Reported Decision : (2007) ANZ Conv R 123 New South Wales Supreme Court CITATION : Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203 HEARING DATE(S) : 30 August - 1 September 2006 JUDGMENT DATE : 15 November 2006 JURISDICTION : Equity Division JUDGMENT OF : Brereton J DECISION : (1) Declare that plaintiff has exercised first option conferred by lease and is entitled to further lease upon same terms covenants and conditions as contained in lease subject to deletion of clause incorporating filed memorandum, and at rental determined in accordance with lease. (2) Order that defendant execute and deliver to plaintiff further lease. (3) By way of relief against forfeiture, order that defendant be permanently restrained from exercising power of re-entry in reliance upon any default in respect of payment of rent prior to 1 September 2006. (4) Order that cross-claim be dismissed. (5) Order that defendant pay plaintiff's costs, including of cross-claim. CATCHWORDS : CONVEYANCING – Lease - Option to Renew – Agency - whether lessee validly and effectively exercised option – principles relating to notices exercising options - where exercise was by and in name of principal of lessee company addressed to principal of lessor company – Estoppel – Waiver - whether lessee waived, or is estopped from relying upon, notice of exercise of option – where lessor informed lessee that a further notice was required as a matter of formality for the records of lessor company - whether lessor estopped from insisting at any time upon payment of amount properly due under the lease – whether lessor is estopped from claiming arrears of rent - where lessor issued annual notices of rent review which mistakenly understated amount properly due in accordance with lease and lessee paid in accordance with those notices – where lessee alleged that rent reviews were incorrectly calculated and overstated rent properly due – where lessor then recalculated and discovered error understating rents – EQUITY – Relief against forfeiture - whether lessee entitled to relief against forfeiture – where no arrears at date of commencement of cross-claim for possession – where lessee did not admit breach – whether admission of breach essential precondition to grant of relief against forfeiture – DEEDS - whether lessee entitled to renewed lease, omitting from its terms reference incorporating filed memorandum – where reference to filed memorandum inserted by lessor or agent after execution and without knowledge of lessee – COSTS – Relief against forfeiture - whether lessor entitled to some part of costs in respect of claim for relief against forfeiture – where forfeiture first asserted in cross-claim in answer to lessee's claim to enforce exercise of option. LEGISLATION CITED : (NSW) Conveyancing Act 1919, ss 85, 129, 133E (NSW) Real Property Act 1900 Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 Ballas v Theophilos (No. 2) (1957) 98 CLR 193 Banning v Wright (Inspector of Taxes) [1972] 1 WLR 972 Batiste v Lenin [2002] NSWCA 316 Bava Holdings Pty Ltd v Pando Holdings Pty Ltd (1998) NSW ConvR 55-862 Billson v Residential Apartments Ltd [1992] 1 AC 494 Bowstead & Reynolds on Agency (16th Ed) Carter v Hyde (1923) 33 CLR 115 Carter v Schmitt [2003] NSWSC 1166 Cherry Lane Fashion Group Ltd v Jam Factory Pty Ltd (1989) VConvR 54-354 Chilcott v Goss [1995] 1 NZLR 263 Cicinave Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139 Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 Dalla Costa v Beydoun (1990) 5 BPR 11,379 Dendy v Evans [1910] 1 KB 263 Farrow Mortgage Services Pty Ltd (in Liq) v Slade & Nelson (1996) 38 NSWLR 636 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Hace Corp Pty Ltd v F Hannan (Properties) Pty Ltd (1995) 7 BPR 14,326 Hayes v Gunbola Pty Ltd (1986) 4 BPR 9,247 CASES CITED : Humphreys v Morten [1905] 1 Ch 739 Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 Kadian v Richards (2004) 61 NSWLR 222 Langley v Foster (1909) 10 SR(NSW) 54 Mannai Investment Co Ltd v Eagle Star Insurance Co Ltd [1997] AC 749 Novasource Consulting Pty Ltd v Primelife Property Holdings Pty Ltd (2003) V ConvR 54-671 Pigot's Case (1614) [1588–1774] All ER Rep 50 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9,562 Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 Quadling v Robinson (1976) 137 CLR 192 Riltang Pty Ltd v L Pty Ltd [2002] NSWSC 625 Steiper v Deviot Pty ltd (1977) 2 BPR 9,602 T Hyland Enterprises Pty Limited v Alliance Acceptance Co Limited (NSWSC, Powell J, 2 October 1984) BC8400245 The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Townsend Carriers Ltd v Pfizer Ltd (1977) 33 P & CR 361 Tutita Pty Ltd v Ryleaco Pty Ltd (1989) 4 BPR 9,635 Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238 World By Nite Pty Ltd v Michael [2004] 1 Qd R 338 Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 Young v Lamb [2001] NSWCA 225 PARTIES : Mineaplenty Pty Limited (plaintiff) Trek 31 Pty Limited ACN 004 562 403 (defendant) FILE NUMBER(S) : SC 5631/05 COUNSEL : Mr L V Gyles (plaintiff) Mr D M Loewenstein (defendant) SOLICITORS : David Hand, Solicitor (plaintiff) Harris Lieberman Boyd (defendant) THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Wednesday, 15 November 2006 5631/05 Mineaplenty Pty Limited v Trek 31 Pty Limited JUDGMENT 1 HIS HONOUR: The plaintiff Mineaplenty Pty Limited is the lessee, and the defendant Trek 31 Pty Ltd is the lessor, of a caravan park at Lavington, near Albury, under a lease for a term of five years from 22 December 2000, containing three options to renew, each for a further five-year period. Mineaplenty contends and Trek 31 disputes that Mineaplenty has validly exercised the first option and is entitled to a new lease until 22 December 2010. Mineaplenty claims a declaration and orders to that effect, and alternatively, relief pursuant to Conveyancing Act 1919 (NSW), s 133E, from the consequences of any breach of covenant which would otherwise preclude it from exercising the option. Trek 31 cross-claims for possession of the caravan park, both on the basis that the lease has expired, and on the basis that Mineaplenty is in default of its obligation to pay rent; it also claims a judgment for the arrears of rent. 2 The issues are: · Did Mineaplenty's notice of 31 July 2005 ("the first notice") effectively exercise the option? I conclude that it did. · If so, is Mineaplenty estopped from relying upon it, or has it waived it, by reason of having served a later notice dated 16 September 2005 ("the second notice")? I conclude that there was no estoppel or waiver. · If so, at the time of service of the second notice, was Mineaplenty in breach of covenants in the lease as set out in Trek 31's s 133E notice? In the light of my conclusions on the preceding two issues, this does not arise. · If so, should Mineaplenty be granted a new term, or relief against forfeiture, or compensated, or other orders made under s 133E? Again, this does not arise. · Is Mineaplenty in arrears of rent, by reason of non-payment of a higher rental than that invoiced at the time, for the period up to July 2005? I conclude that Mineaplenty has been, but is not now, in arrears. · If so, should Mineaplenty be granted relief against forfeiture? I conclude that relief against forfeiture should be granted. · If so, should the new lease contain a reference incorporating the filed memorandum? I conclude that Mineaplenty is entitled to a renewed lease, not incorporating the filed memorandum. Background 3 The caravan park was originally built in about 1980, on land that had previously been used for agricultural purposes. Trek 31, whose principals were and are Mr and Mrs Prendergast, purchased the property in 1991, and effected substantial improvements to it. By 1993 it had attained a four-star rating from the NRMA, which it retained until 2001. 4 On 27 May 1994, Trek 31 leased the property and sold the caravan park business to Sabeau Nominees Pty Limited, a company of which the Prendergasts' daughter and son-in-law were the principals, for a price of $530,000, of which $64,153 was apportioned to goodwill. In November 2000, Sabeau sold the business to Mineaplenty for $725,000, of which $345,500 was apportioned to plant and equipment, and $379,500 to goodwill. In conjunction with that sale, Trek 31 and Mineaplenty entered into the lease, dated 1 January 2001, but commencing from, and apparently executed by Mineaplenty on, 22 December 2000. 5 The lease, as subsequently registered (No. 7751378E), is expressed on its face to be for a term of five years commencing 22 December 2000 and terminating 21 December 2005, with options to renew for three periods of five years, and to incorporate the provisions set out in Annexure A, and the provisions of filed Memorandum No. T480457. 6 In Annexure A, clause 1 (Interpretation) includes the following: "The lessor" means the lessor its successors and assigns and where applicable the servants and agents of the lessor. "The lessee" means the lessee its legal representatives and/or permitted assigns and where applicable shall include the officers, servants, agents, invitees of the lessee. 