711 Hogben Pty Ltd v Anthony Tadros – Relief Against Forfeiture and Costs [2022] NSWSC 1653

Catchwords: EQUITY – LANDLORD AND TENANT – relief against forfeiture of lease – where tenants have obtained a substantial verdict for damages against the Landlord – where Landlord terminated the lease for the tenants’ failure to pay rent – whether relief should be refused on the basis that the tenant s will be unable to pay future rent or may reasonably be expected to be unable to do so – whether relief has utility – whether delay by tenants in obtaining an O ccupation C ertificate for the premises is a factor against them obtaining relief against forfeiture – HELD – relief against forfeiture should be granted – COSTS – whether tenants should be deprived of their costs because the verdict they obtained fell significantly short of what they claimed – whether the tenants should pay the ir costs of the application for relief against forfeiture – HELD – the tenants succeeded and costs should follow the event – the tenants should have their costs of the relief against forfeiture application because it was one part of the wider contest and the Court should not depart from the usual rule that costs relating to particular issues not be excised or dealt with separately. Supreme Court New South Wales Medium Neutral Citation: 711 Hogben Pty Ltd v Anthony Tadros – Relief Against Forfeiture and Costs [2022] NSWSC 1653 Hearing dates: 29 November 2022 Decision date: 05 December 2022 Jurisdiction: Equity - Commercial List Before: Hammerschlag CJ in Eq Decision: Relief against forfeiture Catchwords: EQUITY – LANDLORD AND TENANT – relief against forfeiture of lease – where tenants have obtained a substantial verdict for damages against the Landlord – where Landlord terminated the lease for the tenants’ failure to pay rent – whether relief should be refused on the basis that the tenant s will be unable to pay future rent or may reasonably be expected to be unable to do so – whether relief has utility – whether delay by tenants in obtaining an O ccupation C ertificate for the premises is a factor against them obtaining relief against forfeiture – HELD – relief against forfeiture should be granted – COSTS – whether tenants should be deprived of their costs because the verdict they obtained fell significantly short of what they claimed – whether the tenants should pay the ir costs of the application for relief against forfeiture – HELD – the tenants succeeded and costs should follow the event – the tenants should have their costs of the relief against forfeiture application because it was one part of the wider contest and the Court should not depart from the usual rule that costs relating to particular issues not be excised or dealt with separately. Legislation Cited: Conveyancing Act 1919 (NSW) Cases Cited: 711 Hogben Pty Ltd v Anthony Tadros [2022] NSWSC 1259 711 Hogben Pty Ltd v Tadros – Variation and Slip Rule Application [2022] NSWSC 1568 Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99 Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996 Category: Principal judgment Parties: George Tadros - Third Defendant/First Cross Claimant Anthony Tadros - First Defendant/Second Cross Claimant Sharon Tadros - Second Defendant/Third Cross Claimant 711 Hogben Pty Ltd ACN 157911745 - Plaintiff/ Third Cross Defendant Representation: Counsel: M W Young SC - Defendants/Cross Claimants J E Lazarus SC - Plaintiff/Third Cross Defendant Solicitors: Finn Roache Lawyers - Defendants/Cross Claimants One Group Legal - Plaintiff/Third Cross Defendant File Number(s): 2015/330101 JUDGMENT HIS HONOUR: This is at least the eleventh judgment of the Court in this long-running dispute between a landlord and its tenants. On 19 September 2022 , the Court delivered judgment awarding damages of $7 3 0,000 to the tenants : 711 Hogben Pty Ltd v Anthony Tadros [2022] NSWSC 1259 ( the quantum judgment ). Judgment was entered today for the amount of the verdict plus interest which is a total of $860,128. On 17 November 2022 , the Court refused an application by the Landlord to vary the amount of the verdict: 711 Hogben Pty Ltd v Tadros – Variation and Slip Rule Application [2022] NSWSC 1568 ( slip rule judgment ). Defined terms in the quantum judgment and the slip rule judgment are used here. Two aspects remain to be dealt with to bring this matter to conclusion: an application by the tenants for relief against forfeiture of the Lease , relief which the Landlord opposes; and costs. Relief against forfeiture Section 129(2) of the Conveyancing Act 1919 (NSW) is engaged. It provides: (2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit. As recounted in the quantum judgment at [39]-[43] and [78], it is not in dispute that for the period 8 October 2020 to 10 September 2021 rent was payable but was not paid. It is not also in dispute that the Lease was terminated. The Landlord terminated the Lease by notice dated 10 September 2021, relying expressly on the failure by the tenants to pay the Base Rent under the Lease . The covering letter of the notice referred to other breaches by the tenants including, but not limited to, failure to pay outgoings and provide a bank guarantee/bond security. Argument on this application centred on the tenants ’ failure to pay rent . The Court has a wide discretion when it comes to granting relief against forfeiture. There was no debate about the applicable legal principles. Generally, provided the lessor can be put in the same position as before the forfeiture, the Court will grant relief against forfeiture upon the payment of rent, costs, interest and other expenses. If those terms are offered (which they are here), the Court rarely refuses relief. One instance where relief may be withheld is if the tenant is unable to pay future rent or may reasonably be expected to become so; see Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996 ; 19 BPR 40,443 . The Landlord puts that this is in the categor y of cases where relief should be refused because it follows from the Court ’ s finding s in the quantum judgment to the effect that it is more probable than not that the tenants will not obtain Service Approval and will not trade , and will therefore not be able to pay the rent. Additionally, it puts that , for the same reason s , relief will have no utility. It argues that it should not be required to maintain premises which are in effect unused and untenanted. The Landlord also says a factor against the exercise of the