Alamdo Holdings Pty Ltd v Croc’s Franchising Pty Ltd (No 2)

1. [1]

   The plaintiff, Alamdo Holdings Pty Ltd (“Alamdo”), is the registered proprietor of Unit 5 of a property in Hudson Avenue, Castle Hill (“the Premises”).

2. [2]

   On 18 April 2017, Alamdo and the first defendant, Croc’s Franchising Pty Ltd (“Croc’s”), executed a Heads of Agreement in relation to a proposed lease by Alamdo to Croc’s of the Premises.

3. [3]

   On 16 November 2017, Alamdo and Croc’s entered a suite of documents comprising:

4. [4]

   Croc’s accepts that it “entered into possession of the Premises” on 18 June 2018, following completion of the fitout. [1]

5. [5]

   Croc’s is a franchisor of a number of playcentres in various locations throughout Australia.

6. [6]

   Although Croc’s accepts that on 18 June 2018 it entered possession of the Premises, the actual occupant of the Premises was one of Croc’s franchisees, Golden Rock & Hope Pty Ltd (“the Franchisee”).

7. [7]

   Unbeknown to Alamdo at the time that Croc’s entered possession of the Premises, pursuant to the license agreement between Croc’s and the Franchisee, the Franchisee was required to pay the full amount of the rent due to Alamdo.

8. [8]

   Between June 2018 and March 2020, no controversy arose between Alamdo and Croc’s.

9. [9]

   However, the onset of the COVID-19 pandemic in March 2020 adversely affected the business conducted at the Premises by the Franchisee, giving rise to the dispute with which these proceedings are concerned.

10. [10]

    Ultimately, on 3 December 2020, Alamdo purported to terminate Croc’s entitlement to possession of the Premises and retook possession.

11. [11]

    Alamdo now seeks to recover from Croc’s unpaid rent and outgoings, loss of bargain damages and a refund of a proportion of an incentive payment, to which I will refer.

12. [12]

    Alamdo also seeks to recover these amounts from the second and third defendants, Mr Brett Aldons and Mr Lawrence Cusdin, as guarantors of Croc’s obligations.

13. [13]

    Croc’s contends that Alamdo’s purported termination of the lease was carried out in contravention of a regulation made pursuant to s 87 of the Retail Leases Act 1994 (NSW), comprising Sch 5 to the Conveyancing (General) Regulation 2018 (NSW) entitled “Commercial leases – COVID-19 pandemic special provisions” (“the COVID Regulation”).

14. [14]

    There is a dispute as to whether the steps Alamdo took in 2020, leading up to its retaking of possession on 3 December 2020, were in contravention of the COVID Regulation.

15. [15]

    There is also a dispute as to Alamdo’s entitlement to terminate the lease, and recover the amounts claimed, quite apart from the effect of the COVID Regulation.

16. [16]

    Alamdo submitted that the COVID Regulation was in any event ultra vires and invalid insofar as it purported to prohibit the recovery of possession or termination of a lease by a lessor under the terms of a lease. For the reasons set out in my judgment of 21 December 2022, [2] I have held that the COVID Regulation was not ultra vires and invalid.

The response to the COVID-19 pandemic

1. [17]

   On 11 March 2020, the World Health Organization declared COVID-19 to be a worldwide pandemic.

2. [18]

   On 18 and 23 March 2020, the relevant Minister made the Public Health (COVID-19 Mass Gatherings) Order 2020 (NSW) and the Public Health (COVID-19 Places of Social Gathering) Order 2020 (NSW), which had the effect of restricting the size of mass gatherings in indoor areas to 100 persons and prohibiting recreation facilities (such as the Croc’s playcentres) from being open to members of the public, respectively.

3. [19]

   On 7 April 2020, the National Cabinet adopted the “National Cabinet Mandatory Code of Conduct – SME [3] Commercial Leasing Principles during COVID-19” (“the National Code”) and State and Territory Cabinets committed to implement legislative measures giving effect to it.

4. [20]

   On 9 April 2020, the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) came into effect, permitting the Commonwealth to prescribe the payment of benefits to respond to the COVID-19 pandemic. On the same day the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (“the JobKeeper Rules”) came into effect which created the “JobKeeper” benefits scheme.

5. [21]

   The COVID Regulation was promulgated to give effect, in New South Wales, to the National Code.

6. [22]

   The COVID Regulation was inserted into the Conveyancing (General) Regulation by the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) and took effect on 24 April 2020.

7. [23]

   The COVID Regulation was amended on 3 July 2020 and ceased to have effect on 23 October 2020. On 24 October 2020 a further regulation, in substantively the same form, commenced. Subject to a savings provision to which I will return, it ceased to have effect on 31 December 2020.

8. [24]

   There are some differences between the pre and post 24 October 2020 COVID Regulations. Where it is necessary to distinguish between the two, I will refer to the post 24 October 2020 regulation as the “Second COVID Regulation”.

Clause 4 of the COVID Regulation

1. [25]

   Clause 4 of the COVID Regulation was entitled “Prohibitions and restrictions relating to commercial leases” [4] and, relevantly, was in the following terms:

2. [26]

   The “Note” to cl 4(1) refers to the leasing principles in the National Code. The Notes were not themselves a part of the COVID Regulation [5] but comprise material available to construe the COVID Regulation. [6]

3. [27]

   Clause 4 incorporated a number of terms, that I have emphasised in italics, that were defined elsewhere in the COVID Regulation.

4. [28]

   “Impacted lessee” was defined as follows:

5. [29]

   There was no dispute that Croc’s satisfied the requirement of subpar (b) of that definition, in that its turnover during FY19 was less than $50 million. There is a dispute, to which I will return, as to whether Croc’s satisfied the further requirements of subpar (a) of the definition; qualification for JobKeeper.

6. [30]

   There is no dispute that Alamdo’s purported termination of the Lease and entering into possession was “prescribed action” for the purpose of the COVID Regulation.

7. [31]

   “Prescribed period” was defined to mean the period ending at the end of the day that was six months after the date on which the Retail and Other Commercial Leases (COVID-19) Regulation commenced, 24 April 2020. The “prescribed period” thus ended on 23 October 2020. The Second COVID Regulation made on 24 October 2020 had the effect of, amongst other things, extending the “prescribed period” to 31 December 2020, subject to provisions to which I will return.

8. [32]

   There is no dispute that the Lease Document was a “commercial lease” for the purpose of the COVID Regulation.

Clause 5 of the COVID Regulation

1. [33]

   Clause 5 [7] of the COVID Regulation was headed “Obligation to renegotiate rent and other terms of commercial leases before prescribed action”.

2. [34]

   It provided:

3. [35]

   In the Second COVID Regulation, the form of cl 5 was changed, with effect from 24 October 2020, so that it read as follows:

4. [36]

   In relation to this form of cl 5:

Clause 6 of the COVID Regulation

1. [37]

   Clause 6 of the COVID Regulation was entitled “Disputes must be submitted to mediation before proceedings can be taken”.

2. [38]

   The clause provided:

The National Code

1. [39]

   The National Code provided, relevantly:

The “Leasing Principles” in the National Code

1. [40]

   As I have mentioned, the COVID Regulation referred to the Leasing Principles in the National Code.