7 Clause 3 (Covenants by the Lessee) includes the following: The lessee hereby covenants with the lessor as follows: (a) (i) A: To pay rent to the lessor or as it may otherwise direct in accordance with Part 1 of Schedule 1 monthly in advance without any deduction whatsoever. B: In addition to the rent herein provided it is expressly agreed that the rent payable hereunder shall be increased annually on the anniversary of the commencement of this lease (or the option as the case may be) in accordance with the following formula: R x A B PROVIDED THAT the rent payable immediately after the application of the said formula shall not be not less than the rent payable immediately before the application of the said formula increased by FIVE (5%) PERCENT. Where "R" is the minimum rent payable immediately preceding the date the rent is to be increased. Where "A" is the "all groups consumer price index for Sydney" for the quarter immediately preceding the date the rent is to be increased. Where "B" is the "all groups consumer index for Sydney" for the quarter one year prior to "A". … (ii) To pay all rent by order on the lessee's bankers directing payment to the credit of the lessor or the lessor's bank as the lessor may from time to time in writing direct. (iii) Default of lessee: that if the rent hereby reserved or any part thereof shall be unpaid for the space of fourteen (14) days after any of the days on which the same ought to have been paid and in accordance with the covenants for payment herein contained (although no formal or legal demand shall have been made thereafter) or if the lessee commits, permits or suffers to occur any breach or default in the due and punctual observance and performance of any of the covenants obligations and provisions of this lease … then and in any one or more of either of such events the lessor at any time or times thereafter shall have the right to re-enter into and upon the premises or any part thereof in the name of the whole and to have again repossess and enjoy same as of its former estate anything herein contained to the contrary notwithstanding but without prejudice to any action or other remedy which the lessor has or might or otherwise could have for arrears of rent or breach of covenant or for damage as a result of any such event … and further provided that the lessee agrees to pay interest at the rate referred to in Schedule 2 on any rent or other moneys payable under this lease calculated from the time that payment fell due until those moneys shall be paid in full … (d) REPAIRS GENERAL AND PARTICULAR The lessee will from time to time and at all times during the term: (i) Well and sufficiently and substantially repair, clean, maintain, mend and keep as at the commencement hereof the premises and all additions made thereto defects of a structural nature and damage by fair wear and tear, fire, flood, lightening, storm, tempest, act of God or other inevitable accident only exempted PROVIDED that the lessee shall not be liable to work of structural nature without the written approval of the lessor except such as may be occasioned by the occasioned by the act, neglect or default of the lessee, its servants or agents or by reason of his use or occupancy of the premises. (ii) Cause the premises to be kept clean and free from dirt and rubbish (including external surfaces of windows walls and doors) by employing for the purpose persons approved by the lessor and by ensuring that all trade waste trash and garbage is stored and kept in proper receptacles and that such receptacles are removed from the main building by the lessee daily. … (vii) Maintain the premises so as to comply with the four-star NRMA rating and furthermore will carry out all necessary repairs, upgrading and maintenance (with the exception of anything of structural nature) so as to maintain that compliance. 8 Clause 4 (Covenants by the Lessor) includes the following: (e) OPTION OF RENEWAL If the lessee shall have observed all of the covenants, conditions, agreements and provisions of the lease, the lessor shall upon the written request of the lessee delivered to the lessor not more than six (6) nor less than three (3) months prior to the expiration of the term grant to the lessee a further lease of the premises in accordance with the provisions of Schedule 6 on the same terms, covenants and conditions as are contained in this lease and at a rental as determined in accordance with the provisions of Part 2 of Schedule 1. 9 Clause 5 (Mutual Covenants) includes the following: (b) NOTICES (i) GENERALLY Any notice required to be served under this lease shall be sufficiently served on the lessee if delivered or left addressed to the lessee at the premises or forwarded by prepaid post to the registered office of the lessee and shall be sufficiently served personally or addressed to the lessor and left at or sent to their last known place of abode and any notice sent by post shall be sufficiently served if served personally or if delivered or left addressed to the lessee at the premises and a notice sent by post shall be deemed to have been given at the time when it ought to be delivered in the due course of post. … (c) COSTS To pay on demand the lessor's costs of the preparation, perfection, registration and stamping of this lease and its counterpart and the stamp duty from time to time payable thereon and to comply from time to time with all requirements of the Acts or Regulations governing payment of stamp duty or other duties or taxes on leases and in case of default by the lessee in performing or observing any covenant herein contained or implied or in consequence of any request by the lessee for the lessor's approval or consent to any act, proposed act or matter in connection with the leased premises or this lease to pay to the lessor all costs, charges, expenses and fees (including solicitor and own client legal costs) to which the lessor shall become liable in consequence of or in connection with such default or request. … (g) ARBITRATION In the event of any difference arising between the parties as to their respective rights, duties, obligations and liabilities under this agreement and the performance or non-performance thereof the matter in dispute shall be referred to the determination of a single arbitrator in the manner provided by the Commercial Arbitration Act (NSW) 1984 (as amended) or any statutory modification or re-enactment thereof. The lessor and lessee agree that the costs of the arbitration in all respects shall be shared equally between them. (h) SECURITY DEPOSIT The lessee acknowledges that the lessor may at any time during the term call for the lessee to deposit into an account nominated by the lessor a security deposit in an amount of not less than three months rental which the lessor may at its absolute discretion apply to rectification of any rectification of any breach of the lease occasioned by the lessee including the non-payment of rental. 10 Schedule 1 (Rental) provides as follows: Part 1 Commencement Rental ONE HUNDRED AND TWENTY-FIVE THOUSAND THREE HUNDRED AND FORTY DOLLARS ($125,340.00) per annum which shall be payable monthly in advance in the sum of TEN THOUSAND FOUR HUNDRED AND FORTY-FIVE DOLLARS ($10,445.00) per month the first of such monthly payments to be made on the 18th day of December 2000 and monthly thereafter. Part 2 The rental for the first year of any new term shall be the amount (being not less than the rent hereby reserved increased by five (5) percent) as shall be agreed between the parties or failing agreement at the expiration of fourteen (14) days notice in writing from one party to the other requesting agreement to the terms specified in the notice, then as determined in accordance with this provision. … 11 Provision is then made for determination of the rental by a licensed valuer nominated by the President of the Australian Property Institute Inc, NSW Division. Schedule 2 provides for an interest rate of 2% above the interest rate prescribed, as at the time of the default, by Schedule J of the Supreme Court Rules from time to time on judgments. 12 There is a substantial dispute between the parties as to whether, when Mineaplenty executed the lease, it included the reference that now appears on the face of the registered lease to the filed memorandum. Mineaplenty's sole director and secretary, Mr Taylor, says that it contained no such reference when he signed it. The solicitor who acted for him at the time, and who acts for him in these proceedings, Mr Hand, confirms that to be so, and annexes to his affidavit a copy of a version of the lease, bearing Mr Taylor's signature and Mr Hand's attestation, which contains no such reference. However, although - as Mr Loewenstein, for Trek 31, points out - Mr Hand's affidavit, on a fair reading of it, suggested that the document so annexed was a copy of what had been sent for stamping and registration, it became apparent (not least from dissimilarities in the manner of appearance and location of the signatures on them) that Mr Taylor had signed and Mr Hand had witnessed two forms of the lease. Mr Hand explained that he had Mr Taylor sign a draft that had been submitted for comment, as well as the execution copy, so that he had a record on his file, pending receipt back of the registration copy following registration. Mr Hand and Mr Taylor both and independently say that when Mr Hand received the registration copy, in about mid 2001, Mr Hand immediately noticed that the reference to the filed memorandum had been added, discussed it with Mr Taylor, but decided not to raise it with Trek 31 at that time, so as to avoid creating a dispute. 