Supreme Court New South Wales Medium Neutral Citation: Coastal Services Centres Pty Ltd v United Petroleum Pty Ltd [2023] NSWSC 1010 Hearing dates: 24-27 July 2023 Decision date: 23 August 2023 Jurisdiction: Equity - Real Property List Before: Peden J Decision: See [141] Catchwords: LEASES AND TENANCIES — Renewals and options — Exercise of option — Lessee in breach of obligations — Whether Lessor issued a valid noticed under s 133E of the Conveyancing Act 1919 (NSW) — Whether Lessee entitled to relief under s 133F of the Conveyancing Act 1919 (NSW) LEASES AND TENANCIES — Repairs, maintenance and alterations — Damage to premises — Whether Lessor acted in good faith in considering repair to damaged premises was "impracticable or undesirable" — Whether Lessor entitled to terminate lease — Whether right to terminate unavailable by reason of waiver or estoppel Legislation Cited: Conveyancing Act 1919 (NSW) ss 129(9), 133E, 133F Cases Cited: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Allsvelte Pty Ltd v Cassegrain Wines Pty Ltd [2015] NSWSC 1370 Briginshaw v Briginshaw (1938) 60 CLR 336 Burger King v Hungry Jacks (2001) 69 NSWLR 558 CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999 Commonwealth v Verwayen (1990) 170 CLR 394 Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2012] NSWSC 251 Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380 Legione v Hatley (1983) 152 CLR 406 Nameless, Shameless and Legless Pty Ltd v 2 Roslyn Street Pty Ltd [2004] NSWSC 519 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Saleh v Romanous (2010) 79 NSWLR 453 Sydney Water Area Health Service v Staracek (2008) 73 NSWLR 68 The Highlands on a Plate Pty Ltd v Roloz Pty Ltd [2021] NSWSC 1072 United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Category: Principal judgment Parties: Coastal Service Centre Pty Ltd ACN 625 230 828 (Plaintiff/Cross-Defendant) United Petroleum Pty Ltd ACN 085 779 255 (Defendant/Cross-Claimant) Representation: Counsel: D Klineberg and C Clarke (Plaintiff/Cross-Defendant) A Harding SC and M Youssef (Defendant/Cross-Claimant) Solicitors: Elliot & Sochacki (Plaintiff/Cross-Defendant) K & L Gates (Defendant/Cross-Claimant) File Number(s): 2019/00373788 Publication restriction: Nil Judgment Background 1. A fire severely damaged commercial premises the subject of a lease. The fire was an event that enlivened certain clauses in the lease relating to the landlord's intentions to repair, abatement of rent and the parties' rights to terminate. This judgment deals with the proper construction of those clauses and determines whether the lease remains on foot and whether the landlord is entitled terminate the lease. 2. United Petroleum Pty Ltd (United) leases part of a property about 77km north of Newcastle, NSW (Property), from Coastal Services Pty Ltd (Coastal) under a lease that commenced on 1 July 2016 (Lease). 3. Since 2006, United has occupied the leased part of the Property and operates a petrol service centre with petrol pumps and tanks and a retail business from in a building. 4. The Lease was executed on 7 November 2018. It contains three five-year options to renew. If all options are exercised, the Lease will not expire until 30 June 2036. 5. On 31 July 2018, a fire at the property destroyed the building on the Property, which was a scaled replica of Uluru known as the "Rock". The petrol pumps and tanks and hardstand were not damaged. 6. As a result of the damage caused by the fire, particularly to the building, United and the other tenants at the Property were forced to cease operating for a time. 7. United resumed trading on 21 December 2018 from a demountable building that was installed at the Property. No other tenants resumed trading. 8. On or about 20 June 2019, Coastal purchased the Property from Whitehorn Estates Pty Ltd (Whitehorn) and became the registered proprietor of the Property. All of Whitehorn's rights and obligations under the Lease were assigned to Coastal and the Lease became binding as between Coastal and United. 9. From the time Coastal acquired the Property, it intended to rebuild and develop the fire-damaged parts of the site for the purpose of accommodating a service station, restaurant, takeaway food premises and amenities. To this end, Coastal engaged consultants, prepared plans and reports, engaged town planners, communicated with Council, lodged a development application and, ultimately, obtained development approval for the redevelopment of the site. 10. Coastal advised United of its plans to redevelop and also consulted with United about its plans for the site. 11. The Lease contained a provision for abatement of rent in the event the leased premises were damaged or destroyed. From 20 June 2019, United commenced only paying about 44% of the "rack rate" rent under the Lease, without Coastal's consent. Coastal continued invoicing United for 75% of the rack rate rent. 12. In November 2019, Coastal commenced these proceedings in the Local Court, alleging that United was in breach of the Lease by not paying the full amount of contractual rent, and, further, by not complying with an opening hours clause (Opening Hours Clause). 13. By cross-claim (First Cross-Claim), United sought orders declaring that it was entitled to an abatement of rent under the Lease and a determination of the amount of abated rent that was payable. 14. On 25 March 2021, United served on Coastal a notice purporting to exercise the first of the three five-year options to renew contained in the Lease, commencing on 1 July 2021 (First Option). 15. On 31 March 2021, Coastal served on United a purported notice of breach of covenant pursuant to s 129(9) of the Conveyancing Act 1919 (NSW) (s 129 Notice), alleging a breach of the Opening Hours Clause. 16. On 1 April 2021, Coastal served on United a purported prescribed notice pursuant to s 133E of the Conveyancing Act (Prescribed Notice), alleging that United was not entitled to exercise the First Option because it was in breach of the rent and outgoings obligations under the Lease as well as the Opening Hours Clause. 17. On 27 April 2021 United filed a Notice of Motion seeking a declaration that the Prescribed Notice was invalid, or alternatively, to the extent United was in breach of the Lease, sought an order under s 133F of the Conveyancing Act that United be relieved against the effect of any such breach. On 14 May 2021, Darke J made orders that this Notice of Motion be treated as a Second Cross-Claim in the proceedings, which is the subject of this judgment. 18. On 17 January 2022, the parties agreed to settle the whole of the Amended Statement of Claim and the First Cross-Claim. Consent orders were made by Darke J on 27 January 2022 (Consent Orders). The Consent Orders provided for an adjustment to the rent and outgoings payable under the Lease by way of agreed abatement for the whole period from the time United recommenced trading at the Property after the fire to 30 June 2022. The Consent Orders do not expressly deal with the rent payable after that date. However, the parties appear to agree that the ongoing rent payable is 79% of the rack rate. Whilst the orders are silent as to the rent payable if the Rock was rebuilt, the position under clause 8.2.2 of the Lease is that rent is only reduced for the period during which the useability of the premises is diminished. In other words, if the Rock was rebuilt the rent would revert to the full rack rate. 19. The Consent Orders also required that United pay any shortfall amount (being the difference between the rent United had historically paid and the agreed abated rent) with 14 days of the orders. 20. By the Consent Orders, the Court pronounced judgment for United on Coastal's Amended Statement of Claim and ordered United's First Cross-Claim to be otherwise dismissed. The Second Cross-Claim remained listed for a final hearing commencing on 31 January 2022 for two days. 21. On 18 January 2022, Coastal served on United a purported notice pursuant to clause 8.2.3 of the Lease, alleging that the damage to the Property was such, as to make its repair 'impracticable or undesirable' (Notice of Consideration). Coastal asserts that, having served the Notice of Consideration, it is entitled to terminate the Lease under clause 8.2.3. Coastal gives evidence through its director, Mr Roberts, that it intends to cause Coastal to terminate the Lease if the Notice of Consideration is declared to be valid. Relevant clauses of the Lease 1. The Lease includes the following particulars and items: 1. The Lease is dated 7 November 2018. 