Brandonia Pty Limited v Lenola Pty Limited [2006] NSWADT 319 (13 November 2006)

Last Updated: 13 November 2006

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL RETAIL LEASES DIVISION

CITATION: Brandonia Pty Limited v Lenola Pty Limited [2006] NSWADT 319


PARTIES: APPLICANT / CROSS RESPONDENT
Brandonia Pty Limited
RESPONDENT / CROSS APPLICANT
Lenola Pty Limited



FILE NUMBERS: 065035
065061

HEARING DATES: 27/07/06-28/07/06

SUBMISSIONS CLOSED: 28/07/2006



DECISION DATE: 13/11/2006

BEFORE: Chesterman M - ADCJ (Deputy President)Wilson L - Non Judicial MemberGriffiths G - Non Judicial Member





LEGISLATION CITED: Administrative Decisions Tribunal Act 1997
Conveyancing Act 1919

CASES CITED: Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557
Campbell v Commercial Banking Co of Sydney (1881) 2 LR (NSW) 375
Civil Service Co-operative Society Ltd v McGrigor’s Trustee [1923] 2 Ch 347
Ex parte Dally-Watkins; Re Wilson (1955) 72 WN (NSW) 454
Galaxy Catering Pty Ltd v Trust Company of Australia Ltd [2006] NSWADT 182
Horsey Estate Ltd v Steiger [1899] 2 QB 79
Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Pty Ltd [2003] NSWADT 241
Johnson v Senes and Burger (1961) 78 WN (NSW) 861
Kennard v Shanhaven Pty Ltd [2002] NSWADT 243
Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd [1992] ACTSC 113; (1992) 111 FLR 81
Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907
Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADTAP 24

APPLICATION: Claim for payment of money
Claim for relief from payment of money
Damages
Unconscionability

MATTER FOR DECISION: Principal matter


APPLICANT REPRESENTATIVE: APPLICANT / CROSS RESPONDENT
D Sim, agent (27 July 2006)
S Spring, agent (28 July 2006)

RESPONDENT REPRESENTATIVE: RESPONDENT / CROSS APPLICANT
B Kasep, barrister

ORDERS: (1) (a) The retail tenancy claim lodged (as Cross Applicant) by the Respondent is upheld
(b) The unconscionable conduct claims of both parties and the retail tenancy claim lodged by the Applicant are dismissed
(2) (a) Subject to the deduction of the amount of the security deposit of $6,260.35, plus accrued interest, paid to the Respondent by the Applicant on 17 October 1998, the Applicant is liable to pay to the Respondent the sum of $65,261.47
(b) It is declared that the Respondent is entitled to apply for its own benefit the sum of $4,500 received from the Applicant and held on trust
(3) Within 28 days of the date of this decision, the Respondent is to file and serve (a) a statement of account relating to the security deposit, including particulars of all amounts of interest that have been earned on this deposit; and (b) any evidence and submissions that it may wish to put forward regarding the costs of these proceedings
(4) Within a further 28 days, the Applicant is to file and serve its evidence and submissions (if any) in reply
(5) The further issues remaining in the proceedings following compliance with Orders 3 and 4, including the Respondent’s claim for an award of interest, will be determined ‘on the papers’ under s 76 of the Administrative Decisions Tribunal Act 1977, unless submissions to the contrary are made.


Reasons for Decision:

REASONS FOR DECISION

Introduction

1 Between 14 October 1998 and 6 March 2006, the Applicant in these proceedings, Brandonia Pty Ltd (‘Brandonia’) occupied retail shop premises known as Shop 2D, 2-4 Corunna Road, Eastwood (‘the premises’) as a lessee under successive leases from the owner of the building in which the premises were situated (‘the building’). The owner/lessor was Lenola Pty Ltd (‘Lenola’), which is the Respondent in these proceeding.

2 Each of the leases between the parties was governed by the Retail Leases Act 1994 (‘the RL Act’).

3 The directors of Brandonia were Mr Kok Kie Sim and Ms Dinah Ming Liang Sim. Brandonia carried on a business in the premises in accordance with the permitted use under the various leases. This use was defined as follows: ‘Cake shop, milk bar, hot food and take-away catering service, bakery’. Other retail businesses were conducted in the building under leases from Lenola.

4 Mr and Ms Sim were guarantors of Brandonia’s liabilities under its leases from Lenola. But they are not parties to the present proceedings. Although the material put before the Tribunal by Lenola makes occasional references to their alleged liabilities as guarantors, this question is not before the Tribunal.

5 Brandonia also leased residential premises from Lenola in the building. This lease was terminated on 19 December 2005. As mentioned briefly below, certain aspects of disputes that arose in connection with this lease were mentioned in the material put before the Tribunal. But as both parties recognised, these disputes did not fall within the Tribunal’s jurisdiction.

6 The matters to be resolved by the Tribunal in these proceedings arose out of disputes between the parties relating principally to Brandonia’s obligations, under its successive retail leases, to make contributions to the outgoings paid by Lenola with respect to the building.

7 The early stages of these disputes need not be described at any length in this judgment. The disputes came to a head in late 2005 and the early months of 2006. Ultimately, on 6 March 2006, Lenola through its agents repossessed the premises, claiming to be entitled to do so by virtue of alleged breaches by Brandonia of its obligations to pay rent and contribute to outgoings.

8 On 7 March 2006, Brandonia commenced the present proceedings by filing an application (subsequently amended) in the Tribunal, seeking both relief against forfeiture and compensation for loss of income. It abandoned the former claim at the hearing.

9 On 13 April 2006, the Respondent, as Cross Applicant, filed an application, seeking compensation under various heads.

10 Since these applications included claims of unconscionable conduct under s 62B of the RL Act (as well as retail tenancy claims), the Tribunal must be constituted in these proceedings in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997. It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.

The first two agreements for leasing the premises

11 The long and tortuous history of the dealings between the parties commenced with the assignment to Brandonia, on 14 October 1998, of a three-year lease of the premises (‘the First Lease’) by Lenola, commencing 1 July 1998. The rent stipulated was $25,917.82 per annum. Three days later, Brandonia paid a security deposit of $6,260.35 to Lenola.

12 Following the expiry of the First Lease, Brandonia did not exercise an option to renew contained in it, but held over as a monthly tenant.

13 Between 14 October 1998, the date of the assignment, and 7 September 2004, arrears of rent and outgoings accrued to the amount of $37,653.23 (‘the First Lease Debt’).

14 Local Court proceedings commenced by Lenola to recover these arrears were settled in November 2004. As part of the settlement, the parties entered a new lease of the premises (‘the Second Lease’) for the period from 1 November 2004 to 31 October 2006, with an option to renew for five years. It provided that the rent should be $23,644.00 per annum plus GST and that Brandonia should contribute 12.95% of the outgoings for the building. Many of the terms of the Second Lease were contained in a memorandum commonly used for registered leases (‘the Registered Memorandum’).

15 In Annexure A to the Second Lease, Brandonia and Mr and Ms Sim (as guarantors) acknowledged that they owed the First Lease Debt and agreed to pay this debt, stated to be $37,653.23, by monthly instalments of $1,568.87, in addition to all money amounts arising under the Second Lease.

Events leading to the execution of a further lease

16 Between 8 December 2004 and 26 October 2005, eight cheques sent by Brandonia to Lenola in payment of obligations arising under the Second Lease were dishonoured. Brandonia asserted, however, that the dishonour of the last two of these cheques occurred because Lenola or its agents had failed to take account of the fact that, as indicated in a covering letter, they were post-dated.

17 As at 18 October 2005, Brandonia was in arrears of rent under the Second Lease in the sum of $1,816.74 and had made only one payment of $1,500 in reduction of the First Lease Debt. In consequence, Lenola took steps to recover possession of the premises.

18 It is not necessary to set out in detail what these steps were or how Brandonia responded to them. It is sufficient to say that Tribunal proceedings instigated by Brandonia were referred to mediation, which resulted in a settlement of a number of issues between the parties.

19 On 10 November 2005, before the mediation was conducted, Truman Hoyle, who were and remain the solicitors for Lenola, sent to Brandonia a letter requiring payment by 28 November 2005 of its contribution to outgoings due for the period of eight months from the commencement of the Second Lease (1 November 2004) until 30 June 2005. Accompanying this letter was a statement prepared by Latash Properties, the managing agents at this stage, showing the full amount of outgoings paid for the building during this period and the steps taken to calculate Brandonia’s contribution. The amount required to be paid was $3,096.89.

20 On 22 November 2005, Truman Hoyle sent to Brandonia copies of all the invoices and statements that Latash had used in preparing this statement. In its covering letter, Truman Hoyle indicated that ‘evidence of the building insurance amount’ would be provided soon.