13 Mr Prendergast says that the lease contained a reference to the filed memorandum when he signed it, but it is unlikely that he would have noticed its presence or absence. Mineaplenty's case is that the reference to the filed memorandum was inserted after the execution copy had been stamped and returned to Trek 31's solicitors, but before Trek 31 executed it. 14 The versions of Mr Hand and Mr Taylor and not without difficulties. In making these observations, I do not doubt that both Mr Hand and Mr Taylor genuinely believe that the lease contained no reference to the filed memorandum at the time of execution, and that Mr Hand first noticed the reference when the registration copy was forwarded to him in mid-2001 – probably upon comparing it at that point to the version he had retained in his file. However, the course of correspondence between Mr Hand and Morton & Harris, who were acting for Trek 31 on the lease, in the few days preceding 22 December 2000 when the terms of the lease were negotiated, does not suggest that there was a separate and prior submission of a draft for comment, as Mr Hand recalls; to the contrary, the correspondence suggests that the execution copy had already been received when Mr Hand commented on its terms, and in response was invited to make a handwritten amendment to the execution copy. Secondly, in fact he made handwritten amendments to the copy he retained on his file, but not to the execution copy; in accordance with the agreement between the solicitors, he altered "less" to "more" in the clause pertaining to the security deposit, and he also changed the date for payment of rent from the 18th to the 22nd of the month. 15 On the other hand, Mr Taylor and Mr Hand corroborate each other as to the absence from the execution copy of any reference to the filed memorandum. An affidavit of Mr Hand sworn on 23 June 2006 and filed on 5 July 2006 deals explicitly and exclusively with this issue. Mr Taylor's principal affidavit had also addressed the issue, albeit it in passing. A letter from Mr Taylor to Trek 31's then solicitors, dated 29 July 2003 raised the issue, when nothing in particular appeared to turn on it; the assertion was not traversed in any subsequent correspondence. In that light, it is striking that no evidence has been called as to how the reference to the filed memorandum came to be inserted in the lease - in particular from the solicitors who drafted the lease, Morton & Harris. 16 Moreover, there are multiple inconsistencies between the filed memorandum and Annexure A to the lease, which make the filed memorandum quite inapt for the lease, and which would likely have been detected by a solicitor acting on the lease. For example, the filed memorandum contains provisions incorporating Conveyancing Act, s 85, when Annexure A to the lease excludes that section; and the filed memorandum contains numerous references to a schedule, which the lease does not contain. Other provisions of the filed memorandum cover substantially the same ground as the annexure, in a manner not materially different way the annexure, so as to add nothing. The one material difference is that the filed memorandum contains a redevelopment clause that entitles the lessor to retake possession at its discretion for the purpose of redevelopment. There is no suggestion in Mr Prendergast's evidence that he gave instructions for any such provision, or relied on its inclusion in any way. 17 It is clear that the negotiations for the lease took place in haste and against a background of urgency. That there were some errors, oversight or omissions is apparent from the circumstance that amendments were made to the file copy but not to the execution copy submitted for stamping and ultimately registration. However, the belated addition of a reference to the filed memorandum quite irregular course, and is not lightly to be inferred. However, the evidence of Mr Hand and Mr Taylor is uncontradicted, and as things stand, the evidence is, in effect, all one way, that there was no reference incorporating the filed memorandum in the form of lease executed by Mr Taylor on behalf of Mineaplenty. I therefore conclude that the lease, when executed on behalf of Mineaplenty, contained no reference to the filed memorandum, and that such reference was added without Mineaplenty's knowledge or consent after the stamped lease had been returned to Morton & Harris for execution by the lessor and registration. 18 After the lease was duly stamped, and registered, it was not long before contention arose. 19 On 26 August 2003, Trek 31 gave Mineaplenty notice of default in respect of an alleged failure to pay the security deposit referred to in clause 5(h). On 23 December 2003, Trek 31 served another notice of default, in respect of an alleged failure to pay water rates and to pay the security deposit. There ensued a dispute as to the liability of Mineaplenty for Trek 31's associated legal costs, which has never been resolved. On 18 January 2004, however, Mineaplenty paid into Trek 31's account the security deposit of $36,603. On 15 November 2004, Trek 31 served a further notice of default, purporting to require certain breaches to be remedied in seven days, to which Mineaplenty responded on 17 November 2004. 20 The caravan park obtained a rating of 4½ stars for 2000, and the same for 2001. Between 2002 and 2005, AAA Tourism replaced the NRMA as the rating authority for caravan parks. The park's ratings thereafter declined, below four stars. Although an inspection by AAA on 4 May 2005 resulted in a recommendation for a 4-star rating, that recommendation has never been implemented. 21 On 25 May 2005, WJ Kell Lawyers, acting for Trek 31, demanded payment of further costs said to have been incurred in connection with breaches of or matters otherwise arising under the lease, and raised various other complaints concerning Mineaplenty's performance. Mr Taylor replied on 15 June 2005, complaining that Trek 31 had incorrectly calculated the annual CPI rent increases, and had invoiced and been paid more rent than its proper entitlement: I calculate that an amount of $3,372.00 has been overpaid to your client over the previous years of the lease and an amount of $1,885.00 has been overpaid to it up to May of this current year. This must be rectified. In the circumstances I must request your client is more vigilant in performing its obligations under the lease. I request that the proper calculation of the current rent be made and confirmed by your client and all future tax invoices for rent represent the rent at the proper amount. This is a matter of great urgency and request your client deal with this accordingly. 22 Trek 31 responded by letters to Mr Taylor dated 21 and 28 July 2005, observing that the lease provided for 5% increases when the CPI was less than 5%, and asserting that as a result rent had been underpaid by $39,306 as at 26 July 2005. 23 On 31 July 2005, on the letterhead of "Trek 31 Tourist & Holiday Park", Mr Taylor sent a letter to Mr Prendergast, relevantly as follows: Ronald Prendergast 38 Algona Street Lavington NSW 2641 31 July 2005 Dear Ron, I would like to take up the option to extend the second term of my lease as within accordance of the current lease. Regards Alan Taylor 24 According to Mrs Taylor, on the afternoon of Friday 16 September 2005 she received a telephone call in the office at the caravan park, from Mr Prendergast, who said: "Is Alan there? I would like to speak to him". She replied: "Who is speaking. I may be able to help you". Mr Prendergast responded: "It's Ron Prendergast. Is Alan Taylor there?". She said: "It's Joanne here Ron. How have you been?". Mr Prendergast replied: "I'm well. I just need Alan". She said: "He is out in the park working and won't be back in the office for some time. Can I help or take a message to him?". Mr Prendergast responded: "Just let him know with the lease that he has to reapply". She said: "Why do we have to reapply?". He said: "He has addressed the letter to me and it can't be". She said: "Who should it be addressed to if not you?". He said: "It has to be addressed to 'Trek 31 Pty Limited' and not to me and it can't be from him. The lease is between 'Trek 31 Pty Limited' and Alan's company". She said: "So other than that everything was right. He just has to change the titles from you and him to become company names. Why can't it be recognized as it is because it has been a while since that request went to you". Mr Prendergast said: "It's written to me and the secretary has to keep company notes and it is not right from the secretary". She said: "I see". He said: "It has to be done quickly because the cut-off date is nearly due and it must be fixed before then". She said: "I will let him know and have that done and in the post straight away". Mr Prendergast replied: "Yes it must be done quickly and it cannot be from Alan to me it must be to 'Trek 31 Pty Limited' from his company". She said: "Are you unable to recognize Alan as Mineaplenty and yourself as Trek 31". He said: "It's just for the secretary for paperwork". She concluded: "I will do that tonight so it will go out over the weekend". 