2. The initial term of the Lease was 5 years, commencing on 1 July 2016 and terminating on 30 June 2021. 3. There are three options to renew for a period of five years each, to be exercised in accordance with clause 4 of Annexure B of the Lease, being the periods from 1 July 2021 to 30 June 2026, 1 July 2026 to 30 June 2031 and 1 July 2031 to 30 June 2036. 1. Clauses 4.4 and 4.5 of Annexure B of the Lease provide: 4.4 The tenant can exercise the option only if – 4.4.1. the tenant serves on the landlord a notice of exercise of option not earlier than the first day stated in item 12D in the schedule and not later than the last day stated in item 12E in the schedule; 4.4.2. there is at the time of service no rent or outgoing that is overdue for payment; and 4.4.3. at the time of service all other obligations of the tenant have been complied with or fully remedied in accordance with the terms of any notice to remedy given by the landlord. … 4.5 After exercising the option the tenant must continue to pay all rents and outgoing on time and continue to comply with all of the tenant's obligations under this lease. If the tenant does not do so, the landlord may treat any breach as being a breach of the new lease as well as of this lease. 1. Clause 8.2 (as amended by clause 16.1) provides: If the property or the building of which it is part is damaged (a term which includes destroyed) – 8.2.1. the tenant is not liable to pay rent, or any amount payable to the landlord in respect of outgoings and other charges, that is attributable to any period during which the property cannot be used under this lease or is inaccessible due to that damage; 8.2.2. if the property is still useable under this lease but its useability is diminished due to the damage, the tenant's liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage; 8.2.3. if the landlord notifies the tenant in writing that the landlord considers that the damage is such as to make its repair impracticable or undesirable, the landlord or the tenant can terminate this lease by giving not less than 14 days notice in writing of termination to the other and no compensation is payable in respect of that termination; 8.2.4. if the landlord fails to repair the damage within a reasonable time after the tenant requests the landlord to do so the tenant can terminate this lease by giving not less than 14 days notice in writing of termination to the landlord; and 8.2.5. nothing in clause 8.2 affects any right of the landlord to recover damages from the tenant in respect of any damage or destruction to which the clause applies. 1. Damaged property is also the subject of clause 16.3 of Annexure A of the Lease, which provides: If the Landlord wishes to repair all or any of the leased property that is damaged or destroyed then the landlord will consult with the Tenant regarding the design, fabric, character and dimensions of the leased property. Issues to be determined 1. The parties agree on the issues to be determined. 2. The first group of issues relate to United's 25 March 2021 purported exercise of the option under clause 4 of the Lease. The option was exercised in circumstances where United was paying reduced rent as a result of the diminished useability of its leased premises, albeit without Coastal's consent. In addition to deciding whether United was in breach of the Lease, it is necessary to determine whether Coastal's Prescribed Notice complied with s 133E Conveyancing Act. United submits that it does not because it fails to specify the alleged breach and, in fact, United was not in breach. Alternatively, United seeks relief pursuant to s 133F Conveyancing Act. 3. The second group of issues concern the proper construction of clauses 8.2 and 16.3 of the Lease and whether Coastal's Notice of Consideration was valid. United asserts it is not for various reasons: 1. Coastal had already elected not to issue that notice or had waived its right to do so, or is estopped from relying on that notice. 2. That notice was not issued within a reasonable time of the fire, or in good faith. 1. It is appropriate to deal with the question of construction of the Lease first. Proper construction of the Lease 1. The principles concerning the construction of a lease are not in dispute. It is commonly accepted that the Lease must be construed as a whole and as harmoniously as the natural meaning of the language will allow. 2. At the heart of United's complaints is that Coastal is not entitled to issue a Notice of Consideration in circumstances where it had made a decision to repair and rebuild the Rock. United submits that: 1. Under the Lease, Coastal was confronted with two mutually exclusive courses of action, being either to repair the damage under clause 16.3 or issue a notice pursuant to clause 8.2.3; and 2. In choosing to consult with United about a proposed rebuild in apparent compliance with clause 16.3, Coastal elected to proceed on the basis it would repair the damage and not issue a notice pursuant to clause 8.2.3. Alternatively, Coastal waived the clause 8.2.3 right or is estopped from issuing such a notice. 1. I do not accept that the proper construction of clause 8.2.3 and clause 16.3 is to the effect that, where Coastal makes a decision to carry out works, it is prevented from later exercising the contractual right in clause 8.2.3 for the following reasons. 2. First, clauses 8.2 and 16.3 operate where there has been a supervening event not caused by the parties, that has damaged the leased premises to an extent that affects usability in some way. Those clauses operate as a commercial agreement to deal with the consequences of such an event, that has changed the nature of the property originally leased. Both parties are provided with some rights and protections, which ought to be understood as follows: 1. The landlord retains a discretion to repair or not. Before carrying out the repairs, the landlord must consult with the tenant about the nature of the intended repairs under clause 16.3. If the landlord does not want to repair and notifies the tenant under clause 8.2.3, both parties may terminate, because the property is no longer as it was at formation. 2. The tenant retains a discretion to insist on repairs, and if they are not carried out by the landlord within a reasonable time, then the tenant may terminate under clause 8.2.4. Further, the tenant is entitled to an abatement of rent because of the reduced useability of the premises under clause 8.2.2. 1. Secondly, the Lease was drafted by lawyers. Clause 16.3 does not refer to clause 8.2 at all. If it was intended that clause 16.3 was to have the effect of excluding the operation of clause 8.2.3, then it would be expected that the parties would have expressly provided for that. An express right, such as clause 8.2.3, ought not be construed as having no work to do, where it is possible to give it effect harmoniously with clause 16.3. 2. Thirdly, it makes commercial sense that Coastal was required under clause 16.3 to consult with United in the repair and construction process, should Coastal decide to carry out such work. However, it also makes commercial sense that, either during or after that consultation process, Coastal may conclude that the work it was considering was in fact "impracticable or undesirable" and therefore that it wanted to terminate the Lease. 3. United's primary complaint was the alleged lack of certainty that this construction provides a tenant, giving an example that a landlord could determine not to repair and then years later exercise the right to terminate in clause 8.2.3. This was dramatically described as a "Sword of Damocles", to suggest that United was living under fear of the Coastal exercising its power. 