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  4. Carter v Mackey Motels Pty Ltd - [2024] QCA 68

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Carter v Mackey Motels Pty Ltd[2024] QCA 68

Carter v Mackey Motels Pty Ltd[2024] QCA 68

SUPREME COURT OF QUEENSLAND

CITATION:

Carter & Anor v Mackey Motels Pty Ltd [2024] QCA 68

PARTIES:

GARY JOHN CARTER AND WENDY MAREE KLEIN-CARTER AS TRUSTEES FOR THE CARTER FAMILY TRUST

(appellants)

v

MACKEY MOTELS PTY LTD

(respondent)

FILE NO/S:

Appeal No 9194 of 2023

SC No 7 of 2016

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane – [2023] QSC 128 (Freeburn J)

DELIVERED ON:

30 April 2024

DELIVERED AT:

Brisbane

HEARING DATE:

9 February 2024

JUDGES:

Morrison and Dalton JJA and Applegarth J

ORDER:

The appeal be dismissed with costs.

CATCHWORDS:

REAL PROPERTY – TORRENS TITLE – LEASES – GENERALLY – where the appellants were the lessees of a motel – where the appellants refused to pay rent and insurance premiums that the respondent had incurred – where the respondent gave the appellants 17 days’ notice to deliver up possession of the motel – where the trial judge held that the 17 day period was reasonable and the appellants breached an essential term of the lease by not paying rent – where the decision not to pay rent was a ‘tactic’ – whether 17 days’ notice to rectify the breach of the lease was reasonable

REAL PROPERTY – TORRENS TITLE – LEASES – OTHER MATTERS – where the appellants had an obligation to keep the motel in good and substantial repair – where the appellants submit that the respondent had an obligation to take reasonable action to ensure that the motel is kept in a good and substantial structural state and condition – where that obligation was subject to the appellants’ compliance with its obligation to keep the motel in good and substantial repair – where the appellants pointed to 21 defects that it alleged were the responsibility of the respondent – where the trial judge held that there was insufficient evidence to find that the respondent breached the repair and maintenance provisions of the lease – where the trial judge was not satisfied that any of the alleged breaches in relation to repair and maintenance caused any significant financial loss – whether the trial judge erred in his interpretation of the parties’ respective obligations to repair and maintain the premises – whether the trial judge erred in finding that the global loss the appellants claimed was caused by the alleged breaches rather than other causes

INSURANCE – THE POLICY – THE INSURED – where, prior to the appellants becoming lessees, the motel was owned and operated by the same entity – where the respondent thereafter became the registered owner of the motel – where the appellants argued that the lease required the respondent to take out insurance in the appellants’ name – where the appellants argued that the insurances held by the respondent were “substantially different” to the policy held prior to the commencement of the lease – where the trial judge held that the insurances were not “substantially different” from the prior policy – whether, as a matter of construction, the insurance cover taken out by the respondent was “substantially different” from the policy that pre-dated the lease

TORTS – INTERFERENCE WITH PROPERTY – TRESPASS TO LAND – JUSTIFICATION – ENTRY TO RETAKE OR PRESERVE PROPERTY – where the respondent attended the motel to retake possession of the motel – where the appellants refused the respondent entry – where the appellants alleged interference with its telecommunications systems – whether the trial judge erred in finding that no trespass was established

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the lease obliged the respondent to purchase certain “chattels” once the lease had been terminated – where “chattels” was defined by reference to an inventory that was not annexed to the lease – where the primary judge held that, absent any inventory being annexed to the lease, the definition of “chattels” did not fasten onto any property of the appellants – whether the trial judge erred in the construction of the lease

Insurance Contracts Act 1984 (Cth), s 48

Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170, cited

Holus Bolus Pty Ltd v The Wicko Pty Ltd [2012] NSWSC 497, cited

Speets Investment Pty Ltd v Bencol Pty Ltd [2020] QCA 247, cited

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44, cited

Vural Ltd v Security Archives Ltd (1989) 60 P & Cr 258, cited

COUNSEL:

D Kelly for the appellants

D S Piggott KC, with M Windsor, for the respondent

SOLICITORS:

William Roberts Lawyers for the appellants

Baker O'Brien Toll Lawyers for the respondent

  1. [1]
    MORRISON JA:  I agree with the reasons of Applegarth J and the orders his Honour proposes.
  2. [2]
    DALTON JA:  I agree with the orders proposed by Applegarth J and with his reasons.
  3. [3]
    APPLEGARTH J:  This appeal arises out of a protracted dispute between the appellants as tenants and the respondent as landlord of The Oscar Motel in Bundaberg.  On 16 July 2016, their dispute culminated in the appellants deciding to use, in Mr Carter’s words, the “tactic” of not paying rent as a means to get the respondent’s attention.  The appellants also refused to pay insurance premiums that the respondent had incurred effecting insurance over the motel.  The appellants complained that they were not named as one of the policyholders or as one of the insured on the policy, and that the premiums were too costly.
  4. [4]
    The appellants’ tactic of not paying the respondent’s invoices did not bring the respondent to the negotiating table, as the appellants had intended.  Instead, it led to notices pursuant to s 124 of the Property Law Act 1974 (Qld) (‘PLA’) to remedy breaches of covenant.  One such notice, dated 25 July 2016, required the appellants to pay that month’s rent, interest and the respondent’s solicitors’ costs and service fees.  Seventeen days later, when the breach had not been remedied, the respondent gave the appellants notice to deliver up possession.  The notice issued under s 131 of the PLA gave the appellants until close of business on 15 August 2016 to deliver up possession of the premises.
  5. [5]
    On 15 August 2016, Mr Mackey visited the premises at around 5 pm and was told that close of business was 9 pm.  He returned at that time, but possession was not delivered to him.  The appellants did not give up possession of the premises until 5 October 2016.
  6. [6]
    On 29 July 2016, the respondent had commenced proceedings in the Queensland Civil and Administrative Tribunal seeking orders for the payment of outstanding rent.  The appellants commenced proceedings in the trial division of this Court on 9 August 2016 seeking relief from all breach notices and their obligation to pay rent.  The respondent applied for summary judgment and orders for possession.  However, by the time that application was heard on 7 October 2016, possession had been delivered up.  The respondent obtained summary judgment for two months’ outstanding rent and pursued to trial a claim for outgoings in relation to certain insurance premiums that totalled approximately $7,000.
  7. [7]
    The proceedings blossomed into a major piece of litigation about the history of the parties’ dealings, the state of the premises at different times over many years, the appellants’ alleged failure to keep the property in good and substantial repair as a high-quality motel (clause 12.1(a) of the Lease) and to comply with various other obligations in the Lease, the respondent’s alleged failure to comply with its obligation under clause 14.3, and the consequences of each party’s alleged breach on the business and state and condition of the premises.
  8. [8]
    Subject to the appellants’ compliance with their obligations under clause 12.1, clause 14.3 obliged the respondent to “take reasonable action to ensure that the Motel and the Landlord’s Property are kept in a good and substantial structural state and condition” (emphasis added).
  9. [9]
    The interaction between the appellants’ obligation under clause 12.1 and the respondent’s obligation under clause 14.3 involves an issue of interpretation.  The appellants’ obligation under clause 14.3 is expressly subject to “the Tenant’s compliance with its obligations under clause 12.1”.  One issue at trial was proof of the appellants’ compliance so as to trigger the respondent’s obligation.  Another issue was whether the 21 defects alleged by the appellants related to the structural state and condition of the premises.
  10. [10]
    Other issues at the trial included the validity of the respondent’s termination of the Lease on 15 August 2016, alleged trespasses on the evening of 15 August 2016 and thereafter by Mr Mackey (the success of which depended upon the appellants proving that the Lease had not been validly terminated), and whether the respondent had an obligation under clause 14.5 of the Lease to purchase certain chattels.
  11. [11]
    The appellants claimed that the respondent’s multiple breaches of its obligations had caused them millions of dollars of loss, extending long into the future on the basis that they could and would have exercised options to renew the Lease up to 15 April 2027.
  12. [12]
    The evidence, including the evidence of two expert witnesses, addressed the financial performance of the motel business over a number of years.  This included a decline in the “Performance Index” of the business between 2011 and 2016.  The Oscar Motel performed below the average performance level of motels with which it competed during the relevant years.  The experts agreed that it had been suffering a “consistent decline in its competitive positioning since at least 2011”.[1]  Its appearance and presentation was less attractive than other motels, including a neighbouring motel that had been rejuvenated.  The Oscar Motel’s dated and tired presentation meant it attracted fewer customers than other motels with which it competed and that had the benefit of capital improvements and refurbishments.
  13. [13]
    At trial and on appeal, the appellants have complained that The Oscar Motel was “left behind” in a competitive market.  They point to evidence that the motel should have been “upgraded” based on five or seven-year upgrade intervals and of the need for “continual improvement”, in circumstances in which a majority of local competitor motels had been upgraded during the relevant period.  They rely on the fact that the motel was already “old” and “tired” with a long list of problems when the respondent acquired it in late 2007, halfway through the appellants’ initial term of 10 years.
  14. [14]
    The appellants’ complaints about the respondent’s failure to upgrade the property, so that it could compete with nearby motels that were upgraded from time to time, may engage sympathy.  One might have expected a landlord to have such a program of works in order to maintain or increase market share and to enhance the value of its property.  Still, the respondent did not have a legal obligation to upgrade or update the premises.  Subject to the specific requirements of the Lease, such as the landlord’s obligation under clause 14.3, the respondent was not legally obliged to undertake capital works.  The Lease did not require it have a program for the refurbishment of the property or parts of it, such as modernising bathrooms in the motel units.
  15. [15]
    The small amount that the landlord spent on capital works was a long-running matter of complaint.  During the same time, the respondent complained about the appellants’ failure to keep the property in good and substantial repair as a high-quality motel.  It unsuccessfully sought information about the appellants’ maintenance program, but did not issue notices requiring the appellants to remedy breaches of their obligations under clause 12.
  16. [16]
    The legal issues require attention to the specific legal obligations that each party assumed under the Lease, not broader considerations of what an owner should do by way of capital upgrades or a tenant should do to make the motel more attractive and to enhance the financial performance of the business.
  17. [17]
    If the appellants managed to prove breaches by the respondent of its obligation under clause 14.3 in relation to some, many or all of the defects they complained about, the appellants’ global claim for damages faced a major obstacle at trial.  The problem was proof of causation.
  18. [18]
    The appellants had the onus of proving that a breach of the Lease or a number of proven breaches caused the large revenue losses that they claimed for the period up to 2016, not to mention their claim for future economic loss.  Had some or all of the alleged breaches been proven, there were other explanations for the decline in the financial performance of the business.  These included the tired and dated appearance of the motel compared to others.
  19. [19]
    The trial was a major battle, occupying several days of evidence.  It generated witness statements, expert reports, and thousands of pages of other evidence.  The parties’ closing written submissions in April 2023 occupy 250 pages.  The appeal record book runs to 4,165 pages.