25 According to Mr Taylor's affidavit evidence, and corroborated by Mrs Taylor orally, a facsimile was received in Mineaplenty's office on the afternoon of 16 September, following the telephone conversation between Mr Prendergast and Mrs Taylor, which comprised a reduced copy of Mr Taylor's letter of 31 July, with, handwritten on it, the following: From Trek 31 A. Taylor Mineaplenty Pty Ltd 508 Wagga Road, Lavington Dear Alan Re Lease Trek 31 P/L to Mineaplenty P/L You need to direct your application to Trek 31 P/L, Mineaplenty P/L as applicant. Refer to lease, which is dated 17/12/2001 to 16/12/2005. Otherwise the validity is in question to our minute book readers. Regards Ron Prendergast 26 Although it was suggested to Mrs Taylor, based upon the facsimile imprint on the document, that that facsimile was received by Mineaplenty early on the morning of 16 September and before the telephone call, I accept her explanation that the time clock on Mineaplenty's fax machine was incorrectly set – all the moreso given Mr Prendergast's concession that it was unlikely that he would send such a facsimile early in the morning, given his usual habits and practices, so that he was unable to say himself whether the fax preceded or followed the telephone conversation. 27 Indeed, at first, in his affidavit evidence, Mr Prendergast deposed that he had sent Mineaplenty on 12 September a completely different letter, which he exhibited, the substance of which was to decline the request for a renewed lease on the ground that Mineaplenty had not complied with its obligations under the lease. In oral evidence, he withdrew this assertion, and while maintaining that that letter had been prepared on 12 September - which date it bore - and reflected a decision made by him and his wife at that time not to renew the lease, said that it was only a draft that was never sent. 28 According to Mr Taylor, on the afternoon of 16 September, his wife told him that Mr Prendergast had telephoned to speak with him, and related the conversation set out above, or at least its substance. From that, he understood that Mr Prendergast required a further request for the renewed lease. Mrs Taylor had prepared for him a draft letter to Mr Prendergast, which he read, signed and took to the Albury mail centre and posted to Trek 31 that evening. That letter was also on the letterhead of Trek 31 Tourist and Holiday Park, and addressed to Trek 31 Pty Limited, as follows: 16 September 2005 Trek 31 Pty Limited Attention: Ron Prendergast, With regard to your phone call on 16 September 2005 received by Joanne whilst I was not in the office, I would like to reapply to take up the option to extend the second term of my lease as within accordance of the current lease. The problem as presented to Joanne by yourself was that the letter dated 31 July 2005 was that my application was not directed to your company Trek 31 Pty Ltd and therefore needed to be reapplied. Your concern conveyed to Joanne was that you should receive this application as soon as possible as the close for this period was drawing near. Regards Mineaplenty P/L per Alan Taylor 29 Mr Prendergast disputed the contents of the conversation between him and Mrs Taylor; he deposed that he simply asked to speak to Mr Taylor and did not discuss with Mrs Taylor at all the question of the identity of the appropriate parties for the notice of exercise. However, the case to the contrary is compelling. Mrs Taylor's version is corroborated not only by Mr Taylor's report of what she subsequently told him that afternoon, but by the content of Mineaplenty's letter of 16 September, and by a contemporaneous note made by Mrs Taylor in her diary for 16 September 2005, as follows: ? How stupid ? – not Ron + not Alan. Trek 31 + Mineaplenty "Pty/Ltd" for the company secretary – paperwork has to be right + must be done quickly – time is nearly run out. * Now I have a fax to prove how late he contacted me – accommodation = Fri night = in school holidays? 30 And in the course of his cross-examination, Mr Prendergast gave the following evidence: Q. What I am suggesting to you is that you had a conversation on the Friday, late on the Friday afternoon with Mrs Taylor; correct? A. I did have a conversation with Mrs Taylor. Q. And in the late afternoon? A. I'm not sure of the times. Q. In the ordinary course of your dealings would it have been more likely to have been in the afternoon than in the morning? A. I think so. Q. Why is that - that is when you do your business is it? A. I don't have any program that I work to, no. Q. Can I suggest to you that during the course of that conversation you indicated that the letter should be addressed to Trek 31 so that everything was right? A. Yes I think I was conveying the message that the lease was between the two companies, not two individuals. Q. And you recall saying that to Mrs Taylor during the course of this conversation? A. I think I conveyed that to her, yes. Q. You think you did, and you said to her didn't you that, "It's written to me and the secretary has to keep company notes and it's not right from the secretary" or words to that effect? A. Something like that. Q. That was essentially what had you been saying, consistent with what you said in your facsimile; correct? A. Yes. Q. And you also said in the course of that conversation words to the effect of, "it's just for the secretary for paperwork"? A. Well that's what I've said, yes. I was - I was trying to get a reply to my phone call from Mr Taylor. I've done that before, and he doesn't bother to ring me, but I thought this was urgent and deserving of a little bit of emphasis so I mentioned that aspect of it to highlight the urgency of it. Q. So Mr Prendergast, what I'm putting to you is that the things that I have just put to you were said during the telephone conversation between you and Mrs Taylor on the Friday afternoon, 16 September? A. Some of the things, yes. I don't recall verbatim the conversation, but I really wished to speak to Alan. I didn't know what - Mrs Taylor could have been just an employee. I don't know what their setup is there. Mr Taylor had written the letter, I wanted to speak to him about it. 31 Subsequently, however, he reverted to denying having said any such thing to Mrs Taylor: Q. You also said to her, didn't you, "The secretary has to keep company notes"? A. No I did not. I wouldn't be giving Mrs Taylor a secretary course. I just wanted to speak to Mr Taylor. I didn't know how conversant Mrs Taylor was with any of the matters, and the object of my exercise was to speak to Allan. Q. Can I suggest to you that your recollection is incorrect, and that you did have a conversation with Mrs Taylor in which you said for example, "It's just for the secretary for paperwork"? A. No, I - I wouldn't have gone into a discussion like that with Mrs Taylor. I asked for Alan, he wasn't there, she said, "He's out in the park", I said, "Would you ask him to ring me please, it is urgent, it's in regard to the option of lease, and time is getting short." 32 I accept Mrs Taylor's version, and in particular that the second notice of exercise dated 16 September was sent by Mineaplenty in response to Mr Prendergast's representation on behalf of Trek 31 that this was required merely to cure formalities for the purpose of Trek 31's minute book. Although it is to say the least curious that such a request was made by Trek 31, in circumstances where its directors had apparently already resolved not to grant a new term, it is unnecessary to resolve what was the true motivation. 33 Mr Prendergast says that following receipt of the second notice of exercise he sought legal advice and was advised as to the provisions of Conveyancing Act, s 133E. On 30 September 2005, the last day for doing so in respect of the second notice, Trek 31 served a notice pursuant to Conveyancing Act, s 133E, asserting that the lessor treated the lessee as being precluded from exercising the option of renewal by reason of (A) breach of the covenant to pay rent in clause 3(a) of annexure A to the lease, by failing to and on demand refusing to pay rent owed of $27,689 as at 26 July 2005; (B) breach of the covenant contained in clause 3(i) of annexure A, by failing to pay rates payable to Albury City Council in the total amount of $1,148; and (C) breach of the covenant continued in clause 3(d)(i) and (ii), by failing to maintain the property in various respects specified. On 28 October 2005, Mineaplenty commenced these proceedings, with the consequence that, pursuant to s 133E(4), the lessee's rights in relation to the notice are preserved, at least until the determination of these proceedings, so that the lessee is not to be taken until then to be precluded from exercising the option. 