2. [41]

   Those relevant are:

3. [42]

   The National Code provided, concerning the word “proportionate” referred to in Leasing Principle 3:

4. [43]

   The National Code contained the following definitions:

The “Binding Mediation” provision in the National Code

1. [44]

   Finally, the National Code made the following provision concerning binding mediation:

The course of events

1. [45]

   As I have said, from June 2018 until March 2020, no controversy arose between the parties.

2. [46]

   On 26 February 2020 Alamdo issued an invoice to Croc’s for the rent payable for March 2020: $26,083.20. Such rent was due on 1 March 2020.

3. [47]

   Croc’s paid rent of $2,000 on 4 March 2020 and a further $6,000 on 10 March 2020. Croc’s paid no further rent until 13 July 2020 when it paid a further $5,000 which Alamdo allocated partially to reduce the rent outstanding for March 2020. On 31 August 2020 Croc’s paid a further $4,000, which Alamdo also allocated to the rent due for March 2020.

4. [48]

   On 14 March 2020 Mr Aldons and Mr Cusdin, on behalf of Croc’s, wrote to Mr Anthony Maurici, the sole director of Alamdo, describing the impact that COVID-19 was having on the businesses of Croc’s franchisees, and requesting an abatement of rent for two months. This was shortly after the World Health Organization’s pandemic declaration on 11 March 2020 and shortly before the 18 and 23 March 2020 Public Health Orders concerning mass gatherings and the closing of recreational facilities in New South Wales.

5. [49]

   Mr Aldons and Mr Cusdin stated:

6. [50]

   On 16 March 2020 Mr Maurici replied, offering to accept a payment of 50% of rent for three months on the basis that the shortfall would be then repaid.

7. [51]

   Mr Maurici wrote:

8. [52]

   Mr Aldons replied on 19 March 2020, seeking a “complete abatement of rent” for the “next several months”.

9. [53]

   Mr Aldons wrote:

10. [54]

    As the passage I have emphasised shows, in this email Mr Aldons referred to the financial performance of “the store” and Croc’s “franchisee” rather than its own financial performance.

11. [55]

    On 19 March 2020 Mr Maurici replied:

12. [56]

    As I have set out above, the National Code came into effect on 7 April 2020 and the COVID Regulation took effect from 24 April 2020.

13. [57]

    On 28 April 2020 Mr Maurici made a further offer, this time to accept a 50% waiver of rent from 24 April 2020, the date on which the COVID Regulation took effect, and a deferral of the balance payable for 24 months following the lifting of business restrictions.

14. [58]

    Thus, Mr Maurici wrote:

15. [59]

    Mr Aldons said that he had not recalled receiving this email until he saw a copy of it in the course of these proceedings. Mr Aldons said that the offer in this email was never discussed or talked about throughout the period leading up to Alamdo retaking possession of the Premises on 3 December 2020.

16. [60]

    However, the evidence establishes that Mr Aldons did receive the email, as he accepted.

17. [61]

    The fact that the email was received is evident from the terms of Croc’s solicitor’s letter of 24 November 2020, to which I will return.

18. [62]

    Mr Maurici said that he regarded the offer as remaining open throughout that period.

19. [63]

    The effect of the offer was that, for the moment, Croc’s was not obliged to pay any rent.

20. [64]

    Mr Aldons did not reply to Mr Maurici’s email dated 28 April 2020 . Mr Aldons did not further communicate with Alamdo until 26 May 2020, after receiving an email on 21 May 2020 from Mr Maurici’s son, Mr Seb Maurici, requesting that Mr Aldons pay the remaining rent due for March 2020 “and rent up to the 24th April which is when the COVID legislation came into effect in New South Wales”.

21. [65]

    Mr Seb Maurici also requested that Mr Aldons provide “your financials so we can internally process your request for rental abatement” and sought copies of:

22. [66]

    On 27 May 2020 Mr Seb Maurici sent Mr Aldons an invoice for the June 2020 rent which, under the terms of the Agreement for Lease, was due on 1 June 2020.

23. [67]

    Alamdo had sent a like invoice on 28 April 2020 for May 2020 rent and subsequently sent invoices on 29 June 2020 for July 2020 rent, 31 July 2020 for August 2020 rent, 28 August 2020 for September 2020 rent, 30 September 2020 for October 2020 rent and 30 November 2020 for December 2020 rent. Croc’s relies upon each of these acts as constituting an election by Alamdo to affirm the Lease. I return to this below.

24. [68]

    On 10 June 2020 Mr Seb Maurici sent Mr Aldons a document called “Rental Relief Request Form” under cover of an email in which he stated:

25. [69]

    The Rental Relief Request Form was in the following format:

26. [70]

    Mr Aldons replied on 16 June 2020 providing a Business Activity Statement for the Franchisee for the period January 2020 to March 2020.

27. [71]

    That document recorded total sales by the Franchisee of $323,429 for that period. That period was prior to the date of the National Code and the date on which the COVID Regulation took effect.

28. [72]

    As I have said, on 1 July 2020 the Franchisee resumed trading from the Premises.

29. [73]

    On 31 July 2020 Mr Anthony Maurici sent an email to Mr Aldons:

30. [74]

    Mr Aldons replied on 4 August 2020:

31. [75]

    This email did not engage with Alamdo’s requests for financial information.

32. [76]

    On 7 August 2020 Mr Aldons wrote to Mr Seb Maurici:

33. [77]

    In this email, Mr Aldons was providing information relating to the Franchisee, rather than Croc’s itself. The email, again, did not engage with Alamdo’s request for financial information about Croc’s itself.

34. [78]

    Mr Aldons gave this evidence in cross-examination concerning this email:

35. [79]

    And later:

36. [80]

    Mr Anthony Maurici replied to Mr Aldons’ 7 August 2020 email on 10 August 2020:

37. [81]

    Mr Aldons agreed that Croc’s did not ever complete the “Rental Relief Request Form” to which Mr Maurici referred in that email and agreed that this was a “conscious and deliberate choice by you on behalf of” Croc’s.

38. [82]

    On 11 August 2020, Mr Aldons sent an email to Mr Anthony Maurici and Mr Seb Maurici enclosing, for the first time, financial information referable to Croc’s itself, rather than its Franchisee.

39. [83]

    Attached to that email was a letter from Croc’s accountant, Mr Stephen Penn from Weber Bowman Pty Ltd, Chartered Accountants, that attached a JobKeeper Application made by Croc’s to the Australian Taxation Office on 24 April 2020, together with two documents entitled “Monthly Revenue Summary” for years ended 30 June 2019 and 30 June 2020.

40. [84]

    The material provided with this email did not constitute evidence that Croc’s was an “impacted lessee” within the definition of cl 2 and for the purposes of cl 5(3A) of the COVID Regulation as it did not show whether Croc’s qualified for the JobKeeper scheme. Mr Aldons’ email contained an assertion that “we are eligible and are participating in the jobkeeper scheme”. But the attachment to his email was no more than Croc’s 24 April 2020 application for JobKeeper.

41. [85]

    Relevantly, those documents showed total income for the period April to June 2019 of $623,455, and for the corresponding period in 2020, $172,566.21.

42. [86]

    The material did not reveal what expenses Croc’s had incurred during those periods, nor what profit had been made. Nor did the material reveal Croc’s financial position after June 2020, when the Franchisee had resumed trading from the Premises.

