Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd

1. [1]

   HIS HONOUR: By an amended statement of claim filed 11 July 2017, Medi-Aid Centre Foundation Ltd (“the plaintiff”) brought proceedings for vacant possession of its property, being the ground floor, level 1 and level 2 of 60 Campbell Street, Parramatta (“the premises”), together with claims for rental arrears, mesne profits (pursuant to an express contractual right and at law) and damages against Joys Childcare Ltd (“the defendant”). The defendant operated a child care centre on the premises called “Joys Child Care” (“the centre”). The plaintiff also sought orders for rectification of the terms of the clause of an agreement to lease, interest and costs.

2. [2]

   The relief was predicated upon two fundamental considerations. The first was that the plaintiff and defendant were parties to a valid registered lease for the premises (the lease relied upon was given registration number AJ578972 and hereafter called “the registered lease”). The second was that the defendant, as lessee, had committed breaches of the lease consisting of a failure to pay rent for more than two years, using the premises contrary to its permitted use as a childcare centre by allowing people to live at the premises and using the premises in a matter contrary to law, by operating a childcare centre without the relevant approvals and by failing to keep them current.

3. [3]

   By a cross-claim filed on 3 July 2017, the defendant sought a declaration that the lease had no legal force and effect and that rent was not owing or outstanding to the plaintiff. The defendant also sought that the plaintiff “remove from the [lease] register managed by Land and Property Information” registration of the lease, a declaration that the plaintiff had breached a contractual licence held by the defendant and had wrongly excluded the defendant from its lawful occupation of the premises.

4. [4]

   It might be noted in that last respect that, on 23 March 2017, the plaintiff re-entered the premises and changed the locks. The defendant then re-entered the premises and remained in occupation at least for the period extending up to the hearing of this matter.

5. [5]

   What lies at the centre of the controversies exposed by those applications was an agreement to lease which was executed by the directors of the defendant on 27 October 2014 (“the agreement to lease”); one of whom was Mr Jan Shang who was given leave to appear as a director on behalf of the defendant in the proceedings.

6. [6]

   By the agreement to lease, the parties agreed that they would enter into a lease in a form attached to the agreement to lease subject to certain pre-conditions being met. The attached lease was in identical terms to the registered lease. The abiding issue in these proceedings was whether those pre-conditions were met, and in the result, whether the registered lease was or was not valid. This was expressed in the joint statement of matters of fact and law, filed in the proceedings, as being an issue as to whether the defendant was bound by the registered lease and if so, whether the defendant breached the lease. (I will set out the terms of that document momentarily, although it should be noted it received little attention as such in the submissions of the parties).

7. [7]

   That above issue connects to the intended use of the premises under the lease, namely, “childcare” or, in terms of the agreement to lease, the operation of a “Child Care Centre”. As the nature of the regulation of the operation of childcare centres is a material consideration in the proceedings, that matter will receive attention below before turning to the factual background incorporating the relevant terms of the agreement to lease and the registered lease.

8. [8]

   An alternative contention was advanced by the plaintiff that, if the lease was invalid, the defendant breached the terms of the agreement to lease. A contention advanced by the defendant, but not reflected in the amended defence or cross-claim filed by it, was that a verbal agreement had been reached between the parties for the defendant not to pay rent until the defendant had obtained approval to operate as a service provider for centre-based childcare.

9. [9]

   The joint statement of matters of fact and law in dispute, referred to above, was produced in the Court Book in the proceedings and is extracted below:

Children (Education and Care Services National Law Application) Act 2010

1. [10]

   Pursuant to s 4 of the Children (Education and Care Services National Law Application) Act 2010 (NSW) (“the Act”), the “Education and Care Services National Law”, as in force from time to time, set out in the Schedule to the Education and Care Services National Law Act 2010 (Vic), applies as law in New South Wales and may be referred to as the Children (Education and Care Services) National Law (NSW) (“the National Law”). It applies as if it were part of the Act.

2. [11]

   The objective of the National Law was to establish a national education and care services quality framework for the delivery of education and care services to children (s 3).

3. [12]

   Under the National Law, a person or entity seeking to operate as an education or care service is required to hold a provider approval and a service approval. A childcare service is required to hold a provider approval or service approval.

4. [13]

   The following definitions are found in s 5 of the National Law:

5. [14]

   By Pt 2 Div 1 s 10(1) of the National Law, a person other than a prescribed and eligible person, may apply to the “Regulatory Authority” for provider approval. The “Regulatory Authority” is defined in s 5 as meaning:

6. [15]

   By the Children (Education and Care Services) Supplementary Provisions Act 2011 (NSW), the Regulatory Authority for the purposes of s 5 of the National Law is the Director-General of the Department of Education and Communities (now, the Department of Education) (“the Department”).

7. [16]

   By s 12(1) of the National Law, an applicant who is an individual must satisfy the Department that the applicant is a fit and proper person to be involved in the provision of an education and care service. Similar requirements apply with respect to persons in the management and control of an entity that is not an individual (s 12(2)).

8. [17]

   Section 15(1) of the National Law provides:

9. [18]

   Section 21(1) of the National Law provides:

10. [19]

    By Pt 2 Div 4 of the National Law, provider approval may be cancelled (see s 33).

11. [20]

    The requirement to obtain a service approval is contained within Pt 3 of the National Law. An application for a service approval may be made by an approved provider to the Department (s 43(1)).

12. [21]

    The grant or refusal of a service approval governed by s 48 of the National Law which is in the followings terms:

13. [22]

    Section 51 of the National Law relates to conditions on service approval. Section 51(1) and (2) is extracted below:

14. [23]

    Section 103(1) of the National Law provides the following:

15. [24]

    Counsel for the plaintiff correctly submitted: “[i]t is common ground that, as of 1 January 2012, that is more than 2 years before this agreement was entered into, the Department of Community Services was no longer the relevant regulatory body governing the approvals process for childcare operations in New South Wales. That responsibility, under the new National Law, had been transferred to the Department of Education”.

16. [25]

    The aforementioned legislative schemes for childcare services became effective on 1 January 2012. All material events in this matter occurred after its passing.

17. [26]

    The Education and Care Services National Regulations (NSW) (“the regulations”) contains a definition in s 4 of “centre-based service” as follows: “an education and care service other than a family day care service”.

18. [27]

    The regulations contain provisions as to provider approval and service approvals. Service approvals are regulated by Pt 2.2. Regulations 24 and 25 govern applications for service approval for centre-based services. In the additional information required for such applications in reg 25, there is a requirement to provide “a statement that the applicant has the right to occupy and use the premises and any document evidence” (the example is given of a lease of the premises).

19. [28]

    In contrast, reg 26 deals with an application for service approval for a family day care service. The same information requirement vis-à-vis occupancy of premises is required under that provision.

