Palermo Seafoods Pty LTD V Lunapas Pty LTD (2014) 17 BPR 33,047

[98650]
5 PALERMO SEAFOODS PTY LTD v LUNAPAS PTY LTD

SUPREME COURT OF NEW SOUTH WALES — EQUITY DIVISION
YOUNG AJA
10
20, 21 May, 16 June 2014 — Sydney
[2014] NSWSC 792
15 Landlord and tenant — Lease for 6 years — Lease not registered — Option to renew lease —
Whether option exercised — Estoppel — Section 133E of the Conveyancing Act — Set-off —
Equitable set-off against rent.
The parties entered into a 6-year lease of a shop. Notwithstanding lack of registration of the lease
under the Real Property Act, the parties accepted that the lease was varied by inclusion of an option
20
to renew for a further term of 3 years which was a valid option. It was common ground that the
plaintiff lessee did not serve a written notice exercising the option as required by the terms of the
lease. The plaintiff submitted that the defendant lessor was estopped from denying the validity of the
exercise of the option and an entitlement to a new lease.
25 Held:
(i) The plaintiff had established the existence of an estoppel.
(ii) The defendant, not having served a notice under s 133E of the Conveyancing Act, was
prevented from denying the valid exercise of the option on the ground of the lessee’s defaults in
performance of covenants in the parent lease.
30 (iii) The lessee had an equitable lease arising from the exercise of the option and a common law
tenancy at will under s 127 of the Conveyancing Act.
(iv) The rent being in arrears and the failure of the plaintiff to remedy breaches set out in a
notice of breach, the plaintiff was disentitled to specific performance.
(v) The plaintiff was in possession as a common law tenant at will entitled to a 1 month’s notice
to quit; as the notice was a 14-day notice, the defendant’s re-entry was unlawful.
35 (vi) Consideration given to meaning of “useability” in s 36 of the Retail Leases Act.
(vii) It was not possible to recoup from rent expenses incurred by a tenant under a previous lease
within the principle expressed in Lee-Parker v Izzet [1971] 1 WLR 1688; recoupment may only be
made for future rent or arrears of rent under the current lease; per curiam: equitable set-off was not
available in respect of claims made under a previous lease.
40 (viii) While there were complications in the argument concerning equitable set-off, there was no
answer to the defendant’s right to terminate the lease; nature of equitable set-off discussed and
considered.
J J Loofs instructed by Sambrook Grant Lawyers for the plaintiff.

45
L Walsh and B Wright instructed by Ardor Legal for the defendants.
[1] Young AJA. This is a dispute between tenant and landlord over premises used as
a seafood shop and restaurant in Tweed Heads. The plaintiff, the former tenant, seeks
damages for the allegedly wrongful termination of its tenancy on 8 May 2013, particularly
50 damages for loss of the chance to earn profits from the business it was carrying on at the
site.
r LexisNexis 33,047 Service BP 222

NSWSC PALERMO SEAFOODS v LUNAPAS (Young AJA) [98650]
[2] The plaintiff commenced occupation in November 2005. At that time its occupation
was authorised under a lease to the previous proprietors of the business. That lease was in
favour of Seamax Australia Pty Ltd from 2 July 2003 to 1 July 2006. The lease appears
to have been in a standard form for NSW retail leases.
[3] It is necessary to set out cll 7 and 8.2 which have appeared in the lease to Seamax
and in the lease between the plaintiff and the first defendant which was in force between
2 July 2006 and 1 July 2012 (the 2006 lease).
[4] Clause 7 is headed, “Who is to repair the property” and is as follows:
7.1 The landlord must —
7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling,
the external walls, and the floors of the property and must fix structural defects;
7.1.2 maintain the property in a structurally sound condition; and
7.1.3 maintain essential services.
7.2 The tenant must otherwise maintain the property in its condition at the commencement
date and promptly do repairs needed to keep it in that condition but the tenant does not
have to —
7.2.1 alter or improve the property; or
7.2.2 fix structural defects; or
7.2.3 repair fair wear and tear.
7.3 The tenant must also —
7.3.1 reimburse the landlord for the cost of fixing structural damage caused by the
tenant, apart from fair wear and tear;
7.3.2 maintain and decorate the shop front if the property has one; and
7.3.3 decorate the inside of the property in the last 3 months of the lease period
(however it ends) — “decorate” here means restoring the surfaces of the property
in a style and to a standard of finish originally used eg by repainting.
7.4 If an authority requires work to be done on the property and it is structural work or work
needed to make the property safe to use then the landlord must do the work unless it is
required only because of the way the tenant uses the property. But if it is any other work
or is required only because of the way the tenant uses the property then the tenant must
do the work.
7.5 If the tenant fails to do any work that the tenant must do the landlord can give the tenant
a notice in writing stating what the tenant has failed to do. After the notice is given the
tenant must —
7.5.1 do the work immediately if there is an emergency; and
7.5.2 do the work promptly and diligently in any other case.
If the tenant does not do the work, the landlord can do it and the tenant must reimburse
the landlord for the cost of the work.
7.6 The tenant must not make structural alterations to the property. Any other alterations
require the landlord’s consent in writing (but the landlord cannot withhold consent
unreasonably).
[5] Clause 8.2 is headed “What happens if the property is damaged?” and is as follows:
8.2 If the property or the building of which it is part is damaged (a term which includes
destroyed) —
8.2.1 the tenant is not liable to pay rent, or any amount payable to the landlord in
respect of outgoings or other charges, that is attributable to any period during
which the property cannot be used under this lease or is inaccessible due to that
damage;
8.2.2 if the property is still usable under this lease but its usability is diminished due
to the damage, the tenant’s liability for rent and any amount in respect of
outgoings attributable to any period during which usability is diminished is
reduced in proportion to the reduction in usability caused by the damage;
Service BP 222 33,048 r LexisNexis

17 BPR BUTTERWORTHS PROPERTY REPORTS NSWSC
8.2.3 if the landlord notifies the tenant in writing that the landlord considers that the
damage is such as to make its repair impracticable or undesirable, the landlord
or the tenant can terminate this lease by giving not less than 7 days notice in
writing or termination to the other and no compensation is payable in respect of
that termination;
5 8.2.4 if the landlord fails to repair the damage within a reasonable time after the tenant
requests the landlord to do so the tenant can terminate this lease by giving not
less than 7 days notice in writing of termination to the landlord; and
8.2.5 nothing in cl 8.2 affects any right of the landlord to recover damages from the
tenant in respect of any damage or destruction to which the clause applies.
10
[6] The 2006 lease was from the first defendant to the plaintiff for 6 years from 2 July
2006 to 1 July 2012. However, the lease document would not appear to have been
executed by the landlord until February 2007. The first two pages of this document were
in Torrens system lease form and the remainder was in the standard retail lease form. The
lease was never registered even though it was for more than 3 years. Originally the lease
15
had no option to renew.
[7] On 5 January 2009 the parties entered into a “Memorandum of Agreement”. Clause 5
of this memorandum reads as follows:
The revised term of a tenancy is an initial period to 1 July 2012 with a further option for a further
20 three years to 1 July 2015 at an initial agreed amended rent of $3,050.00 per week (including
GST) payable on the Tuesday of each week.
[8] There was nothing in that memorandum of agreement as to how the option would be
exercised.
[9] However the landlord reckons, and the tenant now accepts this reckoning, that the
25
agreement of 5 January 2009 varied the actual lease. This means that one would read into
the agreement cl 4.4 which is as follows:
4.4 The tenant can exercise the option only if —
4.4.1 The tenant serves on the landlord a notice of exercise of option not earlier than
30 the first day stated in item 12D in the schedule and not later than the last day
stated in item 12E in the schedule;
4.4.2 There is at the time of service no rent or outgoing that is overdue for payment;
and
4.4.3 At the time of service all other obligations of the tenant have been complied with
or fully remedied in accordance with the terms of any notice to remedy given by
35 the landlord.
If this lease is extended by legislation, items 12D and 12E in the schedule are adjusted
accordingly.
[10] The schedule cl 12 starts with the words “Option to renew not applicable” and there
is no material in items 12D or 12E.
40
[11] Paragraph 11 of the further amended statement of claim is as follows:
11 The plaintiff exercised the option
Particulars
(a) The option was exercised by the plaintiff by its Director Joseph Palermo orally
45 advising the second defendant, the agent of the first defendant that the plaintiff
was exercising the option;
(b) The conversation occurred at the premises on 23 June 2012;
(c) The substance of the conversation concerning the exercise of the option was that
on 7 June 2012 the plaintiff had received a valuation of the premises obtained by
the National Australia Bank at $800,000, in consequence to which the plaintiff
50 was unable to obtain finance to proceed with the intended purchase of the
premises, which would have required a valuation of $1,500,000; as the plaintiff