43. [87]

    Mr Aldons concluded his email stating:

44. [88]

    As I have set out above, it was a requirement of the National Code that where lessors and lessees could not reach agreement on leasing matters they must attend a binding mediation.

45. [89]

    On 21 September 2020, Alamdo made an application to the New South Wales Small Business Commissioner. A mediation took place on 29 September 2020.

46. [90]

    Section 19(3) of the Small Business Commissioner Act 2013 (NSW) provides:

47. [91]

    During the hearing I ruled that, by reason of that provision, I was not able to receive into evidence material in a number of affidavits concerning what had occurred at the mediation before the Small Business Commissioner. I gave brief reasons at the time for making that decision and said I would give more fulsome reasons in this judgment. Those reasons appear below. [9]

48. [92]

    On 1 October 2020 Mr Cusdin, on behalf of Croc’s, caused Croc’s to pay Alamdo $29,963, which payment had the effect of bringing rent up to date to 24 April 2020. Mr Cusdin said the payment “takes the store up to the 24th April”.

49. [93]

    Croc’s thus, eventually, paid April 2020 rent up to 24 April. But the rent for all of April was due on 1 April 2020. Croc’s accepts that its failure to pay April 2020 rent on 1 April 2020 was not a failure to pay rent occurring “during the prescribed period” for the purpose of cl 4(2) of the COVID Regulation nor a “failure to pay rent during the prescribed period” for the purpose of cl 5(1) of the COVID Regulation. The COVID Regulation therefore did not prevent Alamdo relying on Croc’s failure to pay the April 2020 rent on 1 April 2020 to terminate the Lease. Cros’s submits that, nonetheless, for reasons I discuss below, Alamdo had no such entitlement. [10]

50. [94]

    On 13 October 2020 Mr Aldons wrote to Mr Anthony Maurici enclosing “sales information for the store” and stating:

51. [95]

    Again, Mr Aldons was advocating for rental relief based upon the Franchisee’s position, rather than that of Croc’s.

52. [96]

    Mr Aldons also attached a document prepared by Croc’s accountant, Mr Penn, concerning Croc’s “turnover as per accounting records”.

53. [97]

    Mr Penn’s letter stated:

54. [98]

    The attachment to Mr Penn’s letter recorded that Croc’s “total income” for the period July to September had fallen from $656,604.33 to $375,124.36 between 2019 and 2020. Thus, according to these figures, Croc’s income for the relevant quarter in 2020 was some 57% of that for the preceding year.

55. [99]

    In cross-examination Mr Anthony Maurici said that he thought there was no “veracity” in this material as it was “the accountant’s information … based on information provided by Croc’s, and the information provided by Croc’s was not presented, it was only tabulated, as if that’s something that I have to accept”.

56. [100]

    Mr Aldons also attached to his information what he described as “sales information for the store”, being a summary of net sales of Croc’s Franchisee which showed a percentage drop of around 80% between July, August and September 2019 and the corresponding months in 2020.

57. [101]

    In his covering letter, Mr Aldons requested a rent reduction for the period from 24 April 2020 to 30 September 2020 “in line with the Code of Conduct based on the proportionate drop in revenue experienced by the entity trading from the [Premises]”.

58. [102]

    That is, although Croc’s had provided information as to its income, it sought a rental reduction in proportion with a drop of revenue of the Franchisee, as it was the Franchisee that was “the entity trading from” the Premises.

59. [103]

    Mr Aldons gave this evidence about that material in cross-examination:

60. [104]

    On 5 November 2020, Mr Aldons wrote to Mr Seb Maurici:

61. [105]

    Mr Aldons evidently thought that Croc’s had no obligation to negotiate and reach agreement with Alamdo concerning rent relief, but assumed that Croc’s was entitled to a reduction in rent calculated by reference to the revenue position of its Franchisee.

62. [106]

    On 10 November 2020 Mr Aldons wrote to Messrs Maurici:

63. [107]

    Mr Aldons attached to that letter a schedule setting out the Franchisee’s sales for 2019 and for year-to-date in 2020, showing a significant drop in sales.

64. [108]

    Mr Aldons’ email again makes clear that his view was that Croc’s was entitled to a rent reduction proportionate to the Franchisee’s sales reductions throughout 2020.

65. [109]

    On 10 November 2020 Alamdo sent Croc’s what the parties described as a “breach notice” and what was, in effect, a notice under s 129 of the Conveyancing Act 1919 (NSW).

66. [110]

    The letter stated:

67. [111]

    Mr Aldons responded to Alamdo’s breach notice as follows:

68. [112]

    Again, Mr Aldons’ letter asserted an entitlement that the rent of the Premises be reduced in proportion to the drop in sales of the Franchisee.

69. [113]

    Croc’s now engaged a lawyer to represent it.

70. [114]

    Thus, on 24 November 2020, Ms Lauren Smyth, solicitor, sent Alamdo a letter enclosing Croc’s Business Activity Statements for each quarter from September 2018 to June 2020, together with Croc’s JobKeeper application of 9 October 2020 and a statement from the Australian Taxation Office that, for the September 2020 quarter, Croc’s had “satisfied the decline in turnover requirements and are eligible for JobKeeper”.

71. [115]

    On behalf of Croc’s, Ms Smyth wrote, under the heading “Rent Relief”:

72. [116]

    Ms Smyth stated that the reduction in turnover associated with the Premises was set out in a table as follows:

73. [117]

    Ms Smyth, in effect, repeated Croc’s ongoing assertion that it was entitled to a rent reduction in proportion to the Franchisee’s reduction in turnover.

74. [118]

    Ms Smyth’s reference, in the first three rows of her table, to “rent waived” and “rent deferred” of 50% appears to bespeak her understanding, and thus that of Croc’s, that Mr Maurici’s 28 April 2020 offer had remained on the table for at least April to June 2020.

75. [119]

    By reference to Croc’s Business Activity Statements, Mr Potts SC and Mr Langshaw, who appeared for Alamdo, produced a calculation that showed that, despite a fall in income from 2019 to 2020, Croc’s nonetheless made a profit, excluding GST, of $19,690 for the quarter ending June 2020 and $79,120 for the quarter ending September 2020.

76. [120]

    On 27 November 2020 Ms Smyth sent Mr Maurici a further email, again focusing on the position of the Franchisee. Ms Smyth said:

77. [121]

    Again, the focus of Ms Smyth’s contentions was on the position of the Franchisee, rather than Croc’s itself.

78. [122]

    On 30 November 2020, Alamdo sent an email to Croc’s attaching “rent invoice for December” and stating:

79. [123]

    On 3 December 2020, Alamdo took possession of the Premises and purported to terminate the Lease.

80. [124]

    Alamdo then took steps to locate an alternative lessee of the Premises.

81. [125]

    Ultimately, on 7 June 2022, it entered a lease with Dutton Retail 2 Pty Ltd for a tenure of 10 years from 7 June 2022.

The consequences of the Lease not being registered

1. [126]

   Clause 3.1 of the Agreement for Lease provided:

2. [127]

   “Lease” was defined to mean a lease of the Premises in the form annexed to the Agreement for Lease.

3. [128]

   Clause 3.2 made provision for the preparation and execution of the Lease.

4. [129]

   Clause 3.2(d) provided:

5. [130]

   Alamdo and Croc’s executed the Lease.

