Vella v Wah Lai Investment (Australia); Wah Lai Investment (Australia) v Gleeson; Vella v Wah Lai Investment (Australia)

Wah Lai (Investment) Australia Pty Limited (“ Wah Lai ”) owned the land on which was erected a hotel called the Waterloo Tavern (“ The Tavern ”). For the period 21 July 1994 to 14 May 1996 the Tavern was in the physical possession of either Mr Paul Vella (“ Mr Vella ”), or his company Craftmill Pty Limited (“ Craftmill ”). On 14 May 1996 Mr Vella and Craftmill were evicted from the Tavern pursuant to an Order for Possession of the Supreme Court of New South Wales. Mr Vella and Craftmill claim that their ejection from the premises was wrongful.

Three alternative cases are put about why it was wrongful. The first is that the ejection involved a breach on Wah Lai’s part of a covenant for quiet enjoyment in a lease said to exist between Wah Lai as lessor, and either Mr Vella or Craftmill as lessee. The second is that Wah Lai had represented that Mr Vella would have the rights of a lessee of the Tavern, that Wah Lai either had no belief to the effect of its representation or had no reasonable grounds for such a belief, that the representation consequently was a contravention of section 52 Trade Practices Act 1974 (Cth), and that Mr Vella and/or Craftmill have suffered damage as a consequence of relying on the representation. The third way in which the claim is put is that Wah Lai engaged in unconscionable conduct in the circumstances in which it obtained the Order for Possession of the Tavern, for which Mr Vella and/or Craftmill are entitled to equitable compensation.

As well, Mr Vella seeks damages for conversion of various items of property which were in the Tavern at the time of his ejection.

Wah Lai, by a cross-claim, alleges that Mr Vella was in breach of an agreement he made with Wah Lai relating to the carrying out of certain work at the Tavern required by a Fire Safety Order (“the Fire Safety Works”), and that in consequence Wah Lai has suffered damage. In the alternative, Wah Lai alleges that the agreement relating to the Fire Safety Works constituted a representation by Mr Vella which amounted to misleading or deceptive conduct contrary to section 42 Fair Trading Act 1987 , being as to a future matter within section 41 of the Fair Trading Act 1987 , in consequence of which Wah Lai has suffered damage. Wah Lai also seeks to recover from Mr Vella certain rent which was not paid and which it asserts accrued due prior to the eviction.

Ms Koleta Gleeson (“ Ms Gleeson ”) is the de facto wife of Mr Vella. In proceedings number 1850 of 1999, listed to be heard at the same time as the principal proceedings, Wah Lai sued Ms Gleeson and Craftmill. By the time of the hearing no live matter of controversy remained in those proceedings. The Lease From Wah Lai to Buddies

By lease registered number I254621 (“ the Lease ”) Wah Lai leased the Tavern to Buddies Liquor Pty Limited (“ Buddies ”) for a term of ten years commencing 25 March 1993. Mr Nelson Meers (“ Mr Meers ”) was a director of Buddies, and acted on its behalf concerning the Lease.

The starting point for calculating the rental under the Lease was an amount of $78,000 per annum payable by monthly instalments of $6,500 in advance. I will refer to that amount as the “Basic Rent” . Under Clause 4, in addition to the Basic Rent the lessee paid forty five percent of the licence fees payable to the Liquor Administration Board, but then deducted from the rent two fifths of the licence fees. As well, Clause 5 made provision for annual increases of rental by whichever was the greater of five percent, and a figure calculated by reference to one of the consumer price indexes. Clause 5(iv) also obliged the lessee to pay all outgoings of the building.

Clause 7(ii) said: “Unless the Lessee first obtains the Lessor’s consent in writing, which consent shall not be unreasonably withheld, the Lessee will not during the continuance of this lease assign transfer demise sublet or part with or share possession of the premises or any part thereof or by any act or deed procure the premises or any part thereof to be assigned transferred demised sublet unto or put into possession of any person or grant any licence affecting the premises and the proviso contained in paragraph (a) of S133B(1) of the Conveyancing Act, 1919, as amended, shall apply.” (The proviso in section 133B(1)(a) Conveyancing Act 1919 is “such licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with such licence or consent. ”)

Clause 7(i) (headed “Maintenance and Repair”) imposed an obligation on the lessee to: “… when, where and so often as need shall be decorate, re-decorate, maintain, renew, repair and keep the whole of the premises in good and substantial repair, working order and condition having regard to their condition at the commencement of this lease, reasonable wear and tear only excepted PROVIDED HOWEVER that nothing herein contained shall impose any obligation upon the Lessee to do any work of a structural nature except such as may be occasioned by the act, neglect or default of the Lessee or by its use or occupancy of the premises.”

Clause 7(iii)(c) (headed “Compliance with Regulations”) contained a further obligation: “From time to time forthwith comply with all statutes, ordinances, proclamations, orders, regulations and by-laws, present or future, affecting or relating to the premises and with all requirements which may be made or notice or orders which may be made or given by any governmental, semi-governmental, municipal, health, licensing or any other authority over or in respect of the premises or the use thereof and will keep the Lessor indemnified in respect of all such matters in this paragraph referred to PROVIDED ALWAYS that the Lessee shall be under no liability in respect of any structural alterations which may be required but not caused by the Lessee’s use or occupation of the premises.”

Clause 10(i) was a covenant by the lessor that: “The Lessee paying the rent hereby reserved and duly and punctually observing and performing all covenants, obligations and provisions in this lease on the part of the Lessee to be observed and performed may peaceably possess and enjoy the premises for the term hereby granted without any interruption or disturbance from the Lessor or any other person or persons lawfully claiming by from or under the Lessor other than such interruption or disturbance from the Lessor as are expressly provided for in this lease.”

Clause 11(i) provided: “That if the rental hereby reserved or any part thereof shall be unpaid for the space of fourteen (14) days after any of the days on which it ought to have been paid … or if the Lessee commits permits or suffers to occur any breach or default in the due and punctual observance and performance of any of the covenants obligations and provisions of this lease … then … the Lessor … shall have the right without any notice to re-enter into and upon the premises or any part thereof … The covenant to pay rent and to preserve the licence herein contained is an essential term of this lease and the Lessee hereby acknowledges and agrees that equitable relief against forfeiture shall not be available to the Lessee.”

Clause 15 included: “15.4 The Lessee covenants with the Lessor for the more effectual preservation of the licence of the said hotel, in the event of default by the lessee; then the lessee irrevocably appoints the lessor the true and lawful attorney of him, the lessee to transfer or cause to be transferred the hotelier’s licence for the time being held in connection with the said premises to any person whomsoever and to apply for the renewal or removal of the said licence or any new licence … AND GENERALLY to do and perform all such further acts, matters and things as shall be necessary or expedient to enable the lessor … to obtain the renewal of any licence or any new licences or the transfer of any licence then existing and in force and in the name of the lessee or other person or persons in whose name the said licence or licences shall then be … 15.5 On every transfer or sub-lease the lessee shall at his own expense procure the new or intending transferee or sub-lessee to enter into and execute a power of attorney in respect of the licence similar to that hereinbefore contained and to confirm the covenants hereof and no transfer or sub-letting shall be complete or effective until the lessor’s consent shall be obtained thereto as aforesaid and the said power of attorney from the new or intending transferee or sublessee shall have been in each case duly executed, stamped and delivered to the lessor without any expense to the lessor.” The Agreement for Sale of Business

By agreement made 7 March 1994 Buddies entered an agreement with Mr Vella to sell the business of the Tavern to Mr Vella or his nominee. The agreed price was $105,000, apportioned as to $105,000 to “Hotel lease and Goodwill” , and as to “Nil” to “Plant, Fittings and Chattels” . A deposit of $5,250 was payable on the making of the agreement, and the balance on completion. In addition, the stock was sold at valuation. Completion was to take place within eight weeks from the date of the agreement. The agreement contained a clause making completion of the agreement conditional upon the transfer of the existing lease, and conditional upon the lessor consenting to the transfer of the lease. Clause 6 made provision for the purchaser obtaining possession of the business on completion.

Clause 21 provided that the vendor and purchaser agreed (subject to the consent of the lessor) “ to attend to [sic] the Provisional Transfer … rather than the full and final transfer of the Hotelier’s licence … attaching to the premises ”. Clause 22 set out a regime for that transfer to occur: “22.1 The Purchaser shall upon the date of the exchange of this Agreement furnish in writing to the Vendor’s Solicitor the full name and address of the proposed Transferee of the Licence … 22.3 The Purchaser shall within two (2) days after the date of this Agreement deliver to the Vendor’s Solicitor, in duplicate, an Application and Affidavit of Transferee, completed and executed in accordance with the provisions of the Liquor Act, 1982 and the regulations thereunder and the requirements of the Licensing Court from time to time, for the Transfer of the Licence from the present Licensee to the Purchaser or the Purchaser’s nominee, as well as a cheque in favour of the Registrar of the Licensing Court for the fee prescribed in the regulations … 22.5 The Vendor’s Solicitor shall as soon as practicable after receiving the Purchaser’s Affidavit of Transferee … thereafter lodge such Application and Affidavit together with an Application and Affidavit of the Transferor with the Registrar of the Licensing Court for the Transfer of the licence. … 22.8 The Purchaser will take such steps and do all things necessary to have the Application heard by a Licensing Magistrate at the first available date after the receipt of the Report from the Metropolitan Licensing Inspector upon the said transfer. 22.9 In the event of the Application for transfer of the License being refused by the Court owing to objection to the Purchaser nominee then another nominee shall be obtained by the Purchaser and the Purchaser will comply with and agrees to clause 22 herein with respect to the other nominee …” Steps Towards Assignment of the Lease

Wah Lai at all relevant times engaged Peter A Simon Real Estate Pty Limited as its real estate agent in connection with the Tavern. Mr Simon Touma, of that company, was responsible for the Tavern. On 6 July 1994 Mr Meers wrote to Mr Touma stating that: “… Mr Paul Vella has entered into an agreement with my company, Buddies Liquor Pty Ltd, to purchase the business of the Waterloo Tavern, subject to the approval of the Lessor which, as you are aware, understands the Lease cannot be unreasonably withheld” [sic] The letter offered that if Mr Vella defaulted in his observance of the covenants in the lease, in a way which required the lessor to re-enter possession, then Mr Meers would take up possession and enter into a fresh lease containing the same terms and conditions. He also undertook to take up any arrears in rent, provided they did not exceed a period of one month. The letter concluded: “I, therefore, formally request your client’s consent to the transfer of the Lease and should be pleased if you would treat this matter as one of urgency.”

The directors of Wah Lai have at all relevant times been Dr Wah Chan and Mrs Chan. They are both Cantonese speakers, with extremely limited ability to speak, read or write English. Dr Chan appears, on the evidence, to ordinarily have been in Hong Kong in the 1994-96 period, while Mrs Chan was sometimes in Hong Kong, and sometimes in Australia during that period.

On 12 July 1994 Mr Touma sent to Wah Lai, in Hong Kong, by fax, a copy of Mr Meers’ letter of 6 July 1994. The covering page of the fax contained a message, “Under the terms of Mr Meers letter we have no option but to transfer the lease.”

On 20 July 1994 Mr Touma sent another fax to Wah Lai in Hong Kong, saying: “We refer to our fax of 12/7/94 and ask you to acknowledge transfer of lease by signing & returning this fax to us.” That fax was handwritten. A typed copy of it was faxed to Wah Lai on 21 July 1994. Mr Chan signed the typed copy and faxed it back to Mr Touma.

On 20 July 1994 a meeting took place at the offices of Michael J Wilcox & Associates, solicitors, at Ultimo. Mr Wilcox of that firm had been retained by Mr Vella to act for him in connection with the purchase of the Tavern. The meeting was attended by Mr Wilcox, Mr Meers, and Mr Vella. At that meeting, Mr Meers handed over a Real Property Act 1900 form appropriate for the transfer of a lease, filled out so that it related to the lease I254621 of the Tavern, naming Mr Vella as transferee, and executed by Buddies. Mr Vella signed that document when it was handed over.

The copy which is in evidence of the Transfer of Lease executed by Mr Vella, bears a handwritten endorsement that the lease was transferred subject to an encumbrance number U152518. That dealing number identifies a mortgage given by Buddies to Westpac on 17 May 1993. The register at the Land Titles Office has at all relevant times shown that the lease is subject to that mortgage. However, it was not the intention of Mr Meers (on behalf of Buddies) to transfer the Lease subject to that mortgage, nor the intention of Mr Vella to take the transfer of the Lease subject to that mortgage. The handwriting in which the identifying number of the encumbrance appears on the Transfer of Lease document looks quite similar to the handwriting in which the name and address of Stewart Levitt & Co appear on that document, in a box intended to identify the lodging party. Stewart Levitt & Company do not appear in the story of events relevant to this litigation until well after July 1994. It is likely that the reference to the encumbrance was added to the Transfer of Lease document well after that document was handed over on 20 July 1994.

Mr Meers wrote to Mr Wilcox on 20 July 1994, saying: “I refer to the settlement of this matter of today’s date and advise that I have notified the Lessor’s agent, Peter A Simon Real Estate Pty Limited, of the transfer of the Lease. I remind you that the next month’s rent of $6,500 is due on the 25th instant.”

Though the meeting on 20 July 1994 was referred to as a settlement, Mr Vella did not pay the balance of the purchase price on that date. There was an agreement between Mr Meers and Mr Vella whereby Mr Vella could defer the balance of the price until March 1995, on terms that he provide security over his property at 10 Clarendon Road, Stanmore. There was a later agreement extending the date for payment even further. My findings about the time, and terms, of these agreements are imprecise because the evidence on this topic is imprecise.

The mortgage over 10 Clarendon Road, Stanmore was never given. Mr Vella paid some of the remainder of the purchase price, but left $85,000 owing, which he has never paid. (On this topic I accept the evidence of Mr Meers in preference to that of Mr Vella.) Further, a power of attorney, of the type referred to in clause 15.5 of the Lease, has never been provided by Mr Vella, or any person or entity connected with him, to Wah Lai. Nor has Mr Vella, or any person or entity connected with him, entered into any document with Wah Lai whereby he (or any other person or entity) confirmed the covenants contained in the Lease, as clause 15.5 of the Lease required to be done.

On 21 July 1994 Mr Vella and Ms Gleeson moved into occupation of the Tavern. They began living in a manager’s flat on the premises, operating the Tavern, and letting out the bedrooms associated with the Tavern.

The Transfer of Lease document was not registered with the Land Titles Office. After the “settlement” on 20 July 1994 Mr Vella left the document with Mr Wilcox. In December 1994 or January 1995 Mr Vella collected from Mr Wilcox a box of documents relating to various matters in which Mr Wilcox had acted for Mr Vella.

Mr Vella gives evidence that soon after he had been ejected from the Tavern on 14 May 1996, he looked in the box of documents, and found the original of the Sale Agreement and Transfer of Lease. He says that he then found out for the first time that the Transfer of Lease had never been stamped nor registered. He arranged for it to be stamped on 31 July 1996, and it was lodged at the Land Titles Office soon thereafter. It has never been registered.

I do not accept Mr Vella’s evidence that it was only after his ejection from the Tavern that he found out that the transfer of lease had never been stamped nor registered.

In connection with the proposed transfer of the liquor licence Mr Vella engaged the services of Mr Jim Adams, solicitor. An employed solicitor, Mr Tillbrook, assisted Mr Adams. As explained in para [35] ff below, Mr Vella had applied for a transfer of the liquor licence to himself; the police had objected to that transfer, and he had decided not to press on with his application. Instead, application was made for the licence to be transferred to Ms Gleeson. On 6 December 1994 Mr Tillbrook wrote to Ms Gleeson reporting that an application for transfer of the liquor licence to her had been lodged, and saying: “It now remains to be seen whether the police lodge an objection to the transfer of the licence to yourself because of your personal involvement with Paul. If this occurs, we may have to take a close look at the lease agreement to see whether Paul and/or Craftmill Pty Limited can avoid the lease.”

A file note of Mr Adams of 12 December 1994 shows Mr Adams making enquiries to clarify the status of Mr Vella and/or Craftmill concerning the Lease. Mr Ellis Reuben is a solicitor who had acted for Wah Lai on the entering of the Lease to Buddies, but he had not been involved in any assignment of the Lease to Mr Vella or anyone connected with Mr Vella. Mr Adams ascertained that Mr Reuben had been solicitor for the lessor, spoke to Mr Reuben, and Mr Reuben “indicated that he knew of an approach being made to consent to the assignment of a lease which was made to a real estate agent at Bankstown.” Mr Adams’ note continues: “I have since spoken to the agent who confirms that an approach was made and that he responded on behalf of the lessor confirming the consent. He was unable to comment on the fact that there had been no formal assignment as it is a registered lease. He also indicated that he had spoken to Mr Meers as late as last Friday and Mr Meers had agreed to go back into the hotel. He also indicated that there was an arrangement in writing between his client and Mr Meers whereby upon one months’ notice Mr Meers was required to enter into possession of the hotel.”

A file copy of a letter from Mr Jim Adams, solicitor, to Mr Vella dated 20 December 1994 records: “… we have discussed the question of your tenancy at the Waterloo Tavern on a number of occasions, not the least of which was at the meeting this morning in the writer’s office… I note that you did not attend to stamping of the contract for the purchase of the business nor has the transfer of the lease document been stamped, nor registered.” Even though Mr Vella denies he received the original of this letter, I accept the file copy of Mr Adams’ letter as being a business record which accurately records the matters I have just set out. Mr Vella was aware in December 1994 that the transfer of lease had been neither stamped nor registered.

That Mr Adams was at this time investigating the status of Mr Vella’s occupancy of the Tavern (at, I would infer, the request of Mr Vella) is confirmed by a fax sent by Mr Meers to Mr Adams on 20 December 1994. That fax enclosed a signed copy of the fax dated 20 July 1994 (para [19] above) whereby Wah Lai acknowledged transfer of the Lease (of which Mr Meers had obtained another copy from Peter A Simon Real Estate earlier in the day on 20 December 1994), and a freshly executed Real Property Act 1900 form appropriate for the transfer of a lease, filled out so that it related to a transfer of the Lease of the Tavern from Buddies to Mr Vella.