was unable to proceed with the purchase of the premises, it chose to exercise the
option for the further term. The second defendant agreed to the option being
exercised.
(d) Present at the time of the conversation with Joseph Palermo, Frank Palermo and
the second defendant.
[12] The second defendant is Luciano Menniti. It is clear from the evidence that there
was no conversation of that nature on 23 June 2012. However the plaintiff proceeded on
the basis that that conversation was the one of which evidence was given that occurred,
he says on 30 June 2012.
[13] There are a large number of issues between the parties. I will list in the best way
I can what these issues are and then proceed to deal with each one of them in turn:
However, as the case proceeded, some of these issues fell away and the case ended with
the plaintiff indicating that its principal claim was for loss of the expectation of earnings
to be derived from the restaurant conducted on the premises which it lost because of a
wrongful re-entry.
[14] The issues are:
(1) Did the plaintiff have an option to renew from 2 July 2012 to 1 July 2015?
(2) Did the plaintiff duly exercise such option?
(3) If the answer to (2) is no, are the defendant estopped from denying that the option
was exercised?
(4) Does the noncompliance with s 133E of the Conveyancing Act 1919 have any
significance?
(5) Was a fresh lease granted to take effect from 2 July 2012. and, if so, what is its
nature?
(6) Questions of Credit.
(7) As to a question of fact, are the defendants correct in saying that they were never
notified of any problem with defects in the building until 2012?
(8) What is the significance if any of the defendants taking possession on
8 May 2013?
This raises sub questions:
(A) Was any reduction of liability to pay rent brought about in the
circumstances reflected in cl 8.2.2 of the lease?
(B) Was there a right of recoupment arising from the fact that the tenant paid
for repairs?
(C) Is there any equitable set-off applicable against rent?
(9) What rebate if any should be allowed for non-repair?
(10) Is the plaintiff entitled to any damages for loss of expectation or otherwise and,
if so, in what amount?
(11) What is the result of the case?
[15] There are considerable factual disputes between the parties. Most of these arise in
questions 6 and following and unless some particular matter is relevant to an earlier
question I will deal with them when I am considering question 6 and following. I will now
proceed to deal with the questions that I have set out in the order in which I have listed
them.
[16] I heard these proceedings on 20 and 21 May 2014. Mr J J Loofs and Ms L-A Walsh
appeared for the plaintiff and Mr B Wright appeared for the defendant. I reserved my
decision after giving counsel leave to put in additional submissions by the 28 May.
Question (1)
[17] Before addressing this question, I need to consider what rights the parties had under
the 2006 lease.
[18] Under s 53 of the Real Property Act 1900, leases of torrens land over 3 years must
be registered. If the lease is not registered, it operates merely as a lease in equity, and at
law, a tenancy at will terminable on 1 month’s notice pursuant to s 127 of the
Conveyancing Act 1919.
5 [19] However, all the terms of the invalid lease would be incorporated save for those
which were inconsistent with a tenancy at will terminable on a month’s notice. The only
term that would be inconsistent would be a provision allowing the landlord to terminate
with less than 1 month’s notice, see Kemp v Lumeah Inverstments Pty Ltd (1983)
3 BPR 9203.
10 [20] The law of landlord and tenant is an extremely complex area of law and it is
sometimes vital to make very fine distinctions. Unfortunately the parties and their lawyers
when dealing with this property have seemed to ignore ost of the technicalities.
[21] If the lease is not registered then the covenants and the performance of covenants
are not enforceable; Joseph v Mason (1912) 12 SR (NSW) 249; Davis v McConochie
15 (1915) 15 SR (NSW) 510; Chan v Cresdon Pty Ltd (1989) 168 CLR 242; BC8902685.
Thus, technically speaking, the option did not come into effect.
[22] I will comment later as to the difficulties that arise not only for the parties, but also
for the court when the legal rules as to form are not observed. The doctrine of estoppel by
20 convention can only be taken so far.
[23] However, the parties seem to have agreed that the proper construction of the
agreement of 5 January 2009 was that the existing lease was varied to include an option
for a further term of 3 years and that there was a valid option which was available to the
tenant to exercise. On this basis, this question must be answered, “Yes”.
25 Question (2)
[24] The agreement of 5 January 2009 did not contain any provision dealing with the
manner of exercise of the option. Clause 4.4.1 would then come into play. However
because neither item 12D nor 12E was filled in in the schedule, the time for exercising the
option is not specified. This would introduce the rule that prima facie an option must be
30
exercised before the lease expires, Trustees Executors and Agency Co Ltd v Peters (1960)
102 CLR 537 at 552; [1960] HCA 16; BC6000160.
[25] Clause 4.4.1 does require the tenant to serve on the landlord a notice of exercise of
option. The words “serve … a notice” indicate that there must be a written document. It
35 is common ground that there was no written document.
[26] Thus, cases which were referred to such as Gardner v Blaxill [1960] 2 All ER 457
and Metford Industries Ltd, Ex parte; Re Hall, Cmr for Railways (NSW)
[1962] NSWR 1228 are of no assistance in the present case.
[27] Accordingly this question must be answered, “No”.
40
Question (3)
[28] The plaintiff now accepts that it will only succeed on the question of exercise of the
option if it can show that there is an estoppel. Mr Loofs submits that “an invalid exercise
of an option may be the subject of an estoppel to a lessor.” He cites and he relied on
45 Friary Holroyd and Healey’s Breweries Ltd v Singleton [1899] 2 Ch 261. The case is better
and more fully reported in (1899) 81 LT 101. A better authority is probably Lee v Ferno
Holding Pty Ltd (1993) 33 NSWLR 404 at 413.
[29] There seems no doubt about the principles they are just an application of estoppel
by convention. The real question is whether the facts in this case mean there is an estoppel
50 by convention that operates so that between the parties the option must be treated as if it
had been exercised.

