New South Wales Supreme Court CITATION : Constantine v Sanders [2007] NSWSC 250 HEARING DATE(S) : 26, 28 February, 16, 19 March 2007 JUDGMENT DATE : 23 March 2007 JURISDICTION : Common Law Division JUDGMENT OF : Studdert J DECISION : (1) The orders sought in paras 1 and 2 of the plaintiff's notice of motion filed 12 February 2007 are refused. (2) On the defendant's notice of motion, order that the defendant be granted relief against forfeiture subject to the following conditions: (a) that the defendant pay to the plaintiff's solicitors within seven days the sum of $16,568.90 for unpaid rent and interest calculated up to 19 March 2007; (b) that the defendant pay the plaintiff's costs of the proceedings before me within twenty-one days of such costs being agreed, or in default of agreement within twenty-one days of their assessment and the issue of a certificate; (c) that the defendant pay the plaintiff's costs the subject of the agreement noted by the court on 11 December 2006 within twenty-one days of the determination of the amount pursuant to the procedure for their determination expressed in para 2 of that agreement. Administrative Decisions Tribunal Act LEGISLATION CITED : Retail Leases Act Uniform Civil Procedure Rules Billson v Residential Limited (1992) 1 AC 494 Howard v Fanshawe (1895) 2 ChD 581 Mineaplenty Pty Limited v Trek 31 Pty Limited [2006] NSWSC 1203 CASES CITED : Pioneer Quarries (Sydney) Pty Limited v Permanent Trustee Co. of New South Wales Limited (1970) 2 BPR 9562 Price v Mayman (1948) SASR 241 Shiloh Spinners Ltd v Harding (1973) AC 691 Wilkinson v S & S Gikas Pty Limited [2006] NSWSC 1314 Wynsix Hotels (Oxford St) Pty Limited v Toomey [2004] NSWSC 236 PARTIES : Mary Constantine (Plaintiff) Basil Charles Sanders (Defendant) FILE NUMBER(S) : SC 13727/06 COUNSEL : B.C. Kasep (Plaintiff) N. Obrart (Defendant) SOLICITORS : Truman Hoyle Lawyers (Plaintiff) N/A (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION STUDDERT J Friday 23 March 2007 13727/06 MARY CONSTANTINE v BASIL CHARLES SANDERS JUDGMENT 1 HIS HONOUR: There are at present two notices of motion before me: (i) The notice of motion filed by the plaintiff on 12 February 2007 seeking an order that the stay of the writ of execution issued on 31 October 2006 be lifted forthwith. (By this motion the applicant seeks other orders as to costs and the payment of monies.) (ii) The defendant's notice of motion seeking relief against forfeiture. 2 At the outset it is convenient to record the history which now brings the parties to this court. That history is conveniently recorded in the affidavit of Danielle Cavill sworn on 8 February 2007. 3 The plaintiff, Mary Constantine, is the owner of premises including lock-up shops known as 112B and 112C Burton Street, Darlinghurst (the subject premises). The subject premises were leased on 21 February 2005 to Keghouse Pty Limited but in the following month Keghouse assigned the lease, with the plaintiff's consent, to the defendant, Basil Charles Sanders. The defendant paid $128,000 for the purchase from Keghouse and the lease has one year to run, with a three year option. Since 24 March 2005, the date upon which the defendant entered into possession of the premises, he has been conducting there a café known as the "Truck Café". The evidence establishes that the defendant has experienced difficulty in paying the rent due under the lease on the due date. Rent due on 24 November 2005 was not paid when required and payments were consistently late thereafter. As at 4 May 2006 arrears of rent totalled $15,725.37 after a payment of $3551.67 made that day. There has been litigation since that time: (a) There were proceedings in Equity which began when the defendant sought an injunction to restrain the plaintiff from changing the locks. (b) There was a mediation agreement on 17 May 2006 and it was agreed at that time that the defendant was in arrears in the sum of $12,225.37. It was agreed that he would make payments totalling $20,328.71 by 3 July 2006. That was to bring the rent up to 7 August 2006. 4 Unhappily, default continued to occur and as at 3 July 2006 the arrears amounted to $10,032.95. 5 On 1 August 2006 the plaintiff commenced proceedings in this court by way of statement of claim seeking to recover possession of the premises and an order for payment of arrears of rent. When the defendant failed to file a defence by the due date the plaintiff sought default judgment, and that was entered on 31 October 2006. 6 On 9 November 2006 notice to vacate was issued by the Sheriff and the defendant was called upon to vacate by 23 November 2006. 