6. [131]

   Alamdo, for reasons unexplained, did not cause the Lease to be registered.

7. [132]

   Clause 3.3 was expressed to be “subject to clause 2”, that is cl 3.2.

8. [133]

   Clause 3.3 of the Agreement for Lease provided:

9. [134]

   It is common ground that the “Commencing Date” referred to in cll 3.1 and 3.3(a) was 18 June 2018.

10. [135]

    Alamdo accepted that:

11. [136]

    However, Alamdo submitted that the Agreement for Lease operated to create an agreement for lease enforceable in equity and that on and from the “Commencing Date” of 18 June 2018 a lease of the Premises from Alamdo to Croc’s for a term of 10 years arose by operation of the Agreement for Lease, and otherwise on the terms recorded in the Lease document itself.

12. [137]

    Clause 12.10 of the Agreement for Lease provided:

13. [138]

    By reason of cl 3.3(a) of the Agreement of Lease, Croc’s became “bound by the Lease as if the Lease were completed, signed and delivered”.

14. [139]

    It is true that cl 3.3(a) does not say that Croc’s became bound by the Lease “as if it had been registered”. However, that is the effect of cl 3.3(a).

15. [140]

    In Leitz Leeholme Stud Pty Ltd v Robinson, [12] Glass JA, with whom Hope JA agreed, held, in circumstances relevantly indistinguishable from those in this case, that an informal lease operating as an agreement for lease enforceable in equity predicates not only the availability of equitable relief but the existence and an entitlement to sue on the lease in contract at common law.

16. [141]

    In Leitz Leeholme, as is the case here, the lessee executed a memorandum of lease and entered occupation and paid rent. The lease was not registered.

17. [142]

    Glass JA said:

18. [143]

    The authority of Leitz Leeholme has never been doubted. [14]

19. [144]

    I think Alamdo was correct to submit that based on this authority, the correct conclusion is that, pursuant to cl 3.1 of the Agreement for Lease, a lease was granted and accepted on and from the Commencing Date, 18 June 2018. None of the terms of the Agreement for Lease merged on the grant of the Lease, or indeed would have merged upon registration of the Lease Document. [15] The rights created by the Agreement for Lease existed concurrently with any other rights which arose by the Lease document; had it been registered.

20. [145]

    On behalf of Croc’s it was submitted that the High Court’s decision in Chan v Cresdon [16] stands for the proposition that “the claim depends on the entitlement to specific performance”.

21. [146]

    That is not correct. In Chan v Cresdon the majority dealt with the question of whether a lease arose in equity and said:

22. [147]

    As was submitted on behalf of Alamdo, that passage did not deal at all with enforceability of contractual rights of the parties under a contract giving rise to an unregistered lease, but only the nature of the interest in land that arose at law and equity.

23. [148]

    I turn now to the effect of the COVID Regulation on Alamdo’s entitlements under the Lease.

The effect of the COVID Regulation

1. [149]

   Alamdo submitted that a complete answer to Croc’s submissions concerning the COVID Regulation was Croc’s failure to pay all of the rent for April 2020, prior to the “prescribed period”.

2. [150]

   As I have set out above, [18] by 1 October 2020 Croc’s had paid rent up to 24 April 2020. However, rent for all of April 2020 was due on 1 April 2020. Croc’s accepts that its failure to pay such rent was not within the “prescribed period” of the COVID Regulation.

3. [151]

   Clause 8 of the COVID Regulation provided:

4. [152]

   Thus, the COVID Regulation did not operate to prevent Alamdo from taking “prescribed action” including taking possession, based on Croc’s unregulated failure to pay all of the April 2020 rent in advance.

5. [153]

   But Alamdo did not seek to take those “prescribed actions” on those grounds.

6. [154]

   Rather, as its 10 November 2020 breach notice made clear, Alamdo sought to exercise its rights by reason of Croc’s failure to pay rent since 24 April 2020 and failure to provide evidence that it was an impacted lessee; that is relying on breaches during the “prescribed period”.

7. [155]

   A similar circumstance arose in Todarello Property Investments Pty Ltd v GJA Kalra Pty Ltd [19] where Darke J said:

8. [156]

   I am unable to see any distinction between the circumstances that were before Darke J in Todarello and the circumstances here.

9. [157]

   Accordingly, the mere fact that Alamdo may have been able to rely upon Croc’s failure to pay the April 2020 rent in advance to terminate the Lease is not itself an answer to Croc’s contentions as to the effect of the COVID Regulation on Alamdo’s rights.

10. [158]

    As I have set out above, cl 2 of the COVID Regulation provided that a lessee was an “impacted lessee” if its turnover in FY19 was less than $50 million and if it qualified for JobKeeper.

11. [159]

    It is common ground that Croc’s turnover for FY19 was less than $50 million.

12. [160]

    There is a dispute as to whether Croc’s qualified for JobKeeper at the relevant time, namely on 3 December 2020 when Alamdo took possession of the Premises.

13. [161]

    The JobKeeper Rules provided, in cl 7, that an entity qualified for the JobKeeper Scheme for a JobKeeper fortnight if, relevantly, it:

14. [162]

    There was no dispute that, on 3 December 2020, Croc’s satisfied requirements (a) and (c).

15. [163]

    As to the requirement at (b), it was common ground that “the fortnight” was that commencing on Monday 23 November 2020 and concluding on Friday 6 December 2020, being the fortnight in which 3 December 2020 fell.

16. [164]

    There was a dispute as to the meaning of the expression “at or before the end of the fortnight” for the purpose of cl 7(1)(b) of the JobKeeper Rules.

17. [165]

    In my opinion, looking at the expression in the context of the JobKeeper Rules as a whole, those words must mean during the fortnight. They cannot mean any time “before” the end of the fortnight as, otherwise, once a lessee became an “impacted lessee”, it would retain that status no matter how its turnover improved in the relevant “fortnight”.

18. [166]

    I agree with Alamdo that it was necessary that, here, Croc’s showed that it satisfied the turnover test at some time during the period 23 November to 6 December 2020. I agree that this construction is consistent with the concept of qualification for the JobKeeper Scheme being tied to a specified fortnight and to be subject to the point in time test in cl 8.

19. [167]

    Clause 8(1) of the JobKeeper Rules provided that an entity satisfied the decline in turnover test at a time (called the “test time”) if:

20. [168]

    I agree with Alamdo’s submission that the “test time” must be within the applicable JobKeeper fortnight; that is, here, within the period 23 November 2020 to 6 December 2020. That is made clear by the reference in cl 8(1) to the relevant entity’s turnover for the “turnover test period in which the test time occurs”.

21. [169]

    Clause 8(7) of the JobKeeper Rules provided that the “turnover test period”:

22. [170]

    The only “turnover test period” that could be relevant to Croc’s eligibility for JobKeeper as at 3 December 2020 are the months of November or December 2020 (as “the” fortnight occurred in both of those months) or the quarter ended December 2020.

23. [171]

    Croc’s only adduced evidence of its decline in turnover for the preceding quarter ending September 2020.

24. [172]

    Croc’s has not adduced any evidence of its decline in turnover in November or December 2020 or in the quarter ending December 2020. Nor has Croc’s adduced evidence of its GST turnover for the corresponding periods in 2019.