[30] The key part of Mr Palermo’s evidence is para 18 of his affidavit. There he says that
he met with Mr Menniti at the subject premises at about 10 am on 30 June 2012. Also
present, though neither of these people were called to give evidence, were Frank Palermo
and Jessica Towler, the latter being Palermo’s shop manager at the time.
[31] Joseph Palermo says that there was a conversation about the valuation of the
premises, the essence of which is that Mr Palermo said that because his bank had received
a low valuation he would not be able to purchase the property because he would not be
able to get finance and accordingly he wished to exercise his option. He says he told
Mr Menniti;
I need to continue as lessee and I have decided to take up the lease option.
Mr Palermo says that Mr Menniti replied:
That’s fine, we have an agreement and you can lease it up to 2015. We can discuss a new lease
until such time.
[32] Mr Palermo says there was then an argument about repairs and “we all then calmed
down” somewhat and the conversation continued to the following effect:
MENNITI — I would consider a new lease if you pay the legal fees to have it drawn up and you
bring the rent up to date.
PALERMO — I am not able to buy it. I need to continue as lessee: I have decided to take the lease
option.
MENNITI — That’s fine we have an agreement and you can lease it up 2015. We can discuss a new
lease until such time.
[33] If this is accepted, it would seems that there was a recognition by all parties that the
option in the 2006 lease as varied by the 2009 memorandum of agreement was exercised
and that the tenant was the lessee in equity for a further 3 years until 1 July 2015 and that
a longer lease would be negotiated to continue for a longer period.
[34] Mr Menniti’s affidavit does not deal very satisfactorily with this conversation. He
says that there was discussion about a new lease and he did say:
First you need to bring the rent up to date.
However he denies that Joseph Palermo said:
We would have been able to bring the rent up to date if we did not have to keep maintaining and
fixing the place up and if you actually did as landlord what you should be doing.
[35] Not one word however was said in his affidavit respecting the conversation about
the option.
[36] It seems to me that in those circumstances I must accept the Palermo version that
the parties agreed that the option was to be treated as having been exercised and that the
plaintiff had a right to require the first defendant to provide a new lease.
[37] Putting aside the effect of the Retail Leases Act 1994, the position then was that in
equity the plaintiff was entitled to be granted a lease up until 2 July 2015. At common law
it had a tenancy at will terminable on a months notice under s 127 of the
Conveyancing Act 1919.
[38] It must be noted that the 2006 lease had come to an end on 1 July 2012. When a
lease is renewed under an option a new lease comes into effect: see United Scientific
Holdings Ltd v Burnley BC [1978] AC 904 at 945 per Lord Simon and at 961 per
Lord Fraser.
[39] The first defendant says that the option was not properly exercised because the
tenant was in default under the lease both in payment of rent and in some other respects.
However no notice was ever given by the defendants under s 133E of the
Conveyancing Act 1919 and that section must be complied with strictly under the
authorities: see Bay Marine Pty Ltd v Clayton Properties Pty Ltd (1984) 9 ACLR 780.
There is no room for agreeing to Mr Wright’s submissions that correspondence took the
place of a proper 133E notice.
5 [40] No argument was addressed as to whether s 133E applied by analogy to the case
where the court finds that, by operation of the doctrine of estoppel by convention, the
option is deemed to have been exercised. Both parties proceeded on the basis that the
section was applicable.
[41] Accordingly any default of the tenant did not affect the validity of the exercise of
10 the option.
Question (4)
[42] Is there a fresh lease from 2 July 2012? The answer for the reasons already given
is, “Yes”, but the type of lease is as I have set out in my answer to Question 3 (and see
15 also Question 6). There are no arrears of rent leftover from the previous lease, which can
be considered as rent owing under the fresh lease.
Question (5)
[43] The question then is how is the fresh lease brought to an end?
20 [44] Where lawyers speak of a lease in equity, what they mean is that equity would grant
specific performance of the agreement that has been reached when the option was
exercised. By definition an equitable lease would cease when equity no longer would grant
specific performance. As a person has to show that they are ready, willing and able to
comply with their side of the bargain, it would follow that any substantial non-payment of
25 rent would be a ground whereby equity would no longer enforce the exercise of the option
and compel the landlord to grant a new lease by law.
[45] The facts in the instant case show that there was a substantial non payment of rent
after 1 July 2012. The defendants claim that this was some $61,150. The tenant made a
statutory demand against the landlord and admitted this figure less $23,400 which it
30 alleged it had paid after 1 July 2012 and for which the landlord had not accounted.
[46] It is only if one allows the full claim of the plaintiff for recoupment both before and
after the fresh lease and allows a set-off either at law or in equity that one can reach the
position that the tenant was not in default with the rent. The evidence before me, which
I will consider later, does not go that far. I will consider questions of recoupment and
35 set-off when considering Question 8(b).
[47] In any event, my view is that, when a court of equity is considering whether to grant
specific performance, it does not delve into minutiae, but asks the broad question, “Has the
plaintiff shown that it is ready willing and able to fulfil the agreement for lease on its part?
The answer to that question is “No”, because the rent was not consistently actually paid.
40
[48] Accordingly, on the vital date of 8 May 2013, my view is that the plaintiff no longer
had a 3-year lease in equity, but merely had a tenancy at will at law terminable by a
month’s notice.
[49] There was a re-entry on 28 March, shortly prior to the Easter holiday weekend.
45 [50] I need not dwell on the legal effect of this as the parties soon came to an
accommodation.
[51] Joseph Palermo says that on that day he negotiated an agreement to allow him to
get back into the premises. The agreement is set out on p 607 of the court book. It reads
as follows:
50

28 March 2013
The lessor being Lou Menniti (Lunapas Pty Ltd) agrees to grant possession to (Menniti
Seafood) on the condition of payment of $10,000 no later than 30 March 2013 and a further
payment of $10,000 on or before 2 April 2013. Should the lessee fail to comply with the above,
possession will be taken over by the lessor.
It is agreed upon by the above parties that a market appraisal will be conducted by a registered
valuer to determine current market rent. A new lease will be negotiated after the valuation has
been received.
[52] The document is signed by Joseph Palermo, Lou Menniti, and the estate agent
Rebecca Moore.
[53] The $10,000 was paid and the plaintiff moved back in and conducted its Easter
trade. 28 March was the Thursday immediately preceding Good Friday. The 2nd of April
was the Tuesday after Easter.
[54] What happened next is a little confused. It would seem that Mr Palermo went
straightaway to see his solicitor. It is unclear whether he took a copy of the agreement
which I have set out above with him.
[55] However, that solicitor created a letter which he sent to the defendants which bears
the same date. It was marked “without prejudice”, but there was no objection to its tender.
[56] The plaintiff’s solicitor’s letter purported to confirm “the without prejudice
agreement” (whatever that means) and set out a different form of agreement. This
document added additional terms that there would be an agreement to meet at the
plaintiff’s solicitors’ office “next week” with a view to negotiating in good faith a new
lease and that the second $10,000 would be paid upon finalisation and execution of the
new lease on the basis that the parties would negotiate in good faith to have the lease terms
finalised and the new lease signed by 5 April 2013.
[57] Mr Menniti signed a copy of that letter by which he said he acknowledged and
agreed to the terms.
[58] Mr Palermo says that Mr Menniti never did turn up by himself, or his
representatives, to negotiate a further 5-year + option lease in good faith and Mr Palermo
never did pay the further $10,000.
[59] On the other hand, Mr Menniti says that he and Mr Rossiter did go to the plaintiff’s
solicitor’s offices to endeavour to resolve the matter, but there was an argument in the car
park and that put a finish to the affair.
[60] As I have said, I find what happened on the 28 March 2013 and immediately
thereafter very hard to fit together. Doing the best I can it would seem that early on the
day there had been a lock out and the landlord had changed the locks. When
Joseph Palermo attended he found that the locksmith was still on site, as was Mr Menniti
and it would seem Rebecca Moore an officer of Ray White Burleigh Heads, the managing
agent. There was then discussion and Rebecca Moore wrote out the document which I
have already set out and it was signed by Joseph Palermo, Lou Menniti and Rebecca
Moore.
[61] Subsequently on that day, Mr Palermo went to see his solicitor and the solicitor
generated the document to which I have already referred which is set out on p 605 of the
court book. That was emailed to Mr Menniti.
[62] It would seem that Mr Menniti called on the solicitors later in the day and signed
the document. Why he signed the document is completely unclear. He may have thought
that it merely recorded what was agreed to earlier in the morning, but there is nothing in
his evidence to suggest that that is so. Indeed in cross-examination the following occurred
(T76). Mr Loofs cross-examining on p 606:

Q — Look at the second paragraph. You have agreed to sign a copy of this letter and return it
immediately to us. In your acceptance in the terms reached, which you acknowledge has been
made in good faith, and with the intention binding on the parties you have signed the document
and sent it back?
A — We signed that, went down and had a meeting with the solicitors and it lasted 2 minutes.
5
Q — And you signed it indicating you accepted the terms?
A — What were the terms?
Q — Now if I could move to another area.
A — What were the terms please?
HIS HONOUR: They are on first page 605.
10 A — Our client further (read) that never happened.
Later on (T78), Mr Menniti said in answer to a question:
Q — This is in your affidavit. This is stuff you have made up, if there was a case, obligation for
you to negotiate in good faith to give my client a lease and you did nothing then. There may be
15 consequences.
A — No that is totally incorrect, we went down to the lawyers office, had an appointment, had
an argument in the car park and that was it.
[63] Mr Menniti then said it was his idea to offer a 5-year term with a 5-year option and
Mr Loofs put (at T79):
20
Q — That was your attitude was it? You just decided to take it off the table.
A — No after he started to get the solicitor, my accountant, John Rossiter and the solicitor went
down to the office at Prestige Lawyers, tried to resolve the matter, could not get resolved, we kept
the arrangement of going down back there because —
25 (He was interrupted)