21 On 24 November 2005, Brandonia paid $2,000 to Lenola in reduction of its liability to contribute to outgoings under the Second Lease.

22 On the same day, the mediation was conducted and the parties signed a document setting out heads of agreement. The most important terms of this agreement were to the effect that the Second Lease was to be varied by (a) deleting the option of renewal; (b) specifying Brandonia’s contribution to outgoings as 12.5% of the outgoings for the commercial portion of the building, which were to be fixed at 75% of the outgoings for the building as a whole; and (c) amending significantly the amount and the terms of the payments to be made by Brandonia in discharge of the First Lease Debt. Further details of some of these matters appear below.

23 On 27 November 2005, Truman Hoyle sent a draft deed of variation of the Second Lease to Brandonia’s solicitor. Brandonia indicated that it would not sign any deed unless a disclosure statement setting out actual outgoings for the period from 1 November 2004 to 30 June 2005 was provided.

24 Around the middle of December 2005, Lenola appointed Mainland Industrial and Commercial Pty Ltd (‘Mainland’) as its agent to manage the premises. Mr David Niven, a commercial real estate agent employed by Mainland, carried out further investigations into the amount payable by Brandonia for outgoings, enlarging the period to which its calculations related to cover the whole of the financial year 2004-05.

25 On or about 9 January 2006, a rent cheque for $2,200 sent to Lenola by Brandonia was dishonoured after presentation.

26 On 17 January 2006, Mainland wrote to Brandonia stating that Brandonia’s contribution to the outgoings for the whole of 2004-05 amounted to $5,076.19. It did not mention that this accounting period of twelve months differed from the period of eight months covered in the statement and supporting documents that Latash had prepared. Mainland’s letter stated that Brandonia’s contribution of $5,076.19 was presently due and owing, and that its contribution to estimated outgoings for 2005-06 was $5,428.12, payable in monthly instalments of $452.34.

27 This letter was accompanied by a schedule showing the total outgoings and estimated outgoings for the building as a whole in these two years, and a tax invoice requiring payment of rent and of these contributions to outgoings on 1 February 2006. It indicated that in calculating these contributions the ‘commercial portion’ of the total outgoings for the building had been assessed at 75% and Brandonia’s share of this portion had been assessed at 12.95%.

28 In a letter to Mainland dated 24 January 2006, Brandonia asked Mainland to ‘please refer to the Retail Leases Act, Section 27, Outgoings Estimate (2004-2005), Section 28 Outgoings Statement and Section 28A Non Provision of Outgoings Estimate or Statement’. Brandonia also pointed out that a letter to it from Truman Hoyle dated 10 November 2005 referred to the fact that it ‘had been billed for 2004/2005 outgoings and payment of $2000 was made to Lenola Pty Ltd directly in respect of outgoings’. It added that the amount showing in Mainland’s letter of 17 January 2006 differed from ‘Truman Hoyle’s outgoing statement dated 10 November 2005’.

29 On or about 9 February 2006, a rent cheque for $2,200 sent to Lenola by Brandonia was dishonoured after presentation.

30 On 10 February 2006, Truman Hoyle sent a draft lease and a deed of surrender of the Second Lease to Brandonia. These documents purported to give effect to the settlement reached on 24 November 2005.

31 A lessor’s disclosure statement accompanying the lease included a copy of the schedule, previously sent to Brandonia by Mainland, which set out the total outgoings and estimated outgoings for the building as a whole during 2004-05 and 2005-06. Handwritten notes on the same page gave estimates for the ‘tenant’s proportion’ in each category, calculated at 12.5% of the ‘commercial portion’. The calculation for 2004-05 was inaccurate on account of a misreading of the way in which GST was dealt with.

32 On 14 February 2006, Brandonia discontinued its claim in the Tribunal against Lenola.

33 On the same day, 14 February 2006, the parties executed the draft lease (‘the New Lease’) and the deed of surrender of the Second Lease. The term of the New Lease was from 14 February 2006 to 30 April 2007. A certificate under s 16(3) of the RL Act was appended to it. As already mentioned, Brandonia’s directors, Mr and Ms Sim, were named as guarantors.

34 Under an annexure to the New Lease that replaced what appeared to constitute the ‘First Appendix’ to the Registered Memorandum, the rent remained the same as under the Second Lease, with provision for a rent review on 1 November 2006. It was payable monthly in advance. In Item 4, Brandonia’s liability to contribute to outgoings was recorded in the terms agreed at the mediation: that is, it was to pay 12.5% of the outgoings for the commercial portion of the building, which were fixed at 75% of the outgoings for the building as a whole.

35 The detailed obligations of the parties to the New Lease were those set out in the Registered Memorandum, as supplemented and varied in a number of respects by a further annexure, headed ‘Annexure A’. The significant clauses in Annexure A were to the following effect:-

(a) Clause 2(a) deleted a lessor’s covenant in clause 20 of the Registered Memorandum that 14 days’ notice would be given to the lessee of any intended forfeiture or re-entry of the premises.
(b) Clause 2(b) provided that the period of default by the lessee in paying rent or other money due under the lease that would entitle the lessor to take steps such as forfeiture or re-entry should be shortened from 14 days (as stipulated in clause 13 of the Registered Memorandum) to seven days.
(c) Under clause 15, Brandonia agreed to use its best endeavours to sell its business before 30 April 2007 and Lenola agreed, subject to specified conditions, to grant a lease of not less than five years to the prospective purchaser.
(d) Clause 17(a) contained an acknowledgment by Lenola that it had received a security deposit of $6,260.35 in cash from Brandonia.
(e) Clause 17(b) stated that the schedule of outgoings contained in the disclosure statement was ‘an estimate subject to substantiation’.
(f) Clause 11 restated, with significant amendments, the obligation of Brandonia to pay the First Lease Debt.

36 The terms of Clause 11 of Annexure A, so far as relevant, were as follows: -

The Lessee and the Guarantors acknowledge that they are indebted to the Lessor in the sum of $37,653.23 (inclusive of GST) in relation to a prior lease of the subject property...
Notwithstanding anything contained in this Lease, in addition to any other payments made by the Lessees under this Lease the Lessee shall pay to the Lessor a monthly in advance sum of $1,568.87 at the same time as the base rent is paid throughout the period of this Lease.
Provided the Lessee pays to the Lessor the sum of $250.00 per week on the Thursday of each week, the first payment due no later than 2 December 2005 (time of the essence), and the last payment on 27 April 2007, and pays the balance on 30 April 2007 so that the total paid by that date (by instalments) is $20,000, the Lessor will accept the sum of $20,000 in full satisfaction of the sum of $37,653.23 set out in the first paragraph above.
If the Lessee defaults in the payment of any sum in the third paragraph above, the whole of the amount of $37,653.23 set out in paragraph one above will immediately become due and owing. If such default occurs, the Lessee will not defend any necessary proceedings commenced by the Lessor to recover the amount due and owing, and the Lessor will be entitled to rely upon this clause 11 to enforce its rights against the Lessee...
This clause is an essential term of this Lease and failure to pay the relevant amount shall constitute a fundamental breach of this lease for which the lessor shall have the rights identified in this Lease and at common law, and in addition, the right to pursue judgement under the abovementioned proceedings.

37 Implementation of this agreement for repayment of the First Lease Debt had in fact begun on 24 November 2005, pursuant to the settlement reached by mediation. Brandonia made the first four payments of $250 on 1, 8, 15 and 22 December 2005, as required. But each of the next seven payments, spanning the period from 29 December 2005 to 10 February 2006, was one day late. The payment due on 16 February 2006 was made on that day.

38 In an affidavit dated 16 May 2006 by Ms Marrocco, the managing director of Lenola, she stated that Lenola accordingly regarded the First Lease Debt as having been repaid to the extent of $1,000 only and that Lenola held all payments made after 29 December 2005 on trust. The total amount so held, she said, was $4,500.

39 In an affidavit, Mr Sim said that the reason why many of the payments made after 29 December 2005 were one day late was that Lenola agreed to accept this small-scale deferral when he requested it during the mediation. He did not produce any documentary evidence of this. It was put to him during cross-examination that clause 11 left no room for doubt as to when each payment had to be made and that it made ‘time of the essence’. His reply was to ask whether ‘one day late’ was ‘a default’.

40 Due to the absence of any supporting evidence from Brandonia indicating that Lenola had indeed agreed to accept payments that were one day late, the Tribunal’s finding is in accordance with Lenola’s version of events.

