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- Sentinel Industrial Pty Ltd v Yamba Shipping Pty Ltd[2024] QSC 261
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Sentinel Industrial Pty Ltd v Yamba Shipping Pty Ltd[2024] QSC 261
Sentinel Industrial Pty Ltd v Yamba Shipping Pty Ltd[2024] QSC 261
SUPREME COURT OF QUEENSLAND
CITATION: | Sentinel Industrial Pty Ltd v Yamba Shipping Pty Ltd [2024] QSC 261 |
PARTIES: | SENTINEL INDUSTRIAL PTY LTD ACN 606 262 408 AS TRUSTEE FOR THE SENTINEL INDUSTRIAL RETAIL TRUST (plaintiff) v YAMBA SHIPPING PTY LTD ACN 169 477 356 (first defendant) WARREN ALFRED MCKAY (second defendant) |
FILE NO/S: | BS 7720 of 2021 |
DIVISION: | Trial Division |
PROCEEDING: | Trial |
DELIVERED ON: | 1 November 2024 |
DELIVERED AT: | Brisbane |
HEARING DATES: | 9 and 10 September 2024 |
JUDGE: | Bowskill CJ |
ORDERS: |
|
CATCHWORDS: | REAL PROPERTY – TORRENS TITLE – LEASES – where the first defendant was the sub-lessee of an area of land (the land sublease) and an adjacent area of seabed (the seabed sublease) – where the second defendant is the sole director of the first defendant and was the guarantor of the first defendant’s obligations under the subleases – where the plaintiff was the owner of the land subleased to the first defendant and was the lessor of the subleases to the first defendant – where the plaintiff terminated the subleases on the basis of the first defendant’s breach of the terms of the subleases to pay rent and outgoings as well as the first defendant’s breach of a term of the seabed sublease requiring it to consent to the surrender and regrant of the sublease – where the first defendant alleges that the plaintiff was not permitted to terminate the subleases, on the basis of non-payment, having regard to the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld) (Covid regulation) – whether the first defendant was in default under the terms of the land sublease and the seabed sublease – whether the Covid regulation prohibited the plaintiff from exercising any rights, including terminating the subleases – whether the plaintiff lawfully terminated the land sublease and the seabed sublease Acts Interpretation Act 1954 (Qld), s 14B COVID-19 Emergency Response Act 2020 (Qld), s 23(1) Property Law Act 1974 (Qld), s 124 Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld), s 3, s 5, s 9, s 12(1), s 12(2), s 14(2), s 15 Fox v Jolly [1916] 1 AC 1 Lexane Pty Ltd v Highfern Pty Ltd [1985] 1 Qd R 446 Kumaragamage v Rallis [2001] NSWSC 466 |
COUNSEL: | C A Johnstone, with S Russell, for the plaintiff The second defendant appeared on his own behalf and, with leave, on behalf of the first defendant |
SOLICITORS: | Russells for the plaintiff The second defendant appeared on his own behalf and, with leave, on behalf of the first defendant |
Introduction
- [1]The first defendant, Yamba Shipping, was the sub-lessee of an area of land located at Anton Road in Hemmant, as well as an adjacent area of water (or the seabed below it) in the Brisbane River, from which it conducted a business of dredging, stockpiling and loading sand and then selling it commercially. The plaintiff, Sentinel, owns land which incorporates the area of land subleased to Yamba Shipping and, under somewhat complex arrangements, was the lessor of both that land and the seabed to Yamba Shipping. The second defendant, Mr McKay, is the sole director of Yamba Shipping and was the guarantor of Yamba Shipping’s obligations under the subleases.
- [2]On 10 July 2020, Sentinel terminated the subleases, on the basis of Yamba Shipping’s breach of the terms of the subleases to pay rent and outgoings as well as Yamba Shipping’s breach of a term of the seabed sublease requiring it to consent to the surrender and regrant of the sublease, in the circumstances described below. Sentinel took possession of the property on that day. By this proceeding, Sentinel seeks to recover from Yamba Shipping (and from Mr McKay, as guarantor) damages for unpaid and lost rent under each of the land and seabed subleases. Sentinel also claims amounts for the removal of a damaged marine pile and the repair of a damaged gate. The total amount of Sentinel’s damages claim, including interest, is $2,418.814.72.[1]
- [3]Yamba Shipping and Mr McKay contend that Sentinel’s termination of the subleases was unlawful, because Sentinel issued default notices prematurely, in so far as it relied upon nonpayment of rent; wrongfully issued default notices, in so far as it relied on failure to sign a consent to surrender form; and/or because Sentinel was prohibited from taking the action that it did under the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (the Covid regulation).
- [4]Although Yamba Shipping and Mr McKay were legally represented at an earlier stage of this proceeding, they no longer had representation in the lead up to and by the time of the trial. Mr McKay represented himself at the trial, and was given leave to appear on behalf of Yamba Shipping.
- [5]Yamba Shipping counterclaimed against Sentinel for damages for breach of contract, comprising losses suffered as a consequence of what it contends was the wrongful termination of the lease. However, no evidence was led at the trial in support of Yamba Shipping’s counterclaim.
- [6]Most of the facts in the matter were admitted, either on the pleadings, or by operation of r 189(2) of the UCPR, following service of a notice to admit facts. The factual disputes narrowed even more in the course of the trial.
- [7]The issues to be determined are:[2]
- Whether, as at:
- 26 May 2020, when the first default notices were issued; or
- 9 June 2020, when the second default notices were issued,
- Whether, as at:
Yamba Shipping was in default under the terms of the land sublease and the seabed sublease by:
- failing to pay rent and outgoings when due; and
- failing to sign and return the consent form.
- If so, whether the Covid regulation prohibited Sentinel from exercising any rights following service of the default notices, including terminating the land sublease and the seabed sublease on 10 July 2020.
- Whether Sentinel lawfully terminated the land sublease and the seabed sublease on 10 July 2020.
- If so, the amount of loss suffered by Sentinel as a result of Yamba Shipping’s default under the subleases (although, subject to the lawfulness of Sentinel’s termination, there was no dispute about the amounts claimed, a summary of which is contained in exhibit 8).
- Whether Yamba Shipping and Mr McKay are liable to Sentinel for the cost of removing the damaged marine pile.
- Whether Yamba Shipping and Mr McKay are liable for the cost of repairing the damaged gate.
- [8]Before addressing these issues, it is necessary to explain the ownership and leasing arrangements in a little more detail.
Ownership and leasing arrangements
- [9]Sentinel, in its capacity as trustee, is the registered owner of land (Lot 1 on SP277667) located at Anton Road in Hemmant, on the Brisbane River (the land).[3] It purchased the land in July 2019, from another company, 23A Pty Ltd.[4] Part of that land (Lot 724 on SP144875) is subject to a lease granted by the Port of Brisbane Corporation as lessor (the land head lease).[5] The land head lease was initially granted to Brisbane Marine Industry Park Pty Ltd as lessee in 2002,[6] transferred to 23A Pty Ltd in May 2015[7] and then transferred to Sentinel as lessee[8] in July 2019,[9] when it acquired the land. The area subject of the land head lease is described as “lease HK [which is] in Lot 724 on SP144875”.[10]
- [10]Adjacent to lease HK is an area of “wet lands” (the river and seabed beneath it). It is, or is part of, Lot 723 on SP139135, which is owned by the State.[11] That area was also the subject of a lease granted by the Port of Brisbane Corporation as lessor (the seabed head lease), initially to Brisbane Marine Industry Park Pty Ltd as lessee in 2006,[12] transferred to 23A Pty Ltd in April 2015,[13] and then transferred to Sentinel as lessee in 2019,[14] when it acquired the land. The area subject of the seabed head lease is described as “lease HL [which is] in Lot 723 on SP139135”.[15] When the seabed head lease was originally granted, it was a lease in perpetuity.[16]
- [11]In November 2018, Yamba Shipping entered into a sublease of the land head lease. The area the subject of the land sublease is referred to as “lease HLX in Lot 1 on SP277667”.[17] The term of the land sublease was from 1 December 2018 to 30 November 2024, with one option for a further term of four years.
- [12]At the same time, Yamba Shipping also entered into a sublease of the seabed head lease. The area the subject of the seabed sublease is referred to as “lease QPW in Lot 723 on SP139135”.[18] The term of the seabed sublease was from 12 January 2019 to 30 November 2024, with no options.
Material terms of the subleases
- [13]There is no dispute about the terms of the head leases or the subleases.