4. I do not accept United's submission. Coastal properly accepted that the right must be exercised within a reasonable time of the relevant "consideration" being formed. Therefore, if there was a positive decision not to repair damage, it would not be open to the landlord to hold that clause 8.2.3 right to terminate in escrow and then many years later purport to exercise the right to terminate. 5. The language of the clause clearly provides that the trigger for the notice is the "consideration" of the landlord. It does not make commercial sense that the landlord must notify the tenant of a decision not to repair within a reasonable time of the damage, although that is likely to also follow from the landlord's consideration contemplated in clause 8.2.3. Further, if the tenant was concerned about a decision, then it was given a right to issue a clause 8.2.4 notice and terminate if the landlord did not carry out the repairs within a reasonable time of the tenant requesting those repairs. United does not assert that Coastal failed to notify it within a reasonable time of deciding to change its decision concerning the work. 6. Therefore, as a matter of construction I consider Coastal was entitled to perform in accordance with clause 16.3 and later issue a notice under clause 8.2.3. I do not accept that these clauses ought be construed as mutually exclusive courses of action under the Lease. 7. That construction effectively leads to a rejection of United's argument that Coastal had elected not to exercise the clause 8.2.3 right (for principles of election see summary in CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999 at [584]-[586]). 8. United alternatively submits that Coastal waived its right to issue a notice under clause 8.2.3 of the lease. The concepts of election and waiver overlap. As put by Mason CJ in Commonwealth v Verwayen (1990) 170 CLR 394 (at 406) (citations omitted): It has been doubted that waiver exists as a defence or answer in any case except where it is used as an alternative designation for some other defence or answer, for example, election, estoppel or new agreement: Bysouth, per Lowe J. Generally speaking, as Jordan C.J. pointed out in Larratt, an existing legal right is not destroyed by mere waiver in the sense of an express or implied intimation that the person in whom the right is vested does not intend to enforce it: see Mulcahy v. Hoyne (57), per Isaacs J.; Atlantic Shipping and Trading Co. v. Louis Dreyfus & Co. (58), per Lord Sumner. In these cases, unless consideration is present, something in the nature of an election or an estoppel is required. 1. In circumstances where, on a proper construction of the Lease, I have found that Coastal's original decision to rebuild did not prevent reliance on its rights under 8.2.3, I do not accept that Coastal relevantly waived those rights. 2. It is necessary to consider United's other arguments as to why Coastal did not effectively issue the Notice of Consideration based on want of good faith and that Coastal is estopped from exercising the right. Did Coastal "consider" in good faith that repairs were impractical or undesirable? 1. As noted above, on 18 January 2022 Coastal issued the Notice of Consideration in these terms: CONTEXT As United is aware, on or about 31 July 2018, a fire broke out at the Premises causing damage to The Rock (the "fire" causing the "damage"). Clause 8.2.3 of the Deed states that: "if the landlord notifies the tenant in writing that the landlord considers that the damage is such as to make its repair impracticable or undesirable, the landlord or the tenant can terminate this lease by giving not less than [14 days] notice in writing of termination to the other and no compensation is payable in respect of that termination". NOTIFICATION OF COASTAL'S CONSIDERATION With reference to clause 8.2.3 of the Deed, Coastal hereby notifies United that Coastal considers that the damage is such as to make its repair impracticable or undesirable. THIS IS NOT A TERMINATION NOTICE Upon Coastal giving United this Notification of Consideration, each of Coastal and United have the power under clause 8.2.3 to terminate the lease by giving not less than 14 days' notice in writing of termination. To avoid doubt, this is not a notice of termination. 1. The NSW Court of Appeal has recognised that an obligation of good faith in the performance of contracts may be incorporated, whether by construction or by implied term: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 (Alcatel) at 368-369; Burger King v Hungry Jacks (2001) 69 NSWLR 558; [2001] NSWCA 187 at [159]-[168]; United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177 at [58]-[59]. See also Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [144]-[146]. 2. Often contractual powers are subject to a good faith requirement, particularly in circumstances where the contractual power is given in wider terms than necessary for the protection of a legitimate interest or where the exercise of that power will significantly affect the interests of the other party: Alcatel at 368. 3. Both parties accept that the power in clause 8.2.3 is not unfettered, and Coastal must exercise it for the purpose for which it was given, in good faith or subjectively reasonably and not arbitrarily or capriciously. However, the fetter does not require Coastal to prefer the interests of the other party over its own in making the decision. Coastal required a rational and genuine reason for exercising the power for such exercise to be valid. 4. Therefore, in determining whether Coastal is entitled to exercise the right under clause 8.2.3, it must be determined as a matter of fact whether Coastal genuinely considered the repairs were not practical or desirable. 5. The words "impracticable or undesirable" do not require compliance with any precise standard or test. Instead, they are words of wide operation and provide Coastal with great scope in how it makes its determination. Further, the clause does not mandate the matters to be taken into account in forming the opinion. 6. United alleges that Mr Roberts, of Coastal: … did not undertake a genuine or proper consideration of whether to issue a notice under clause 8.2.3. Rather, [Coastal] approached the exercise with a pre-determined outcome in mind, and for an ulterior purpose. Furthermore, the analysis which Mr Roberts claims he undertook in deciding whether to issue a Notice of Consideration was based on information that was misleading, incomplete and prejudicial. Consequently, Coastal did not act with fidelity to the bargain, nor did it act reasonably and with fair dealing having regard to the interest of the parties and the provisions, aims and purposes of the contract objectively ascertained. 1. That submission was developed by: 1. Attacking Mr Roberts' credibility to suggest that he ought not be accepted in his evidence of genuine consideration; and 2. Attempting to demonstrate that each of the matters Mr Roberts took into account were "misleading, incomplete and prejudicial" to suggest that there was a want of genuineness. Mr Roberts' credit generally 1. United made a general submission that Mr Roberts was an unimpressive and unreliable witness, such that none of his evidence ought to be accepted where it is not corroborated by other evidence. United provided submissions of 118 paragraphs concerning Mr Roberts' credit and another 42 pages of extracts from the transcript, without commentary, for the Court to consider as supporting a submission that Mr Roberts was "inconsistent, implausible and gave self-serving evidence". 2. In particular, United seeks a finding that Mr Roberts was involved in "doctoring" a document attached to his affidavit. Mr Roberts' evidence was that in later 2021 and early 2022 when he was analysing the likely cost of the repair work leading to the issuing of the Notice of Consideration, he had regard to a quote for the repair work provided by Drayton Group Pty Ltd (Drayton) to Coastal in July 2020. The copy of the quote, attached to Mr Roberts' affidavit, was "missing" some words in parentheses after one line item for $440,000 for electrical work. In answer to a subpoena, Drayton had supplied a version of the quote with the following missing words in parentheses: Electrical, comms, security and CCTV - $440,000 (this seems a very high figure but is based on the electrical plans provided. The lighting to the batten ceiling is very expensive. I have asked the electrician to look at a D&C approach to save money) 1. United alleged Mr Roberts engaged in fraud in intentionally deleting the words in parentheses in order to support his disingenuous assessment of the likely build cost. This was said to be further supported by the fact that Mr Roberts had not volunteered that shortly after sending the quote Drayton had sent an email with suggestions as to how the $440,000 cost could be reduced to $350,000, and, further, that Mr Roberts could not provide a positive explanation as to how the versions of the quotes were different. 