At least two people in Wah Lai’s camp were aware, in 1994, that there might have been an irregularity concerning the assignment of the Lease. For reasons not made clear by the evidence, Mr Reuben had written to Mr Touma on 7 November 1994 concerning the Lease, saying: “Has the Lease been properly assigned in the matter. If not, do you wish me to prepare an assignment of Lease. I note that I have not been requested to consent to a Transfer of Lease to be Registered at the Land Titles Office. Please advise present position.” Nothing was done by Wah Lai to clarify the situation concerning assignment of the Lease at that stage. Transactions Concerning the Liquor Licence

I shall trace under this heading events relevant to the liquor licence of the Tavern, even though some of the events are out of the chronological sequence of the main events with which this litigation is concerned.

Even though he had been in the premises since 21 July 1994, it was only on 2 September 1994 that Mr Vella applied to the Licensing Court of New South Wales for a transfer to himself of the liquor licence. Mr Vella filled out the section of the application form relating to the licensed premises as follows: Question Answer Name(s) and address(es) of lessee(s) Paul Vella10 Clarendon Street, Stanmore NSW Name(s) and address(es) of co-lessee(s) Not Applicable Duration of the lease Lease terminates on 25 May, 2003 Who will be entitled to the profits of the business? The applicant Paul Vella

In the course of the affidavit which accompanied that application, Mr Vella answered questions as follows: Question Answer Have you in Australia or elsewhere, ever been summonsed, charged or convicted or had any offence proved against you No Who will own the license if this application is granted The applicant Paul Vella In what capacity will you hold the license As owner Who are the persons directly or indirectly interested in the business or the profits of the business carried on pursuant to the licence? The applicant Paul Vella Where a proprietary company is so interested, state the name of the company, the names of directors and all shareholders, their dates and places of birth, addresses, any former name(s) and date of arrival in Australia, if applicable Not applicable

In answer to the question “What previous experience or training have you had in the conduct and operation of a hotel/licensed restaurant in NSW or in the liquor trade?” his answer included: “In 1968 the applicant obtained a Restaurant/Cabaret licence to operate premises known as Club 75, 75 Enmore Road, Enmore. In 1982 the applicant established a restaurant known as Fantales at 128 Pyrmont Bridge Road, Camperdown and operated these premises continually until the end of 1992.”

The application also included an application for transfer of ownership to Mr Vella of ten Approved Amusement Devices (“AADs”). In that part of the application he answered questions as follows: Question Answer Will you as holder of the hotelier’s licence: (a) share any receipts arising from the use or operation of an approved amusement device with any person other than person(s) mentioned in Question 4(b) or Part 1? No (b) make any payment, or part payment, by way of sale or commission or allowance from or upon any such receipts to anyone other than the person(s) mentioned in Question 4(b) or Part 1; or receive any payment, or part payment, or any other benefit by way of commission or allowance from the operation of the amusement devices on the licensed premises No

Mr Vella’s signature on the application was witnessed by Mr Michael Wilcox, solicitor.

On 2 November 1994 Sgt Novak, of the Redfern Licensing Police, lodged an objection to the provisional transfer of the hotelier’s licence. The objection was on the grounds that Mr Vella was not a fit and proper person to hold such a licence, on grounds which included that he had 16 breaches in previous times for liquor offences, and that he had answered “No” to the question which asked if he had in Australia or elsewhere ever been summonsed, charged or convicted or had any offence proved against him.

By letter dated 3 November 1994 to Mr Vella, the Principal Registrar of the Licensing Court notified him of that notice of objection, and stated that the consequence of the objection was that the licence had automatically reverted to the former licensee/transferor. Though Mr Vella gives evidence that he did not see that letter, I find that the substance of its contents came to his attention in one way or another. Mr Vella did not seek to contest the objection which had been taken to the transfer of the licence to him.

Craftmill is a company which Mr Vella had purchased as a shelf company in November 1993. The directors were Ms Gleeson, and Mr Vella’s son, Anthony Mark Vella. Mr Vella held half the shares, and the other half were held by another person on trust for Mr Vella. Mr Vella gives evidence in his affidavit that he had set up Craftmill in November 1993 with the intention that Craftmill would operate the Tavern after he had purchased the business. He also gives evidence that during the period 21 July 1994 to 14 May 1996, Ms Gleeson and he ran the Tavern on behalf of Craftmill. This evidence is inconsistent with the affidavit he swore for the Licensing Court proceedings on 2 September 1994 (para [36] above), and with the terms of his application for transfer of the AADs (para [38] above). I am not persuaded that Craftmill had any role in operating the business until after Mr Vella abandoned his plan to run the Tavern himself.

Mr Michael Piastri had been the licensee of the Tavern when it was operated by Buddies. He continued to be the licensee until 14 September 1994, and was again the licensee from 2 November 1994 to 20 December 1994. According to Mr Vella, once he was aware of the objection to his application for the liquor licence, and had decided not to proceed with the application, Mr Piastri returned to the Tavern and supervised its day-to-day operations until a licence was granted to Ms Gleeson. There is evidence to the contrary in the file copy of Mr Adams’ letter to Mr Vella of 20 December 1994 (para [31] above), which records: “The position now is that the hotel is shut, that the police will object to Koleta having any interest because of her association with you.” While Mr Vella stated in cross-examination that the hotel had never been shut, and denied that he had told Mr Adams that the hotel was shut, I do not accept that evidence. While I can find, on the evidence, that the hotel was shut on 20 December 1994, it is not possible to find for how long prior to 20 December 1994 it had been shut.

On 30 November 1994 Mr Piastri lodged in the Licensing Court an application for the provisional transfer to Ms Gleeson of the hotelier’s licence relating to the Tavern. In that application, he stated that Buddies owned the licence, and that Buddies was the only person directly or indirectly interested in the business or the profits of the business carried on pursuant to the licence. He stated that the lessee of the premises was Craftmill, of 10 Clarendon Road Stanmore, and that there was no co-lessee. Concerning the ten AADs on the premises, he stated that his intention was to transfer ownership of the devices to the proposed licensee/owner, Ms Gleeson.

On 25 November 1994 Ms Gleeson made an application for the transfer of the liquor licence to her. In connection with that application, she answered questions as follows: Question Answer Who will own the licence if this application is granted? Buddies Liquor Store Pty Limited What is the purchase price of the business conducted pursuant to this licence? $100,000 State exact details of the source of the moneys for the purchase (including name of financial institution or persons providing funds and details thereof. If other, please state): Craftmill Pty Limited - $5,000Buddies Liquor Pty Limited vendor finance - $95,000 In what capacity will you hold the licence? Manager Who are the persons directly or indirectly interested in the business or the profits of the business carried on pursuant to the licence? … Craftmill Pty Limited If you will not own the freehold of the licensed premises, state full details of:the name of the lessorname/s and address/es of lessee/s:Who will be entitled to the profits of the business? Wah Lai Investments (Australia) Pty LtdBuddies Liquor Store Pty Ltd (sub-lessor) Craftmill Pty Ltd (lessee)Craftmill Pty Ltd

On 27 November 1994 a written agreement was entered between Craftmill and Ms Gleeson, whereby Ms Gleeson would have the full, free and unfettered control of the conduct of the business of the Tavern. That agreement was one of the type then required by section 39 of the Liquor Act 1982. It was attached to Ms Gleeson’s application for transfer of the liquor licence.

Ms Gleeson’s application also included an application to transfer the ownership of the AADs. Concerning that part of the application, she responded to the question “What is the sale price and terms of purchase, if any?” by saying “None. Very old machines with no residual value” .

A provisional liquor licence was granted to Ms Gleeson on 20 December 1994. Affidavit evidence from Mr Vella that it was granted to her on 30 November 1994 is incorrect. A licence which was not provisional was granted to her on 20 March 1995.

On 29 May 1996 Ms Gleeson lodged with the Licensing Court an application to surrender her licence, on the ground that she had been evicted from the premises. The Fire Safety Order

I will trace under this heading the history of formal action taken by the South Sydney City Council (“ the Council ”) concerning the adequacy of the fire safety precautions at the Tavern, even though some of the events are out of the main chronological sequence of events relevant to the litigation.

In around August 1994 an officer of the Council came to the Tavern, and informed Mr Vella that the premises did not comply with council fire safety requirements. He handed Mr Vella a copy of a notice dated 7 June 1994, issued by the Council and addressed to Wah Lai at a post office box number in Bankstown which was the post office box number of Peter A Simon Real Estate. That notice stated that Council’s records showed that no Certificate of Compliance in respect of essential services had been supplied to the Council, and that essential services were required to be installed at the premises in the categories of: · Emergency lighting, · Exit signs, · Fire doors, · Hose reels, · Portable fire extinguishers. The notice threatened legal action unless a Certificate of Compliance was supplied within twenty-one days.

The certificate of compliance was not supplied. On 25 August 1994 the Council issued a formal Fire Safety Order, under section 124 of the Local Government Act 1993 . It was posted, addressed to Wah Lai at the address of the Tavern. It required Wah Lai to carry out certain listed works within 270 days of service of that Order. The list of works occupied three typed pages. That notice was returned to the Council on 7 October 1994, and subsequently hand-delivered to the Tavern on 20 October 1994.

On 10 November 1994 the Council issued another Fire Safety Order, in identical terms to the order it had issued on 25 August 1994. That Order was also posted, addressed to Wah Lai at the address of the Tavern. That notice was returned undelivered to the Council on 16 November 1994, and subsequently hand-delivered to the Tavern on 17 November 1994.

On 2 August 1995 Mr Sivayoganathan, a building inspector employed by the Council, inspected the Tavern, and found that none of the works required by the Fire Safety Order had been commenced.

On 4 August 1995 the Council wrote to Wah Lai, at the address of the Tavern, referring to the Order under section 124 of the Local Government Act 1993 which had been served on 10 November 1994. It asserted that, as at 4 August 1995, the work had not been commenced. It stated the Council’s view that the premises were an extreme fire hazard, and that unless the works required in the Order were carried out the Council would instruct its solicitors to instigate legal proceedings under section 628 of the Local Government Act 1993 .

On 1 November 1995 Mr Sivayoganathan inspected the premises again, and found that none of the works required by the Fire Safety Order had been commenced.

On 29 November 1995 Pike Pike & Fenwick, solicitors for the Council, wrote to Wah Lai at the address of its Sydney accountants, who were a reliable channel of communication to Wah Lai. That letter referred to the Fire Safety Order made on 10 November 1994, stated that the works remained outstanding, and required, “an unequivocal undertaking that the work specified in the Notice dated 10 November 1994 will be completed within sixty days of the date of this letter. The undertaking must be received in this office within seven (7) days of the date hereof. If no such undertaking is received we are instructed to commence legal proceedings for orders directing that the works be carried out. You will also be liable to penalties for failure to carry out the work …”

Mr Sivayoganathan inspected the premises again on 29 February 1996 and found that, while some work had been done, large amounts of the work required by the Fire Safety Order remained outstanding. I will deal later (paras [105] and [251] ff below) with the detail of what work had, and had not, been done.

The Council took proceedings against Wah Lai in the Land and Environment Court of New South Wales, resulting, on 12 July 1996, in consent orders being made that the premises not be occupied until the Fire Safety Order had been complied with, and that they be securely locked and boarded up and secured against entry to the satisfaction of the Council pending compliance with that Fire Safety Order. Payments of Rent and Outgoings

After moving into the Tavern on 21 July 1994, either Mr Vella or Craftmill paid rent to Wah Lai’s real estate agent for each of the instalments of the Basic Rent falling due on the 25th of the month, to and including 25 May 1995. Some of the payments of the Basic Rent were late, the first of them up to three weeks late. To the extent that Craftmill made the payments, Wah Lai had no reason to believe that they were paid on any other basis than on behalf of Mr Vella.

On 29 August 1994 Mr Touma wrote to Mr Vella referring to the fact that a rental cheque for $6,500 which he had given had been dishonoured, and that a further rental instalment had fallen due on 25 August 1994, bringing the total due to $13,000. Mr Touma’s letter asked Mr Vella to vacate the premises within seven days. On the same day, Mr Touma faxed to Mr Meers a copy of that letter, and asked Mr Meers to take back possession of the Tavern immediately. Mr Vella caused the rental to be paid, and nothing more was done at that time about Mr Meers taking back possession.

Wah Lai contends that a rental increase had become payable from 25 July 1994, of $325 per month, and that Mr Vella never paid $775 of that increase, which accrued in the period 25 July 1994 to 25 October 1994. The first claim for a rental increase was made when Mr Touma wrote to Mr Vella on 6 September 1994, saying: “We have advised Mr Meers that according to the lease agreement rental has been increased to $6,825 per month. Could you please remit the difference for the last 2 months being $650.00 and pay the new amount as from 25th September 1994.” Given the terms of the Lease concerning periodical increases in rental (see para [7] above), if Mr Vella was bound by the terms of the Lease, and the CPI increase was less than five percent, then it would be correct to say that an increase in rental of $325 per month had become effective from 25 March 1994. As 25 July 1994 was the first occasion when Mr Vella paid rent, then, on this hypothesis, Mr Touma was right in claiming the increase in rental from Mr Vella.

No rental instalment falling due after 25 May 1995 has been paid by Mr Vella, Craftmill, Buddies, or anyone else, whether as to the amount of the Basic Rent, or the amount of any increase in rental. Further, some of the outgoings which fell due prior to 25 June 1995 have not been paid, and the vast bulk of the amounts of council rates, water rates and land tax which fell due in the period since 25 June 1995 were not paid by Mr Vella or anyone connected with him.

The real estate agent sent Wah Lai monthly statements of rental collected, from June 1994 to May 1995 inclusive. On each of those statements the tenant was shown as “Buddies Liquor Pty L” . It has not been shown that anyone from Wah Lai (as distinct from its real estate agent) noticed or paid any particular attention to this identification of the lessee.

Relevant officers of Wah Lai were aware, from 21 July 1994, that Mr Vella was physically present on the premises, and involved in carrying on the hotel business there. They were aware, from the time of the first payment of rental, that rental and outgoings were being paid or caused to be paid by Mr Vella. 1995 – Steps Taken Concerning Rental and Outgoings Arrears

On 7 February 1995 Mr Touma wrote to Mr Vella about outstanding rental and outgoings, which then totalled a little over $16,000, threatening that “further action will be taken” if payment was not received in full within seven days. A copy of that letter was sent to Mr Meers, and another copy was sent to Mr Ellis Reuben, solicitor. On 8 May 1995 Mr Touma wrote again to Mr Vella concerning unpaid rental and outgoings, which by that stage were a little over $20,000. In each of these letters, the outstanding rental represented the $775 of rental increase which had become due under the rental escalation clause, but not been paid. On 19 June 1995 Mr Touma wrote again to Mr Vella about outstanding rent and outgoings, which by that time totalled nearly $27,000. By 19 June 1995 the unpaid rental was $7,600, made up of the $775 rental increase amount, plus $6,825 of more recently accrued rent.

By 15 February 1995 Mr Touma had instructed Mr Reuben to take some steps concerning the arrears. On 15 February 1995 Mr Reuben wrote to Buddies, referring to the Lease, and saying: “… I have been instructed by Peter A Simon Real Estate that Mr Paul Vella is in occupation of the premises at 1-3 Botany Road Waterloo. Under the terms of the Lease, it is a requirement that Council Rates, Water Rates and increases in rent be paid. I am instructed that the sum of $16,067.65 is currently outstanding to 7 February 1995 from Mr Vella. There appears not to have been a formal assignment of the Lease, although I am instructed that the Real Estate Agent gave a letter of consent to the proposed Transfer on behalf of the Lessor. I am instructed to commence legal proceedings against Mr Vella, but I am loathe to involve Buddies Liquor Pty Limited in view of the good relations that you have with the Real Estate Agent, Peter A Simon Real Estate, and with this firm. Perhaps you could see it clear to place some pressure on Mr Vella to meet his outstanding obligations.”

Mr Reuben’s retainer did not continue at that time. Around 28 April 1995 Mr Touma instructed Roxburgh & Co, solicitors, to recover the unpaid outgoings and outstanding rent from Mr Vella.

On 20 July 1995 Roxburgh & Co wrote to Mr Touma, under the heading “Re: Mr Paul Vella and Buddies Liquor Pty Limited” , saying: “I refer to your instructions to commence legal proceedings against Mr Paul Vella and Buddies Liquor Pty Limited. We have served a letter of demand with no response. Therefore, we intend to commence immediate legal proceedings.” The letter went on to request further instructions about the amount of rent and outgoings outstanding, and about whether a letter of consent to the assignment of lease had been given, and if so requesting a copy of it.

On 26 July 1995 Mr Touma faxed Wah Lai in Hong Kong, saying: “We advise that the tenant of the above address has not been co-operating in paying rent or outgoings. We recommend starting legal action to recover same. If you are agreeable please acknowledge your consent by signing and returning this fax.” The fax was signed by Dr Chan, and returned by fax to Mr Touma.

By letter dated 25 July 1995, but not faxed until 26 July 1995, Mr Touma replied to Roxburgh & Co’s letter of 20 July 1995. Though Mr Touma’s letter said he was providing a full breakdown of the amounts outstanding, and a copy of the letter of consent with regard to the assignment of lease, in fact he sent Roxburgh & Co details of the amount outstanding, and Wah Lai’s consent to starting legal proceedings, which Mr Touma had received a few hours before. On 27 July 1995 Roxburgh & Co asked Mr Touma to send any consent given to Buddies “to permit any purported transfer of Licence” by Buddies to Mr Vella. Mr Touma, on 27 July 1995, sent Roxburgh & Co a copy of the consent to transfer of the Lease dated 20 July 1994, signed by Wah Lai (para [19] above).

On 15 August 1995 Mr Touma wrote to Mr Vella, listing the outstanding rental and outgoings, which by that time totalled in excess of $38,000. The letter said, “[p]lease be advised that if payment is not received in full within seven (7) days further action will be taken.” After 15 August 1995, however, neither Mr Touma, nor anyone else on Wah Lai’s behalf, wrote any more letters of demand to Mr Vella, seeking outstanding rent or outgoings. This happened because Mr Reuben became involved in the matter once more, and took the view that Mr Vella was not Wah Lai’s tenant.

Prior to September 1995 Mr Touma had had discussions with Mr Reuben about Mr Vella, “mainly the registration of Mr Vella’s lease, Mr Reuben was always concerned it was never registered.”