- [14]Relevantly, the material terms of the land sublease included the following:
- pursuant to the “commercial summary”:[19]
- item 5, the commencement date was 1 December 2018;
- item 6, the expiry date was 30 November 2024;
- item 7, the rent was $488,478.60 per annum plus GST;
- item 12, Yamba Shipping was obliged to pay all outgoings, as set out in clause 11.2; and
- item 15, Mr McKay was the guarantor;
- clause 1.1 defined a number of terms, including:
- that the “headlease” is lease no. 705769137 (that is, the land head lease);
- “lease year” means each consecutive period of 12 months starting on the commencement date;
- the “payment date” is the first day of each month; and
- “related lease” is the seabed sublease;
- clause 2 provided that the terms and conditions of the land sublease are the terms and conditions of the land head lease, as modified by the sublease;
- one of the modifications is contained in clause 4 (rental), which replaced clause 2 of the head lease with, among others:
- clause 2.2, which provides that the lessee (Yamba Shipping) must pay the rent (that is the amount set out in item 7 of the commercial summary) “in equal monthly instalments in advance commencing on the Commencement Date and then on each of the Payment Dates…”; and
- clause 2.10 (interest on arrears of rent), which provides that “[i]f the rent or any part of it, or any other moneys payable by the Lessee to the Lessor under this Lease:
- pursuant to the “commercial summary”:[19]
- at any time remains unpaid for 7 days after it becomes due (whether any formal or legal demand has been made or not);
then:
- the Lessee shall pay to the Lessor interest at the rate of 10% per annum on such moneys from the date on which such moneys fall due for payment, to the date on which such money are paid to or recovered by the Lessor, as the case may be. …”
- another modification was made by clause 8 (outgoings), which replaced clauses 11.2 and 11.3 of the head lease, with the substituted clause 11.2.2 providing for the payment of outgoings, by equal monthly instalments in advance at the same time and in the same way as instalment of rent;
- clause 9 (GST) replaced clause 11.5 of the head lease with a new clause 11.5, providing for payment of GST on, effectively, rent and other outgoings, at the same time as payment of those amounts;
- clause 20.1 (cross-default) of the land sublease provided:
“During the Lease Term, or any further term of this Lease:
- (a)a breach of this Lease will constitute a breach of the Related Lease;
- (b)a breach of the Related Lease will constitute a breach of this Lease;
- (c)if this Lease terminates, the Related Lease will terminate; and
- (d)if the Related Lease terminates (other than by effluxion of time), this Lease shall terminate.”
- clause 10 of the head lease (which forms part of the sublease) imposed an obligation on the lessee to “cleanse, repair, support, amend, keep and maintain the Demised Land and all buildings and other structures and improvements thereon…” (clause 10.1(a)). Clause 10.3 provided that:
“In the event of any damage to any of the buildings or other structures or improvements on the Demised Land, the Lessee, at the cost and expense of the Lessee, shall carry out the repair, renewal or replacement thereof as soon as practicable.”
- clause 23 of the head lease (which forms part of the sublease) dealt with termination, as follows:
- “23.1In addition to the other rights and remedies of the Corporation [the Lessor, ie Sentinel[20]] (including the powers under the Transport Infrastructure Act 1994 of the State of Queensland):-
- (a)in the event of the failure of the Lessee [Yamba Shipping[21]] to perform any covenants or agreements herein contained and on the Lessee’s part to be performed; or
- (b)if the rent hereby reserved, or any part thereof, at any time shall be unpaid for one (1) month after becoming due, whether formally demanded or not by the Corporation [Sentinel]
and any such failure, non-payment, non-performance or non-observance (‘Default’) shall (if capable of remedy within the period hereinafter mentioned) not have been remedied within the period of thirty (30) days after written notice of such Default has been given by the Corporation [Sentinel] to the Lessee [Yamba Shipping] …
THEN … it shall be lawful for the Corporation [Sentinel] at any time, without notice or demand, by any of its officers, servants or other agents, to re-enter upon the Demised Land or any part thereof in the name of the whole and thereupon this Lease shall terminate absolutely, without prejudice however to any right of action by the Corporation [Sentinel] in respect to any antecedent breach of any of the covenants by the Lessee [Yamba Shipping] herein contained.”[22]
- The guarantee and indemnity provided by Mr McKay is provided for in clause 30, including in terms that the guarantor “unconditionally and irrevocably guarantees to the Lessor [Sentinel] (a) the payment of all money payable by the Lessee [Yamba Shipping] under this document” (cl 30.1(a)) and the guarantor “is both a surety for and a principal contractor and debtor jointly and separately with the Lessee” (cl 30.5).
- [15]The material terms of the seabed sublease included the following:
- pursuant to the “commercial summary”:
- item 5, the commencement date is 12 January 2019;
- item 6, the expiry date is 30 November 2024;
- item 7, the rent is $263,193.84 per annum (plus GST); and
- item 13, the guarantor was identified as Mr McKay;
- clause 1.1 defined a number of terms, including:
- “headlease” which means lease no. 709309070 (the seabed head lease); and
- “related lease” by reference to the land sublease;
- “lease year”, defined to mean each consecutive period of 12 months starting on the commencement date; and
- “payment date”, defined to mean the first day of each month;
- by clause 2, the provisions of the seabed head lease apply to the seabed sublease, as modified;
- one of the modifications was by clause 4 (rent), which replaced clauses 2.1, 2.2 and appendix 1 with another clause 2 dealing with rent. Clause 2.2 provided that:
- pursuant to the “commercial summary”:
“The Sublessee [Yamba Shipping] must pay the Rent in equal monthly instalments in advance commencing on the Commencement Date and then on each of the Payment Dates…”.[23]
- clause 2.3 of the seabed head lease (which applies to the seabed sublease) provided for the payment of interest on arrears of rent;[24]
- clause 7 of the sublease modified the provisions of the head lease by providing for a replacement clause 11.2 dealing with outgoings and expenses, again, requiring the payment of such outgoings at the same time as the rent instalments;[25]
- clause 8 of the sublease provided for payment of GST;
- clause 10 of the seabed head lease (which applied to the sublease) provided for a duty to repair damage to improvements, in the same terms as clause 10 of the land head lease (see paragraph [14](h)above);
- clause 16 of the sublease provided as follows:
- “16.Interdependency
- 16.1Cross default
During the Lease Term, or any further term of this Lease:
- a breach of this Lease will constitute a breach of the Related Lease;
- a breach of the Related Lease will constitute a breach of this Lease;
- if this Lease terminates the Related Lease will terminate; and
- if the Related Lease terminates (other than by effluxion of time), this Lease shall terminate.
- 16.2Interdependency / cross default clause not to apply if the tenure for the Perpetual Lease is converted to a Term Lease
- The parties acknowledge that:
- in accordance with clause 23 of this Lease, the Department of Natural Resources and Mines (DNRM) may at any time during the Term of this Lease request for the tenure for the lease in Perpetuity No. PPL 0/215828 (Lot 723 on SP139135 with Title Reference 40029216) (Perpetual Lease) to be converted to a Term Lease (or multiple Term Leases) tenure (as defined under the Land Act 1994 (Qld)); and
- a conversion of the tenure for the Perpetual Lease to a Term Lease would require a surrender of this Lease with the parties to then enter into a new lease to replace this Lease (as outlined within clause 23 of this Lease).
- For the avoidance of doubt, if this Lease is at any time to be surrendered or terminated under the provisions of clause 23 of this Lease, the parties acknowledge and agree that:
- the provisions of clause 16.1(c) shall not apply and the Related Lease shall not terminate; and
- the provisions of this clause 16 shall continue to apply to the new lease entered into as a replacement for this Lease (under clause 23 of this Lease) as if the parties had originally entered into the new lease at the time of the parties entering into this Lease. …”[26]
- clause 23 of the seabed sublease relevantly provided:
- “23.Acknowledgment that Headlease tenure may convert from a Perpetual Lease to a Term Lease
- 23.1Acknowledgment
The Sublessee [Yamba Shipping] acknowledge that the Sublessor [23A Pty Ltd, then Sentinel] has submitted an application to the DNRM requiring the Perpetual Lease (as defined in clause 16.2) tenure to be converted to a Term Lease (as defined under the Land Act 1994 (Qld)).
- 23.2Sublessee must surrender Lease
If during the Term DRNM issues an offer to the Sublessor to convert the Perpetual Lease to a Term Lease with respect to the application made by the Sublessor under clause 23.1 and the Sublessor accepts that offer in its absolute discretion, then the Sublessee [Yamba Shipping] must:
- subject to the requirements of this clause, when requested, use its best endeavours to assist the Sublessor, DNRM, the State of Queensland and the Minister with the requirements for effecting the conversion of tenure of the Perpetual Lease; and
- promptly execute, arrange Guarantors’ execution (if any) and deliver to the Sublessor any document required by the Sublessor, DNRM, the State of Queensland or the Minister to surrender this Lease the day before the Perpetual Lease is converted to a Term Lease.
- 23.3New lease to be entered
- For the benefit of both parties, at the same time as the Sublessee signs this Lease, the Sublessee must sign three copies of a further lease generally on the same terms and conditions as this lease (New Lease). The Sublessee must deliver these to the Sublessor to be held in escrow by the Sublessor’s solicitors and only released and completed in accordance with clause 33 of the New Lease on the surrender of this Lease under clause 23.2.
- The Sublessor, Sublessee and Guarantor (if any) must assist and do such other acts and things required to give effect to the New Lease after the surrender of this Lease under clause 23.2 including but not limited to, obtaining all consents and approvals, including the consent of the Minister to the New Lease.
- The commencement date of the New Lease will be the date that the Minister provides its consent to the New Lease and the rent under the New Lease will be the rent payable under this Lease at the time this Lease is surrendered.”[27]
- the guarantee and indemnity was provided for in clause 26, in similar terms to the equivalent provision under the land sublease;
- clause 23 of the seabed head lease (which applied to the seabed sublease) provided for termination of the sublease, in the same terms as clause 23 of the land head lease (as set out in paragraph [14](i) above).
