business because of a failure to comply strictly with the option to renew provisions contained in the retail premises lease.

65 The purpose of s.28 of the RLA is to provide a measure of protection to a retail tenant who is vulnerable to the strictures of the law in the manner I have described. For this reason, s.28(1) makes provision for a timely reminder to be provided to a tenant conducting business under a retail lease, which operates for more than a year and which contains an option to renew, as to the last date when the option to renew can be exercised. The timely reminder will not be provided and the purpose of the legislation will not be achieved in numbers of cases, if the word "notify" in s.28(1) is construed as merely "delivery" or "formal service" of the required notice. However, the beneficial purpose which I have described will have a more ample prospect of being achieved, if the word "notify" is given its ordinary and natural meaning in the context by ascribing to it the notion of "communicating" the statutory reminder to the tenant. This is to be achieved by making the prescribed information available to the tenant through physical supply of the written document containing the relevant information such that it is actually provided to and received by the tenant. Until this occurs, it could not be said that the landlord has fulfilled the obligation to "notify" the tenant of the prescribed information as required by s.28(1) of the RLA.

66 For these reasons, I am of the opinion that a contrary intention (to s.49(1) of the ILA) is evident in s.28(1) such that the word "notify" as it is used in the sub-section does not seek to import the deemed postal provisions of s.49(1) of the ILA. The consequence is that these provisions have no application to s.28(1) of the RLA.

67 The defendants cited Fancourt v Mercantile Credits Ltd[14] in argument. In this case the High Court considered a Queensland provision analogous to s.49 ILA, being s.39(1) Acts Interpretation Acts 1954 to 1962 (Qld) which provided:

(1) Where any Act authorises or requires any document to be given, sent, served, or delivered by post, then, unless the contrary intention appears, such giving, sending, serving, or delivery shall be deemed - (a) To be effected by properly addressing, prepaying, and posting a letter or packet containing such document; and (b) Unless the contrary is proved, to have been effected at the time when the letter or packet would be delivered in the ordinary course of post.

68 The High Court considered the operation of s.39(1) in the context of a service provision under the Hire Purchase Act of 1959 (Qld). Section 42(1) of this Act was similar to s.97 RLA and provided as follows:

(1) Any notice or document required or authorised to be served on or given to an owner or hirer under this Act may be so served or given -

(b) By leaving it at his place of abode or business with some other person apparently an inmate thereof or employed thereat and apparently of or over the age of sixteen years; or

69 In Fancourt there was no question that both s.39(1) of the Acts Interpretation Acts 1954 to 1962 (Qld) and s.42(1) of the Hire Purchase Act of 1959 (Qld) applied. The question for the High Court was whether proof of non-receipt of the document was sufficient to displace the result, which was open on a construction of the legislation, that delivery was deemed to have been effected at the time at which it would have taken place in the ordinary course of the post where there was no evidence of non-delivery. In these circumstances the High Court drew a distinction between proof of non- delivery and proof of non-receipt. It was held that service was deemed to have taken place in the due course of the post, and this would be so even if there was positive proof of non-receipt; however, if there was positive proof of non-delivery, for example in a case where the notice was returned undelivered, the statutory deemed service would be rebutted.

70 The requirements of s.49 of the ILA were considered in Dimos v Willetts and Another.[15] There the Court of Appeal comprising Tadgell, Ormiston and Batt JJA considered the meaning of the expression "prepaid"[16] and the extent to which evidence of the "practice" of a party as to postal service is relevant to the application of the presumption in s.49.[17]

71 However, in a case such as this where, as I have found, s.49 ILA has no application, the principles of Fancourt and Dimos similarly have no application.

72 I was also referred to s.97 of the RLA which provides for the service of documents under the RLA. Section 97 provides:

A document under this Act may be served on, or given to, a person in or out of Victoria-

(b) by leaving it at the person's usual or last known place of residence or business with someone who is apparently-

(ii) residing at that place or, in the case of a place of business, in charge of or employed at that place; or

(d) in any other way authorised by the retail premises lease concerned or by or under any other Act.