On 14 September 1995 Mr Touma instructed Roxburgh & Co to transfer their file to Mr Reuben. That file had been opened in the name of “Peter A Simon Real Estate v. Mr Paul Vella” . When Mr Reuben received it he crossed out the reference to Mr Vella on the cover of the file, and wrote in a reference to “Buddies Liquor Pty Ltd & Anor” . The file contained, among other things: · a copy of Mr Touma’s letter of 25 July 1995 to Roxburgh & Co (para [71] above); · the letter of demand to Mr Vella dated 19 June 1995 (para [66] above); · Wah Lai’s written consent to commencement of litigation dated 26 July 1995 (para [70] above); and · Wah Lai’s consent to assignment of lease dated 20 July 1994 (para [19] above).

On 15 September 1995 Mr Touma faxed Wah Lai in Hong Kong, saying: “Attached please find various correspondence from South Sydney Council requesting various work to be done to ensure safety in the event of a fire. As you are aware there are legal proceedings going on to recover monies from the tenant, therefore we are asking to pay for the various works that will need to be carried out. The legal proceedings are progressing well at this stage and costs for these at the moment are $1500.00 to the solicitor, however if a barrister is required these costs will of course rise. Would you kindly sign and return this part of the fax to us if you are agreeable to the above fire requirements.” Part of the fax was a copy of several pages of the Fire Safety Order. The fax had on it a place for Wah Lai to sign. Dr Chan signed it, and returned it to Mr Touma, by fax, on 16 September 1995.

Notwithstanding Mr Vella’s evidence to the contrary, Mr Touma was not aware of the work required to be done pursuant to the Fire Safety Order until September 1995. Nor was Mrs Chan aware of that work until September 1995. Nor is there any reason to believe that any other person connected with Wah Lai had notice of the work required by the Fire Safety Order until September 1995.

On 19 September 1995 Mr Reuben sent to Mr Touma some draft pleadings. Those draft pleadings were for an action to recover outstanding rent and outgoings, and recover possession, where Wah Lai was the plaintiff, and Buddies and Mr Meers were the defendants.

On 20 September 1995 Mr Reuben wrote, on behalf of Wah Lai, to Buddies. The letter referred to the Lease from Wah Lai to Buddies and the obligation under that lease to pay rent and outgoings, and continued: “We are also instructed that you are in breach of clause 7(ii) as you have assigned, transferred, sub-let or parted with possession of the premises without the Lessors consent properly had and obtained. We are instructed that you are in breach of clause 15 of the Lease in particular Clause 15.1 and 15.5 of the Lease to procure those covenants and Powers of Attorney as required under the Terms of the Lease in favour of the Lessor by any assignee or transferee of the Lease. Search at the Land Titles Office discloses that you have mortgaged the interest in the Lease to Westpac Banking Corporation without the Lessors proper consent first had and obtained.” The letter gave notice that unless $36,776.29 was paid to Wah Lai by 5 October 1995 proceedings for recovery of that amount might be taken, and that other rights of Wah Lai (including its right to terminate the Lease) were reserved. The letter enclosed a Notice of Breach of Covenant, purporting to be under section 129(9) of the Conveyancing Act 1919 . That Notice related only to breach of obligations to pay rent and outgoings.

On 29 September 1995 proceedings number 13712 of 1995, in the Common Law Division of the Supreme Court of New South Wales (“ the Possession Proceedings ”), were commenced. The plaintiff was Wah Lai, and the defendants were Buddies and Mr Meers. The Statement of Claim pleaded the Lease of the Tavern to Buddies, failure to pay rent and outgoings in an amount totalling $36,776, and breaches of the Lease on the part of Buddies, in that Buddies had: “assigned, leased or parted with possession of the premises without the Plaintiff’s proper consent first had and obtained. … assigned, leased or parted with possession of the premises without the assignee, lessee or transferee first having entered into a covenant and agreement with the Plaintiff in accordance with the Lease. … mortgaged the Lease to Westpac Banking Corporation without the Plaintiff’s proper consent first had and obtained..”

Mr Meers was sued as a guarantor of Buddies’ obligations under the Lease. The prayers for relief included the sum of $36,776, damages, judgment for possession, leave to issue a writ for possession, and an order that the plaintiff may forfeit and terminate the Lease. Mr Reuben was the solicitor who filed the Statement of Claim on behalf of Wah Lai. The omission of Mr Vella from the list of defendants was not the result of any specific instructions which Mr Reuben received; rather, it was based on his own views about who the appropriate defendants were.

Mr Vella has given evidence that soon after a visit from a Council officer in around August 1994 (para [51] above), he met Mr Touma, and asked him what was going to happen with all the work that needed to be done. Mr Vella’s evidence is that Mr Touma told him that the owner would not be able to afford to do it, that Mr Vella expressed reluctance to spend money on a building which did not belong to him, but said that he would do the work, that Mr Touma asked him to get a quotation to see how much it would cost, and that Mr Vella said he would get Mr Simpson to give him a quote.

I do not accept Mr Vella’s evidence about discussing the Council’s requirements with Mr Touma as early as August 1994. Mr Touma denies having any such conversation at that time. He was not aware of those requirements until September 1995 (para [76] above). However, Mr Vella at some stage sought help from Mr Simpson concerning the Council’s fire requirements.

Mr Neil Simpson has qualifications in environmental health, and building, and has specialised in dealing with building issues relating to licensed premises. He had dealt with Mr Vella concerning other licensed premises with the operation of which Mr Vella had been involved, before the Tavern. Mr Vella had a limited ability to read and write English. Mr Simpson on occasions prepared documents and correspondence for Mr Vella, and read over and explained to Mr Vella incoming correspondence, and legal documents. He gave Mr Vella quite a thorough explanation of the requirements of the Fire Safety Order, and assisted him in seeking further advice in relation to matters such as a requirement for electrical wiring and other matters in which Mr Simpson did not have expertise. He also conducted some negotiations with the Council on Mr Vella’s behalf.

At some time, Mr Simpson prepared a letter dated 11 October 1994, addressed to Mr Vella headed “Re: Fire Safety Order” . It said, “We estimate the following costs” , and then gave a list of six items, each with a cost alongside it, and showed the total of those costs as being $44,490.

Though I cannot make a positive finding to this effect, it is at least a possibility that Mr Simpson’s letter dated 11 October 1994 estimating the costs of complying with the Fire Safety Order (para [84] above) was misdated. Whatever date it was first prepared on, it was sent to Mr Touma by fax on 13 October 1995. On the copy of the quotation which was faxed to Mr Touma on that day, Mr Vella had handwritten “Because the short time preparing the quotation, that we agree, could not put prices of all the fitting, required in the quotation” .

Ms Josephine Hui is the daughter of friends of Dr and Mrs Chan. Ms Hui has been the secretary of Wah Lai since 21 March 1995. She lives in Sydney, and sometimes helped Dr and Mrs Chan with business arrangements concerning the Tavern. She was the person to whom Mr Touma usually spoke if he needed instructions concerning the Tavern.

Mr Vella gives evidence that in early 1995 Ms Hui visited the Tavern with Dr Chan and Mrs Chan, that he showed them around the Tavern, and pointed out various items of work which would need to be done, of a kind referred to in the Fire Safety Order. I do not accept that either Ms Hui, or the Chans, made any such visit to the Tavern in early 1995. It is possible that Mr Vella is referring, in this evidence, to a visit Ms Hui, Dr Chan and Mrs Chan made to the Tavern on 6 February 1996.

On 26 October 1995 Mr Touma sent a fax to Wah Lai in Hong Kong, saying: “Attached is a quote for various works to be carried out at the above property. These repairs are considered urgent and money for these need to be banked into our trust account as soon as possible. We have been advised that Council will close the hotel if these works are not carried out.” The quotation attached to this fax was the one which Mr Touma had received on 13 October 1995 (para [85] above), complete with Mr Vella’s handwritten note.

On 29 October 1995 a letter was written on the letterhead of Patrick Simpson & Associates, addressed to Mr Vella, headed “Re: Fire Safety Order” . It said “we estimate the following costs” , and listed six items of work. Those items of work were described more fully than the items of work in the letter dated 11 October 1994 (para [84] above), but the same price was allotted to each of the six items as had been allotted in the letter of 11 October 1994, and consequently the total shown in the letter of 29 October 1995 was also $44,490.

Around the time of receiving the quotation dated 29 October 1995 Mr Touma had a conversation with Mr Vella, where Mr Vella asked “If I undertake the work to satisfy the fire service order, can the cost of the work be offset against the rent that is owing?” . Mr Touma said he would speak to the owners about it. Service of the Notice to Occupier

On 11 November 1995 Mr Ramshaw, a process server, attended at the Tavern, and served there a Notice of Claim for Possession, and a copy of the Statement of Claim in the Possession Proceedings. The Notice of Claim for Possession was addressed “To: Koleta Gleeson ‘the Occupier’” at the address of the Tavern. Mr Ramshaw gave the documents to a man behind the bar.

Mr Ramshaw has a practice of making a verbatim note soon after service of a document of any conversation that occurred at the time of service. On 30 November 1995 he swore an affidavit of service, which deposed to the person who was served saying “This is the Waterloo Tavern. Koleta Gleeson is the occupier, I’ll take that for her” , and “She is the only person in possession of the Property and no-one has come to the property or left it since the 29th September” . (29 September was the day the Possession Proceedings were started.)

The conversation which Mr Ramshaw deposes to is rather disjointed. It also attributes to the speaker a degree of specificity, which is at first sight surprising, in the remarks he makes to Mr Ramshaw, someone who was a complete stranger to him. However any reservations arising from these matters disappear when one realises that the affidavit includes no account of what Mr Ramshaw himself said. I accept that the substance of the words to which Mr Ramshaw deposed were said by the person to whom he handed the documents, and that the account of the conversation in his affidavit was based on his contemporaneous note.

There was a system at the Tavern whereby mail or any other documents which were handed to the person in charge of the bar were placed in a box behind the bar, and later distributed to the intended recipient. Notwithstanding the existence of that system, the documents which Mr Ramshaw served did not come to the attention of either Mr Vella or Ms Gleeson, until after the eviction had occurred. The Rental Offset Agreement

The letter of 29 November 1995 from the Council’s solicitors to Wah Lai, giving 60 days in which to do the work the Council required (para [57] above), created a heightened urgency, so far as Wah Lai was concerned, to find a way of having the work done.

In early December 1995 Ms Hui was told by Mr Touma that Mr Vella had made a proposal to Wah Lai concerning the Fire Safety Order and the rent owing on the premises. She instructed Mr Touma that the matter should be referred to the Chans in Hong Kong.

On 4 December 1995 Ms Hui sent a fax on behalf of Wah Lai to Mr Touma, saying: “Referring our telephone conversation this morning, we hereby authorise you to negotiate with the tenant in regard with the abovementioned property. The arrangement be tenant is paying for all the cost of the renovation in regard with the fire safety. Accounts is to be settled with their rents in arrears.”

On 7 December 1995, in Hong Kong, Mr Touma met Dr and Mrs Chan, and two of their friends who acted as translators, at a restaurant in the Mirramar Hotel. Mr Touma told Mrs Chan that he wanted her to do the fire safety work; Mrs Chan said she did not have any money. There was some discussion about the quotation, of $44,490 received from Mr Simpson. Mr Touma was told that Mr Vella could carry out the work required under the Fire Safety Order with the costs to be offset against arrears of rent.

On 15 December 1995 Wah Lai’s real estate agent wrote a letter addressed to Buddies, at the address of the Tavern, marked for the attention of Mr Vella, saying that the landlord had consented to an outside staircase being erected subject to council approval, and that “we note you are to wear the cost of same.”

Just prior to Christmas in 1995 Mr Touma handed to Mr Vella a copy of Ms Hui’s fax of 4 December 1995 (para [97] above). Mr Touma told him he could do the work to comply with the Fire Safety Order, and offset the costs against his arrears of rent. Though they were both aware that Mr Simpson had given his quotation, Mr Touma did not explicitly say that it was only work comprised in Mr Simpson’s quote which was authorised, or that there could be offsets only up to the amount of Mr Simpson’s quote, or that there was any other sort of upper limit on the amount that could be offset against the arrears of rent. There was no express statement that Mr Vella was to do the work within the time limited by the Fire Safety Order, or within any other particular time, or the 60 days from 29 November 1995 which the Council’s solicitors had required (para [57] above). It has not been shown that the Council’s imposition of that 60-day time limit was ever brought to Mr Vella’s attention.

Mr Vella gives evidence that around early 1996 he had a meeting with Mr Touma where a conversation to the following effect occurred: “Vella: “You know, don’t you, that the quote I gave you is not accurate?” Touma: “Why?” Vella: “We’ve realised that there is all sorts of work which will need to be done so that the Council’s requirements can be met. We have to do painting. We have discovered that the wiring has all been eaten by rats and will have to be replaced. We have water leaking from the rooms above onto the wiring so it is very dangerous. We have had to replace the doors to all the upstairs rooms and the windows above the doors have to be covered with fireproof material. We needed to put in fireproof carpet upstairs. The other big issue is that we will have problems using the original staircase. Either we will have to brick in the garage door and put in a proper exit door, which will mean that we can’t use the garage for any other purpose, or else we will have to put a steel staircase on the outside of the building. If we do that, then everyone will have a clearer exit into the carpark from the building if there is a fire. I think that the safest and quickest way is to put a staircase on the outside of the building.” Touma: “Well you have to do what you have to do to get the premises to comply with the Council’s orders. You should go ahead and do what is necessary.” Vella: “It’s going to cost a lot more than $44,000.” Touma: “We’ll work it out when you finish the work.”

Mr Touma swore an affidavit which dealt, paragraph by paragraph, with Mr Vella’s affidavit evidence. Concerning the conversation I have just set out, his only evidence was to deny that the words attributed to him in the last line were said. Given Mr Vella’s general unreliability as a witness, I prefer Mr Touma’s evidence on that point.

As to the rest of the conversation, apart from the last line attributed to Mr Touma, I am not persuaded that all the detail recounted by Mr Vella was said. There was no council requirement to do painting. Such replacement of wiring as had taken place was all done by June 1995. The issue of an outside staircase had already been discussed between Mr Vella and Mr Touma in December 1995. However, I am satisfied that Mr Touma was aware, in early 1996, that the work might exceed $44,000 in cost. The handwritten note on Mr Simpson’s first quote (para [85] above) was enough to inform him of that possibility.

On 2 July 1996 a letter signed by Dr Chan was written to an officer of the Council requesting the adjournment of Land and Environment Court proceedings which were listed for 16 July 1996. In the course of that letter he said: “We have made previous arrangement with the former lessee (the premise was leased to Mr Paul Vella) that he would carry out the necessary work as required by the Council and all the expenses for the work done will be used to offset against the monthly rental paid to us. However the lessee has default the Lease agreement, leaving twelve months rental unpaid, council rates, water rates and Land Tax were unpaid by the lessee. We have no alternatives but to apply in the Supreme Court of New South Wales for a Court Order to repossess the premise on 14 May 1996.” (Italics added) I find that the italicised portion of this letter accurately sets out the substance of the agreement which was made between Wah Lai and Mr Vella in December 1995. Building Work Done at the Tavern

Over a period from October 1994 to May 1996 Mr Vella engaged various tradesmen to carry out work at the Tavern. For reasons set out in the First Schedule to this judgment, (para [251] ff below) the performance of that work entitles Mr Vella to a setoff of $61,820 pursuant to the rental setoff agreement. 1996 – Events Re Obtaining Possession of the Tavern

Dr and Mrs Chan flew to Australia, arriving in Sydney on the morning of 6 February 1996. They went that morning, with Ms Hui, to inspect the Tavern. Mr Vella was there at the time. Mrs Chan’s contemporaneous diary note (translated) is that “no repair was done” . Mr Vella gives evidence, which I accept, that Ms Hui asked him when he was going to start paying rent, to which he replied “Josephine, that’s not a problem. As soon as I have finished, which won’t be very long, the solicitors can sit down and work out who owes what.”

That night, Dr and Mrs Chan and Ms Hui had dinner with Mr Touma. The directors of Wah Lai decided that it would be in the company’s interests to retake possession of the Tavern and have it sold at auction. They decided that, if possession was obtained, Ms Hui should take over the liquor licence. Mr Touma was instructed to retain Mr Reuben to commence possession proceedings against the lessee immediately. The Chans do not seem to have appreciated that the Possession Proceedings, which Mr Reuben had commenced on 29 September 1995, already contained prayers for relief in the form of an order for possession.

On 15 February 1996 Mr Reuben swore an affidavit under Part 40, rule 11 Supreme Court Rules 1970 in the Possession Proceedings, which included the following statements: “1. Annexed and marked with the letter “A” is a search from the Liquor Administration Board dated 21 July 1995 which discloses that Koleta Gleeson is in occupation of the land the subject of these proceedings. 2. A notice pursuant to Part 7 rule 8(1)(b) has been served on Koleta Gleeson on 11 November 1995 and has been filed herein.” The affidavit annexed a search which Mr Roxburgh had made at the Liquor Administration Board on 21 July 1995, which showed that Mr Vella had been licensee from 14 September 1994 to 2 November 1994, that Mr Piastri was licensee from 2 November 1994 to 20 December 1994, and that Ms Gleeson was licensee from 20 December 1994 onwards. The search showed that Buddies was the business owner from 26 March 1993 to 20 December 1994, and Craftmill was the business owner from 20 December 1994 onwards. The licence owner was shown as being Buddies from 26 March 1993 onwards.

On 28 February 1996 Mr Reuben told his legal searcher that on 14 and 15 February he had filed an application for judgment and a writ of possession relating to the Tavern, and asked the searcher to check at the Supreme Court and find out the current position concerning the minute of judgment and writ of possession. Mr Reuben was informed, on 29 February 1996, that Buddies had filed a Defence on 21 February 1996.