The primary judge’s decision

  1. [20]
    The primary judge’s decision identified issues about insurance, the condition of the building, the events leading up to the appellants leaving the motel, their claim for the value of chattels left by them at the Motel on 5 October 2016, and their loss of profit claim.
  2. [21]
    The primary judge found unproven the appellants’ case that “the insurances held by the Landlord” between 2011 and 2016 were “substantially different” to “the Galea Policy” that the motel’s owners and operators, Paul and Joyce Galea, held immediately prior to the Lease commencing in April 2002.  The respondent, therefore, was entitled to claim from the appellants the insurance premiums they paid and to obtain judgment on their counterclaim in the sum of $7,016.13 plus interest.
  3. [22]
    The primary judge considered the appellants’ obligations under clause 12 of the Lease and the respondent’s obligations under clause 14.3.  He also considered a large body of evidence about the state of the building and whether there was evidence that the appellants had complied with their obligations under clause 12, so that the respondent was obliged to take reasonable action to ensure the building was kept “in a good and substantial structural state and condition”.
  4. [23]
    The primary judge considered 21 items that the appellants alleged were the responsibility of the respondent.  They were “a mixed bag of defects”.[2]  Each alleged breach of the landlord’s obligation depended upon a consideration of the evidence about the defect, its cause and the repairs that were required.  Another issue was the meaning of “a good and substantial structural state and condition” in the context of the Lease’s provisions.
  5. [24]
    The primary judge remarked upon the appellants’ lack of evidence to prove that they complied with clause 12.1.  The judge reached conclusions about each of the 21 items that the appellants contended required work, and which were alleged to be the responsibility of the respondent.  The primary judge’s conclusions are set out in a lengthy table in his reasons, and I shall not reproduce it.[3]
  6. [25]
    In summary, the conclusion was reached that the evidence did not enable him “to make a finding that Mackey Motels breached the repair and maintenance provisions in clause 14.3”.
  7. [26]
    The primary judge next turned to the events leading to the Lease’s termination.  His Honour concluded that a period of 17 days was a reasonable time for the appellants to remedy the breach of lease that was subject to the notice to remedy dated 25 July 2016.  The breach that had to be remedied was payment of that month’s rent, which the appellants had not paid as a tactic.  The breach relied on was not a failure to repair which might take weeks or months to remedy.
  8. [27]
    In having failed to pay rent, the appellants breached an essential term of the Lease.  A reasonable time after service of the notice to remedy having been given, the respondent was entitled to serve a notice requiring possession as at close of business on 15 August 2016.  It thereby terminated the Lease which came to an end on 15 August 2016.
  9. [28]
    The appellants’ trespass claim faced a fundamental obstacle.  From close of business on 15 August 2016, the appellants had no right to possession of the Motel.  The only conceivable claim of trespass were those that were alleged to have occurred at 5 pm and at 9 pm on 15 August 2016, when Mr Mackey attended to retake possession pursuant to the notice.  Even if it was correct, as the appellants asserted, that “close of business” meant 9 pm, the appellants did not show that Mr Mackey’s entry onto the Motel premises was effected otherwise than with their implicit consent.  Mr Mackey had legitimate business to attend to at the motel.  When he arrived at 5 pm and was asked to leave, he did so.  The Lease having been terminated, the respondent was entitled to possession at 9 pm, if not earlier that evening.
  10. [29]
    Having concluded that the respondent had not breached the Lease in making claims for insurance payments as part of outgoings, or in respect of the condition of the buildings’ state of repair, the appellants’ loss of profit claim could not be sustained.  The primary judge went on to consider it and the issue of causation that I have earlier identified.  The appellants had the onus of proving that the alleged breaches in relation to repair and maintenance under clause 14.3 caused the significant financial loss that they claimed.
  11. [30]
    To prove their loss, the appellants relied upon the evidence of an independent advisor with experience in applied property, economics and market research.  The respondent relied upon an expert economist.  The experts prepared a joint report for trial.  It is unnecessary to descend to the detail of their respective reports, their joint report or their evidence at trial.  The experts identified several possible reasons for the business’ declining revenue and its below‑average performance in comparison to businesses with which it competed.  The possible causes included the physical appearance and attractiveness of the property, a failure to upgrade furniture and amenities (which was understood by the judge to refer to the appellants’ chattels), increased competition from more attractive motels, particularly the adjoining Acacia Motor Inn, and the performance of management.
  12. [31]
    The experts’ assessment of the financial performance of the business was burdened by a lack of any information about its financial performance in the period immediately prior to the appellants’ business closing and a lack of other information, such as the terms on which farm labourers stayed at the motel.
  13. [32]
    The experts could point to potential causes of the business achieving less revenue between 2011/12 and 2016/17 than might have been expected, but were not in possession of all the evidence.  While their reports addressed possible causes, the primary judge concluded that all the experts really had done was to identify the extent of decline in revenue per available room performance in the period from 1 July 2010 to 5 October 2016 or 15 April 2017, and to identify “potential reasons for that”.[4]
  14. [33]
    Having regard to the evidence, the primary judge was not satisfied that the appellants had proved that the alleged breaches in relation to repair and maintenance under clause 14.3 caused any significant financial loss.[5]
  15. [34]
    The reasons then turned to the claim for loss of future profits.  My summary of it can be brief because at the start of the hearing of the appeal, counsel for the appellants sensibly abandoned this part of the appeal.  This was a proper concession in the light of the evidence and findings of the trial judge that any right to exercise options had been lost when the Lease was validly terminated, that in any event the appellants did not have a right to exercise the options because they had not complied with their obligations under the Lease, and that they were unlikely to exercise the options.  Correspondence from the appellants in February 2016 indicated that they had decided, for personal reasons related to Ms Klein-Carter’s parents, to leave the motel industry.
  16. [35]
    The final substantial topic addressed by the primary judge was the claim for chattels.  This relied exclusively upon clause 14.5 of the Lease rather than any pleaded cause of action in conversion, detinue or what might loosely be referred to as restitution for the respondent’s use of certain chattels after possession of the motel was delivered up in early October 2016.
  17. [36]
    As the primary judge explained, clause 14.5 of the Lease provided a regime for dealing with the “Chattels”, as defined in the Lease, once the Lease had been terminated.  In essence, it obliged the Landlord to purchase the Chattels from the Tenant upon retaking possession of the motel.  The Chattels were defined as “the moveable furniture, office equipment, chattels and effects owned and used by the Tenant in the operation of the Tenant’s business and set out in the annexed inventory …” (emphasis added).  There was no evidence that any such inventory had been annexed to the Lease or had been intended by the parties to be annexed to it.  Because there was no annexed inventory, there were no items that qualified as “Chattels” as defined.  The appellants’ claim under clause 14.5 therefore failed.
  18. [37]
    The primary judge nevertheless addressed the valuation of items that the appellants asserted were at the motel when they left on 5 October 2016, and the challenges faced by an expert valuer who was appointed pursuant to a court order.  The primary judge concluded that the market value of the chattels left by the appellants was $27,682.