7 On 23 November 2006 an ex parte injunction was granted to the defendant to restrain the plaintiff from taking possession of the premises. On 29 November 2006 further consent orders were agreed to which required the defendant to pay $22,000 by 6 December 2006 and the matter was listed in the Possession List on 7 December 2006. 8 The next significant listing was before Rothman J on 11 December 2006. On that date his Honour made the following orders: "1. That execution of the writ of possession be stayed until further order. 2. That the defendant's notice of motion seeking an indefinite stay of execution, an application filed on 23 November 2006, be dismissed. 3. An order that the defendant be granted relief against forfeiture of the lease. 4. Liberty to apply on seven days notice granted to both parties." 9 The court also noted an agreement reached at that time between the parties, and the terms of that agreement were expressed as follows: "1. The defendant agrees to pay the plaintiff's costs. 2. The parties agree that they will adopt the following procedure to determine the amount of the plaintiff's costs, and that they will sign all documents and perform all acts reasonably necessary to give effect to that procedure: (a) the plaintiff's solicitors shall provide itemised bills of costs to the defendant's solicitors within 14 days; (b) within 7 days of receiving the plaintiff's itemised bills of costs the defendant's solicitors shall notify the plaintiff's solicitors which of the bills of costs the defendant agrees to pay in full and which of the bills of costs he disputes; (c) in respect of all bills of costs which the defendant agrees to pay, he shall make payment to the plaintiff's solicitors within 21 days of notifying the plaintiff's solicitors of such agreement; (d) in respect of all bills of costs which the defendant does not agree to pay: (i) such costs shall, in the first instance, be referred to Mr Gordon Salier to mediate: (A) whether the costs were reasonably incurred within the meaning of clause 5.1 of the lease; and (B) the quantum of those costs. The defendant agrees to pay Mr Salier's fees of such mediation; (ii) should either party be dissatisfied with the determination of Mr Salier, the parties shall, within 7 days of such determination, proceed to costs assessment in relation to the same matters. The defendant agrees to sign all documents and perform all acts reasonably necessary in order to facilitate the expeditious determination of any such mediation and costs assessment; (e) in respect of all bills of costs which are determined by the mediator or the costs assessment under sub-paragraph (d), the defendant shall pay those costs to the plaintiff's solicitors within 21 days of receiving a certificate of the mediator (that is not subsequently the subject of costs assessment) or a Costs Assessment Certificate. 3. The defendant shall: (a) pay $1,500 to the plaintiff by 11.00am on 13 December 2006; (b) pay the rent for December 2006 on or before 22 December 2006; and (c) pay all rent and comply with all other obligations under the lease, including payment of rent going forward by the 7th of each month, the first such payment being made on or before 7 January 2007. 4. Provided that the defendant complies with his obligations under paragraphs 1, 2 and 3, the plaintiff consents to the Orders made. The plaintiff is entitled to re-list these proceedings on 7 days notice in the event of any breach by the defendant of his obligations under paragraphs 1, 2 and 3. 5. In this agreement, the following defined terms shall have the following meaning: (a) 'plaintiff's costs' means the plaintiff's reasonable legal costs relating to the default pleaded in the Statement of Claim; (b) 'lease' means the lease described in paragraphs 4 and 5 of the affidavit of the plaintiff sworn 31 July 2006." 10 It is common ground that the defendant continued to be in arrears. Rent was not paid when it fell due in January or February 2007. It is also common ground that the defendant breached the agreement noted by Rothman J by failing within seven days of receiving the plaintiff's itemised bill of costs to notify the plaintiff's solicitors which items he agreed to pay in full and which items he disputed: see para 2(b) of the agreement noted by the court on 11 December 2006. The continuing failure to pay rent prompted the plaintiff to file the notice of motion presently before the Court, and the registrar referred the matter to me as the Duty Judge on 26 February 2007. I heard argument on that date, and further argument on 28 February 2007 before adjourning the matter for further hearing on a date to be fixed. That further hearing occurred on 16 and 19 March 2007. The issues to be determined 11 Ms Obrart, who appeared for the defendant, submitted that once Rothman J made the order granting relief against forfeiture, that order had the effect that the lease was restored: see Howard v Fanshawe (1895) 2 ChD 581. It was submitted that there had been no effective termination of that lease as restored and that the plaintiff's application was misconceived. 