On one occasion, which cannot be precisely placed in time but is likely (ignoring any questions of onus) to have been in February or the first week of March 1996, and after the meeting over dinner on 6 February 1996 (para [107] above), there was a meeting between Mr Touma, Mr Vella, and Mr Simpson. At that meeting Mr Touma said words which Mr Vella recalled as “Wah Lai going throw you out” . Mr Touma told them that he had advised Wah Lai that the hotel would be better utilised as a number of subdivided shops, and also told them that there was a problem with Mr Vella’s lease. Mr Touma also told them that he thought that Wah Lai wished to subdivide the property, and that Mr Vella might think about moving. Mr Touma told them that Mr Vella did not have a lease, and that he (Mr Touma) was there to discuss the work which could be carried out, to offset the rental arrears. He said that the Fire Safety Order work had to be done, and consistently with the practice of the Licensing Court, there should be some apportionment of the cost between landlord and tenant, or an offsetting against rent. There was a discussion between them about what work was being carried out, in the course of which Mr Vella and Mr Simpson showed Mr Touma the external metal fire stairs, which at that stage had not been installed but were lying on the ground. Mr Touma said that there would still be a difference in the cost of the repairs according to the quotations, and the rental arrears. Mr Vella then took Mr Touma upstairs and explained to him that in addition to the work set out in the quotation the entire roof had to be replaced to prevent water getting onto the electrical wiring. Mr Touma said he wanted receipts for the work that was carried out. I will refer to this meeting as “ the “You’ve Got No Lease” meeting ”.

Mr Touma’s statement at this meeting that Mr Vella had no lease caused Mr Vella to become quite agitated. Mr Simpson and Mr Vella decided that Mr Vella should obtain some legal advice, and for that purpose engaged Mr Michael Kirkpatrick, solicitor. One of the tasks which Mr Kirkpatrick was instructed to perform was to try to organise a fresh lease for Mr Vella. Mr Kirkpatrick was not called as a witness.

On 7 March 1996 Mr Kirkpatrick wrote to Mr Vella, thanking him for his instructions to act, setting out a basis of charging, and also identifying the tasks which he was engaged to carry out: “1.1 contact the solicitor for the landlord of 1 Botany Road, Waterloo, which is Wah Lai Investment (Australia) Pty Limited. Then try to arrange a meeting with the landlord and you and us to discuss having you replace Buddies Liquor Pty Ltd as the lessee of 1 Botany Road. 1.2 read all of the documents which you have given us regarding the lease and sub-lease over 1 Botany Road. 1.3 have a conference with you and Mr Neil Simpson to get the whole background of this problem. 1.4 make any further necessary enquiries before having the meeting with the landlord or its solicitor, so that we are fully prepared for that meeting. 1.5 have the meeting with the solicitor for Wah Lai Investment (Australia) Pty Limited and you and us. The purpose of trying to have this meeting is to have you installed as the lessee and to come to some satisfactory arrangement with the landlord over the payment of the repairs which you have made to the property so that it complies with Fire Regulations and stops leaking water. If the landlord refuses to negotiate with you about either taking over the lease or paying for some or all of the costs of the repairs, we will discuss with you then what we consider is the next best course of action.” The evidence did not identify the documents which Mr Vella gave to Mr Kirkpatrick “regarding the lease and sub-lease over 1 Botany Road” . From the terms of this letter, Mr Kirkpatrick had, I infer, been instructed that Mr Vella was not the lessee of the Tavern, but wanted to become its lessee.

There were three or four meetings attended by Mr Kirkpatrick, Mr Vella and Mr Simpson. Those meetings occurred, at times which cannot be precisely placed, over the period from when Mr Kirkpatrick was first engaged, until a couple of weeks after Mr Vella was evicted from the hotel. Mr Simpson’s recollection, which I accept as accurate, is: “At the meetings with Mr Kirkpatrick, I can recall … that Mr Kirkpatrick was concerned that the matter needed to be sorted out very urgently to prevent any action and Mr Kirkpatrick virtually took the role of a negotiator to try and organise a fresh lease for Mr Vella. He discussed his role as being that, in my presence.”

On 8 March 1996 Mr Kirkpatrick wrote to Mr Vella saying: “We have spoken to the solicitor for Wah Lai Investment (Australia) Pty Limited. We have both agreed in principle that: 1. we will organise for a building and quantity surveyor to inspect all of the repair work which you have effected at the Waterloo Tavern. He will then prepare a written list of that work done and what it should have cost to do. 2. we will send that list of prices to the solicitor for Wah Lai Investments. 3. Wah Lai Investments will deduct the total on that list of prices, off the outstanding rent which is owed to Wah Lai Investments. The solicitor for Wah Lai Investments claims that about $70,000.00 is outstanding. 4. You will pay the balance of the outstanding rent in exchange for a new lease over the property. Wah Lai Investments will include a covenant in this new lease that it will complete all of the repairs to the property. In accord with our letter to you of 7 March 1996, would you please send us a retainer of $1000 before we proceed with the matter.” I note that this letter proceeds on the basis that the amount which Mr Vella had paid for repairs was less than the amount of outstanding rent.

Mr Reuben gave affidavit evidence that he had a telephone conversation with Mr Kirkpatrick on 8 March 1996 to the following effect: KIRKPATRICK: “I am Michael Kirkpatrick and I act for Mr Vella in relation to the Waterloo Tavern.” REUBEN: “Our client has commenced legal proceedings in the Supreme Court seeking possession of the premises.” KIRKPATRICK: “I want to try and resolve this matter, and is there any way that we can? My client has done work on the premises.” REUBEN: “Without prejudice, there is a Fire Order that affects the premises and if work has been done on the premises which you say should be set off against (outstanding) rent then the only way this can be resolved, is, that you should appoint a quantity surveyor to show all work done and all outstanding rent has to be paid otherwise I cannot obtain instructions to attempt to resolve the matter. In the meantime, we are proceeding in the Supreme Court of New South Wales to get Orders for possession of the premises. This may be a way of resolving the matter but you will have to act quickly as we are proceeding to get Orders for possession of the premises.”

Mr Reuben’s file note of that conversation is a handwritten contemporaneous note which does not purport to be a complete account of the conversation. It says: “A Mr Kirkpatrick phoned – said he acted for Vella. I said we had commenced legal proceedings – he said want to try & resolve matter is there any way – said – without prejudice – you get quantity surveyor to show all work done & rent outstanding be paid. In the meantime we are proceeding in Supreme Court. This may be a way of resolving the matter – but you would have to act quickly as we are proceeding”. In other words, Mr Reuben’s note does not expressly confirm that he said that the Supreme Court proceedings were ones where orders for possession were sought. In cross-examination, Mr Reuben could not recall in the witness box whether or not he had told Mr Kirkpatrick that the proceedings were ones for possession. In all other respects I accept his account of the conversation.

On 14 March 1996 Mr Reuben wrote to the firm of solicitors of which Mr Meers was a member enquiring whether Buddies and Mr Meers would consent to the orders for possession and leave to issue a writ of possession. He said that if consent was not given, he would seek to have the Defence struck out. No request was made for Buddies or Mr Meers to consent to the orders for payment of arrears of rent, or damages.

On 18 March 1996 Mr Meers’ firm replied, saying, amongst other things: “We are instructed that your client consented to the assignment of the lease in question. This fact is acknowledged by you and your client’s agent in various correspondence. As such, our client does not in fact have possession of the premises and we are at a loss to understand upon what basis you will be seeking possession from our client. In any event, you would of course require a judgment before obtaining an order for possession. … neither of my clients are in a position to consent to any orders regarding possession.”

On 19 March 1996 Mr Reuben filed a Differential Case Management Statement (“ DCM Statement ”) in the Possession Proceedings. That document identified Mr Vella as a person from whom Buddies may be entitled to contribution or indemnity if Wah Lai obtained judgment against Buddies. He identified the letter from Mr Meers to Peter A Simon Real Estate Pty Ltd dated 6 July 1994 (para [16] above) as the document giving him that belief.

The DCM Statement said that discovery of documents may be required in the event of a defence as to: “The legal status of any assignee or sub-lessee ie whether they are assignee or sub-lessee of the Defendant and the documents relating thereto (if any). To determine whom the person currently holding the liquor licence of the premises are contractually related ie whether the Defendant or other party … In the event that the Defendant does not discover documents determining the legal status of any occupant of the premises the Plaintiff may have to interrogate the Defendant.”

On 22 March 1996 Mr Reuben wrote to Wah Lai explaining the position which the Possession Proceedings had reached, up to Buddies’ refusal to consent to judgment for possession. He continued: “An application has to be made to the Supreme Court of New South Wales that judgment be entered so that we can get possession of the property at least. Mr Nelson Meers has said that he will consent to a Judgment for Possession of the property if he is released from any liability in respect of any outstanding rent. This cannot be the case. In the circumstances I intend to brief counsel to prepare the necessary documents for an application to the Supreme Court of New South Wales to urgently apply for Judgment for Possession of the Premises.” He went on to request funds to enable that to be done.

On 2 April 1995 Mr Meers’ firm wrote to Mr Reuben, saying that their clients would consent to the judgment asked for, on conditions which included: “The Defendants be given the opportunity to be involved in any discussions between the Plaintiff and Mr Paul Vella, or any persons on their behalf, regarding the resolution of the issues giving rise to these proceedings, or the proceedings themselves.”

On 12 April 1996 Mr Meers’ firm wrote to Mr Reuben, enclosing executed consent orders.

Also on 12 April 1996 Mr Rueben had another telephone conversation with Mr Kirkpatrick. Mr Reuben’s account of that telephone conversation is that he said words to the effect: “There is a large amount of rent due. I will get the details of how much rent is due and send it to you. In the meantime rent continues to be in arrears and my instructions are to proceed in the Supreme Court to get Orders for possession of the premises.”

Mr Reuben’s contemporaneous diary note is dated 12 April 1996, and says: “I said large amount of rent due – I would get details and send to him. Rent continues to be in arrears & instructions are to proceed“ Again, Mr Reuben’s contemporaneous note contains no record of him having told Mr Kirkpatrick that what he was proceeding with was obtaining orders for possession. I am not satisfied Mr Reuben told Mr Kirkpatrick that the orders sought were for possession, but otherwise I accept his account. Mr Reuben did not in fact send Mr Kirkpatrick details of how much rent was due until 13 May 1996, the day before the eviction.

On 15 April 1996 Mr Kirkpatrick wrote to Mr Simon, of Peter A Simon Real Estate Pty Limited, a letter headed “Paul Vella and the Waterloo Tavern” , saying: “We act for Mr Vella, the Licensee of the Waterloo Tavern. We have initiated discussions with the solicitor for the owner of the property. We are negotiating the payment of outstanding rent by our client, less the cost of building work carried out by our client to ensure that the property complies with fire regulations. For this purpose, would you please send us a copy of the correspondence on your file concerning alterations to the property so that it complies with fire regulations. Would you please send us also details of rent and other payments claimed by the owner of the property.”

On 17 April 1996 orders were made by the Supreme Court in proceedings number 13712 of 1995 by consent of Wah Lai, Buddies and Mr Meers. The orders were that Wah Lai be granted possession of the Tavern, and leave to issue a Writ of Possession. The Court order bears a note that: “the Defendant to be given the opportunity to attend and be consulted in respect of any agreement or resolution between the Plaintiff and any Third Party regarding resolution of the issues giving rise to these proceedings or the proceedings themselves.”

On 26 April 1996 Mr Reuben wrote to Wah Lai reporting that orders for possession had been made, that a writ for execution would issue, and continuing: “We then intend to serve the writ in relation to the premises and in the event that Mr Vella wishes to meet and conduct negotiations relating to payment, we intend to call a conference when all parties will be present including Mr Meers and Mr Vella and the representatives of Wah Lai …”

On 29 April 1996 the Court granted leave to Wah Lai to issue a Writ of Possession. A Writ of Possession issued on that same day.

On 6 May 1996 a Notice to Vacate, addressed to ”Buddies Liquor Pty Ltd, Nelson Meers … or occupier” was issued by the Sheriff. It stated: “The Sheriff is commanded to place the abovenamed Claimant in possession of the lands and premises described hereunder. All occupants are hereby warned that they must vacate the premises without delay – in any event no later than 10.30am Tuesday 14/5/96 otherwise action to evict will proceed without further warning.”

On 8 May 1996 Mr Kirkpatrick wrote to Mr Reuben, saying: “I refer to our telephone conversations on 8 March and 12 April 1996. A Quantity Surveyor is inspecting the premises at 1 Botany Road to report independently on the cost of the works done to date by my client to ensure that the premises comply with the Orders by South Sydney Council concerning fire regulations. I expect that this report will be available by 13 May 1996. I will send you a copy of it as we discussed. Together, we can then finalise the amount of rent owed. My client will deliver a bank cheque for the balance of the rent due and sign a fresh lease for occupation of the premises. As agreed in our conversation on 12 April, please send me details of the rent which your client says is due and details of the state of the Supreme Court proceedings against Mr Meers. Will you also please send me a copy of the new lease.”

Mr Reuben’s file shows that on 9 May 1996 Mr Kirkpatrick telephoned Mr Reuben’s office “Re Paul Vella” and left a message for Mr Reuben to ring back. Mr Reuben did not do so.

On 13 May 1996 Mr Kirkpatrick wrote to Mr Reuben, saying: “I refer to my letter of 8 May 1996 and the two telephone messages left for you to contact me. My client has shown me a copy of a Notice to Vacate served on him. Would you please make contact with me and let me know if your client no longer intends to offset the cost of the renovations done against the amount of rent which is said to be due. We are ready to meet with you and I enclose a copy of the facsimile dated 4 December 1995 from your client to the real estate agent about the point.”

Mr Reuben wrote to Mr Kirkpatrick on 13 May 1996 saying: “We refer to your letter of 8 May 1996. We advise that the position is as follows:- 1. Judgement has been entered and Wah Lai Investment Australia Pty Limited is entitled to possession of the premises. 2. A Writ of Execution has issued from the sheriff to obtain possession of the premises. 3. The current outstanding rent is $115,697.75. Contrary to your instructions, it does not appear that any works have been carried out to satisfy the Council in relation to the premises so that the premises would comply with any fire order. In the circumstances, my instructions are, that the owners of the premises will insist of retaking possession of the premises by virtue of the orders obtained in the Supreme Court of New South Wales.”

Also on 13 May 1996, Mr Meers’ firm faxed Mr Reuben, saying: “As you are aware, my clients now feel that it is appropriate to join Mr Paul Vella, the current occupier of the Hotel premises, to these proceedings. It may assist the Defendants if they are able to inform the Court that the Plaintiff has no objection to this course of action. Accordingly I attach a draft Notice of Motion and Order, seeking to join Mr Vella as Cross-Defendant, for your comments. As I wish to file the Motion tomorrow, I would appreciate it if you would let me have any comments you may have on my clients’ proposed course of action by midday tomorrow.”

On 14 May 1996 the Sheriff evicted those persons then in occupation of the Tavern. Mr Reuben was present while possession was given, being at the Tavern from 10.30am to 12.30pm, and again from 2.45pm until 4.00pm. Mrs Chan was also present.

On 16 May 1996 Mr Reuben wrote to Wah Lai reporting that possession had been obtained, and saying: “The current position of the proceedings is as follows:- 1. Buddies Liquor Pty Limited and Nelson Meers intends to defend this action on all grounds other than in relation to possession of the premises. 2. Buddies Liquor Pty Limited and Nelson Meers intend to join Mr Vella as a defendant. We have received a written notice that Mr Vella will be joined in the action. 3. We enclose correspondence which we have received from the solicitors for the South Sydney Municipal Council. This shows, that no repairs and alterations were made as represented by Mr Vella and that what Council requires is a report from an engineer stating what repairs will be required in the circumstances.”

On 22 May 1996 Mr Reuben wrote to Mr Meers’ firm, saying that Wah Lai had no objection to the filing of a third party notice against Mr Vella, and reporting that Wah Lai had obtained possession on 14 May 1996.

On or about 24 May 1996 Wah Lai retained an auctioneer, Mr Quinlan, to auction the Tavern for it. Mr Quinlan advertised the premises of the Tavern for an auction sale, which was due to take place on 18 July 1996. A statement prepared for the information of prospective purchasers in connection with that proposed auction described it as “formerly a hotel” and said that “the property’s proximity to the City makes it ideal for development” . That auction did not proceed.

On 29 May 1996 Mr Reuben wrote to Mr Meers’ firm, referring to the taking of possession, and saying: “Mr Vella: 1. Hindered the office of the Sheriff by causing each of the rooms at the premises to be occupied, and therefore additional charges to be incurred of $2,880.00 payable to the Office of the Sheriff. 2. Search at the Liquor Administration Board shows that Mr Vella was, and is in arrears in payment of the L.A.B. fees and filing returns thereby causing the Licence of the premises to be in jeopardy of cancellation. 3. Failed to do the works required by South Sydney Council in relation to fire safety Ordinances, thereby causing Council to threaten proceedings for closure in the Land and Environment Court, and further causing jeopardy to the Licence of the premises. 4. Kept the premises in a state that could only be described as filthy and in breach of Health regulations. The Directors of Wah Lai Investments (Australia) Pty Limited have taken the view that they do not wish to deal further with Mr Vella.” Events After Possession Obtained

On 11 July 1996 Wah Lai lodged at the Land Titles Office a request, under section 55 of the Real Property Act 1900 , for the Registrar-General to cancel the recording of the Lease, on the ground that Wah Lai had, on 14 May 1996, re-entered and recovered possession.

There has been much litigation between Mr Vella (and people associated with him) and Wah Lai, since Wah Lai obtained possession of the hotel. I mention only some of it here. On 31 July 1996 Mr Vella began proceedings 2907 of 1996 in the Equity Division of this Court, against Wah Lai. On 22 August 1996 an interlocutory injunction was made, by consent, until further order, restraining the Registrar-General from registering the transfer of lease which Mr Vella had lodged, and also restraining the Registrar-General from recording the request which Wah Lai had lodged. On 10 September 1996 Wah Lai gave the Court an undertaking, with effect until further agreement or order, not to take any further steps to cause to be recorded any dealing removing the Lease from the register or removing the Transfer of lease, and not to deal with the liquor licence.

On 28 November 1996 Mr Vella filed a Notice of Motion in the Possession Proceedings, seeking, amongst other things, that the judgment for possession obtained on 17 April 1996 be set aside, and that he be added as a defendant in the proceedings. That Notice of Motion came on for hearing before Sully J on 19 September 1997.

On 29 January 1998 Sully J delivered judgment, in which he dismissed Mr Vella’s Notice of Motion. In broad terms, his Honour held that Mr Vella was not an occupier of the premises after November 1994, but rather Craftmill and Ms Gleeson were occupiers; further, Mr Vella’s application to be joined as a party to the proceedings failed because he had, by the time he made that application, been out of possession of the premises for many months.

On 17 June 1998 Bryson J delivered judgment in an interlocutory application made in proceedings 2907 of 1996 in the Equity Division. That application was a Notice of Motion by Wah Lai, seeking a discharge of the interlocutory injunction made on 22 August 1996, and a release from the undertaking which Wah Lai had given to the Court on 10 September 1996. His Honour granted Wah Lai’s application.