The appeal

  1. [38]
    The notice of appeal raises a number of grounds.  At the hearing of the appeal, counsel for the appellant acknowledged that if the primary judge was correct in finding that valid notices to remedy breach and to deliver up possession were given so that the lease terminated on 15 August 2016, then the ground of appeal in relation to damages for trespass fell away.
  2. [39]
    Some grounds of appeal were not pressed in oral submissions.  For example, the notice of appeal challenged the primary judge’s finding that a date for termination of 15 September 2016 in a covering letter was an obvious error.  However, there was no evidence that the appellants did not have regard to the actual notice to the tenant dated 11 August 2016 that required possession to be delivered up by close of business on 15 August 2016.
  3. [40]
    Rather than address each of the numerous subparagraphs in the notice of appeal, including matters that were not pressed at the hearing of the appeal, I shall adopt the kind of headings that the parties used in their written submissions.  These concern:
    1. insurance obligations and outgoings for insurance premiums paid by the respondent (grounds 2.1 and 2.2);
    2. alleged failures to reinstate damage to the building in 2011 and in 2013, which the appellants contend were failures that ought to have been held to constitute breaches of clause 14.3 of the Lease (ground 2.3);
    3. the construction of clause 14.3 (ground 2.4.1);
    4. the state of the evidence about the premises’ structural state and condition, and whether the appellants had satisfied their obligations under clause 12 (grounds 2.4.2, 2.4.3, 2.4.4 and 2.4.5);
    5. causation:  in particular, whether the appellants proved that the respondent’s alleged breaches of the Lease caused the loss and damage claim by them (grounds 2.4.2, 2.4.5 and 2.5);
    6. the termination of the Lease (ground 2.6);
    7. damages for trespass (ground 2.7); and
    8. the clause 14.5 claim over “Chattels” (ground 2.8).

Insurance obligations and outgoings for insurance premiums: grounds 2.1 and 2.2

  1. [41]
    As noted, the Galeas owned the motel and operated the motel business prior to the appellants becoming lessees under a 10-year lease that commenced on 16 April 2002.  Unsurprisingly, the Galeas took out insurance that protected their interests when they owned and operated the motel, and insurance that protected their interests after the lease with the appellants commenced.
  2. [42]
    The respondent became the registered owner of the property in December 2007.
  3. [43]
    Grounds 2.1 and 2.2 of the appeal concern the interpretation and application of clause 5.2(b) in relation to Outgoings that the appellants were required to pay to the respondent.
  4. [44]
    Clause 5.1 obliged the appellants to pay “the Outgoings at the times and in the manner set out in Clause 5.2”.  Clause 5.2 commenced:

“The Outgoings are the total of all costs paid, charges or otherwise incurred by the Landlord in and about the ownership of the Motel comprising: …” (emphasis added).

  1. [45]
    Clause 5.2 then stated four categories, the first being “rates, taxes, charges and other levies payable to a Competent Authority for the Motel”.  The second, which is relevant for present purposes, was clause 5.2(b):[6]

“insurance premiums and other charges in connection with insurance cover against insurable risks which the Landlord reasonably considers are appropriate for the Motel, the Landlord’s Property, persons in the Motel for any reason, the Tenant’s Business and this Lease provided always that the insurances required by the Landlord pursuant to this sub-clause shall not be substantially different to the insurances held by the Landlord immediately prior to the commencement of this Lease…”

  1. [46]
    The word “Motel” in clause 5.2 and elsewhere was defined by the Lease to mean the premises described in an item in the Lease, including the Land and the Building.  I shall refer to “the premises”.  The Lease also defined the “Landlord’s Property” to mean all the plant and equipment, fixtures and fittings of the Landlord in the Motel.
  2. [47]
    Clause 5.2(b)’s provisions about Outgoings in respect of “insurances held by the Landlord” should be interpreted in the context of, and compared with, clause 13, which addressed insurances that the Tenant was required to maintain.
  3. [48]
    Clause 13.1 of the Lease obliged the Tenant to obtain and maintain certain insurances “in the names of the Tenant and the Landlord and, if required by the Landlord, any other person, for their respective rights and interests”.  The insurance included public risk insurance, insurances required by the Landlord in connection with works carried out by the Tenant, and other insurances in connection with the Motel which, in the Landlord’s opinion, a prudent tenant leasing premises comparable with the Motel would take out.
  4. [49]
    Clause 13.7 governed the proceeds of an insurance policy in connection with the Building or the Landlord’s property taken out under clause 13.1.  If the proceeds were not required to be applied towards replacement or reinstatement of the thing insured, the proceeds were to be held by the recipient in a separate account in the names of the Landlord, the Tenant, and if required by the Landlord, any other person, and to be used to settle claims arising out of the event and then in equitable portions having regard to their “respective interests in the thing insured or the effect on them by the event insured against” to the Landlord, the Tenant, and if required by the Landlord, any other person.
  5. [50]
    The Galeas, as owners of the property before the Lease commenced on 16 April 2002, were not concerned with the same or similar provisions in a lease about insurances.  There was no lease.
  6. [51]
    The Galeas took out an insurance policy for the period 29 August 2001 to 29 August 2002.  It was the policy the Galeas held immediately prior to the commencement of the Lease.
  7. [52]
    After the respondent became the registered owner of the property in December 2007, it obtained insurances.
  8. [53]
    In 2011 issues arose between the appellants and the respondent about the processing of a claim on an insurance policy that the respondent had taken out.  Disputes also arose over the non-payment of insurance premiums that the respondent had paid.  However, the appellants paid the amounts.  In later years, disputes arose between the appellants and the respondent about the identity of the insurer from which the respondent obtained insurance and the amount of premiums that the respondent incurred.  The respondent obtained the insurance which it held on the advice of an insurance broker in May 2015 and on the advice of another insurance broker in 2016, who each recommended that the respondent have a certain CGU policy.  The respondent invoiced the appellants in 2015 but the appellants paid $677 less than the invoiced amount.  In 2016, the appellants were invoiced in relation to the renewed CGU policy, but they declined to pay it.
  9. [54]
    In the proceeding in the trial division the appellants disputed any obligation to pay because of the proviso at the conclusion of clause 5.2(b).  The insurances required by the Landlord under the subclause 5.2(b) must not be “substantially different to the insurances held by the Landlord immediately prior to the commencement of this Lease”.  The appellants claimed that from 2011 onwards the respondent obtained insurance on a substantially different basis to that required.  They pointed out that the insurance held by the respondent before 2011 was in the names of both the appellants and the respondent.  However, this was not the appropriate point of comparison for the purpose of clause 5.2(b) which referred to “the insurances held by the Landlord immediately prior to the commencement of this Lease”.
  10. [55]
    The policy that existed before the Lease commenced was a policy held by the Galeas.  At trial the appellants had to establish, by evidence, that the policies that the respondent held in 2011 and later years were “substantially different” to the Galea Policy.
  11. [56]
    The appellant relied upon two matters.  The first was that the policies taken out by the respondent in May 2011 and thereafter were only in the name of the registered owner.  The second was that cheaper policies were available, such that the higher cost of the respondent’s policies made them substantially different to the Galea Policy.
  12. [57]
    A problem confronted the appellants’ attempt to prove that the 2011 policy and subsequent policies that were arranged by the respondent were substantially different to the Galea Policy.  The terms of the Galea Policy were not in evidence.  Only the certificate of insurance for the Galea Policy was in evidence and it simply included short labels.
  13. [58]
    Another problem in making any comparison was that before they entered into the Lease with the appellants, the Galeas were both the owners and the operators of the motel.  The Galeas were not landlords at the time.  The insurance certificate suggested that the Galea Policy was what the judge described as a “composite policy” in the Galeas’ name only for individuals who owned and operated the motel.
  14. [59]
    The Galea Policy was not concerned to differentiate between, for example, public liability cover which the Galeas might need as owners of the building and public liability cover the Galeas might need as the individuals who occupied the premises and operated the business.  This made it difficult, if not impossible, to make the kind of comparison that might trigger the proviso to clause 5.2(b) upon which the appellants relied.