2. I do not accept to the Briginshaw standard that I can be satisfied that Mr Roberts altered the invoice attached to his affidavit or caused that alternation: see Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34. As detailed below, I do not consider it was incumbent on him to descend into precise detail of the actual cost of the proposed repair work. The approach he took in his affidavit and in his analysis was consistent with what I consider was required, and therefore there was no obvious advantage to Coastal to fraudulently alter the invoice in one particular respect. Practically, I also consider it unlikely that Mr Roberts personally altered the invoice. His unchallenged evidence was that he was "not good with computers" and that he worked from his phone, because he was "in the trenches" in the construction industry. The email chain concerning the invoice attached to his affidavit shows that an assistant in the Coastal office was asked to find various documents requested by Coastal's lawyers for the preparation of evidence and Mr Roberts simply forwarded the documents his assistant sent him a short time after receiving them. 3. I do not need to speculate as to how the quote may otherwise appear different to the one produced on subpoena. I do not accept that I can conclude that Mr Roberts caused the quote to be doctored. 4. Further, overall, I formed the impression that Mr Roberts was an honest witness, who was somewhat overwhelmed by the courtroom experience. He appeared unfamiliar with legal language. He appeared to make genuine attempts to answer questions and was not argumentative, but did make concessions to qualify matters in his affidavit or his answers in cross-examination when appropriate. 5. I do not accept that the 42 pages of transcript extracts provided by United demonstrate that Mr Roberts was relevantly inconsistent or implausible in his evidence, or ought to generally not be accepted. I consider that it was often obvious that the answers he gave were imprecise because of the questions asked. For example, Mr Roberts was repeatedly asked whether "he wanted United out" of the Property. The questions may have been designed to elicit an admission from Mr Roberts that Coastal issued the Notice of Consideration with an ulterior motive to resist United being able to exercise the option. However, on this topic, I consider that Mr Roberts' evidence was generally consistent. He did not consider United had validly exercised the option, because at the time it purported to do so, it was not paying rent in accordance with the Lease. For that reason, he wanted United's Lease at an end. In light of that cogent reason, it does not follow that Mr Roberts had some ulterior motive. 6. Mr Roberts was cross-examined about what was involved in the legal proceedings and how his evidence would be used, again to support a submission that he had an ulterior motive. Mr Roberts' evidence about the timing of his decision to issue the Notice of Consideration was criticised as being inconsistent. I do not accept that it was. He explains his thought process over the timeline in his affidavit. His answers in cross-examination were not materially different. His consistent evidence was that Coastal originally intended to rebuild. That intention was not immediately changed when the rent abatement dispute looked likely to end. His evidence was to the effect that Coastal still intended to build, if and when it had sufficient funds, including when United was paying more rent and Coastal was not spending money on litigation on the rent dispute. When that rent dispute was resolved, Coastal was knew the amount of historically underpaid rent that it would receive and the amount of rent that United would pay going forward. 7. He made a decision in discussions with his accountant, though that was not actioned until January 2022 when the Notice of Consideration was issued. Mr Roberts gave a rational explanation as to Coastal's change of position in relation to the desire to rebuild. There is nothing untoward in the actioning of the decision in accordance with the Lease and with the consideration of legal advice. Mr Roberts made an informed decision not to proceed with the rebuild and issued the Notice of Consideration within a reasonable time of coming to that view. 8. I do not consider that issuing the Notice of Consideration was done with an "ulterior motive", in the sense of providing an additional defence to United's argument that it had properly exercised the option. The operation of clause 8.2.3 stands separate to the clauses dealing with the exercise of the option and the operation of ss 133E and 133F. There is no reason why a contracting party is not entitled to exercise all available contractual rights. Did Mr Roberts undertake a genuine consideration? 1. In addition to the above and in order to advance a submission of a want of genuineness, United criticised Mr Roberts' evidence about the various matters he identified as relevant to his decision to issue the Notice of Consideration. At a general level, Mr Roberts' approach was to estimate the costs of rebuilding the Rock, the funding of such a rebuild and the likely income that would be generated from the rebuilt Rock in order to determine if the work was "impractical" or "undesirable". United did not suggest that the approach taken was inappropriate, but instead, that Mr Roberts did not use the best information to undertake that approach and therefore that his decision was not genuine. 2. I do not accept that what is required by a landlord to validly exercise the right in clause 8.2.3 is an analysis of the best sources of information, judged after the event. Rather, the necessary inquiry is whether the analysis was rational and genuine at the time it was considered. Merely because other matters might have been considered, or the analysis could have been carried out in a different way, is not determinative of whether there was a failure to act genuinely or in good faith. 3. Each of the matters cross-examined on is considered below. Estimated costs of building 1. Mr Roberts estimated the costs of the building works would be over $5 million because: 1. Coastal had obtained a quote from Drayton for $3,280,000 in July 2020; 2. He expected costs would have increased; 3. Concrete was not included in the quote. He estimated that approximately 5,500 square meters of concrete was required, which on the market would cost approximately $800,000. However, he intended to supply the concrete from a mobile concrete plant to be set up on the Property to reduce the cost to approximately $450,000. 1. United submits that Mr Roberts' calculations were not genuine because: 1. They were too imprecise, having been carried out, as Mr Roberts stated, on the "back of an envelope". 2. He included GST in some of his calculations, where Coastal would obtain a GST credit, and therefore it ought not have been included. The difference was approximately $100,000. 3. He failed to give evidence about Drayton's suggestion that it might be possible to reduce the electrical quote by $90,000. 4. He did not obtain an updated quote after July 2020 and instead simply increased the Drayton's quote by 25%. 5. He overestimated the amount of concrete needed. 1. I do not accept that any of those criticisms demonstrate Mr Roberts' was not genuine in his consideration for the following reasons. 2. First, genuineness does not require mathematical precision. Mr Roberts was not required to engage in a process that might be expected of an expert. While Mr Roberts could have considered GST with more precision, I do not accept that his imprecision amounted to a want of genuineness. Further, in order to fund the rebuild Coastal, in fact, would have been required to pay GST, even if at some later time it would obtain a GST credit. 