On 11 December 1998 Windeyer J delivered judgment on an interlocutory application made in proceedings 4900 of 1998. That application was one made by Mr Vella, seeking to restrain the Registrar-General from registering Wah Lai’s request to remove the Lease from the Register until the resolution of proceedings in matter number 2907 of 1996 in the Equity Division. Alternatively, Mr Vella sought an order, in the nature of a Mareva order, restraining Wah Lai from dealing with $750,000 of the proceeds of sale of the Tavern. His Honour refused both those applications. In consequence, the Lease has been removed from the Register. Rights of Mr Vella and Craftmill as Tenants

The Lease from Wah Lai to Buddies was registered under the Real Property Act 1900. Section 41 Real Property Act 1900 says: “(1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, … but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass …”

Section 3 Real Property Act 1900 defines “Land” as including “Land … tenements … or any estate therein …” . Section 46 Real Property Act 1900 says: “Where land under the provisions of this Act is intended to be transferred … the proprietor shall execute a transfer in the approved form.” Whether or not the leasehold interest of Buddies was an “estate” in land ( cf Hargreaves & Helmore, An Introduction to the Principles of Land Law (New South Wales) p.48), it was a “tenement” , and so it counted as “land” for the purposes of the Real Property Act 1900. Thus, it could only be transferred by registration of an approved form of transfer. While such a transfer was handed over by Buddies to Mr Vella, it was never registered. In consequence, Mr Vella does not have any rights in the Lease of a kind recognised by the Real Property Act 1900 .

Mr Vella puts his case, however, on the basis that he has equitable rights in the Lease. Rights Arising From Specific Enforceability of Agreement to Assign Lease?

One way in which he puts this is that there was an assignment for value of the Lease from Buddies to him. He says that it was in writing (namely, the combination of the Agreement for Sale of Business, and the assignment document itself), that in any event there has been part performance of the agreement to assign (by his going into possession, paying rent, and carrying out various other activities as though he were an assignee of the Lease), that the agreement to assign was specifically enforceable, and hence that he should be regarded as being in the same position as he would have been if there had been a legal transfer of the Lease.

That analysis may well have been appropriate if what Mr Vella was trying to do was to establish, as against Buddies, that he was, in the eyes of equity, an assignee of the Lease. But equity acts in personam , holding, on the basis of the knowledge, actions and inactions of a particular person that that particular person is bound to act in a particular way in relation to another particular person. That Buddies might have been bound to treat Mr Vella as an assignee of the Lease, does not lead to a conclusion that anyone else, including in particular Wah Lai, is bound to treat Mr Vella as an assignee of the Lease.

In what I have just said, I am not making a positive finding that Mr Vella would have been entitled to specific performance of an agreement to assign against Buddies. Buddies is not a party to the present proceedings – a fundamental prerequisite of any litigation about whether Mr Vella is entitled to specific performance of that agreement. As well, the failure of Mr Vella to pay the purchase price under the Agreement for Sale of Business might possibly (depending on what the precise arrangement was between Mr Vella and Buddies, which led to it not being paid) create difficulties for his obtaining specific performance of the agreement to assign against Buddies. That the term of the Lease has now expired, and the Lease has now been removed from the Register, might also create difficulties in specific performance now being granted.

Mr Vella relied upon three cases. The first of them was Walsh v Lonsdale (1882) 21 Ch D 9. In that case, the plaintiff and defendant had agreed that the defendant would lease a mill to the plaintiff, on terms which required a certain part of the rent to be paid in advance. The plaintiff went into possession, and paid rent in arrears for some years. The defendant made a demand for the rental which it claimed was payable in advance, then two days later, when that amount had not been paid, put in a distress. The plaintiff began an action claiming damages for improper distress, an injunction to restrain the defendant from selling under the distress and from continuing in possession, and specific performance of the agreement for lease. Fry J granted an interlocutory injunction requiring the defendant to withdraw from possession under the distress, on terms that the plaintiff pay into court the amount the defendant claimed. The plaintiff appealed against the imposition of that term on the grant of the interlocutory injunction.

At the appeal, the plaintiff based one strand of his argument on a question of principle. He said that he was a tenant from year to year at law, and that at law the tenancy which existed was one whereby the rent was payable in arrears. Distress being a legal remedy of a landlord, the plaintiff submitted, it could not arise from a mere agreement to lease.

The Court of Appeal continued to require it as a term of the interlocutory injunction that money be paid into court, though the amount required was reduced, because the Court of Appeal took a different view to Fry J about the proper construction of the rental clause in the agreement. Further, on the appeal it was conceded that the agreement for lease was one which was specifically performable. It was in that context that Jessel MR made his oft repeated statement, at 14-15: “Now since the Judicature Act the possession is held under the agreement. There are not two estates as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease. He holds, therefore, under the same terms in equity as if a lease had been granted, it being a case in which both parties admit that relief is capable of being given by specific performance. That being so, he cannot complain of the exercise by the landlord of the same rights as the landlord would have had if a lease had been granted. On the other hand, he is protected in the same way as if a lease had been granted; he cannot be turned out by six months’ notice as a tenant from year to year. He has a right to say, “I have a lease in equity, and you can only re-enter if I have committed such a breach of covenant as would if a lease had been granted have entitled you to re-enter according to the terms of a proper proviso for re-entry.” That being so, it appears to me that being a lessee in equity he cannot complain of the exercise of the right of distress merely because the actual parchment has not been signed and sealed.”

Cotton LJ was much more circumspect, framing his judgment in terms of what was an appropriate way of preserving each party’s rights on an interlocutory basis, though acknowledging that there was (at 17): “at least such a prima facie case in favour of the Defendant that we ought not to deprive him of the security which the distress gives him without the Plaintiff paying into Court that which will be sufficient security for the Defendant if he is right in his contention …”

Lindley LJ, at 17-18, appears to have stated a view that recognises the existence of the right of the landlord to distrain against someone who has possession under a mere agreement for lease by saying that, if a particular construction were adopted of, “… the provisions in the lease… which relate to the payment of rent in advance … the power of distress accordingly would be let in so far as regards the minimum rent.”

The remarks of Jessel MR in Walsh v Lonsdale oversimplify the situation which exists when there is a specifically performable agreement for lease: Chan v Cresdon Proprietary Limited (1989) 168 CLR 242 at 250 – 252; Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies , 4th ed, para [2-180] – [2-225]. However, what is of particular present relevance is that Walsh v Lonsdale was a case where the parties to the agreement for lease were the parties to the litigation the court was deciding. Walsh v Lonsdale is not authority for the proposition that an agreement for disposition of an interest in land which is specifically performable has any effects on a person who is not a party to the agreement: Manchester Brewery Company v Coombs [1901] 2 Ch 608 at 618; Chronopoulos v Caltex Oil (Australia) Pty Ltd (1982) 70 FLR 8 at 15-16; 45 ALR 481 at 489; Chan v Cresdon Proprietary Limited (1989) 168 CLR 242 at 253. In other words, even if there were a specifically performable agreement to assign the Lease between Buddies and Mr Vella, that would not, of itself, have any effect on the rights or obligations which existed as between Mr Vella and Wah Lai. That Wah Lai gave its consent to an assignment of the Lease to Mr Vella does not make it a party to any agreement to assign.

The second case Mr Vella relied upon was Ferguson v Hullock [1955] VLR 202. In that case, Mrs Hullock owned a property, and at the time of judgment was in possession and personal occupation of it. She had sold the business she conducted in the property to Mrs Cook, and given Mrs Cook a five-year lease, containing a covenant that Mrs Cook would not assign without written consent. Mrs Cook purported to assign her leasehold rights to Tonkin, but without the consent (either written or verbal) of Mrs Hullock. Tonkin entered into possession of the premises, to the knowledge of Mrs Hullock, and paid rents to her. Tonkin then in turn sold his right title and interest in the premises to Mrs Ferguson, who operated them for a while by an agent. Before Mrs Ferguson could personally take possession of the premises Mrs Hullock took back possession, and resisted by force any attempts on Mrs Ferguson's part to displace her. In the action, Tonkin and Mrs Ferguson sought a court order enabling one or other of them to recover possession of the premises from Mrs Hullock.

Gavan Duffy J proceeded on the basis (at 205) that Tonkin had at least a weekly tenancy from Mrs Hullock, arising from his payment of rent to Mrs Hullock, and that that tenancy was assignable. His Honour explicitly refused to find exactly what tenancy Tonkin had, whether it was for the residue of the lease given to Mrs Cook, from year to year, or some other tenancy. He held that the mere assignment by Tonkin without consent did not operate as a forfeiture, or as a surrender by operation of law, of Tonkin’s tenancy. That led to a conclusion (at 206) that: “Tonkin is entitled to recover possession from the defendant unless he has divested himself of the right to it in favour of Mrs Ferguson.”

His Honour held that there was a specifically performable contract to assign between Mrs Ferguson and Tonkin. That contract was not enforceable (qua contract) against Tonkin because it was not in writing, and hence contravened the then Victorian equivalent of section 4 Statute of Frauds or section 54A Conveyancing Act 1919 . However, notwithstanding the then Victorian equivalents of sections 23C and 23E Conveyancing Act 1919 , the contract was enforceable in equity because there had been part performance. That led to a situation where (at 207): “Mrs Ferguson might then be said to have a good enforceable promise to assign which would, applying the principles of Walsh v Lonsdale (1882), 21 Ch D 9, give her a good equitable assignment and a right to possession of the premises, her assignor who is a party to these proceedings being a mere trustee for her...”

That decision is properly understood as one in which the equity of specific performance was being asserted as between Tonkin and Mrs Ferguson. It was a suit to which Tonkin and Mrs Ferguson and Mrs Hullock were all parties. As between Tonkin and Mrs Hullock, Tonkin had a right to possession, and as between Tonkin and Mrs Ferguson the effect of the specific performability of the contract to assign was that he was a mere trustee for her of his rights. In that situation it was appropirate for the rights of all three parties to be worked out by holding that, ultimately, it was Mrs Ferguson who had the right to possession. This did not involve, however, any equity, or any other right, being asserted by Mrs Ferguson directly against Mrs Hullock.

In the present case, when Buddies is not a party, it is not possible to come to a conclusion about the specific performability of the contract for assignment of the Lease. Indeed, that question has not really been litigated. What is of present relevance is that the decision in Ferguson v Hullock does not provide a basis for treating Mr Vella as having, before any such specific performance has been granted, any rights in equity against Wah Lai concerning the Lease.

The third case upon which Mr Vella relies is Colman v Golder [1957] VR 196. That was a case where the plaintiff was tenant of some premises. Possession of those premises had indisputably passed from the plaintiff to the defendant. The plaintiff brought ejectment proceedings against the defendant in a Court of Petty Sessions. The plaintiff asserted that the defendant was his subtenant, while the defendant said that he was in possession under a verbal agreement whereby the plaintiff agreed to assign the plaintiff's interest in the premises to the defendant. The reported decision was of an application, in the Supreme Court of Victoria, to review the decision of the magistrate upholding the defendant's contention. It turned on the nature of the connection which needs to exist between acts of part performance, and the contract of which specific performance is sought. The case decides nothing about how equities arise between any parties other than the assignor and assignee.

I conclude that Mr Vella has not demonstrated that he has any rights against Wah Lai arising from the (possible) specific performability of his agreement with Buddies for assignment of the Lease. Rights Arising from Estoppel Against Wah Lai

Another way in which Mr Vella puts his case to have, as against Wah Lai, the rights of an equitable assignee is by saying that Wah Lai is estopped from denying that he is an equitable assignee of the Lease.

The caselaw recognises that, where land has been leased to one person, and another person has entered into possession of the land, the lessor, and the lessee, can both become estopped from denying that there has been an effective assignment of the lease: Rodenhurst Estates, Ltd v W H Barnes, Ltd [1936] 2 All ER 3; Tichborne v Weir (1892) 67 LT 735; Official Trustee of Charity Lands v Ferriman Trust, Ltd [1937] 3 All ER 85; Williams v Heales (1874) LR 9 CP 177; Brown & Root Technology Ltd v Sun Alliance and London Assurance Co Ltd [2001] Ch 733. Precisely what estoppels exist depends in part upon precisely what representations have been made between the landlord and the person claiming to be an assignee. Mere payment of rent, and taking of possession, is not enough to amount to a representation by a person in possession that he was assignee of the lease (as opposed to a sub-lessee), and hence is not enough to establish that the person in possession is liable to the landlord on the covenants of the lease, although it is enough to establish an estoppel against the person in possession from denying the title of the landlord: Official Trustee of Charity Lands v Ferriman Trust, Ltd [1937] 3 All ER 85. There can be circumstances where a person in possession cannot deny that he is a tenant, and therefore bound to pay rent to the landlord, but can deny that he is bound by all the covenants of the original lease: Tichborne v Weir (1892) 67 LT 735. However, if the representation by a person in possession is that he is tenant on the terms of a particular lease, then he can be estopped from denying that he is liable to pay damages for breach of covenants, such as to repair, contained in the lease: Williams v Heales (1874) LR 9 CP 177. If someone requests a landowner to consent to an assignment of a lease to him, and thereafter goes into possession and pays rent, that is a representation of being in possession on the terms of the lease: Official Trustee of Charity Lands v Ferriman Trust, Ltd [1937] 3 All ER 85 at 90-91, explaining Rodenhurst Estates, Ltd v W H Barnes, Ltd [1936] 2 All ER 3.

Whether an estoppel exists also depends upon whether there has been any detrimental reliance on a representation. Thus, even if a person in possession has represented that it is an assignee of a lease, before that person is estopped from denying that there has been an effective assignment of the lease, and that it is bound by all the covenants of the lease, it is necessary for the landlord to have acted to its detriment on the basis of that representation: Brown & Root Technology Ltd v Sun Alliance and London Assurance Co Ltd [2001] Ch 733. Conversely, even if a landlord has represented that there has been an assignment of a lease to a particular person, before the landlord is estopped from denying that there has been an effective assignment of the lease, it is necessary for that particular person to have acted to his detriment on the basis of that representation.

Further, the fact that, as at one point of time, two such parties are estopped from denying that there has been an effective assignment of lease does not necessarily mean that that estoppel will endure indefinitely into the future. If one party, who has encouraged another to act on the basis that a particular state of affairs exists, gives notice that that state of affairs should no longer be regarded as existing then, unless the other party has already irretrievably prejudiced himself by acting on the assumption that that state of affairs exists, the estoppel will cease to bind, either immediately or after the other party has been given reasonable notice. This is the result of the principle that the relief which is appropriate to give effect to an estoppel is the minimum relief which would prevent the injustice arising by the person estopped departing from the assumption or expectation which has been induced: The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 413, 429, 442-3, 487 and 501; Giumelli v Giumelli (1999) 196 CLR 101 at 113-14 and 119; Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 at 516-518.

In the present case, Wah Lai knew that Buddies wished to assign the lease to Mr Vella, and gave consent to that assignment occurring. Though that consent was given to Mr Meers, it was given in circumstances where in the ordinary course of events it would be communicated to Mr Vella. It should therefore be treated as a representation by Wah Lai to ( inter alia ) Mr Vella that Wah Lai consented to the assignment. By at least December 1994 Mr Vella, by his solicitor, had actual notice that such a consent had been given (para [30] above). Wah Lai knew that Mr Vella had entered into possession of the premises, and that he was either paying, or causing to be paid, the rent. Wah Lai communicated with Mr Vella about the rent on a basis which presupposed that Mr Vella was bound by the terms of the Lease - Wah Lai spoke of rental as falling due on the day of the month which the Lease nominated, and demanded rental increases in accordance with the rent escalation clause in the Lease. It made demands for outgoings to be paid, of a kind which the Lease required a lessee to pay. I am satisfied that Wah Lai represented to Mr Vella that he was in the position of an assignee of the Lease.

Wah Lai has pleaded that there were implied terms to its consent, namely that Mr Vella was a person in respect of whom consent to the proposed transfer could not be unreasonably withheld, that the requirements of clause 15 of the Lease would be observed, and that the transfer of lease would be registered with the consequential assumption, by Mr Vella, of the lessee’s obligations under the Lease. I see no basis for making Wah Lai’s consent subject to any of those implications.

The obligation which Buddies had, under clause 15.5 of the Lease, to cause Mr Vella to execute a Power of Attorney, and to confirm the covenants of the Lease, was never performed. The provision in clause 15.5 that no transfer shall be complete or effective until the Power of Attorney had been executed means that there was not an effective assignment in accordance with the terms of the Lease. But that does not mean that equity will disregard the representations which Wah Lai made to Mr Vella, about him being an assignee of the Lease. Wah Lai made those representations to Mr Vella even though the full range of documentation required by clause 15.5 of the Lease had not been supplied to it. Its representations can give rise to a tenancy by estoppel, even though clause 15.5 has not been fully complied with.

Wah Lai’s representation that Mr Vella was in the position of an assignee of the Lease continued to be made until February or early March 1996. It was made by Mr Touma’s repeated demands for arrears of rent and outgoings up to 15 August 1995 (paras [66], [72] above), by the handing over to Mr Vella of Ms Hui’s fax of 4 December 1995 (paras [97], [100] above) which referred to Mr Vella as “the tenant” , and by the entry into of the rental offset agreement in December 1995.

The “You’ve Got No Lease” meeting in February or the first week of March 1996 (para [110] above) amounts, however, to a clear resiling by Wah Lai from the representation that Mr Vella had a lease. Mr Touma told Mr Vella and Mr Simpson, in so many words, that Mr Vella did not have a lease. That Mr Touma, in the same conversation, required the work set out in the Fire Safety Order to be carried out, is consistent with Mr Vella not having a lease. That is because the cost of that work was to be set off against rental arrears . From the time he went into possession, Mr Vella had also been bound by an estoppel, as against Wah Lai, that he was in the position of an assignee of the Lease. Pursuant to that estoppel, he could not deny that he had an obligation to pay rent in the amount and at the times required by the Lease, while the estoppel remained on foot. In that way, it is a correct legal analysis to say that there were “rental arrears” at the time of the rental offset agreement being arrived at, and also at the time of the “You’ve Got No Lease” meeting. It was those rental arrears that were to be set off against the work Mr Vella was to have done. That could happen even though, after the date of the “You’ve Got No Lease” meeting, no more rent would accrue under any tenancy by estoppel.