Failure to pay rent and outgoings
- [16]There is no dispute that, between 1 April and 30 June 2020, Yamba Shipping failed to pay:
- $126,393.84 on account of rent payable pursuant to clause 2.2 of the land sublease, broken down as follows:
Date Due | Period | Amount |
1/4/20 | 1/4/20 – 30/4/20 | $42,131.28 |
1/5/20 | 1/5/20 – 31/5/20 | $42,131.28 |
1/6/20 | 1/6/20 – 30/6/20 | $42,131.28 |
$126,393.84 |
and
- $12,639.39 on account of GST on rent pursuant to clause 11.5.2(b) of the land sublease.
- [17]There is also no dispute that between January and June 2020, Yamba Shipping failed to pay:
- $18,666.40 on account of outgoings and electricity, pursuant to clause 11.2.2 of the land sublease; and
- $2,404.10 on account of GST on outgoings and electricity, pursuant to clause 11.5.2(b) of the land sublease.[28]
- [18]In respect of the seabed sublease, there is no dispute that between 1 April and 30 June 2020, Yamba Shipping failed to pay:
- $68,101.41 on account of rent payable pursuant to clause 2.2 of the seabed sublease, calculated as follows:
Date Due | Period | Amount |
1/4/20 | 1/4/20 – 30/4/20 | $22,700.47 |
1/5/20 | 1/5/20 – 31/5/20 | $22,700.47 |
1/6/20 | 1/6/20 – 30/6/20 | $22,700.47 |
$68,101.41 |
- $6,810.15 on account of GST payable on rent pursuant to clause 11.5.2(b) of the seabed sublease;
- $1,753.50 on account of outgoings payable pursuant to clause 11.2.2 of the seabed sublease; and
- $175.35 on account of GST on outgoings payable pursuant to clause 11.5.2(b) of the seabed sublease.[29]
- [19]Yamba Shipping did pay some money between March and May 2020. It paid rent of $1,660.54 on 11 March 2020 and $25,909.01 on 13 May 2020, under the land sublease. An Origin Energy goodwill credit of $500 was also applied to the moneys owing under the land sublease on 5 May 2020. Yamba Shipping also paid $12,806.74 towards the rent under the seabed sublease on 15 May 2020.[30]
- [20]Although it accepts that these amounts were not paid, the point that Yamba Shipping makes in defending Sentinel’s claim is that Sentinel was premature in serving default notices and, in any event, was not permitted to terminate the lease, on the basis of non-payment of rent, having regard to the Covid regulation.
Did Yamba Shipping breach clause 23.2 of the seabed sublease by failing to sign the Consent?
- [21]In addition to non-payment of rent and outgoings, Sentinel also contends that Yamba Shipping breached a term of the seabed sublease by failing to sign the consent to surrender as required by clause 23.2 of the seabed sublease.
- [22]The factual context for this argument is as follows. As contemplated by clauses 16.2 and 23.1 of the seabed sublease, on about 9 August 2019, the Department of Natural Resources, Mines and Energy offered Sentinel the opportunity to convert the seabed head lease from a perpetual lease to a term lease.[31] The offer was expressed to be open until 9 September 2019. The first step in accepting the offer required Sentinel to complete a form and pay a fee of $10,569.20 by that date. There were additional conditions of the offer, which were required to be satisfied by close of business on 11 November 2019. The additional conditions included the payment of the balance of the fee ($122,275) and provision of “[w]ritten consent of all persons with a registered interest” in the head lease.[32]
- [23]Sentinel did what was required to accept the offer on 9 September 2019.[33]
- [24]Between 30 October 2019 and 7 May 2020, Sentinel asked Yamba Shipping a number of times to sign, and return to Sentinel, a Consent to Surrender the Perpetual Lease (Consent) for the purpose of giving effect to the conversion of the seabed head lease from a perpetual lease to a term lease.[34]
- [25]The first request was by email sent on 30 October 2019 to Mr McKay.[35] In this email, Sentinel mistakenly also requested that Yamba Shipping sign a new sublease. That was unnecessary, as the replacement sublease had already been executed (as acknowledged in clause 23.3 of the seabed sublease). The email requested that Yamba Shipping return the signed Consent by no later than 11 November 2019.
- [26]The correspondence around this time (September to December 2019) demonstrates that Yamba Shipping was behind in its rental payments, and discussions were taking place about a payment plan to bring the rental payments up to date.[36] No payment plan eventuated. Formal notices to remedy the breach (failure to pay rent) were served on Yamba Shipping in November and December 2019[37] and again in February 2020.[38]
- [27]
- [28]Sentinel chased Yamba Shipping (via Mr McKay) again on 4 March 2020[41] and 30 March 2020,[42] with no response. Mr McKay tendered an email sent by Ms Bingley (then a solicitor employed by Sentinel Law, which provided legal services to Sentinel) on 25 March 2020. The email was sent to Ms Sandy Bryce, of Sentinel, and also to Mr McKay, Ms Kellie Bain and Ms Tracy Edwards. Ms Edwards was an employee of Sentinel. Ms Bain was a secretary who worked for an adjacent business which Mr McKay called “The Yard Brisbane” (he also said the people associated with this business were the previous owners of the land the subject of the sublease). Although Ms Bain was not an employee of Yamba Shipping, she helped Yamba Shipping and Mr McKay with their “paperwork” (including, it seems, paying accounts and other administration).[43] In the email, Ms Bingley asked Ms Bryce to “please follow this up” (meaning the Consent). She also asked Ms Bryce to “please diarise to follow up weekly going forward” as “[w]e need to put pressure on them to sign the documents”.[44] Ms Bingley subsequently tried to recall the email. As she explained, the reason for that was that she had mistakenly hit “reply all” before sending the email, rather than sending the email only to Ms Bryce. She had not intended to send the email to Mr McKay and Ms Bain. Mr McKay submitted, during his cross-examination of Ms Bingley, that this email was “not professional”, or was inappropriate in some way.[45] I can see nothing inappropriate about Ms Bingley’s email. Sentinel needed the signed Consent in order for the conversion of the perpetual lease to occur. Since its requests were seemingly being ignored by Yamba Shipping, it is rational that the inhouse solicitor then acting for Sentinel would arrange for this to continue to be followed up.
- [29]In a further email on 3 April 2020 to Mr McKay, Ms Edwards of Sentinel told him “[t]his is now critical and the failure to return the documents (signed) urgently will result in a breach notice being issued”. Mr McKay did respond to that email, on 3 April 2020, by saying:
“Tracey
After reading this lease I am not prepared to sign it in its present form, There are tyres and rubbish buried on this site that was here before we started. I am not gonna be responsible for that. There are old timber piles next to one of our barges that need to be replaced approx 6 of them because they are rotting away. We are not going to be responsible for them either. They need to be replaced. What the story with our water supply. Apparently Holcim will be disconnecting the poly pipe shortly for other works on their site and the landlord was suppose to put a water main in for our supply.
You still haven’t responded back to my email regarding the governments decision about boat moorings and our wet bed lease. I believe they have stipulated a period of no payment required. Can you confirm this?”[46]
- [30]This response refers to signing a lease. As noted above, earlier emails requesting the signing of the Consent had mistakenly also requested that Yamba Shipping sign the replacement sublease. That error continued in further email exchanges between Mr McKay and Ms Edwards on 6 April 2020.[47]
- [31]The error was corrected on 7 April 2020 when Ms Chloe Bingley, of Sentinel, emailed Mr McKay to explain that Yamba Shipping had already signed the replacement sublease in 2018, and therefore there was no need to sign it again (this is acknowledged in clause 23.3 of the seabed sublease). Ms Bingley also told Mr McKay that Ms Edwards was looking into the issues he had raised regarding rubbish, timber piles and water supply. In a further email on 15 April 2020, Ms Bingley reiterated that Yamba Shipping was still required to sign and return the Consent, and warned Mr McKay that failure to do so would likely result in the issue of a notice to remedy breach.[48]
- [32]Yamba Shipping’s reason for refusing to sign and return the Consent appears to be based on a construction of clause 23.2 of the sublease. For convenience, clause 23.2 is set out again here:
- “23.2Sublessee must surrender Lease
If during the Term DRNM issues an offer to the Sublessor to convert the Perpetual Lease to a Term Lease with respect to the application made by the Sublessor under clause 23.1 and the Sublessor accepts that offer in its absolute discretion, then the Sublessee [Yamba Shipping] must:
- subject to the requirements of this clause, when requested, use its best endeavours to assist the Sublessor, DNRM, the State of Queensland and the Minister with the requirements for effecting the conversion of tenure of the Perpetual Lease; and
- promptly execute, arrange Guarantors’ execution (if any) and deliver to the Sublessor any document required by the Sublessor, DNRM, the State of Queensland or the Minister to surrender this Lease the day before the Perpetual Lease is converted to a Term Lease.”[49]
- [33]In paragraph 11 of the defence, Yamba Shipping and Mr McKay plead that:
- by clause 23.2(b) of the seabed sublease, the obligation to execute the Consent only arose on the day before the perpetual lease was to be converted to a term lease;
- the obligation to use best endeavours in clause 23.2(a) was subject to the requirements in clause 23.2(b);
- Sentinel required Yamba Shipping to execute the Consent on a date before the day before the perpetual lease was to be converted to a term lease;
- accordingly, there was no obligation on Yamba Shipping to execute the Consent on the dates alleged in the statement of claim [that is, when asked on numerous occasions between October 2019 and May 2020, as particularised in schedule 2 to the statement of claim].