The evidence

1. [29]

   The plaintiff relied upon the following evidence of the following witnesses whose evidence-in-chief was primarily by affidavit:

   1. (1)

      Mr Christopher Calvert Gough, senior partner of the plaintiff’s firm of solicitors (affidavit dated 17 August 2017);

   2. (2)

      Mr David John Knight, the joint Chief Executive Officer of the plaintiff (affidavit dated 16 August 2017);

   3. (3)

      Mr Anthony Khoury, director of the leasing agent company engaged to lease the premises (affidavit dated 16 August 2017);

   4. (4)

      Ms Lyn Tamsett, property manager for the premises (affidavit dated 22 August 2017);

   5. (5)

      Mr Edward Issa, manager of the Compliance and Investigations Unit, Early Childhood Education at the Department (affidavit dated 13 September 2017);

   6. (6)

      Ms Ran Bing, a woman who worked at the centre as a receptionist for about a year (affidavit dated 13 October 2017); and

   7. (7)

      Mr Rosario Nicholas Russo, solicitor employed at the plaintiff’s firm of solicitors (affidavits dated 9 October 2017 and 24 October 2017, respectively).

2. [30]

   Mr Gough, Mr Knight, Mr Khoury, Ms Tamsett, Mr Issa and Ms Bing were required for cross-examination. Mr Russo gave evidence-in-chief with regard to service of affidavits but was not required for cross-examination on either that question or on his evidence in his affidavits.

3. [31]

   My general impression of the plaintiff’s witnesses was that they were honest and reliable. They gave their evidence frankly and to the best of their recollection.

4. [32]

   The defendant relied on the affidavit of Mr Shang dated 17 November 2017. Mr Shang was cross-examined by counsel for the plaintiff.

5. [33]

   There were significant areas of conflict between the evidence given by Mr Shang and the plaintiff’s witnesses. The conclusion I have reached as to Mr Shang’s evidence is such that, where there is a conflict between the evidence of a witness for the plaintiff and his evidence, I prefer the evidence given by the witness for the plaintiff. His evidence may only be accepted, in my view, where corroborated by another witness or documentary evidence.

6. [34]

   My overall impression of Mr Shang’s evidence was that he was unreliable, evasive and disingenuous. I would not go so far as accepting the plaintiff’s submission that he was mendacious but he was certainly an unimpressive witness.

7. [35]

   Mr Shang was evasive in answering questions, often making speeches from the witness box and his evidence often lacked plausibility such as his contention that the agreement to lease gave the defendant a right to occupy the premises and carry out child care services without paying any rent whatsoever for the entirety of the lengthy occupation by the defendant. Similarly, his evidence that there was a verbal agreement between the parties allowing the defendant not to pay rent whilst the defendant’s application for a service approval for a centre-based service was pending (a proposition he advanced for the first time in the cross-examination of Mr Knight and Ms Tamsett), as I will discuss below, lacked plausibility.

8. [36]

   There are some further particular illustrations relevant to my overall observations: the defendant’s refusal to accept responsibility for any communication not personally written by him or his refusal to acknowledge that he was aware of communications unless it could be conclusively proved that he had received them such as communications between the plaintiff’s solicitors and his lawyer Mr Szeto, which it may be inferred were actually sent to him. He used the words “show me the evidence” and “I demand proof” during the course of his evidence.

9. [37]

   Another relevant illustration was Mr Shang’s assertion that he did not receive evidence served on him by Mr Russo (Mr Russo gave evidence that he did in fact serve the evidence on Mr Shang).

10. [38]

    A further illustration is the berating by Mr Shang of his former employee Ms Bing at some length about whether she was a paid employee or volunteer rather than addressing what was the substance of her evidence which was whether she did or did not observe persons living at the premises.

Overview of relevant events: Chronology

1. [39]

   The following summary is based upon the chronology, provided during the course of proceedings and treated as part of the plaintiff’s submissions, which drew upon the evidence. No contrary contention was raised by the defendant with respect to the chronology.

2. [40]

   On 3 June 2014, the defendant submitted an application for a provider approval to the Department. The defendant’s provider approval was granted on 20 June 2014 with the following reference number “PR-40002094” (“provider approval”).

3. [41]

   On 13 October 2014, the plaintiff and the defendant entered into heads of agreement for the lease of the premises (see as discussed below).

4. [42]

   On 24 October 2014, the agreement to lease with an attached lease were provided by Storey & Gough Lawyers (“Storey & Gough”), the solicitors for the plaintiff, to Access Legal, the solicitors for the defendant (at that time). On 3 November 2014, Storey & Gough received a letter from Access Legal with the agreement to lease and the attached lease executed by the defendant.

5. [43]

   On 17 November 2014, the defendant lodged a development application with Parramatta City Council for the operation of the Child Care Centre.

6. [44]

   The copy of the agreement to lease in evidence was not dated, however a letter from the plaintiff to Storey & Gough forwarding the executed agreement for lease was dated 25 November 2014.

7. [45]

   On 23 April 2015, Parramatta City Council approved the defendant’s development application. The defendant advised that it would lodge the application for service approval with the Department the next day.

8. [46]

   On 29 April 2015, Storey & Gough , sent an email to Access Legal advising that the executed lease could now be registered. That same communication requested the provision of a bank guarantee and evidence of insurance currency.

9. [47]

   On 30 April 2015, the defendant submitted two applications for service approval as follows:

   1. (1)

      APP-40058080 – service approval for family day care (“the family day care application”); and

   2. (2)

      APP-40058068 – service approval for centre-based care (“the first CBC application”).

10. [48]

    On 21 May 2013, Mr Khoury received a bank guarantee from the defendant. That same day the defendant was granted access to the premises.

11. [49]

    On 1 June 2015, the first CBC application was invalidated for failure to provide further information within the specified time period. The same application was re-opened by the Department the following day.

12. [50]

    On 27 July 2015, the lease was registered as “AJ578972”. Mr Chris Gough, Senior Partner at Storey & Gough, forwarded the defendant’s copy of the registered lease to Access Legal together with a letter dated 7 August 2015.

13. [51]

    On 26 August 2015, the defendant received email communication from two separate divisions within the Department with respect to the service applications:

    1. (1)

       Ms Pamela Gray, Approvals Officer within the External Affairs and Regulation Division of the Department, notified the defendant that the first CBC application (as well as a separate application for service or temporary waiver with reference “APP-40060928”) had been closed by the Department “because we did not receive the documentation requested”. (Ms Gray had previously contacted Mr Shang, requesting evidence of right to occupy, proof of insurance, building compliance certification, plans and information concerning the simulated outdoor space, by email on 29 July 2015. Both emails included the following warning: “Please note that you must not commence operating until you receive a service approval from us”).

    2. (2)

       Mr Edward Okulicz, Approvals R/Team Leader with the Early Childhood Education and Care Division of the Department, wrote with respect to the family day care application and advised “an insurance policy document” was required to complete the application. (That document was provided by the defendant by way of reply email on 11 November 2015).