The primary judge’s reasons on clause 5.2(b)

  1. [60]
    Clause 5.2(b) did not require the landlord to take out insurance.  By contrast, as the judge noted, clause 13.1 obliged the tenant to take out certain categories of insurance policies, and to do so in the names of both the tenant and the landlord.  His Honour correctly held that it was a mistake “to interpret clause 5.2(b) as requiring the insurance to be taken out in the name of the tenant, or even jointly by landlord and tenant”.[7]  The insurance premiums were those “incurred by the Landlord” for the insurances the landlord considered appropriate.
  2. [61]
    The primary judge also correctly observed that “even though the policies may have been taken out by Mackey Motels, and in the name of Mackey Motels, those policies may provide some insurance cover for the Carters”.
  3. [62]
    The problem identified by the primary judge was that there was “no ability to make a proper comparison of the cover afforded by the Galea Policy, as against the cover afforded by the Mackey Motels policies”.  The fact that each of the relevant policies taken out by the respondent was not taken out in the names of both the landlord and the tenant did not show that the insurances were “substantially different” to the insurances in the Galea Policy.[8]
  4. [63]
    The primary judge concluded that the respondent had not established, by evidence, that the fact that the insurance policies were taken out in the name of Mackey Motels only made those policies substantially different to the Galea Policy.[9]
  5. [64]
    The primary judge also rejected the appellants’ unmeritorious submission that another substantial difference between the Galea Policy and the policies taken out by the respondent after 2011 was the higher cost of the respondent’s policies.  The judge gave compelling reasons for this conclusion[10] and the appellants’ submissions do not challenge the reasoning.

The issue

  1. [65]
    Did the appellants prove that, upon the proper interpretation of clause 5.2(b), the insurance required by the “Landlord” (the respondent) in 2011 and later years was “substantially different” to the insurance held by “the Landlord” (the Galeas) immediately prior to the commencement of the Lease in April 2002?

The appellants’ submissions on clause 5.2(b)

  1. [66]
    The appellants’ submissions on grounds 2.1 and 2.2 canvass issues in relation to the insurance policies that were taken out by the respondent prior to May 2011, which named both the respondent and the appellants.  The appellants complain about the “removal of cover” in respect of their interest that was protected by the building insurance.  They do not address how a lessee’s interest in premises may be protected by the terms of a policy, the Insurance Contracts Act 1984 (Cth), s 48, or the general law,[11] by a policy taken out by the lessor in respect of the premises in which the lessor is the only named insured.  They address the differences, including cost differences, between the earlier policies taken out by the respondent and the insurance taken out by the respondent after May 2011.  This is a distraction from the issue raised by ground 2.1.  That issue does not concern differences between policies effected by the respondent in different years, or reasons for not naming the appellants in policies taken out after 2011.

The text and purpose of the insurance provisions

  1. [67]
    As noted, clause 13 of the Lease provided that the “Tenant must maintain” certain insurances and made specific provision about the proceeds of any policy taken out under clause 13.1 in connection with the Building and the Landlord’s Property.
  2. [68]
    In addition to the insurances that the Tenant is required by clause 13 of the Lease to maintain, the Tenant is free to take out whatever additional insurance it may wish to protect its interests.
  3. [69]
    Clause 5.2(a) does not impose an obligation on the Landlord to take out and maintain insurance.  But if it does take out certain insurance and seeks to recover the premiums incurred by it from the tenant as “Outgoings”, the insurances must not be substantially different to the insurances “held by the Landlord” immediately prior to the commencement of the Lease.
  4. [70]
    Neither clause 5.2 nor the clauses of the Lease dealing with insurances require the insurances that the Landlord reasonably considers appropriate for the purposes of clause 5.2(b) to be in the names of both the landlord and the tenant, and it does not address the application of the proceeds of any such insurance policy.
  5. [71]
    Clause 5.2 is concerned with costs incurred by the Landlord “in and about the ownership of the Motel”, and clause 5.2(b) relates to insurances that are “held by the Landlord”.  The clause appears to relate to insurance policies that are taken out and maintained by the Landlord in its name against insurance risks which the Landlord reasonably considers are appropriate for the nominated matters.
  6. [72]
    The purpose of clause 5.2(b), including the proviso to it, warrant consideration.  The obvious purpose of clause 5.2(b) is to recover costs associated with ownership of the premises at a time when the premises are leased.
  7. [73]
    The apparent purpose of the proviso at the end of clause 5.2(b) is to be discerned from its terms and context.  The proviso allows the Tenant to act on the basis that if, prior to the commencement of the Lease, “the Landlord” held certain insurance, for example, for replacement, reinstatement or repairs to damage to the Building, then any outgoings the tenant is required to pay for insurance premiums under clause 5.2(b), will not be for reduced cover.  If, for example, the Landlord substantially reduced the nature or extent of the cover obtained by it compared to the insurances held by it immediately prior to the commencement of the Lease, it could not seek to recover the premium as outgoings.  A reduction in the cover taken out under the policy effected by the Landlord might also prompt the Tenant to consider whether it should better protect its interests by effecting additional cover beyond that which clause 13.1 required it to maintain.
  8. [74]
    The obligation to pay outgoings in respect of insurance premiums and other charges under clause 5.2 is limited by the clause’s terms that relate to insurable risks which the landlord “reasonably considers are appropriate” for the stated items.  In its context, the insurance relates to the ownership of leased premises and allows the Landlord to be reimbursed by the Tenant for costs incurred by the Landlord “in and about the ownership” of the Motel.
  9. [75]
    Insurance taken out by an owner to protect its interests may also protect the tenant’s interests and incline the tenant to not take out its own cover and create a “double insurance” problem.  A tenant under a long lease, like the owner, has an interest in the leased premises.  For example, the owner’s interests and the tenant’s interests may be protected by insurance that provides cover against the risk of motel units being destroyed or damaged by fire and provides for their reinstatement.  The owner would reasonably consider that kind of insurance appropriate for improvements upon the real property (“the Motel”), the “Landlord’s Property” and the “Tenant’s Business”.  It would be appropriate for the Tenant’s Business for, say, a fire‑damaged unit to be reinstated and then occupied by guests for the benefit of the business and, incidentally, for the benefit of the owner who has an interest in the Tenant being able to operate a successful business and pay rent.
  10. [76]
    Another example would be an owner with a selfish interest in a tenant maintaining its income flow, who considers it appropriate to take out business interruption insurance in respect of the tenant’s business.  Alternatively, it might reasonably consider that business interruption insurance was a matter for the tenant to maintain in its name if the tenant chose to, or in joint names under the insurance the tenant was required by clause 13.1 to maintain.  Also, the owner might not be inclined to effect business interruption insurance that extended to cover the tenant’s business if no such cover had been held by “the Landlord” immediately prior to the commencement of the Lease.  This is because the owner would be precluded by the proviso from recovering those premiums as outgoings.
  11. [77]
    If the owner held an insurance policy in its name that insured against the risk of property damage through fire or flood, and a claim was made on that policy, then it would be a matter for the parties and the insurer to resolve, in accordance with the terms of the policy, whether the insurer paid for the reinstatement of the premises or paid the proceeds to one or both of the parties to the lease, and how any proceeds might be applied.  Unlike clause 13.7, clause 5.1(b) did not require any insurance to be in the names of both the landlord and the tenant, or address how the proceeds of insurance were to be applied.  The payment of proceeds would be governed by the terms of the policy, including whether the tenant’s interests were noted on it and whether the tenant might rely upon statutory provisions[12] or general law principles that treated it as entitled to the benefit of the policy.
  12. [78]
    The primary judge has not been shown to have erred in interpreting clause 5.2(b).