12 In any event, Ms Obrart submitted, the defendant tendered the arrears in cash on 26 February 2007, and even if the Court had the power to lift the stay the exercise of that power was discretionary, and in the circumstances the Court ought to decline to exercise that power. 13 Ms Obrart alternatively relied on the notice of motion seeking relief against forfeiture in the event that the Court determined that the lease had been terminated. 14 Mr Kasep submitted that what was required to determine the lease was "some unequivocal act" indicating the intention of the lessor to avail herself of the option to determine the lease: see Price v Mayman (1948) SASR 241 and in particular the judgment of Napier CJ at 246: "…The proviso for re-entry gives the lessors the option to determine the lease, and if they elect that it shall end, it is ended. What is required for that purpose is some unequivocal act, indicating the intention of the lessors to avail themselves of the option given to them. ( Roberts v Davey (1833) 4 B & Ad. 664, at p 671, (110 ER 606, at p 608); Jones v Carter (1846) 15 M & W 718 (153 ER 1040).) Up to that point the tenant is lawfully in possession under the lease, but after that he is a trespasser from whom mesne profits are recoverable ( Elliott v Boynton ((1924) 1 Ch. 236 at p 246). Speaking generally, the election is evidenced by the commencement of proceedings to recover possession, and, in the eye of the law, this has precisely the same effect as re-entry ( Grimwood Mosse ((1872) LR 7 CP 360 at p 364); Woolwich Equitable Building Society v Preston ((1938) 1 Ch 129, at p 131)). But it is sufficient if the landlord does what he can to indicate his election to put an end to the lease ( Serjeant v Nash, Field & Co. ((1903) 2 KB 304 at p 310); Commissioners of Works v Hull ((1922) 1 KB 205), and this is so whether possession is recovered or not, subject to relief against forfeiture which restores the lease as though it had never been determined ( Dendy v Evans ((1910) 1 KB 263))." 15 Mr Kasep submitted that the notice of motion on which he was proceeding constituted an unequivocal act conveying the intention of the plaintiff to terminate the lease and to enforce the right to possession. 16 I consider the submission advanced by Mr Kasep is sound. 17 Ms Obrart submitted that it was inappropriate for the plaintiff to proceed by way of notice of motion, and reference was made to Pt 14 r 14.15 of the Uniform Civil Procedure Rules and the requirement imposed by that rule: see the various matters therein specified. Equally, of course, that same rule requires the pleading of any claim for relief against forfeiture: Pt 14 r 14.15(3). 18 I do not consider either of these notices of motion ought to be defeated on a technical perception, that the provisions of Pt 14 r 14.15 have not been satisfied. The orders that were made on 11 December 2006 were made by consent, and whilst the defendant was then granted relief against forfeiture, execution of the writ of possession was stayed until further order and liberty was given to both parties to apply on seven days notice. That liberty was expressly extended to a grant of liberty to the plaintiff to apply to have the stay of the writ of possession lifted. 19 It seems to me to be appropriate, having regard to the circumstances of this case as outlined above, that the Court should entertain the competing applications advanced by the motions filed and that it should address the questions: (i) Should the stay of the writ of possession be lifted? (ii) Should the defendant be granted relief against forfeiture? The issues addressed 20 There are like matters to be considered in addressing each of these questions. 21 Ms Obrart submitted that the plaintiff acted unreasonably in rejecting the arrears of rent tendered in cash last month and in pursuing the notice of motion. True it is that the defendant was late with the rent but it was submitted that this did not warrant the action taken by the plaintiff. 