From the time of that meeting, Mr Vella could no longer rely on the previous representations of Wah Lai that he was an assignee of the Lease.

Mr Vella gives evidence, which I accept, that if he had known that he did not have a binding agreement with Wah Lai, he would not have: (a) moved into the Tavern; (b) started operating the Tavern on behalf of Craftmill; (c) employed staff to assist in running the Tavern; (d) taken out insurance policies for the Tavern; (e) paid rent and other outgoings to Wah Lai in respect of the Tavern; and (f) performed, and retained contractors to perform, work to ensure that the Fire Safety Order issued by the Council was complied with.

None of these things, which he did during the time that Wah Lai was representing to him that he was in the position of an assignee of the Lease, are things which are shown to have irretrievably prejudiced his position, so as to disentitle Wah Lai from retracting its representation. The first five things he lists involve him doing the sort of things which are needed, month by month, to earn the income which was obtained month by month from operating the Tavern, but they are not shown to involve Mr Vella suffering any detriment which endured past February or early March 1996. While the detriment involved in those five things entitled him to a tenancy by estoppel of a limited duration, its duration was not long enough to assist Mr Vella in this case. While in some situations the performance of substantial construction work by someone in Mr Vella’s position might create some difficulties about someone in Wah Lai’s position being able to retract its representation, in the circumstances where the construction work actually performed was all to be paid for out of rental arrears, and the rental had not been paid for many months, I do not regard the performance of that work as involving Mr Vella in any irretrievable prejudicing of his position. All it involved was Mr Vella paying some of his rent in kind rather than in cash, and late. In my view, Wah Lai ceased, at the time of the “You’ve Got No Lease” meeting, to be bound by any estoppel about Mr Vella being a tenant on the terms of the Lease.

The effect of that estoppel ceasing to apply is that Mr Vella reverted to such rights as he had at law. Because he had been paying rent to Wah Lai, his rights at law were a tenancy determinable at the will of either Wah Lai or himself, by one month’s notice in writing expiring at any time, pursuant to section 127 Conveyancing Act 1919 .

This conclusion means that Mr Vella cannot recover damages on the basis that the eviction constituted a breach of the covenant for quiet enjoyment in the Lease. For him to recover damages on that basis, he would need to show that Wah Lai was estopped, as at 14 May 1996, from denying he was a tenant on the terms of the Lease. This he cannot show.

The order for possession, being a judgment of a superior court which has not been set aside, effectively terminated Mr Vella’s tenancy under section 127 Conveyancing Act 1919 . Even though the tenancy was effectively terminated, it is still possible, though, that the termination of it involved a breach of private law rights which Mr Vella had against Wah Lai, arising other than under the Lease.

There is, it seems to me, a necessary implication that the tenancy arising under section 127 Conveyancing Act 1919 is one that the landlord is obliged not to terminate other than by one month’s notice in writing. I shall assume, without deciding, that the common law would imply a right to damages if a landlord caused the tenancy to be terminated in any other way. Wah Lai clearly terminated Mr Vella’s section 127 tenancy without giving him the month’s notice to which he was entitled. Damages for Eviction Without Notice

Some care needs to be taken to make sure there is procedural fairness in the way the topic of damages for eviction without notice pursuant to section 127 Conveyancing Act 1919 , is treated. Mr Vella’s pleaded case was one that he was entitled to all the rights of a lessee under the Lease, that Craftmill operated the business of the Tavern pursuant to an implied licence from him, and that in consequence of the eviction he and/or Craftmill have suffered loss and damage. That loss and damage was particularised as being that Mr Vella and/or Craftmill lost the opportunity to run or sell the business of the Tavern. When Mr Vella had no greater right than a tenancy under section 127 Conveyancing Act 1919 , damages for the type of loss pleaded cannot be recovered. It is, however, possible to use the evidence called to consider what damages might be recoverable for breach of Mr Vella’s rights under section 127 Conveyancing Act 1919 . That is, it seems to me, within the scope of the issues raised by the pleadings.

Mr Rennie, a valuer called for Mr Vella, valued what he assumed was a leasehold interest of Mr Vella, and profits lost by Craftmill as a result of having lost the opportunity to operate the Tavern. He carried out each valuation on two different valuation assumptions. The first was assuming that some profit and loss statements of Craftmill for the financial year ending 30 June 1995, and the period from 1 July 1995 to 30 April 1996, and a 1994/95 financial year income tax return were accurate. The second basis was assuming that the liquor and AAD takings were in accordance with returns which had been submitted to the Department of Gaming and Racing for that period.

The profit and loss returns of Craftmill were ones produced by accounting software operated by Mr Vella’s accountant. Mr Vella delivered to the accountant a collection of records relating to the operation of the hotel, and from those records the accountant produced the profit and loss statements. Mr Vella says that tax returns were submitted, and tax paid, on the basis of those accounts. One such tax return, from 1 July 1994 to 30 June 1995, has been produced. No Notices of Assessment or receipts for tax paid have been produced. Even so, I accept those profit and loss statements, save to the extent that items in them are shown to be incorrect.

One area in which they are shown to be incorrect is in so far as takings from liquor sales and AADs are concerned. The returns to the Department of Gaming and Racing show lower takings than those in the profit and loss accounts. Mr Rennie’s second basis of valuation corrects the accounts in that respect. So corrected, they show that in the 1995/96 year Craftmill’s profit was, during the part of that year it was operating the Tavern, being earned at the rate of $236,396 per annum.

Another item of correction is required. The accounts show nothing being paid for rent or outgoings. If the accounts were prepared on a cash basis, this would not be an error in the accounts, as for the entirety of the 1995/96 year neither Mr Vella nor Craftmill paid any rent or outgoings. However, any calculation of damages would need to recognise the liability to pay rent and outgoings, and the fact that, for the whole of the 1995/96 year the business was operated so that all income was treated as income of Craftmill, and all expenses treated as expenses of Craftmill. During that year, rental under the Lease accrued at $6,825 per month, or $81,900 per year. During that year, council rates accrued at around $3,247 per quarter, or $12,988 per year. Water rates accrued at different amounts per quarter, but the average of the last three quarters of water rates which Wah Lai paid (covering the period from 1 April 1995 to 31 December 1995) was $2,131 per quarter. I adopt that as a reasonable estimate of the average for the year. Thus, an additional expenditure of $8,524 for water rates would have been required during the year. Land tax accrued at around $10,000 per year. It would also have been a chargeable outgoing. The total of these rental and outgoing amounts is $113,412. Thus, I accept that, if Craftmill had paid the rent and outgoings, it would have earned profits at the rate of $122,984 per annum ($236,396 minus $113,412). This is close enough to $10,250 per month.

Thus, if Craftmill were entitled to damages, in consequence of Mr Vella having been evicted without the month’s notice he was entitled to, those damages would be calculated at the rate of $10,250 per month, and thus would be (at the most) $10,250.

However, Craftmill was not Wah Lai’s tenant – Mr Vella was. Thus, Craftmill is not entitled to damages for early termination of Mr Vella’s tenancy.

Any calculation of Mr Vella’s damages requires a comparison between the situation he in fact finds himself in, and the situation he would have been in if Wah Lai had performed its obligations. There is a nice question of principle about when it should be assumed, for the purpose of any such calculation of damages, that Mr Vella would have been given notice, if Wah Lai had performed its legal obligations to him concerning termination of the tenancy. One possible view is that if Wah Lai had performed its legal obligations to Mr Vella, it would have given him notice to quit as soon as it made up its mind that it wanted him out, ie Wah Lai would have exercised its rights in the manner most favourable to itself. Wah Lai had decided it wanted Mr Vella out at the meeting on the evening of 6 February 1996. On that view, Mr Vella would have been required to quit even earlier than he was in fact evicted, and hence, he would have suffered no loss. Cases providing some support for this approach are: Maredelanto Compania Naviera SA v Bergbau-Handel GmbH; The Mihalis Angelos [1971] 1 QB 164; Lewandowski v Mead Carney - BCA Pty Ltd [1973] 2 NSWLR 640 at 643; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 151, 156.

An alternative view invokes the principle that the likelihood of how a party would actually have acted, if it were to have performed its obligations is the appropriate measure of comparison. This basis derives support from TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130. An application of this approach might have resulted in Mr Vella demonstrating that, if Wah Lai’s obligations to him had been performed, he lost up to one month’s profits which he would have made after 14 May 1996.

It is not necessary to resolve this question of principle because, whatever the correct answer to it is, Mr Vella has not shown that he has lost any profits by reason of the early termination of the lease. His tax return for the year ended 30 June 1995 shows his occupation as “casual barman” and his income of consisting of a benefit payment from the Commonwealth government of $4,541, and earnings from casual wages of $3,640. His tax return for the year ended 30 June 1996 shows his occupation as being “unemployed” , and his only income for the entire year as being a Commonwealth government pension or allowance of $8,062. In these circumstances, Mr Vella was deriving no profits from his tenancy of the hotel. Hence, he has suffered no loss in consequence of being evicted from the hotel without the one month’s notice to which he was entitled. Hence, he has no entitlement to damages on that account. Effect on Mr Vella’s Relationship with Wah Lai of Mr Vella’s Licence to Craftmill

After Mr Vella was aware, in November 1994, that the police had objected to the liquor licence being transferred to him (para [41] above) either Craftmill or Ms Gleeson came to operate the Tavern. This change in identity of the operator was not something to which Wah Lai ever consented. Nor did it have knowledge of the change until Mr Roxburgh conducted a search at the Liquor Administration Board on 21 July 1995 which showed Craftmill as the business owner from 20 December 1994 onwards (para [108] above). Mr Reuben became aware of that search when he took over Mr Roxburgh’s file in September 1995 (para [74] above).

Mr Vella gives evidence that had he known prior to 17 April 1996 (the date when consent orders for possession were made) that Wah Lai had commenced court proceedings seeking possession of the Tavern he would have (a) sought leave for himself, and if necessary Craftmill, to be joined as a party to those proceedings, and (b) if leave had been granted, endeavoured to defend the proceedings on the basis that he was not in default of the covenant to pay rent in the Lease because of the rental offset agreement. He says that if he had tried to defend the proceedings on basis (b), but the court found he was in breach of the lease for not paying rent, he would immediately have paid the full amount of any outstanding rent, and if advised by his solicitor to do so, sought relief against forfeiture. He also says that if he had tried to defend the proceedings on basis (b), but the court had found that he had breached the lease in some way other than by failing to pay rent, he would have sought relief against forfeiture in the proceedings.

There was some debate about whether Mr Vella’s breach of Clause 7(ii) of the Lease (para [8] above), arising from his permitting Craftmill to occupy the premises without consent, would have precluded him from obtaining relief against forfeiture. It was submitted, for Wah Lai, that the circumstances of that breach, arising as they did from Mr Vella being an apparently unsuitable person to hold a liquor licence, were such that the court would not relieve against. Wah Lai also submitted that Clause 11(i) of the Lease (para [12] above) precluded the granting of relief against forfeiture. As well, section 129(6)(c)(iii) Conveyancing Act 1919 has the effect that the statutory version of relief against forfeiture, under section 129 Conveyancing Act 1919 , does not apply to licensed premises.

It is not necessary to decide these matters, because they presuppose that Mr Vella had a right to occupy the premises for the period of the Lease, which was being terminated early by reason of his breach. But that is not the right he had, after the “You’ve Got No Lease” meeting. At that stage, his right had become only a right under section 127 Conveyancing Act 1919 . Mr Vella’s Estoppel Allegation

Mr Vella pleads that at all material times from December 1995 Wah Lai and he acted in the course of their dealings on the common assumptions that: (i) Mr Vella would undertake the Fire Safety Works; (ii) Wah Lai would offset the cost of the Fire Safety Works against Mr Vella’s arrears in rent; (iii)` the amount to be set off against Mr Vella’s arrears in rent was to be determined by Wah Lai and Mr Vella upon completion of the Fire Safety Works; and (iv) Wah Lai would not exercise any right, including any right pursuant to clause 11(i) of the Lease, to repossess the Tavern as a consequence of any part of the rental being unpaid prior to completion of the Fire Safety Works, and the determination by Wah Lai and Mr Vella of the amount of any rent set-off.

Mr Vella pleads that acting in reliance of these assumptions, he carried out certain of the Fire Safety Works and did not make payments of rent and other outgoings during the period December 1995 to May 1996. He pleads that Wah Lai, by its conduct, played such a part in the adoption of these assumptions that it would be unjust if Wah Lai were now to deny the existence of those assumptions.

Mr Vella gives no evidence of having acted on any assumption of the kind which he pleads. I do not find that any such assumption was made. Further, from the time of the “You’ve Got No Lease” meeting Mr Vella would not, in my view, have been justified in continuing to rely upon any such assumption, if he had ever had it. Nor is there any evidence that, after the date of the “You’ve Got No Lease” meeting, any additional work was done. In these circumstances I do not uphold the estoppel pleading. Mr Vella’s Trade Practices Act Claim

An alternative way Mr Vella puts his claim is to allege that Wah Lai represented to himself and to Craftmill that he would have, and enjoy the benefit of, the Lease of the Tavern and be treated by Wah Lai as the lessee. For reasons I have given, I accept that Wah Lai made such a representation to Mr Vella over the period beginning with the time Mr Vella moved into occupation of the Tavern, and ending with the “You’ve Got No Lease” meeting. I do not accept that Wah Lai at any time made such a representation to Craftmill.

I accept that that representation to Mr Vella was made by Wah Lai, in trade or commerce.

The Further Amended Statement of Claim pleads that, in reliance on that representation, Mr Vella: “(a) completed the Business Sale Agreement; (b) did not ascertain whether any, and if so what, steps were necessary to be taken by or on his behalf in order for the Lease to be validly assigned to him at law; (c) did not take any steps to obtain the execution by Wah Lai of the Transfer of Lease or to compel such execution; (d) did not taken any steps to register the Transfer of Lease; and (e) did not take any other steps that might have been necessary or desirable in order for the Lease to be validly assigned to him at law or to protect his interest in it.” That contention in the Statement of Claim was not supported by any specific affidavit evidence, or oral evidence, at the trial. Rather, Mr Vella’s specific evidence about reliance on Wah Lai’s representation is that which I have set out at para [176] above.

While reliance on representations can sometimes be inferred ( Gould v Vaggelas (1985) 157 CLR 215; Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242), I am not prepared to make the inference in the present case that Mr Vella relied on Wah Lai’s representation in the ways pleaded. The fact that Mr Vella could have given evidence of reliance, in the ways pleaded, but did not, is itself a relevant matter. The case presented in the pleading is inconsistent with Mr Vella’s evidence that it was only after he had been ejected from the Tavern that he found out that the Transfer of Lease had never been stamped, nor registered. The fact that I have not accepted that evidence on his part does not detract from the fact that the pleaded case on reliance is inconsistent with his own evidence. Further, by the time Mr Vella’s application for a liquor licence was running into trouble with the licensing police, his solicitors were investigating ways of getting out of the Lease which they thought existed, and found out that the transfer of the Lease had not been stamped or registered (paras [29] – [31] above). At that stage of events, it may have seemed in Mr Vella’s interest to do nothing to bind him to the Lease. It has not been shown that the question of taking the steps necessary to complete the proper assignment of the Lease ever arose again. For all these reasons, I am not prepared to infer that the pleaded case for reliance has been made out.

It is alleged that the making of the representation is misleading and deceptive, or likely to misled or deceive, in contravention of section 52 Trade Practices Act 1974 (Cth). Because the Trade Practices Act claim was touched on only very briefly in submissions, and in any event the reliance element of it fails, I will deal only briefly with the remaining elements of it.

The representation pleaded was a representation about the future. Such a representation can be misleading or deceptive if the person making it does not have reasonable grounds for doing so (section 51A Trade Practices Act 1974 (Cth)). When Mr Vella was first in occupation, Wah Lai had no reason to believe that the assignment of lease would not go through in the conventional conveyancing way, by being perfected by registration. Even when Wah Lai, through its solicitor, found out that the transfer had not become registered, for a time it continued to intend to treat Mr Vella as a tenant. While it continued to have that intention it had reasonable grounds for making the representation. Once the decision was taken, at the dinner meeting on 6 February 1996, to recover possession, Wah Lai retracted its representation, through Mr Touma, in the “You’ve Got No Lease” meeting. If Mr Vella wanted to make a case that, at least during a period between the dinner meeting and the date of the “You’ve Got No Lease” meeting, Wah Lai continued to represent that Mr Vella was in the position of lessee under the Lease, he would need to prove (a) that there was a period of time between those two meetings, and (b) that during that time Wah Lai made the representation. He has proved neither thing. I do not find that, at the time it was made, the representation sued on was misleading or deceptive, or likely to mislead or deceive.

As the pleaded case of reliance fails, the claim to have suffered loss and damage necessarily also fails.

Wah Lai pleaded a limitation defence to this Trade Practices Act 1974 (Cth) claim. As the claim would fail if it were to have been brought within time, I need not consider that defence. Implied Terms in Rent Setoff Agreement

In reply to an allegation which Wah Lai made in its pleading of entitlement to take possession of the Tavern by reason of Mr Vella’s breach of covenants in the Lease to pay rent and outgoings, Mr Vella pleaded that it was an implied term of the rent setoff agreement that: (i) the amount to be set off against Mr Vella’s arrears in rent was to be determined by Wah Lai and Mr Vella upon completion of the Fire Safety Works; and (ii) Wah Lai would not exercise any right, including any right pursuant to clause 11(i) of the Lease, to repossess the Tavern as a consequence of any part of the rental being unpaid prior to completion of the Fire Safety Works and the determination by Wah Lai and Mr Vella of the amount of any rent set-off.

I have already rejected evidence from Mr Vella that clause (i) of this alleged implied term had been expressly agreed to by Mr Touma in early 1996 (at para [103] above). I will not pause to examine whether the implication which has been pleaded should be found to exist in the rental setoff agreement. Even assuming, without deciding, that such an implication should be made, it would lead to a conclusion that Wah Lai acted in breach of its contract with Mr Vella in re-entering possession when it did. Mr Vella does not claim any damages for that breach of contract. Rather, he submits that the effect was that he was not, at the date of his eviction, in breach of the covenant to pay rent on the Lease and could not be so found until such point of time as the Fire Safety Works had been completed, and the parties had had an opportunity to sit down and work out who owes what. In circumstances where, at the time of the eviction, the Lease did not operate as between Mr Vella and Wah Lai, this submission need not be considered further. Mr Vella’s Unconscionable Conduct Claim

A significant factual element in this claim was an allegation (which had not been pleaded, but was nonetheless litigated without objection) that Mr Reuben had deliberately kept from Mr Vella and Mr Vella’s solicitor, knowledge that an order for possession was being sought. I do not accept that Mr Reuben did any such thing.

