Baby Zone (Aust) Pty Ltd (Administrators Appointed) v Keira Street Ventures Pty Ltd

1. [1]

   The plaintiff in this case is Baby Zone (Aust) Pty Ltd (Administrators Appointed (Baby Zone)).

2. [2]

   Mr Robert John Kite and Mr Ozem Azzam Kassem (the Administrators) were appointed as administrators of Baby Zone under s 436A of the Corporations Act 2001 (Cth) on 10 December 2015.

Facts

1. [3]

   On 1 June 2013, Baby Zone entered into a lease from Moschella Holdings Pty Ltd (the Transferor) of the land comprised in Folio Identifier 1/1154019, being 398 Keira Street, Wollongong, in this State (the Property), for the period from 1 June 2013 to 31 May 2020, with four options to renew for periods of five years (the Lease).

2. [4]

   Baby Zone conducted a retail business selling baby products from the Property.

3. [5]

   On 30 September 2015, the defendant, Keira Street Ventures Pty Ltd (Keira Street), became registered proprietor of the Property under a transfer executed by the Transferor on 21 July 2015.

4. [6]

   As the evidence initially stood at the commencement of the hearing, it was not clear how Keira Street became entitled to become registered proprietor of the Property. I allowed an application by Keira Street, which was made on the second day of the hearing after Keira Street had closed its case, to reopen to read an affidavit of its solicitor. That evidence established that Keira Street entered into a contract to purchase the Property on 1 July 2015, and the contract was completed on 21 July 2015.

5. [7]

   On 24 July 2015, the solicitors who acted for Keira Street on the purchase forwarded to Baby Zone, under cover of a letter of that date, a notice of attornment addressed by the agent of the Transferor to Baby Zone, which directed Baby Zone to make all future payments under the Lease to Keira Street.

6. [8]

   The evidence establishes that a property manager, described as MMJ Wollongong (the Property Manager), was appointed by Keira Street on 21 July 2015 to manage the Property, which included the collection of rent from Baby Zone. There is evidence that the Property Manager sent rental invoices to Baby Zone, but those invoices are not in evidence. The evidence is that Baby Zone paid rent to the Property Manager, albeit usually somewhat late, until a date in September, when a monthly payment was not made on time. There is an issue between the parties as to the date when rental payments were required to be made under the Lease, and whether payments were to be made in advance or arrears. I will revisit this issue below.

7. [9]

   On 11 August 2015, Mr Lavkesh Guglani, Baby Zone’s finance manager, sent an email to the Managing Agent, in which he said (Tony Moschella being the principal of the Transferor):

8. [10]

   The reference to the lift is a reference to a goods lift from the ground to the first floor of the Property. Following the 11 August 2015 email, there were a number of emails between Baby Zone and the Managing Agent about repairing the lift. There was apparently some disagreement as to whether the lessor or the lessee was responsible for repairing the lift. Apparently, Baby Zone had to cause stock to be carried up the fire stair between the ground floor and the first floor, and this caused injury to some person. The issue was not resolved by 28 October 2015.

9. [11]

   It is sufficient for present purposes to know that, on 28 October 2015, the Property Manager, on behalf of Keira Street, purported to forfeit the Lease by re-entry on the ground of non-payment of rent in accordance with the Lease. The forfeiture was effected by employees of the Property Manager, in the company of a locksmith, changing the locks on the Property, early on the morning of 28 October 2015. This was done before Baby Zone had an opportunity to open the Property to the public to carry on business on that date.

10. [12]

    Baby Zone immediately paid the rent that was overdue on 28 October 2015, and was allowed back into possession by the Property Manager on the same day. There is an issue between the parties as to whether the Lease was validly terminated. There is also an issue between the parties as to whether the continued occupation of the Property by Baby Zone was on a monthly tenancy.

11. [13]

    There is evidence that Keira Street’s solicitor, and one of the employees of the Property Manager, were aware in November 2015 that Baby Zone asserted that the Lease had not validly been terminated. Both those witnesses said that they were not told by Baby Zone that it would make an application for relief against forfeiture.

12. [14]

    As I have said, on 10 December 2015, the Administrators were appointed as administrators of Baby Zone.