Court ’ s discretion in their favour is that the tenants have delayed in obtaining an Occupation Certificate. The tenants argue that their breach was caused by the Landlord ’ s breach . T hey wish to be restored to their tenancy . They offer to pay the rent and discharge their other obligations even though they do not have an Occupation Certificate or Service Approval . They have taken some further steps towards obtaining an Occupation Certificate. In all the circumstances of this case, the tenants should have relief against forfeiture. Their breach in not paying rent was caused by the Landlord ’ s breach. Leaving aside what other resources the tenants may have or be able to draw upon , t hey now have a verdict against the Landlord, which , if met , will give them the equivalent of about two years rent. Annual rent is presently $412,344. I observe that during the hearing of this application nothing was said on behalf of the Landlord to indicate that it will not meet the verdict. It does not lie fairly in the Landlord ’ s mouth to argue that this is a rare case where the tenant s should be denied relief on the footing that they will not be able to pay future rent, when, if the Landlord meets the verdict, they will have the resources to do so for at least a year (even if they spend $350,000 on upgrading the Centre – see [ 159 ] of the quantum judgment) . As to the tenants ’ delay, it is to be recognised that they have been distracted by this hard-fought and no doubt costly litigation of uncertain outcome. The COVID-19 pandemic also has had some role to play. The tenants will now have to pay rent, which will no doubt infuse a sense of urgency. In any event, their delay in obtaining an Occupation Certificate has not been of such a quality to constitute a factor against them . They will not be able to operate until they get Service Approval, but the Landlord will be getting its rent either way. The tenants are conscious of the fact that the Lease which they are to have , contains a provision (clause 20.2) which requires rent to be paid free of exchange , without any deductions or abatements and without any deduction or set off whatsoever other than as provided in the Lease. I interpolate that in Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99 ; 195 FCR 97, 119 at [199], which was referred to during argument, the full Federal Court construed such a provision ( which used the word whatsoever) as disallowing any deduction of any kind from rent including a reduction by way of equitable set off. The tenants proffered Short Minutes of Order which included a proposed order that until the Landlord pays them the entirety of the verdict, they are entitled to pay rent that falls due from 1 January 2023 by way of a credit in the same amount to the Landlord with respect to damages and interest owing by it to them. This proposed order would conflict with the express obligation they will have under clause 20.2 and I do not propose to make it. They also sought an order that the Landlord pay them the amount of the rent gua rantee s they have to establish. This would also conflict with their direct obligation under the L ease to provide guarantees. I was informed from the bar table that the tenants maintain the ir application for relief against forfeiture even if the Court decline s to make order s in these terms. They are cognisant of the fact that they must now pay rent without deduction at a time at which they may not have recovered all or any of the verdict. That obligation will arise immediately upon entry into the new lease. Their claim for damages has now merged in the judgment. They consciously tak e the commercial risk of a failure to obtain Service Approval (or indeed the risk of getting it). The Landlord put that time limits should be imposed on the tenants to obtain an Occupation Certificate and Service Approval. I do not consider this to be appropriate. The Lease itself contains no such impositions and the commercial dynamics will play their role . I will make orders providing for relief against forfeiture. Costs The tenants seek their costs of the proceedings subsequent to the specific performance judgment of 10 May 2018 on the basis that they have obtained a substantial verdict and costs should follow the event. They submit that if they are granted relief against forfeiture, they should have the costs of the application. The Landlord argues that: each party should pay its own costs , or the tenants ’ costs should be reduced by a significant proportion (50% was suggested), because since 2018 only quantum has been in issue and the verdict obtained by the tenants is substantially less than the figure they argued they should have (about $3 million) so that it cannot be said that they succeeded; and if relief against forfeiture is granted, the tenants should bear their own costs of the application . T he tenants have succeeded. The true event is the substantial verdict they have obtained after a protracted and sapping dispute , in which the Landlord made no real concessions and argued that the tenants would have traded at a large loss . I regard the application for relief against forfeiture as an integral part of the single wider contest. There is no reason why either the primary rule that costs follow the event should not be adhered to or the usual rule that costs relating to particular issues in proceedings should not be excised or dealt with separately should be departed from . orders The Court makes the following declaration and orders : Declaration that the Second and Third Cross-Claimants are entitled to relief against forfeiture of the equitable lease that was created by the Deed of Agreement for Lease entered into on or about 11 April 2014 ( Agreement for Lease ). Within 7 days of this order, the Third Cross-Defendant and the Second and Third Cross-Claimants are to enter into a lease of the property known as Levels 1 and 2, 7-11 Hogben Street, Kogarah NSW 2217 and comprised in Lots 2 and 3 in DP 102363 and part Lot 29 Section C, DP 1560 (which includes 18 car spaces on the upper lower ground level), that lease to be in the same terms as the unexpired term of the lease that was to be entered into under the Agreement for Lease. The Third Cross-Defendant is to pay such of the Cross-Claimants ’ costs of the proceedings which are not the subject of any previous orders for costs in their favour. These o rders be entered forthwith. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 December 2022