- [34]It appears from Mr McKay’s evidence at the trial that, to the extent paragraph 11 reflected his instructions, that was not based on his own reading of the sublease provision, but rather was based on something he was told by someone else, possibly Ms Bain. Mr McKay said he had “never read a lease in my life”.[50]
- [35]In his submissions, Mr McKay argued that the reason the Consent was not signed previously was because of concerns he had about improvements on the property, which required repair.[51] That does not appear consistent with the correspondence. From the correspondence, there was no reason provided for failing to sign the Consent. Mr McKay did seek to raise issues with some improvements – but that seems to have been relied upon by him to refuse to sign the replacement sublease. As it turned out, that was unnecessary, because the replacement sublease had already been signed in 2018. There was no rational reason not to sign the Consent.
- [36]Nor was there any legal justification for refusing to do so. The construction of clause 23.2(b) pleaded in paragraph 11 of the defence is insupportable, having regard to the words used in the section and the commercial practicalities. The point of clause 23.2 was to ensure that everything that needed to be done was done to enable the seabed sublease to be surrendered the day before the perpetual lease was converted. That had to be the case, otherwise the perpetual lease could not be converted. The obligations, under clause 23.2(a), for Yamba Shipping to use its best endeavours to assist with the requirements for effecting the conversion of the tenure; and, under clause 23.2(b), for Yamba Shipping to “promptly” execute and deliver to Sentinel any document required to do that, are clear in their terms – and required Yamba Shipping to sign and deliver the Consent “promptly”, meaning without delay. It would make no sense for the provision to contemplate the execution and delivery of the Consent “the day before” the conversion, because that would be highly inconvenient and impractical. It is also inconsistent with an obligation to do something “promptly”.
- [37]Yamba Shipping did not “use its best endeavours” and it did not “promptly execute” and deliver the Consent to Sentinel.
- [38]It is an agreed fact that Yamba Shipping failed to execute and deliver the Consent to Sentinel by the dates requested or prior to determination of the (sub)leases.[52]
- [39]Mr McKay did eventually sign the Consent– but only on the afternoon of 10 July 2020, after the sublease(s) had been terminated.[53]
- [40]The seabed head lease was converted to a term lease commencing on 1 October 2020.[54] Mr McKay essentially submits that there was no rush, and that other sub-lessees also took their time to sign the Consent. But that is not the point. Yamba Shipping was asked many times to sign the document. It was contractually obliged to do so “promptly”. It failed to do that. It was therefore in breach of clause 23.2 at the time Sentinel took action to terminate the seabed sublease.
Were the default notices premature and therefore invalid?
- [41]On 26 May 2020, Sentinel sent (by registered post and express post) the first notices to remedy breach of the seabed sublease and the land sublease to Yamba Shipping and Mr McKay. There is evidence of the service of these notices;[55] but service was not disputed in any event. The breaches relied upon were both the failure to pay rent and outgoings as well as the failure to sign and return the Consent to surrender the perpetual lease.[56] In the case of the seabed sublease, the amount said to be outstanding for rent and outgoings (plus GST), for the periods from 1 April to 30 April, and 1 May to 31 May 2020, was $38,420.20. In the case of the land sublease, the amount said to be outstanding for rent and outgoings (plus GST), for the periods from 1 April to 30 April, and 1 May to 31 May 2020, as well as electricity (plus GST) from 8 January to 6 April 2020, was $78,154.92.
- [42]On 9 June 2020, Sentinel left the second notices to remedy breach of the seabed sublease and the land sublease at Yamba Shipping’s property in Anton Road.[57] These notices relied upon the same breaches. By this time, the amount outstanding under the seabed sublease was said to be $64,033.67 and the amount outstanding under the land sublease was said to be $130,336.30. The Consent had still not been signed and returned by Yamba Shipping.
- [43]The person who left the second notices at Yamba Shipping’s property was Mr Handy, who gave evidence at the trial. Mr Handy’s evidence included that when he delivered the notices, he spoke to a person at the property and was told that Mr McKay was not on site. He said this person identified himself as “Jesse Anderson”. Mr Handy gave the notices to Mr Anderson, and watched as he walked first to another person in a front loader (a big piece of machinery) and then walked, with the notices, into Yamba Shipping’s site office. Mr Handy also gave evidence that he saw the person who had identified himself as Mr Anderson at the site some months later, in October (after the lease had been terminated). He asked this person to produce identification, and when they did, observed the name to be Justin McKay (who is Mr McKay’s son). Initially, it seemed the Court might be invited to infer that the person to whom Mr Handy had given the second notices, on 9 June, was actually Mr McKay’s son, and that he had given a false name. But Mr McKay gave evidence that he has since found out that there was a person who came to the site for two days to do a small amount of work, putting rollers on a conveyor. He was not employed by Yamba Shipping. Mr McKay said he found a reference on a bank statement to a payment to someone called “Jesse Anderson”, and believes that is who Mr Handy gave the notice to. Mr McKay tried to obtain a copy of the bank statement to tender in evidence. He was not able to do that. I am prepared to accept Mr McKay’s evidence about this in any event. Sentinel did not press for a finding to the contrary. In the end, there was no dispute that the second notice was left at Yamba Shipping’s premises on 9 June 2020.[58]
- [44]Both sets of notices were expressed to be given under s 124 of the Property Law Act 1974 (Qld), which governs the exercise of “[a] right of re-entry or forfeiture under any proviso or stipulation in a lease” by imposing a particular notice requirement. Both the first and second notices sought remedy of the breaches within 30 days of the notices. It is an agreed fact that Yamba Shipping did not, within 30 days of service of the first or second notices, pay any amount or execute and return the Consent.[59]
- [45]In the defence, Yamba Shipping argues that the notices were premature and, therefore, invalid.
- [46]The argument relies upon clause 23 of the land head lease and of the seabed sublease (which forms part of each respective sublease[60]), which provides, relevantly, that:
“In addition to the other rights and remedies of [Sentinel]:
- (a)in the event of the failure of [Yamba Shipping] to perform any covenants or agreements herein contained and on [Yamba Shipping’s] part to be performed; or
- (b)if the rent … or any part thereof, at any time shall be unpaid for one (1) month) after becoming due, whether formally demanded or not by [Sentinel]
and any such failure, non-payment, non-performance or non-observance (‘Default’) shall … not have been remedied within the period of thirty (30) days after written notice of such Default has been given by [Sentinel] to [Yamba Shipping]…
THEN … it shall be lawful for [Sentinel] at any time, without notice or demand … to re-enter upon the Demised Land …and thereupon this Lease shall terminate absolutely…”
- [47]Yamba Shipping’s argument is:
- the rent became due on the first of each month – so, for the period 1 May to 31 May 2020, the rent became due on 1 May 2020 (under clause 4 of each sublease);
- under clause 23 (above), there is a “Default” with respect to unpaid rent only if the rent is unpaid for one month after becoming due – so, in the case of May, there is no Default until 31 May;
- accordingly, the first default notices, issued on 26 May 2020, were premature.
- [48]Yamba Shipping makes the same argument in relation to the second default notices, issued on 9 June 2020, in so far as they relied upon the failure to pay the rent for June.[61]
- [49]It is unnecessary to reach a concluded view about whether this construction is correct. That is because it is well established that a notice of default will be valid if any of the breaches on which it relies is made out. The fact that a notice may include reference to a breach which could not be sustained at the time of the notice, does not result in the notice being wholly invalid.[62] At the time of the first default notice, even on Yamba Shipping’s construction of clause 23, Yamba Shipping was in default in respect of the April rent and outgoings, as well as the covenant requiring it to sign and return the Consent. That remained the position when the second default notice was issued; and, even on Yamba Shipping’s construction, it was also then in default in respect of the May rent and outgoings. The notices were otherwise compliant with s 124, in the sense of identifying the particular breach(es) complained of, and clearly specifying how the breach(es) could be remedied – namely, by paying the amounts owing for rent and outgoings, and signing and returning the Consent.
- [50]The default notices were valid.
- [51]The next question is whether, despite the fact Yamba Shipping was in default under the subleases, and Sentinel gave valid default notices, Sentinel was prevented by the Covid regulation from exercising the right of re-entry and terminating the subleases.
Did the Covid regulation prohibit Sentinel from taking action to terminate the subleases?
- [52]As would be apparent, the dispute between Sentinel and Yamba Shipping which lead to the termination of the subleases took place in the context of the first part of the Covid pandemic. The Covid regulation[63] was made under the COVID-19 Emergency Response Act 2020 (Qld). One of its main purposes was “to mitigate the effects of the COVID-19 emergency on lessors and lessees under affected leases by giving effect to the good faith leasing principles set out in the National code.”[64]
- [53]Section 23(1) of the Emergency Response Act provided for a regulation to be made “for responding to the COVID-19 emergency” which may, among other things, prohibit the recovery of possession of premises under, or termination of, a relevant lease. It is not disputed that the subleases were “relevant leases” for the purposes of s 23(1) of the Act. I proceed on the basis that they were also “affected leases” within the meaning of s 5 of the Covid regulation, although this was not established on the evidence.[65]
- [54]The Covid regulation included the following provisions. First, an obligation on the parties to affected leases to cooperate:
- “11Parties to affected lease must cooperate
The lessor and lessee under an affected lease must cooperate and act reasonably and in good faith in all discussions and actions associated with –
- mitigating the effect of the COVID-19 emergency on the parties to the lease; and
- other matters to which this part applies.”