Events culminating in Lenola’s re-entry into the premises

41 In a letter dated 16 February 2006 to Brandonia, Mainland stated that it would refer to Truman Hoyle the discrepancy between its version of the amount owed for the 2004-05 outgoings and the version appearing in Truman Hoyle’s letter of 10 November 2005. The letter enclosed an Independent Audit Report and Reconciliation on outgoings for the year 2004-05, adding that this document confirmed the figures supplied in the letter of 17 January 2006. It also pointed out that Brandonia’s monthly contributions to the estimated outgoings for 2005-06 until 1 February 2006 totalled $3,618.72 and were now due to be paid. It asked Brandonia to ‘attend to payment forthwith’. The letter further noted that, following the dishonour of a recent cheque for $2,200, Brandonia owed an amount of $2,167.36 for rent to the end of February 2006, plus a dishonoured cheque fee of $11.00.

42 The next two documents (chronologically speaking) in the evidence are a tax invoice dated 20 February 2006 sent by Mainland to Brandonia and a letter, sent by fax and registered mail, from Brandonia to Truman Hoyle, for the attention of Mr Nick Finlayson, bearing the same date.

43 The tax invoice set out figures for the arrears of rent and 2005-06 outgoings, the 2004-05 ‘outgoings shortfall’, the dishonoured cheque fee and the amounts due on 2 March 2006 for rent and 2005-06 outgoings for the ‘next period’.

44 In the letter of 20 February to Truman Hoyle, Brandonia first referred to a telephone conversation that Mr Sim had had with Mr Finlayson on that day, then asked him to forward an enclosed cheque to Lenola for rent for February 2006. It then stated, in a new paragraph, ‘Reason being that we can no longer deal with their Managing Agent, Mainland Industrial’. In the next paragraph, Brandonia outlined various complaints against Mainland, then asked Truman Hoyle to check with Lenola ‘that all future rents be paid directly to him from us’. It went on to ask if Truman Hoyle could explain what Mainland was saying in the last paragraph of its latest letter to Brandonia, which was enclosed. Finally, it asked Truman Hoyle to ‘check if the receipts of the $250 payments as well as the $2000 for outgoings’ had yet been sent to it.

45 On or about 20 February 2006, a rent cheque for $2,167.36 sent to Lenola by Brandonia was dishonoured after presentation.

46 In a further letter to Brandonia dated 23 February 2006, Mainland stated as follows: (a) the figures in its preceding letter referred to the Second Lease; (b) Mainland had since been advised of the execution of the New Lease; (c) the amounts due for estimated outgoings and for rent were the same under the New Lease as under the Second Lease; (d) the amount of $3,618.72 remaining due for estimated outgoings should be ‘paid forthwith’; (e) following the clearance of a cheque for $2,167.36 that Brandonia had recently sent, the rent would be paid up to 28 February 2006; (f) the next payment for rent, for which Mainland had already sent an invoice, would be due on 1 March 2006, as the ‘rental due-date’ would be adjusted under the New Lease to the first of each month; (g) Mainland had been instructed to enforce the late payment penalty interest rate provided for in the registered Memorandum; (h) Mainland was in the process of arranging for Brandonia’s security deposit to be forwarded to it, whereupon it would lodge this amount at the Retail Leases Bond Board in accordance with new provisions in the RL Act; and (i) all rental payments could be made by cheque or by direct deposit into Mainland’s trust account, of which Brandonia had already been given details.

47 On 26 February 2006, Brandonia replied to Mainland’s two previous letters, querying the assessment of the ‘commercial portion’ of the outgoings at 75% and asking for a response to Brandonia’s previous assertion that it had paid $2,000 to Truman Hoyle in respect of the 2004-05 outgoings. The letter asked that Mainland should ‘kindly refer to Section 12 of the Retail Leases Act’, claiming that Brandonia had ‘never received any estimate or disclosure statement until this year’. It added that Brandonia ‘ would appreciate no further request for payment being sent to us until this matter is resolved’.

48 In a letter to Brandonia dated 27 February 2006, Mainland stated that, with regard to the ‘75% portion’, Brandonia should refer to item 4 of the Annexure to the New Lease, which was, it said, ‘quite specific and details what you must pay’. The letter confirmed previous advice from Mainland that Truman Hoyle would respond to Brandonia regarding the 2005-05 outgoings. It purported to refute Brandonia’s claim based on s 12 of the RL Act. It concluded by insisting that Brandonia should pay ‘without further delay’ its share of the budgeted outgoings for 2005-06, being $3,618.72 up to 28 February 2006 and reminding Brandonia that a further payment of $2,381.55 + GST, being rent and budgeted outgoings, would be due on 1 March 2006.

49 In a letter dated 1 March 2006 to Mainland, Brandonia asked it to ‘refer’, in relation to the New Lease, to an ‘attached letter from our solicitor to Truman Hoyle, which is self-explanatory’ and also to ss 11 and 30 of the RL Act. (It would appear that this letter was one forming part of the correspondence leading up to the execution of the New Lease.) Brandonia also asked Mainland to read the last paragraph of Truman Hoyle’s letter to Brandonia dated 30 November 2005, which was also enclosed. Brandonia repeated its assertion that during ‘all these years, no estimate or disclosure statements were forwarded to us until this year’. It asked Mainland to ‘check with the other tenants’ and whether Mainland’s last letter to it implied that s 12 of the RL Act was ‘not applicable’. Brandonia also asked Mainland to ‘check with the lessor’ as to ‘who we should contact on pending issues’, suggesting that since the question of outgoings for 2004-05 was ‘not of interest’ to Mainland, it should not ‘reflect on’ Mainland’s tax invoice to Brandonia.

50 On 2 March 2006, which was a Thursday, a representative of Lenola hand-delivered to Brandonia a letter bearing that date from Truman Hoyle addressed to ‘The Directors, Brandonia’ (hereafter ‘the default notice’). The time of delivery is not apparent from the evidence. The letter commenced as follows: -

Lenola Pty Limited Lease to Brandonia Pty Limited Premises: Shop 2D, 2-4 Corunna Road, Eastwood

As you are aware, we act for Lenola Pty Limited.

We are advised that as at today’s date you owe to our client the sum of $11,481.97, calculated as follows:

Balance of outstanding (sic) for the 2004/2005 year $3,076.19

Outgoings plus GST for the 2005/2006 year (calculated to February 2006) $3,618.72

Rent plus GST due on 1 February 2006 $2,167.36

Rent plus GST due on 1 March 2006 $2,167.37

Outgoings plus GST due on 1 March 2004 (sic) $ 452.34

Total $11,481.97

51 The next paragraph of the letter stated that Brandonia was liable to pay to Lenola a further amount by way of interest.

52 The letter concluded as follows: -

We are instructed to give you formal notice that unless the above amount of $11,481.97 is received by our client’s Managing Agent, Mainland Industrial, by 5pm on Monday next 6 March 2006 then thereafter our client shall exercise its right to re-enter into and upon the Premises and repossess the same.
No further notice will be given.

53 In a letter dated 3 March 2006 to Brandonia, Mainland noted that the issues raised in Brandonia’s letter of 1 March were ‘repeats of previous issues’, which Mainland had ‘already addressed in writing on a number of occasions’. Mainland reiterated that Brandonia was liable for outgoings for 2004-05 and budgeted outgoings for 2005-06. It stated that the former outgoings had been reconciled and audited, that all relevant documents had been forwarded to Brandonia, that the audited figures superseded the previous figures given to Brandonia by Truman Hoyle in November 2005 and that the amount owing was ‘confirmed in the letter dated 2nd March 2006 from Truman Hoyle, which we hand delivered to you on the 2nd March 2006’. It said further that the budgeted outgoings had been given to Brandonia ‘in prescribed detail’ and that Brandonia had been invoiced accordingly. It expressed the view that there was ‘no point in continuing with persistent communications on the same matters when they have already been clearly and correctly addressed’. It referred to the dishonouring of two rent cheques from Brandonia during February 2006, to Brandonia’s failure to replace these cheques with a cash payment or a direct deposit and to Brandonia’s liability for interest. Mainland’s letter concluded as follows: ‘The letter from Truman Hoyle dated 2nd March 2006, previously mentioned, clearly sets out the arrears and the course of action if you do not pay your debts.’

54 On the afternoon of Monday 6 March 2006, Brandonia made a cash deposit of $4,358.00 into Mainland’s account at the National Australia Bank, Eastwood. A letter from the Bank to Brandonia dated 1 June 2006 confirmed that this deposit ‘was processed to the requested account on the 6th March 2006’. It added: ‘This credit was processed as a cash deposit at 14:56:18. These funds were available as CLEARED FUNDS.’