14. [52]

    On 1 October 2015, the defendant sent a letter of complaint to the Ms Michele Bruniges, Secretary of the Department. The purpose of the letter was “to lodge a formal complaint in relation to the unfair treatment of our service approval application for centre-based care by the Approvals Officers from the Early Childhood Education and Care Directorate (ECECD)”. The six-page letter included, inter alia, a lengthy account of events from the perspective of Mr Pan Wayne, Director Assistant of the defendant, followed by the request below:

15. [53]

    As noted above, in an effort to satisfy the Department’s requirements with respect to a right to occupy the premises, the defendant forwarded a copy of the certificate of currency (“an insurance policy document”), as well as a copy of the lease, by email to Mr Okulicz on 11 November 2015.

16. [54]

    On 13 November 2015, the defendant was granted service approval under s 48 of the National Law for the family day care application (approval number “SE 40004519”). The “[l]ocation of education and care services” listed on the service approval was “2301/138-140 Church Street, PARRAMATTA NSW 2150”. The conditions of the approval were as follows:

17. [55]

    On 12 February 2016, Storey & Gough issued a letter of demand to the defendant for unpaid rent.

18. [56]

    On 29 February 2016, Mr Wayne sent an email to Mr Nadal Hammoudi, Approvals Team Leader within the Early Childhood Education and Care Division at the Department, that confirmed an intention to use the premises as “our community day care venues”. That same day, Mr Hammoudi informed Mr Wayne that the defendant, as approved provider, “is required to notify the regulatory authority of each family day care venue”.

19. [57]

    On 2 May 2016, the defendant submitted a second application for service approval for “Centre-based Care” with reference number “APP-40078547” (“the second CBC application”). The service location listed on the second CBC application was the premises.

20. [58]

    On 30 June 2016, the second CBC application was invalidated on account of the defendant failing to provide the required information, as requested by the Department, on time. That same day, the defendant submitted a further service approval application with respect to the premises with reference number “APP-40082131” (“the third CBC application”). The third CBC application was refused by the Department on 18 October 2016.

21. [59]

    On 23 December 2016, Mr Graham Humphreys, Director within the Early Childhood Education and Care Division of the Department, advised the defendant that, pursuant to s 28 of the National Law, its provider approval was suspended for a period of six months. The reasons for the suspension, in summary, included:

    1. (1)

       “[c]ircumstances have shown that you may not be a fit and proper person to be involved in the provision of an education and care service” (reference, in that respect, was made to a site visit by the Department to the premises on 13 December 2016);

    2. (2)

       failure “to ensure that every reasonable precaution has been taken to protect children being educated and cared for by the service from harm and from any hazard likely to cause injury, as required by section 167(1) of the National Law”;

    3. (3)

       “several” previously identified breaches of National Law “remain of concern”; and

    4. (4)

       “the Regulatory Authority is continuing investigations into the events from 22 April 2016, where a child was found unsupervised in the lift of Joys Child Care premises. This may constitute a breach of section 165 of the National Law relating to inadequate supervisions of children”.

22. [60]

    On 9 March 2017, Storey & Gough issued the directors of the defendant with a letter of demand with the heading: “Notice of Intended Termination of Lease between Medi-Aid Centre Foundation Ltd and Joys Child Care Limited” (“the letter”). The letter constituted notice pursuant to s 129(1) of the Conveyancing Act 1919 (NSW). First, it specified the particulars of each alleged breach as follows:

23. [61]

    Secondly, Storey & Gough advised that, if the breaches were not remedied within 14 days from the date of the letter, the plaintiff would exercise the following rights pursuant to the lease:

24. [62]

    On 29 March 2017, Mr Humphreys advised the defendant that, pursuant to s 33(1)(a)(i) of the National Law, the Department had decided to cancel the defendant’s provider approval effective as of 12 April 2017. The six-page letter set out the Department’s reasons for cancellation under the following sub-headings:

    1. (1)

       “Fitness and propriety”;

    2. (2)

       “Continued provision of education and care services by the approved provider would constitute an unacceptable risk to the safety, health or wellbeing of any child or class of children being educated and cared for by an education and care service operated by the approved provider”; and

    3. (3)

       “The approved provide has breached a condition of the provider approval”.

25. [63]

    By the same letter, Mr Humphrey’s also advised that:

26. [64]

    On 13 June 2017, Parker J gave judgment in Secretary, Department of Education v Joys Child Care Ltd [2017] NSWSC 749 (“Department of Education v Joys”). The Secretary of the Department initially sought ex parte interlocutory relief in the form of injunctions against Joys Child Care Ltd (the first defendant in those proceedings and the defendant here – referred to as “JCC” in those proceedings), Chinese Students Association Inc (the second defendant in those proceedings and referred to as “CSA” in those proceedings) and Mr Shang (the third defendant). His Honour declined, however, to grant relief on that occasion on the basis that relief was sought ex parte. The Department’s case was that “the continued operation of the Centre is a breach of the National Law which should be restrained by the Court in its equitable jurisdiction” (Department of Education v Joys at [23]).

27. [65]

    The matter was heard over three days, 17-19 May 2017. During the course of proceedings, the issues in dispute narrowed and the Department sought to treat the application as being one for summary judgment (Department of Education v Joys at [25]). Mr Shang consented to the Department seeking summary judgment as part of the application. In that light, his Honour set out the possible outcomes to the application before the Court (at [26]-[29]):

28. [66]

    His Honour ultimately found in favour of the Department and granted declaratory relief with liberty to apply for final injunctive relief, in the following terms (at [63]):

29. [67]

    His Honour also noted the following with respect to the initial relief sought;

Heads of agreement

1. [68]

   Prior to entering into the agreement to lease, the parties executed heads of agreement on 13 October 2014. The heads of agreement was executed by the plaintiff and defendant and provided for the making of a lease for the premises with a term of 5 years with an option of a further 5 years upon the specified rental plus GST. The lease was expressed as commencing on 1 March 2015 “with early access provisions to facilitate fit-out and relevant approval”. The heads of agreement also referred to an incentive consisting of 6-months’ rent free from lease commencement. Reference was also provided to the need to insert a “make-good clause” in the lease.

Agreement to lease

1. [69]

   Clause 1.1 of the agreement to lease contained an interpretation provision in the following terms:

2. [70]

   Part 2 was described by the heading “Impediment to Leasing”. Clause 2.1 set out the pre-conditions for entering into the annexed lease. Because of the importance of this provision, I shall extract it in full:

3. [71]

   Part 3 was entitled “Lease”. Clause 3.1 was in the following terms:

4. [72]

   Clause 3.4 was in the following terms:

5. [73]

   The annexed lease to the agreement to lease was executed by Mr Shang and Mr Mark Choo Jianzhong on behalf of the defendant.

The registered lease

1. [74]

   The registered lease had a 5 year term operating from 1 March 2015. Annexure A to the lease provided an option to renew over two 5 year periods with a maximum period tenancy of 15 years. That annexure also provided for an interest rate of 10% and permitted use as “Childcare”.

2. [75]

   A bank security and security deposit were provided in items 19 and 20 respectively of Annexure A. Annexure A also provided for an alteration in addition to the lease covenants in Annexure B to the lease by providing that the lessee was entitled to a rent free period of 6 months from the commencement date.