- [55]Next, a provision preventing a lessor from taking “prescribed action” under an affected lease, in certain circumstances, during the “response period”. “Prescribed action” was defined, in s 9, to include, among other things, action for recovery of possession, termination of the lease, eviction of the lessee, exercising a right of re-entry to premises or damages. The “response period” was, initially, from 29 March to 30 September 2020 (it was later extended). The restriction was, relevantly, in the following terms:
- “12Lessor under affected lease must not take prescribed action during response period
- A lessor under an affected lease must not take a prescribed action on any of the following grounds –
- a failure to pay rent for a period occurring wholly or partly during the response period;
- a failure to pay outgoings for a period occurring wholly or partly during the response period;
- the business carried on at the leased premises not being open for business during the hours required under the lease during the response period.
- However, subsection (1) does not prevent the lessor taking a prescribed action –
- in accordance with –
- a variation of the lease made under division 3; or
- a settlement agreement or other agreement between the lessor and lessee entered into about a matter mentioned in subsection (1)(a), (b) or (c); or
- an order of a court or tribunal; or
- if, despite a genuine attempt by the lessor to negotiate rent payable and other conditions of the lease under division 3, the lessee has substantially failed to comply with the lessee’s obligations under that division in relation to the negotiations; or
- on a ground that is not related to the effects of the COVID-19 emergency. …”
- [56]Division 3 (ss 14 to 20) contained provisions about obligations for negotiating an outcome. Section 14 provided as follows:
- “14Parties must renegotiate rent payable and other conditions
- A party (the initiator) to an affected lease may, in writing, ask another party to the lease to negotiate the rent payable under, and other stated conditions of, the lease.
- After the initiator’s request is made, the parties must, as soon as practicable, give each other information relating to the request that is –
- true, accurate, correct and not misleading; and
- sufficient to enable the parties to negotiate in a fair and transparent way.
Examples of sufficient information –
- a clear statement about the terms of the lease the initiator is seeking to negotiate
- a statement by the lessee that demonstrates why the lease is an affected lease, accompanied by supporting information and evidence, including –
- accurate financial information or statements about the turnover of the lessee’s business
- information demonstrating that the lessee is an SME entity under section 5, having regard to any entities that the lessee is connected with, or an affiliate of
- evidence of the lessee’s eligibility for, or participation in, the jobkeeper scheme
- information about any steps the lessee has taken to mitigate the effects of the COVID-19 emergency on the lessee’s business, including the details of any assistance being received by the lessee from the Commonwealth, State or a local government …
- The parties to the affected lease must –
- negotiate the conditions of the lease the subject of the initiator’s request; and
- comply with section 15.”
- [57]Section 15(1) provided that, within 30 days after a party receives sufficient information about a request under s 14(2), the lessor must offer the lessee a reduction in the amount of rental payable under the lease, and any proposed changes to other stated conditions.
- [58]Section 15(2) required that “[t]he offer must:
- relate to any or all of the rent payable under the affected lease during the response period; and
- provide for no less than 50% of the rent reduction offered to be in the form of a waiver of rent; and
- have regard to –
- (i)all the circumstances of the lessee and the affected lease, including the reduction in turnover of the business carried on at the leased premises during the response period; and
- (ii)the extent to which a failure to reduce the rent payable under the lease would compromise the lessee’s ability to comply with the lessee’s obligations under the lease, including the payment of rent; and
- (iii)the lessor’s financial position, including any financial relief provided to the lessor as a COVID-19 response measure; and
- (iv)if a portion of rent or another amount payable under the lease represents an amount for land tax, local government rates, statutory charges, insurance premiums or other outgoings – any reduction in, or waiver of, the amount payable.”
- (i)
- [59]As already noted, one of the main purposes of the Covid regulation was to give effect to the “National code” (the National Cabinet Mandatory Code of Conduct SME Commercial Leasing Principles During COVID-19). The stated objective of the National code was:
“to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords”.
- [60]The National code stated a number of “Leasing Principles”, including:
- “1.Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
- 2.Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.”
- [61]The National code included the following definitions “for reference in the application of this Code”:
- “1.Financial Stress or Hardship: an individual, business or company’s inability to generate sufficient revenue as a direct result of the COVID-19 pandemic (including government-mandated trading restrictions) that causes the tenant to be unable to meet its financial and/or contractual (including retail leasing) commitments. SME tenants which are eligible for the federal government’s JobKeeper payment are automatically considered to be in financial distress under this Code.
- 2.Sufficient and accurate information: this includes information generated from an accounting system, and information provided to and/or received from a financial institution, that impacts the timeliness of the Parties making decisions with regard to the financial stress caused as a direct result of the COVID-19 event.
- 3.Waiver and deferral: any reference to waiver and deferral may also be interpreted to include other forms of agreed variations to existing leases (such as deferral, pausing and/or hibernating the lease), or any other such commercial outcome of agreements reached between the parties. Any amount of reduction provided by a waiver may not be recouped by the Landlord over the term of the lease.
- 4.Proportionate: the amount of rent relief proportionate to the reduction in trade as a result of the COVID-19 pandemic plus a subsequent reasonable recovery period, consistent with assessments undertaken for eligibility for the Commonwealth’s JobKeeper programme.”
- [62]Yamba Shipping contends that the effect of s 12 of the Covid regulation is that the default notices were invalid, and Sentinel was prohibited from taking action to enforce them. Sentinel disputes that, on the following bases:
- Yamba Shipping’s continued and repeated refusal to sign and return the Consent had nothing to do with the Covid-19 emergency, and taking action because of breach of this covenant was not one of the prescribed actions under s 12(1); and
- further, Yamba Shipping cannot rely upon s 12, even in so far as Sentinel’s action was based on breach of the covenants to pay rent and outgoings, because it “substantially failed to comply with the lessee’s obligations under” division 3 in relation to the negotiations.
- [63]The first point is a complete answer to this particular line of defence. Section 12 of the Covid regulation did not operate to prevent Sentinel from taking action as a result of Yamba Shipping’s failure to comply with clause 23 of the seabed sublease . In my view, the second point ought also be accepted, having regard to the evidence before the Court, to which I turn now.
Attempts to negotiate an arrangement under the Covid regulation
- [64]On 23 March 2020, a Mr Allen Stemm, who I assume worked for or with Yamba Shipping, emailed Sentinel’s “accounts receivable”, and asked “what rent assistance if any [Sentinel] is providing through this time”.[66] That email was treated as a request to negotiate under s 14(1) of the Covid regulation. Ms Edwards responded the following day and requested that Yamba Shipping provide “specific terms which would assist in your continued trade”; a copy of Yamba Shipping’s business interruption insurance policy; and “weekly trading figures for the past six months along with corresponding figures for the same period last year”. There does not appear to have been any response to that email.
- [65]On 16 April 2020, Ms Edwards of Sentinel emailed Mr McKay, referring to the “recently announced Code of Conduct”, and requested that Mr McKay provide evidence, “as per the Code of Conduct:
- that covid-19 has caused your business to suffer financial stress or hardship;
- your company’s annual turnover pre-covid-19; and
- your company’s current drop in trade, as a result of covid-19.”
- [66]It was said that the following information should be sufficient to provide that evidence:
- monthly trading figures from January 2019 to the current time; and
- monthly profit and loss figures from January 2019 to the current time.[67]
- [67]Mr McKay’s response was that he would provide “our April turn over last year being 2019 compared to our April turn over of this year 2020”.[68]
- [68]There were a number of increasingly acrimonious email exchanges about what was to be provided, and ultimately on 25 April 2020, Mr McKay said he would provide “gross sales for April 19, May 19 and June 19. Separately for each month”, which could then be compared with the same months in 2020. Ms Edwards responded to say she would await receipt of the figures later that week and asked Mr McKay in the meantime to at least pay 50% rent for April.[69] On 5 May 2020, what Mr McKay provided was a spreadsheet showing the sales for April 2019 and for April 2020.[70] More email correspondence followed, with Ms Edwards saying that normally they would receive financial information from an accountant, confirming it is true and correct, and if that is not possible, asking if Mr McKay could please provide a statutory declaration confirming this.[71]
- [69]On 6 and 7 May 2020, both Ms Bingley and Ms Edwards again chased Mr McKay for the signed Consent.[72]
- [70]On 11 May 2020 Ms Edwards sent an email to Ms Bain, which was copied to Mr McKay, saying:
“Hi Kellie,
Further to my email below, I refer to Warren’s email dated 5th May and to our conversation from last Friday during which I requested payment of 50% rental. As per my email below, we have not received any payment as yet for April and May is now also now due.