55 On the same afternoon, Brandonia faxed and posted to Mr Niven at Mainland a letter in the following terms: -

Your letter dated 3rd March – 2d Corunna Road Eastwood
We refer to your letter of the above as received today. Please note that $4358.00 has been transferred to your account ref 26 for rent only.
We are still in dispute of (sic) the outgoings and are refraining from paying but not refusing to pay until this is resolved. Please bear in mind that this has been an ongoing issue and require (sic) substantiation as per our new lease as prescribed in our contract.
We await your satisfactory reply as indicated in our previous letters, otherwise, the only solution to this matter is to have it determined again at the Tribunal.

56 The copy of this letter annexed to Mr Niven’s affidavit has annotations at the top indicating that it was received by Mainland’s fax machine at 3.35 p.m. on 6 March 2006.

57 In her first affidavit Ms Marrocco admitted that Brandonia made this payment of arrears of rent on the afternoon of 6 March. She stated in her second affidavit that during that afternoon Mr Niven informed her by telephone that Mainland had received Brandonia’s letter bearing that date. He went on to say that the money was ‘not in the account yet’ and that he could ‘check until the close of business to see if it turns up’. At about 6 p.m., when she telephoned him, he said that the money had not arrived. In cross-examination, however, he said that although Mainland was ‘online with’ the Bank it would not have checked on this matter and that in any event he understood that the money would not have been available to Mainland until the next day. On the morning of that day, 7 March, he advised Ms Marrocco that the money was in Mainland’s account.

58 At about 9 p.m. on 6 March 2006, agents for Lenola took possession of the premises. Mainland has remained out of possession since then.

The aftermath of Lenola’s re-entry

59 So far as relevant, the history of this matter after Lenola’s re-entry into the premises is as follows.

60 On 7 March 2006, Brandonia commenced the present proceedings by filing its application in the Tribunal. It also filed an application for an urgent interim order requiring Lenola to permit it to retake possession of the premises.

61 At the hearing of the latter application on 9 March 2006, Mr Sim appeared as agent for Brandonia. The Tribunal, constituted by Judicial Member Higgins, advised him that, in accordance with standard practice, it was not inclined to make the order requested unless Brandonia paid or undertook to pay the outstanding balance then claimed on account of outgoings ($7,147.25). The Tribunal adjourned the proceedings for a short period to permit the directors of Brandonia to consider their position. After the hearing was resumed, Mr Sim indicated that Brandonia wished to withdraw its application for an urgent interim order. He said that Brandonia maintained its refusal to pay the disputed contribution to outgoings until it had seen ‘substantiation’.

62 In a letter dated 9 March 2006 to Brandonia, Truman Hoyle asserted that since Brandonia had withdrawn its interim application for relief against forfeiture at the hearing two days earlier, Lenola regarded the lease as having been forfeited. It then outlined the following course of action that Lenola proposed to take: (a) to permit owners of vending machines sufficient access to remove the machines; (b) to arrange with Brandonia, through the managing agent, a mutually convenient time for Brandonia to remove the tenant’s fixtures and make good the premises (the letter invited Brandonia to contact the agent in order to achieve this); and (c) to take steps to relet the premises. It added that Lenola reserved all its rights under the lease, including its rights to recover all costs associated with Brandonia’s default and mesne profits associated with reletting the premises.

63 The payment of $250 due on 10 March 2006 under clause 11 of Annexure A to the New Lease was not made until 13 March. In an affidavit, Mr Sim stated that this was because Brandonia ‘was not sure of the situation’ after the re-entry on 6 March. Each of the subsequent payments that were due up to and including 27 April 2006 was late by at least one day.

64 In a letter dated 21 March 2006 to Truman Hoyle, Messrs Peter Y M Lau & Co (‘Peter Lau’), whom Brandonia had retained as its solicitor, said that Brandonia had filed an amended application in the Tribunal and that it reserved its right to claim ‘substantial compensation’ for loss of income, goodwill, future business and damage to fixtures and fittings during the period in which it was locked out of the premises.

65 In a letter dated 5 April 2006, Truman Hoyle notified Peter Lau that unless by 5 p.m. on 10 April Brandonia had removed its fixtures and fittings and made good the premises, Lenola would carry out these operations, would store the fixtures and fittings and recover the storage charges and costs of making good to Brandonia. The letter enclosed quotations from two firms indicating that the costs of removal of debris and making good would amount to $23,804, including GST.

66 There was further correspondence between the two firms of solicitors, which need not be described here.

67 In an affidavit dated 16 May 2006, Mr Niven stated that Brandonia had failed to remove a substantial quantity of fixtures and fittings. He added that before the commencement of any new lease of the premises they would need to be cleaned, and expressed the opinion that the cost of making them good would be of the order of $20,000.

68 Mr Niven also outlined the attempts, so far unsuccessful, that Mainland had made, on instructions from Lenola, to relet the premises following Lenola’s re-entry. He expressed the opinion that these attempts involved what he called ‘standard procedures’, adding that none of the prospective tenants had suggested that the rent being sought ($28,600 plus GST) was unduly high.

69 Brandonia did not tender any evidence contesting these assertions by Mr Niven.

70 A central issue in this case, which is whether the re-entry by Lenola on 6 March 2006 was lawful, will now be discussed.

Was the re-entry by Lenola lawful?

71 The question whether this re-entry into the premises by Lenola was lawful, having regard to the terms of the New Lease and to relevant statutory provisions, was much contested at the hearing. Its resolution depends on the answer to three questions: (a) at the time of re-entry, what debt, if any, was due and owing under the New Lease from Brandonia to Lenola; (b) whether the existence of any such debt at that time entitled Lenola to re-enter under the terms of this lease; and (c) whether statutory provisions relating to forfeiture and re-entry, as interpreted in the case law, prevented the exercise of any such right of re-entry at the time and in the manner in which it actually occurred. These questions will now be discussed.

72 What debt, if any, was due and owing. It was conceded by Lenola that the default notice contained inaccuracies. Ms Marrocco indicated in her second affidavit that the total amount demanded should have been $11,340.49, not $11,481.97. The error in the default notice arose from the fact that under the New Lease Brandonia’s contribution to the estimated 2005-06 outgoings should have been calculated at 12.5%, not 12.95%, of the ‘commercial portion’ of the outgoings.

73 In this affidavit, she set out as follows how the demand for payment delivered to Brandonia should have been formulated (with corrections underlined): -

Balance of outgoings outstanding for the 2004/2005 year (incl GST) $3,076.19
Outgoings (incl GST) for the 2005/2006 year (calculate to 28 February 2006)
$3,492.96
Rent (incl GST) due on 1 February 2006
$2,167.36
Rent (incl GST) due on 1 March 2006
$2,167.37
Outgoings (incl GST) due on 1 March 2006
$ 436.62
Total $11,340.49

74 Brandonia’s deposit of $4,358.00 on 6 March 2006 exceeded by $23.28 the amount needed to pay the arrears of rent. Assuming that despite their letter of the same date this small sum should be treated as a part payment of the amounts demanded for outgoings, the balance remaining unpaid at the time of the re-entry would be $6,982.49.

75 At the hearing, Brandonia claimed that the amount of $3,076.19 specified for the 2004-05 outgoings should be reduced because of the payment of $2,000 that it made on 24 November 2005. It referred to the fact that the outgoings contribution claimed in Truman Hoyle’s letter of 10 November 2005 was slightly in excess of $3,000.

76 The Tribunal is satisfied, however, that this $2,000 payment was duly taken into account by Truman Hoyle in preparing the default notice. It reduced the amount demanded under this heading from $5,076.19 (the figure quoted in Mainland’s letter to Brandonia of 17 January 2006) to $3,076.19. The reason why the figure quoted by Truman Hoyle in its letter of November 2005 was only about $3,000 is that the contribution required in the letter was for a period of eight months only, not a full year.

77 Mr Spring, appearing for Brandonia, submitted further that as at 3 March 2006 Lenola was precluded by ss 28 and 28A of the RL Act from requiring payment of Brandonia’s contribution to the 2004-05 outgoings.

78 So far as relevant, these sections state as follows: -

28 Outgoings statements
(1) A retail shop lease is taken to include provision to the following effect:

(a) The lessor must give the lessee a written statement (an outgoings statement) that details all expenditure by the lessor in each accounting period of the lessor during the term of the lease on account of outgoings to which the lessee is required to contribute....
(c) The outgoings statement is to be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time.
(d) The outgoings statement is to be given to the lessee within 3 months after the end of the accounting period to which it relates.
(e) The outgoings statement is to be accompanied by a report (an auditor’s report) on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth)....

28A Non-provision of outgoings estimate or statement
(1) A lessee is entitled to withhold payment of contributions for outgoings if:

(a) the lessor has failed to give the lessee a written estimate of outgoings required under section 27 or an outgoings statement required under section 28, and
(b) the lessee has, at or after the expiry of the time when the estimate or statement was required to be given to the lessee, requested the lessor in writing to furnish the estimate or statement to the lessee, and
(c) the lessor’s failure has continued for 10 business days after the request was made.