Mr Reuben was aware that Wah Lai had consented to the transfer of the Lease from Buddies to Mr Vella, that Mr Vella had some sort of physical presence at the premises, that Mr Vella had in some fashion been responsible for some amounts of rent and outgoings being paid, that Mr Touma had been making demands on Mr Vella to pay arrears of rent and outgoings, (by late 1995) that Craftmill was in occupation of the Tavern, and that Mr Roxburgh had proposed to name Mr Vella as a defendant in proceedings for recovery of arrears of rent. However, he also knew that the Transfer of Lease had not been registered, and that the documents lodged at the Licensing Court showed Mr Vella as having no ongoing connection with the business being operated at the Tavern. He had no reason to believe the documents lodged at the Licensing Court were inaccurate. The conclusion that he reached was that Buddies was still, as a matter of law, the lessee, and that the premises had come to be occupied by Ms Gleeson, under a sub-lease which Buddies had granted to Craftmill. If one confined one’s attention to the Land Titles Office searches, and the results of searches at the Licensing Court (which would disclose the information set out at para [45] above), that would have been a correct conclusion to reach. Mr Reuben did not address his mind to the further question of whether Mr Vella had any rights against Wah Lai arising through estoppel or under section 127 Conveyancing Act 1919 . Even though Mr Reuben knew of the various matters I have itemised about Mr Vella having a role to play in connection with the Tavern, I do not conclude that he was of the view that Mr Vella was entitled to separate, personal notice of the bringing of the Possession Proceedings. Mr Reuben had, in November 1995, caused a Notice of Claim for Possession and the Statement of Claim in the Possession Proceedings to be served at the Tavern, addressed to the person who he understood to be the occupier. He had received from Mr Ramshaw the Affidavit of Service which deposed to those documents having been correctly served. He had no reason to believe that the documents had not reached their intended recipient.

I accept that Mr Reuben was not forcing the pace or taking the initiative in the negotiation which Mr Kirkpatrick had initiated with him. He had discussed with Mr Kirkpatrick the prospect of Mr Vella paying off the balance of the outstanding rent in exchange for a new lease over the property. However, in his conversation with Mr Kirkpatrick on 8 March 1996 (paras [115] - [116] above) he said that the way forward for that proposal was for Mr Kirkpatrick to appoint a quantity surveyor. Notwithstanding Mr Reuben’s warning that he would have to act quickly if that way forward was to be implemented, Mr Kirkpatrick did not appoint the quantity surveyor until early May (para [131] above). Hence, the negotiations for a new lease did not advance, and it was while those negotiations were stalled that the order for possession was obtained. Mr Reuben had no reason to hurry those negotiations up, because his client would have preferred to obtain possession of the premises. However, Mr Reuben had no reason to believe that Mr Vella did not know about the Possession Proceedings – indeed, if the system for delivery of mail within the Tavern had been better, it was highly likely that he would have known about the proceedings, through the service of the Notice of Claim for Possession, even though it was not addressed to him. Mr Reuben made no secret, with Mr Kirkpatrick, of the fact that there were proceedings on foot in the Supreme Court, relating to the premises, even if he does not now recall whether he specifically told Mr Kirkpatrick that the proceedings were ones for possession. When Mr Vella had proved to be an unreliable payer, and when he had no lease, the taking of possession proceedings (against whoever they should properly be taken) is far from an unusual or surprising thing for a landlord to do. Mr Kirkpatrick seems to have shown neither surprise nor curiosity on being told that there were proceedings on foot in the Supreme Court (whatever they might have been for). The basis on which his discussions with Mr Reuben proceeded was that what Mr Vella wanted was a new lease – not that Mr Vella had substantial existing rights as a tenant.

In all these circumstances, Mr Reuben was not deliberately keeping from Mr Vella, or Mr Vella’s solicitor, the fact that proceedings for possession were on foot relating to the Tavern.

The first legal basis upon which Mr Vella brings this unconscionability claim is that by obtaining possession in the circumstances which it did, whereby Mr Vella was not aware that possession was being sought, Wah Lai was exercising legal rights unconscionably. Reference was made to Legione v Hateley (1983) 152 CLR 406 at 444, Foran v Wight (1989) 168 CLR 385 at 394-5, Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 317-8, and Tanwar Enterprises Pty Ltd v Cauchi (2003) 201 ALR 359. I do not accept, on the facts, the contention that there is unconscionability arising from Wah Lai (through its agent Mr Reuben) knowing that Mr Vella was ignorant of the Possession Proceedings. This is because I do not accept its factual basis, that Mr Reuben knew Mr Vella was ignorant of the Possession Proceedings.

Mr Vella submits that even if Wah Lai did not act with knowledge of Mr Vella’s ignorance, there would still be an equity of accident or surprise established, which would make it inequitable for Wah Lai to obtain possession.

I will not pause to examine whether these contentions are correct. The remedy which Mr Vella claims is equitable compensation, which would put him in the position he would have been in if the unconscientious behaviour had not occurred. Neither shall I pause to examine whether equitable compensation is available for a breach of equitable duty of the type alleged. If Mr Vella had been informed of the Possession Proceedings, before the eviction took place, I am not persuaded he would have been any better off. After the “You’ve Got No Lease” , meeting he could not assert that he had, by estoppel, rights analogous to those conferred on the lessee under the Lease. If he had known about the Possession Proceedings, he would have been in a position to obtain an injunction preventing Wah Lai from ejecting him without one month’s previous notice in writing. He has not established that, even if he had been able to obtain such an injunction, it would have resulted in him staying in the Tavern for any longer than he in fact stayed: cf the arguments considered at paras [189] – [190] above. Finally, even if obtaining such an injunction would have enabled him to stay longer in the Tavern than he in fact stayed, he has not proved that being deprived of that opportunity has caused him any loss for which he should be compensated: cf para [191] above. For these reasons, the unconscionable conduct claim fails. Wah Lai’s Unclean Hands Defence

Wah Lai pleaded a complex unclean hands defence to Mr Vella and Craftmill’s claim based on Mr Vella’s alleged rights as tenant. In circumstances where I have found that no case is made out for any such claim, it is unnecessary to consider this defence. Mr Vella’s Conversion Claim

Mr Vella purchased all manner of chattels for the Tavern – crockery and cutlery, cooking utensils, fridges and a freezer, a microwave oven, lengths of copper, gym equipment, office equipment, tools and furniture. When the possession order was executed Mr Vella was able to take away stock, and some of the chattels which he had in the hotel, but not all of them.

Mrs Chan’s diary (which I accept is likely to be accurate) contains an entry for 14 May 1996 which, when translated, reads “at that time the occupant used large truck[s] to carry away the wine and the stock.”

Mrs Chan’s diary for 9 July 1996 records that she “made a call to a junk dealer, inviting him to the bar to have a look at the miscellaneous items. He only bought the fridge[s] and the television set[s]. He refused to take the furniture the bed[s] and the table[s].” There is no evidence of the price the junk dealer paid for the fridges and television sets.

Her diary entry of 10 July 1996 records that Mr Vella “requested us to return the beddings, old television set[s] and the fitness equipment” . I accept her evidence that on that day Mr Vella removed from the Tavern a number of beds, a television set and an exercise machine. Her diary for 26 September 1996 records that Mr Vella “again demanded to have fitness equipment back” . I accept her evidence that on that day Mr Vella removed the remainder of his gym equipment and some other personal property.

Some property which Mr Vella had left in the Tavern was removed by cleaners employed by Colliers Jardine (the real estate agents who Wah Lai had instructed to act on the sale of the Tavern site) in early 1999. Mrs Chan described the removal as of “rubbish” , which she explained was the “broken tables and the broken cupboards, those things” , and “broken tables, broken chairs” .

Between the time that the eviction occurred on 14 May 1996, and the time the property was sold in mid 1999, it was broken into, and to some extent vandalised. It is not possible to make a finding that any particular items of property which Mr Vella left in the premises were ones which the cleaners employed by Colliers Jardine threw out.

Even so, for Wah Lai to take possession of the premises on 14 May 1996, at a time when those premises contained Mr Vella’s chattels, and not give him the opportunity to get those chattels out, amounts to a conversion of them.

By letter dated 31 July 1998 from Mr Vella’s then solicitors, Stewart Levitt & Company, to Wah Lai’s solicitors, a request was made for Wah Lai to account for Mr Vella’s possessions which were no longer to be found on the premises.

Though Mr Vella has proved what the chattels other than the AADs cost when new, he has not proved precisely which ones he was able to retrieve and which he has not. Nor has he proved their value at the date of eviction, or even that they had a value at that date. I do not accept the submission made on behalf of Mr Vella that I should treat the cost of these items as the best evidence of their value at the time of the eviction. They are items whose intrinsic nature is such that their value declines once they are used. In those circumstances I cannot award damages for the conversion of those items.

Amongst the items of Mr Vella which were not returned were 10 AADs. I accept the evidence of Mr Keith Kelly valuing those devices at $28,000. Even if Ms Gleeson’s statement about the ”sale price and terms of purchase” of those machines, in her application for transfer of the liquor licence (para [47] above) were regarded as an admission made on Mr Vella’s behalf (which I doubt), her answer, fairly construed, is that the machines were not being purchased, or leased, and they had no “residual value” . That statement does not detract from Mr Kelly’s valuation. Nor does the fact that no value was attributed to the amusement devices in the Contract for Sale whereby Mr Vella purchased the business from Buddies (para [14] above), detract from Mr Kelly’s valuation.

The only conversion claim which has been made out is in relation to the AADs. Mr Vella is entitled to a judgment for $28,000 concerning them.

Wah Lai relied, in the event that Mr Vella was found to be lessee of the premises under the Lease at the date of the eviction, on clauses which purported to entitle the lessor to keep and sell any goods on the premises, if the lessee was in breach. By the time of the eviction, no estoppel bound Mr Vella to act as though he was lessee under the Lease. Even if he was, at that time, representing that he was still bound by the Lease (which I doubt), Wah Lai was certainly no longer acting on the basis of any such representation. Thus, those clauses provide no defence.

An alternative defence which Wah Lai raises is that if Buddies remained the lessee then the same clauses which I have just referred to, together with a clause which provided that if the lessee did not remove its goods at the end of the Lease then they became the property of the lessor, absolve Wah Lai from liability. It is not necessary, for the purpose of dealing with this alternative defence, to make findings about what the legal relations were between Wah Lai and Buddies. No contractual arrangement between Wah Lai and Buddies entitles Wah Lai to take someone else’s property. That alternative defence also fails. Wah Lai’s Cross-Claim Recovery of Rent and Outgoings

Wah Lai’s cross-claim is of two kinds. The first is a claim to recover from Mr Vella, rent and outgoings under the Lease.

In accordance with the principles at para [166] – [168] above, Mr Vella has, by his conduct in entering possession of the premises after Wah Lai had consented to an assignment to him of the Lease, and paying rent, represented to Wah Lai that he was in the position of a tenant of the premises on the terms of the Lease. Wah Lai acted to its detriment in reliance on that representation by permitting Mr Vella to remain in the premises as though he were a tenant. That estoppel continued to bind Mr Vella until the “You’ve Got No Lease” meeting. Whatever Mr Vella’s own beliefs were after that meeting, Wah Lai was not then relying on any representation by him that he was a tenant on the terms of the lease, and that is sufficient to prevent Mr Vella being bound by an estoppel after the date of that meeting.

The evidence did not enable the date of the “You’ve Got No Lease” meeting to be fixed with certainty. For the purposes of making a claim for unpaid rental and outgoings, Wah Lai bears the onus of proving the period during which there was a liability to pay rental and outgoings. It has not discharged the onus of proving when, within the range of dates during which the “You’ve Got No Lease” meeting might have happened, it actually occurred. Therefore, for the purpose of Wah Lai’s cross-claim, the meeting should be taken as having occurred at the date most unfavourable to Wah Lai of those possible dates. That is the beginning of the range of possible dates, namely, 7 February 1996 (the day after the decision to evict Mr Vella).

I find that the amount of unpaid rental and outgoings which Wah Lai is entitled to claim against Mr Vella, for the period up to 7 February 1996, is $85,228.22. The basis for this calculation is set out in the Second Schedule to this judgment, at para [275] ff. Against that amount Mr Vella is entitled to offset the amount of $61,820 (para [274] below). Thus the amount of damages to which Wah Lai is entitled pursuant to its cross-claim is $23,408.22. Wah Lai made no claim for mesne profits, or for rent on any basis other than pursuant to the Lease. Damages for Non-Compliance with Rent Offset Agreement

The second kind of claim which Wah Lai brings arises from Mr Vella’s non-compliance with the rent offset agreement. That kind of claim is put in two ways, one as breach of contract, and the other as misleading and deceptive conduct.

Wah Lai pleads the rent offset agreement as follows: “On or about 4 December 1995 and notwithstanding that under the lease it was not liable (as between lessor and lessee) for carrying out the Fire Safety Works Wah Lai agreed that if [Mr] Vella would cause the Fire Safety Works to be done without cost to Wah Lai within the time required by the Council Wah Lai would contribute to the cost thereof to a limit of the said sum of $44,490 by way of off-set (to that limit) against arrears of rent and outgoings then due under the lease and to this [Mr] Vella (for himself and Buddies) agreed.”

The precise agreement pleaded is not made out – the rental offset agreement was arrived at after 4 December 1995, and after Mr Touma had been to Hong Kong; further, it had no term as to time (other than an implied term that the works would be carried out within a reasonable time), and there was no upper limit on the amount of money which might be offset against arrears pursuant to it (para [103] above). Even so, an attenuated version of the agreement pleaded was established, which differed from it in the ways I have just mentioned. It is sufficiently close to the agreement pleaded for a claim for its breach to be within the scope of the issues raised by the pleadings.

Wah Lai has not persuaded me that Mr Vella breached the attenuated version of the rental setoff agreement which it has proved. Understandably, given that Wah Lai’s case was that the rental setoff agreement required the work to be done within the period nominated by the Council’s notice, no evidence was called on the topic of what would have been a reasonable time, from the date in December 1995 when the rental setoff agreement was made, for the carrying out of those works. For the purposes of an implied contractual term to carry out work in a reasonable time, the knowledge which both parties have of the circumstances relevant to urgency is a relevant matter. When Wah Lai has not shown that Mr Vella knew about the Council’s 60-day limit, that 60-day limit cannot be used as a factor taken into account in deciding what is a reasonable time. Another relevant matter is how long it would take competent workmen to carry out all the tasks listed in the Fire Safety Order. There is no evidence on that topic at all. It is not a topic appropriate for judicial estimation. Under those circumstances, Wah Lai has not made good the contractual version of its cross-claim concerning the rental offset agreement.

In case I am wrong in finding no breach has been established, I also examine Wah Lai’s claim for damages said to have arisen from this alleged breach. It is, in substance, that in consequence of Mr Vella’s breach of the agreement, the orders of 12 July 1996 in the Land and Environment Court (para [59] above), closing the premises down, were made, and that the closure of the Tavern caused Wah Lai to incur interest liabilities to its financier until such time as the Tavern was sold. The Tavern was eventually sold to Callwork Pty Ltd for $1.6m, in a sale which settled on 20 May 1999. Wah Lai had purchased the premises for about $1.7m, with the purchase settling in about September 1990.

Southgate Inc (“ Southgate ”) is a company incorporated in Liberia, of which Dr and Mrs Chan are shareholders. Dr Chan is a director of that company. To finance the purchase of the Tavern in 1990, Wah Lai borrowed A$1m from Southgate, with interest at ten percent per annum adjustable according to the prime rate in the money market in Liberia, and secured by the Tavern. Wah Lai also borrowed A$900,000 from Westpac. On 10 September 1992 Wah Lai borrowed a further A$900,000 from Southgate, and used that money to discharge the loan from Westpac. A written loan agreement relating to the 1992 borrowing said that the loan would bear interest at the rate of seven percent per annum, and said nothing about the loan of A$900,000 being secured in any way.

Mrs Chan gave evidence that, at some time around the date the second loan agreement was entered (she vacillated about just when it had happened) she had a conversation with her husband to the effect that the interest rate on that second loan should be ten percent, and that it should be secured against the Tavern. Given the involvement of solicitors in the drawing of the loan agreement for the second loan, and Mrs Chan’s vacillation about the date of her conversation with her husband, I am not persuaded that the second loan was made on terms other than those appearing in the written loan agreement relating to it.

There is no specific evidence about what Wah Lai would have done with the proceeds of any sale of the property, if it had been effected in 1996. However, given that the loans from Southgate had originally been made for the purpose of the Tavern, and that the $1m loan from Southgate was secured on the Tavern (even though the second loan was not) I infer that it is more likely than not that the proceeds of any sale of the property in 1996 would have been applied towards repayment of the loans to Southgate.

Mr Vella’s counsel submits that there is a fundamental problem with Wah Lai’s case on damages, in that there is no evidence as to how (ie whether by auction or otherwise), or for what price the property was likely to have been sold if the sale took place at or about the time of Mr Vella’s eviction from the Tavern. I do not regard this as an insuperable problem to the calculation of damages. In the absence of other evidence, and given that Wah Lai had the onus of proving its damages, if damages were payable I would calculate them on the basis that, if Wah Lai had been able to sell the Tavern promptly after Mr Vella’s eviction, it would have done so within the three months after 14 May 1996, and for a sum of $1.6m. This would have the effect that not all of the interest which was payable to Wah Lai’s financier was attributable to the breach. In circumstances where I have found, however, that Wah Lai have not established any breach, there is no point in going on to calculate the precise amount of these damages, nor to consider Mr Vella’s argument that Wah Lai failed to act reasonably to mitigate its damage. Damages for Non-Compliance with Work Performed Representation

The Fair Trading Act 1987 version of this claim amounts to saying that Mr Vella represented that he would carry out the works required by the Fire Safety Order within a reasonable time, and that that representation was misleading and deceptive because he did not have reasonable grounds for believing that he would do so. That being a representation as to a future matter, the onus is on Mr Vella to prove he had such reasonable grounds (section 41 Fair Trading Act 1987 ). He has not discharged it.