13. [15]

    The Administrators investigated the possibility of continuing to trade Baby Zone’s business for the purpose of preserving the business as an asset for the benefit of creditors. The administrators believed that this course would be successful, at least in the short run. They also continued to operate the business of a related company to Baby Zone, being BHLS Services Pty Ltd (BHLS), of which they were also appointed as administrators on 10 December 2015. The evidence is that Baby Zone operated the retail business from the Property, but BHLS was the company that acquired and owned the stock sold by Baby Zone.

14. [16]

    Mr Kite gave evidence that the Administrators ceased to trade what he called “the Business” on 16 December 2015, and the stores were closed and the staff were terminated. It is not entirely clear what the Business consisted of. There were more than the one store at Wollongong operated by the two companies, or related companies.

15. [17]

    On 18 December 2015, Baby Zone, BHLS and the Administrators entered into a contract with a company called Baby Bounce Pty Ltd (Baby Bounce), and its principal, Mr Badr Hamdache, for the sale of the stock on the Property, and 10 other locations.

16. [18]

    Mr Kite gave evidence in relation to the store operated from the Property by Baby Zone, that the Administrators sought a purchaser for the business, and that, on 18 December 2015, the Administrators’ solicitors sent a letter to the Managing Agent to formally request that the Lease be assigned to Baby Bounce.

17. [19]

    The Administrators have caused Baby Zone to continue to pay the amount of rent required by the Lease to the Managing Agent.

18. [20]

    The Administrators have caused Baby Zone to continue to operate the store from the Property, with the assistance of the staff of Baby Bounce.

19. [21]

    The first meeting of creditors of Baby Zone was held on 21 December 2015.

20. [22]

    On 21 December 2015, Keira Street’s solicitor served on the Administrators a notice to vacate addressed to Baby Zone, requiring Baby Zone to vacate the Property at the expiration of one month from the date of service of the notice.

21. [23]

    On a date in December 2015, which is not established by the evidence, a company called Baby and Toddler Town Pty Ltd (Baby and Toddler) executed a lease of the Property from Keira Street for a term of 10 years from 1 March 2016 to 28 February 2026, with an option for a renewal of lease for a period of 10 years. The document was executed by a gentleman who happens to be the principal of the Transferor.

22. [24]

    The document has not been executed by Keira Street. Keira Street initially sought to characterise the document as being a lease, but ultimately accepted that the document could be no more than an offer to enter into a lease, on the terms contained in the document. Keira Street’s solicitor gave evidence that Keira Street was unwilling to execute the document, until it knew that it could deliver vacant possession to Baby and Toddler, as would be required if the document became a lease.

23. [25]

    The document required, by clause 5.1 and item 13 of the schedule, that a rent of $253,000 (including GST) per annum by monthly instalments of $21,083.33 be payable. No share of outgoings would be required to be paid. A bank guarantee to cover three months gross rent of $63,250 would have been required. No security deposit would have been required.

24. [26]

    On 18 January 2016, Baby Zone entered into a contract with Baby Bounce to sell Baby Zone’s retail baby store business conducted from the Premises for a price of $100,000. Completion of the contract was to take place by the 42nd day after the contract date.

25. [27]

    By clause 44 of the contract, Baby Bounce acknowledged that Keira Street maintained that the Lease had been validly terminated, and that Baby Zone was holding over as a monthly tenant. It also acknowledged that Baby Zone held the view that the termination of the Lease was invalid, and that the Lease was subsisting. Clause 44.3 provides:

26. [28]

    On 19 January 2016, Lindsay J made an order under s 439A(6) of the Corporations Act extending the convening period for the second meeting of creditors to no later than 5 PM on 19 April 2016. I then made further orders on 8 April 2016, extending the convening period to 19 July 2016.

27. [29]

    On 22 January 2016, Baby Zone commenced these proceedings by filing an originating process. Baby’s Zone sought certain relief under s 440B of the Corporations Act to preserve the Lease during the administration of Baby Zone. In addition, and relevantly for present purposes, Baby Zone sought the following relief:

28. [30]

    The Lease contains the following material terms. First, clause 1.1 defines “Rent” as meaning “the initial yearly amount specified in Item 4 together with and including any increases in accordance with the provisions of this Lease”.

29. [31]

    Item 4 provides that the initial yearly amount of rent was $213,724 per annum plus GST. The rent commencement date was 1 June 2013.

30. [32]

    Clause 4.1.1 provides:

31. [33]

    Item 6 provides:

32. [34]

    The evidence is that, by October 2015, the amount of the monthly payments payable under the Lease for the 2015 year had increased pursuant to the rent review provision in clause 4.3 to the amount of $20,375.01, giving an annual amount of $244,500.12.