34 Trek 31 filed a cross-claim on 15 December 2005, by which, as well as traversing Mineaplenty's claim to have exercised the option, it cross-claimed for possession. The only basis asserted in the cross-claim for a right of re-entry was that the option had not been exercised validly (due to the breaches of covenants 3(a) (to pay rent), 3(d)(i) and (ii) (to repair and maintain), 3(i) (to pay rates), and 4(d)(vii) (to maintain the four star rating). The cross-claim also claimed damages - for the outstanding rent, for the breaches of covenant 3(d)(i) and (ii), and for the breach of covenant 3(i) (the allegedly unpaid rates). However, it was conceded at the trial that the rates were no longer, if they ever had been, unpaid; and that there was no evidence of damage in respect of the alleged breaches of clause 3(d). It was not suggested that, in respect of the defaults other than payment of rent, any notice under Conveyancing Act, s 129, had been served. Accordingly, the only basis upon which Trek 31 might be entitled to possession would be (1) if the option had not been validly exercised, and (2) for non-payment of rent. 35 By its Third Further Amended Defence to Cross-claim, Mineaplenty, as well as denying the breaches of covenant alleged against it, contended that Trek 31 had waived or was estopped from insisting upon payment of rent in excess of that which it had earlier invoiced and demanded, and alternatively sought relief against forfeiture. The First Notice Was a Valid Exercise of the Option 36 Trek 31 contends that the first (31 July) notice was not a valid exercise of the option, because it was a personal letter from Mr Taylor to Mr Prendergast and not a notice by Mineaplenty to Trek 31, is expressed to be an exercise of an option in a lease between Mr Taylor and Mr Prendergast, and is expressed to be signed by Mr Taylor personally and not for or on behalf of Mineaplenty. 37 The issue is whether the purported exercise communicated a clear and unequivocal intention to exercise the option [Ballas v Theophilos (No. 2) (1957) 98 CLR 193, 205]. This is resolved according to what a reasonable recipient of the notice, familiar with the terms of the lease and the surrounding circumstances – including the dealings between the parties – would have understood [Carter v Hyde (1923) 33 CLR 115, 126; Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673, 677; Mannai Investment Co Ltd v Eagle Star Insurance Co Ltd [1997] AC 749, 767 (Lord Steyn); Bava Holdings Pty Ltd v Pando Holdings Pty Ltd (1998) NSW ConvR ¶55-862, 16,304; Carter v Schmitt [2003] NSWSC 1166, [25]-[27] (Smart AJ)]. So long as the notice conveys an unequivocal intent, it is not fatal that it does not use terminology precisely conforming to the terms of the option granted [Ballas v Theophilos, 205], or even misstates its terms [Quadling v Robinson (1976) 137 CLR 192, 201; Prudential v Health Minders, 677], or is addressed to the agent of the lessor and not the lessor [Riltang Pty Ltd v L Pty Ltd [2002] NSWSC 625, [20]-[21]]. 38 Notice of exercise of an option may be given by and to the duly authorised agents of the lessee and the lessor [Bowstead & Reynolds on Agency (16th Ed), [8-204]; Townsend Carriers Ltd v Pfizer Ltd (1977) 33 P & Cr 361, 365 (Megarry VC); Young v Lamb [2001] NSWCA 225, [36]-[39] (Stein JA); Riltang v L, [12]-[14]; Carter v Schmitt [42]-[46]]. Whether an alleged agent had authority to give or receive such a notice is to be judged having regard to the whole of the circumstances of the case, including the terms of the lease, and the role of the agent in the relationship between the parties [Young v Lamb, [36]; Riltang v L, [13]-[14]; Carter v Schmitt, [45]-[46]]. 39 Here, the terms of the lease refer explicitly to the servants and agents of the lessors and lessee as being within the definition of the terms "the lessor" and "the lessee", where applicable. There is nothing to suggest that that extended definition is not applicable to the option of renewal. In this respect, the case is a fortiori Young v Lamb, in which the definition of "lessor" did not include a reference to the lessor's agent, yet was held not to preclude acceptance by the lessor's agent [Young v Lamb, [32]-[36]]. 40 Next, there is the status of Mr Taylor and Mr Prendergast in respect of each of the corporations. Mr Taylor was the sole director and secretary of Mineaplenty; Mr Prendergast was one of two directors, his wife being the other, of Trek 31. And there is the course of dealing between them: all Mr Taylor's contact with Trek 31 had been through Mr Prendergast (unless through solicitors); it was Mr Prendergast who was apparently in charge of its affairs with respect to the lease and the caravan park. On issues concerning the park, Mr Prendergast and Mr Taylor often corresponded in respect of the lease in their own personal names. 41 The words of the 31 July letter plainly convey an intention "to take up the option". 42 In that context, no reasonable recipient familiar with the terms of the lease and the course of dealing between the parties could mistake the letter – given as it was during the period less than six months but more than three months before the expiry of the term – for anything other than an intended exercise of the option on the part of Mineaplenty. Indeed, Mr Prendergast himself was under no misapprehension about that: Q. There was no doubt in your mind, was there, when you received a notice, the first notice in July, as to what Mr and Mrs Taylor's intention was about exercising the option, was there? A. No, I knew what that was about, yes. 43 In my opinion, the 31 July letter was plainly a communication on behalf of Mineaplenty conveying to Trek 31 an intention to exercise the option. The evidence to which I have referred establishes that Mr Taylor had authority to act in respect of the lease on behalf of Mineaplenty, and that Mr Prendergast had authority so to act on behalf of Trek 31. The 31 July letter was an effective exercise of the option. The 31 July Letter was not affected by waiver or estoppel 44 Trek 31 submitted that by serving the second (16 September) notice, Mineaplenty accepted its assertion that the 31 July letter was an ineffective exercise, and waived reliance on the first notice; and further that by reason of Trek 31's reliance, in serving its s 133E notice upon an assumption that Mineaplenty did not rely on the first notice, Mineaplenty was estopped from relying on the earlier notice. 45 Waiver involves an intentional act by which a party abandons or renounces a right or benefit [Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305, 326; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, 658; Banning v Wright (Inspector of Taxes) [1972] 1 WLR 972, 979; The Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 406 (Mason CJ), 423, 427 (Brennan J), 451, 457 (Dawson J), 469 (Toohey J), 481 (Gaudron J); Kadian v Richards (2004) 61 NSWLR 222, 245 [68]-[72]]. 46 There is no basis for concluding that Mineaplenty, by service of the second notice, intended to renounce reliance upon the first. It was served in the context of the communications of 16 September, from which Mineaplenty understood, as Trek 31 knew, that Mr Prendergast wanted a further letter, as a formality, for his minute book. That does not involve any abandonment by Mineaplenty of reliance upon the earlier notice, nor does it communicate an intention not to rely on the earlier notice. 47 As to estoppel, service of the s 133E notice was not detrimental reliance. By the time the second notice was served, Trek 31 was already out of time to serve an s 133E notice in respect of the first notice. It did not give up any right or incur any obligation on the basis that the first notice was no longer maintained. As it has done nothing in reliance on any representation made by, or assumption known to, Mineaplenty, the situation is not one in which there could be an estoppel. 48 There was no abandonment, intentional or otherwise, of reliance upon the earlier notice, and no detrimental reliance capable of supporting an estoppel. It follows that the option was effectively exercised by the first notice. As no s 133E notice was served within time, no breach of any obligation imposed by the lease on Mineaplenty precludes Mineaplenty's entitlement to the option. Mineaplenty is entitled to the renewed lease upon exercise of the first option. In those circumstances, it is unnecessary to consider the issues which would have arisen under the s 133E notice, had it been given within time. Trek 31 is entitled to the claimed arrears 49 Each year, though not necessarily on the anniversary of the lease, Mr Prendergast on behalf of Trek 31 calculated the new annual rent and notified Mr Taylor, sending an invoice each month reflecting the new rent. When the calculation was performed after the anniversary, an additional invoice was sent for the difference between the rent which had been paid and that which was properly payable from the anniversary date up to the date of the review notice, and Mineaplenty paid those invoices. 50 If the 5% minimum increment provided for in the lease had been applied, the rent would have been, for the first year, $137,874; for the second year, $144,768; for the third year, $152,005; for the fourth year, $159,605; and for the fifth year until July, $111,720. However, when calculating annual rent increases, Mr Prendergast overlooked the minimum 5% increase, and used the CPI, which was less than 5%, though he did not use it correctly. As a result, Mineaplenty was invoiced, and paid, for the first year, $137,874 (nil shortfall), for the second $141,868.50 (a shortfall of $2,899.50), for the third year, $146,033 (a shortfall of $5,972), for the fourth year, $152,152 (a shortfall of $7,453), and for the eight months to July 2005, $106,567 (a shortfall of $5,153). Thus as at July 2005, the total difference between the rent properly payable on the 5% increment basis, and what had actually been paid, amounted to $21,477.50. 