Sugar K Restaurant Pty Ltd v Ambly Holdings Pty Ltd [2014] NSWSC 1732

Supreme Court New South Wales

Medium Neutral Citation: Sugar K Restaurant Pty Ltd v Ambly Holdings Pty Ltd [2014] NSWSC 1732 Hearing dates: 21 November 2014 Decision date: 25 November 2014 Jurisdiction: Equity Division - Duty List Before: Stevenson J Decision: Plaintiff to pay rental arrears Catchwords: REAL PROPERTY - commercial lease - what equity sub-tenant should do to owner pending final hearing of application for relief against forfeiture of purported exercise of sub-option - whether sum paid by sub-tenant to tenant should be taken into account in calculation of rental arrears Legislation Cited: Conveyancing Act 1919 Cases Cited: McGregor v Henry [2006] NSWSC 368 Category: Interlocutory applications Parties: Sugar K Restaurant Pty Ltd (Plaintiff/Respondent) Ambly Holdings Pty Ltd (First Defendant/Applicant) Hakost Pty Ltd (Second Defendant) Representation: Counsel: R Notley (Plaintiff/Respondent) D R Pritchard SC and A Cornish (First Defendant/Applicant) Solicitors: Jackson Lalic Lawyers (Plaintiff/Respondent) Blueprint Law (First Defendant/Applicant) Mr Yau (Second Defendant) File Number(s): SC 2014/230387

EX TEMPORE Judgment (revised) 1I heard this matter in the duty list on 21 November 2014. 2The first defendant, Ambly, is the registered proprietor of a property in Sussex Street, Sydney. 3The second defendant, Hakost, was the lessee of the mezzanine and first and second floors of the building pursuant to a lease from Ambly for a term of five years commencing on 8 August 2009 and expiring on 7 August 2014. 4The plaintiff, Sugar K, was the sublessee of the first floor of the building pursuant to a sublease from Hakost which also commenced on 8 August 2009 and expired on 6 August 2014. 5Both the head lease and the sublease included an option to renew for a further term of five years. 6Hakost vacated the premises in about July 2013. Ambly did not terminate the head lease. 7Sugar K alleges that it exercised the sub-option by notice to Hakost on or about 22 January 2014. 8Hakost purported to exercise the head-option on or about 5 May 2014. At that time, Hakost's admitted arrears under the head lease were approximately $111,658. 9In response to Haksot's purported exercise of the head option, Ambly served a notice under s 133E(2)(a) of the Conveyancing Act 1919 ("the Act") on Hakost on or about 16 May 2014. That notice listed a substantial number of breaches of the head lease, including repeated failures to pay rent in a timely fashion, or at all. 10Hakost did not respond to the notice, or commence proceedings seeking relief under ss 133E or 133F of the Act. Consequently, Hakost's rights in respect of the notice were extinguished by operation of s 133E(4)(a) of the Act. 11On 30 July 2014, Ambly sent a notice to vacate to each of Hakost and Sugar K requiring each of them to vacate the property by 7 August 2014. 12On 5 August 2014, Sugar K commenced these proceedings. 13In these proceedings Sugar K seeks, in substance, relief against forfeiture of what it contends to be its entitlement to occupation of the premises following its purported exercise of the option in the sub-lease. 14As I have mentioned, the terms of the sub-lease and the head lease expired on 6 and 7 August 2014, respectively. Sugar K contends that its sub-lease nonetheless remains in force by reason of the operation of s 133G of the Act. Assuming that is so, Sugar K must continue to pay rent and otherwise observe its obligations under the sub-lease: see s 133G(3)(a). 15In fact, Sugar K has paid no rent since April 2014. 16In those circumstances, pending the final determination of these proceedings, Ambly seeks orders that will allow it to exercise its right to take possession of the premises unless Sugar K pays the rental arrears since 8 August 2014 (by which date the head lease and sub-lease had expired) and thereafter continues to make timely payment of rent. 17It emerged, during the hearing and following cross-examination of Mr Yeung, the sole director and shareholder of Sugar K, that the only matter that divided the parties was whether, in calculating rental arrears, Sugar K was entitled to a "credit" for an amount of $125,000 which Mr Yeung contended that Sugar K had paid to Hakost between May and December 2012. 18 Mr Notley, who appeared for Sugar K, described the circumstances in which that payment was made as follows: "...Sugar K paid Hakost $125,000 pursuant to an agreement with Hakost to assign to Sugar K the head lease. It was a term of the agreement that if the assignment of the head lease to Sugar K did not eventuate, those monies would be treated as a prepayment of rents and outgoings under the sublease. Based on the calculations made by [Ambly]..., this is equivalent to approximately seven months of prepaid rent and outgoings. The assignment of the head lease did not eventuate and none of those monies were applied by Hakost as prepayment of rent and outgoings due under the sublease." 19As Mr Pritchard SC, who appeared with Mr Cornish for Ambly, pointed out, if Sugar K is to obtain the relief it seeks in these proceedings it must do equity to Ambly: for example see White J in McGregor v Henry [2006] NSWSC 368 at [65] and [66]. In this case, doing equity involves, at least in my opinion, bringing rental arrears up to date and then making timely payment of rent. 20In that regard, I fail to see how any payment made by Sugar K to Hakost, especially a payment that Hakost did not pass on to Ambly as rent, is relevant to what equity Sugar K must now do to Ambly. 21It may be that Sugar K has now lost the benefit of any money it has paid to Hakost. But that is a matter between it and Hakost. There is no suggestion that Ambly was privy to, or even knew of, the arrangements whereby these monies are said to have been paid. 22In those circumstances I do not consider Sugar K is entitled to any "credit" or allowance for the $125,000. 23Sugar K has offered no other reason why Ambly should not have the relief it seeks. 24In those circumstances : (1)I will make orders to the effect of paragraphs 1 and 2 of Ambly Holdings Pty Ltd's Notice of Motion of 13 November 2014. (2)I direct the parties to confer in relation to the precise orders to be made. (3)I order that Sugar K pay Ambly's costs of the motion to date. (4)I stand Ambly's motions of 13 November 2014 and 9 September 2014, and the proceedings generally, over before the Equity Registrar on 28 November 2014.