22 I am not persuaded by that submission. The history of default in payment of the rent on the due date which preceded the making of the consent orders on 11 December 2006 is not to be ignored in the context of considering this submission. After having been granted relief against forfeiture in December 2006 the defendant again failed to pay the rent as and when it became due. In addition there was the failure to respond to the bill of costs in the time provided in para 2(b) of the agreement noted by the court on 11 December 2006. It seems to me that it is understandable that the plaintiff's patience was exhausted by the time her notice of motion was filed, and hence that it was understandable that the plaintiff was reluctant to accept the rent belatedly offered. Hence, I do not consider that the plaintiff acted unreasonably in bringing her notice of motion before the court. Whether the stay on the writ of possession ought to be lifted is another matter. 23 Relief against forfeiture is ordinarily given to a lessee in circumstances where the breach of the lease is the failure to pay rent. Relief is ordinarily granted provided the rent is paid: see Pioneer Quarries (Sydney) Pty Limited v Permanent Trustee Co. of New South Wales Limited (1970) 2 BPR 9562; Wynsix Hotels (Oxford St) Pty Limited v Toomey [2004] NSWSC 236; Mineaplenty Pty Limited v Trek 31 Pty Limited [2006] NSWSC 1203 and Wilkinson v S & S Gikas Pty Limited [2006] NSWSC 1314. As Campbell J said in Wilkinson (at [23]): "Provided the lessor and other persons concerned can be put in the same position as before the forfeiture or re-entry, the court will usually grant relief against forfeiture upon payment of rent, costs, interest and other expenses." 24 Whilst the court will ordinarily grant relief to a lessee, this involves the exercise of a discretion. It is relevant to consider whether the lessee's conduct has shown a disregard of his obligations under the lease: see Shiloh Spinners Ltd v Harding (1973) AC 691 and in particular the dicta of Lord Wilberforce at pp 725-726. It is also relevant to assess the lessee's prospects of paying the rent in the future in the event that relief was to be granted: see Wilkinson (supra) at pp 4-5 [24]. Having remarked that usually relief against forfeiture would be granted on payment of rent and costs and other expenses, Campbell J went on to say: "24. However, such a rare case [referring to a case where relief may not be granted] can occur if the tenant is unable to pay future rent, or may reasonably be expected to become so: Direct Food Supplies Victoria Pty Ltd v DLV Pty Ltd [1975] VR 358; Tannous v Cipolla Bros Holdings Pty Ltd [2001] NSWSC 236 at [38]. If there is a sufficiently serious risk that the tenant will not be able to perform its obligations in the future, it may be that the consequence is that it is not unconscionable for the landlord to insist on its strict legal right." 25 Mr Kasep submitted that the defendant has demonstrated a disregard of the plaintiff's rights evidenced by the following: (i) the failure to pay rent when it fell due prior to the mediation; (ii) notwithstanding the agreement reached in May 2006, the defendant again defaulted in payment of rent on the due date in the following month; then there was the further default that occurred prior to 11 December 2006; (iii) following the orders and agreement reached on 11 December, there was the further default. 26 Mr Kasep submitted not only did the defendant's history show a disregard of the plaintiff's rights, but it also made it unlikely that the defendant would meet his obligation to pay rent on the due date in the future if relief was to be granted to him. In these circumstances Mr Kasep submitted it was not appropriate for the Court to grant relief to the defendant for a second time. 27 I have given those submissions anxious consideration, particularly when assessing the evidence given by the defendant. 28 In his affidavit of 27 February 2007 the defendant attributed his default to a combination of factors: (a) reduction in turnover at the café whilst students from Sydney Technical College were away on vacation; (b) delay in completing a large software project in his computer business with an associated delay in payment for his services. 29 The defendant gave evidence and was extensively cross examined. He identified two sources of income, being income from the café but, more importantly, income from his computer software business. 30 In relation to the café, the defendant's evidence was to the effect that he had been losing money on it but that at the present time the business was "breaking even". The problem in the past had been that the business was overstaffed but adjustment has been made to staff levels. Moreover, he said that there are plans to trade at night and he considers that this should be profitable. Confidence in the future of the restaurant business has motivated his resistance to the plaintiff's current application. 