A possible comparison between the Galea Policy and the policies held by the respondent after 2011

  1. [79]
    The proviso to clause 5.2(b) has an obvious application when, prior to the commencement of the Lease, “the Landlord” leased the premises pursuant to an earlier lease, whether to “the Tenant” or to a different tenant.
  2. [80]
    In such a circumstance, the tenant under the new lease is appraised of outgoings, including any component for insurance, and appreciates that, if the landlord maintains its existing cover, what that cover will be and its current cost.  As noted, the proviso prevents the landlord from recovering insurance premiums where the landlord chooses to substantially reduce the cover held by it.  The proviso encourages the Landlord to maintain the nature and extent of the insurance cover it held over the premises prior to the commencement of a new lease.
  3. [81]
    The proviso does not have an easy or apparent application where there was no lease prior to the commencement of the Lease.  Owners of premises that are not leased prior to the commencement of a lease do not have to consider what an earlier lease provided about the insurances the tenant was required by the earlier lease to effect and what additional insurances the owner effected.
  4. [82]
    In this matter, the Galea Policy is the point of comparison.  It was in the name of the registered owner, and only in the name of that owner.  The respondent’s polices, which are in contention, were likewise in the name of the owner.  Therefore, the Galea Policy and the relevant policies held by the respondent in 2011 and later years were not substantially different because the respondent’s policies were only in the name of the owner.
  5. [83]
    It is artificial to say that the policy that was held by the Galeas prior to the commencement of the lease on 16 April 2002 was in the name of the owner and also in the name of the tenant.  This is because there was no lease and therefore no landlord and tenant.
  6. [84]
    If, however, the Galea Policy is said to have been held by the Galeas both in their capacity as owner and also in their capacity as the tenant under an imaginary lease, then it becomes impossible to undertake the comparison that the proviso to clause 5.2(b) contemplates.  One cannot say how the imaginary lease addressed insurance cover for the respective interests of the landlord and the tenant, or obliged the imaginary tenant to insure against certain risks.  One cannot say what the imaginary lease stated about in whose name the insurance would be taken out, whether the insurance policy taken out by the imaginary landlord required the tenant’s interest to be noted, or the extent to which protection of the imaginary tenant’s interests was left to the general law and provisions in the lease about the payment of the proceeds of any claim on the policy.  One cannot say what insurance the tenant was required to maintain under a clause akin to clause 13 and what additional insurance the imaginary landlord required under an outgoings clause similar to clause 5.2(b).  One cannot say what insurances the imaginary landlord held in its capacity as landlord.  One cannot undertake the comparison that the proviso contemplates.

Conclusion on grounds 2.1 and 2.2

  1. [85]
    The Galea Policy was in the name of the owner of the premises.  The post-2011 policies also were in the name of the owner of the premises.  They were not “substantially different” in respect of the party being insured.  Each insured the owner.  Neither the Galea Policy nor the relevant policies of the respondent named a tenant as the insured.
  2. [86]
    The fact that the Galeas as owners also operated the motel did not make them tenants.  The appellants’ arguments tend to suggest that the Galea Policy somehow insured the Galeas’ interests as tenants under a hypothetical pre-April 2002 lease, thereby allowing a comparison to show that the Galea Policy was substantially different to the relevant policies taken out by the respondent.  However, one cannot say what insurance cover the imaginary tenant had under the Galea Policy and what cover the imaginary landlord had to protect its interests as landlord.  All one can tell, on the basis of a certificate of insurance, is what kind of insurance the Galeas had as owners who also operated a business.
  3. [87]
    This made it practically impossible to determine the extent to which the Galea Policy protected a hypothetical tenant prior to the commencement of the Lease, and to compare the cover it provided with the cover which the post-2011 policies held by the respondent provided.
  4. [88]
    The primary judge did not err in concluding that the appellants did not establish by evidence that the insurance policies taken out in the respondent’s name in 2011 and later years were substantially different from the Galea Policy.

Judgment on the counterclaim: ground 2.2

  1. [89]
    Ground 2.2 alleges that the primary judge erred in dismissing their claim for excessive outgoings and, instead, giving judgment for the respondent on its counterclaim.
  2. [90]
    The appellants at trial failed to prove either aspect of their “substantially different” case, their point about the parties named in the policies or their “cheaper premiums” point.  Therefore, the appellants were not entitled to recover any part of the outgoings that they had paid after 2011 and they had no defence to the respondent’s counterclaim for premiums the respondent incurred for the 2015 and 2016 CGU policies.
  3. [91]
    The respondent was entitled to judgment on its counterclaim for $7,016.13 plus interest.  It is unnecessary to consider an additional point about whether the appellants’ claims in relation to premiums paid in 2011 and 2012 were statute-barred.

Insurance disputes: ground 2.3

  1. [92]
    Ground 2.3 reads:

“The learned Trial Judge erred in finding that the Respondent’s failures to reinstate the building when damaged in 2011 and 2013 were in the category of insurance disputes when the failures ought to have been held to constitutes [sic] breaches of clause 14.3 of the Lease.”