(2) The lessee must pay the withheld contributions within 28 days after the lessor furnishes the estimate or statement....

79 In Mr Spring’s submission, the request in Brandonia’s letter of 24 January 2006 to Mainland that it should ‘please refer to’ ss 28 and 28A of the RL Act constituted a ‘request’ within the meaning of s 28A(1)(b). In Mainland’s earlier letter to Brandonia, dated 17 January 2006, a statement of the outgoings, as mentioned in s 28(1)(a), had been supplied. But the auditor’s report, which under s 28(1)(f) must accompany the outgoings statement, was not provided to Brandonia until 17 February 2006. As this was more than ten business days after Brandonia’s request, the condition stipulated in s 28A(1)(c) was satisfied. It followed, Mr Spring argued, that Brandonia was entitled under s 28A(2) to withhold payment of its contribution to the 2004-05 outgoings until a period of 28 days had elapsed after 17 February 2006. This meant that the contribution was not due and payable when the default notice was sent and when the re-entry occurred.

80 In the Tribunal’s opinion, however, this submission must fail, principally on the ground that in the particular circumstances the relevant phrases in Brandonia’s letter of 24 January 2006 cannot be construed as a request to ‘furnish’ the relevant ‘statement’ within the meaning of s 28A(1)(b).

81 When this letter was written, an outgoings statement for 2004-05 had in fact been supplied to Brandonia, along with Mainland’s letter of 17 January. Only if the phrase ‘outgoings statement’ in s 28A(1)(a) must be interpreted as including the auditor’s report that under s 28(1)(e) is required to ‘accompany’ the outgoings statement could it be said that Lenola had failed, as required by s 28A(1)(a), to ‘give the lessee... an outgoings statement required under section 28’. Although this may well have been the intention of the legislature, the Tribunal doubts whether this is the case as a matter of strict statutory interpretation. The phraseology of the two sections seems clearly to distinguish an outgoings statement from an auditor’s report. But in any event, the request in Brandonia’s letter merely to ‘refer to’ the relevant provisions of the RL Act cannot be treated as conveying to Mainland a request, even implicitly, that Lenola should take a further step by way of compliance with s 28A(1)(a) – i.e., providing an auditor’s report – which this provision does not obviously require and which, on a proper interpretation, it may not in fact require.

82 It is unfortunate that s 28A, which only came into force at the beginning of this year, should give rise to this uncertainty as to whether failure to provide the auditor’s report as well as an outgoings statement constitutes one of the grounds on which a lessee can withhold a payment of a contribution to outgoings.

83 Brandonia and/or Mr Spring on its behalf raised four further objections to Lenola’s claim that as at 3 March 2006 Brandonia owed the revised amount set out in Ms Marrocco’s affidavit on account of the 2004-05 outgoings. These were (a) that no evidence regarding building insurance was ever supplied, (b) that a contribution to land tax appeared not to have been calculated in accordance with the requirements of s 26 of the RL Act, (c) that GST had been charged on this contribution and (d) that the auditor who prepared the report sent by Mainland on 16 February 2006 was not genuinely independent as required or contemplated by s 28(1)(e).

84 In the Tribunal’s opinion, however, the first three of these objections, even if well founded, could at most justify a limited reduction in the amount ultimately payable by Brandonia on account of these outgoings. Nothing in s 28A or in any other provision of the RL Act supports the proposition that, solely because an outgoings statement provided under s 28 contains an item that, on proper investigation, proves to be unjustified or excessive, the lessee is under no liability to pay any other outgoings to which no objection has been or can be raised.

85 In any event, the Tribunal agrees with a submission by Mr Kasep that since the 2004-05 outgoings were subjected to a professional audit and (so far as the basis of calculation of land tax was concerned) no tax threshold for investment properties existed during 2004-05, these claims by Brandonia were insufficient to cast doubt on the amounts claimed.

86 The basis of the fourth objection was a claim by Mr Sim that the auditor had been professionally engaged by Lenola to perform other tasks. He produced no evidence to support this allegation. For this reason, the Tribunal dismisses this objection.

87 Brandonia advanced two further reasons why it was not liable to pay outgoings as claimed by Lenola. These related to the outgoings for 2005-06 as well as 2004-05.

88 The first was that in clause 17(b) of the Annexure to the New Lease the schedule of outgoings attached to the disclosure statement was described as ‘an estimate subject to substantiation’.

89 The Tribunal considers, however, that (a) the auditor’s report, which was supplied to Brandonia after the signing of the New Lease, constituted such substantiation as might have been required for the 2004-05 outgoings and (b) in the nature of things, the figures for 2005-06 were an ‘estimate’ only.

90 Secondly, Mr Spring contended that Lenola should have applied the security deposit of $6,260.35, in payment of any liability of Brandonia for outgoings. He pointed out that when accrued interest was added to this deposit, it would easily exceed the amount of $6,982.49 claimed to have been owing at the time of the eviction.

91 The Tribunal rejects this contention also. Clause 1.4 of the Annexure to the New Lease provided that in the event of default by Brandonia in the payment of any money due under the lease, Lenola was ‘entitled without further notice to the Lessee and without prejudice to any of its rights under the lease or at law or in equity’ to call on all or part of the security deposit and apply it to any loss or damage sustained by it. The Tribunal accepts Mr Kasep’s argument that since Brandonia had defaulted, albeit only technically, in complying with the timetable set out in clause 11 of the Annexure to the New Lease for repaying the rent arrears under the First Lease (see [40] above), Lenola was entitled to apply the security deposit towards the discharge of this debt. Even if this were not the case, neither clause 1.4 no any other clause in the New Lease or the Registered Memorandum imposed any obligation on Lenola to apply the deposit towards the discharge of any debt that Brandonia might nominate, even if Lenola’s decision not to do so left Brandonia exposed to the possibility of eviction.

92 The Tribunal’s general conclusion, therefore, is that both on 2 March and on 6 March 2006 Brandonia was indebted to Lenola with regard to outgoings. Even if, contrary to what has been said, Brandonia was at those times entitled under s 28A to withhold payment of its contribution of $3,076.19 to the 2004-05 outgoings, it still owed a significant sum – specifically, $3,906.30 – as its contribution to estimated outgoings for 2005-06. The Tribunal’s preferred view is that it in fact owed the figure of $6,982.49 mentioned above.

93 In addition, the failures by Brandonia to adhere strictly to the schedule of instalments payments in reduction of the First Lease Debt created a debt of $37,653.23, which was immediately due and owing under the New Lease by virtue of clause 11 of the Annexure to it. It will be recalled that clause 11 expressly provided with regard to these instalment payments that time was of the essence.

94 Whether these debts entitled Lenola to re-enter under the terms of the New Lease. Any claim by Lenola to have been entitled to re-enter the premises after 5 p.m. on 6 March 2006 must be based principally on clauses 3.1 and 13.1(a) of the Registered Memorandum.

95 Clause 3.1 contained a covenant in standard form by the lessee to pay rent and outgoings as specified in the First Appendix to the lease. The original ‘First Appendix’ had been replaced by an annexure to the New Lease, which set out the rent and the basis for calculating the outgoings as outlined above.

96 The outgoings required to be paid under the lease were more specifically identified in the lessor’s disclosure statement as being the actual outgoings for 2004-05 and the estimated outgoings for 2005-06.

97 Clause 13.1(a), as varied by clause 2 (b) of the Annexure to the Lease, conferred on the Lessor the right to re-enter and repossess the premises if ‘any rent or other moneys payable under this Lease shall remain unpaid for fourteen (14) days next after the date appointed for payment thereof (although no formal or other legal demand shall have been made therefore (sic))’.

98 The Tribunal recognises that an argument might arise (though it was not put on Brandonia’s behalf) that since the New Lease itself (as opposed to the lessor’s disclosure statement or indeed the Second Lease) did not provide expressly that the 2004-05 outgoings were payable ‘under the Lease’, Lenola’s claim to rely on default in paying these outgoings might be defeated by s 22(1)(a) of the RL Act. This states that a lessee ‘is not liable to pay any amount to the lessor in respect of any outgoings except in accordance with provisions of the lease that specify... the outgoings that are to be regarded as recoverable’. If this argument has merit, the same result follows as has already been identified at [92] above. Lenola can still point to a significant sum ($3,906.30) that Brandonia owed ‘under the Lease’ as its contribution to estimated outgoings for 2005-06.

99 Clause 14(1)(c) provided that the ‘subsequent acceptance of rent under the Lease shall not be deemed to be a waiver of any preceding breach by the Lessee of any term, covenant or condition of the Lease, other than the failure of the Lessee to make the particular payments of rental so accepted’.