31 The defendant identified as a problem accounting for past defaults dependence upon payments received in his computer software business, which payments were made at irregular intervals. Payment in the past has depended upon completion of a project. The principal customer provides work to the value of $10,000 per month. According to the defendant, in the last financial year the software business provided income in excess of $187,000. 32 The defendant gave evidence that he had recently come to an arrangement with this important customer, Basham Pty Limited, whereunder in future he is to receive regular monthly payments for his services. A letter was produced from Mr Basham of Basham Pty Limited. That letter dated 19 March 2007 referred to the longstanding arrangement with the defendant as "its main provider of IT/accounting and management information systems". Mr Basham has written to record the arrangement reached for the future for payment for the defendant's services: "…I confirm that we have agreed to a monthly payment of between $8000-$9000 per month towards ongoing work in developing a backorder management system, contract price management and other significant system enhancements currently under development. This work will continue on an ongoing basis into the future with other projects which may be commenced from time to time." 33 The defendant gave evidence that in addition to the monthly payment referred to in the above letter he does other work in the nature of ongoing maintenance work to a value of $1500-$2000 per month. 34 It is not contended that the arrangement for future payment will mean that the defendant will have a greater income from his software business than he has done since the lease was assigned to him. The importance of this development, however, from the defendant's point of view, is that he will have a regular monthly income from this long term customer. No longer will he be waiting for the completion of a particular project before he receives payment. 35 I accept the defendant as a truthful witness. I accept that receipt of a regular monthly payment in the future from his principal customer in the software business will give him funds with which to make regular monthly rental payments. 36 The defendant gave evidence of being involved in litigation in this court in relation to his late father's estate. The litigation was unsuccessful from his point of view and he was ordered to pay legal costs. The costs burden was very substantial but the defendant said, and I accept, that he has now satisfied the order made against him, so that that litigation will no longer represent a drain on his financial resources. 37 Whilst the defendant's past history concerning payment of rent has been unsatisfactory, I do not consider that the defendant showed a deliberate disregard for his obligations as to the payment of rent. I accept his evidence to the effect that he worked extremely long hours to complete the project on which he was engaged at the time the orders were made on 11 December 2006 so as to be put in funds to pay the rent as soon as possible. As the evidence stands, it seems to me that the new arrangement for regular monthly payment for the defendant's services should permit the defendant to pay rent on the due date in the future. I am satisfied that the software business is well established, as is the relationship with the long term customer. 38 I have come to the conclusion that I should exercise my discretion in favour of the defendant, having regard to all the circumstances of this case. I therefore propose to grant relief against forfeiture, and it follows that the plaintiff's application that the stay on the writ of execution should be lifted is refused. 39 It remains to consider the terms upon which the defendant should be granted relief. 40 The first condition to be imposed is that the defendant must pay arrears of rent such as have accrued since 11 December 2006. The defendant must also pay interest as required under the lease. The affidavit of Timothy Edwards sworn on 19 March 2007 evidences the amount payable for arrears and interest to 19 March 2007. That evidence has not been challenged, and I propose to make an order imposing as a condition of relief against forfeiture that the amount of $16,568.90 be paid by the defendant within seven days. 41 There are costs to be paid by the defendant pursuant to the agreement noted by the court on 11 December 2006. That agreement is to be enforced, and I consider it appropriate to make the grant of relief conditional upon due compliance with the terms of that earlier agreement. 