3. [76]

   Annexure B provided in clause 5.1.1 that the lessee must pay to the lessor the rent stated in item 13A of the schedule to the lease together with other payments. The first month’s instalment of rent was to be paid by 1 March 2015. Each later month’s instalment of rent was to be paid in advance.

4. [77]

   Clause 6 of Annexure B was entitled “Use: How must the property be used?” and was in the following terms:

5. [78]

   Clause 12 dealt with forfeiture and end of the lease. Clauses 12.1, 12.2, 12.3, 12.5, 12.6 and 12.7 are extracted below:

6. [79]

   Clauses 16 and 17 dealt with the bank guarantee and security deposit.

Existence of a valid lease?

1. [80]

   By cl 2.1 of the agreement to lease, two pre-conditions for a lease were specified. First, there must exist development consent for the premises as a “Child Care Centre” from the Parramatta City Council. Secondly, the agreement required that “a Licence to operate the Child Care Centre… [be] received from DOCS” (“the second pre-condition”).

2. [81]

   The defendant contended that it was entitled to have access to the premises for fit-out purposes from 5 August 2015 and there was no requirement to pay a licence fee for the licence to enter and occupy the premises. It ultimately contended that the second pre-condition for the lease was never met and that the lease was thereby invalid.

3. [82]

   It was from that foundation that the defendant’s case appeared to be that, because the plaintiff’s case was governed by the agreement to lease, the defendant was entitled to occupy the premises rent free until the second pre-condition was met. It was also submitted that there was a separate verbal agreement to the effect that no rent was payable until that condition was satisfied.

4. [83]

   The plaintiff did not dispute that invalidity would arise if the second pre-condition was not met, but denied that the second pre-condition of the agreement for lease was not met. (The plaintiff made further submissions as to whether the agreement to lease had nonetheless been breached if no valid lease existed).

5. [84]

   The plaintiff contended that all necessary approvals for child care services at the premises were obtained by the defendant and, hence, the agreement to lease was at an end and the lease was operative. That submission was predicated upon the construction of the agreement to lease including, in the alternative, by a process of rectification. However, it should be noted the plaintiff advanced two alternative submissions by which it was contended that the lease was validly entered into and was then terminated upon the plaintiff’s exercised of a power of entry on 23 March 2017:

   1. (1)

      in the alternative, the pre-condition relating to the obtaining of a licence (a service approval under the current regime) was waived by the defendant; and

   2. (2)

      in the further alternative, an estoppel by convention operates so as to preclude the defendant from denying the validity of the lease;

6. [85]

   In its cross-claim and defence, the defendant (when legally represented) contended:

   1. (1)

      despite applications by the defendant for a “DOCs Licence” for approval to operate a child care centre, the Department of Community Services (“DOCS”) had never issued such a licence enabling the defendant to operate a child care centre from the premises; and

   2. (2)

      in the circumstances the plaintiff and the defendant had been unable to enter into a lease of the premises within the meaning of cl 2.1 of the agreement to lease and, therefore, the provisions of the lease did not apply.

7. [86]

   The defendant contended that the reference to a “Child Care Centre” in cl 2.1 of the agreement to lease should be construed as a reference to “centre-based care” rather than a family day care service. Hence, the acquisition of a family day care service approval did not satisfy that condition. Reliance was also placed, in that respect, upon the heads of agreement.

8. [87]

   There was no limitation in the time in which the pre-condition was to operate under the agreement, and, in that respect, the defendant was, other than three prior refusals, now in a position to make a fresh application for a centre-based service.

9. [88]

   It was also submitted there was provision for a trial operation. In the absence of a centre-based licence, the defendant would not be able to obtain a Child Care Benefit and Child Care Rebate which were essential not only from a commercial viewpoint but having regard to the fact that the centre was run for a public good - a charitable model for a child care centre (for low income families) where a unique vertical integration service model was offered.

10. [89]

    Further, the premises for which family day care service approval was given were not the premises the subject of the present proceedings. A family day care service approval had not been provided for the premises, namely, the family day care service approval dated 13 November 2015 was provided for 2301/138-140 Church Street, Parramatta. The licence address was not changed and “another address” had been used to apply for a family day care service (that licence did not permit a child care centre to operate).

11. [90]

    The principles governing the construction of commercial contracts was recently discussed by this Court in Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924 at [89]-[91] as follows:

12. [91]

    In order to determine whether the second pre-condition was satisfied, it is necessary to construe within the context of the entire agreement the meaning in that requirement of the agreement that “a licence to operate the Child Care Centre… [be] received from DOCS”.

13. [92]

    At the time of the execution of the agreement to lease, the relevant authority was no longer DOCS but the Department. As previously mentioned, that change commence on 1 January 2012.

14. [93]

    I accept the submission of the plaintiff that reference to “DOCS” in the agreement to lease is a minor and technical defect and of no substance. It apparently arose from a mistake by the plaintiff’s lawyers in the preparation of the agreement to lease (Mr Gough was of the understanding that the Department of Community Services was the relevant government authority that issued the service approval for the operation of child care centres in New South Wales based on his previous experience in preparing lease documents).

15. [94]

    Given that the reference to “DOCS” was incorporated within the agreement to lease at a time of its execution when that agency no longer had authority for the regulation or administration of child care services, a literal construction of the agreement to lease would have the effect of rendering the agreement nugatory at its outset as the condition of cl 2.1 could never be met from the inception of the agreement. An agreement, however, is looked at as a whole, it is clear that the reference to “DOCs” concerned the relevant government agency which provided approvals for the operation of a child care centre. That much is clear from the clause referring to “a licence” and the purposes of the licence being to operate a child care centre.

16. [95]

    Where a court can discern the intention of the parties from an examination of the document as a whole, words may be corrected where it is necessary to avoid absurdity: Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 299 (per Santow J); Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53 (in such cases rectification of the document is not required: Re United Pacific Transport Pty Ltd [1968] Qd R 517 at 523 (per Campbell J); Bowler v Hilda Pty Ltd (2001) 112 FCR 59; [2001] FCA 342 at [11] (per Drummond J)).

17. [96]

    The word “Licence” appearing in cl 2.1 and 2.2 attracts similar considerations. It was common ground that a system of licences had been replaced by a system of provider approvals and service approvals from 1 January 2012. The intention of the parties, as evidenced by the terms of the agreement to lease, was not that the word “Licence” was intended to operate literally to mean a designated “licence” issued by an authority by the use of the capital letter “L” but rather the expression was intended to refer to a permit from an authority to do a particular thing in the context of the National Law. That construction is supported by cl 2.4 of the agreement which provides that the “Lessor” be informed, inter alia, of the progress of the “Service Approval”.

18. [97]

    That conclusion is affirmed by reference to surrounding circumstances, namely, the heads of agreement. Evidence of surrounding circumstances known to the parties, may be used to construe a contract in contrast to the subjective intention of the parties: Cherry v Steele-Park (2017) 351 ALR 521; [2017] NSWCA 295 at [57]-[67] (Leeming JA, with whom Gleeson JA agreed). Thus, the heads of agreement may be used in accordance with these principles to construe the contract. Under “Conditions”, the heads of agreement provides that the lease was subject to receiving, inter alia, a “Service Approval”.