3. Secondly, I do not accept that Coastal failed to engage in the consideration process because it did not provide evidence of every communication relevant to the planned work. Mr Roberts' evidence was that he did not consider Drayton's suggested saving of costs was reasonable, because overall the cost of construction had risen in the 18 months between receiving the quote, including because of the impact on the construction industry of the COVID 19 pandemic. Mr Roberts is the director of various companies that are involved in the construction industry, and I accept that he would have some knowledge of general prices and increases in prices. United did not tender any evidence of market price increases to show the estimate was objectively wrong. 4. While United submits that Mr Roberts merely relied on his accountant's suggestion that prices had increased by 20-30%, that is not accurate. In fact his evidence was that his accountant mentioned those percentages and Mr Roberts expressly agreed with them. 5. Thirdly, in relation to concrete, Mr Roberts is the director of Coastal Sand Quarry and Products Pty Ltd. In his affidavit, Mr Roberts estimated 5,500 square meters would be needed for the rebuild work. He made that estimate from the drawings. United suggests that Mr Roberts had overestimated the amount of concrete, because the development consent did not allow for "extra parking and hardstands". However, Mr Roberts' evidence was that even if the parking area was not expanded and his intention was "to use the existing concrete and hardstand", nevertheless "you'd have to redo all the concrete around [the building], for you should have all different heights and everything for the drainage to work". There is no reason why that explanation given by Mr Roberts ought not be accepted. He explained his estimation process, rather than giving evidence about the precise amount of concrete that would in fact be used. United did not tender any evidence to demonstrate that Mr Roberts' estimate was objectively wrong. 6. Fourthly, Mr Roberts was criticised for his assessment that Coastal would need to borrow all the construction costs and would not be able to obtain or afford a bank loan. United suggests that Coastal did not attempt to negotiate a favourable loan with its business bank and alternatively could have borrowed the money from another corporate entity, of which Mr Roberts was a director. I do not consider that criticism is valid; if Coastal did not have the cash to fund construction then it needed to be obtained from an external source. There is no reason why Coastal should seek a gift from any other entity or person. A loan would require repayment terms. Mr Roberts was entitled to estimate the likely terms based on his experience. He was also entitled to be conservative in his approach, considering the sums of money involved and his risk appetite. 7. I consider Mr Roberts' approach to the costs of the rebuild were genuine, and further have not been demonstrated to be wrong in any substantial way. Estimated rental 1. United submits Mr Roberts underestimated future potential rental in order to justify his decision to issue the Notice of Consideration. United alleges that in his calculations Mr Roberts ought to have: 1. Used the rental figure in Subway's 2020 "Letter of Intention to Lease" part of the planned rebuilt Rock, rather than the rent Subway had been paying before the fire; and 2. At least used the rental other previous tenants had been paying before the fire; and/or 3. Obtained a market appraisal of the rent that might be obtained for planned rebuilt Rock. 1. I do not accept that, just because Mr Roberts could have used alternative methods to estimate future rent, such an approach was required under clause 8.2.3. 2. I do not accept that Mr Roberts was bound to take into account Subway's Letter of Intention to Lease in estimating the likely future rental income. That letter did not oblige Subway to in fact sign a lease on the terms and rent specified. 3. Mr Roberts explained, and I accept, that he considered the various possible tenants and the state of the market as at January 2022 in estimating likely rent after the rebuild. He explained in the witness box that the previous tenants (other than Subway) would not lease space in the rebuilt building, because they now had their own premises. Further, they had previously been prepared to pay a higher rent only because the Property was adjacent to their other business operations. A market appraisal would been an estimate only, because the rebuilt Rock had not been constructed, and the impact of the COVID-19 pandemic remained unknown. 4. There was a rational basis for Mr Roberts approaching the rent payable by other tenants in the way that he did. Merely because his accountant indicated that additional rent might be possible is irrelevant; Mr Roberts was undertaking a task that was inherently imprecise. 5. United criticises Mr Roberts for not considering the future increases in United's rent based on market rent reviews required under the Lease, and should the Rock be rebuilt. I do not consider it was inappropriate for Mr Roberts to evaluate the situation as at January 2022, based on United's then rent, which was a known figure that would be relevant to funding the rebuild. 6. I also consider that Mr Roberts was entitled to be conservative in his estimate of rental. He also was conscious of needing to be able to service the loan during the construction period, during which Coastal would not have been receiving rental income from any tenants other than United. 7. I do not consider United has demonstrated Mr Roberts acted disingenuously when assessing the estimated rental income. Proposed alternative use of property 1. United criticises Mr Roberts' evidence that he took into account an alternative use of the land, being a "fixed" concrete plant. Coastal had obtained from the local council a development consent to construct a "mobile" concrete plant to be used for the concrete for the rebuild and for excess concrete to be sold to third parties, including Mr Roberts' other construction companies. 2. In his affidavit evidence, Mr Roberts stated that he considered the land could be changed from a mobile concrete plant to a "fixed" concrete plant. It was suggested to Mr Roberts in cross-examination that his evidence was false, because he had no approval for a "fixed" concrete plant, only a mobile one. Mr Roberts' explained that he did not consider there was very much difference between the two, and the mobile plant could become "fixed" with some bolts and toilet facilities being provided for customers. Further, he indicated that it was not necessary to obtain a further development consent to change the plant from a mobile to a fixed one, and it would be possible to change the use with a complying development certificate. He was not challenged on that evidence. 3. While United accepted that the development consent did not contain a condition that the approved plant was required to be used in conjunction with the rebuild, it was submitted that it was disingenuous for Coastal to seek to use the land as a permanent concrete plant, when council had been informed it would be used for the rebuild. 4. I do not accept the criticism raised. The development application made was consistent with Coastal's intention at the time submitted, namely, to rebuild and primarily use the concrete plant to supply concrete for that build. Mr Roberts' evidence was that the sale of concrete from the plant was also intended to provide some funding for the rebuild. I do not accept that Mr Roberts' evidence was inconsistent or false. While his evidence about the consideration of the concrete plant was less detailed and to some extent his references to "mobile" and "fixed" plants were a little confusing, I do not accept that the proposed alternative use for the Property leads to the conclusion that the consideration in issuing the notice was not genuine. Conclusion 1. The express right in clause 8.2.3 is part of a negotiated lease and provides Coastal with a power which is clear in its terms. Coastal was not required to prefer United's interests above its own when considering whether to issue a notice under the clause. 