Wah Lai’s case for damages on this cause of action is in substance the same as its case for damages for breach of contract concerning the rent offset agreement (para [238] above). Wah Lai has not made that case out, because it has not demonstrated that the closure of the Tavern was caused by Mr Vella’s having had no reasonable grounds for representing that he would carry out the Fire Safety Works within a reasonable time. Wah Lai called no evidence to the effect that, if Mr Vella had not made that representation, it would have found some other way of having the works carried out. I do not infer that Wah Lai would have done so. It had known, since September 1995, that work was required to be done pursuant to the Fire Safety Order (para [76] above). Mr Touma had informed Wah Lai, on 26 October 1995, that the repairs were urgently needed, and that the Council would close the hotel if they were not done (para [88] above). It was Mr Vella, in October 1995, who raised the prospect of doing the work himself, with the cost offset against arrears of rent (para [90] above). Mrs Chan, when asked directly by Mr Touma in Hong Kong to do the work, said she did not have any money (para [98]). When Dr and Mrs Chan saw, on 6 February 1996, that little progress had been made in carrying out the works, their reaction was not to terminate the rental setoff agreement and have Wah Lai undertake the work itself, but rather to set about obtaining possession of the hotel. Even after it had obtained possession, in the nearly two months which elapsed between the eviction on 14 May 1996, and the Land and Environment Court making orders for the closure of the premises on 12 July 1996, Wah Lai did nothing to set about carrying out the work itself. In these circumstances, Wah Lai has not satisfied me that, if Mr Vella had never made the representation about his own future actions which was involved in the rent offset agreement, the Tavern would not still have been closed by the Council. The Fair Trading Act 1987 version of Wah Lai’s cross-claim also fails. Proceedings Number 1850 of 1999

These proceedings, as eventually amended, sought a declaration that, as at 29 September 1995, Ms Gleeson had no right, title, estate or interest in the land on which the Tavern was erected, and a declaration that she had no claim upon Wah Lai in respect of her loss of her liquor licence. Mr Simpkins SC appeared for Ms Gleeson at the hearing. Upon being asked whether there was any live issue that Ms Gleeson had any such right, title, estate or interest in the land, or claim upon Wah Lai in respect of her loss of the liquor licence, Mr Simpkins informed me that there was no such issue.

Other relief sought in the proceedings was an injunction restraining Ms Gleeson from lodging any further caveat against the land, and an injunction restraining Craftmill from lodging any caveat in respect of the land. There is no threat by either Ms Gleeson or Craftmill to lodge any such caveat. Furthermore, Wah Lai no longer owns the land.

In these circumstances there is no live issue which remains to be determined in proceedings number 1850 of 1999. The parties have already (by a deed made 28 April 1999) agreed that they shall bear their own costs.

For these reasons, I shall dismiss proceedings number 1850 of 1999, with no order as to costs. Orders

It would be appropriate for the respective entitlements to damages which Mr Vella and Wah Lai have established against each other to be set-off.

I direct the parties, within 14 days of the date of delivery of these reasons for judgment, to make an appointment with my Associate to fix a time for the bringing in of Short Minutes of Order to give effect to these reasons for judgment. At that time I will hear any argument concerning costs.

Mr Wallder, an electrical contractor, did work on the electrical wiring, the last of which was done in June 1995. That work was not required by the Fire Safety Order.

Mr Kirkpinar, a labourer, did various items of work over the period 1994 to 1996. One significant task he performed was replacing the roof over the front bar area. That work was done in June 1995. It was not required by the Fire Safety Order. As well, Mr Vella requested him to install a fire hose reel system in the hotel. That work was required by the Fire Safety Order. Mr Kirkpinar purchased the pipes, and they were delivered to the Tavern, but the work was not completed by the time Mr Vella was evicted. The pipes were never recovered, and Mr Kirkpinar says he is owed some $3,000 by Mr Vella as a result.

There is a question of principle whether Mr Vella ought be allowed a credit, under the rental offset agreement, for obligations which he incurred for work or materials to comply with the Fire Safety Order, where the work was done or the materials provided, but Mr Vella has not discharged his obligation to pay the person who did the work or provided the materials. In my view, Mr Vella’s failure to discharge his obligation to the supplier is res inter alios acta . As against Wah Lai, he is entitled to credit for such amounts, even if he has not discharged his obligation to pay those third parties.

Mr Rascionato is a metal fabricator and boilermaker. Mr Vella engaged him to make and install a metal fire stair, to be affixed to the exterior of the building. That work was required by the Fire Safety Order. After receiving some progress payments, Mr Rascionato delivered the metal fire stair to the site in early 1996. It was affixed to the side of the building, but the installation was never completed. He says Mr Vella paid him $18,500 in total. He says he is still owed $8,000 for the work he did.

Mr Morgan is a labourer. In a period which he does not identify more precisely than “1995-1996” he says he did work at the Tavern, replacing the doors of sixteen rooms with solid core doors, fixing in a closed position and lining with gyprock “most” of the glass panels above those doors, doing minor repair works to damaged portions of the Tavern, and closing off three archways in an old billiard room downstairs. He says he was paid a total of $10,000. Insofar as this list includes work required by the Fire Safety Order, I am not satisfied it was performed.

Mr Novakovic is a painter. From late 1994 onwards, he repainted most of the inside areas of the structure. The work was done over the period January 1995 to May 1996. He was paid in cash $28,500, and is owed another $5,000.

When Mr Novakovic first inspected the Tavern in 1994, he found it had been painted with older style lead and oil based paints. Mr Novakovic told Mr Vella that they would need to be removed before repainting could be contemplated. One reason was because the fire rating of painted areas depends not only on the fire retardant capacity of the paintwork, but also on the composition of the fumes and smoke that result from paint. The reason that acrylic paints were mandatory in fire rated areas, was not so much their superior fire retardant effect, but the fact that when burnt they do not give off highly toxic fumes, whereas toxic fumes resulted from burning the older style oil and lead based paints. As well, the acrylic paints would not stick long to the older paints and would quickly peel and deteriorate. Further, in his view, the Council would never approve an “overpainting” job. He quoted $50,000 – an amount about which Mr Vella complained vigorously. Eventually Mr Novakovic agreed to do the work in stages, on the basis that he would require payment for one stage before he started on the next. His evidence in cross-examination established that the work he did was of a type consistent with maintaining a fire rating.

Neither he nor Mr Vella have any records of the amount paid.

There was, however, no requirement in the Fire Safety Order that any painting works be carried out. Ultimately Mr Vella did not press a claim to be allowed any part of the cost of painting under the rental set-off agreement.

Mr Jones is a fire safety consultant. He gives affidavit evidence which I summarise in this paragraph. In late 1995 Mr Vella contacted him, showed him a fire order, and obtained a quote for the supply of some of the items contained in it. That quotation was for supply only – Mr Vella said he would arrange for installation of the items himself. Mr Jones supplied 12 exit signs ($4,800), 2 fire alarm bells ($400), 24 smoke detectors ($4,320), 12 fire extinguishers ($6,000), cabinets for 12 fire extinguishers ($6,000), a fire blanket ($120) and 4 hose reels ($4,800). The total cost of these items is $26,440. It was agreed that Mr Jones would receive another $5,000 for his time and expertise. In fact he was paid $20,000, and was supposed to get the balance, $11,440 at the end of the job. However, in February 1996 Mr Vella told him that the fire inspector had said that the smoke detectors did not comply with the regulations, and refused to pay any further money. Mr Jones contacted the Council, and found that the detectors he had supplied were not what the Council required. Mr Jones therefore agreed to design a system which met with the Council’s requirements, and to give Mr Vella a credit of $4,320 for the old detectors at the end of the job. In March 1996, Mr Vella gave him another $10,000 to design the plans for the system, submit them to the Council and buy the equipment. Mr Jones designed the system, and purchased the equipment, but had done nothing further before Mr Vella was evicted from the Tavern. All the equipment was delivered in boxes to the hotel in April 1996, and he does not know what happened to it after that.

The total amount actually paid to Mr Jones was thus $30,000. Mr Jones’ obligation to give a credit of $4,320 for the defective smoke detectors, plus the decision I make that Mr Vella should not be allowed credit for $4,800 spent on exit signs as the work was non-complying, is more than offset by Mr Vella’s still owing $11,440 to Mr Jones. The remainder of Mr Vella’s debt to Mr Jones ($11,440 - $4,320 - $4,800) $2,320, is also a recoverable item under the rent set-off agreement. All the work concerning which Mr Jones gives evidence, was required by the Fire Safety Order.

Of these workmen, Mr Jones, Mr Morgan and Mr Wallder were required to attend for cross-examination, but did not attend. I permitted their affidavits to be read notwithstanding their non-attendance, on the basis that the fact that they had not been cross-examined might affect the weight ultimately given to their evidence.

There was evidence of the attempts which Mr Vella’s solicitor had made to obtain attendance of these people. She sent a process server to the address which Mr Jones had stated in his affidavit. The process server reported that the address did not exist. She conducted an organisational search under the name “Sydney Fire Services” which showed two businesses of that name. The Register of Business Names showed that one of those businesses had been conducted by TG Jones Plumbing Pty Ltd, over a period 28 September 1989 to 17 January 1993. An ASIC search of TG Jones Plumbing Pty Ltd showed that it was deregistered on 13 August 1993 but had had an Anthony Grahame Jones as a director at one stage. A search at the Land Titles Office in the Purchasers’ Index did not reveal Anthony Grahame Jones as being presently the owner of any property. She arranged for an Electoral Roll search to be undertaken for Anthony Grahame Jones, of the date of birth which the ASIC records had shown. That search showed an address for such a person. Several attempts by a process server to serve a subpoena at that address were fruitless. The address in question was a home unit. The process server reported that most windows in the unit appeared to be wide open.

The second business which had been registered under the name of “Sydney Fire Services” , is a business currently in operation. Enquiries there disclosed that there was no Tony or Anthony Jones associated with that organisation.

Mr Jones’ affidavit annexes no documents like invoices, quotes or receipts. Nor did Mr Vella tender any other such documents, or proof of payment. However, Mr Vella has given affidavit evidence, on the detail of which he was not cross-examined, which is consistent with Mr Jones’ evidence. In those circumstances I shall accept Mr Jones’ evidence.

Attempts to serve Mr Wallder with a subpoena at the address shown in his affidavit were unsuccessful. The process server was told that Mr Wallder had left the address, and was now believed to be living on the Central Coast. Searches in the Australian Population Index, and at the Electoral Office, failed to track Mr Wallder down.

The address which Mr Morgan had given in his affidavit was found, by the process server, to be a postal box at a newsagency. There was some suggestion he had been a backpacker. Attempts to track him down on the Electoral Roll, in the telephone White Pages, and through the New Zealand Electoral Roll (as Mr Vella thought he had come from New Zealand) were unsuccessful.

When Mr Sivayoganathan inspected the premises on 1 November 1995 he found that none of the work required by the Fire Safety Order had been commenced. He inspected the premises again on 29 February 1996, and observed that large parts of the work required by the Order were either not done, or were incomplete. His contemporaneous note revealed the state of progress, concerning each of the items required to be done by the Fire Safety Order, as follows: “Item 1.1 Second Egress ‘No approval’ but started work 1.2 S/H Action “No” 1.3 Electrical S/Bond OK 1.4 Emergency Light No 1.5 Exit Signs “Few” Not completed 1.6 Fire alarm bell ‘No’ 1.7 Automatic Fire Alarm ‘No’ 1.8 Evacuation Procedure No 2.3 Electrical Report No 3.1, 3.2, 3.3 No 4.1 Portable Fire Extinguisher No 4.2 Fire Blanket No 4.3 Hose Reels No”

Mr Simpson’s evidence is that the work which Mr Vella had done prior to December 1995 or January 1996 was not referable to the Fire Safety Order, but to other repairs or improvements to the Tavern. I accept that evidence. That such work was done is consistent with the obligations of the lessee under Clause 7(i) of the Lease (para [9] above) to repair, and with Mr Vella having known from August 1994 (before any Fire Safety Order was issued) that a Certificate of Compliance was needed concerning certain essential services (para [51] above), and that Clause 7(iii)(c) of the Lease (para [10] above) cast the obligation of compliance on the lessee.

Mr Simpson gave evidence about the state of compliance with the Fire Safety Order at a time after Mr Vella had been evicted. While Mr Simpson was an honest witness, his evidence was not based on a full survey of the property to identify all the works which had, or had not, been carried out.

Mr Keith Campbell is a building consultant who inspected the premises on 1 July 1999 for the purpose of ascertaining which works referred to in the Fire Safety Order had been carried out, and which works referred to in the various affidavits of workmen had been carried out. His methodology is one more likely to produce an accurate result than the impressionistic evidence which Mr Simpson gave, and to the extent that there is conflict between them, I prefer the evidence of Mr Campbell. Mr Campbell’s report contained various photographs, some of which demonstrated that work which other witnesses said had been done, had not been done.

As well, Mr Richard Austin, a fire safety expert, inspected the premises on 6 August 1996. He prepared a report which considered whether the individual items in the Fire Safety Order had been carried out. It was a terse report, which simply stated whether an item had or had not been carried out. I accept it, but where other evidence shows that a reason why Mr Austin may have said that an item had not been carried out was because it had been carried out only partly, I take into account that other evidence.

My conclusions about the work in compliance with the Fire Safety Order which had been performed by the time of the eviction on 14 May 1996, are as follows: Item Description State of Affairs Visible on Inspection 1.1 Second egress from first floor Metal staircase affixed to wall, but work not completed 1.2 Exit door opening mechanism Not done 1.3 Switchboards enclosed Done 1.4 Emergency lighting Done to the extent that exit signs could satisfy the requirement – but the better view is that that is not compliance 1.5 Exit signs Some installed, but not of a type or in locations that would satisfy the order 1.6 Fire alarm bells Not installed. Two bells supplied. 1.7 Automatic fire alarms with photo optical detectors, complying with AS 1670 Photo optical detectors not complying with AS 1670 installed 1.8 Procedures established with fire brigade Not done 2.3 Electrical installation certified by electrical contractor No certification, but some electrical works done 3.1 Solid core doors with self closing devices Not done 3.2 Transoms above doors sealed and fire rated Not done 3.3 Walls of sole occupancy units not combustible No work done, but original building complied 4.1 Fire extinguishers Some but not all installed 4.2 Fire blanket Available 4.3 Fire hose reels installed Plans drawn up but not approved by fire brigade, and no installation carried out

The cost of the works which were an allowable deduction from the rent, pursuant to the rent set-off agreement, are: Item Amount Mr Kirkpinar – supply of hose pipes $3,000 Mr Rascionato $26,500 Mr Jones $32,320 Total $61,820.00 SECOND SCHEDULE CALCULATION OF UNPAID RENT AND OUTGOINGS (PARA [233] ABOVE)

The submissions of both parties proceeded by reference to a schedule contained in Wah Lai’s submissions. I set out below a table in substantially the same format, containing those items which I find are allowable on Wah Lai’s claim for unpaid rental and outgoings. Item Period Amount Owed 1 RENT 25.6.95 - 24.7.95 $6,825.00 2 25.7.95 - 24.8.95 $6,825.00 3 25.9.95 - 24.10.95 $6,825.00 4 25.10.95 - 24.11.95 $6,825.00 5 25.11.95 - 24.12.95 $6,825.00 6 25.12.95 - 24.1.96 $6,825.00 7 25.1.96 - 7.2.96 $3,082.00 8 RENTAL INCREASES 25.7.94 - 24.8.94 $325.00 9 25.8.94 - 24.9.94 $325.00 10 25.9.94 - 24.10.94 $125.00 11 COUNCIL RATES 1.6.94 - 31.8.94 $3,157.00 12 1.9.94 - 30.11.94 $3,157.00 13 1.12.94 - 28.2.95 $3,158.00 14 1.3.95 - 31.5.95 $3,158.00 15 1.6.95 - 31.8.95 $3,248.00 16 1.9.95 - 30.11.95 $3,247.00 17 1.12.95 - 7.2.96` $2,463.00 18 WATER RATES 17.7.94 - 30.9.94 $1,034.74 19 1.10.94 - 31.12.94 $2,776.70 20 1.1.95 - 31.3.95 $2,009.21 21 1.4.95 - 30.6.95 $2,011.36 22 1.7.95 - 30.9.95 $1,806.92 23 1.10.95 - 31.12.95 $2,576.85 24 LAND TAX 20.7.94 - 25.6.95 $10,527.37 25 25.6.95 - 7.2.96 $6,954.00 26 LESS PAYMENTS MADE TO SYDNEY WATER - $10,863.93 TOTAL $85,228.22

Only some of the line entries in this table were matters of controversy or otherwise call for explanation. Line 7

The rental of $6,825 attributable to the period 25 January 1996 to 24 February 1996 has been pro rated, so that it relates to the period to 7 February 1996 only. Lines 8, 9 and 10

Mr Vella’s evidence about having paid these rental increases is unsupported by any documentation. It is more likely that calculations proceeding from the real estate agent, and Wah Lai’s accountant, are correct. However, a claim of $325 which Wah Lai made in line 10 should, in accordance with the contemporaneous records of the real estate agent, be for $125. Line 17

The Council rates of $3,248 attributable to the period 1 December 1995 to 29 February 1996 should be pro rated, so as to end on 7 February 1996. This reduces the figure to $2,463. Line 25

The amount for land tax attributable to the period 25 June 1995 to 14 May 1996 should be pro rated, so that it ends on 7 February 1996. That reduces the amount Wah Lai claims to $6,954. Line 26

Wah Lai has in some fashion reduced a credit of $10,863.93, relating to payments made by, or on behalf of, Mr Vella. That reduction should not have occurred, and Mr Vella should have been credited with the full amount he paid. Generally

While Mr Vella claims various other credits, I am not persuaded any of them are appropriate. Some depend upon evidence from Mr Vella that he made payments, which I am not prepared to accept in the absence of supporting documentation. Some depend upon pointing to isolated items in accounts which have passed between the parties, or between Wah Lai and Buddies. It has not been demonstrated that these items have not been taken into account in the overall statements of account prepared by the real estate agent, or Wah Lai’s accountant.

The rental clause in the Lease contained (para [7] above) a provision whereby the rental fluctuated with licence fees payable to the Liquor Administration Board. Both parties ignored that aspect of the rental provisions in their submissions. I have done likewise.