19. [98]

    I agree with the submission of the plaintiff that the expression “Child Care Centre” in cll 2.1 and 2.2 of the agreement to lease is not a defined term, nor a term of art. The words take their meaning from their ordinary meaning of the text when read in context and by means of construing the words in accordance with commercial common sense. That context includes the whole of the instrument including the draft lease which is annexed to the agreement to lease. The lease which is attached to the agreement to lease provides that the permitted use of the premises was “Child Care”. This would suggest the reference to a “Child Care Centre” is a place which child care services are permitted to be carried out. There is nothing in the ordinary reading of the expression which would convey any narrower or more restrictive interpretation.

20. [99]

    The purpose of the second pre-condition must be seen in that context that is, in this case, approval by the Department to operate child care from the premises.

21. [100]

    When cll 2.1 and 2.2 are read in the light of the aforementioned principles and, in particular, an examination of the language, structure and apparent purpose of the document (which includes the context in which the words are used), the clause refers, when properly construed, in my view, to whatever licence or approval was required from a government agency responsible for the operation of child care services from the premises.

22. [101]

    A question arises as to whether that meaning is confined by the operation of cl 2.4 such that the licence or approval contemplated was a “service approval”. However, that question is largely redundant as the National Law would require the holding of both a provider approval and service approval to provide a child care service.

23. [102]

    Upon that construction of the agreement to lease, the second pre-condition for the lease was satisfied for the following reasons:

    1. (1)

       The second pre-condition was met because the defendant had obtained the provider approval on 20 June 2014 and the service approval on 13 November 2015.

    2. (2)

       The service approval refers to an address in Church Street, Parramatta, the address for the service approval was subsequently change to the premises on about 29 February 2016, a fact confirmed by a letter dated 27 April 2016. (It may be noted that Mr Pan wrote to the Department on behalf of the defendant by email on 29 February 2016 indicating that the defendant intended to use “Level 1 and Level 2 of 60 Campbell Street Parramatta as our community day care venues”. This was acknowledged by the Department on 29 February as the location “for family day care venues”.

    3. (3)

       Both the provider approval obtained 20 June 2014 and the service approval obtained 13 November 2015 permitted the operation by the defendant of child care services at the premises.

    4. (4)

       There was no dispute that child care services were carried out on the premises as there was no approval other than the approval of 13 November 2015, which authorised the carrying out of such activities. It is immaterial for the purposes of the clause that the child care services were carried out on a trial basis or on a continuing basis.

    5. (5)

       It is true that the lease was registered before the pre-condition was satisfied (a period of approximately 3 and a half months). However, the defendant abandoned the right not to enter into the lease before the approval was obtained, in my view, when it committed an intentional act with knowledge, namely, acting as if the lease were on foot, which was inconsistent with maintaining that alternative right: Commonwealth v Verwayen (1990) 170 CLR 394 at 407; [1990] HCA 39. I agree with the submission that this conduct must be reached when the defendant’s conduct is viewed objectively, particularly having regard to the facts and circumstances to which I will return when considering the question of waiver. In any event, as at 13 November 2015, the second pre-condition was satisfied as the defendant obtained approval to carry out child care services at that time.

    6. (6)

       The defendant contended that the pre-condition had not been met because the defendant had not obtained approval for centre-based care. It is true that there is a clear distinction in the legislative scheme between a family day care service (being an education and care service delivered through the use of two or more educators to provide education and care to children in residences whether or not the service also provides education and care to children at a place other than the residence): see s 5 of the National Law and a centre-based service (which is an education and care service other than a family day service): see reg 4 of the Education and Care Service National Regulations. However, I do not consider that cll 2.1 and 2.2 of the agreement to lease may be read down so as to restrict the operation of the provisions to approval for centre-based service.

    7. (7)

       Both kinds of service approval could have authorised the carrying out of child care services at the premises. There is no limitation of the kind proposed by the defendant in the text of cll 2.1 and 2.2. Further, the attached lease which must be construed with the agreement to lease contains no such limitation. Reference may also be made to the heads of agreement. The “Conditions” on page 7 referred to the lease being subject to “receiving a development application and service approval”. There was no specificity concerning the type of “service approval”. There is a reference in the “Usage” section to “child care” on page 6, which supports the proposition that the parties’ intention at the time the agreement to lease was executed was that service approval for child care services was required but not limited to service approval for centre-based care.

24. [103]

    In the light of these conclusions, it is strictly unnecessary to consider the plaintiff’s alternative contentions regarding rectification. However, I would observe there is considerable substance in the following submission advanced by the plaintiff in that respect:

25. [104]

    The plaintiff advanced an alternative submission as to why the agreement to lease was at an end and the lease was valid and operative. That alternative submission was predicated on the assumption, contrary to the above conclusion, that the second pre-condition operated in the manner contended for the defendant.

26. [105]

    It follows that is strictly unnecessary to resolve that question. However, for completeness, and if a contrary view was formed as to the aforementioned construction, I observe that I accept the plaintiff established, by its submissions, the defendant had waived its right to insist on satisfaction of both pre-conditions before the lease would be registered upon the foundation that both parties acted on the basis that service approval was no longer a pre-condition to the registration operation of the lease. In Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57, Gummow, Hayne and Kiefel JJ observed that a waiver is “an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right” (at [56]). I note the defendant made no submissions in this respect.

27. [106]

    The plaintiff’s submissions in this respect are of real substance for the reasons which follow.

28. [107]

    First, I accept the first proposition advanced by the plaintiff in this respect:

29. [108]

    The plaintiff referred to an email from Mr Gough to the defendant’s solicitor which said:

30. [109]

    I accept the submission of the plaintiff that the defendant’s solicitor was the defendant’s agent. In any event, Mr Shang’s denial that he had received these communications was inherently implausible because it is unlikely that the defendant’s solicitor was acting on a whim without instructions and without informing his client. Further, the defendant had the opportunity to call his solicitor to give evidence but he failed to do so,

31. [110]

    Secondly, I accept the following further submission advanced by the plaintiff:

32. [111]

    Thirdly, I accept, the defendant’s advice to the Department on 1 October 2015 that the defendant was paying nearly $20,000 per month for the property rental starting from 1 September 2015 was an acknowledgment by the defendant that the lease was on foot. Mr Shang’s attempts to explain why this might not be so were unconvincing and further diminished his credit.

33. [112]

    Finally, I do not accept Mr Shang’s denial that the registered lease was not sent to the Department by the defendant. The explanation by Mr Shang as to how the Department came to have a copy of the lease – namely, that they obtained it from a search warrant – cannot be correct in light of the fact that the search of the premises, pursuant to the search warrant, was conducted after the date the subpoena was answered.

34. [113]

    The conclusion reached by the Court as to the construction of the agreement to lease must result in the conclusion that the lease was validly entered into and was only terminated upon the plaintiff’s exercise of the power of entry on 23 March 2017.