2. It is my view that Mr Roberts undertook a rational and genuine assessment of Coastal's desire and ability to rebuild and validly issued the Notice of Consideration, having determined that the repair work was "impracticable or undesirable". Was Coastal estopped from exercising the right? 1. United originally relied on conventional and promissory estoppel to submit that Coastal is estopped from relying on clause 8.2.3. However, in closing submissions United limited its reliance to promissory estoppel. 2. The principles of promissory estoppel are well known. Often the summary of Brennan J in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 428-429 is cited as authority. An estoppel can arise so as to restrain a party from exercising rights under the contract: Legione v Hatley (1983) 152 CLR 406; Saleh v Romanous (2010) 79 NSWLR 453 at [62]. 3. United relies upon Coastal's "continuing representation that '[w]e will build'" as the foundation for the estoppel. For example, in a letter from Coastal's lawyers dated 17 April 2020 it is said Coastal represented: 1. that the Rock would be rebuilt and that the construction works foreshadowed in the letter would be undertaken as early as May 2020; and 2. "that Coastal would not seek to invoke clause 8.2.3 of the Lease or terminate the Lease under that clause". 1. However, I do not accept the letter amounted to the representation that Coastal would not issue a notice under clause 8.2.3, as United asserts. It does not represent, either implicitly or explicitly, that Coastal was waiving any of its rights under the Lease. The letter does not refer to clause 8.2.3 at all. It does not proffer a proper construction of the Lease. While it expresses Coastal's then intention to commence the works in May 2020, no work was ever commenced, to United's knowledge. United never made any enquiry as to when work would in fact be commenced. 2. In any event, by reason of the construction of the Lease I prefer, Coastal was not prevented from deciding to repair the damage and then later considering the repair works were not desirable or practicable. 3. Further, I do not accept that United detrimentally relied on the asserted representation. When pressed as to what United's detrimental reliance was, senior counsel for United characterised it as the lost opportunity to put commercial pressure on Coastal by issuing a clause 8.2.4 notice. However, if United had wanted to put commercial pressure on Coastal then it always was able to issue such a notice. The alleged representation did not prevent United taking that course. I do not accept it relied on any representation. It simply chose not to issue a notice. 4. I do not accept that Coastal is estopped from issuing the Notice of Consideration. Exercise of option 1. Clauses 4.4.2 and 4.4.3, set out above, specify the conditions necessary for an effective exercise of the option: there cannot be any defaults of the Lease in terms of up to date payment of rent and outgoings, or failure to comply with a notice to remedy any other default. 2. United asserts that at the time of the exercise of the option, no rent or outgoings were in default. Coastal's position is that United was in default and on 1 April 2021 it issued the Prescribed Notice, which identified overdue payments of rent or outgoings of $292,918.31. 3. It is necessary to determine, what, if any, rent and outgoings were outstanding at the time the option was exercised. Even if rent and outgoings were outstanding, and United was unequivocally in breach of the Lease, the Prescribed Notice still had to be valid in order to invalidate the exercise of the option. Legal principles 1. Section 133E provides: 133E Breach of certain obligations not to preclude option except in certain circumstances (1) This section applies to a lease that contains-- (a) an option exercisable by the lessee, and (b) provision by which the lessee's entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised. (2) Despite any provision of the kind referred to in subsection (1)(b), no breach by the lessee of any relevant obligation precludes the lessee's entitlement to the option unless-- (a) the prescribed notice has been served on the lessee in respect of the breach, and (b) the lessee's rights are extinguished in relation to the notice. (3) In subsection (2)-- "breach" of an obligation includes, where the obligation requires any thing to be done, any neglect or failure to do the thing concerned. "obligation" includes any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing any thing. "prescribed notice" means a notice in writing-- (a) specifying the lessee's breach of the relevant obligation and served on the lessee-- (i) within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or (ii) within 14 days after the breach, if the breach occurred after the giving of that notice, and (b) states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option. (4) For the purposes of subsection (2)(b), the lessee's rights are extinguished in relation to a prescribed notice-- (a) if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or (b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or (c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose. 1. Coastal bears the onus of proving United was in breach of the Lease at the time the Prescribed Notice was issued. United bears the burden of proving that s 133F relief should be granted: Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380 at 387-8 (Wootten J). 2. The parties agreed on most of the relevant principles applicable. In Allsvelte Pty Ltd v Cassegrain Wines Pty Ltd [2015] NSWSC 1370 at [58]-[59], Ball J explained: 58. The prescribed notice must be in writing "specifying the lessee's breach of the relevant obligation". The section does not identify clearly how the breach is to be specified. In my opinion, it must be specified with sufficient particularity to enable the lessee to make a decision whether or not to seek relief under s 133F and to seek that relief if it decides to do so, since it is for that purpose that the notice is given… 59. There is nothing in s 133E which requires separate notices to be given in respect of separate breaches. Consequently, the issue in relation to each breach identified in the notice served … is whether that is a breach that precludes the exercise of the option under the lease and is identified with sufficient specificity to enable [the lessee] to make a decision whether to seek relief under s 133F in respect of that breach and to seek that relief if it decides to do so. 1. In The Highlands on a Plate Pty Ltd v Roloz Pty Ltd [2021] NSWSC 1072 at [40]-[42], Darke J stated: 40. … s 133E(2) of the Act operates so that despite the breach of the obligation to pay rent, the plaintiff's entitlement to the option is not precluded by the breach unless: (a) the "prescribed notice" is served on the plaintiff in respect of the breach; and (b) the plaintiff's rights are extinguished in relation to the notice. 41. The next question to consider is whether the prescribed notice has been served on the plaintiff in respect of the breach for the purposes of s 133E(2)(b). 42. Prescribed notice is defined in s 133E(3) to mean a notice in writing: (a) specifying the lessee's breach of the relevant obligation and served on the lessee— (i) within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or (ii) within 14 days after the breach, if the breach occurred after the giving of that notice, and (b) states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option. 