25. [173]

    For those reasons, I accept Alamdo’s submission that Croc’s has not shown that it qualified for JobKeeper at the relevant time, and thus it has not shown that it was an “impacted lessee” at the relevant time.

26. [174]

    A further matter that divided the parties was the relationship between cll 4, 5 and 6 in the COVID Regulation.

27. [175]

    The general rule was established by cl 4(2), which provided that, relevantly to this dispute, if a lessee was an “impacted lessee” the lessor could not take any “prescribed action” against the lessee during the “prescribed period” in relation to failure to pay rent.

28. [176]

    The prohibition in cl 4(1) was itself expressed in unconditional terms.

29. [177]

    However, cl 4 was followed by cll 5 and 6.

30. [178]

    Clause 5(1) was directed to the taking of a “prescribed action” arising from a failure to pay rent during the “prescribed period” and stated that a lessor could not take such action “unless the lessor has complied with this clause”; that is, negotiated in good faith the rent payable having regard to the impact of COVID-19 and the leasing principles in the National Code and in the light of evidence adduced by an “impacted lessee” of its status as such.

31. [179]

    Croc’s accepts that the words “unless the lessor has complied with this clause” in cl 5(1) operated to create an exception but submitted that the exception was “to the bar created by cl 5(1), not the bar created by cl 4(2).”

32. [180]

    The bars created by cll 4(1) and 5(1) were both directed to taking “prescribed action” against an “impacted lessee” during the “prescribed period” arising from, relevantly, a failure to pay rent.

33. [181]

    In my opinion, what cl 5(1) sought to do was to create a circumstance in which, notwithstanding the general prohibition in cl 4(1), “prescribed action” could be taken during the “prescribed period” on the grounds of failure to pay rent provided that the requirements of the succeeding subclauses of cl 5 (that is, the engagement in good faith negotiation) first took place.

34. [182]

    That is made clear by the use of the word “unless” in cl 5. If a lessor did not comply with cl 5, the prohibition in cl 4(1) remained.

35. [183]

    The lessor could not act inconsistently with cl 4(1) vis-à-vis non-payment of rent “unless” it complied with cl 5. If it did, it could.

36. [184]

    This position is confirmed, in my opinion, by the “Note” to cl 5(1). The note, although not a part of the regulation, [21] can nonetheless be taken into account in construing the regulation. [22] The note explained what was sought to be achieved by cl 5(1) when it stated:

37. [185]

    The lessor would not take “unilateral prescribed action without complying with” the balance of cl 5. If it did, it could.

38. [186]

    The position is further confirmed by the heading to cl 5 which, again, is able to be taken into account in construing cl 5.

39. [187]

    The heading is:

40. [188]

    The use of the word “before” points to the conclusion that the regulatory intention was that a lessor could not take “prescribed action” before engaging in a renegotiation of rent. If it did, it could.

41. [189]

    The evident object of the clause was to encourage good faith renegotiation of rent and intended to have effect concurrently with cl 6, to which I will now turn.

42. [190]

    Clause 6 prohibited a lessor from seeking to enforce any rights under a commercial lease, including recovery of possession or termination of a lease “unless and until” the Small Business Commissioner had certified that a mediation had taken place and the parties had failed to resolve the dispute. [23]

43. [191]

    Again, the words “unless and until” create an exception to the general prohibition in cl 4(1). The use of the words “unless and until” make this particularly clear.

44. [192]

    On behalf of Croc’s it was submitted that “the provision creates its own bar to certain actions and also specifies exceptions to it (being the issue of the certificate and the reasons by the Commissioner)”.

45. [193]

    I do not accept that submission. It appears to me that, just as cl 5 created an exception to the general rule in cl 4, cl 6 created a further exception, that was conditional upon the Small Business Commissioner issuing a certificate of the kind described. The evident object of the clause was to ensure that parties to a lease mediate their differences before a lessor could exercise a right to take any “prescribed action” described.

46. [194]

    In those circumstances, I think that Alamdo was correct to contend that cll 5 and 6 created “pathways” by which a lessor might, by satisfying the preconditions contained in those clauses, be permitted to take the “prescribed action” that would otherwise have been prohibited by cl 4.

47. [195]

    As Alamdo pointed out in its final reply submissions, the difficulty with Croc’s submission that cll 4, 5 and 6 created a “layered scheme” and operated cumulatively, such that a lessor must comply with each of the provisions, is:

48. [196]

    Further, as Alamdo pointed out, were Croc’s submissions correct, there would be no point in the wording “unless” used in cl 5 and “unless and until” in cl 6 because, on Croc’s argument, even if the requirements of cll 5 or 6 were satisfied, the bar in cl 4(2) could not ever be overcome.

49. [197]

    In final written submissions, it was submitted on behalf of Croc’s that the point of compliance with the requirements of cll 5 and 6 would be that a lessor would be free to engage in “prescribed action” after the expiration of the “prescribed period”. I can see nothing in the language of the COVID Regulation that provides support for that contention.

50. [198]

    Before turning to the question of whether Alamdo engaged in good faith negotiations with Croc’s, I turn to deal with two matters arising in relation to the mediation that the parties attended on 29 September 2020.

51. [199]

    As I have set out, cl 6 of the COVID Regulation prohibited a lessor from taking various steps unless and until the Small Business Commissioner had certified that a mediation offered to be conducted by the Commissioner had failed.

52. [200]

    In relation to such mediations, s 19 of the Small Business Commissioner Act provides:

53. [201]

    As I have said, on the second day of the hearing, I ruled that the effect of s 19 was that I could not receive evidence of any statement made by or on behalf of Alamdo or Croc’s at the mediation or otherwise “in connection with” the mediation: that is, reflecting what was said or agreed at the mediation. I gave brief reasons at the time and said I would give more complete reasons in this judgment. These are those reasons.

54. [202]

    Section 19(1) provides that the Commissioner must certify the “outcome” of the mediation and s 19(2) provides that such certificate is admissible in civil proceedings as evidence of the outcome of the mediation.

55. [203]

    The relevant prohibition is in s 19(3), which is expressed in unqualified language. Any statement made “in connection with” such a mediation “is not admissible in any legal proceedings”.

56. [204]

    The provision thus differs from that in the Civil Procedure Act 2005 (NSW).

57. [205]

    Section 30(4) of the Civil Procedure Act provides:

58. [206]

    As the chapeau to that section provides, it is subject to the exception created by s 29(2) of the Civil Procedure Act which provides:

59. [207]

    Section 29(2) can thus be seen as being equivalent to subss 19(1) and (2) of the Small Business Commissioner Act in that it renders admissible a statement to the effect that an agreement was reached at a mediation.

60. [208]

    However, unlike s 19 of the Small Business Commissioner Act, the prohibition in s 30(4) of the Civil Procedure Act is subject to the further exception in s 30(5) of the Civil Procedure Act which provides:

61. [209]

    Section 31(c) of the Civil Procedure Act, referred to in s 30(5)(b), permits a mediator to disclose information “if there are reasonable grounds to believe that the disclosure is necessary to prevent or minimise the danger of injury to any person or damage to any property.”