35. [114]

    The plaintiff advanced a further alternative submission in the event that a conclusion was reached that the lease was not validly entered into and that the parties’ relationship was governed by the agreement to lease. Whilst that is not the finding of the Court, consideration will be briefly given to the plaintiff’s submissions, in that respect, particularly as it has some connection to the relief sought.

36. [115]

    The defendant pleaded that it had a right to enter and occupy the premises for fit-out purposes pursuant to cl 2.6 of the agreement to lease. That provision, it was contended, gave the defendant the right to access the premises. However, that right was exercisable only for the purposes of fit-out. It did not extend to the conduct of child care services. The only document that gave the defendant any such right was the lease.

37. [116]

    On this basis, the operation of child care services from the premises by the defendant must be viewed as a fundamental breach of the agreement to lease. It is unnecessary to pass any further upon that consideration as the ultimate question is whether, upon the aforementioned construction of the agreement to lease, and subject to the defendant’s contention as to the existence of a verbal agreement, whether there had been a breach of the registered lease which has been found to be valid.

38. [117]

    The defendant also submitted that, after receiving a letter of demand on 26 February 2016, Mr Shang met with Ms Lyn Tansett, the building manager, and Mr David Knight for the plaintiff and reached a verbal agreement that no rent would be payable until there was a service approval for the centre-based services at the premises.

39. [118]

    This was evidenced, it was contended, by the fact that the plaintiff stopped issuing tax invoices for the rent thereafter. It was also evidenced by the fact that the defendant was not barred from lift access, which access was ultimately only denied in March 2017. If there was not a verbal agreement, it was submitted, the plaintiff would have prevented the defendant from operating the service by means of removing access to the lift over the 13 month period the defendant did not pay rent (until March 2017).

40. [119]

    It was said this agreement was reached because “they knew we are running as a charity” and not receiving government rebates in the absence of service approval for centre-based services. Without this verbal agreement, it was known that the trial operation which had been started would not be viable.

41. [120]

    The defendant’s case on the existence of a verbal agreement between the parties allowing the defendant not to pay any rent while the defendant’s application for a service approval for centre-based service was pending first emerged in the cross-examination of Ms Tansett and Mr Knight.

42. [121]

    The plaintiff was correct to submit that the contention may only be properly advanced upon the footing that a lease existed, contrary to the defendant’s primary pleadings.

43. [122]

    The plaintiff was also correct in submitting that there was, on the evidence, no consideration for any such agreement. Forbearance to sue for rent not paid, or an agreement not to require the payment of rent which is lawfully due until a specified event, requires consideration, if it is advanced, as appears to be the case here, that there was an oral contract to that effect: see Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (2014) 17 BPR 33,047; [2014] NSWSC 792, where Young AJA considered there was no consideration in the foregoing of rent (at [123]).

44. [123]

    However, the question should be ultimately resolved, in my view, upon the basis that the evidence does not demonstrate there was such an agreement.

45. [124]

    At the outset, it should be noted that Mr Shang did not directly put to the witnesses that they had had a conversation with Mr Shang in which they agreed that the defendant would not have to pay rent until it was granted approval. However, I consider that having regard to the circumstances in which Mr Shang was embarking upon that course, a conclusion should be reached that he did effectively challenge the plaintiff’s witnesses, Ms Tamsett and Mr Knight, as to the existence of such an agreement. The questions asked by Mr Shang occurred in the context of strenuous objections from counsel for the plaintiff. That said, the gravamen of Ms Tamsett and Mr Knight’s evidence was that no verbal agreement was made.

46. [125]

    Ms Tamsett, the building manager, gave evidence that she stopped issuing invoices when she was instructed to by Mr Knight. Her evidence was that every time she chased the defendant for rent, Mr Shang said he would not pay the rent because of the conditions he asserted existed in the agreement.

47. [126]

    Mr Knight, when questioned on why he instructed Ms Tamsett to stop issuing invoices and whether there was a discussion about attempts to get service approval, gave the following explanation:

48. [127]

    The plaintiff also drew attention to Mr Shang’s evidence as to the existence of the verbal agreement. I note, in this respect, my earlier findings as to Mr Shang’s credibility. In cross-examination, Mr Shang gave the following evidence:

49. [128]

    I accept the submission of the plaintiff that it is implausible that the plaintiff, as the landlord of the premises, would have agreed to put off the payment of rent whilst the defendant was endeavouring to obtain service approval when there was no benefit to be gained by the plaintiff, especially considering it could have been for an indefinite period of time. Further, the evidence of the verbal agreement proceeds for the most part upon the false premise that the agreement to lease permitted the defendant to carry on child care services as opposed to effecting a fit-out.

50. [129]

    As to the period of delay or inaction by the plaintiff in issuing rental notices or taking further action against the defendant, the explanation on the evidence lies, in my view, not upon the existence of a verbal agreement, as relied upon by the defendant, but on Mr Knight’s preoccupation with his wife who had been placed in palliative care.

51. [130]

    I reject the contention of the defendant that a verbal agreement was reached with Mr Knight or Ms Tamsett, on or around 12 February 2016, that the defendant would pay no rent until a service approval for centre-based service was approved.

52. [131]

    The agreement to lease was an agreement between the plaintiff and the defendant to enter into a lease of the premises. Clause 2.6 of the agreement to lease provided that the defendant was to have access to the premises for fit-out purposes following the receipt of a development consent or as soon as practicable after that time subject to the provision of an insurance certificate of currency. There was no rent or licence payable under the agreement to lease whilst the defendant used the premises for fit-out purposes. That provision gave no right to the defendant to occupy the premises, as it did, for the purposes of conducting child care services. The only document that gave the defendant any such right was the lease.

53. [132]

    I have rejected the contention of the defendant that the parties’ relationship was governed by the agreement to lease and not the lease itself. Upon the proper construction of the agreement to lease, the pre-conditions for the lease operating were met, albeit at a time after the lease was registered.

54. [133]

    For the reasons I have given, I consider that the lease operated from the date of its registration on 27 July 2015. It was unnecessary to consider the plaintiff’s alternative submission that the lease would operate from 13 November 2015 when all pre-conditions were satisfied including an approval to carry out child care services.

55. [134]

    Hence, a lease was validly entered into on and from 27 July 2015 and, as discussed, was terminated upon the plaintiff’s exercise of the power of entry on 23 March 2017.

Breach of the lease

1. [135]

   The plaintiff relied upon three breaches of the lease, two of which represented breaches of an essential term of the lease, namely, a failure to pay rent and breach of covenants as to use, and the third concerned the covenant to comply with all laws regulating the premises. I will now address each breach in turn.

2. [136]

   Under the lease the defendant covenanted to pay monthly rent to the plaintiff in the sum of $19,328.83 (including GST) per month, with fixed rental increases of 5% on each anniversary of the commencement date (see cl 5, item 13 of Annexure A, cl 5.7 and item 16 of Annexure A of the lease). By reason of an amendment to cl 5.2 of the lease, the defendant was entitled to a rent-free period of 6 months, with monthly rent scheduled to commence on 1 September 2015 (see additional cl 5.2.1 on page 5 in Annexure A of the lease).