33. [35]

    Clause 13.1 of the Lease governs assignments by Baby Zone. It provides:

34. [36]

    Clause 15.1 of the Lease provides for default events relevantly as follows:

35. [37]

    Initially, Keira Street submitted that it was entitled to rely upon the terms of clause 15.1.3(b), which made it an event of default should an official manager of Baby Zone be appointed. However, in submissions, Keira Street conceded that the appointment of the Administrators did not trigger this term.

36. [38]

    Clause 15.2 gives Keira Street a right, if any of the events specified in clause 15.1 occurred, without any notice or previous demand to Baby Zone, to re-enter the Property, to repossess it, and to expel and remove Baby Zone.

37. [39]

    Under clause 18 of the Lease and item 15B of the schedule, Mr Ajay Arora is required to guarantee Baby Zone’s liability under the Lease in an amount limited to the equivalent of 15 months’ rent plus GST. There is no requirement for a bank guarantee.

38. [40]

    Under clause 1.3.5 of the Lease, each party to the Lease is defined to mean and include permitted assigns of the party.

39. [41]

    The Managing Agent’s Tenant Reconciliation in respect of the Property, that is in evidence, debited amounts of $20,375.01 against Baby Zone on the first day of every month between August 2015 and January 2016.

40. [42]

    Baby Zone made payments to the Managing Agent of $20,375.01 on 2 September 2015, 29 September 2015, 28 October 2015, 6 November 2015, 4 December 2015, and 4 January 2016. An additional amount of $815.01, described by the Managing Agent as rent in advance, was paid on 4 January 2016.

41. [43]

    The Tenant Reconciliation records nil balance on 28 October 2015. It records a credit of $815.01 as at 4 January 2016.

42. [44]

    An employee of the administrators, Mr Tabila, gave evidence that the Managing Agent’s Tenant Reconciliation is incomplete, in that it does not record payments of $21,190.02 made by the Administrators on 29 January 2016 and 1 March 2016. The increase above the amount of $20,375.01 paid monthly during 2015 is a result of the 4% rent review term in the Lease. The effect of the application of the rent review term is that the monthly payment under the Lease is now marginally more than the rent provided for in the document signed by Baby and Toddler.

43. [45]

    On 28 October 2015 at 8:24 AM, the Managing Agent sent an email to Baby Zone, which attached a letter of the same date. The letter stated:

44. [46]

    There was evidence from an employee of the Managing Agent that the re-possession referred to in the letter occurred at about 7 AM in the morning on that date. (The employee could not remember whether it was the 27th or the 28th of the month, but the inference must clearly be drawn that it happened on the latter day).

45. [47]

    On 28 October 2015 at 9:29 AM, an unidentified employee of Baby Zone, called Vinay, sent an email to the Managing Agent, in which he said:

46. [48]

    The Managing Agent replied on 28 October 2015 at 10:31 AM, saying:

47. [49]

    Baby Zone then wrote an email to the Managing Agent, on 28 October 2015 at 10:48 AM, in which it said:

48. [50]

    The evidence suggests that Baby Zone was permitted to take occupation of the Property at some time on 28 October 2015.

49. [51]

    The Managing Agent next sent an email to Baby Zone on 12 November 2015. The email attached a “letter of offer based on the monthly tenancy”. The offer was not accepted.

Matters in issue

1. [52]

   It is now necessary to deal with the matters that are in issue between the parties.

When was monthly rent payable?

1. [53]

   The first issue, raised by Baby Zone, is when, on the true construction of the Lease, did the rent become payable by Baby Zone.

2. [54]

   Baby Zone submitted that, on the true construction of the Lease, the rent was payable on the last day of each month. Baby Zone’s submission was:

3. [55]

   With respect, I am not sure that I understand this submission. Item 4 of the schedule, which has been set out above, provides for an annual rent of $213,724 plus GST. Item 6 requires that that annual rent be paid by equal monthly instalments in advance on the 28th day of each month. Equal monthly instalments of the annual rent have to be paid, notwithstanding that particular months may be of unequal duration. There is nothing in the Lease that shows that the Lease was intended to operate monthly, and there is nothing to show that rent became payable for any particular month at the beginning or the end of the month. I can see no basis for the submission that rent under the Lease actually accrued calendar monthly.