73 However, as can be seen, s.97 of the RLA provides an expanded facility for service which applies only in circumstances where a document may be "served on, or given to" a person. There is no provision in the RLA to which I was referred which provides for a document to be "served on" a person. However, many of the provisions of the RLA provide for documents to be "given to" a person.[18] Thus s.97 has clear work to do in all those circumstances where a document is required to be "given" to another under the RLA. In contrast, the requirement to "notify" as used in the RLA is used only in the following cases: s.25 - landlord must notify in writing the Small Business Commissioner; s.28(1) - landlord must notify the tenant in writing of the date after which the option is no longer exercisable; and s.53(a) - the landlord to notify the tenant in writing of proposed alteration or refurbishment. Section 37(4) of the RLA introduces the further concept of "supply" of information, by requiring the landlord to supply the valuer with relevant information in the course of conducting a rent review based upon current market rent. Section 97 of the RLA, using the ordinary and natural meaning of its text, readily applies to those provisions of the RLA which require information by written notice to be "given". However, the provision cannot properly be construed to apply to information which is required to be "notified" to or "supplied" to a recipient.

74 Finally, consideration needs to be given to clause 10.3 of the Lease. This clause provides for a system of service for any notice required to be "served" under the Lease. In the first place, the s.28(1) notice under the RLA is not a notice required to be served under that Lease. It is a requirement under the RLA that a landlord must notify the tenant of the required information. Secondly, the requirement under s.28(1) of the RLA is to "notify", which is a different concept to a requirement to "serve" as contemplated by clause 10.3 of the Lease. Thirdly, s.94(1) of the RLA renders void any provision of a retail premises lease to the extent that it is contrary to or inconsistent with anything in the RLA. As clause 10.3 of the Lease, if it did apply, would be inconsistent with s.28(1) of the RLA insofar as it is a requirement for the landlord to "notify" the tenant of the required information, clause 10.3 of the Lease would yield to that requirement.

Did the Landlord "Notify" the Tenant under s. 28(1) RLA ?

75 In the present case, Mr Xiao should have personally received the option notice comprised in the 4 December Letter before it could be said that the landlord had fulfilled its obligation to notify him in writing of the required information within the meaning of s.28(1) RLA.

76 On the evidence, as I have found to be the position, this did not occur until 31 December 2007 when Mr Xiao collected the Registered Post 4 December Letter from the post office.

77 Pursuant to the provisions of the Lease the last day for Mr Xiao to exercise his option was 31 March 2008, being six months prior to the expiry of the term.[19] This meant that the Landlord was required to notify the tenant (Mr Xiao) of the information prescribed by s.28(1) of the RLA at least six months prior to that date, being by 30 September 2007. It did not do this. Accordingly, s.28(2)(a) of the RLA is enlivened, providing that the Lease is taken to provide that the date after which the Lease is no longer exercisable is instead six months after the landlord notifies the tenant as required. Taking this period of six months to start on the day when Mr Xiao received his Registered Post 4 December Letter on 31 December 2007, his time to exercise his option under the Lease was extended by operation of s.28(2)(a) of the RLA to 30 June 2008. Thus his exercise of the option on 19 June 2008 was a valid exercise, and would operate as such, provided that the other pre-conditions for the valid exercise of an option provided for under the Lease were complied with.

Adequacy of the 4 December Letter as a Notice Under s. 28 RLA

78 A further question arises as to whether the 4 December Letter was effective notification as required under s.28(1) of the RLA in any event. This issue arises if I am wrong about Mr Xiao having been notified by his landlord on 31 December 2007 about the last date for the exercise of his option, and s.49 ILA operates, in which case service of the notice would be deemed to be effected on 6 December 2007, alternatively, clause 10.3 of the Lease would apply, in which event service will be deemed to be effected on 7 December 2007.