[64] None of the cross-examination really enables me to make a firm finding one way
or the other. However it would appear that what Mr Menniti is saying is that he did go
down to the solicitors office, he did sign the acknowledgment, but nothing further
happened because of some altercation in the car park and that getting lawyers in rather
30 than negotiating between friends was not going to work and he wanted his rent. It seems
to me that this is a more likely scenario than that suggested by Joseph Palermo. Indeed it
is strange that having made an agreement earlier in the morning on the 28 March that there
would then be a solicitor’s letter later in the day saying something different. Perhaps
Mr Palermo never showed the solicitor what the document that had already been signed
35 said, he may not have had a copy.
[65] On about 27 March 2013 the plaintiff issued the first defendant a notice to remedy
breach. On the 16 April 2013 the first defendant received a letter from the plaintiff’s then
solicitor attaching a number of documents relating to alleged maintenance and repair of
the premises. Mr Menniti says that until receipt of this correspondence he never cited any
40 of the invoices, which were attached to the correspondence and denied that anyone on
behalf of the plaintiff had ever handed him any invoices requiring payment by his
company.
[66] On 22 April 2013 a further notice to remedy breach was issued by the landlord. That
notice did include “balance due from previous year” $25,650 but then showed that about
45 $60,000 was not paid in rent from 1 July 2012 onwards. Unfortunately it is a little hard
to understand as the creator of the document has used the American rather than the
Australian dating system. On 8 of May 2013 the plaintiff was locked out of the premises.
This notice was a 14-day notice rather than a 1-month notice as required under s 127.
50 [67] Presumably a 14-day notice was given because of cl 12.2.2 of the lease. The
chapeau to cl 12 reads:

The landlord can enter and take possession of the property or demand possession of the property
if — …
12.2.2 Rent or any other money due under this lease is 14 days overdue for payment …
[68] However, that clause is inconsistent with a tenancy at will terminable by a month’s
notice and so is inapplicable.
[69] The upshot was that the taking of possession was premature.
[70] It was submitted that s 16 of the Retail Leases Act 1994 affected the position as its
operation is to extend leases, even agreements for lease into leases at law for 5 years.
[71] However, s 16(4) makes it clear that the section does not extend to the present case
because the 2013 lease followed immediately after the end of the 2006 lease. The section
is inapplicable here.
[72] Thus the result is that the lease was to be determinable on a month’s notice, it was
determined on 14 day’s notice and thus was wrongful. However, the only damages would
be nominal, as the tenant only lost 2 weeks.
Question (6)
[73] I now turn to questions of credit.
[74] This is an awkward matter because I found that neither side impressed as to
presenting witnesses and material which one would expect to be produced, and that neither
Mr Palermo nor Mr Menitti were impressive witnesses.
[75] The plaintiff’s case depended almost entirely on Mr Palermo’s evidence plus
documents he assembled.
[76] Furthermore, in a case where both sides complain that the other has breached
covenants in a lease, we have a position where the covenants strictly speaking are not
enforceable as such. What does the judge do? Does he or she ignore the statute and deal
with the “realities” that existed between the parties by way of some sort of conventional
estoppel or otherwise? How does he or she treat the case?
[77] Then the parties have ignored that the lease of 2006 came to an end on 1 July 2012,
and seem to have treated their relationship as continuing on under the 2006 lease even
though the option must be taken on the facts to be deemed to have been exercised.
[78] Superadded to all this is the way in which the evidence was presented.
Mr Joseph Palermo’s evidence was in many respects presented in a form such that had I
applied the strict rules of evidence, perhaps a third of it would not have been admitted.
That however would have meant that the case would have had to be adjourned at great
expense and I form the view that my duty under ss 56–59 of the Civil Procedure Act 2005
meant that I should admit the material. However there was no supporting evidence from
people who one would have considered could have supported Joseph Palermo in key parts
of his evidence. It was clear to everyone I would have thought that the conversation of
30 June 2012 was vital. Notwithstanding that as I have already remarked, two witnesses
to that conversation were not called.
[79] Mr Lou Menitti’s evidence was even worse. Not only does he fail to deal with vital
parts of the plaintiff’s evidence such as, as I have indicated, the full conversation of
June 2012, but he also resorts to such weak answers to allegations of lack of repairs such
as in para 86 “I do not propose to go through every invoice that is referred to in the
affidavit of Joseph Palermo other than to say that until August 2012 none of those invoices
had ever been brought to my attention or the attention of the first defendant”.
[80] Even worse is para 103 “I have specifically not refer to part of Joseph Palermo’s
affidavit where I thought it irrelevant to the central issues associated with this matter”.
That just means that there is no answer to matters, which the court might think relevant
even though the deponent might have thought them irrelevant.
[81] Furthermore, the whole case seems to have changed from the time it was pleaded
to the time it commenced in court and then again at the time it finished in court. In
accordance with my usual practice I set out what I thought were the issues when I was
listening to the evidence on the first day of hearing, but by the time the plaintiff put in it’s
5 submissions in reply it would seem that the whole case had turned 90°.
[82] Mr Loofs in his final written submissions put that the principal point involved in
this case was whether there was a loss of opportunity to the plaintiff to earn income from
the seafood business at Tweed Heads because of the landlord’s activities in March, April
and May 2013. I must confess I found that it was hard to see that this was the principal
10 point of the case when it opened on the first day of hearing. Having made these necessary
comments I will now pass on to the next question.
[83] As to Mr Menniti’s evidence, I was concerned at the end of the first day of hearing
that he seemed to have so little understanding of the questions that were being put to him
that I thought that it may be that a tutor needed to be appointed. However it may be that
15 as an elderly gentlemen he was just getting overtired because on the beginning of the
second day he did not seem to have this problem. However he was a very determined
person and it seemed to me it would be very difficult to get him to depart from a view he
might initially form. He was quite sure in his own mind that none of the matters about
which the tenant complained were his responsibility.
20 [84] I do not consider that he actually spent sufficient time considering the questions
raised, he was so sure in his own mind that they were not his responsibility. This state of
affairs was not assisted by the fact that the invoices involved often contained a series of
items only some of which were obviously structural matters and there was little
explanation provided.
25
[85] As to Mr Joseph Palermo’s credibility, Mr Menniti suggests that because
Joseph Palermo gave his evidence from a prison in Queensland where he is currently on
remand on a charge of conspiracy to murder Mr Menniti that that in itself affected his
credibility. I am not at all sure that it does and I do not consider that I should take into
account the fact that Queensland Police have charged Joseph Palermo with that offence or
30
that a Magistrate refused bail.
[86] More significant is the fact that there is no documentary evidence which supports
Mr Palermo’s allegations that he gave the invoices to Mr Menniti at their regular meetings
and that the plaintiff did not call Frank Palermo or Jessica Towler who were present at the
35 vital conversation. Of course that has to be set against the fact that Mr Rossiter was not
called on the other side. The onus is on Joseph Palermo and his case is severely weakened
by not calling those persons and by the fact that there is little to corroborate his story.
However there is some corroboration in that Mr Menniti does acknowledge that he was
regularly at the Tweed Head premises and it is clear that he was there on 27 November
40 2005 when there was a downpour and that he sent his son to effect some repairs. There is
also the almost incredible story with respect to the second document of 28 March 2013.
[87] There are various reasons why I have great doubt as to Palermo’s claims for loss of
profits.
[88] It seems quite clear that Mr Menniti was constantly under the impression that back
45 rent would be paid after the plaintiff’s insurance claims for loss of business were
processed. It is also clear that some claims for loss of profits were made and paid by the
insurer.
[89] Mr Menniti is quite clear in his own mind that these were very substantial claims.
Mr Palermo has never denied that he did receive some moneys but his evidence as to how
50 much has always been merely to deny that they were large amounts.
[90] This makes me discount Mr Palermo’s credibility.