51 Trek 31 has maintained that the arrears as at 26 July 2005 were $39,306. The difference between the two amounts is attributable to several matters. First, Trek 31 does not appear to have brought to account adjustive payments made by Mineaplenty of $2,332 in June 2002, and $758 in February 2003. Secondly, Mineaplenty claims credit for an additional payment of $1,103 in December 2004, as well as the standard $13,183 for that month. However, Mineaplenty's bank statement suggests that it paid $12,775 plus an additional payment of $1,103, a total of $13,878. Thirdly, Trek 31 has debited the rent due on 22 July 2005, but not credited the corresponding payment, which was not made until 10 August. This is apparent from the Statement of Account issued by Trek 31 on 30 September, which, starting from a balance of $39,306 as at 27 July, and after allowing for credits and debits over the ensuing months, produced a balance of $27,689 as at 30 September. 52 A Statement of Account issued by Trek 31 as at January 2006 showed arrears of rent of $29,247 as at 1 December 2005; the adjustments required by the discrepancies mentioned above would reduce it to $26,157. Rent for that month increased, in accordance with the lease, to $14,660, but only $13,183 was paid. On 30 December, Trek 31 transferred $24,729.56 from the security deposit in reduction of those arrears. This was said by Trek 31 to leave a shortfall of $6,444.44. With further transfers on account of rates and legal fees, and previous transfers purportedly for legal costs, this exhausted the security deposit, and Trek 31 demanded replenishment of the security deposit with three months' rent ($39,990), and payment of the alleged remaining arrears of rent of $6,444.44. 53 Trek 31 has provided other reconciliations of the security deposit not entirely consistent with this. However, it is clear that with effect from 1 December 2005, Trek 31 had appropriated the whole of the security deposit, applying amounts of $444.40, $1,896.40, $1,606, $1,784, and $220, to reimburse it for legal fees to which it claimed to be entitled under the lease, and $1,148 to reimburse it for rates (for which it in turn was subsequently reimbursed by Mineaplenty). Those amounts in total, when deducted from the security deposit of $36,603, leave a balance of $29,504.20, which was applied to arrears of rent by 1 December 2005, as was the further $1,148 received by way of reimbursement on 16 February 2006. Accordingly, a total of $30,652.20 was applied from the security deposit to alleged arrears of rental. 54 Mineaplenty underpaid the rent for the period from August 2005 to February 2006, accumulating further arrears of $6,880 by 21 August 2006. However, Trek 31's claim (set out in MFI12) that, in addition to those arrears, it is entitled to the unpaid balance of rental arrears (after application of the security deposit) of $8,653.80 (being $39,306 according to the Schedule of 28 July 2005, less the amounts applied from the security deposit), fails to give credit for the payment of rent for July 2006, as well as the other omissions included in the calculation of the $39,306 figure and explained above. 55 Although the parties are in dispute as to Trek 31's entitlement to deduct from the security deposit those amounts that it has applied to reimbursement of legal fees, that dispute is not before me for resolution. Assuming that Trek 31 was entitled to make those deductions from the security deposit, the current position is to be reconciled as follows: · Arrears as at 28 July 2005 as claimed by Trek 31 $39,306 · Less adjustive payment June 2002 ($2332) · Less adjustive payment Feb 2003 ($758) · Adjusted arrears as at 28 July 05 $36,216 · Less July rent, paid 10 August 05 ($13,183) · Add rent 21 Aug 05 $13,964, less paid $13,183: $781 · Add rent 21 Sept 05 $13,964, less paid $13,183: $781 · Add rent 21 Oct 05 $13,964, less paid $13,183: $781 · Add rent 21 Nov 05 $13,964, less paid $13,183: $781 · Arrears as at 1 Dec 05 $26,157 · Less transfer from security deposit ($29,504) · Add rent 21 Dec 05 $14,663, less paid $13,183: $1,480 · Add rent 21 Jan 06 $14,663, less paid $13,183: $1,480 · Less transfer from security deposit 16 Feb 06 ($1,148) · Add rent 21 Feb 06 $14,663, less paid $13,183: $1,480 · Add rent 21 Mar 06 $14,663, less paid $14,660: $3 · Add rent 21 Apr 06 $14,663, less paid $14,660: $3 · Add rent 21 May 06 $14,663, less paid $14,660: $3 · Add rent 21 Jun 06 $14,663, less paid $14,660: $3 · Add rent 21 Jul 06 $14,663, less paid $14,660: $3 · Add rent 21 Aug 06 $14,663, less paid $14,660: $3 · Net arrears as at 31 Aug 06 ($37) 56 In other words, both on 15 December 2005 when Trek 31 filed its cross-claim for possession, and at the date of trial, Mineaplenty was in credit on the rent account. 57 Mineaplenty contends that Trek 31 is estopped from claiming the arrears that arose by retrospective recalculation of the CPI adjustment. Mineaplenty submits that the annual notices of variation of rent issued by Trek 31 conveyed representations that the rent properly payable was that specified in the notice, and that the monthly invoices issued by Trek 31 represented that the sums claimed in those invoices were the rent due and payable under the lease. Mineaplenty then submits that in reliance on those representations it paid the sums demanded and those sums only, that it was only on 28 July 2005 that Trek 31 indicated that it would depart from those representations, and that Mineaplenty would be prejudiced by having to pay the arrears in a lump sum. 58 For Mineaplenty, Mr Giles submits that the notices and invoices were manifestly clear, unequivocal and reserved no right to make any subsequent claim or reassessment, and thus constituted representations - that the sums set out were the rent due and payable under the lease for the stated period and that payment of such amounts constituted full satisfaction of Mineaplenty's rent obligations under the lease - which were relied upon by Mineaplenty by making the payments sought. He submits that departure from such representation involves detriment to Mineaplenty by requiring payment of the arrears in a lump sum, rather than by instalments - for which he invokes Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 - and that Trek 31 should be held to the lower rent actually charged for the period up to 28 July 2005. 59 Although Mr Giles submits that the annual notices and monthly invoices issued by Trek 31 are analogous to the representation made in Je Maintiendrai, in that case there was an express agreement to accept a concessional rent, in lieu of the rent payable under the lease. It was clear that the tenant knew that a concession was being made, and assumed that payment of the concessional rent would be accepted in full satisfaction, and that the lessor encouraged that assumption. There was an intentional and mutual departure from the strict rights of the parties under the lease. In the present case, neither party thought that any concession, or any departure from the terms of the lease, was involved, and neither intended to depart from the terms of the lease. There was simply an erroneous calculation. There was no representation or assumption that an amount other than what was properly due under the lease would be accepted; the amounts charged by the annual notices and the monthly invoices were incorrect by error or oversight, not by intention. 60 Moreover, the evidence does not support the conclusion that Mineaplenty assumed that whatever rent was notified or claimed in an annual notice or monthly invoice was not open to review in the event of error. First, there is simply no evidence that Mineaplenty adopted any such assumption. No one on its behalf has said that he or she assumed that the amounts notified in the annual notices or monthly invoices were incapable of review or correction if wrong. 61 Next, the conduct of the parties was not consistent with there being any such assumption. The first review date was the first anniversary of the lease. However, Trek 31 continued after that date to issue invoices at the same (original) rate for rent until 17 July 2002, when it issued an annual notice indicating an increase with effect from 22 December 2001, together with an invoice for the difference between the rent which had been charged and paid since 22 December 2001 up to 17 July 2002, in a lump sum. Mineaplenty paid the difference without protest on 29 July 2002, despite having paid the lesser amounts claimed in the monthly invoices each month from December 2001 until June 2002. That is inconsistent with any assumption that the amounts claimed in an invoice were not reviewable. 62 But the most eloquent evidence on this topic is that it was Mineaplenty who, by its letter of 15 June 2005, insisted on strict adherence to the lease formula. The demand in that letter for refund of an overpayment arising from alleged miscalculation of the formula is totally inconsistent with an assumption that the rent payable was irrevocably determined by what was claimed in the annual notices or monthly invoices. To the contrary, it shows that Mineaplenty regarded the annual notices and monthly invoices as not determinative of the amount of rent payable, but open to review in the event of error or omission. 