79 In this case, the 4 December 2007 letter stated, inter alia, that:

80 Under s.28(2)(a) of the RLA, which operates in this case, the retail premises lease is taken to provide that the date after which the option is no longer exercisable is to be six months after the landlord notifies the tenant "as required". The requirement is for a notice under s.28(2)(a) to comply with the critical twin requirements of s.28(1) I have identified, that is the notice must be in writing and specify the date after which the option is no longer exercisable. It is only a notice in this form which would trigger the running of the six month period under s.28(2)(a) of the RLA.

81 It would follow that in this case, the date after which the option is no longer exercisable is the date implied in the Lease by operation of s.28(1)(a), that is six months after the landlord notifies the tenant as required. Section 44 of the ILA relevantly provides that:

(6) In an Act, unless the contrary intention expressly appears:

(b) a reference to a month shall be construed as a reference to a calendar month.

82 Accordingly, in this case, if the date of notification of the tenant Mr Xiao was either 6 or 7 December 2007, six calendar months from those dates would be either 6 or 7 June 2008, in which case the notice should have specified either of those dates as being the dates after which the option was no longer exercisable. However, the notice did no such thing. It incorrectly specified that the option was "not capable of being exercised after 3 June 2008. After that the option lapses." [Underlining added]

83 In the circumstances, only one conclusion is open - the 4 December 2007 letter was fundamentally defective as a notice under s.28 and did not constitute notification "as required" for the purposes of subs.(2)(a) of that section.

84 It follows that no notice as required by s.28(1) of the RLA was ever provided to the tenant Mr Xiao, even if the 4 December Letter was deemed to have been served on him on either 6 or 7 December 2007. It further follows that s.28(2)(b) then operates. This subsection provides that if the date (being six months after the landlord has notified the tenant of the date after which the option is no longer exercisable) is after the term of the lease ends (as it is in the present case), the lease continues until that date (being the date of notification, as required) on the same terms and conditions. The result in the present case is that, as the landlord has not yet given any notice to the tenant, Mr Xiao, as required under s.28(1), the Lease continues on the same terms and conditions as previously. In this event, the Landlord may give a notice which complies with s.28(1) of the RLA, but if this occurs, the tenant, Mr Xiao, under s.28(1)(a) will have a six month period from the provision of the notice to him, to exercise his option under the Lease.

85 Mr Xiao's right to exercise his option under the Lease, in this event, would continue to be subject to satisfaction of the other pre-conditions for the valid exercise of an option as provided for in the Lease.

Whether Lease Pre-conditions to the Exercise of the Option Satisfied

86 The defendants produced in evidence payment reports of rent paid under the Lease by Mr Xiao to his landlord between February 2006 to July 2008. Pursuant to clause 3.1 of the Lease the annual rent was payable to the landlord under the Lease by equal instalments in advance on the first day of each calendar month. Furthermore, the Tenant assumed an obligation to "duly and punctually" pay the rent falling due under the Lease. However, in this case, payment of rent was often late, including a late payment of rent in respect of rent due in the month of June 2008, which was paid 18 days late, on 19 June 2008. The history demonstrates a pattern of persistent default on the part of Mr Xiao in the payment of rent on the due date.

87 There is no evidence, however, that payments of rent due under the lease are presently in arrears.

88 The defendants also claimed that the Premises were in a "generally poor state" and relied upon a report of SGA Property Consultancy Pty Ltd dated June 2008. However, although the report was produced by Mr Cameron, no evidence was called by the maker of the report to verify its contents or be cross-examined upon it. Significantly, there was no evidence that the report or its contents had been the subject of any complaint, demand or notice to Mr Xiao to rectify or make good any of the defects in the Premises which were said in the report to be in need of repair.

89 Clause 11.1 of the lease contains a provision which at first glance imposes a restriction on the right of the tenant to exercise the option. The provision seeks to make it a pre-condition to the valid exercise of the option that:

... during the Term of the Lease the Tenant has punctually paid all moneys payable and if at the time of giving the Notice and at the expiry of the Term there is no subsisting breach by the Tenant

90 However the provision in clause 11.1 of the Lease is inconsistent with s.27(2) RLA which provides:

(2) If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the only circumstances in which the option is not exercisable is if-

(a) the tenant has not remedied any default under the lease about which the landlord has given the tenant written notice; or

(b) the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults.