In relation to the turnover figures provided to us, the figures show a decline of 46.35% for April compared to April 2019 (although Warren had previously advised that the turnover was 80% down one week and 60% down the following week). I have previously requested a Statutory Declaration for these figures, however I have been advised that the figures are required to be audited under the Code of Conduct. Therefore, please provide audited figures as soon as possible …”[73]
- [71]The requests for financial information – and for return of the signed Consent– continued to be made on 14 and 15 May 2020.[74]
- [72]Mr Warren Ebert, the Managing Director of Sentinel decided to speak to Mr McKay personally about these matters. That occurred in a phone conversation on 20 May 2020, which Mr Ebert recorded. The recording of the phone conversation was in evidence at the trial,[75] and a transcript of it was provided, as an aid.[76] The conversation began with general discussion about the impacts Covid was having. The conversation then turned to the particular arrangements with Yamba Shipping and Mr McKay. Mr Ebert said to Mr McKay:
“… one thing that I can guarantee you 100 per cent is we will abide by the National Cabinet Mandatory Code of Conduct…”
- [73]Mr Ebert then asked Mr McKay what he was trying to achieve, and further conversation ensued. After some exchanges with Mr McKay about what his plans were for Yamba Shipping’s business, including hoping “one of the big buyers will buy us out”, Mr Ebert asked Mr McKay whether “the fishing boats and the tourism vessel” were his. For completeness, I note that it is an agreed fact that, prior to termination of the subleases, Yamba Shipping permitted other entities to share its possession or occupancy of the areas the subject of the land and seabed subleases, without the approval of Sentinel, contrary to clause 19.1 of the land and seabed head leases.[77] That was not relied upon as a default in relation to the termination of the subleases, and it is unnecessary to address that further.
- [74]Mr Ebert then turned to the issue about Yamba Shipping providing figures. Based on my listening to the recording, the following exchange took place:
“Ebert: | Ok well mate one thing that I understand that there’s been um, there’s been some push back from you is providing figures. Now, can I --- |
McKay: | Yeah --- |
Ebert: | Let me just read this to you before you respond |
McKay: | Yep |
Ebert: | So this is from COVID 19 State Legislation Summary National Cabinet Mandatory Code of Conduct. What the Landlords can expect. |
McKay: | Yep |
Ebert: | One thing, expect the tenants to fulfil their lease term. Which means you’ve got to sign the General Consent. |
McKay: | Yep |
Ebert: | Also, request sufficient and accurate information from tenants to facilitate open and transparent negotiation. Sufficient and accurate information includes information generated from an accounting system and information from a financial institution. Now under the national code if they’re not supplied you are not entitled to any relief whatsoever. |
McKay: | Yep |
Ebert: | So mate that goes back 12 months. |
McKay: | Yep |
Ebert: | It’s not two months. So, if we don’t get all that like, um, as I said at the start, I guarantee you 100 percent we will abide to the letter with the National Cabinet Code of Conduct, but, and we’re expecting our tenants to do that as well. |
McKay: | Yep --- |
Ebert: | If, if |
McKay: | --- just send us letters |
Ebert: | --- they don’t there’s no relief. |
McKay: | Yep. |
Ebert: | Now as we sit today, um you owe us $116,575.12. So --- |
McKay: | Right |
Ebert: | --- as I say if we’re, if we get all those figures, mate I will guarantee you anything that we will abide by, absolutely and without complaint. But we must get --- |
McKay: | What you need, is ring Kellie up and tell her whatever youse need. Kellie does all our paper work. And we use accountants in Brisbane, um, Mazars Accountants, they used to call it Hanrick Curran, they do all of our accounting. |
Ebert: | Alright, after this we’ll get an email off to her telling her what we want as per the Code and we will guarantee in that that if you abide by the Code 100 percent so will we. No problem whatsoever. |
McKay: | Perfect that’s good. |
Ebert: | Can we shake on that? |
McKay: | Yeah, definitely 100 percent --- |
Ebert: | Done |
McKay: | --- that is how it should be, like, they didn’t make the Code for any other reason. |
Ebert: | Yep |
McKay: | Anything to do with figures and banking and stuff like that, I don’t do that Kellie does that --- |
Ebert: | No, that’s fine, alright. |
McKay: | Whatever you need just tell us. |
Ebert: | Okay, well, and what we need is, we need it in a, you know … and if some of it aren’t audited what we have done with other tenants we just need something signed off to say the guarantee is right and audited when its audited. Like I don’t expect someone to have to go out and spend five grand. |
McKay: | What about, what about what you banked that time last year and what you banked this time this year? It is the same thing isn’t it? Your bank statement shows what you actually earned. |
Ebert: | Well, well yes, yeah, well it just says, I’m, you know, regrettably I’m not a CFO but it just says request sufficient accurate information. So whatever it is. And if there’re accountants might want to discuss it. We don’t want to be unreasonable, you know, and we’re not going to ask for something that is – but all we want is financial documents that would have to be prepared and provided anyway for taxation and everything else. We’re not asking, we’re not asking for anything special to be done for us, you know --- |
McKay: | Yeah, yeah, yeah |
Ebert: | --- so it’s not putting you to an expense or any trouble but we just need that so, Warren, we’ll get a letter off to Kellie today confirming our discussion and confirming that, and off to you. |
McKay: | Just email her. |
Ebert: | Yeah, yeah, we will, we’ll get that done …” |
- [75]The phone call was followed up on 20 May 2020 with an email from Ms Edwards to Ms Bain, copied to Mr McKay, setting out the financial information that was required to be provided and reiterating the request for payment of at least half the rent, and all of the outgoings.[78] This email included the following:
“Hi Kellie,
We refer to the above lease and to the teleconference held this morning between Warren Ebert (the Managing Director of the landlord) and Warren McKay (of the tenant) regarding the rent relief requested by the tenant.
Warren Ebert explained to Warren McKay that the landlord will abide by the National Cabinet Mandatory Code of Conduct and further explained that the Code requires parties to act in an open, honest and transparent manner, and will each provide sufficient and accurate information within the context of negotiations. For the purpose of the Code, sufficient and accurate information is taken to include information generated from an accounting system, and information provided to and/or received from a financial institution. Warren McKay agreed to provide whatever information is required by the landlord.
Attached is a previously sent email which outlines what the landlord requires and is summarised below for your ease of reference:
- 1.a statement of the tenant’s monthly trading figures from January 2019 to current; and
- 2.a statement of the tenant’s monthly Profit and loss figures from January 2019 to current.
Any statements provided should be audited where possible. If the tenant’s recent trading figures (ie 2020) are not yet audited, then the landlord will require:
- 1.a Statutory Declaration to confirm the figures are true and correct; and
- 2.a copy of the audited figures once they become available.”
- [76]It was noted in the email that the “Code” relates to rental assistance and, as such, the landlord did require 100% of outgoings to be paid. The email also reiterated the request for 50% of the rent to be paid “as discussed previously”. The email concluded by saying:
“In addition to the tenant’s turnover statements, the landlord also requires the attached general consent to be signed and returned to our office as a matter of priority, noting that this was initially requested of the tenant more than 3 months ago.
If you have any issues or believe any of the landlord’s requests to be unreasonable, please do not hesitate to contact our office.”
- [77]Two days later, on 22 May 2020, a letter was sent by Mr Hunt, of Mazars, the tax agents and accounts for Yamba Shipping, to Sentinel, attaching spreadsheets showing Yamba Shipping’s gross sales for April 2019 and for April 2020[79] – the very same documents that Mr McKay had previously provided; not what had been agreed to in the phone call between Mr Ebert and Mr McKay and reiterated in the 20 May email from Ms Edwards to Ms Bain.
- [78]That prompted an exchange of correspondence between Mr Ebert and Mr McKay on 23 and 24 May 2020, with Mr Ebert ultimately expressing frustration and saying that all further correspondence would be through solicitors “in strict accordance with the lease”.[80]
- [79]
- [80]At the trial, Mr McKay submitted that the financial information Sentinel requested was unreasonable, and not consistent with what the Covid regulation provided for. He sought to do this by reference to printed information, said to have been published on a Queensland government website at the relevant time; although Mr McKay did not say that he had regard to this information at that time. The information was accepted in evidence with this description, although noted to be incomplete (see exhibits 9 and 10).
- [81]The information in exhibit 9 includes the following as “[e]xamples of information tenants could share [when negotiating with the landlord under the regulation]:
- A statement explaining why your lease is an affected lease.
- Accurate financial information or statements about the reduction of turnover of your business carried on at the premises and, if different, your business overall. For example:
- the business activity statement(s) (BAS) for the relevant month(s) during the response period or the extension period and the BAS for the same month(s) in the previous year. If you do not submit BAS, a statement containing the equivalent financial information is required
- expenses that have substantially increased (or have been deferred, waived or suspended) due to the COVID-19 emergency.
- Evidence showing that your business is an SME entity.
- Evidence that your business is eligible for the Jobkeeper Payment scheme…
- Information about any steps you have taken to reduce the financial impact of the COVID-19 emergency (eg government financial assistance applied for received.”
- [82]The information which is exhibit 10 includes a list of “Information neither party should ask for [namely:]
- Future cash flow projections
- Balance sheets, profit and loss or year to date financials
- The tenant or landlord’s bank balance
- Trust account information
- Evidence of refusal or ineligibility for government financial assistance packages
- Requiring a party to have financial information verified, examined, assured, or audited by a third party such as an accountant
- A letter of comfort or similar from an accountant on the financial information
- Documentation that is considered onerous, for example where the provision of the information involves incurring a fee to produce or access.”