62. [210]

    It has been held that the Civil Procedure Act “contains its own rules” concerning admissibility and that the rule created by s 30(4) of the Civil Procedure Act, and the exception it creates, operates separately from any provisions in the Evidence Act 1995 (NSW). [24]

63. [211]

    In Woollahra Municipal Council v Secure Parking Pty Ltd (No 2), Ball J found that the wording of s 30(4) of the Civil Procedure Act did not prevent the admission of evidence as to what happened at mediation by agreement or waiver. [25] His Honour appears to have formed that view by reason of the words of s 30(4) itself. His Honour did not refer to s 30(5) of that Act which, as I have set out, provides, in terms, that the prohibition in s 30(4) does not apply if the parties consent to the admission of the evidence.

64. [212]

    There is no equivalent to s 30(5) of the Civil Procedure Act in the Small Business Commissioner Act.

65. [213]

    The wording in s 19 of the Small Business Commissioner Act appears to me to bespeak the Parliament’s intention that it is only a certificate of the kind referred to in s 19(2) that can be received into evidence. That is, s 19 creates a code relating to when material relevant to a mediation under the Small Business Commissioner Act is, and is not, admissible.

66. [214]

    During argument, my attention was drawn to the observations of Spigelman CJ in Seltsam Pty Limited v McGuiness; James Hardie & Coy Pty Limited v McGuiness [26] that:

67. [215]

    Consistent with the Chief Justice’s observations, there is a clear line of authority that the words “not admissible” in the Evidence Act mean “not admissible over objection”. In Seltsam the Chief Justice was considering that in the context of the opinion rule in s 78 of the Evidence Act. Other cases have come to the same conclusion when considering the hearsay rule in s 59 of the Evidence Act. [29]

68. [216]

    I do not think that these authorities assist in construing the particular provision made in s 19 of the Small Business Commissioner Act concerning statements of admissions made in connection with a mediation conducted by the Small Business Commissioner. It appears to me that the words used in s 19 are intractable and compel the conclusion that the only matter connected with such a mediation that can be received into evidence is a certificate under s 19(2) and that it is not open to the parties to purport to consent to such material being received into evidence. It follows that it is not open to the parties to waive compliance with the prohibition contained in s 19(3).

69. [217]

    It is for those reasons that I rejected the material that the parties sought to adduce as to what occurred at the mediation.

70. [218]

    Clause 6 of the COVID Regulation provided that a lessor must not take the steps there specified unless there had been a mediation conducted by the Small Business Commissioner, following which the Commissioner had certified that the mediation had failed to resolve the dispute “and given reasons for the failure”.

71. [219]

    On 6 November 2020 the Mediation Manager of the Office of the Small Business Commissioner issued a “Certificate of Failed Mediation” stating:

72. [220]

    Croc’s submitted that this statement did not involve the Commissioner giving reasons for “the failure” of the mediation to resolve the dispute.

73. [221]

    I do not agree.

74. [222]

    The requirement of COVID Regulation cl 6 must be seen in the context of s 19 of the Small Business Commissioner Act that, as I have discussed, rendered inadmissible in any legal proceedings any statement or admission made in connection with such a mediation. [30]

75. [223]

    Further, s 19(1) enabled the Commissioner to certify in writing the “outcome” of any such mediation.

76. [224]

    The evident object of s 19 of the Small Business Commissioner Act is to preserve the confidentiality of matters negotiated and discussed at a mediation conducted by the Commissioner.

77. [225]

    It would subvert that object were the Commissioner to be required, by reason of the obligation to give reasons under COVID Regulation cl 6, to explain why, in the particular case, a mediation had failed.

78. [226]

    The Commissioner stated, evidently correctly in this case, that the reason the mediation failed was that “the parties were unable to resolve the dispute”. That statement involved the Commissioner giving reasons for the failure of the mediation. It was not necessary for the Commissioner to go further.

79. [227]

    The effect of COVID Regulation cl 5 was to oblige a party in the position of Alamdo to engage in good faith negotiations.

80. [228]

    Croc’s did not dispute Alamdo’s submission that an obligation to negotiate in good faith generally encompasses a requirement of honesty or subjective good faith and a basic objective standard of fair dealing. [31]

81. [229]

    In the context of an obligation to negotiate in good faith, the requirement to act honestly or subjectively in good faith in effect requires an absence of bad faith, including not negotiating in an arbitrary or capricious manner. [32]

82. [230]

    Alamdo accepts that as the COVID Regulation required the parties to have regard to the economic impact of the COVID-19 pandemic and the leasing principles in the National Code, [33] the obligation to comply with the basic objective standard of fair dealing would require a willingness to consider or engage with those matters.

83. [231]

    Alamdo made two offers, one on 16 March 2020 and the second, which remained open for 2020, on 28 April 2020.

84. [232]

    Mr Maurici’s offer on 28 April 2020 offer was to:

85. [233]

    Although Mr Maurici referred to “your business”, as he knew that the “business” being operated from the Premises was the Franchisee’s business, he was evidently referring to the Franchisee’s business.

86. [234]

    Mr Maurici was offering a “waiver” of 50% rent for the period during which the business remained closed. That is, the waiver would cease to be effective once the business was opened. The Franchisee’s business re-opened on 1 July 2020.

87. [235]

    Mr Maurici was also offering a “deferral” of payment of what he described as the “other 50% payable” to the period during the 24 months following the lifting of restrictions on operation of the business.

88. [236]

    It is not clear to what Mr Maurici was referring when he referred to the “other” 50% rent payable. Literally, it would appear to mean the 50% rent that was not waived. That leaves unexplained what was to happen to the 50% rent the subject of the waiver, once the period of waiver concluded: that is when the business ceased to be closed. Although this is not clear, and was not explored in the cross-examination of Mr Maurici, it appears he meant to say that this would also be deferred and be repayable over the 24 month period following the lifting of restrictions.

89. [237]

    This offer did not amount to a reduction in rent in the sense of a reduction in the amount of rent due per rental period. But the Leasing Principles called for “proportionate reductions in rent payable in the form of waivers and deferrals”. What Mr Maurici was proposing can perhaps be seen as a “reduction” in that sense.

90. [238]

    However, the Code required that “proportionate reductions in rent” be “based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period” and that “rental waivers” be “over the COVID-19 pandemic period”. [34] The Code defined the “COVID-19 pandemic period” as being the period during which the JobKeeper program was operational. Mr Maurici’s offer was not expressed by reference to that period.

91. [239]

    The Code also provided that rental deferrals were to be amortised over the greater of the balance of the lease term or 24 months. [35] It is Alamdo’s case that the lease term here was 10 years. Mr Maurici’s offer did not propose amortisation of the deferred rent over that period, but over the much shorter period of 24 months.

92. [240]

    However, the effect of the offer was that, for the moment, Croc’s was not obliged to pay any rent. Although on 1 October 2020, following the mediation on 29 September 2020, Croc’s brought rent up to date to 24 April 2020, it has paid no rent at all for the period since 24 April 2020.

93. [241]

    As I have set out, Croc’s consistent position was to propose that rent be reduced in proportion to its Franchisee’s drop in turnover. [36] As the passages from Mr Aldons’ cross-examination that I have set out above [37] show, he was not prepared to provide Alamdo with anything more than sales figures for Croc’s itself. He certainly did not reveal to Alamdo that Croc’s continued to trade profitably, despite the pandemic.