  1. [93]
    The short answer to this ground is that the primary judge:
    1. correctly held that the failure to make and advance insurance claims so as to rectify damage sustained in 2011 and 2013 was not pleaded as a breach of the Lease or any other obligation; and
    2. considered the defects and damages claims in the appellants’ case against the respondent for alleged breach of the respondent’s obligations under clause 14.3.
  2. [94]
    The appellants’ pleading referred to the absence of repairs pursuant to any claims made under insurance, including the insurance policy in the name of the respondent, despite damage to rooms 17, 18 and 19 from the escape of liquid in 2011 and insurable damage occurring to parts of the building in late January 2013, as a result of a cyclone.  There was evidence at the trial about disputes that arose in May 2011 about a claim made under an insurance policy and a request by the respondent to the insurer that the claims “be put on hold”.
  3. [95]
    The appellants’ trial submissions alleged breaches by the respondent of the lease in failing to make and advance insurance claims.  However, as the primary judge pointed out, such a duty was not part of the appellants’ pleaded case.  The respondent was entitled to be fairly informed if it was the appellants’ case that there were specific implied terms (in spite of an entire agreement clause), that those implied terms were breached by specific conduct, and that loss and damage that was caused by those breaches.[13]  An authority relied upon by the appellants, Vural Ltd v Security Archives Ltd,[14] was held by the primary judge to not assist the appellants because it relied on breach of an implied term that the landlord was obliged to present and prosecute, with all reasonable speed, a claim under the policy, and there was no such plea of an implied term.
  4. [96]
    The appellants’ submissions on appeal contend that the judge erred in failing to treat “inaction which resulted in insurance disputes” for the damage to rooms 17, 18 and 19, and for the 2013 storm damage, as breaches of clause 14.3 of the Lease, and contend that the respondent was obliged to make timely claims and pursue the insurer to ensure reinstatement or making good the damage.  The appellants’ submissions on appeal do not engage with the pleading point about which the primary judge ruled.
  5. [97]
    The primary judge gave a number of reasons as to why the alleged and unpleaded failure to make and advance insurance claims was not a breach of clause 14.3.  One of them was that:[15]

“[a]ny claims made by the landlord or the tenant pursuant to an insurance policy do not alter the obligations to repair or make good; the insurance merely provides an indemnity for the costs of repair or making good; therefore, it is a mistake to assume that a claim under an insurance policy must be successfully prosecuted, and the insurance claim paid, before the carrying out of repairs, or work to make good.”

  1. [98]
    Consistent with that approach, the primary judge considered whether the damage caused to rooms 17, 18 and 19 and other damage to the building were matters that the appellants or the respondent were required to repair, including whether the respondent breached clause 14.3 in failing to repair those items.

The construction of clause 14.3: ground 2.4.1

  1. [99]
    The appellants submit that the primary judge erred in the construction of clauses 12.1, 12.2 and 14.3 of the Lease as to the parties’ respective obligations to repair and maintain the premises.  Two matters warrant separate consideration.
  2. [100]
    The first is the allocation of responsibility for repairs and maintenance as between landlord and tenant, effected by clauses 12.1, 12.2 and 14.3, including the primary judge’s finding that for the appellants to succeed under clause 14.3 it was necessary for them to plead and prove that they complied with clause 12.1.
  3. [101]
    A second issue of construction, which I will defer for later consideration, is the meaning of “structural state and condition” in clause 14.3.  This second issue is related to factual issues about the state and condition of various parts of the premises, the cause or causes of defects in or damage to 21 different items, and whether those conditions meant the property was not in:
    1. “good and substantial repair as a high-quality motel” (in terms of clause 12.1); or
    2. “a good and substantial structural state and condition” (in terms of clause 14.3).

The parties’ contractual obligations about maintenance and repair

  1. [102]
    Clause 12.1 of the Lease provided that:

“The Tenant must:

  1.  keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel and (if applicable) conference and/or licensed facility;
  1.  keep the Tenant’s Property clean and in good repair; and
  1.  if required by the Landlord, promptly rectify defects in and repair damage to the Motel and the Landlord’s Property caused by [negligence etc]; and
  1.  promptly replace damaged plate glass and other glass in the Building with glass of the same or similar quality to that in place when it was last replaced or if it has not been replaced, then to that in place on the Commencement Date; and
  1.  promptly replace broken hot water systems to the building with a hot water system the same or of a similar quality and quantity to that in place when it was last replaced; and
  1.  promptly repair damage caused by the Tenant or the Tenant’s Agents when removing anything in or fixed to the Motel; and
  1.  maintain, protect and promptly repair (or replace…) illuminated signs, light fittings, heating, lighting and other electrical equipment…; and
  1.  maintain and properly repair damage caused to any swimming pool, spa or fountain.

Nothing contained in this clause shall require the Tenant to replace the Landlord’s Property where it has reached the end of its normal operating life and has been properly maintained by the Tenant.” (emphasis added) 

  1. [103]
    In short, the appellants were obliged to keep the land, buildings, other structures, fixtures and fittings in “good and substantial repair”. The proviso at the end of clause 12.1 meant that they were not obliged by clause 12.1 to replace fixtures and fittings that had reached the end of their normal working life, after being properly maintained by the appellants.
  2. [104]
    Clause 12.2 contained another proviso:

“Despite the provisions of Clause 12.1, the Tenant need not carry out work of a structural nature except that which is required because of the act, negligence or default of the Tenant or the Tenant’s Agents or because of the nature of the Tenant’s Business or the Tenant’s use or occupation of the Motel.”

  1. [105]
    Clause 12.4 provided that the Tenant must, as often as the Landlord may reasonably require, “paint, repaint, recover, clean or otherwise appropriately treat with materials … all of the interior or exterior of the Building … to the satisfaction of the Landlord”.
  2. [106]
    Other clauses in the Lease imposed obligations on the Tenant, bearing upon the state and condition of the premises.  For example, clause 12.5 obliged the Tenant to “maintain the gardens and landscaping”.  Clause 12.6 required the Tenant to “maintain the AAA rating”, a reference to a rating given by the Automobile Association of Australia.  Under clause 11.17, the Tenant was required to comply with all requirements and recommendations contained in a AAA report, and required the Tenant to ensure such a report was prepared yearly for the Motel.  However, the Tenant was not required by clause 11.17 to carry out work “of a structural nature” that was required or recommended in the AAA report, except that which was required by the act, negligence or default of the Tenant.
  3. [107]
    Clause 14.3, which the appellants allege the respondent breached in 21 particularised respects, reads:

“Subject to the Tenant’s compliance with its obligation under Clause 12.1, the Landlord must take reasonable action to ensure that the Motel and the Landlord’s Property are kept in a good and substantial structural state and condition.”

  1. [108]
    The primary judge held that the respondent’s obligation under clause 14.3 is subject to the appellants’ compliance with their obligations under clause 12.1.  This construction is clearly correct and the appellants advance no real argument to dispute it.
  2. [109]
    The primary judge also observed that the obligation in clause 14.3 is not an obligation to keep the premises and the Landlord’s Property in good and substantial repair.  Instead, it is an obligation to take “reasonable action to ensure” that they are in “a good and substantial structural state and condition” (emphasis added).  No error is shown in that interpretation.
  3. [110]
    The word “structural” is not defined for the purpose of clause 12.2, clause 14.3 or the Lease in general.  I shall return to its meaning.