4. [56]

   Counsel for Baby Zone made an oral submission that the requirement in the Lease that equal monthly payments be made on the 28th day of each month, was really only a payment on account of an amount actually payable under the Lease, which was payable for a particular calendar month in arrears at the end of that month. With respect, I cannot discern any basis for that submission in the Lease.

5. [57]

   The fact is that clause 4.1.1 and item 6 of the schedule required Baby Zone to pay an amount of $20,375.01 on 28 September 2015. That amount was not paid until 28 October 2015. Baby Zone acknowledged on 28 September 2015 that the payment was late. Clause 15.1.1 of the Lease entitled the Lessor to re-enter under clause 15.2, if any part of the rent was in arrears or unpaid for a period of 14 days after the date appointed for payment. It is a straightforward matter of the construction of the Lease that the Lessor became entitled to re-enter 14 days after 28 September 2015.

When did Baby Zone become liable to pay rent to Keira Street?

1. [58]

   The second issue raised by Baby Zone concerned the time that Baby Zone first became directly liable to Keira Street under the Lease. Baby Zone initially understood that the transfer of the Property to Keira Street was not registered until 7 October 2015. That misunderstanding was corrected during the hearing, when Baby Zone tendered a title search that showed that the transfer occurred on 30 September 2015.

2. [59]

   Baby Zone’s submission was, as I understand it, that Keira Street did not have a right to terminate the Lease by re-entry on 28 October 2015, because Keira Street was not the registered proprietor of the Property on 28 September 2015, when the default occurred. Baby Zone relied upon s 40(3) of the Real Property Act 1900 (NSW) to argue that, when Keira Street became registered as proprietor, it then became seized of the reversion expectant upon the Lease, and it was only then that it had all of the powers, rights and remedies to which a reversion is by law entitled. It therefore submitted the effect of s 51 of the Real Property Act was that the rights of ownership of the Property only passed to Keira Street upon registration of the transfer, which was on 30 September 2015.

3. [60]

   Baby Zone relied upon the decision of the High Court in Measures v McFadyen [1910] HCA 74; (1910) 11 CLR 723. That case decided that a right to sue for damages for breach of covenant, not being a continuing breach, which is complete before transfer, does not pass to the transferee of land under ss 51 and 52 of the Real Property Act. The relevant covenant required the lessee to do building work on the demised premises up to a specified value forthwith. Griffith CJ said at 731, in relation to the wording of s 51: “The estate or interest transferred is one thing, and the personal right of action in respect of an antecedent completed breach of contract is another. In my opinion the words of this section are not sufficient to transfer the right to bring an action in respect of such a past breach… I do not think that it was intended to transfer also mere choses in action in respect of past and completed breaches of covenant”.

4. [61]

   Baby Zone also relied upon the judgment of Basten JA, with whom Tobias and McColl JJA agreed, in Provident Capital Ltd v Pinty [2008] NSWCA 131; (2008) 13 BPR 25,199 at [37], where his Honour said (citations omitted): “That is, the transfer of the registered lease did not confer on the assignee of the lease rights in relation to arrears of rent, which were accrued but unpaid”.

5. [62]

   Keira Street relied upon s 117 of the Conveyancing Act 1919 (NSW), which relevantly provides:

6. [63]

   Section 116 of the Conveyancing Act has the effect that s 117 applies to leases of land under the Real Property Act.

7. [64]

   In the present case, the condition of re-entry or forfeiture became enforceable 14 days after 28 October 2015.

8. [65]

   Until the second day of the hearing, Baby Zone believed, because of the absence of evidence concerning the contract between the Transferor and Keira Street, and the date of completion of that contract, in addition to the absence of a notice of attornment, that there was a reasonable basis for Baby Zone to argue that Keira Street was not a person entitled, as at 28 September 2015 or 12 October 2015, to the income from the Property.

9. [66]

   Once it became clear, upon the reading of Keira Street’s solicitor’s affidavit, that the contract of sale that was entered into on 1 July 2015 was completed on 21 July 2015, and that a notice of attornment by the Transferor had been served on Baby Zone by Keira Street on 24 July 2015, the position adopted by Baby Zone became untenable. As Keira Street did not rely upon the registration of the transfer of the Property to support its entitlement to terminate the lease, the principles discussed in Measures v McFadyen do not apply.