100 In the Tribunal’s opinion, the existence of this clause in the New Lease precluded Lenola from relying, in its claim to be entitled to re-enter, on Brandonia’s default, lasting more than seven days, in paying the rent instalment of $2,167. 36 due on 1 February 2006. Lenola did not, however, maintain otherwise.

101 The outcome of this analysis is that, in the Tribunal’s opinion, Lenola’s right of re-entry arose under the New Lease because Brandonia had been in default for more than seven days in paying the following amounts due under the New Lease: the sum of $3,906.30 at least (alternatively, $6,982.49) for arrears of outgoings and the sum of $37,653.23 in discharge of the First Lease Debt.

102 Statutory provisions relating to forfeiture and re-entry. An important component of Brandonia’s case in these proceedings was a submission that Lenola’s re-entry on 6 March 2006 was unlawful on account of failure to comply with s 129(1) of the Conveyancing Act 1919.

103 So far as relevant, s 129 is as follows: -

129 Restrictions on and relief against forfeiture of lease
(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particular breach complained of, and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and
(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach....
(8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.
(9) The notice mentioned in this section shall be in the form set out in the Sixth Schedule or to a similar effect.
(10) This section applies to leases made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary.

104 The Sixth Schedule to the Conveyancing Act is in the following form: -

Notice of breach of covenant
To
The lessee of [here describe premises with reasonable certainty, as for instance, "No. 369, George-street, Sydney.]
With reference to the lease of the abovementioned premises, dated the day of 1 , from A.B. to C.D., and the covenant by the lessee therein contained [here state concisely the nature of the covenant or covenants breach of which is complained of, as for instance, "to repair,"] and the breach by you of that covenant I hereby give you notice and require you to remedy that breach by [here set out the remedy as, for instance, "by putting the said premises in repair by doing and executing the repairs in and upon the said premises which are specified in the Schedule hereto annexed." Add if compensation is claimed.] And I further require you to pay to me the sum of , as compensation for the breach already committed.
Dated this day of 19 .
Lessor.
Note.

The lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time--see section 129 of the Conveyancing Act 1919.

105 By virtue of s 129(8), Lenola would not have been required to comply with s 129(1) if its entry was based on Brandonia’s failure to pay rent. But, as Mr Kasep conceded, Brandonia’s payment, some six hours before the re-entry, of a larger sum than was required to meet the arrears of rent prevented Lenola from relying on this default.

106 By virtue of the express requirement in s 129(1)(a) that a notice served under s 129(1) must specify ‘the particular breach complained of’, Mr Kasep also acknowledged that Lenola was precluded from relying on Brandonia’s failure to meet its obligations with regard to the First Lease Debt.

107 Mr Kasep argued, however, that the default notice dated 2 March 2006, read in conjunction with the previous letters to Brandonia written on Lenola’s behalf by Mainland, constituted a notice complying with s 129(1) in so far as they ‘complained of’ Brandonia’s breaches of its obligations with regard to outgoings. Mr Kasep submitted that there was sufficient compliance even though the default notice (a) misstated the amounts owing under this heading, (b) did not follow the form set out in the Sixth Schedule and (c) allowed a distinctly short period of time – four days, including a weekend – in which Brandonia could avert re-entry by paying the amounts demanded. These issues will now be considered in turn.

108 Misstatement of the amounts owing. As indicated above at [72], Lenola acknowledged that the amounts claimed for estimated outgoings for the 2005/2006 year should have been $3,492.96 (up to 28 February 2006) and $436.62 (due on 1 March 2006), not $3,618.72 and $452.34 respectively.

109 In support of his submission that small-scale errors of this nature should not be held to have invalidated the notice, Mr Kasep relied on observations of Powell J in Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907. At 925, his Honour said, with reference to notices under s 129(1) or other equivalent provisions: -

...a notice is not invalidated because it specifies, as a breach, a "breach" which has not occurred, or because it requires to be done something which the lessor cannot lawfully demand.

110 At 926, he quoted the following passage from the judgment of the Privy Council in Campbell v Commercial Banking Co of Sydney (1881) 2 LR (NSW) 375 at 385: -

... a notice under the Act is not bad because it demands more than is due...but... where a demand is made for a larger amount than that which is really due, such demand does not do away with the necessity for tendering what is actually due, unless here is at the same time refusal to receive less.

111 No authority casting doubt on these statements of principle was cited to the Tribunal. The Tribunal understands them to mean that a demand in a notice purporting to comply with s 129 must reflect what the lessor believes at the time to constitute one or more breaches by the lessees entitling the lessor to exercise rights of re-entry or forfeiture. It is, to quote s 129(1), the breach or breaches ‘complained of’ that must be outlined, not necessarily the breach or breaches that may subsequently be proved to have occurred.

112 On this basis, the Tribunal accepts Mr Kasep’s argument that the errors in the amounts claimed in the default notice did not have the effect of invalidating the notice.

113 Failure to follow the form set out in the Sixth Schedule. This matter was not addressed to any significant degree in the parties’ submissions, though Mr Spring did make the observation that the default notice failed to particularise the breaches complained of.

114 Subsection (9) of s 129 makes it clear that it is not mandatory to follow the form set out in the Sixth Schedule. It is sufficient that the notice given is ‘to a similar effect’.

115 A number of authorities have dealt with this aspect of the section’s requirements: see for example Ex parte Dally-Watkins; Re Wilson (1955) 72 WN (NSW) 454; Johnson v Senes and Burger (1961) 78 WN (NSW) 861; Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd [1992] ACTSC 113; (1992) 111 FLR 81. In the first of these, Ex parte Dally-Watkins; Re Wilson, the Full Court of the Supreme Court said, at 456: -

The notice is not required to be regarded as a piece of sacramental ritual. It is a real notice, the object of which is to bring to the attention of the lessee the matters which are complained of and to give him the opportunity of rectifying what has taken place in the past, if it be capable of rectification. No special form of words has to be used. Schedule 6 provides a form, but it is not the only form, and the vital thing is to bring to the attention of the tenant the term of the lease alleged to have been broken and the manner in which it has been broken.

116 In Johnson v Senes and Burger, it was argued that two letters written to the lessee by the lessor’s solicitors constituted sufficient notice under s 129. Wallace J rejected this argument, on the grounds that the letters (a) did not specify the breach which constituted one of the grounds on which the lessor obtained an order for possession and (b) did not make it clear that the lessor proposed to seek such an order if the breaches specified were not remedied. His Honour indicated at 863, however, that a lessor might ‘substitute correspondence for the notice’, but that in this event ‘especial care may sometimes be necessary to ensure compliance with the section and to achieve its objects’.

117 In the Tribunal’s opinion, the default notice, read in conjunction with the letters of 20 and 23 February 2006 from Mainland to Brandonia, gave to Brandonia sufficient notice of the matters required by s 129(1) and (9), at least so far as Brandonia’s breach of its obligation to contribute to the estimated outgoings for 2005-06 was concerned.

118 The information conveyed in this correspondence included the following matters: (a) the identity of the relevant lease between the parties (i.e. the New Lease) and of the premises; (b) the term of the New Lease (i.e. Item 4 in the Annexure) specifying Brandonia’s obligation to pay these outgoings; (c) the nature of the breaches ‘complained of’ (i.e., failure to pay amounts due up to 28 February and falling due on 1 March 2006); and (d) Lenola’s intention (as formulated in the final paragraph of the default notice) to ‘exercise its right to re-enter into and upon the Premises and repossess the same’ if Brandonia did not remedy the breach before a specified time (5 p.m. on 6 March 2006). These, in substance, are the matters set out in the form in the Sixth Schedule.

119 Allowing a comparatively short time for the specified breach to be remedied. It will be recalled that the time at which the default notice was hand-delivered to Brandonia on Thursday 2 March 2006 was not indicated in the evidence. The notice required compliance by 5 p.m. on the following Monday, 6 March 2006. In assessing whether the period allowed for compliance was ‘reasonable’, as required by s 129(1), it must be assumed, adversely to Lenola, that the delivery occurred late (though within business hours) on 2 March.

120 Mr Spring submitted that this period of four days, including a weekend, could not be described as ‘reasonable’. In asserting to the contrary, Mr Kasep pointed out that prior to the hearing Brandonia had not raised any objection on this score.

121 Not surprisingly, the authorities on s 129(1) provide little in the way of specific guidance on this issue, other than to indicate that reasonableness must be assessed with regard to all the circumstances of the case. By way of illustration, in the English case of Civil Service Co-operative Society Ltd v McGrigor’s Trustee [1923] 2 Ch 347, where the ground of forfeiture was the bankruptcy of the lessees, fourteen days was held to be a reasonable period, in the absence of special circumstances.