Causes of defects and compliance with clause 12.1

  1. [111]
    The appellants’ pleading and their submissions at trial relied on 21 defects that were said to be the Landlord’s responsibility.  Their lengthy table of defects mostly relied on clause 14.3 as the source of the obligation or on the proviso to clause 12.1, or, in some cases, on both of these provisions.  In one instance (item 7), the appellants relied upon clause 12.2 in contending that the Landlord was responsible for re‑tiling to maintain the property in a good and substantial structural condition, while acknowledging that the Landlord was not responsible for painting.
  2. [112]
    The proviso to clause 12.1 (as set out above) means that the Tenant is not required to replace the “Landlord’s Property” where it has reached the end of its normal operating life and has been properly maintained by the Tenant.  The proviso to clause 12.1 required the appellants to prove that what otherwise would have been an obligation under clause 12.1 to keep an item in good and substantial repair did not apply because the item had reached the end of its normal operating life and the item had been properly maintained by them.
  3. [113]
    The respondent at trial responded to the appellants’ case that it had breached clause 14.3 by failing to keep the Motel and Landlord’s Property in “a good and substantial structural state and condition” as at various dates set out in its pleading.  In the body of its trial submissions, and in a lengthy Annexure to them, the respondent addressed the 21 alleged defects by reference to each of the complaints made by the appellants between 2 January 2008 and 27 April 2016.  In respect of each complaint, the respondent’s submissions addressed the existence of the defect, whether the appellants had shown compliance with the condition precedent in relation to the Tenant’s obligation under clause 12.1, whether the matter related to the structural state and condition of the premises and its fixtures, and had an impact that resulted in it being something less than “good and substantial”, and whether the appellants had proven a lack of “reasonable action”.
  4. [114]
    The primary judge reached conclusions on each of the 21 alleged defects.[16]  Before addressing his conclusions and the appellants’ challenges to them, it is appropriate to note certain observations made by the primary judge about the appellants’ approach and the submissions of their counsel.[17]  They related to submissions by the appellants that the respondent was in breach of the Lease because it did not incur substantial expenditure on capital works, and despite “the obvious need for capital works” by, at the latest, the time of the 2013 Star Ratings Report.  The appellants identified a problem relating to the absence of substantive capital works to “upgrade” the motel.  They submitted that revenue declines at the motel coincided with the respondent’s failure or neglect to commission “timely upgrades to the Motel and the Landlord’s Property”[18] and to repair the rooms by implementing a capital works program.
  5. [115]
    As the primary judge noted, the problem with that approach was that it misinterprets the Lease.  The appellants had certain obligations to keep the Motel and the Landlord’s Property in “good and substantial repair”, while the respondent had an obligation under clause 14.3 to “take reasonable action to ensure that the Motel and the Landlord’s Property are kept in a good and substantial structural state and condition”.  The Lease did not obligate the Landlord to perform a certain level of capital works.
  6. [116]
    The appellants’ argument was found by the primary judge to be based on a misinterpretation of clause 12.1 and a proviso to it.  The proviso did not require the tenant under clause 12.1 to replace the Landlord’s Property were it to reach the end of its normal operating life.  It specified “an outer limit on the tenant’s obligations under clause 12.1 to keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel”.[19]  The proviso did not create an obligation owed by the Landlord to replace property or to make any particular expenditure on capital works.
  7. [117]
    The primary judge’s interpretation of clause 12.1 is clearly correct.  The appellants did not plead or argue that the respondent had an implied obligation to upgrade or refurbish or to make capital expenditures.  The problems with making such a plea were highlighted by the primary judge.[20]
  8. [118]
    Ultimately, the appellants failed to persuade the primary judge that the respondent breached clause 14.3 because of a lack of evidence.  This included a lack of evidence that they complied with clause 12.1.
  9. [119]
    One aspect of the problem was the description of the defects.  A more significant problem was identifying the nature of the defect and its cause.
  10. [120]
    The primary judge gave reasons in relation to each defect that led him to conclude that “the evidence does not enable the court to make a finding that Mackey Motels breached the repair and maintenance provisions in clause 14.3”.
  11. [121]
    It is unnecessary to work through each of the 21 defects.  A few examples will suffice.  The first relates to item 1, where the primary judge concluded that the respondent’s conduct had not been shown to be a failure to take reasonable action:[21]

Item

Relates to ‘Good and Substantial Structural State and Condition’?

  1. The roof to the front building leaks causing water damage to soffits and internal ceilings

The roof would ordinarily be regarded as part of the structure of the Motel but nothing in the description enables the court to conclude that the damage has a structural element. There is no evidence that properly identifies the particular defect or its structural element.[22] In any event, the evidence is that Wayne Munn, a professional builder, inspected the problem on 28 August 2011, prepared a quote for works and then completed that work on 25 September 2011. That conduct has not been shown to be a failure to take reasonable action.

  1. [122]
    A useful example is item 3, which alleged that the lattice panel on the rear building stairs “is rotting and deteriorating to the extent that it requires replacing”.  The primary judge found that there was a photograph in evidence about this defect, but no other evidence about its nature.  He concluded, as with other items, that the defect would appear to fall within the scope of the tenant’s obligation under clause 12.1(a), to keep “the Motel and the Landlord’s Property in good and substantial repair as a high-quality motel”.  He also questioned whether the alleged defects suggested a structural element.
  2. [123]
    The last point may be contentious, depending on the meaning of “structural state and condition” in clause 14.3.  The other points are not.  To take the lattice panel as an example, the appellants did not plead or prove that they kept it in “good and substantial repair” by ensuring that it was painted.  The appellants did not prove that its deterioration was not due to non-compliance by them with their obligation under clause 12.1.
  3. [124]
    Some items may not have required expert or other evidence relating to the cause of the defect.  For example, it may have been a common sense conclusion that defects in water pipes that resulted in leaks were not the result of non-compliance by the appellants with their obligation under clause 12.1.  However, the lack of evidence on the cause of each defect that was alleged, in turn, to have caused the appellants’ loss and damage in the amount claimed by them was a significant issue.  The causation issue as to whether the respondent’s alleged breaches of clause 14.3 caused and directly resulted in the financial loss claimed by the appellants concerns a subsequent issue of causation.  The present causation issue is the cause of specific defects.
  4. [125]
    Another example, item 13, that was discussed in oral submissions during the appeal illustrates the problem of proof.  The complaint was that the carport roof guttering in the rear motel building had rust holes, causing sections of lining underneath to be water damaged.  There was no evidence about the cause of the rust holes, including whether they resulted from a failure by the tenants to clean out roof gutters frequently enough so that the guttering operated, as designed, and did not prematurely rust.
  5. [126]
    The appellants did not prove that the gutters, the lattice or other items had simply reached the end of its normal working life, having been properly maintained by them, thereby invoking the proviso in clause 12.2.
  6. [127]
    The evidence of the appellants about their maintenance of the premises was of a general kind.  They gave evidence about re-painting rooms, installing new carpet, and the like, but they did not give satisfactory and suitably detailed evidence about the cause of each of the 21 defects, and that those defects were not attributable to their non-compliance with their obligations under clause 12.1 to keep the premises in good and substantial repair.  On the hearing of the appeal, their counsel acknowledged that the evidence did not go to that level of detail.  Instead, the appellants were said to have assumed that most of the items were “the province of the landlord”.
  7. [128]
    The absence of evidence presented a major problem of proof that they had complied with clause 12.1 so as to trigger the respondent’s obligation under clause 14.3, at least in relation to most of the 21 items.
  8. [129]
    At trial, the existence of maintenance and repair records was a live issue, with the respondent having requested those records.  No records of repairs or maintenance were produced and there was no evidence of any systematic keeping of those type of records.  As the primary judge found, that made it difficult for the appellants to satisfy the requirements of the proviso to clause 12.1 that:[23]
    1. an item of Landlord’s Property had reached the end of its normal operating life; and
    2. the item had been properly maintained by the tenant.
  9. [130]
    To return to the example of rust holes in roof guttering (items 13 and 18), the primary judge held:[24]

“To take item 18 above as an example, the roof guttering on the motel residence may suffer from many rust holes, but that does not prove that the guttering is at the end of its normal operating life. The rust may be due to a lack of maintenance, or even poor installation or poor design leading to pooling of rainwater in the guttering. And the evidence does not establish that the guttering was subject to regular or systematic maintenance by the Carters.”

  1. [131]
    The points made by the primary judge about the absence of evidence did not relate simply to the absence of expert evidence about the cause of defects, and whether the defect affected the structural state and condition of the premises.  It concerned the absence of evidence, either from an expert or lay witnesses, about the cause of each alleged defect.
  2. [132]
    The appellants have not shown that the primary judge erred in his approach to the qualification on the respondent’s obligation under clause 14.3 and proof of compliance with clause 12.1 (ground 2.4.3).