[91] The other significant matter of these insurance claims is that records would have to
be produced in order to justify the insurance claims. Those records would have been a far
better guide as to what business was lost than the hundreds of pages of meteorological
records and then a reconstruction as to how many days were lost and what was the average
gross profit.
[92] Mr Palermo says that all his records were lost when the landlord re-entered. I can
accept this at least partially but one would have thought that if there was a substantial
claim the accountant would have become involved in processing the claim and there was
never any attempt to say that the accountant, who did give evidence, did not have some
records and even if the accountant did not have records the insurance company would
have to have had records which could have been subpoenaed.
[93] Again this makes me discount Mr Palermo’s credibility.
[94] However, the mere fact that a judge considers that all the evidence may be
unreliable does not discharge him or her from the obligation to find the necessary facts.
I will now proceed to do so.
Question (7)
[95] Are the defendants correct in saying that they were never notified of defects in the
building until 2012?
[96] It is clear that in order to render a landlord liable on the covenant to repair, the
tenant must first notify the landlord that repairs are needed, see for example
Sleafer v Lambeth MBC [1960] 1 QB 43.
[97] The present question is of course is a question of fact. I am very much handicapped
in answering it because of the paucity of the evidence and the absence of people being
called such as, Frank Palermo on the plaintiff’s side, and John Rossiter on the defendants
side, who could have assisted in answering the question.
[98] It seems common ground that the parties or alternatively their relations were once
quite friendly. Although Mr Menitti lives in a Brisbane suburb, he apparently has a
dwelling at Surfers Paradise, which is about half an hour away from the subject premises
at Tweed Heads. Mr Menitti came down to see Frank Palermo in Tweed Heads whenever
he was in Surfers Paradise and this seemed to be about once a week.
[99] Joseph Palermo says that when Mr Menitti was calling at the Tweed Heads
premises he was given various invoices which had been paid by the tenant to affect repairs
with the landlord had not attended to and that Mr Menniti’s reaction was that he would pay
it or look into it or something to that effect. There was no written advice of the defects that
should have been paid for by the landlord but were paid for by the tenant. Some of those
invoices are in evidence. Many of them contain a number of items not all of which would
be payable by the landlord under the lease.
[100] Mr Menitti was actually present during a severe storm in November 2005 when
there was inundation of the eating area of the premises.
[101] It is necessary briefly to describe the suite in order to understand the evidence. The
building is a rectangular building with the longer side facing the road on one side and the
river on the other. The main roof of the building covers the building from its street
frontage to a relatively open area near the river. The relatively open area is covered with
a fixed awning, which has fibreglass panels. Customers of the business can then consume
their fish and chips or other seafood at tables in this open area while they have a river view.
It is this area that gets flooded with rain.
[102] It must be remembered that under the lease the landlord only has an obligation to
“maintain in a state of good condition and serviceable repair the roof, the ceiling, the
external walls and external doors and associated door jams, and the floors of the property
and structural defects plus essential services”.
5
[103] Mr Menniti says that when he did see the invoices after the termination of the
2006 to 2012 lease he quickly came to the view that none of them were his responsibility.
In order to sound more impressive in that statement he said that he was a builder and that
he knew that this was so.
10 [104] To my mind this attitude fitted in quite nicely with his statement at the end of his
affidavit that he did not bother to reply to allegations which were in his view irrelevant.
When he saw the invoices he says on 2012 he thought they were irrelevant and so he did
not consider that he need do anything about it.
[105] One can well imagine that he would have taken the same attitude to invoices that
15 he saw during the currency of the lease, if any.
[106] However, Mr Palermo’s evidence shows that on occasions Mr Menniti did do
something about the invoices or alternatively did send his son down to do some repairs
and this would indicate that he did have some knowledge during the term that there were
20 some defects.
[107] On the other hand Mr Menniti submits that no tenant in his right mind would allow
constant inundation of water which cost him as is claimed $2,400 a day for 6 years without
doing something about it either himself or pursuing the landlord and the fact that this did
not occur is strong material to suggest that the landlord never received any claims during
25 this time.
[108] As to the deluge of November 2005 Mr Menniti says it was not his responsibility
because it wasn’t the roof of the main building which was at fault and that is all that he
covenanted to repair it was the awning with the fibreglass over it. On the other hand
Mr Palermo says that that is a roof it was a permanent structure and it was the landlord’s
30
obligation to repair.
[109] I was not assisted by much argument on the meaning of cl 7.1.1 of the lease as to
what was meant by “the roof”. The impression that Mr Menniti tried to give me was that
the shelter over the eating area was something that was just very temporary and could be
35 easily removed. I do not accept this, it would seem from what little material has been
shown to me that there was a permanent structure over the eating area including metal
sections and fibreglass panels. Certainly it was possible for the strong winds that can afflict
that area to get under that roof and for the rain to get under it but it was a permanent roof.
The question is whether it was “the roof”
40 [110] It would seem to me that when one is seeing the phrase “the roof, the ceiling the
external walls and external doors” one is looking to the main structure and not to ancillary
structures such as the so called awning. Accordingly it does not seem to me that the
problem with the roof over the eating area was the landlord’s responsibility under the
45 lease.
[111] If I were wrong on this then the tenant had to mitigate its damage and the way of
mitigating the damage would be to effect proper repairs to the roof over the eating area.
If the first inundation was 22 November 2005 then one would have expected this to have
been done by the commencement of the new lease on 2 July 2006 or before the new lease
50 was signed which seems to be in mid 2007. There does not however appear to be any
discussion when the new lease was entered into about this matter.

[112] The court book was needlessly expanded by hundreds of pages of meteorological
records showing what rain had fallen over the Tweed Heads premises from
November 2005 through to 8 May 2013. These occupy pp 205–491 of the court book that
is 286 pages.
[113] Those 286 pages were used by the plaintiff and its advisors to work out how many
days there were in that period of heavy rain they then took the gross retail profit for each
day and multiplied that by the days of heavy rain to get a rather large amount which they
claim against the landlord as recoupment or alternatively as an equitable set-off.
[114] There are a number of flaws in this method of procedure. First one would have
expected the tenant to mitigate its damage and do proper repairs even before the lease of
2006 was entered into in which case no heavy rain after that date could have made any
difference. Secondly, one would have expected the tenant to have kept proper records and
to have made written complaints to the landlord when, if it be accepted that a landlord was
given invoices, there was no action. Yet we find no written complaints and we find that the
rain interrupted business according to the plaintiff for approximately 8 years. Thirdly, the
landlord’s covenant does not extend to ensuring that the premises are completely
weatherproof so as to keep out abnormal rainstorms, Masterton Lincensing Trust v Finco
[1957] NZLR 1137.
[115] Next the 27 November 2005 flood was when the plaintiff was holding as assignee
(unregistered) of the lease given to the previous owner. It had nothing to do with liability
under the 2006 lease just as problems that occurred after 2 July 2012 had nothing to do
with the 2006 to 2012 lease nor did problems under the 2006 to 2012 lease have any
relevance to rent under the 2012 lease if there be one.
[116] That last point is particularly important because it must be realised that the final
version of the plaintiff’s case is that the landlord wrongfully re-entered on 8 May 2013 and
as a result confiscated the plaintiff’s business and the plaintiff lost its opportunity to earn
income for the next 5, 10 or 15 years. Whether that re-entry was appropriate or not
depends on whether his rent was owing and whether rent was owing is to be worked out
in one of two ways.
(a) if the tenant can convince me that its solicitors letter of 28 March 2013 displaced
the earlier hand-written agreement of that date and if the effect of that was to
suspend any liability to pay rent until negotiations had proceeded in good faith
for the possible grant of a new lease then there was no rent owing because
$10,000 had been paid the balance of the rent owing had been commuted to
$20,000 and the other $10,000 was not to be paid until the negotiations for the
new lease had been completed; or
(b) that so much was owing by the landlord to the tenant for repairs which the tenant
had done and the landlord should have done that even though an amount of
$72,000 was claimed by the landlord the tenant either had the right of
recoupment which it could set-off at law or a right of equitable set-off of a greater
amount so that nothing was owing.
[117] Accordingly the assumption that seems to have been made by both sides is that not
only could the tenant offset what was able to be recouped under the lease since 2 July 2013
but it could also recoup what was due under the 2006 lease and perhaps the lease of which
it was the equitable assignee prior to 2006.
[118] Again this was not properly argued. There is no doubt that one can set-off at law
against liability to pay rent what the landlord owes to recoup the tenant for expenses the
tenant has incurred in repairing, where the liability to repair is on the landlord see for
example: Lee-Parker v Izzet [1971] 1 WLR 1688.
[119] In Asco Developments Ltd v Gordon (1978) 248 EG 683; [1978] 2 EGLR 41
at [42] Megarry VC cited the Izzeti case and said:
In that case the right of recoupment was said to be a common law right which was exercisable
in respect of future rents.
5
The reporter then goes on to say
But his Lordship (meaning of course Megarry VC) did not see why it should not be equally
applicable to arrears of rent.
10 [120] That seems to be the only authority and not a very strong one despite the eminence
of Megarry VC in this field that there is a right of recoupment for arrears of rent under the
lease. It is one step further back to say that there is also a right of recoupment for repairs
done by a tenant under a previous lease of the same premises. As I say the point was not
argued but Mr Loofs put the proposition under the dictum of Megarry VC as I cited. If the
15 tenant’s other argument was correct then there would be a different result. However, there
are very great difficulties in accepting the tenant’s second scenario.
[121] At common law an obligation suspended is virtually forgiven see Ford v Beech
(1848) 11 QB 852; 116 ER 693 and the discussion in G Williams, Joint Obligations,
Butterworths, London, 1948, Art 61 p 13. There is no need to look at the position in equity:
20
as to which see Beech v Ford (1848) 7 Hare 208; 68 ER 85.
[122] Mr Loofs did not put in any authority as to how there could be a suspension of the
obligation to pay rent. This is for the good reason that there is not any. I thus reject the
proposition that the obligation was suspended.
25 [123] In any event if there were such a possibility of that happening at law then one must
ask what was the consideration for the agreement. If some $72,000 was owing where was
the consideration for accepting a lessor sum of $20,000? It may be argued that there was
some consideration but unfortunately no argument was put on either side before me. I
cannot see how it is sufficiently arguable that the solicitor’s letter, even with the agreement
30 of Mr Lou Menniti brought about by him signing the letter, could amount to a forgoing
of all rent over $20,000.
[124] There is then the further point that the whole $20,000 was never paid. Mr Loofs
says that the obligation was not to pay the opposition the other $10,000 until after the full
35 and fair negotiations and extended lease concluded, and because Menniti did not take part
in such negotiations that never happened, and therefore the $10,000 was never payable.
While it is the case that there is a series of principals of law at equity which are combined
in the maxim “a party cannot take advantage of his or her own wrong” that maxim has
never been extended so as to excuse a person from paying money because of some default
40 on the other side which has little to do with the payment of that money. Again this was
not argued.
[125] Accordingly I do not consider that this was a reason why rent should not be
considered owing under the terms of the 2012 lease. In any event I would think that at least
$10,000 should be said to be owing even if that agreement was enforced.
45
[126] After that digression, I must get back to the actual question that I asked myself that
is, is the defendant correct in saying that it was never notified of any problem with defects
in the building until 2012.
[127] It will be remembered that the complaint about repairs falls into three categories;
50 (a) water damage, (b) electrical damage (mainly caused by ingress of water) and
(c) drainage and sewerage problems.

