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Karamist Pty Ltd v Meridien Airlie Beach Pty Ltd (Receivers and Managers Appointed) (in liq)

 

[2014] QSC 317

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

31 October 2014

DELIVERED AT:

Brisbane

HEARING DATE:

31 October 2014

JUDGE:

Carmody CJ

ORDERS:

1.The application is granted;

2.Orders as per signed draft;

3.The applicant will be required to pay the respondent’s costs of and incidental to the application as agreed or assessed if no agreement.

CATCHWORDS:

LANDLORD AND TENANT – TERMINATION OF THE TENANCY – FORFEITURE – RELIEF AGAINST FORFEITURE – EQUITABLE RELIEF – where rental arrears was repaid in full – whether the applicant wilfully defaulted

Hace Corporation Pty Ltd v F Hannan Properties Pty Ltd (1995) 7 BPR ¶14-326, cited

COUNSEL:

P Tucker for the applicant.

A O’Brien for the respondents.

SOLICITORS:

Porter Davies for the applicant.

McKays Solicitors for the respondents.

THE CHIEF JUSTICE:   The applicant seeks relief from forfeiture in respect of two long-term non-commercial subleases of marina berths in a development at Airlie Beach.  It is the first application for such relief.  The applicant also owns expensive undeveloped waterfront land adjacent to the marina berths in question.  The respondents are companies in liquidation and sub-lessors.  Each of the respondent companies is in liquidation.  Leave to proceed is required.  No objection is made to the grant of leave or reason to withhold it.  Leave is granted.

 

The context

The subleases were entered into in 2009 for a term expiring in 2108.  The rent for the entire term was $225,000.  It was payable at commencement, save for a total of $100,000, that is, $50,000 in respect of each berth, deferred until the construction of a pontoon.  All rent, except for the deferred rent, was duly paid.

 

Payment of the deferred rent was requested in 2012.  Notices to remedy default within 45 days were given on 17 April 2014.  A proposal for payment was later rejected and the subleases were terminated for non-payment on 12 June 2014.  Within five days, the hundred thousand dollars was paid to the respondents in full satisfaction of the amount owing.  Notices of surrender were lodged by the respondents on 25 June 2014.

 

The principles

 

Relief from forfeiture is likely to be granted, provided that breaches giving rise to forfeiture can be rectified or compensated so as to effectively place the landlord in the same position as if performance had been made on time.  Otherwise, it would be unconscionable for the landlord to rely on strict legal rights.

 

The cases suggest, however, that in respect of a first application, relief would generally be granted unless there were very special, or, at least, exceptional circumstances, such as a likelihood or insufficient evidence to indicate that there would not be a recurrence in the future.  Persistent deliberate or wilful non-payment may also be a basis for denying relief.

 

The determination

 

Mr O’Brien, on behalf of the respondents, contends that I should reject the explanation that non-payment was attributable to lack of liquidity. He submits that it was clearly part of a deliberate design to prefer other creditors to the respondents over a long period of time.  He says that the applicants’ explanation is inconsistent with the weight of other evidence.  He points to the profit of the trust of over a million dollars, an income of $3.3 million in the period 2011 to 2014, and the assertion by the applicant’s accountants that it has meet all its financial obligations from its creation up to the present day, except for the two subleases.  Mr O’Brien argues, therefore, that the inference is that the deferred rent was able to be met, but the applicant chose not to.  The respondents also complained about the significant delay between the termination on 12 June 2014 and the making of the application four months later on 3 October 2014.

 

In Hace Corporation Pty Ltd v F Hannan Properties Pty Ltd (1995) 7 BPR ¶14-326, at ¶14-329, McClellan CJ (in equity) said when briefly stating the general principles on an application for relief against forfeiture:

 

The Court treats a power to forfeit, at least for non-payment of rent, as a security for the rent and, generally speaking, on payment of any outstanding rent.  The Court will grant relief against any such forfeiture on conditions that it may consider appropriate in the particular circumstances, which will usually involve payment of the lessor’s costs and expenses.  Although relief against forfeiture is a discretionary remedy, the burden of establishing that a forfeiture for non-payment of rent should not be relieved against when all arrears of rent have been paid and when no interest of third parties have intervened is a “very heavy burden” and normally involves demonstrating that, by reason of the conduct of the lessee or for some other reason, the grant of relief against forfeiture would be inequitable.

 

In that case, there was a long history of untimely payment, but none on their own was considered to be particularly gross.  His Honour noted that the frustration of the lessor when their payments of monthly rent are almost invariably delayed for periods of at least two or three weeks as existed there – but did not consider it was the sort of default which would normally lead to the refusal of relief. 

 

There is no suggestion of intervening third party rights. 

 

The applicant has been incorporated since 1986, is solvent and has not otherwise been sued or received demand for moneys.  The controller of the applicant has deposed as to a willingness to provide an unconditional bank guarantee of $50,000 to meet unpaid outgoings in the future.

 

There can be no recurrence of the triggering default here, because the rental arrears has now been fully paid.  The explanation given for the non-payment for a period of up to two years of $100,000 is unusual cash flow problems which have since been overcome.

 

I am not satisfied that the default was wilful in the sense that it was deliberate in the way that Mr O’Brien suggests.  There is sufficient indication in the material that the applicant was suffering a temporary lack of liquidity and took steps to put itself into funds to meet its obligation to the respondents and eventually did.  I am not satisfied that the past history is the most reliable predictor of future default.  The past related to the non-payment of deferred rent; the future pertains only to outgoings which are expenses of a different kind and quantum.  The only likely future problem will be the payment of outgoings, as all rent, totalling $225,000, for the period of the lease has now been paid.  The applicant offers an unconditional bank guarantee of up to $50,000 to secure future outgoings.  In all the circumstances, there is no reason for exercising the discretion against the application.  The application will be granted.

 

Costs

 

There is a tendency for an applicant for relief against forfeiture, even in the event of success, to be held liable to pay for the landlord’s costs, including of the application for relief, to put the landlord back in the position in which it would have been but for the breaches.  However, the Court’s general discretion as to costs remains.  I am not satisfied that the respondent’s litigation conduct has contributed to increasing the costs or that opposing the grant of the indulgence was so unreasonable or intransigent that it should be out of pocket as a result of the applicant’s non-payment of the rent.  Accordingly, the applicant will be required to pay the respondent’s costs of and incidental to the application as agreed or assessed if no agreement.  I will amend paragraph 8 to that effect and delete paragraph 6 and 7 of the draft.

 

Otherwise, orders as per signed draft.

Close

Editorial Notes

  • Published Case Name:

    Karamist Pty Ltd v Meridien Airlie Beach Pty Ltd (Receivers and Managers Appointed) (in liq) & anor

  • Shortened Case Name:

    Karamist Pty Ltd v Meridien Airlie Beach Pty Ltd (Receivers and Managers Appointed) (in liq)

  • MNC:

    [2014] QSC 317

  • Court:

    QSC

  • Judge(s):

    Carmody CJ

  • Date:

    31 Oct 2014

  • White Star Case:

    Yes

Litigation History

Event Citation or File Date Notes
Primary Judgment [2014] QSC 317 31 Oct 2014 -
Appeal Determined (QCA) [2015] QCA 192 13 Oct 2015 -

Appeal Status

{solid} Appeal Determined (QCA)