- [83]The information which is exhibits 9 and 10 also includes a statement to the effect that “during the response period and extension period (from 29 March to 31 December 2020), a landlord can take action against a tenant (eg eviction) provided it does not relate to not paying rent, not paying outgoings, or not being open for trade during the response period or extension period. For example, a landlord can take action if the tenant has:
- unpaid invoices before 29 March 2020
- otherwise breached the lease
- wilfully damaged the property.”
- [84]The information contained in exhibits 9 and 10, taken at its highest, is commentary on the Covid legislation. It is not “extrinsic material” within the meaning of s 14B of the Acts Interpretation Act 1954 (Qld), to which consideration may appropriately be given to assist in the interpretation of the relevant legislation. However, the Covid regulation itself gives examples of what will constitute “sufficient information” (see s 14(2)(b) of the Covid regulation). There is also some assistance to be gained from the National code (see paragraph [61] above), which I would regard as extrinsic material for the purposes of s 14B.
- [85]There is some merit to Yamba Shipping’s argument that what Sentinel was asking for, in terms of financial information, may have been more than was required by the National code or the Covid regulation. I refer in this regard to the request for “monthly trading figures from January 2019 to the current time; and monthly profit and loss figures from January 2019 to the current time”. But this should be contrasted with the less stringent description of what was required given by Mr Ebert in his phone conversation with Mr McKay – with which Mr McKay indicated his agreement. However, the real difficulty for Yamba Shipping in making good this line of defence is that it cannot, in any event, be said to have provided information “sufficient to enable the parties to negotiate in a fair and transparent way”. Prior to 9 July 2020, all that Yamba Shipping provided was the comparison of gross sales between the single month of April 2019 and April 2020. On 9 July 2020, the day before re-entry was effected, a comparison of gross sales in one more month, May 2019 and May 2020, was provided. That does not, in my view, meet the obligation, imposed by s 14(2) of the Covid regulation, to provide information which is not only “true, accurate, correct and not misleading” but also is “sufficient to enable the parties to negotiate in a fair and transparent way”. In addition, it does not appear from the evidence that Yamba Shipping ever provided any of the other information referred to in s 14(2)(b).
- [86]What is more, as the evidence shows, Sentinel asked Yamba Shipping to at least pay 50% of the outstanding rent, which reflected the possible outcome of any negotiations (as contemplated by s 15 of the Covid regulation). Even if Yamba Shipping considered that Sentinel’s request for financial information was unreasonable, it would have been a show of good faith and reasonableness (see s 11 of the Covid regulation) for it to pay 50% of the outstanding rent; and, importantly, to sign and return the Consent. It did not do that. I am persuaded that Sentinel did engage in “a genuine attempt to negotiate rent payable”, and that Yamba Shipping “substantially failed to comply with [its] obligations under” division 3 (see s 12(2)(b) of the Covid regulation). Consequently, the Covid regulation did not prevent Sentinel from taking recovery action.
- [87]Ultimately, even if a different conclusion had been reached about that aspect of the argument, Yamba Shipping’s substantial breach of clause 23 of the seabed sublease precludes Yamba Shipping from relying upon the Covid regulation to contend that Sentinel was prevented from taking action to recover possession of the subleased areas and terminating the subleases. Section 12 only prevents a lessor from taking such recovery action on one of the grounds specified in sub-sections (a), (b) or (c). Breach of a covenant such as clause 23 is not one of those grounds, and is fairly described as a “ground that is not related to the effects of the COVID-10 emergency” (s 12(2)(c)).
- [88]Relying on the failure to remedy the breaches set out in the default notices dated 9 June 2020, Sentinel terminated each of the subleases by notice delivered on 10 July 2020.[83] The Covid regulation did not prevent Sentinel from taking the action that it did to recover possession and terminate the subleases. It follows that Sentinel lawfully terminated the subleases on that day.
Damages
- [89]Sentinel took possession of the areas subject of both subleases on 10 July 2020.
- [90]From that time, it took steps to try to re-lease the areas and mitigate its damage, including by granting licences to various other parties to use parts of the seabed or the land.[84] On 30 June 2023, Sentinel entered into new land and seabed subleases with another entity, called Riverside Sands. Riverside Sands commenced paying rent under the new land sublease from 1 September 2023. The commencement date for payment of rent under the new seabed sublease was tied to an obligation on Sentinel to carry out “dredging works” and obtain the consent of the Minister to the new seabed sublease.[85] Following an amendment to the statement of claim made in June 2024, Sentinel alleged that its best estimate of the commencement date was 31 March 2025 (paragraph 29G). There was no pleading in response to this, and I proceed on the basis that it is therefore deemed admitted.[86]
- [91]By this proceeding, Sentinel seeks to recover the full amount of rent payable under each of the subleases for the agreed term, less the amounts it received under the licences and the new land sublease (the estimated commencement date of the new seabed sublease is after the agreed term of Yamba Shipping’s sublease).
- [92]There was no dispute at the trial that the efforts Sentinel made to relet the land and seabed areas and otherwise mitigate its loss, were reasonable.[87] There was also no dispute about the amounts claimed by Sentinel. They are set out in exhibit 8, which is reproduced in the schedule to these reasons.
- [93]Noting that agreement, there are two issues to be mentioned.
Damage to the front gate
- [94]Part of Sentinel’s claim against Yamba Shipping is for $452.17 for damage to the front gate. For the following reasons, I will not allow this part of Sentinel’s claim.
- [95]In the early hours of 10 July 2020, a property manager employed by one of the Sentinel group of companies, Ms Moroney, went to the property, with the assistance of security officers and guard dogs, to take the necessary steps to lock out the (former) tenant, Yamba Shipping. Ms Moroney’s evidence was that she arrived at the property at about 3.00 am on 10 July 2020. She, and the security guards assisting her, put up signs at every entry point, in relation to the “lockout”. She said that they bound the gates closed with a rope. Ms Moroney said that some people “on behalf of the tenant” arrived at around 6.30 am – including a person she now knows to be Mr McKay. Ms Moroney was standing on the outside of the gates to what had been Yamba Shipping’s property. She says that Mr McKay was driving a front-end loader, from inside the property, towards the gates; that he drove that machine into the gates, reversed it when the gates did not move and then drove into the gates again and smashed them down. She says the gates landed on top of her. One of the security guards, Ms Brown, recorded part of the incident and the videos were tendered as part of the evidence.[88] The videos are not particularly clear, and only capture a small portion of what occurred. They do, however, show a front-end loader smashing into gates.
- [96]
- [97]Mr McKay’s evidence was that there was a truck in the driveway of the property. The driver of the truck was being prevented from leaving (or from taking his trailer) by Ms Moroney and the security guards. Mr McKay was concerned about this because the driver was an owner-driver, and he could not make a living without his trailer. He demanded that Ms Moroney and the security guard(s) get out of the way, so that the truck driver could leave. When they did not, he used the front-end loader to open the gate and encouraged the truck driver to follow him out. He denied that the gate fell off its hinges or anything like that, and said it was “freely opened” by being pushed with the front-end loader. Mr McKay said he did not think the gate was damaged at all.
- [98]There are some other aspects of the evidence given by Ms Moroney, Ms Brown and Mr McKay about this particular incident which are inconsistent or conflict with one another. It is unnecessary to resolve those differences. They do not matter. On the evidence, including the agreed facts, Mr McKay damaged the gates and they were not repaired by Yamba Shipping or Mr McKay.
- [99]However, there is no evidence before the Court about Sentinel repairing the gate, nor to support the claimed cost of $452.17 – and it is not an agreed fact. There is in evidence a tax invoice directed to Sentinel for “secure Anton Rd property with chain and padlocks”, in the amount of $452.17.[91] That is not evidence of repairing a gate. Accordingly, I dismiss this part of Sentinel’s claim.
Damage to marine pile
- [100]There is no dispute that, prior to 10 July 2020, a marine pile situated within the area of the seabed sublease was damaged such that it became submerged in water and required removal. Yamba Shipping did not repair, renew or replace the marine pile, as required by clause 10 of the sublease. Sentinel arranged for the broken marine pile to be removed, at a cost of $8,250. There was evidence about that, and agreement as to the facts.[92] There is no defence to this aspect of Sentinel’s claim and it is established.
Conclusion and orders
- [101]Sentinel has made out its claim against Yamba Shipping for damages for breach of the land sublease and the seabed sublease. It is entitled to the relief that it claims, save for deduction of the amount claimed for repair of the gate, together with interest. Mr McKay is also liable, as guarantor of Yamba Shipping’s obligations under the subleases. Yamba Shipping’s counterclaim depended upon a finding that Sentinel wrongfully repudiated the subleases, which has been rejected. The counterclaim will be dismissed.
- [102]I will hear the parties as to costs.