91 In my opinion, the purported pre-condition to the exercise of the option contained in clause 11.1 of the Lease is inconsistent with s.27(2) of the RLA. Section 94 of the RLA then operates to render the provision within clause 11.1 void to that extent. The offending clause is able to be readily severed from the balance of clause 11.1, which can then continue to operate to provide for the exercise of the option to renew. Section 94 provides:

The Act prevails over retail premises leases, agreements etc.

(1) A provision of a retail premises lease or of an agreement (whether or not the agreement is between parties to a retail premises lease) is void to the extent that it is contrary to or inconsistent with anything in this Act (including anything that the lease is taken to include or provide because of a provision of this Act).

11.2 It shall be a condition precedent to the exercise of the option granted in clause 11 that the Tenant shall:

11.2.1 not have persistently defaulted under this Lease in respect of which default written notice shall have been given to the Tenant; and

11.2.2 have remedied any default under this Lease about which the Landlord has given the Tenant written notice.

93 Clause 8.5 provides for default notices required to be given by the Landlord to the Tenant in respect of breaches of the covenants or conditions of the Lease. This clause is in the following form:

8.5 Any notice required to be given by the Landlord to the Tenant in relation to a breach of the covenants or conditions of this Lease must provide that the period of 14 days is the time within which the Tenant is to remedy any breach or default if it is capable of remedy or to make reasonable compensation in money to the satisfaction of the Landlord.

94 Clause 8.5 of the Lease, in my opinion, defines the requirements for a notice to be given by the Landlord under clause 11.2. Clause 8.5 is positioned in s.8 of the Lease which is devoted to "Default by Lessee". Clause 8.1 relates to the Landlord's power of re-entry and forfeiture which may follow in the event of any one or more of the events which are defined to constitute a repudiation of the Lease. A number of the clauses within s.8 of the Lease do relate to the exercise of the landlord's power of re-entry, for example clause 8.4 enables the Landlord to remove the tenant's property on a re-entry and clause 8.8 enables the landlord to reduce the term of the Lease to a monthly tenancy upon becoming entitled to re-enter the Premises. Equally, a number of the clauses within section 8 are not specifically tied to the power of re-entry. Clause 8.2 gives express power to the Landlord to remedy the Tenant's default at the expense of the Tenant and clause 8.3 requires the Tenant to pay interest on late payments under the Lease. Clause 8.5 is likewise not specifically limited to the notice required to effect a re-entry or forfeiture of the Lease under clause 8.1.2. The text of clause 8.5 is not so limited. The only limitation in the clause is that it applies to "Any notice required to be given by the Lessor to the Lessee in relation to a breach of the covenants or conditions of this Lease."

95 A notice required to be given under clause 11.2.1 of the Lease, being a "written notice" in relation to persistent default under the Lease, also satisfies the description of a notice under clause 8.5. It follows that the mandatory requirement in clause 8.5 for the written notice of default to "provide that the period of fourteen days is the time within which the Lessee is to remedy any breach or default if it is capable or remedy ..." also applies to any notice to be given to the Tenant under clause 11.2.1.

96 Section 27(2) of the RLA is a section which is designed for the protection of a tenant who has the advantage of an option to renew for a further term provided for in the lease. The section strictly limits the circumstances in which the option is not exercisable. The requirement in clause 8.5 of the Lease for the notice of default under the Lease to specify a period of 14 days in which the default is to be remedied is an additional requirement to that provided for in s.27(2) of the RLA. However, the additional requirement specified in the Lease is also for the protection of the tenant and is not relevantly inconsistent with s.27(2) of the RLA.