1. As to what is required by way of "specifying the lessee's breach", Darke J continued at [45]-[46], referring to the decision of White J (as his Honour then was) in Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2012] NSWSC 251 (Dee-Tech), and then stating at [47]: I take from this that in order for a s 133E notice to have effect in respect of an actual breach of a lease it must accurately specify the breach. Whether a breach can be said to have been accurately specified depends upon the terms of the notice and the particular circumstances of the breach, including the nature of the relevant obligation. A breach of an obligation to pay a sum of money is capable of being precisely specified. Nonetheless, I do not think that a s 133E notice would be ineffective merely because of a minor misstatement of the monetary amount of such a breach. The notice would be effective provided the specification of the breach is sufficiently accurate to enable the conclusion that the actual breach has been specified. 1. In that case the notice specified that the tenant had failed to pay rent in the sum of $43,264.76, whereas the tenant owed no more than $18,766.24. His Honour concluded that the notice failed to specify the lessee's breach of the relevant obligation for the purposes of para (a) of the definition of a prescribed notice. 2. In Dee-Tech, White J (as his Honour then was) concluded that a notice was invalid because the lessor had particularised a sum of outgoings said to be payable, which was more than it was entitled to be paid. Consideration 1. The April 2021 notice stated: SPECIFICATION OF THE LESSEE'S BREACH Overdue rent and outgoings Lease, Annexure A, Schedule Items 13, 14 and 16, together with Annexure B, clause 5 oblige United to pay rent and outgoings in accordance with those terms. The obligations to pay rent and outgoings are essential terms: see Annexure B, clause 12.5.1 and 12.5.2. At the time of service of United's Notice, there was rent or outgoings overdue for payment, in the amount of $292,918.31 (inclusive of GST). That amount, which was invoiced to you on 11 March 2021, has not been paid. Accordingly, the condition prescribed by clause 4.4.2 above, which is a condition precedent to United exercising the option, has not obtained [sic]. United is not entitled to exercise the option. 1. The notice also asserted a breach of the Opening Hours clause, however, Coastal abandoned that allegation and it is not relevant to the issue of the notice's validity. 2. United asserts that the notice was defective because it did not provide a breakdown of what was said to be owing by way of outgoings and rent. Further, at the time, United was asserting it was entitled to abated rent of 55% of the rent required under the Lease. 3. Coastal asserts that the notice ought to be read with the invoice issued to United on 11 March 2021 (March Invoice), which provided a breakdown of that $292,918.31 figure. The notice refers to the March Invoice that had been sent to United, but was not served again with it. 4. United asserts that the March Invoice cannot be read in conjunction with the notice. Further, it states that the invoice did not precisely indicate the amount of rent owing such that: United was therefore not left in a position where it could properly assess and understand the amounts said to be owing so as to enable United to consider its position. 1. Therefore, it must be determined: 1. Whether United was in fact in breach of the Lease when it exercised the option, and if so, to what extent. 2. Whether the Notice ought to be read together with the March Invoice. 3. Whether the Notice, with or without the March Invoice, satisfies s 133E. Was United in breach of the Lease? 1. Coastal submits that United cannot deny it was in breach of its obligations to pay rent at the time it exercised the option because of Consent Orders that were made by Darke J on 27 January 2022 finalising the parties' dispute about the appropriate abatement of rent, consequent to the fire damage. The relevant orders were: Consent Orders – Rent Claim: Statement of Claim 1. The Court declares that the rent payable pursuant to the lease dated 7 November 2018 between Whitehorn Estates Pty Ltd (ACN 605 915 786) and the defendant (Lease), being the lease that now binds the plaintiff as lessor and the defendant as the lessee, is adjusted pursuant to clause 8.2 of the Lease to reflect the following liability of the defendant to pay rent at: (a) $373,171.68 per year (plus GST) from 21 December 2018 to 30 June 2019; (b) $384,366.83 per year (plus GST) from 1 July 2019 to 30 June 2020; (c) $395,897.84 per year (plus GST) from 1 July 2020 to 30 June 2021; and (d) $407,774.78 per year (plus GST) from 1 July 2021 to 30 June 2022 (Abated Rent). 2. The defendant pay to the plaintiff, within 14 days of the date of these orders, any difference between the rent paid to date by the defendant and the Abated Rent payable under the Lease for the period from 20 June 2019 to the date on which payment is made (Shortfall Amount). 3. No interest is payable on the Shortfall Amount. 4. The Court declares that the outgoings payable pursuant to the Lease be adjusted downwards by 21% pursuant to clause 8.2 of the Lease and paid by the defendant at that reduced amount from the date of the parties agreeing these orders. 5. Judgment for the defendant on the plaintiff's Amended Statement of Claim filed on 11 September 2020 (ASOC). 6. No order as to cost (with the intent and effect that the parties bear their own costs of the plaintiff's ASOC). First Cross-Claim 7. The defendant's Cross-Claim filed on 29 October 2020 (First Cross-Claim) be otherwise dismissed. 8. No order as to costs (with the intent and effect that the parties bear their own costs of the defendant's First Cross-Claim). 1. Coastal submits that the declaration by the Court was as to the rent that was payable not only going forward, but historically, including when the option was exercised. Further, it is said that by consenting to order 2, United accepted that it was in breach of the Lease, because there was a "shortfall" in what it had paid that needed to be made up. The effect of the orders was that United was required to pay the difference between the reduced rent it had been paying and the 79% that was declared to be the binding rent from the time of the damage going forward. 2. United submits that there was no declaration made that it was in breach of its obligation to pay rent and the orders disposed of the Amended Statement of Claim. For that reason, it says that the Consent Orders do not amount to an admission that United was in breach of the Lease. 3. I note that in its pleading, Coastal never sought a declaration of breach of the rental obligation. Instead, it sought an order that United pay the shortfall of underpaid rent; there was no need for a declaration of breach, even if the matter had proceeded to judgment. 4. I consider the consent declaration of the rent payable, and the known fact that United had been underpaying rent, is sufficient to demonstrate United was in breach of the Lease when it exercised the option. 5. I do not accept that merely because the parties were in a "genuine dispute" about the appropriate amount of rent abatement, as United contends, that it is not open to conclude that United was in breach of its rental obligations. 6. The real issue is whether s 133E was satisfied by Coastal's Notice. Was the March invoice incorporated by reference? 1. United submits that the March Invoice was not incorporated by reference and cannot be considered in determining the efficacy of the Notice: [The invoice] was not served with the [Notice], nor did the notice state that the contents of the 11 March 2021 invoice formed part of the [Notice]. 1. United submits that this is consistent with Bryson AJ's decision in Sydney Water Area Health Service v Staracek (2008) 73 NSWLR 68; [2008] NSWSC 744 (Staracek), where at [16] his Honour stated: The notice referred to [in s 133E] is to be in writing, and is to specify in writing some matters and state in writing some matters, and what the notice communicates by implication, or by reference to knowledge shared between the parties, is not part of the statutory formulation. 