94. [242]

    As Mr Maurici sought to emphasise in his correspondence during that period, it was the impact of the COVID-19 pandemic on Croc’s financial position, rather than that of the Franchisee, that was the matter that required attention. As it turned out, the information ultimately provided by Croc’s to Alamdo concerning Croc’s financial position, sent under cover of Ms Smyth’s 24 November 2020 letter, showed that Croc’s had continued to make a profit throughout 2020.

95. [243]

    In my opinion, Alamdo was correct to characterise Croc’s approach to negotiations as follows:

96. [244]

    Further, Alamdo sought and attended the mediation which took place on 29 September 2020.

97. [245]

    For the reasons I have explained, the effect of cl 6 of the COVID Regulation was that once Alamdo and Croc’s had attended a mediation, and the Small Business Commissioner certified that the mediation had failed to resolve the dispute and given reasons for the failure, it was then open to Alamdo to take the steps referred to in COVID Regulation cl 6, including taking possession of the Premises and terminating the Lease.

98. [246]

    In reply submissions, Croc’s sought to rely on the provision in cl 5(3) of the Second COVID Regulation allowing a party in the position of Croc’s to make a “second or subsequent request” for negotiation. Croc’s contended that it had made such request during November 2020. However, that request related to rent for a period for which “rent has been reduced, waived or deferred”, namely the entire period from 24 April 2020 and was not one apt to engage cl 5(3): see cl 5(3)(b).

99. [247]

    Overall, I am satisfied that Alamdo complied with its obligation under cl 5 of the COVID Regulation to engage in good faith negotiations concerning rent and, in any event, complied with the requirements of COVID Regulation cl 6. For both of those reasons Alamdo was entitled to enter possession of the Premises and terminate the Lease.

100. [248]

     The amendment made to the First COVID Regulation on 3 July 2020 introduced an obligation on a lessee to provide a lessor with a statement to the effect that it was an impacted lessee and evidence that the lessee was an impacted lessee.

101. [249]

     The COVID Regulation then provided that if an impacted lessee did not comply with that obligation, the lessor was taken to have complied with cl 5. [38]

102. [250]

     For the reasons I have set out, although Croc’s, by its solicitor, provided Alamdo with evidence that it was an impacted lessee during the 2020 September quarter, it did not provide Alamdo with evidence that, at the relevant time, November and December 2020, it was an impacted lessee.

103. [251]

     In any event, as I have set out, Alamdo, from the time of its offer of 28 April 2020, continuously sought from Croc’s evidence as to the impact on it of the impact of the COVID-19 pandemic on Croc’s business.

104. [252]

     As I have set out above, it was only on 24 November 2020 that Croc’s provided detailed information as to its financial position and that information showed that Croc’s was continuing to make a profit, despite the pandemic.

105. [253]

     For these reasons alone, Alamdo is taken to have complied with the requirements of cl 5 of the COVID Regulation.

106. [254]

     In any event, and to repeat, Alamdo complied with the requirements of cl 6 which, as it submitted, provided an independent pathway enabling it to exercise its rights under the Agreement for Lease.

107. [255]

     Section 88(2) of the Retail Leases Act provided:

108. [256]

     That section commenced on 25 March 2021.

109. [257]

     Croc’s appeared to be suggesting in its submissions that the effect of this section is to operate as a continued preclusion to Alamdo’s ability to prosecute these proceedings.

110. [258]

     I do not agree. The effect of the section is to provide that the COVID Regulation continued to apply, despite their repeal, in relation to a lease “while the lease was an impacted lease”.

111. [259]

     It has no effect in relation to these proceedings.

Alamdo’s claim

1. [260]

   For these reasons, my conclusion is that the COVID Regulation did not operate to prevent Alamdo from entering possession of the Premises on 3 December 2020 and terminating the Lease.

2. [261]

   I turn now to Croc’s submissions that, leaving aside the effect of the COVID Regulation, Alamdo was not entitled to exercise its rights under the Agreement for Lease or the Lease.

3. [262]

   As I have set out above, on 30 November 2020 Alamdo sent Croc’s a Tax Invoice for the rent for December 2020 under cover of letter stating:

4. [263]

   Similarly, in the invoice itself, Alamdo said:

5. [264]

   Croc’s contends that Alamdo thereby affirmed the Lease and, accordingly, had no entitlement, on 3 December 2020, to enter possession of the Premises and terminate the Lease.

6. [265]

   The law in relation to election by affirmation has very recently been considered by the High Court of Australia in Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788. [39]

7. [266]

   The majority [40] said:

8. [267]

   Similarly, Gageler J, although in dissent in the result, said:

9. [268]

   There has been no communication here by Alamdo of a choice not to exercise its right to terminate but instead to affirm the contract.

10. [269]

    In neither its covering email of 30 November 2020, nor in the invoice itself, did Alamdo demand that the December 2020 rent be paid. The demand was for “back rent arrears”.

11. [270]

    Alamdo was not required to exercise any right in order to become entitled to the continued payment of rent. Pursuant to cl 4(1) of the Lease Document, rent was payable by Croc’s under the Lease by way of equal monthly instalments in advance on the first day of each month and without demand. The rent was due without any requirement for action by Alamdo. The rent for December 2020 which was the subject of the invoice was due and payable automatically and involved no exercise of any right on the part of Alamdo.

12. [271]

    By providing the tax invoice for December 2020 rent Alamdo was doing no more than complying with its obligation under cl 6(2)(c) of the Lease Document to provide a tax invoice. There was no inconsistency in Alamdo discharging that obligation – to furnish a tax invoice – and maintaining its right to terminate the Lease.

13. [272]

    I think Alamdo was correct to submit that it was not put to any relevant election by the issue of an invoice for December 2020 rent.

14. [273]

    Croc’s also contended that Alamdo, by demanding on 21 May 2020, 30 June 2020 and in August 2020 that Croc’s pay the rent owing for the period to 24 April 2020, elected not to terminate the Lease in reliance on breaches occurring prior to that date.

15. [274]

    I cannot see how the making of those demands amounted to any such election.

16. [275]

    In any event, for the reasons I have set out above, Alamdo did not seek to terminate the Lease on the basis of Croc’s failure to pay the balance of the rent due for April 2020.

17. [276]

    It is common ground that, as at 3 December 2020, unpaid rent was $213,869.

18. [277]

    On 24 December 2020, after termination of the Lease, Alamdo procured payment of $75,240 towards this amount by calling on a bank guarantee given by Croc’s under the Agreement for Lease.

19. [278]

    Alamdo seeks the balance of $138,629, together with pre-judgment interest under s 100 of the Civil Procedure Act.

20. [279]

    As I understand Croc’s position, the only answers it offers to this claim is its case concerning the COVID Regulation, and Alamdo’s alleged election to affirm the Lease, with which I have dealt.

21. [280]

    Alamdo claims loss of bargain damages for the balance of the term of the Lease and seeks a sum in the order of $630,000 as calculated in reports prepared by its accounting expert, Mr Jeffrey Hall.

22. [281]

    Croc’s answer to this claim depended upon its contentions as to affirmation and the consequences of the Lease not being registered, each of which I have rejected.

23. [282]

    Croc’s accepted that, otherwise, it did not take issue with the quantum of Alamdo’s claim, save concerning the amount attributable to outgoings.