10. [67]

    The evidence now establishes that, on both dates, Keira Street was entitled to receive the rent from Baby Zone under the Lease.

11. [68]

    I add that, although the evidence in its initial form was unsatisfactory, I would have drawn that inference anyway, on the basis of that evidence.

12. [69]

    It is clear that a covenant to pay rent touches and concerns demised land: Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; (2008) 234 CLR 237 at [74].

13. [70]

    In Waterhouse v Waugh [2003] NSWCA 139, Handley JA (Giles JA and Young CJ in Eq agreeing) said at [23] to [28]:

14. [71]

    In my view, the evidence establishes that, by 28 September 2015, even though Keira Street was not yet the legal owner of the Property, by reason of the fact that the transfer was not registered until 30 September 2015, it was the person entitled to the income from the whole of the Property, for the purposes of the second limb of s 117(1) of the Conveyancing Act. It had been so entitled since no later than 24 July 2015. Accordingly, when the rent payment due on 28 September 2015 was not paid, that was a breach of the rent covenant capable of being enforced by Keira Street.

15. [72]

    Accordingly, Keira Street was entitled to exercise the power in clause 15.2 of the Lease to re-enter and forfeit the Lease, which it did on 28 October 2015.

Were there any waivers by either party?

1. [73]

   The third issue raised by the parties concerned waiver. Baby Zone submitted that Keira Street waived the breaches of the covenant to pay rent that were committed by Baby Zone, because Keira Street accepted late payment. I would accept that argument for the payments that were paid late, in the period up to 28 September 2015. However, it is immaterial whether or not Keira Street waived those breaches, because on the proper construction of the Managing Agent’s letter to Baby Zone on 28 October 2015, Keira Street was only relying upon the failure to pay the instalment of rent due on 26 September 2015 in advance, for the month of October, when it re-entered the Property and forfeited the Lease.

2. [74]

   Keira Street did not waive that breach before it re-entered the Property and forfeited the Lease. As I have said above, the re-entry happened at about 7 AM on 28 October 2015. I infer from the email correspondence, that Baby Zone made the 28 September 2015 rent payment by bank transfer at some time between 8:24 AM and 9:29 AM (being the emails by which the Managing Agent served the letter advising of the forfeiture, and Baby Zone’s email advising of the payment). It cannot be said that Keira Street retained that rent payment on a basis that was consistent with the continuation of the Lease. Keira Street only did so on the understanding that it had negotiated with Baby Zone for a continuation of that company’s occupation of the Property on a monthly tenancy, but otherwise on the terms of the Lease.

3. [75]

   Keira Street also submitted that Baby Zone had waived its rights. The nature of the alleged waiver was that Baby Zone had waived its entitlement to seek relief against forfeiture, because it agreed with Keira Street to continue in occupation of the Property on a monthly tenancy. Alternatively, Keira Street submitted that Baby Zone had entered into a compromise agreement under which it released its right to seek relief against forfeiture, in return for being allowed to continue in occupation on a monthly tenancy.

4. [76]

   I do not accept either Keira Street’s waiver or compromise submissions.

5. [77]

   The issue depends upon the effect of Mr Guglani’s 28 October 2015 email at 10:48 AM to the Managing Agent. The email was sent after Baby Zone became aware that the Lease had been terminated. The comment that the termination had been “forwarded to my legal team”, plainly implied that Baby Zone was seeking legal advice about the validity of the termination, and Baby Zone’s rights in respect of the termination. The email then said: “Subject to our legal rights, we acknowledge your position of month to month lease”. In my view, that was clearly a reservation to Baby Zone of whatever legal rights it might have. Baby Zone’s position was that it could not recommence its business unless it was first let back into occupation of the Property. It would have been catastrophic, if Baby’s Zone had been unable to continue its business. It had little choice but to agree with Keira Street to continue on a monthly tenancy, but it only did so with the reservation that it could pursue whatever legal rights it had.

Should relief against forfeiture be granted?

1. [78]

   The fourth issue is whether the court should make an order granting Baby’s Zone relief against forfeiture of the Lease.