63 It might have been suggested that the annual notices and monthly invoices established a conventional estoppel, in the sense that both parties acted on the conventional assumption that the rent was that stated in the annual notices and monthly invoices (notwithstanding that it was not calculated strictly in accordance with the lease). I am prepared to accept that the annual notices and monthly invoices found an estoppel to the extent that Mineaplenty would not be regarded as being in default so long as it paid the amounts fixed in or demanded by those documents, but without prejudice to the entitlement of either party to insist upon payment of the amount properly due in accordance with the terms of the lease. But Mineaplenty repudiated any more extensive convention, as to the quantum of the rent, on 15 June 2005, whereupon Trek 31 was in my opinion also entitled to disregard it. 64 It follows that, in my opinion, Trek 31 was and is not estopped from claiming the amount properly due under the lease. While the parties conducted their affairs on the common assumption that the lessee would not be treated as in default so long as it paid the rents in accordance with the monthly invoices, that assumption did not involve that either party was precluded from recovering any underpayment or overpayment as the case might be if the amount charged did not accord with what was due under the lease. Possession and relief against forfeiture 65 Clause 3(a)(iii) of the lease conferred on the lessor the right to re-enter at any time after the rent was unpaid for a period of fourteen days. Trek 31 demanded the arrears on 27 July 2005. As I have said, I am prepared to accept that until that demand was made, the conventional basis of dealing between the parties precluded Trek 31 from treating Mineaplenty as in default. But when the period of fourteen days expired on 10 August 2005, and the rent was unpaid for a period of fourteen days as at that date, the lessor had an option to terminate the lease, which it notionally exercised by filing its cross-claim for possession. 66 Upon the lessor becoming entitled to terminate, there was a "forfeiture", against which, in appropriate circumstances, relief will be granted in equity. The lessor did not in fact re-enter and terminate, so that in equity the appropriate form of relief, if granted, would be an injunction to prevent the landlord re-entering consequent upon the forfeiture (whereas had there been a re-entry at law, equity would order a regrant of a new lease) [Dendy v Evans [1910] 1 KB 263; Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236, [85]-[86]]. 67 Relief against forfeiture is ordinarily given to a lessee whose sole breach is non-payment of rent, where the rent has now been paid, although the matter always remains discretionary [Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562]. The burden of establishing that a forfeiture for non-payment of rent should not be relieved against, where all arrears of rent have been paid and where no interests of third parties have intervened, is a very heavy one which normally involves demonstrating that, by reason of the conduct of the lessee, or otherwise, the grant of relief against forfeiture would be inequitable [Pioneer Quarries; Steiper v Deviot Pty Ltd (1977) 2 BPR 9602; Tutita v Ryleaco (1989) 4 BPR 9635; Hayes v Gunbola (1986) 4 BPR 9247; Cicinave Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139; Hace Corp Pty Ltd v F Hannan (Properties) Pty Ltd (1995) 7 BPR 14,326, 14,329]. 68 In resisting a claim for relief against forfeiture, the lessor is not entitled to rely on any ground that could have been the subject of a s 129 notice but in respect of which no such notice was given. I do not accept Mr Lowenstein's submission that it is relevant to have regard to other breaches, in respect of which a s 129 notice could have been but has not been given, for which he cited Novasource Consulting Pty Ltd v Primelife Property Holdings Pty Ltd (2003) V ConvR ¶54-671. The position is well established in this state: a lessor is ordinarily entitled to rely on breaches of covenant other than that for which the re-entry was effected only if the lessor is entitled to effect a forfeiture by reason of those breaches, which cannot be said of a breach of which notice under s 129 is required but has not been given [Pioneer Quarries, 9,576; Tutita v Ryleaco, 9,638; Dalla Costa v Beydoun (1990) 5 BPR 11,379; Batiste v Lenin [2002] NSWCA 316; Hayes v Gunbola, 97,263; World By Nite Pty Ltd v Michael [2004] 1 Qd R 338; Wynsix v Toomey, [25]]. Moreover, examination of the decision of Ashley J in Novasource reveals that his Honour held only that earlier defaults involving non-payment of rent could be considered: "There is a question whether defaults otherwise may be considered in such a case" [at [109]], citing Cherry Lane Fashion Group Ltd v Jam Factory Pty Ltd (1989) VConvR ¶54-354, 64,412-64,413]. 69 Although it was once the case that before relief against forfeiture would be granted, the relevant breaches and if need be the forfeiture must be first be admitted by the plaintiff [Langley v Foster (1909) 10 SR (NSW) 54; T Hyland Enterprises Pty Limited v Alliance Acceptance Co Limited (NSWSC, Powell J, 2 October 1984, BC8400245)], there is no reason in equity why a tenant who bona fide disputes that it has been in breach of an obligation under a lease should be denied relief against forfeiture for that breach if it is ultimately established. This approach is illustrated by the decision of Helman J in World By Nite Pty Ltd v Michael, holding that where there was a genuine dispute between a landlord and tenant (in that case, as to the obligation to pay certain insurance premiums), and the tenant had undertaken to remedy its default and the landlord could be put in the same position as before forfeiture, the tenant would ordinarily be entitled to such relief. In that case, the disputed obligation to pay premiums was litigated in the proceedings for relief against forfeiture; the tenant failed on that dispute, and Helman J concluded that since the issue was resolved adversely to the applicant, its refusal to pay the premiums was contrary to its obligations under the lease, so that the respondents were entitled to re-enter, but his Honour nonetheless granted relief against forfeiture (at 344-345): A tenant is not entitled to relief against forfeiture as a right. The court has a discretion in the matter. The test is one of unconscionability. In a recent case in which there had been a forfeiture for non-payment of rent Barrett J put the test in this way: "Whether, in the light of the tenant's remedying of the default in the payment of rent, resort by the landlord to his strict legal right of re-entry would be unconscionable; or, if I may put this another way, whether the tenant has been guilty of conduct over and above the remedied default in payment of rent which is of such gravity that, even accepting that the default for which the right of re-entry is security has been satisfied, it would not be unconscionable on the landlord's part to insist on this strict legal right" ( Tannous v Cipolla Bros Holdings Pty Ltd (2001) 10 BPR 18,563, at 18,568. "If arrears of rent, costs and interests are paid and the lessor can be put in the same position as before forfeiture or re-entry, the lessee will ordinarily be entitled to relief absent "very special circumstances".: Meagher, Gummow & Lehane's Equity Doctrines & Remedies (4th Ed 2002), para 18-025, p581. Those statements of principal apply mutatis mutandis to the circumstances of this case in which the default relied on is in the payment for something other than rent and about which there was a genuine dispute, but which default the tenant has undertaken to remedy. 70 Here, Mineaplenty indicated at the outset of the hearing that if the arrears of rent issue were resolved adversely to it, it would pay the arrears. That it contested its liability for those areas, and whether there was any breach, does not deprive it of a claim for relief against forfeiture, at least so long as the dispute was bona fide. 71 The lease authorised use of the security deposit at the discretion of the lessor "towards rectification of any breach of the lease occasioned by the lessee including the non-payment of rental". When Trek 31 applied the security deposit, as it did on 1 December 2005, it rectified the breach constituted by non-payment of the arrears. When it filed its cross-claim for possession on 15 December 2005, there were no arrears. Nor were there any arrears at the date of trial. The circumstances in which the default arose – a sudden and unforeseen demand for a lump sum by way of arrears as a result of a miscalculation by the landlord of earlier adjustments – strongly favour the grant of relief against forfeiture. It is significant that there was a security deposit in place that was sufficient to cover the default [cf Wynsix v Toomey, [33]]. Given that the only matters sought to be relied upon by Trek 31 on the discretionary issues are alleged breaches that could have been but were not the subject of an s 129 notice, and are therefore not available, no sufficient reason appears for declining relief against forfeiture. Should the new lease incorporate the filed memorandum? 