711 Hogben Pty Ltd v Tadros

The position now reached in these longstanding proceedings is that:

By their Cross-Claim, the Lessees claim damages from the Lessor arising out of the Lessor’s delay in causing the Works to be effected.

Now, by Amended Notice of Motion filed on 18 October 2021, the Lessees seek leave to amend the Cross-Claim to include a claim for relief against forfeiture in the following terms:

The Lessor opposes leave being granted on the basis that the Lessees’ claim for relief against forfeiture is bound to fail.

The Lessor accepts, for the purposes of this application, that:

Usually, relief against forfeiture will only be granted on the condition that the lessee pay outstanding rent.

However, as I have set out above, in the proposed cross-claim, the Lessees seek relief upon the basis that they will “make good the unpaid rent by way of set-off” out of the damages they seek from the Lessor.

The Lessor contends that the complete answer to that claim is contained in cl 20.2 of the Lease which provides, relevantly:

The Lessor pointed to authorities which are to the effect that the use by parties of the words I have emphasised in these clauses are effective to exclude what might otherwise be a lessee’s entitlement to set-off in equity a claim it has under the lease against its obligation to pay rent.

Thus, on behalf of the Lessor it was submitted:

There is force in these submissions, although in none of these cases was it held, in terms, that a clause such as cl 20.2 was, without more, an answer to a claim for relief against forfeiture based on an asserted equitable set off against rent of damages arising under the lease. [6]

However, the discretion to grant relief against forfeiture is a wide one and is to be considered in the context of all of the facts of the case.

There have been cases where relief against forfeiture has been granted notwithstanding the insolvency of the lessee, [7] and thus in circumstances where the lessee cannot pay rent.

As can be seen from the proposed cross-claim, the Lessees do not contend that they cannot pay rent. Rather they say that, because of the Lessor’s conduct, they have incurred expenses and lost income so as to “make it difficult” to pay rent.

However, in the proposed cross-claim, the Lessees also contend, as I have set out, that they expended some $350,000 on “Tenant’s Works” in the premises such that it would be “unconscionable” to allow the Lessor to retain the benefit of those Tenant’s Works.

If, as the Lessees contend and as I must assume for present purposes, it would “unconscionable” to allow the Lessor to retain the benefit of the “Tenant’s Works” in those circumstances, that may well be a factor relevant to whether or not the Court grants relief against forfeiture, notwithstanding the absence of payment of rent by the Lessees.

On behalf of the Lessor it was submitted that, as it accepts that I should deal with this application upon the assumption that the Lessees will establish the allegations proposed to be made in the cross-claim, I am in “as good as a position as the trial judge” to assess the Lessees’ likely prospects and that the Lessees’ case “could not get any better” at the trial.

In my opinion, the situation is a little more nuanced than this.

The trial judge will make a decision as to whether to grant the Lessees relief against forfeiture in the light of detailed evidence as to the parties’ dealings that led to the Lease and all of the circumstances in which the Lessees contend for the “unconscionability” to which I have referred. The nature of any “unconscionability” that the Lessees are able to establish may well place the trial judge in a much better position than I am to assess the merits of the Lessees’ claim for relief against forfeiture.

There may be challenges ahead for the Lessees in making out the claim for relief against forfeiture. However, I am not able to conclude that their prospects are “so obviously untenable that [they] cannot possibly succeed” such that “to allow them … would involve useless expense”. [8]

Accordingly, I propose to grant the Lessees leave to amend their cross-claim as they propose.

The parties should bring in short minutes to give effect to these reasons.

I propose to order that the Lessees pay the Lessor’s costs thrown away by the amendment but that otherwise the costs of this application be costs in the cause.

The parties should also confer and agree the directions necessary to bring on the Lessees’ cross-claim for hearing as soon as possible.

I stand the matter over for directions on 19 November 2021 before the Commercial List Judge.