1. Bryson AJ also considered the legislative requirement was a strict one, rather than one allowing substantial compliance: at [15]. In Staracek, the notice failed to make any reference to s 133F at all and was therefore defective for failing to comply with s 133E(3)(b), even though the breaches were specified, and even though the lease contained an annexure that included a note explaining the process under s 133E. 2. Coastal urges the Court instead to adopt an approach similar to that taken by Einstein J in Nameless, Shameless and Legless Pty Ltd v 2 Roslyn Street Pty Ltd [2004] NSWSC 519. There, his Honour considered a notice that complied with s 133E, save for referring to s 133E rather than s 133F for the purposes of complying with s 133E(3)(b). His Honour concluded at [37] that the notice was nevertheless valid, because the reference to s 133E: …directed the lessee to the procedure which led to the issue of the notice: section 133E itself referred to section 133F. In short, the lessee was thereby given the substance of the information that it needed in order to come to court under division 4 and seek the appropriate order. 1. I consider that the notice incorporated the March Invoice by reference. This is not a case like Staracek, where the issue was whether knowledge of s 133F was sought to be imputed to the tenant recipient of the notice by reason of the "note" and the fact the tenant was represented. I am not being asked to infer that United would read the notice together with some "implication, or by reference to knowledge shared between the parties": Staracek [16]. Instead, the notice expressly refers to the March Invoice, which provides further particulars of the sum identified in the notice. 2. If it is not permissible to have regard to the March Invoice, I nevertheless consider that the notice was valid because it specified a breach of the rental obligation in the sum of $292,918.31, which was less than the rent payable under the Lease. This is not a situation where the sum specified was more than the amount actually due: cf The Highlands on a Plate Pty Ltd v Roloz Pty Ltd [2021] NSWSC 1072. 3. However, at the time United purported to exercise the option it had only been paying about 44% of the rent required under the Lease. The shortfall amounted to: 1. $158,171.68 for the financial year 2018-2019; 2. $169,366.83 for the financial year 2019-2020; and 3. $180,897.84 for the financial year 2020-2021. 1. Therefore, as at March 2021, United was in breach of the Lease concerning underpaid rent by more than $292,000. 2. Even if I were to accept United's submission that it ought not be considered in breach of its rent obligations, because it was asserting it was entitled to abatement of rent, the consent declaration made in January 2022 had the effect of identifying that 79% of rent should have been paid between July 2018 and June 2021, and the shortfall was approximately $598,436.35, and therefore well over $292,000. Was the Prescribed Notice valid? 1. I do not consider an understatement of the total rent owing invalidates the Prescribed Notice. Practically the effect of the Prescribed Notice is that it only identified some breaches rather than them all. 2. For the reasons identified above I consider the Prescribed Notice complied with s 133E and was effective. Relief pursuant to s 133F 1. On the basis that the Prescribed Notice was valid, United seeks relief pursuant to s 133F, in effect keeping the Lease on foot because it has remedied any default and it would suffer prejudice if relief was not granted. 2. The principles relevant to the exercise of the statutory discretion were not in dispute and were conveniently stated by Ball J in Allsvelte Pty Ltd at [76]-[77] (citations omitted): [76] Section 133F(3) lists various matters the court may take into account in exercising the discretion conferred by the section. The court is not required to take any one of the particular factors set out in s 133F(3) into account or place particular weight on any of them, nor to exclude any additional considerations that may be relevant to the exercise of the court's discretion to grant relief that are not set out in s 133F(3). The granting of relief referred to in s 133E(4) is discretionary and the power is to be exercised in a way that will best achieve justice between the parties in the circumstances of the particular case …. Among the matters the court will consider are "the nature, circumstances and importance of the breach, the likelihood of its repetition and the effect of its repetition on the lessor in the future" …. Also relevant is whether the breach was wilful…. In some decisions… the court has also taken into account the general relationship between the parties and refused to grant relief where the relationship "has soured and is likely to remain disputatious": P Butt, Land Law (2010, 6th ed, Law Book Co) at 423–4. [77] On the other hand, relief is generally granted where the breaches have not caused any appreciable harm to the lessor … . 1. If it was necessary to decide, I would conclude that United was entitled to relief for the following reasons. 2. United is currently up to date with rent and outgoings. All the arguments raised by Coastal to resist relief concern past failure to pay rent and the fractious relationship between the parties. 3. It is not in dispute that United unilaterally determined to pay about 44% of the rent required under the Lease from when Coastal became the registered proprietor until January 2022. It did so relying on clauses 8.2.1 and 8.2.2, which provided that rent would be abated in relation to damage to the Rock that affected useability. 4. United determined the quantum of an abated rent, relying on a report by real estate agents, Savills. However, that report did not address the reduction in "useability" of the leased premises, as required by clause 8.2.2, but instead focused on reduction in revenue earned by United to determine the abatement percentage. While I accept that Savills did not use the language of reduced "useability", I do not accept that reduction in revenue may be an indication of reduced useability, which is not defined. United's petrol station had been operated from the Rock "icon", in which there were other food outlets. The destruction of the Rock no doubt impacted on United's business operations and therefore could be said to impact on "useability" of the originally leased premises with other tenants in situ and an iconic structure. The report provides a rational basis for United deciding to underpay rent as it did. 5. For those reasons, I do not accept that United's conduct was "egregious" as Coastal submits. 6. While it is not in dispute that United was 14 days late in paying the shortfall of rent ordered by consent, I do not consider that breach so significant as to warrant a refusal of the application for relief. 7. While I accept that the relationship between the parties has been difficult, it is understandable in the context of the damage, for which neither party was responsible. I do not accept that the parties, who are commercial entities, will be unable to continue with a businesslike relationship. Merely because parties assert rights and argue about the proper construction of contractual clauses does not, in my view, mean that no relief ought to be granted. 8. I do not accept Coastal's submission that if relief is granted it will be prejudiced because it consented to a reduced rent being paid through the Consent Orders. Coastal has not demonstrated that the current reduced rent is less than market rent for the premises leased by United. I also do not consider it relevant that United has many other sites around Australia. 9. I accept that there will be material prejudice to United, should relief not be granted, in circumstances where the Lease may run until 2036 if United exercises its other options. 10. Finally, I do not consider that granting relief is futile in light of the Notice of Consideration and my conclusions as to its construction. While that notice provides Coastal with a right to terminate, it is not required to do so. Until it elects to do so, the Lease will continue on its terms amended by the Consent Orders. Orders 1. In the circumstances, the appropriate orders are: 1. An order under s 133F of the Conveyancing Act that the cross-claimant be relieved against the effect of the breaches of the Lease as found. 2. A declaration that the Lease was renewed for a period of 5 years commencing 1 July 2021. 3. Further amended second statement of cross-claim otherwise dismissed. 4. Cross-claimant pay the cross-defendant's costs of the proceedings as agreed or assessed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 August 2023