97 In this case, the Landlord relied upon the seven letters which it had sent to Mr Xiao complaining of late payment of rent under the Lease as constituting the required notice under clause 11.2.1. The landlord's seven letters to Mr Xiao notifying him of rental being overdue variously requested payment using different terminology as to when the breach was to be remedied, namely: "as soon as possible" (18 June 2008); "that the above arrears are immediately brought up-to-date" (21 April 2008 and 26 February 2008); "Could you kindly forward your payment to our office as soon as possible" (9 January 2008 and 10 October 2007); "We wish to advise that unless payment is received by 14 September 2007, the Lessor will, at the timing of their choice, initiate all actions available to them under the Lease" (10 September 2007); and "We trust that you will correct the situation as a matter of urgency" (25 June 2007). However, none of these letters contained a reference to the mandatory period of 14 days within which to remedy the breaches of the Lease complained of as required by clause 8.5 of the Lease.

98 The result is that the condition precedent in clause 11.2 of the Lease failed to operate because the Landlord did not give the written notice as required by sub-clause 11.2.1.

99 In the circumstances, I am satisfied that there was no bar to the Tenant, Mr Xiao, exercising his option provided for in clause 11.1 of the Lease and that he validly so exercised.

100 An option to renew a lease does not constitute a contract, but constitutes an offer to grant a further term which the landlord is contractually precluded from withdrawing so long as the option remains exercisable.[20] It is not necessary for me to decide whether an option to renew a lease creates an equitable interest in land. However, it is a contractual right which, if forfeited, can be the subject of equitable relief against forfeiture.

101 The equitable principles governing relief against forfeiture of the right to exercise an option are of some antiquity. Bateman v Murray[21] was decided in the year of Captain Cook's death in Kealakekua Bay on the big island of Hawaii. The economic conditions of rural Ireland in the eighteenth century provide the context for the case.[22] In the early part of the century property values in Ireland had slumped and land was difficult to sell. In order to preserve value, landlords entered into long term leases with tenants in return for a combination of a price representing a substantial part of the value of the property together with a fixed annuity. However, the lease in most cases had to be periodically renewed and express conditions of the lease met before the option to renew could be exercised. Many tenants had become casual about their renewals and did not meet the conditions. Land values substantially increased in the course of the century, an event which inspired the original owners and their successors in title to challenge the validity of these leases. Bateman was such a case. The tenant pleaded relief against forfeiture of the option to renew his tenancy. Lord Chief Justice Mansfield recognised that relief against forfeiture of an option to renew the lease was open, but was a form of relief to be exercised within narrow boundaries.[23] He said:

That whenever a Court of Equity is resorted to for relief against the lapse of time, it is incumbent on the party applying, to allege and prove some favourable circumstances in excuse for the omission.

102 The principle was the subject of further development and elaboration. Murphy J in Hillier & Anor v Goodfellow[24] summarised the position as it was towards the end of the last century in Victoria. This case concerned a claim for relief against forfeiture of an option to purchase rural land where the optionee sought to exercise his option 10 days beyond the period permitted under the option agreement. Having determined that time was of the essence of the option agreement, his Honour said:[25]

That is not to say that if because of fraud, representation or request the optionee (purchaser) fails to declare himself before the due date, he could not be entitled to relief. Clearly he would have an equity, but if, simply by his own decision, unilateral mistake, misjudgment or even sheer incompetence, he does not in fact exercise his legal entitlement, then in my view it is doubtful whether equity would come to his aid.

103 In Union Eagle Limited v Golden Achievement Limited[26] the Privy Council canvassed the issue in the course of considering a case in which concerned the appellant ("the purchaser") who had entered into a written agreement to buy a flat on Hong Kong Island from the respondent ("the vendor") for HK$4.2 million. In accordance with the contract, the purchaser paid a deposit of HK$420,000 to the vendor's solicitors. Completion was to take place on or before 30 September 1991 and before 5.00 p.m. on that day. Time was of the essence of the agreement. The purchaser failed to complete by 5.00 p.m. on 30 September 1991 and the vendor declared that the contract was rescinded and the deposit forfeited. The purchaser tendered payment of the purchase price ten minutes after the time for completion had passed. The purchaser refused to accept that so venial a lapse should result in the loss of the contract and commenced proceedings for specific performance. The principal question in the case was whether the court had, and should have exercised, an equitable power to absolve the purchaser from the contractual consequences of having been late and to decree specific performance. Lord Hoffman, in delivering the judgment of the Privy Council, said:[27]