2. [79]

   I have set out my understanding of the relevant principles in Kofoo Sussex Pty Ltd v Commerce Building Pty Ltd [2014] NSWSC 1079; (2014) 17 BPR 33,147. It will be convenient for me to restate the principles by setting out extracts from my judgment at [111] to [114] and [135] to [138]:

3. [80]

   And:

4. [81]

   In In the matter of Hi-Fi Sydney Pty Ltd (administrator appointed) [2015] NSWSC 1312, Brereton J was concerned with an application for relief against forfeiture under s 129 of the Conveyancing Act, as the forfeiture was not based on a breach of an obligation to pay rent. His Honour said:

5. [82]

   In the present case, after Keira Street purchased the Property, Baby Zone paid the monthly rent late on a number of occasions, but not so late as to give rise to an event of default. There is no evidence that Keira Street warned Baby Zone that it might forfeit the lease if any monthly rent payment was late by more than 14 days. The rent due on 28 September 2015 remained outstanding for more than 14 days, and Keira Street re-entered the property and forfeited the lease on 28 October 2015. It did so following a single event of default. Baby Zone then paid the amount in default immediately. Thereafter, and particularly after the Administrators were appointed, the monthly rent has been paid on time, and the rent is up-to-date. Accordingly, Keira Street has not suffered any loss.

6. [83]

   Mr Kite gave evidence that the Administrators have not yet completed their report to creditors for the purposes of the second meeting of creditors. He said, however, that the financial circumstances of Baby Zone were such that its business was not viable, and the Administrators expect that the creditors will resolve under s 439C(c) of the Corporations Act that the company be wound up.

7. [84]

   If that were to happen before the Administrators were able to assign the lease to Baby Bounce, then a new event of default will occur under clause 15.1.3(a) of the Lease. Indeed, if the Administrators convene the second meeting of creditors with a recommendation that the creditors resolve to wind up Baby Zone, that would probably also constitute an event of default.

8. [85]

   In my view, were it not for the possibility that Baby Zone could sell its business and assign the Lease to Baby Bounce, this would be a case, such as that considered in Direct Food Supplies (Vic) Pty Ltd v DLV Pty Ltd [1975] VR 358 at 361, where it would be appropriate to refuse the application for relief against forfeiture, because Baby Bounce is insolvent in the longer term, and the grant of relief against forfeiture would be futile.

9. [86]

   However, the fact that Baby Zone is insolvent, or will inevitably soon be insolvent, is not an absolute ground for refusing relief against forfeiture: see Hayes v Gunbola (1986) 4 BPR 9247 at 9250-9251; and Wynsin Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 at [32]. Indeed in Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49, relief against forfeiture was granted in favour of a lessee that had entered into a scheme of arrangement with its creditors.

Is Keira Street entitled to withhold its consent?

1. [87]

   The real issue in this case is whether Baby Zone is entitled to the relief that it claims in par 5 of its interlocutory process, for an order that Keira Street do what is necessary to give effect to the assignment of the Lease to Baby Bounce. If Baby Zone is entitled to that relief, then it will be able to realise the value of the Lease for the benefit of creditors. That would be the first step in a process of reasoning that would justify the court granting relief against forfeiture.

2. [88]

   That will not end the matter, because it will still be necessary to decide whether, following an assignment of the Lease to Baby Bounce, Keira Street would be sufficiently protected, compared to its present entitlements under the Lease, to justify a grant of relief against forfeiture.

3. [89]

   The principals of Baby Bounce are Mr Badr Hamdache and his wife Ms Lola Taleb. They were in the business of owning and operating the My Baby Warehouse chain of retail baby products stores at three locations in New South Wales between 22 September 1999 and 21 October 2009. They operated the business through BHLS. In 2009, Mr Hamdache and his wife sold their shares in BHLS to Mr Ajay Arora, who is the principal of Baby Zone and BHLS, for $1.8 million. They continued to be the operations managers for the My Baby Warehouse Chain, until about April 2010. Mr Hamdache reinvested $650,000 into BHLS in return for 20% of the shares. Within three years, the My Baby Warehouse business had grown to 20 stores. By 2013, the turnover of the business was approximately $70 million per annum. The retail store owned by Baby Zone was one of the stores purchased by BHLS during this period. Mr Hamdache sold his shares in BHLS to Mr Arora for $2.2 million in October 2013. In September 2015, Mr Hamdache returned to the baby product industry, and purchased 10 of the My Baby Warehouse retail stores from Mr Arora. In December 2015, Mr Hamdache became aware that BHLS and Baby Zone had been placed into administration. Baby Bounce entered into a contract, on 18 December 2015, to buy the baby products in the possession of BHLS or Baby Bounce at 11 stores, including the Property. Baby Bounce has negotiated new leases in relation to five stores previously operated by BHLS. On 18 January 2015, Baby Bounce entered into the contract to purchase Baby Zone’s business, to which I have referred above. In addition to those five stores, Baby Bounce operates 10 additional stores throughout New South Wales, Queensland and Western Australia. Mr Hamdache said that Baby Bounce is the second largest independent baby product retail chain in Australia.