42 What is to be done about the costs of these notices of motion? Mr Kasep submitted that the defendant should be ordered to pay the plaintiff's costs on an indemnity basis. Ms Obrart submitted that the plaintiff should be ordered to pay the defendant's costs on both notices of motion. Ms Obrart's submission that the plaintiff should pay the defendant's costs depends upon the acceptance of the submission earlier considered that the plaintiff acted unreasonably in presenting her notice of motion here requiring consideration. For reasons earlier given, I do not consider that it was unreasonable for the plaintiff to seek to have the stay lifted, having regard to the defendant's default. Hence, I do not consider that it would be just to order that the plaintiff pay the defendant's costs on the notices of motion. 43 Contrary to the submissions advanced by Ms Obrart, I have decided that the defendant should be ordered to pay the plaintiff's costs of the proceedings presently before the Court. In Wynsix Hotels Young CJ in Eq (at p 12 [89]) stated it to be "the normal rule" that the lessee seeking relief against forfeiture should pay the costs. I respectfully agree that this is the case. Whilst the defendant has succeeded in obtaining relief against forfeiture, it was not unreasonable for the plaintiff to resist that application and to seek to recover possession bearing in mind the defendant's default. 44 Mr Kasep submitted that I should order that costs be paid on an indemnity basis. I am troubled by that submission. I do not lose sight of the fact that if this dispute had been determined in the Administrative Decisions Tribunal, with its jurisdiction under the Retail Leases Act, any costs order it made would have been to a lesser effect. Whilst s 77A of the Retail Leases Act empowers the Tribunal to award costs in proceedings under Pt 8 of the Retail Leases Act, the power is to "award costs under s 88 in the Administrative Decisions Tribunal Act." Section 88 of the Administrative Decisions Tribunal Act provides that costs are to be awarded "only if [the Tribunal] is satisfied that there are special circumstances warranting the award of costs". 45 Since there was a judgment for possession entered by default in this court and since the plaintiff's motion was prompted by the default of the defendant following the making of the orders of this court on 11 December 2006, I have concluded that it is proper for the plaintiff to have proceeded on its notice of motion in this court. Whilst the plaintiff is to have an order for payment of her costs, I decline, however, to order that they be paid on an indemnity basis. 46 I do not understand that there is a general rule that a lessor's costs in proceedings for relief against forfeiture should be paid on an indemnity basis, nor do I consider that there should be such a general rule. I am influenced by what Lord Templeman said in Billson v Residential Limited (1992) 1 AC 494 at 541: "For my part I consider that the practice of ordering indemnity costs as a condition of granting relief is ripe for reconsideration. Indemnity costs to a landlord encourage lawyers and surveyors and other advisers to charge large fees. I make no criticism of the advisers of the landlords because I do not know what fees and charges they intend. But it seems to me that in principle a tenant should not be at the mercy of an order made by a judge who has no means of knowing the effect of the order and imposes no impartial criterion by which costs can be taxed down." 47 What order for costs should be made should be determined on a case by case basis. In my opinion, the circumstances of the present case do not warrant imposition on the defendant of a costs order on an indemnity basis, and I will not order costs on that basis. Formal orders 48 1. The orders sought in paras 1 and 2 of the plaintiff's notice of motion filed 12 February 2007 are refused. 2. On the defendant's notice of motion, order that the defendant be granted relief against forfeiture subject to the following conditions: (a) that the defendant pay to the plaintiff's solicitors within seven days the sum of $16,568.90 for unpaid rent and interest calculated up to 19 March 2007; (b) that the defendant pay the plaintiff's costs of the proceedings before me within twenty-one days of such costs being agreed, or in default of agreement within twenty-one days of their assessment and the issue of a certificate; (c) that the defendant pay the plaintiff's costs the subject of the agreement noted by the court on 11 December 2006 within twenty-one days of the determination of the amount pursuant to the procedure for their determination expressed in para 2 of that agreement. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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