[128] I consider on the whole of the material that the likelihood is that Mr Menniti was
given invoices however it also seems to me that the invoices of themselves would not be
sufficient to have the landlord appreciate that he was responsible for all of the invoices.
The invoices do seem to cover a number of matters some of which are clearly not the
responsibility of the landlord.
[129] It may be that casting his eye over them he got the general impression (and people
generally like getting an impression which is favourable to them) that it was none of his
responsibility and he kept that view in mind for the whole time.
[130] I believe this is more likely to be the case than any other and it fits in with the
tenant’s evidence that he at the regular weekly meetings at Tweed Heads gave the landlord
the invoices.
[131] However it is significant that the tenant did allow its problems to continue for
8 years and that even though it was out of pocket it did not formally press for
reimbursement until it was locked out in 2013 and did not give a formal list of defects until
after the 2006 lease expired giving the first list in August 2012.
[132] This awareness would be sufficient to trigger the landlord’s liability to repair. A
tenant is not expected to analyse the reason why there is a structural defect, all it needs
to do is to notify the landlord of the general nature of the problem that has arisen,
Griffın v Pillet [1926] 1 KB 17.
[133] In the present case, the landlord was made aware of the problem with water
ingress and also the note of one of the plumbers who, at the tenant’s request repaired
leaking sewer pipes, that there was more than a temporary problem.
Question (8)
[134] The first defendant re-entered on 8 May 2013. When it re-took possession.
Normally, re-entry is the method of determining tenancies for a term, where the term is not
expired. It is quite superfluous to do this where there is a tenancy at will or a tenancy from
week to week. Notice to quit suffices. However, a tenancy at will can be determined in any
way which shows a definite intention to terminate the tenancy and a re-entry surely shows
this.
[135] The landlord’s action was wrongful was because a month’s notice had not been
given. However, the tenant has accepted the termination of the lease as a repudiation of
the lease, so there is no issue as to who has the right to possession.
[136] I would have thought that it would have been arguable that this was not a
repudiation but a mere breach of warranty, but this was not argued.
[137] What is clear is that the tenant’s right of occupation ceased on 8 May 2013.
Question (8)(a)
[138] It must be remembered that when applying 8.2.2 or s 36 of the Retail Leases Act
1994 one is only talking about the third lease, that is the tenancy at will terminable by a
months notice, that commenced on 2 July 2012.
[139] Both cl 8.2.2 and s 36 of the Retail Leases Act say that the provisions apply when
the property is damaged. They do not say damage by whom or whether the damage is
contractually liable to be remedied by landlord or tenant.
[140] It is clear that it is only for repairs to the roof etcetera or structural defects that the
landlord has the obligation to fix and it would be odd if the tenant could get a reduction
of rent if it itself was the cause of the damage or when I say it itself was the cause of the
damage because it had failed to comply with its obligation under the lease to keep the
building in good repair subject to what the landlord’s obligations were under cl 7.
[141] The matter was briefly considered by Palmer J in Cakirgoz v Crouch (2008)
NSWSC 1124; BC200809505. However his Honour did not need to decide the present
point. The learned author of the commentary in Butterworth’s Annotated Conveyancing
and Real Property Legislation 2012–13, p 727 [58306.1] (which was not me) says that
5 Palmer J suggested that a lessee could not rely on repairs for which it was responsible as
the basis of its claim for abatement. I do not consider that Palmer J went that far but it does
seem to me that unless one reaches that conclusion the operation of 8.2.2 and s 36 does
not have a meaningful operation.
[142] Section 36 does not deal with the situation where the landlord is at fault for not
10 doing repairs but any reasonable tenant would have mitigated its loss by doing the repairs
itself and charging the landlord with the fair costs of those repairs. It would seem to me
that in that situation useability would not be diminished due to the damage for any period
after which it would have been reasonable to have the tenant mitigate its damage by doing
the repair itself. It seems to me that this is in accordance with the authorities that say that
15 in determining the question of whether premises are fit for use the tenant’s obligation to
repair may be relevant see for example, Proudfeet v Hart (1890) 25 QBD 42 and my
decision in Dalla Costa v Beydoun (1990) 5 BPR 11,379. Finally as to renewal of options
by informal means see also Nicholson v Smith (1882) 22 Ch D 640 at 659 and
Gardner v Blaxill [1960] 2 All ER 457.
20
[143] Accordingly in my view it must be shown that the reduction of useability is a
result of a breach by the landlord of some obligation.
[144] The only obligation one would think would be the ingress of water. I have already
noted that the failure was not on the main roof but was on the awning over the eating area.
25 I do not consider as I have indicated earlier that that was a failure to repair the roof.
Accordingly the lack of useability was not a matter of the fault of the landlord.
[145] There was some suggestion in evidence that if there was a problem with the main
roof that the tenant had some how or other interfered with it. There is no doubt that the
tenant did put some silicon on the main roof to stop some leaks but there is no material
30 to suggest that any of the water damage was a result of the tenant’s activities.
[146] So far as the electrical work is concerned it seems to me that all this flows from
water damage and for the reasons I gave when dealing with water damage these cannot be
laid at the feet of the landlord.
[147] Accordingly I pass to sewerage and drainage.
35
[148] As to sewerage and drainage there is no doubt that there were some problems from
time to time with drainage and that sewerage did overflow into some of the public areas.
There is a question as to whether this is structural damage. Some serious problems with
pipes are considered structural damage, but not all of them. It is not clear whether the
40 alleged defective piping was structural work within this definition. It would only be if it
was structural damage that the landlord could be made accountable.
[149] In any event Mr Menniti says that the problem with the sewerage was that, as in
many areas of public use, people put stuff down the toilets which block the system. If this
were so it would be an operational matter and at the foot of the tenant. Although the parties
45 exchanged these views there is not sufficient evidence one way or the other to show what
was the real cause. Mr Palermo points to the report of the plumber that he needed to
discuss that more work ought to be done to solve the problem and he says that this shows
that it was a structural problem. This is not necessarily so, it may merely have been that
some filter or screen needed to be put in to collect more solid matter that might be put
50 down the toilet by members of the public rather than actually fixing the pipes, though on
the balance of probabilities this is not likely.