The boundaries of the equitable jurisdiction to relieve against contractual penalties and forfeitures are in some places imprecise. But their Lordships do not think that it is necessary in this case to draw them more exactly because they agree with Litton V-P that the facts lie well beyond the reach of the doctrine. The notion that the court's jurisdiction to grant relief is "unlimited and unfettered" (per Lord Simon of Glaisdale in Shiloh Spinners Ltd v Harding [1973] A.C. 691, 726) was rejected as a "beguiling heresy" by the House of Lords in The Scaptrade (Scandinavian Trading Tanker Co A.B. v Flota Petrolera Ecuatoriana [1983] 2 A.C. 694, 700). It is worth pausing to notice why it continues to beguile and why it is a heresy. It has the obvious merit of allowing the court to impose what it considers to be a fair solution in the individual case. The principle that equity will restrain the enforcement of legal rights when it would be unconscionable to insist upon them has an attractive breadth. But the reasons why the courts have rejected such generalisations are founded not merely upon authority (see Lord Radcliffe in Campbell Discount Co. Ltd v Bridge [1962] A.C. 600, 626) but also upon practical considerations of business. These are, in summary, that in many forms of transaction it is of great importance that if something happens for which the contract has made express provision, the parties should know with certainty that the terms of the contract will be enforced. The existence of an undefined discretion to refuse to enforce the contract on the ground that this would be "unconscionable" is sufficient to create uncertainty. Even if it is most unlikely that a discretion to grant relief will be exercised, its mere existence enables litigation to be employed as a negotiating tactic. The realities of commercial life are that this may cause injustice which cannot be fully compensated by the ultimate decision in the case.

The considerations of this nature, which led the House of Lords in The Scaptrade to reject the existence of an equitable jurisdiction to relieve against the withdrawal of a ship for late payment of hire under a charterparty, are described in a passage from the judgment of Robert Goff L.J. in the Court of Appeal [1983] Q.B. 529, 540-541 which was cited with approval by the House: see [1983] 2 A.C. 694, 703-4. Of course the same need for certainty is not present in all transactions and the difficult cases have involved attempts to define the jurisdiction in a way which will enable justice to be done in appropriate cases without destabilising normal commercial relationships.

Their Lordships do not think that it is possible, as Mr. Lyndon-Stanford QC suggested, to draw a broad distinction between "commercial" cases such as The Scaptrade and transactions concerning land, which are the traditional subject-matter of equitable rules. Land can also be an article of commerce and a flat in Hong Kong is probably as good an example as one could find. It is necessary to look more closely at the nature of the transaction rather than its subject-matter. The jurisdiction to grant relief is well established in cases of late payment of money due under a mortgage or rent due under a lease. The principle upon which the court acts was stated by Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] A.C. 691, 722 as follows:- "Where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money, equity has been willing to relieve on terms that the payment is made with interest, if appropriate, and also costs."

In such cases the court will, despite the express words of forfeiture in the mortgage or lease, "mould them into mere securities": see Viscount Haldane LC in G. and C. Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1913] UKHL 1; [1914] AC 25, 35.

104 More recently, Hollingworth J in Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd & Ors[28] considered the question as to whether equity may step in to relieve the tenant from the consequences of a failure to comply with the strict conditions of the exercise of the option. Her Honour considered[29] that the jurisdiction to grant relief against forfeiture in respect of breaches of covenant other than the payment of rent is conferred by s.146(2) of the Property Law Act 1958. The sub-section provides:

(2) Where a lessor is proceeding, by action or otherwise, to enforce or has enforced without the aid of the Court or the County Court such a right of re-entry or forfeiture, the lessee may apply to the Court for relief; and the Court 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 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.