72 Above I have concluded that, when Mineaplenty originally executed it, the lease did not include a reference incorporating the filed memorandum. It is necessary to resolve whether the new lease pursuant to the option should contain any such reference. Mineaplenty's summons did not contain any claim for rectification of the registered lease, but it was clear from the affidavit evidence, including Mr Hand's affidavit, which related exclusively to this issue, that whether or not the filed memorandum formed part of the lease was an issue. It was not submitted on behalf of Trek 31 that I ought not resolve this issue, though Mr Loewenstein, for Trek 31, made comprehensive submissions as to why I should do so in its favour. 73 Historically, where a deed was altered before it became operative, the rule in Pigot's Case (1614) [1588–1774] All ER Rep 50 did not invalidate it, but the obligor could not be held to the obligation in its altered form - because it had never made or assented to such an obligation [Williston (1904) 18 Harvard Law Review 105, 178]. In New South Wales, Conveyancing Act, s 184, has abolished the rule in Pigot's Case and provides that a material alteration to a deed (or to a dealing under the Real Property Act 1900 (NSW)) does not by itself invalidate the instrument or render it voidable or otherwise affect any obligation under the deed. The rigors of Pigot's Case were in any event moderated by the approach, adopted by the Courts, that the rule - that where a deed or other written contract was, after execution, materially altered without the consent of the obligor, by the obligee or someone else without the consent of the obligee or by a stranger whilst in the obligee's custody, the deed became void - should be interpreted as liberally and reasonably as possible, confining its nullifying operation to cases which fell strictly within its ambit [Chilcott v Goss [1995] 1 NZLR 263; Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259; Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238; Farrow Mortgage Services Pty Ltd (in liq) v Slade & Nelson (1996) 38 NSWLR 636, 640 (Gleeson CJ), 641 (Clarke JA), 646-648 (Cole JA)]. 74 In Chilcott v Goss, Richardson J explained that a promisee who intentionally altered a contractual instrument could not enforce it against the promisor, whereas a promisor who altered a contractual instrument could not thereby avoid liability under the instrument as it previously stood. His Honour wrote (at 269): If a promisee intentionally alters a contractual instrument in a material respect the promisee cannot enforce the instrument against the promisor. A promisor who alters a contractual instrument cannot by that expedient avoid liability under the instrument as it previously stood. The difficult intermediate area is where the alteration is made by a third party. If the third party is acting as agent for the promisor or the promisee he or she stands in the shoes of the principal. The problem in terms of principal and policy is to determine what circumstances justify attributing responsibility to the promisee for the conduct of a third party who is not an agent. 75 For present purposes, the promisee – the person seeking to enforce the instrument – is Mineaplenty, which seeks to enforce the instrument in the form in which it executed it. It cannot be deprived of its entitlement to do so by the insertion, by the promisor or the promisor's agent - here, Trek 31 or its solicitors Morton & Harris – of terms to which Mineaplenty had never assented. 76 Mineaplenty had pointed out to Trek 31 its contention that the filed memorandum was not incorporated in the lease in July 2003, well before the exercise of the option, and its assertion was never traversed. Trek 31 has not advanced any case that it has relied to its detriment upon the incorporation in the lease of the filed memorandum. In my opinion, there is no reason why the new lease, to which Mineaplenty is entitled, should not reflect the true original agreement of the parties, and thus be upon terms which do not incorporate the filed memorandum. Conclusion 77 Mineaplenty validly and effectively exercised the first option, by the first (31 July) notice. It did not waive, and is not estopped from relying upon, that exercise. As no s 133E notice was served within time after that exercise, it is unnecessary to consider whether, had such notice been served within time, Mineaplenty would have been precluded from exercising the option by reason of any of the alleged breaches, or what if any compensation should be ordered in that respect under s 133E. 78 Although the parties conducted their affairs on the conventional basis that so long as Mineaplenty paid rent as charged in the monthly invoices it would not be treated as in default, that basis was without prejudice to the right of either party to insist at any time upon payment of the amount properly due under the lease. Trek 31 was not estopped from claiming the 5% increase and the arrears to which that gave rise. 79 When Mineaplenty failed to pay those arrears within fourteen days of demand, there was a forfeiture under clause 3(a)(iii) of the lease. However, the amount of the arrears, which as at 1 December 2005 was $26,157, was paid by deduction from the security deposit, and the breach thereby rectified. The balance of the rent account as at 31 August 2006 was ($37) – that is, Mineaplenty is in credit to the extent of $37, after the application of the security deposit. Although Trek 31 is entitled to have the security deposit replenished, there is no sufficient reason to decline relief against forfeiture for the only breach on which Trek 31 is entitled to rely for a forfeiture, namely non-payment of rent. 80 When Mineaplenty executed the lease, it did not contain the reference incorporating the filed memorandum. Having exercised the option, Mineaplenty is entitled to a renewed lease, which does not incorporate the filed memorandum. 81 As to costs, the plaintiff has succeeded on its principal case, that it validly exercised the option. The plaintiff required relief against forfeiture in respect of the arrears of rent, and failed on its argument that it was not obliged to pay the arrears. 82 Prima facie, relief against forfeiture is granted on terms that the tenant pay all the costs [Langley v Foster, 62], even on an indemnity basis [Wynsix v Toomey, [89]; Billson v Residential Apartments Ltd [1992] 1 AC 494, 541 (Lord Templeman, suggesting that any general practice to this effect ought to be re-examined)]. Nonetheless, if the court considers that the landlord ought not to have opposed in toto the tenant's claim for relief, the court may make the landlord pay some costs [Humphreys v Morten [1905] 1 Ch 739; Langley v Foster, 62; Wynsix v Toomey, [90]]. 83 In the present case, the claim for possession was brought, not during the original term in response to a breach, but after the exercise of the option, as an alternative defence to Mineaplenty's claim that the option had been validly exercised. It was instituted at a time when the landlord had rectified the tenant's breach by appropriating the security deposit. It is true that the tenant did not admit the default, and contested liability for the arrears of rent at the hearing, but it did so bona fide and upon reasonable grounds; and both when the cross-claim was instituted, and at the date of trial, there were no arrears. In my view the circumstance that, to defeat an alternative defence, Mineaplenty required relief against forfeiture, is, in the context of this case and the issues in it as a whole, insufficient reason to deprive the successful plaintiff of its costs. Orders 84 Subject to any submission as to their form – the intention to make which should be notified to my associate before the time referred to in Order 6, my orders are: 1. Declare that the plaintiff has exercised the first option conferred by clause 4(e) of lease registered number 7751378E between the defendant as lessor and the plaintiff as lessee of the land comprised in Folio Identifier 2/847519 and is entitled to a further lease of that land for a term of five years commencing on 22 December 2005 and concluding on 21 December 2010 upon the same terms covenants and conditions as are contained in lease registered no 7751378E, subject to the deletion of item (G6) which incorporates the provisions of filed memorandum T480457, and at a rental as determined in accordance with Part 2 of Schedule 1 of the lease. 2. Order that the defendant execute and deliver to the plaintiff a further lease in registrable form in compliance with the declaration in paragraph 1. 3. Order, by way of relief against forfeiture, that the defendant be permanently restrained from exercising the power of re-entry granted by clause 3(a)(iii) of the lease, in reliance upon any default of the plaintiff in respect of payment of rent prior to 1 September 2006. 4. Order that the cross-claim be dismissed. 5. Order that the defendant pay the plaintiff's costs, including of the cross-claim. 6. Direct that these orders not be entered before 16 November 2006. ********** 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.