3. [137]

   By cl 12.5 of the lease, the obligation to pay rent no later than 14 days after the due date was an essential term. The defendant did not pay rent after occupation of the premises and did so upon the aforementioned contention that there was no valid lease and a right to occupy the premises under the agreement to lease without rent. This was notwithstanding that the defendant sent a copy of the lease to the Department as part of its application for a service approval.

4. [138]

   Under the lease, the defendant covenanted to use the premises for the purposes of "Childcare" and not for any other purpose (see cl 6.1.1 and Item 17 of Annexure A of the lease). That was an essential term of the lease.

5. [139]

   The evidence of Ms Bing was largely uncontradicted and, in any event, I accept her evidence. Ms Bing gave evidence that she was working in the reception area of the premises from February 2016 to February 2017. She had the opportunity to observe the comings and goings at the premises. She gave evidence that Mr Shang allowed Chinese student educators to live in rooms located on levels 1 and 2 of the premises, including Yu Yan and Sun Yi Gun; Ji Yun Lu and Cao Yin Yin; Weng Chun Yi and her daughter, Jingying Yu; and Shao Qian Tong and Peng Hao Wen. The students lived, worked and ate at the premises and did not get paid any wages.

6. [140]

   Mr Issa gave evidence that in the execution of a search warrant at the premises on 17 August 2017, he observed areas being used as bedrooms or sleeping areas on levels 1 and 2.

7. [141]

   I do not accept Mr Shang’s denials as to the fact that various educators did not reside on the premises. I accept the evidence of Ms Bing and Mr Issa and reject Mr Shang’s evidence to the contrary based on their evidence and on my earlier adverse findings as to credit.

8. [142]

   In particular, I reject his explanation that the defendant offered an overnight service for its welfare group for children who were misplaced in light of evidence given by Ms Bing that the people residing at the premises were offered free accommodation in exchange for working at the centre.

9. [143]

   I find, on the balance of probabilities, that the defendant, contrary to cl 6.1.1 of the lease, permitted persons to reside at the premises.

10. [144]

    Under the lease, the defendant covenanted to comply with all laws regulating how the premises were to be used, including obtaining the essential licences needed and keeping current any licences or registration required for the use of the premises or for the conduct of the defendant's business there (see cl 6.1.4 of the lease).

11. [145]

    Mr Issa gave evidence that the defendant had its provider approval suspended and subsequently cancelled, effective from 12 April 2017.

12. [146]

    Mr Shang conceded that child care services are being carried out of the premises from the end of February 2016 to mid-2017 involving up to 20 children at a time with at least three or four educators. The defendant operated, therefore, the child care centre without provider approval, ultimately resulting in the Department seeking injunctive relief against the defendant to which I have earlier referred in this judgment.

13. [147]

    The defendant contended that it was engaged in trial services but there is no exception in the National Law for such purposes.

14. [148]

    It follows that the carrying on of such services whilst the relevant approvals were suspended or cancelled was a breach of the lease.

The plaintiff’s entitlement to relief

1. [149]

   On the final day of the proceedings, the plaintiff provided a schedule titled “Quantum Calculations of Plaintiff’s Entitlement of Relief” which calculated the rental arrears and interest on late payment of rent and mesne profits (“the quantum schedule”). This supplemented the written submissions of the plaintiff on that topic.

2. [150]

   On 9 March 2017, the plaintiff served on the defendant a notice for the purposes of s 129 of the Conveyancing Act. To the extent that the breaches related to the non-payment of rent, a s 129 notice was not required: see s 129(8).

3. [151]

   The breaches were not rectified as required by the notice and on 23 March 2017, the plaintiff re-entered the premises and changed the locks.

4. [152]

   On 24 March 2017 the defendant damaged the locks to the premises, re-entered and remained in unlawful occupation as at the date of hearing of this matter.

5. [153]

   The above breaches, including of essential terms, gave the plaintiff the right to bring the lease to an end pursuant to cl 12 of the lease. The plaintiff is therefore entitled to an order for possession from this Court.

6. [154]

   In addition to being entitled to possession of the premises, the plaintiff is entitled to rental arrears, mesne profits (pursuant to an express contractual right and at law) and damages.

7. [155]

   The defendant covenanted to commence paying rent from 1 September 2015 (see cl 5 on page 8 and additional cl 5.2.1 on page 5 of the lease). No rent has been paid by the defendant. The base rent at the commencement of the lease was $231,946.00 per annum (including GST) to be paid by equal monthly instalments of $19,328.83 (including GST) (see cl 5.1.1 on page 8 and item 13A in Annexure A of the lease). The plaintiff submitted that the fixed rental increases of 5% pursuant to cl 5.4 and item 16 of the lease increased the rent on each anniversary of the commencement date and, in effect, the rent was increased as follows (assuming the lease was on foot during the whole period):

   1. (1)

      between 1 March 2016 to 28 February 2017, the rent increased to $243,543.12 per annum (including GST) payable by equal monthly instalments of $20,295.26 (including GST); and

   2. (2)

      from 1 March 2017 to 28 February 2018, the rent increased to $255,720.36 per annum (including GST) payable by equal monthly instalments of $21,310.03 (including GST).

8. [156]

   As at 23 March 2017 (the date of re-entry), the rent that was due and owing was $355,997.96 (inclusive of GST), noting that the one month security deposit of $19,328.83 paid by the defendant on 13 October 2014 was put towards the first month's rent payable from 1 September 2015. Further, as to the rent for the period referred to in [155(2)] above, it is clear from the quantum schedule, that the calculation of arrears only included the rent payable up to the date of re-entry.

9. [157]

   Pursuant to cl 5.1.5 of the lease, interest at a rate of 10% is payable when payment of monies are more than 14 days overdue. At 23 March 2017, the interest owed by the defendant was $27,429.

10. [158]

    On 3 April 2017 the plaintiff called upon the bank guarantee that had been provided by the defendant in accordance with cl 16.3 of the lease. A cheque was received from the bank on 21 April 2017 in the amount of $57,986.50, being the bank guarantee amount which had already been applied to reduce the defendant's rental obligations to the plaintiff.

11. [159]

    I accept the calculation of outstanding rental within the quantum schedule as follows:

12. [160]

    Therefore, the plaintiff is entitled to $325,440.46. That order and relief in relation to possession should be immediately available, subject to the directions below.

13. [161]

    The plaintiff made the following submissions in regard to mesne profits:

14. [162]

    I accept the submission of the plaintiff that mesne profits are payable to the plaintiff until the defendant has given possession having regard to the defendant’s unlawful occupation of the premises.

15. [163]

    However, there was a tension between the quantum schedule, the pleadings and the plaintiff’s written and oral closing submissions as to the calculation of mesne profits.