24. [283]

    In that regard, because of the late delivery of objections, Mr Maurici made an affidavit on 5 December 2022 dealing with the question of outgoings. It was agreed that Mr Maurici’s cross-examination would proceed on the basis that he would not be challenged in relation to that material and that the parties would confer and endeavour to agree on the amount of outgoings. I will make appropriate directions for this to happen once these reasons are published.

25. [284]

    I have mentioned that one of the documents executed by the parties on 16 November 2017 was an Incentive Deed pursuant to which Alamdo agreed to pay Croc’s $250,000 as a contribution towards the fitout of the Premises.

26. [285]

    The effect of cl 5 of the Incentive Deed, and cl 15(10) of the Lease Document, was that Alamdo became entitled, upon termination of the Lease, to repayment of a proportion of that incentive payment calculated on a pro rata basis by reference to the balance of the initial term of the Lease.

27. [286]

    Croc’s resisted this aspect of Alamdo’s claim on the basis of its contentions concerning the fact that the Lease was not registered and the effect of the COVID Regulation. I have dealt with those matters above.

28. [287]

    Alternatively, Croc’s contended that the obligations imposed under the Incentive Deed and under the Lease concerning the incentive payment were unenforceable as a penalty.

29. [288]

    Croc’s did not dispute Alamdo’s summary of the relevant principles as follows:

30. [289]

    The questions which thus arise are:

31. [290]

    Mr Maurici gave this evidence concerning the clause in question:

32. [291]

    Dalton J (as her Honour then was) considered an Incentive Repayment Term similar to that here in GWC Property Group Pty Ltd v Higginson [48] and concluded:

33. [292]

    There was evidence before her Honour similar to that given by Mr Maurici before me. Thus her Honour said:

34. [293]

    I am of the same opinion here.

35. [294]

    For the reasons I have set out above, Alamdo will recover the rental arrears and loss of bargain damages, the latter reflecting the delay Alamdo encountered in locating an alternative tenant.

36. [295]

    Alamdo has also retained the ownership and benefit of the fitout.

37. [296]

    Were Alamdo able to recover, in addition to these amounts, a proportion of the fitout costs, it would be better off than had the Lease run its course without incident.

38. [297]

    In my opinion, for reasons corresponding to those given by Dalton J in GWC Property Group, the clauses in question here go further than is necessary to protect Alamdo’s legitimate interests and should be characterised as, in effect, a punishment of Croc’s for acting in breach of the Lease.

39. [298]

    For those reasons, in my opinion Alamdo is not entitled to enforce the relevant provisions of the Incentive Deed and the Lease Document.

40. [299]

    Alamdo also seeks management and security fees of $37,441.80 incurred in connection with Croc’s breaches of the Lease and termination of the Lease, and a further sum of $101,244.66 in respect of marketing and agency fees incurred in re-letting the Premises to the new tenant.

41. [300]

    Alamdo also seeks pre-judgment interest on those amounts.

42. [301]

    As I understand it, there is no contest about these matters beyond the issues with which I have already dealt.

43. [302]

    Alamdo seeks to recover the amount due to it from Croc’s from the two guarantors, Mr Aldons and Mr Cusdin.

44. [303]

    In that regard, Alamdo relies upon a provision in the Agreement for Lease and a provision in the Lease.

45. [304]

    Clause 11 of the Agreement for Lease provided:

46. [305]

    It is common ground that the reference in that clause to “clause 22” is an error and that the reference should be to “clause 20”.

47. [306]

    Croc’s offers two answers to Alamdo’s claim against the guarantors.

48. [307]

    The first arises from the fact that the Lease was not registered.

49. [308]

    Croc’s referred to the High Court’s decision in Chan v Cresdon. [51]

50. [309]

    In that case, the landlord sued guarantors upon a guarantee clause contained in a registrable form of lease that had not been registered. The terms of the guarantee provided that the guarantors guaranteed to the landlord the “due and punctual performance by [the tenant] of the obligations on its part to be performed under this lease” (emphasis added). As Alamdo has pointed out, applying the general principles of construction that a guarantee is to be construed strictly, the Court construed the reference to “this lease” strictly to mean a lease conveyed at law, and not the agreement to lease otherwise enforceable between the parties in equity. However, in this case, Alamdo sues on the guarantees in the Agreement for Lease that, in terms, refers to the obligations of Croc’s under that document.

51. [310]

    Second, Croc’s submitted that Mr Aldons’ and Mr Cusdin’s obligations as guarantors had been released by reason of cl 20.1 of the Lease.

52. [311]

    Clause 20.1 of the Lease provided:

53. [312]

    That clause was expressed to be subject to cl 20.10 which was in the following terms:

54. [313]

    The matter that divides the parties is the meaning to be given to the expression “Guarantee Release Period” in cl 20.10(b). That expression is not defined in the Agreement for Lease, nor in the Lease.

55. [314]

    Croc’s submits that “Guarantee Release Period” should be construed as having the same meaning as the expression “Minimum Guarantee Period” appearing in cl 20.10(a).

56. [315]

    I see a number of difficulties with that submission.

57. [316]

    The first is that there is a presumption that different words used in a document have different meanings. [52]

58. [317]

    Second, so construed, the effect of cl 20.10 of the Lease would be that the guarantors would only be liable for Croc’s obligations if Croc’s had been in breach of an essential term of the Lease during the period of two years commencing on the Commencing Date of 18 June 2018. That would have the effect that that two year period would represent the maximum period during which they were liable as guarantors, a proposition difficult to reconcile with the expression “Minimum Guarantee Period” in cl 20.10(a).

59. [318]

    Further, were it the parties’ intention that the guarantors only be liable for Croc’s breaches of essential terms during the two years commencing on the Commencing Date, they could easily have said so.

60. [319]

    A more likely construction is that “Guarantee Release Period” means something different from “Minimum Guarantee Period” and, as Alamdo submitted, means the balance of terms of the Lease following the expiry of the two year “Minimum Guarantee Period”.

61. [320]

    As Alamdo submitted, so construed:

62. [321]

    That appears to me to be a sensible construction of the clause and one that gives effect to the different expressions that the parties have chosen to use in the two subclauses of cl 20.10 of the Lease.

63. [322]

    I cannot see any basis for Croc’s submission that this would be an “absurd” result such as would warrant rectification of the clause by construction so as to construe the words “Guarantee Release Period” as meaning “Minimum Guarantee Period”, in accordance with the principles summarised by Leeming JA in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq). [53]

64. [323]

    As I have set out above, on 10 November 2020, Alamdo served on Croc’s a notice under s 129 of the Conveyancing Act in respect of Croc’s failure to pay rent since 24 April 2020. Those breaches were breaches of an essential term.

65. [324]

    Accordingly, the guarantors were not released from their obligations as guarantors.

Croc’s cross claim

1. [325]

   Croc’s accepted that it could only succeed on its cross claim if I accepted that the Lease was unlawfully terminated by operation of the COVID Regulation.

2. [326]

   As I have not accepted that submission, it follows that Croc’s cross claim must fail.

Conclusion

1. [327]

   Alamdo is entitled to most of the relief it seeks.

2. [328]

   The parties should confer and agree on the orders necessary to give effect to these reasons and to take the steps contemplated at [283] above.

3. [329]

   If there is to be a dispute as to costs, the parties should confer and agree a timetable for written submissions. I will deal with that question on the papers, unless either party seeks an oral hearing.