[150] Accordingly there is probably just sufficient evidence to show that the sewerage
and drainage problem at least in part was within cl 7 of the lease, but there is no proper
quantification as to how much so as to get a firm figure for recoupment or equitable set-off.
In any event as I have indicated earlier this is of no moment.
[151] I should conclude this sub-question with a consideration of the term,
“unuseability” in the lease and in s 36 of the Retail Leases Act.
[152] Section 36(1)(b) of the Retail Leases Act 1994 says:
If a shop is still useable under the lease but its useability is diminished … the lessee’s liability for
rent … is reduced in proportion to the reduction in useability caused by the damage.
[153] Clause 8.2.2 is in almost identical words. What does this strange word “useability
mean”? It is not a word one finds in the legal dictionaries.
[154] Although I have not been given a full description of the shop it would seem from
what details I have been given that it sold fish and chips both to eat at the tables near the
river on the premises or alternatively to take-away. It also sold prawns, fish and other
seafoods which again could be either eaten on the premises or taken away. The evidence
does not go so far to show there was ever total “unuseability”. We do not know what
proportion of the trade involved people eating at the tables as opposed to taking their fish
and chips etc away.
[155] It is almost impossible to work out what percentage “useability” was diminished.
In the upshot it is not necessary to do this, but judges are obliged to do the best they can
even if inadequate material is put before them, but bearing in mind that people presenting
cases are presumed to be aware of what they have to prove, and if there is no evidence on
the matter then the court can make inferences against the party bearing the onus of proof.
If I had to make an estimate I would have thought that no more than 50% reduction in
useability was a result of the wet weather etc.
Question 8(b)
[156] As I indicated earlier, I am not convinced that it is possible to recoup under the
common law principal noted in Izzet’s case expenses incurred by a tenant under a previous
lease. It seems to me that if one opens the door too wide tenants could seek to recoup for
all sorts of extraneous expenses and as Megarry VC clearly says in the Asco case, it is his
experience that tenants tend to exaggerate these claims, and that the laws should be very
careful to keep them within proper bounds.
[157] If the only recoupment can be made for future rent or alternatively arrears of rent
under the current lease then it is clear that rent was owing on 8 May 2013 entitling the
landlord to give 14 days’ notice under cl 12 of the lease in order to re-enter.
Question 8(c)
[158] There is a further argument which really is close to the recoupment argument that
there is an equitable set-off of what is owing both under the old lease and the then current
lease because of the landlord’s failure to do repairs.
[159] It is significant that the defendant has never claimed the rent that it would seem
is owing; under the agreement to accept the $20,000 or the actual amount that accrued.
The only relevance of the off-setting claims are (a) as to whether the re-entry on 8 May
2013 was justified and (b) if the doctrine of equitable set-off is invoked. As the landlord
has never sued for the back rent, there is no question of a procedural set-off at law under
s 21 of the Civil Procedure Act 2005. Equitable set-off is, however, a different matter.
[160] In his well respected tome R S Derham, on The law of set-off, 4th ed,
Oxford University Press, Oxford, 2010, Mr Rory Derham says that equitable set-off is
substantive. In [4.29] the learned author says:
A characteristic of the form of equitable set-off which arises in the case of closely connected
cross-claims is that it operates as a true or substantive, defence. It may be in both independently
of any order of the court or of arbitrators. … While it is only in comparatively recent times that
the substantive nature of this defence has come into prominence, it is consistent with a tenor of
Lord Cottenham’s judgment in Rawson v Samuel (1841) Cr&Ph 161, 179; 41 ER 451, 458.
5
However the learned author goes on to say in [4.30]:
The view that the defence is substantive does not mean that it operates as an automatic extinguish
of cross demands. The availability of an equitable set-off operates in equity to impeach the title
to a demand. It effects the conscience of a creditor, so as to impugn the creditor’s right to assert
10 that any monies are owing by the debtor to the extent of the debtor’s cross-claim. At law the
cross-demands remain in existence and retain in their separate identities and to extinguish by
judgment or agreement. But so far as equity is concerned, it is unconscionable for the creditor,
even before judgment, to assert that monies are due to it from the debtor, or to proceed on the basis
that the debtor has defaulted in payment, if and to the extent that circumstances exist which
support an equitable set-off.
15
Then at [4.31] he says:
The notion that this does not extinguish prior to judgment for a set-off is reflected in one of the
grounds for the decision of the House of Lords in Aries Tanker Corporation v Total Transport Ltd
[1977] 1 WLR 185.
20 [161] The learned author quotes authority for his various propositions. There was no
deep argument as to the nature of equitable set-off. However, if it is right as it appears to
be from Mr Derham’s book that at law the creditor’s claim still exists then no equitable
set-off could effect the obligation of the tenant to pay the rent so that there would be a
proper re-entry on 8 May 2013. All that the equitable set-off would do would be to give
25 the tenant the right within the 14 days notice, to approach a court of equity for an
injunction to prevent that happening, and argue that because of the equitable set-off the
landlord no right to re-enter. The tenant didn’t do this.
[162] This makes it otiose to consider whether in any event there is an equitable set-off
and if so for how much. The leading Australian Authority on equitable set-off is still the
30
decision in Woodward J in Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 and
one must find that the transaction on which the defendant relies is so closely related to the
transaction on which the plaintiff is suing that the plaintiff’s claim is impeached.
[163] In Bayview Quarries Pty Ltd v Castle Development Pty Ltd [1963] VR 445, the
35 Victorian Supreme Court held that even though contracts for the sale of goods were
subject to some overriding master agreement, damages payable for breach of one contract
could not be set-off against liability under a later contract under the same overriding
agreement. There are contrary views as noted in the authorities as noted in footnote 110
to [4.21] of the Derham book.
40 [164] It would seem to me that in general there is no equitable set-off with respect to
claims made under a previous lease even though the lease is of the same property. Again
this matter was not argued.
[165] There is also authority for the proposition that one cannot set-off an unliquidated
claim against a liquidated claim even under equitable set-off see McDonnell & East Ltd
45 v McGregor (1936) 56 CLR 50; [1936] HCA 28; BC3600023.
[166] It seems clear that the tenant’s claim is an unliquidated claim. As Goff J said in
Lee-Parker v Izzet (above):
It is a question of fact in every case, whether or to what extent the expenditure was proper
50 [167] This was cited with approval by Bryson J in Batiste v Lenin (2002)
10 BPR 19,441; [2002] NSWSC 233; BC200202148 at [102].