16. [164]

    The quantum schedule included two calculations as to the calculation of mesne profits. They were as follows:

    1. (1)

       the first was in relation to calculations to the same rate of rent payable under the lease at the date of termination – on page 5; and

    2. (2)

       the second was based on Mr Khoury’s evidence on market rent – on page 6.

17. [165]

    The quantum schedule appeared to suggest that the calculation on page 5 should be used (see para 2 on page 5). However, the oral closing submissions by counsel for the plaintiff suggested that the calculation on page 6 should be used; that submission did not explain the apparently different positions as to calculations in the quantum schedule. The plaintiff’s written submissions were, in this respect, also productive of some uncertainty as to what basis mesne profits should be calculated.

18. [166]

    It is appropriate that those issues be resolved, together with any further submissions being obtained from the defendant, before final orders are made awarding mesne profits in favour of the plaintiff.

19. [167]

    The plaintiff made a claim for relief in the form of damages. No written submissions were made as to that point. Nor were oral submissions received. The only material before the Court on damages was included on page 7 of the quantum schedule which was as follows:

20. [168]

    There are two problems that arise as a result of the above considerations. First, the plaintiff did not expand upon the basis on which a damages claim was payable by the defendant. Secondly, the quantum schedule was handed up on the final day of hearing which gives rise to a concern as to whether the defendant had an opportunity to respond to the plaintiff’s submission in that respect.

21. [169]

    Hence, in addition to submissions on the calculation of mesne profits, the Court will require the parties to provide further submissions on the question of damages.

Claims by the defendant

1. [170]

   For completeness, it should be noted that the defendant appeared to make a positive claim for damages for breaches of the agreement to lease. I accept the submission of the plaintiff that none of those alleged breaches relied upon by the defendant are supported by evidence nor is there evidence of loss or damage suffered as a result of those alleged breaches. It also follows from the aforementioned considerations that the defendant’s cross-claim should be refused. In particular, I note that the application for declaratory relief is refused.

2. [171]

   At various points in the hearing, Mr Shang also sought to assert that the defendant should be compensated for money it spent on the premises. The same assertion was made at para 22 of his affidavit. The defendant did not plead a set-off and the evidence, in that respect, therefore, is not relevant to any pleaded issue in the proceedings.

3. [172]

   The defendant cannot properly raise a claim for set-off in circumstances where the evidence was first introduced after the hearing was part heard and in circumstances where the plaintiff was deprived of the opportunity of leading any evidence about the question.

4. [173]

   In any event, the evidence is irrelevant because cl 12.3 of the lease, a make-good provision, required the defendant to remove anything brought to or added to the premises. Further, the defendant led no evidence about the value of its contribution.

5. [174]

   I accept the submission that the defendant had a contractual right pursuant to cl 2.6 of the agreement to lease to fit-out the premises as required for a child care centre. The cost of that fit-out was at the risk of the defendant, especially having regard to the make-good provision in cl 12.3 of the lease.

6. [175]

   The defendant contended that the plaintiff should not be granted possession of the premises (and other relief) considering the nature of the centre. First, it was contended that the centre provided child care to children from low-income families who would otherwise not have equal access to a bilingual early childhood education program.

7. [176]

   Secondly, it was contended that the centre, as a community project, was funded by the community and if the defendant lost possession of the premises, that money generated by the community would be lost.

8. [177]

   The defendant proposed an alternative resolution to the proceedings. It was suggested that the defendant was willing to give up the 6 months’ rent free period from the lease commencement date. It was contended that once the service approval for a centre-based service was granted, the defendants would enter into a lease and start paying the rent from the date of approval.

9. [178]

   The plaintiff was correct to submit that there was no evidence of the prospects of the defendant’s application being approached and in any event, the prospect of approval does not affect the plaintiff’s legal rights.

10. [179]

    However commendable that objective of the defendant may be, that does not afford it a right to occupy the premises for over two years without paying rent contrary to a lease (and an agreement to lease).

COSTS

1. [180]

   The plaintiff contended that, pursuant to s 98 of the Civil Procedure Act 2005 (NSW), Mr Shang should be jointly and severally liable for any order for costs in the proceedings. Reference was made to the affidavit of Mr Russo concerning, it was contended, “a lengthy history of delay and wilful breaches of the Court’s orders”. Reliance was placed on Mr Shang’s conduct during the trial to further delay the plaintiff’s right to access. It was submitted that Mr Shang’s conduct was not that of an ordinary self-represented litigant trying to do his best. These contentions raised serious issues to which Mr Shang should have a proper opportunity to reply.

2. [181]

   In the course of argument, counsel for the plaintiff agreed that the question of costs should be deferred until the respective parties have the benefit of a judgment on the primary issues. Having regard to that fact and the nature of the relief sought by the plaintiff, I propose to reserve costs and in doing do make directions for the resolution of that issue in the proceedings.

CONCLUSION

1. [182]

   The registered lease was valid and operative from the date of registration, namely, 27 July 2015. The defendant was in breach of the lease by a failure to pay rent, a breach of covenants as to use and a breach of a covenant to comply with all laws regulating the premises.

2. [183]

   The first two of those breaches were breaches of essential terms of the lease.

3. [184]

   The plaintiff had a right to bring the lease to an end pursuant to cl 12 of the lease. The plaintiff served an effective notice upon the defendant on 9 March 2017 and, in the absence of rectification as required by the notice (by 23 March 2017), re-entered the premises and changed the locks. On 24 March 2017, the defendant nonetheless re-entered the premises and remained in unlawful occupation.

4. [185]

   The plaintiff is entitled to an order for possession together with rental arrears pursuant to an express contractual right and at law, and mesne profits. The Court shall make directions requiring the plaintiff to bring in short minutes of order reflecting this judgment, as well as providing for further submissions as to the quantification of mesne profits, damages and costs which shall be reserved.

ORDERS AND DIRECTIONS

1. [186]

   The Court makes the following directions as to possession, rental arrears, mesne profits and damages:

   1. (1)

      The plaintiff shall file and serve short minutes of order reflecting this judgment within 7 days of the publication of this judgment;

   2. (2)

      The plaintiff shall file and serve a submission in relation to the calculation of mesne profits and the plaintiff’s entitlement to damages within 14 days of the publication of this judgment; and

   3. (3)

      The defendant shall file and serve any submission in reply as to mesne profits and damages within 28 days of the publication of this judgment.

2. [187]

   The issue of mesne profits and damages shall be determined upon the papers (that is, without further oral hearing) unless either party seeks an oral hearing.

3. [188]

   As to costs, the Court makes the following order and directions:

   1. (1)

      Costs are reserved.

   2. (2)

      The plaintiff shall file and serve upon the defendant and Mr Shang a submission and further evidence in relation to costs including the order for costs sought by the plaintiff within 21 days of the publication of this judgment.

   3. (3)

      The defendant and Mr Shang shall file and serve any submissions and further evidence in reply within 42 days of the publication of this judgment.

   4. (4)

      The further disposition of the issue of costs will be assessed after receipt of the submissions of the respective interests and any evidence. The parties are at liberty to make submissions as to the procedure to be adopted in the resolution of any application for costs made by the plaintiff.