Her Honour further noted[30] that the rights and powers conferred by the legislation are in addition to and not in derogation from any inherent right to relief or power to grant relief within the Supreme Court's inherent jurisdiction.

105 Hollingworth J in Beamer went on to consider the principles upon which equity would intervene to provide an optionee with relief against forfeiture. She said:[31]

The grant of this relief is not to be constrained by precedent. Cases in this area generally turn on their particular circumstances. The court will also take into account the general justice of the situation.

What then are some of the relevant factors in exercising the discretion? The basis of equitable intervention in these cases is said to be relief against overreaching and unconscionable dealing. The seminal judgment on relief against forfeiture is that of Lord Wilberforce in Shiloh Spinners Ltd v Harding:

"It remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the rights of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word 'appropriate' involves consideration of the conduct of the applicant for relief, in particular where his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach."

In Legione v Hateley, Mason and Deane JJ endorsed the view that when the equitable jurisdiction is invoked to relieve against forfeiture, equity looks to unconscionable conduct especially when unconscionable conduct is associated with fraud, mistake, accident or surprise.

The test to be applied is one of unconscionability - that is, whether in the light of the tenant's remedying breach of covenant, resort by the landlord to the strict legal right of re-entry would be unconscionable. Various cases illustrate that even if the breach is remediable because of its minor nature, it is not always unconscionable for a landlord to rely on its strict legal rights. The court must be satisfied in relieving against forfeiture that there is a reasonable expectation that the tenant will honour the lease obligations in the future. Certain circumstances may arise where the court cannot be so satisfied. In particular, the tenant may be guilty of "serious misconduct" beyond the breach of covenant. This being conduct of such gravity that, even accepting the default for which the right of re-entry as security has been satisfied, it would not be unconscionable on the landlord's part to insist on strict legal rights.

Therefore, much of the court's consideration of whether or not to grant relief will focus on the conduct of the tenant. A tenant must, so far as possible, attempt to remedy the breach or breaches alleged in the notice served and pay reasonable compensation for the breaches which cannot be remedied. The tenant must come to court with clean hands and ought not to be relieved if evincing an intention to continue or to repeat the breach of covenant. Where the conduct of the tenant reveals a clear history of wilful breaches of more than one covenant, a case of contumacious disregard by the tenant of the landlord's rights over a period of time, and a total lack of evidence as to the tenant's ability to speedily and adequately make good the consequences of the default, relief against forfeiture will not be granted.

Equally so, if the essentials of the bargain can be secured for the landlord, it is fair and just to prevent the landlord from exercising strict legal rights. Thus, if the landlord has suffered no appreciable damage from a breach, if the breach was not wilful, or if the breach was otherwise remediable because of its minor nature, consideration will be given to granting relief.

106 I am therefore of the opinion that, in the appropriate case an option to renew a lease is a contractual right which, if forfeited, can be the subject of equitable relief against forfeiture.

107 However, the relief would be open to be considered in this case only if the contractual right to exercise the option to renew the Lease had in law been forfeited. I have found to the contrary that Mr Xiao's exercise of the option on 19 June 2008 was a valid exercise under the terms of the Lease when considered alongside the provisions of the RLA.

108 Accordingly, it is unnecessary for me to decide whether, on the facts of the case, relief against forfeiture should have been granted on the assumption that Mr Xiao's exercise of the option on 19 June 2008 was not a valid exercise.

109 Given that I am prepared to grant the declaration which is sought, it is unnecessary to make an additional order for specific performance. A declaration in the appropriate form is all that is necessary to resolve the issues between the parties.

110 Accordingly, I am prepared to make the following order:

The plaintiff, Yousen Xiao, on 19 June 2008 lawfully exercised his option to renew the Lease expressed to commence on 1 October 1999 in respect of premises consisting of part of the ground floor Pura House, 3A - 5 Queens Road, Melbourne, and thereafter became and is entitled to a further term under the Lease in accordance with its terms.

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