[168] Before it was realised that equitable set-off was a substantive defence, it was clear
why an unliquidated claim could not be set-off against a liquidated claim. That is because
if there was to be some virtual cancellation pro tanto of the plaintiff’s claim then there had
to be a sum certain which could be set-off against it, and a claim which had to go to a jury
(or later a judge) for assessment just could not fit that bill. It would be odd if the change
in viewing the effect of equitable set-off lead to a different result.
[169] Mr Derham does not accept this proposition. He says at [4.01] footnote 2 that:
In a number of cases in Australia it was suggested that an unliquidated demand cannot be
employed in a set-off
[170] He cites inter alia the McDonnell & East case but then goes on to say:
However that suggestion is clearly incorrect in so far as it relates to equitable set-off see eg
Beasley v Darcy (1800) 2 Sch&Lef 403 n (in which the Lord Chancellor ordered that the
defendant’s cross-claim for damages be assessed by a jury). The same opinion seems to have been
held by Woodward J in Galambos.
[171] I will not spend much time on this point as it is unnecessary in view of what I have
just said. It is also clear that Derham’s view is the prevailing one in the Court of Appeal:
Lahoud v Lahoud [2012] NSWCA 401; BC201209902 and in academic writing. See for
example R P Meagher, W M C Gummow and J R F Lehane, Equity Doctrines and
Remedies, 4th ed, 2002, [37–045]. However, more modern thought cannot overrule what
the High Court seems to have said in 1936.
[172] It also should be noted that NSW has not adopted s 38 of the English Judicature
Act 1925.
[173] This has some significance because, as Megarry VC pointed out in the Asco case
that the reason why English courts have not followed what I call the classic law as to when
a tenant can deduct expenses from the rent which can be found in Hart v Rogers [1916]
1 KB 646 is because in England s 38 of the Judicature Act 1925 requires a court to give
effect to equitable defences in common law actions see: at 42.
[174] New South Wales has not adopted s 38. Instead it merely adopted the key
provision of the English Judicature Act in the Law Reform (Law and Equity) Act 1972.
Section 5 requires that where there is a conflict or variance between the rules of equity and
the rules of common law, the rules of equity shall prevail but does not go so far as to say
that one can now plead an equitable defence to a common law action.
[175] Immediately prior to the coming into force of the Supreme Court Act 1970, one
could plead an equitable defence to a common law action provided that the defence would
result in an absolute and unconditional perpetual injunction but otherwise the matter had
to be transferred to equity. It seems to me that after the Supreme Court Act and the Law
Reform (Law and Equity) Act that the same applied in that the court had to consider when
an equitable defence was pleaded to a common law claim whether equity would have
granted an injunction against the common law claim either an absolute and unconditional
perpetual injunction or a conditional injunction. There was no recognition that an
equitable defence was an absolute defence minus consideration of discretionary defences
in equity.
[176] In Hart v Rogers Scrutton J declined to find that there was a set-off by a tenant for
breach of the covenant of repair against the claim for rent.
[177] In British Anzani (Felix Stowe) Ltd v International Marine Management (UK) Ltd
[1980] QB 137 Forbes J declined to follow Hart v Rogers. In this court in Carrathool
Hotel Pty Ltd v Scutti [2005] NSWSC 401; BC200502556 at [61] White J approved of the
British Anzani case. I am not at all sure that because of the non-adoption of the English
s 38 that it is appropriate to allow a substantive set-off to a tenant for repairs based on the
doctrine for equitable set-off as opposed to allowing a set-off under s 21 of the Civil
Procedure Act 2005. In few cases this will be of great significance but it would not be in
this case because the landlord has not sued for rent so there is no claim by the landlord
5 against which the tenant’s claim can be set-off.
[178] However again this was not argued it seemed to be accepted by both sides that
there was a right of set-off (without distinguishing what type of right). The point is
controversial and, while I have set out my view on it, I have decided the case on the more
obvious points.
10 [179] Accordingly it seems to me that although there are a lot of complications involved
in the plaintiff’s assertion of an equitable set-off, it is no answer to the defendants’ claim
that they were entitled to terminate the lease.
Question (9)
15 [180] What rebate if any should be allowed for non-repair?
[181] For the reasons given above in my view only that failure to repair that took place
after 1 July 2013 could be set-off against the rent. Putting aside the argument that the rent
had been commuted to $20,000, it is difficult to see how any of the repairs could have been
more than the rent and accordingly there is no purpose in answering this question.
20
Question (10)
[182] Is the plaintiff entitled to damages for loss of opportunity or otherwise and if so,
what?
25 [183] In his submissions of 28 May 2014, Mr Loofs put that the actions of the first
defendant on 8 May 2013 in taking possession of the premises were without lawful
justification and constituted a repudiation of what he calls the option lease and says that
the plaintiff accepted such repudiation and sues for both expectation and reliance damages
in accordance with the principals in Commonwealth v Amann Aviation Pty Ltd (1991)
30 174 CLR 64; [1991] HCA 54; BC9102617.
[184] This submission does not get off the ground because for reasons I have already
given the action by the landlord on 8 May 2013 was justified.
[185] Even if this were not the case, I would have great difficulty in finding that the
plaintiff suffered any substantial damages as a result. As I have indicated already its
35 situation was that it was at law a tenant at will, terminable by a month’s notice. Its
equitable lease, if any, would not have been recognised because of the failure to pay any
rent and so the claim would fall foul of the principal expressed in the maxim “he who
seeks equity must do equity”.
[186] I should point out at this stage that what the plaintiff seeks is in due course an
40 assessment of damages for the loss of its opportunity to earn profits.
[187] This is purely a common law claim. In such a claim, the plaintiff must prove its
damages. There is no room for reference to an inquiry. Normally, the trial judge makes the
assessment as there is room at common law for a reference to a master, see for example
Bilambil-Terinanora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465. However, if
45
the matter is raised with the trial judge the judge may agree to defer the issue or to refer
it out to a referee.
[188] I note this as it seems to have been expected from both sides that questions of
quantum would be left to a later stage but I was not expressly told that.
50 [189] In the upshot, questions of quantum do not arise. I should, however, make some
remarks on the issue in case this matter goes further.

[190] Even if the court were to accept the figure of gross retail profits for 1 month of
$20,241, the damages could not be more than $66,000 and probably less.
[191] A tenant’s damages for breach by a landlord of a covenant to repair are the
difference of the value to the tenant of the premises. During the period from giving notice
to the landlord to the expiry of the term between the premises in their unrepaired condition
and that in which they would have been if the landlord had performed its obligations,
subject, of course, to the tenant fulfilling its duty to mitigate damages: Hewitt v Rowlands
(1924) 93 LJKB 1080; [1924] All ER Rep 344.
[192] There is little evidence to enable such damages to be assessed.
[193] The tenant’s case is that I should make an assessment on the basis of the
meteorological records of what rain fell in Tweed Heads in the 8-year period and then use
a multiplier of the tenant’s self assessed gross daily profit.
[194] That calculation would be a very rough and ready way of finding business profits,
but it would not assist in finding the loss of useability of the premises.
[195] Again, if this calculation were the basis of an assessment of loss of a chance to
gain profits in the future, the result of this calculation would have to be severely
discounted.
Question 11
[196] The result of the case is that it does not matter how one looks at the plaintiff’s case
it must fail.
[197] However I am disturbed that the case has proceeded along the lines of a series of
erroneous assumptions on both sides. I have noted most of these with a comment “this was
not argued” as I have dealt with the principals that should have been applied.
[198] Some of these matters may be dealt with under the principle of conventional
estoppel but no argument was actually addressed apart from the exercise of option
question as to the extent of the applicability of that principle. For instance how far can the
parties supposed mutual understanding that a renewed lease carries over all the rights and
liabilities of the former lease, be made the basis of an estoppel by convention?
[199] It is clear that estoppel by convention cannot cover every field. For instance where
there is an agreement to take a lessor sum in this charge of a liability to pay a greater sum
the parties may well have reached consensus but the fact that the agreement is a nudum
pactum and unenforceable because there is no consideration is not saved by the doctrine
of conventional estoppel.
[200] It seems to me that it would be unwise of me to dismiss the plaintiff’s claim at this
stage. The High Court and the Court of Appeal have said over and over again that trial
judges must deal with the arguments presented by the parties and not go off on some frolic
of their own. That action cannot be stretched too far because not only the parties but also
the judge are bound by principals of law. As so many vital points were not the subject of
proper argument it seems to me that I should publish these reasons and then stand the
matter over for further submissions to be made particularly by the plaintiff as to whether
there is something that I should have considered, that I have not considered.
[201] This must not be considered as an invitation to seek to reopen a case, nor to restate
what has been said previously. It is merely a safety net to ensure that previous omission
to male submissions on a point I have found to be relevant will not have led me into error.
[202] I will not be sitting again in equity until after 25 August. Accordingly it seems to
me that I should at this stage adjourn the matter to say 28 August at 9.30 am for mention.
If the plaintiff wishes to make further submissions it may do so in writing by 31 July and
any reply by the defendant can be done by 15 August so long as copies of both are in my
associate’s hands on 25 August, which will be the first day my staff will be returning to
chambers.
[203] If no submissions are made I will on 28 August dismiss the present proceedings
5 with costs.
Orders
Stood over for further submissions.
10 C J ROSSITER
SOLICITOR
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[98650]

5 PALERMO SEAFOODS PTY LTD v LUNAPAS PTY LTD

J J Loofs instructed by Sambrook Grant Lawyers for the plaintiff.

r LexisNexis 33,047 Service BP 222

Service BP 222 33,048 r LexisNexis

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Service BP 222 33,054 r LexisNexis

25 (He was interrupted)

r LexisNexis 33,055 Service BP 222

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r LexisNexis 33,061 Service BP 222

r LexisNexis 33,063 Service BP 222

r LexisNexis 33,065 Service BP 222

r LexisNexis 33,067 Service BP 222

r LexisNexis 33,069 Service BP 222

Service BP 222 33,070 r LexisNexis

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