122 An earlier English case, Horsey Estate Ltd v Steiger [1899] 2 QB 79, provides a little more assistance. The grounds for re-entry stated in a lessor’s notice under the English equivalent of s 129(1) were that the lessee company had gone into liquidation and that it had breached a covenant to repair. Attached to it was a schedule requiring extensive repairs that would need a considerable period of time to complete. Two days after it was served, the lessor issued a writ claiming possession. It transpired later that the allegation of failure to repair could not be sustained.

123 The Court of Appeal held that the two-day period of notice was not reasonable. Lord Russell CJ, delivering the Court’s judgment, said at 92: -

In these circumstances, can this be said to be a proper notice under the Act? On the whole, I think not. In the first place, if the entering upon liquidation had alone been put forward, the defendants would have had the opportunity of considering whether they had any answer, and, if not, whether they could make terms with the plaintiff, but this was impracticable so longas the claim for breach of the covenant to repair was made. Again, if non-repair was alone relied on, the defendants might possibly by offer of compensation accompanied by undertaking to repair have made terms with the plaintiffs. Further, the statute clearly contemplates that a reasonable interval shall elapse after service of notice and before action. Can two days’ notice be said, in all the circumstances, to be a reasonable notice? I think not.

124 This passage illustrates well the principle that in determining whether the period allowed for compliance is reasonable, it is important to consider the nature of the breach or breaches complained of and the period of time that might reasonably be considered necessary for remedial action. There is a suggestion, in the second sentence of the quoted passage, that if bankruptcy had been the only ground contained in the notice, a period of two days might have held to be reasonable. But this is not stated unequivocally.

125 In the present case, the Tribunal places significant weight on the fact that the four-day period stipulated for compliance included two days on which, even if Brandonia’s business was in operation, its directors would not have been able to discuss their situation with solicitors or other professional advisers. On the other hand, Brandonia had been given ample notice, over a significant period, that Lenola was greatly concerned about its failure to respond to demands for payment of its contribution to outgoings. Both the existence of this obligation and the nature of the parties’ disagreement over how much it owed had been the subject of a great deal of correspondence in the preceding weeks. The only new element of any significance in the default notice was Lenola’s threat to re-enter and repossess the premises if no payment was made. Furthermore, Brandonia showed, by making a rent payment and faxing a letter to Mainland on the afternoon of 6 March, that it had had sufficient time to consider its position in response to the default notice and to determine what course of action it would take.

126 Taking account of these considerations in particular, the Tribunal concludes that the time specified in the default notice for remedying the relevant breaches, although noticeably short, but was reasonable in all the circumstances.

127 In the result, the Tribunal holds that Lenola sufficiently complied with the requirements of s 129 of the Conveyancing Act 1919. This is the case even though patently those responsible for preparing the default notice did not realise that, so far as the alleged breaches relating to outgoings were concerned, compliance was required if the notice was to be valid.

128 For the foregoing reasons, the Tribunal concludes that Lenola’s re-entry into the premises on 6 March 2006 was lawful, having regard to the terms of the New Lease and the relevant principles of statute law and common law.

129 Subject to some further arguments advanced by Brandonia (which will now be discussed), this conclusion in Lenola’s favour provides a basis for its claimed entitlements to (a) damages for mesne profits until the reletting of the premises (under clause 18.2 of the Registered Memorandum), (b) the amount of its costs incurred in making good the premises (under clause 12.2) and (c) its legal and other costs incurred as a result of Brandonia’s default (under clause 14.4).

Further arguments advanced by Brandonia

130 Brandonia’s claim (which the Tribunal has rejected) that the re-entry by Lenola was unlawful was designed to provide grounds both for resisting Lenola’s claim for damages and for contending that Brandonia was entitled to recover damages from Lenola for loss of income from the business that it carried on in the premises.

131 Brandonia’s case also included an unconscionable conduct claim (under Division 1 of Part 7A of the RL Act). This was designed to achieve the same purposes.

132 Mr Spring contended that Lenola’s conduct in repossessing the premises on 6 March 2006, in the circumstances that have been described, amounted to unconscionable conduct under s 62B(1) of the RL Act. While primarily basing this submission on the argument that the repossession was unlawful, he also referred to some evidence, contained in one of Mr Sim’s affidavits, that other tenants of Lenola within the same building had not been evicted even though they too were in arrears.

133 There is no doubt that the basis of Lenola’s repossession of the premises was the existence of a comparatively small debt (some $7,000 at most) for outgoings, coupled with a few minor defaults on Brandonia’s part in adhering to the timetable for repaying the First Lease Debt. It is highly likely that if after the re-entry Brandonia had been prepared to pay, at least on a provisional basis, the amount demanded for outgoings and had persisted with its initial claim for relief against forfeiture, it would have been granted such relief on an interim basis, and possibly also as a final order. It must have been clear also to Lenola and its agents that one of the reasons why Brandonia resisted its demands for payment was that Mr and Ms Sim, whose first language was not English, frequently misunderstood provisions of the RL Act.

134 On the basis of these considerations, it could well be argued that Lenola’s pursuit of its rights in accordance with the strict letter of the law amounted to unconscionable conduct even if the key argument that it re-entered unlawfully was not sustainable. By virtue of s 62B(3)(f) of the RL Act (which permits the Tribunal to have regard to the extent to which the lessor’s conduct was consistent with its conduct in ‘similar transactions’ with ‘other like lessees’) such an argument would receive support from any finding to the effect that Lenola discriminated unfairly against Brandonia in comparison with other tenants.

135 In further support of his argument on this matter, Mr Spring referred to four Tribunal decisions under the RL Act. In one of them, Wanice Pty Ltd v Bocove Pty Ltd [2003] NSWADTAP 24 at [33], the Appeal Panel commented that proof of non-compliance by a lessor with the Act’s provisions regarding outgoings could form part of an unconscionable conduct claim by a lessee. The other three authorities cited – Galaxy Catering Pty Ltd v Trust Company of Australia Ltd [2006] NSWADT 182, Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Pty Ltd [2003] NSWADT 241 and Kennard v Shanhaven Pty Ltd [2002] NSWADT 243 (at [33 – 34]) – do not in the Tribunal’s opinion assist Brandonia’s contentions.

136 Mr Spring also drew the Tribunal’s attention to a passage in the Second Reading speech for the Retail Leases Amendment Bill 1998, by which the unconscionable conduct provisions were introduced into the RL Act. He pointed out that in this speech the Minister for Small Business said that these provisions were ‘aimed at changing the behaviour of both retailers and landlords in relation to retail leasing transactions’.

137 In the Tribunal’s opinion, however, there are numerous factors weighing against a finding of unconscionable conduct against Lenola, given that the steps that it took to repossess the premises and forfeit the lease have been held to be lawful. The principal one is that throughout the long history of its dealings with Lenola, Brandonia maintained a practice of consistently questioning the technical legality of the requests or (in the latter stages) the demands made by Lenola that it should pay comparatively small amounts due under the various leases, chiefly by way of contributions to outgoings. Brandonia did this against a background of (a) being permitted to accrue substantial arrears for rent and outgoings constituting the First Lease, (b) submitting a number of cheques that were subsequently dishonoured and (c) being granted a significant indulgence, under the New Lease, with regard to repayment of the First Lease Debt. Brandonia was, in short, a tenant that maintained a poor record of adherence to its financial obligations under its successive leases, but nonetheless endeavoured to take every legal point that it believed to be available to it in contesting liability for relatively small sums claimed to be due from it. As has appeared from the above discussion, the legal grounds on which it contested liability were in almost every instance untenable.

138 For Lenola, in these circumstances, to decide ultimately to enforce its lawful rights under the New Lease against Brandonia in a strict and rigorous manner (more rigorously, perhaps, than in its dealings with other tenants who were in arrears) cannot fairly be described as acting unconscionably. In so concluding, the Tribunal takes account of recent dicta in the Court of Appeal, relied on by Mr Kasep, to the effect that conduct is not unconscionable under s 62B unless it is ‘highly unethical’ and involves a ‘high degree of moral obloquy’ (Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557 at 583 [121] per Spigelman CJ, with whom Tobias JA agreed).

139 In Mr Sim’s affidavits, in his evidence and in Brandonia’s amended application, it was also claimed that by virtue of a number of other alleged breaches of the RL Act, Lenola’s claim for damages should fail wholly, or at least in part. A number of these claims were evidently without substance. Two others, which were elaborated in argument at the hearing, will now be considered.