4. [90]

   Mr Hamdache provided a profit and loss statement for Baby Bounce, for the period July 2015 to March 2016, which was prepared by the company’s internal accountant. It had a total income of $7,669,062.66, and a net profit of $1,154,988.80.

5. [91]

   Mr Hamdache said that he would agree to provide a bank guarantee equivalent to three months’ rent, to secure an assignment of the Lease, as well as a personal guarantee to Keira Street, as additional security for Baby Bounce’s obligations, in accordance with item 15 of the Lease. That is a guarantee of 15 months’ rent plus GST.

6. [92]

   Keira Street did not make any significant challenge to Mr Hamdache’s evidence in cross-examination.

7. [93]

   In its resistance to Baby Zone’s application, Keira Street did not identify any substantial, or even significant, disadvantage that it would suffer, if Baby Bounce became the assignee of the Lease, rather than it being permitted to lease the Property to Baby and Toddler.

8. [94]

   On the issue of whether Keira Street could withhold its consent to an assignment of the Lease under clause 13.1 of the Lease, Keira Street supported its entitlement to withhold its consent by relying upon clause 13.1.1. That clause requires that the Lessee not be in default under the Lease. Keira Street argued that Baby Zone was in default, because of a contravention of clause 15.1.6. That clause provides that Keira Street is entitled to exercise the right of re-entry in clause 15.2 “if the Lessees stops or threatens to stop payment of its debts or without the prior written consent of the Lessor ceases or threatens to cease to carry on its business”.

9. [95]

   However, while clause 15.1.6 establishes a possible event of default, the occurrence of that event does not involve any default in performance of any term of the Lease. It appears that clause 15.1.6 might be satisfied, but that does not mean that Keira Street is entitled to withhold its consent to an assignment on the ground contained in clause 13.1.1 of the Lease.

10. [96]

    I do not think that this conclusion is inconsistent with the view expressed in the cases discussed by Brereton J in Re Hi-Fi Sydney at [15] to [23], which suggests that, on the proper construction of s 129 of the Conveyancing Act, the words “for a breach of any covenant, condition or agreement…in the lease”, extends to an event of default such as that contained in clause 15.1.6, even though the default does not strictly constitute a breach. Keira Street did not put any submission to the contrary of this proposition.

11. [97]

    Keira Street did not make any submission that Baby Bounce is not a respectable, responsible, solvent, fit and proper person, capable of adequately carrying on the business, whilst performing and observing the terms and conditions of the Lease, within the meaning of clause 13.1.2.

12. [98]

    Keira Street is entitled to have its costs and expenses of granting its consent paid, as required by clause 13.1.3.

13. [99]

    Keira Street is also entitled to have Baby Bounce enter into a deed containing the covenants required by clause 13.1.4.

14. [100]

    Keira Street did not make any submission that the guarantees offered by Mr Hamdache were inadequate to satisfy clause 13.1.5.

15. [101]

    In all of these circumstances, I am satisfied that the court should, in the exercise of its equitable jurisdiction, make the order granting relief against forfeiture sought by Baby Zone in par 4 of its originating process.

16. [102]

    Keira Street did not make any submission that the court should not make order 5, concerning the assignment of the Lease to Baby Bounce, if it granted the relief against forfeiture sought by Baby Zone, and held that Keira Street was not entitled to withhold its consent to the assignment.

17. [103]

    The parties should bring in short minutes of order to reflect these reasons for judgment. Those short minutes should make provision for the relief against forfeiture, and the order that Keira Street should facilitate the assignment of the Lease to Baby Bounce only becoming effective on the condition that the matters to which Keira Street is entitled under clause 13.1 of the Lease, as discussed above, and the bank guarantee and guarantee offered by Mr Hamdache in his affidavit, are actually provided to Keira Street.

18. [104]

    If the parties are unable to agree as to an appropriate order for costs, I will hear the parties, at the time when I make the orders necessary to dispose of these proceedings.