Schedule
NO. | DESCRIPTION | 5FASOC | AMOUNT | |
LAND SUBLEASE | ||||
Rent, outgoings and electricity (incl GST) (1 April to 30 June 2020) | 7(a), (b), (c), (d) | $158,405.85 | ||
Adjusted amount for outgoings (incl GST) (22 July 2019 to 30 June 2020) | 7(cc), (dd) | $10,331 | ||
Less part payments | 9(a) | -$28,069.55 | ||
Rent, outgoings and electricity (incl GST) (1 to 31 July 2020) | 26(a) | $52,649.34 | ||
Rent (excl GST) (1 August 2020 to 30 November 2024) | 29E | $2,474,006.21 | ||
Rent (excl GST) from Riverside Sands (1 September 2023 to 30 November 2024) | 29D(d) | -$687,178.80 | ||
Outgoings (excl GST) (1 August 2020 to 31 August 2023) | 5(b), 29F | $208,935 | ||
Sub total | $2,189,079.05 | |||
SEABED SUBLEASE | ||||
Rent and outgoings (incl GST) (1 April to 30 June 2020) | 8(a), (b), (c), (d) | $76,840.41 | ||
Adjusted amount for outgoings (incl GST) (22 July 2019 to 30 June 2020) | 8(cc), (dd) | $79.20 | ||
Less part payment | 9(b) | -$12,806.74 | ||
Rent and outgoings (incl GST) 1 to 31 July 2020) | 26(b) | $25,613.42 | ||
Rent (excl GST) for remainder of lease term (1 August 2020 to 30 November 2024) | 29H | $969,650.64 | ||
Outgoings (excl GST) for remainder of lease term (1 August 2020 to 30 November 2024) | 5(c), 29I | $30,394.52 | ||
Sub total | $1,089,771.45 | |||
OTHER | ||||
Marine Pile Removal Cost | 19IA | $8,250 | ||
Gate Damage | 31(c) | $452.17 | ||
Less fees received pursuant to the Licences | 30(c) | -$877,425.55 | ||
Less cash bond | 30(d) | -$132,000 | ||
Sub total | ($1,000,723.38) | |||
INTEREST | ||||
Interest claimed pursuant to cl 2.10 of Land Sublease | Sch 1 | $82,579.55 | ||
Interest claimed pursuant to cl 2.3 of Seabed Sublease | Sch 1 | $58,108.05 | ||
Sub total | $140,687.60 | |||
TOTAL AMOUNT | $2,418,814.72 |
Footnotes
[1]A summary of the plaintiff’s damages claim is exhibit 8.
[2]See also the List of the Real Issues in Dispute filed on 17 June 2024.
[3]Exhibit 1, p 562.
[4]Exhibit 1, p 527.
[5]Exhibit 1, p 562 (historical search of Lot 1 on SP 277667, referring to lease no. 705769137 granted on 4 July 2002 to Brisbane Marine Industry Park Pty Ltd).
[6]Exhibit 1, p 580 (lease no. 705769137).
[7]Exhibit 1, p 519.
[8]Cf List of Agreed Facts at [1(c)(ii)], which refers to Sentinel as “the lessor to Brisbane Marine Industry Park Pty Ltd … as lessee”. That is not correct, having regard to the documents forming part of exhibit 1 and referred to above. The position is correctly stated in [2] of the plaintiff’s outline of opening submissions.
[9]Exhibit 1, p 529.
[10]A plan of lease HK appears at exhibit 1, p 611 (which is reproduced in schedule A to the plaintiff’s opening submissions, filed on 9 September 2024).
[11]Exhibit 1, p 567.
[12]Exhibit 1, p 618 (lease no. 709309070).
[13]Exhibit 1, p 345.
[14]Exhibit 1, p 531. The transfer document refers to the transfer of “State sub lease no. 709309070” (which is the relevant dealing number for what is referred to in this proceeding as the “seabed head lease”). I infer the “seabed head lease” is in fact a sublease (with Port of Brisbane Corporation initially holding its interest under a lease from the State).
[15]A plan of lease HL appears at exhibit 1, p 652; lease HL is also shown in the plans reproduced in schedule A to the plaintiff’s opening submissions.
[16]Exhibit 1, p 541.
[17]Exhibit 1, p 655; plan of lease HLX is shown at p 688 (and reproduced in schedule A to the plaintiff’s opening submissions).
[18]Exhibit 1, p 692; plan of lease QPW is shown at p 714.
[19]Exhibit 1, p 659.
[20]Clause 2.2(a) of the land sublease provides that all references in the head lease to “Corporation” shall be deemed to be a reference to the Lessor under the sublease – namely, Sentinel.
[21]Clause 2.2(b) of the land sublease provides that all references in the head lease to “Lessee” shall be deemed to be a reference to the Lessee under the sublease – namely, Yamba Shipping.
[22]Exhibit 1, pp 599-600.
[23]Exhibit 1, p 698.
[24]Exhibit 1, p 623.
[25]Exhibit 1, pp 701-702.
[26]Exhibit 1, pp 706-707.
[27]Exhibit 1, pp 708-709.
[28]See [7] of the List of Agreed Facts.
[29]See [8] of the List of Agreed Facts.
[30]See [9] of the List of Agreed Facts.
[31]Exhibit 1, p 990.
[32]Exhibit 1, p 993; see also [11A] of the List of Agreed Facts.
[33]See [37] of the List of Agreed Facts.
[34]See paragraph 12 of the statement of claim, essentially admitted (other than as to minor details of two of the email requests) in paragraph 8C of the defence. A reference in these reasons to the statement of claim is to the fifth further amended statement of claim (filed on 16 August 2024); and a reference to the defence is to the amended defence to the third further amended statement of claim (filed on 23 August 2023).
[35]Exhibit 1, p 1025.
[36]See, for example, exhibit 1 at pp 1007, 1016-1024, 1027-1032.
[37]Exhibit 1, pp 1033-1059.
[38]Exhibit 1, pp 1072-1079.
[39]Exhibit 1, pp 1060-1064.
[40]Exhibit 1, pp 1065-1069.
[41]Exhibit 1, pp 1080-1081.
[42]Exhibit 1, p 1177.
[43]Mr McKay’s evidence at T 2-38 to 2-39.
[44]Exhibit 3.
[45]Mr McKay’s question to Ms Bingley, as to whether the email “sound[ed] professional from a lawyer” was objected to, and the objection was upheld (T 1-44-1-45). I have treated his point in this regard as a submission.
[46]Exhibit 1, p 1268.
[47]Exhibit 1, p 1271.
[48]Exhibit 1, p 1277.
[49]Underlining added.
[50]Mr McKay’s evidence at T 2-44.
[51]Mr McKay’s oral submissions at T 2-57.
[52]See [14] of the List of Agreed Facts.
[53]Exhibit 11; Mr McKay’s evidence at T 2-44.
[54]Exhibit 4.
[55]Exhibit 1, pp 981-985. See [19D] of the statement of claim and [12] of the defence.
[56]Exhibit 1, pp 788-791 (first seabed sublease notice) and pp 793-798 (first land sublease notice).
[57]Exhibit 1, pp 799-803 (second seabed sublease notice) and pp 805-810 (second land sublease notice). See also [47] of the List of Agreed Facts.
[58]Mr McKay’s evidence at 2-36.
[59]See [19H] and [24] of the List of Agreed Facts.
[60]See paragraphs [14](i) and [15](l) above.
[61]See paragraphs 7 and 8 of the defence.
[62]See Fox v Jolly [1916] 1 AC 1 at 18; Lexane Pty Ltd v Highfern Pty Ltd [1985] 1 Qd R 446 at 450 per McPherson J; Kumaragamage v Rallis [2001] NSWSC 466 at [42] per Austin J.
[63]Retail Shop Leases and Other Commercial Leases (COVID-19) Emergency Response) Regulation 2020 (Qld).
[64]See s 3 of the Covid regulation. The “National code” is the ‘National Cabinet mandatory code of conduct – SME commercial leasing principles during COVID-19’, agreed to by the National Cabinet on 3 April 2020.
[65]See paragraph 12(a)(i) of the defence; not admitted in paragraph 2(a) of the reply. Although Sentinel did not concede the leases were “affected leases” within the meaning of s 5 of the Covid regulation, it did not positively argue that they were not.
[66]Exhibit 1, p 1168.
[67]Exhibit 1, p 1287.
[68]Exhibit 1, p 1286.
[69]Exhibit 1, p 1284.
[70]Exhibit 1, pp 1292-1294.
[71]Exhibit 1, p 1295.
[72]Exhibit 1 p 1295 and 1299.
[73]Exhibit 1, p 1307.
[74]Exhibit 1, p 1312.
[75]Exhibit 6.
[76]MFI “B”.
[77]See [19A] to [19C] of the List of Agreed Facts.
[78]Exhibit 1, p 1323.
[79]Exhibit 1, pp 1342-1344.
[80]Exhibit 1, pp 1347-1351.
[81]Exhibit 5.
[82]Mr Ebert’s evidence at T 1-68.
[83]Exhibit 1, pp 1372 to 1377.
[84]See [52] of the List of Agreed Facts.
[85]See [57] of the List of Agreed Facts; and clause 38 of the new seabed sublease (exhibit 1, p 978).
[86]See rule 166 Uniform Civil Procedure Rules 1999 (Qld).
[87]See paragraph 29 of the statement of claim; not admitted in paragraph 19 of the defence; but conceded by Mr McKay at the trial: T at pp 1-8, 1-32 to 1-33.
[88]Exhibit 7.
[89]See [31] of the List of Agreed Facts.
[90]See [58] of the List of Agreed Facts.
[91]Exhibit 1, p 1397.
[92]Exhibit 1, p 1418. See also [42]-[46] of the List of Agreed Facts.