140 First, it was submitted that the amount of the First Lease Debt, which was stated in Annexure A to the Second Lease to be $37,653.23, remained open to question because a memorandum dated 18 October 2004, dealing with the terms to be included in this lease, contemplated the preparation of a report considering whether any adjustment to the amount owing on account of outgoings was necessary.

141 The Tribunal agrees with Mr Kasep, however, that in relation to this matter the parties are bound by the express term in Annexure A to the Second Lease. As in the equivalent clause in the New Lease, this commenced with the words ‘The Lessee and the Guarantors acknowledge that they are indebted to the Lessor in the sum of $37,653.23...’

142 Secondly, Mr Spring argued that Lenola had not complied with its obligations, recently arising under Part 2A of the RL Act on account of amending legislation in 2005, to pay the security deposit to the Rental Bond Board.

143 Once again, however, no evidence to support this submission was advanced. It must therefore be rejected, except in so far as it properly draws attention to the need to take account, when assessing any damages due to Lenola, of the amount of the security deposit and of interest accruing on it since its initial payment by Brandonia on 17 October 1998.

144 As the foregoing discussion shows, the Tribunal dismisses the arguments raised by Brandonia by way of total or partial defence to Lenola’s claim and in support of its own claim for damages.

145 Near the conclusion of his submissions, Mr Spring sought leave from the Tribunal to tender documentary evidence relating to Brandonia’s loss of business income in consequence of being evicted. This evidence had not been served on Lenola’s solicitors until 21 July 2006, two days before the hearing of this case commenced. Mr Kasep objected on a number of grounds, including that Lenola had had insufficient time to obtain any evidence in reply.

146 The Tribunal ruled against admission of this evidence near the conclusion of the hearing, adding that this ruling might be reconsidered at a later stage if circumstances so required. In view of its general conclusions regarding Brandonia’s case in these proceedings, there is no need for such reconsideration.

The damages claimed by Lenola

147 In her affidavit dated 16 May 2006, Ms Marrocco summarised Lenola’s claim for damages against Brandonia under six heads. She also stated that Brandonia claimed ‘statutory interest’. At the hearing, Lenola did not tender any further material relating to the quantum of damages. Brandonia did not tender any evidence relating specifically to this issue.

148 The six heads of damage outlined by Ms Marrocco will now be discussed.

149 The acknowledged debt. Lenola claimed $36,653.23, representing the amount of the First Lease Debt as acknowledged in the New Lease, less payments totalling $1,000 made on 1, 8, 15 and 22 December 2005. Ms Marrocco’s affidavit also referred to further payments, totalling $4,500, that were held in trust.

150 The Tribunal holds that Lenola is entitled (a) to apply for its own benefit the sum of $4,500 that it currently holds in trust and (b) to recover a further $32,153.23 under this head.

151 Outgoings. Lenola claimed $4,987.49, relying on a page in Mainland’s ledger annexed to Mr Niven’s affidavit. It may be noted that this is nearly $2,000 less than the amount ($6,982.49) indicated earlier in this judgment (at [74]) as being apparently owed on account of outgoings at the date of the re-entry.

152 The Tribunal holds that Lenola is entitled to recover $4,987.49 under this head. It notes that if, contrary to its own opinion, one or more of Brandonia’s specific objections to the calculation of outgoings were well founded (for example, the objection relating to land tax), this reduction of nearly $2,000 in the amount awarded, as compared with the amount apparently owing on 6 March 2006, would be more than enough to take account of Brandonia’s concerns.

153 Mesne profits. Lenola claimed mesne profits at $2,603.98 per month (comprising rental, including GST, of $2,167.36 and outgoings, including GST, of $436.62) from 6 March 2006 until ‘the date the premises are relet’.

154 In the absence of any evidence indicating whether or not the premises have been relet since 16 May 2006, the award under this head must be confined to the period of two months and ten days between 6 March and 16 May. The appropriate figure is $6,075.95.

155 Costs of making good the premises. Lenola claimed $24,112.00 under this head. Annexed to Ms Marrocco’s affidavits were copies of quotations from two firms for removing debris ($3,520) and for removing fixtures and fittings, patching, painting and cleaning (($20,284.00). There was also a paid invoice for changing the locks ($308.00).

156 It appears to the Tribunal that there is some overlap between the tasks listed on the two quotations. Taking this into account, together with Mr Niven’s estimate of the cost of making good, it awards $20,000 under this head.

157 Legal and other costs. Under this head, Lenola claimed $49,687.49, comprising (a) $46,697.69 for fees paid to Truman Hoyle, (b) $1,045.00 for a fee paid to Mr Kasep and (c) $1,944.80 for a fee paid to Citiguard Protection Services for securing the premises immediately following the repossession on 6 March 2006. Copies of invoices and accompanying documents submitted to Lenola by Truman Hoyle and by Citiguard were annexed to Ms Marrocco’s affidavit of 16 May 2006.

158 The material accompanying Truman Hoyle’s invoices shows that the bulk of the costs claimed by this firm related to the services that it performed in instituting the present proceedings. The relevant passage in clause 14.4 of the Registered Memorandum (‘the Lessee shall pay to all legal and other costs, charges and expenses for which the Lessor shall become liable in consequence of or in connection with such default’ [by the Lessee]) appears broad enough to include these costs, as indeed also the fee charged by Mr Kasep. But without the benefit of further argument, the Tribunal is not prepared to rule on whether this clause has the effect of superseding the statutory provisions relating to the costs of Tribunal proceedings that are instituted under the RL Act. These state that costs are only awarded where there are ‘special circumstances warranting an award of costs’ (see s 77 of the RL Act and s 88 of the Administrative Decisions Tribunal Act 1997.

159 In these circumstances, the most convenient approach, following standard procedures in this Division, is to call for further written submissions on the issue of costs. It will be open to Lenola, in making any such submissions, to rely to the extent that it thinks fit on the terms of clause 14.4.

160 The Tribunal accepts Lenola’s submission that it is entitled to recover the cost of securing the premises after it repossessed them. It accordingly awards $1,944.80 under this head.

161 Damages for unconscionable conduct. Lenola’s unconscionable conduct claim, to which only brief reference has been made so far, was only briefly addressed in Mr Kasep’s submissions. It appears from Ms Marrocco’s affidavit of 16 May 2006 to have been based on the pattern of Brandonia’s behaviour over some six years in not maintaining the required payments of rent and outgoings under both its retail leases and its residential lease, in delivering cheques that were dishonoured on presentation, in instituting and then abandoning both its application to this Tribunal for an urgent interim order and certain proceedings relating to its residential lease and in making various alleged communications to other tenants of the building. No specified amount of damages was claimed.

162 In the Tribunal’s opinion, the matters raised in this connection fall well short of substantiating an unconscionable conduct claim under s 62B(2) of the RL Act. This claim by Lenola is dismissed.

The Tribunal’s orders

163 In the preceding section of this judgment, the Tribunal made awards totalling $65,261.47 in Lenola’s favour, as follows: -

The First Lease Debt $32,253.23
Outgoings $4,987.49
Mesne profits $6,075.95
Costs of making good $20,000.00
Costs of securing the premises $1,944.80
TOTAL $65,261.47

164 In addition, it held that Lenola is entitled to apply to its own benefit the amount of $4,500 that it holds on trust.

165 As noted earlier, Lenola claimed ‘statutory interest’ on any damages awarded to it.

166 In this account of the damages to be awarded to Lenola, no mention has been made of the security deposit of $6,260.35 that it received from Brandonia on 17 October 1998. This amount, together with accrued interest, must be taken into account in Brandonia’s favour. No evidence was tendered as to the amount of such interest.

167 In these circumstances, the appropriate orders are as follows:

(1) (a) The retail tenancy claim lodged (as Cross Applicant) by the Respondent is upheld.

(b) The unconscionable conduct claims of both parties and the retail tenancy claim lodged by the Applicant are dismissed.

(2) (a) Subject to the deduction of the amount of the security deposit of $6,260.35, plus accrued interest, paid to the Respondent by the Applicant on 17 October 1998, the Applicant is liable to pay to the Respondent the sum of $65,261.47.

(b) It is declared that the Respondent is entitled to apply for its own benefit the sum of $4,500 received from the Applicant and held on trust.

(3) Within 28 days of the date of this decision, the Respondent is to file and serve (a) a statement of account relating to the security deposit, including particulars of all amounts of interest that has been earned on this deposit; and (b) any evidence and submissions that it may wish to put forward regarding the costs of these proceedings.

(4) Within a further 28 days, the Applicant is to file and serve its evidence and submissions (if any) in reply.

(5) The further issues remaining in the proceedings following compliance with Orders 3 and 4, including the Respondent’s claim for an award of interest, will be determined ‘on the papers’ under s 76 of the Administrative Decisions Tribunal Act 1977, unless submissions to the contrary are made.