Causation

  1. [133]
    There may have been a few matters on the appellants’ list of defects which, as a matter of common sense, were caused by an event and could not be said to have been caused by a failure by the appellants to comply with their obligations under clause 12.1.  For example, the motel sustained damage in 2013 in respect of which the respondent made a claim.  There is no suggestion that any water ingress was caused by a failure by the appellants to repair the roof or to clean out gutters.  The appellants’ case was that the damage caused in the 2013 storm affected the structural state and condition of the premises.  Assuming for the purpose of argument the tenant’s compliance with their obligations under clause 12.1, the apparent result of the ingress was a sagging in the ceiling of the rear building.  Apparently, that part of the motel which was also described as “the house”, was rented to different groups, such as farm workers, to stay in.  Assuming for present purposes a breach by the respondent of its obligation under clause 14.3 for so long as the ceiling sagged, an issue of causation of loss and damage arises.
  2. [134]
    The appellants at trial did not plead and prove the specific financial consequences of particular defects.  For example, they did not prove that the sagging ceiling in the house meant that it could not be rented to accommodate farm labourers, or that it was rented for far less than it would have been had the sag not existed.  This is one example of a problem that attended the appellants’ evidence and their attempts to prove that the respondent’s breaches of the lease resulted in the loss and damage claimed by them.
  3. [135]
    As for the motel units and the various claims in relation to leaks and damage to paintwork, leaking shower cubicles, and roof leaks, the evidence is more complex.  Complaints about showers appear to date back to 2008, with rectification work being done that year.  Other complaints relate to shower cubicles in later years.  The appellants point to what is described as a “2010 Causation Report” and Ms Klein‑Carter gave evidence of leaking showers in certain rooms.  The causation report is dated 30 December 2010 and was prepared by a building consultant.  It addresses the cause of paint bubbling on eaves and ceilings, damage to carpet and other damage in different rooms.  The report’s author indicated that the conditions presented in several rooms indicated that the showers were leaking at the bases “due to a lack of or deteriorated waterproof membrane”.  Some of the bubbled paint was predominantly caused by insufficient preparation for painting or some contribution from leaks from a shower.  Damage in one room might either have been caused from a leaking pipe or from a shower base.  While the report-writer thought it likely to be from the pipes, he recommended obtaining information from a plumber.  In any event, the report addressed water damage to carpet and other items.  Insofar as certain damage was due to a deterioration in the sealant quality of the showers, this may have been from a lack of repair or maintenance.  Damage from leaking pipes would be unlikely to be the result of a failure by the appellants to maintain pipes, even in the absence of specific evidence from the appellants in that regard.
  4. [136]
    The respondent engaged with insurers and certain works were effected in response to these matters in 2011 and 2012.[25]  As previously noted in connection with insurance disputes, the appellants complained that a request by the respondent to stop work in May 2011 led to rooms 17, 18 and 19 being a source of contention.
  5. [137]
    The appellants did not establish what financial consequences they experienced as a result of the state of certain rooms from time to time.  For example, the evidence does not appear to demonstrate, and the appellants did not seek to prove, a case of financial loss because of the state of rooms 17, 18 and 19 over a certain period of months or years.  They did not claim that they were unable to offer those rooms to guests and that their inability to do so meant they had to turn potential customers away because all of the other rooms were occupied.  An inability to rent three rooms for a certain period would not necessarily have financial consequences if the motel was not fully occupied.
  6. [138]
    Many of the other items amongst the 21 items on the appellants’ list, and in respect of which the appellants failed to prove compliance with clause 12.1, would not have had the effect of rendering a unit in a condition in which it was unable to be let or only let for a reduced price.  For example, item 2 concerns cracks to the brickwork associated with garden beds.  I have had regard to the photographic evidence in this regard.  One cannot say that those defects affected trade.  The same applies to the lattice panel which was said to be rotting and deteriorating.  The same would apply to a number of other items such as rusted balustrades and rust on a stair stringer (items 19 and 20).
  7. [139]
    The appellants were required to prove that the respondent’s alleged breaches of clause 14.3 of the Lease caused the loss and damage claimed by them.  Assuming, in the appellants’ favour, that the respondent breached its obligations under clause 14.3 in respect of some items, the appellants faced problems of proof in establishing their loss of profits claim.
  8. [140]
    The appellants contend that the only conclusion to draw is that the revenue problems they experienced after 2011 were due to the structural state and condition of the motel because, as the respondent’s expert, Mr Norling, opined, the Oscar Motel was “left behind” in a competitive market.[26]
  9. [141]
    The primary judge preferred the evidence of Mr Norling to that of the appellants’ expert, Mr Shimmin, and accepted that the maximum potential lost profits due to the standard of repair of the motel and chattels was $324,175.00.[27]  However, as previously discussed, the experts simply identified the extent of decline in revenue per available room performance over a period between 2010 and 2016–2017 and identified potential reasons for it.  The primary judge was not satisfied that the appellants had proven that the alleged breaches in relation to repair and maintenance under clause 14.3, caused any significant financial loss.[28]
  10. [142]
    Two matters support the primary judge’s conclusion.  The first is the fact that the appellants made a global claim in respect of the alleged cumulative effect of 21 alleged breaches of clause 14.3.  As noted, many of the alleged breaches could not be sustained because of a lack of proof of compliance by the appellants with their obligations under clause 12.1.  Some of the alleged breaches were rectified.  Others, such as the state of garden beds, could not be said to have had any financial consequences.  Other alleged breaches concerning the state of certain units at certain times were not pleaded or proven to have had a particular financial consequence.
  11. [143]
    The second matter is that insofar as the appellants’ case was that the 21 alleged breaches of clause 14.3 rendered the motel less attractive than it otherwise would have been, and were a potential cause of revenue loss, there were many other causes for the decline in revenue.  The expert evidence did not purport to attribute the calculated decline in revenue to the structural state and condition of the premises, or even the state of the premises and the chattels in combination.  There were other explanations for the motel being “left behind” in a competitive market. One was the fact that the motel was not upgraded.  As discussed, the respondent did not have an obligation to undertake a certain level of capital works each year or to upgrade the premises, let alone the chattels that were the appellants’ responsibility.
  12. [144]
    The appellants at trial, and on appeal, point to the expert evidence about the need for motels to undergo “continual improvement” as well as regular upgrades.  They note that six of the ten local competitive motels had done so during the relevant period.  They point to evidence that in 2007 the respondent was told that it was taking on a property that needed work.  They point to a 2013 Star Ratings Report that stated that “further upgrades are required to ensure all rooms are upgraded to secure 3.5 Star Rating and to meet consumer expectations into the future”.[29]  The evidence is that the respondent spent very little on capital works during the period over which the appellants made a claim for economic loss.
  13. [145]
    The appellants make a strong case that the motel was “left behind” and was at a significant competitive disadvantage because of a lack of spending on capital and other improvements, or what they describe as “upgrades”.  However, once it is accepted that the respondent did not have an obligation to undertake upgrades, and that the absence of upgrades resulted in the Oscar Motel being “left behind”, the appellants’ case on causation falls away.
  14. [146]
    The appellants effectively proved alternative reasons for a decline in their revenue after 2010.  The evidence and the appellants’ own arguments were that the declining revenues were attributable to the tired and old appearance of the motel which was at a competitive disadvantage because of a failure to undertake a program of capital works and improvements.
  15. [147]
    If, for argument’s sake, the lattice panel on the rear building stairs had not deteriorated, cracks in brickwork associated with garden beds had been remedied, rust holes in gutters had been fixed, and many other defects on the appellants’ list been remedied, it seems unlikely that this would have prevented the decline in revenue that was attributable to the tired, old and unimproved state of the motel.  All of this assumes, for the purpose of argument, that a failure to repair the lattice panel, the cracks in the garden and other items constituted a breach of clause 14.3.  For the reasons earlier given, many of the alleged breaches were not proven because of a failure to prove compliance with clause 12.1.  Some defects, such as minor cracks between bricks in garden beds, were not shown to have affected the item’s structural state and condition.
  16. [148]
    Some matters which detracted from the appearance or presentation of the motel did not involve a breach of clause 14.3.  For example, there was evidence about a rusty roof.  Evidence was given by Mr Hunt, who undertook a partial inspection in 2007.  Mr Kaplan, who did work on the roof in 2020, noted “patches”.  The roofs were not covered in rust, although the galvanised coating was gone.[30]  Importantly, Mr Kaplan considered that the roof was still “structurally sound” in 2020.  His evidence was that metal on the roof had “surface rust”.  There was no issue about its structural integrity.  According to Mr Kaplan, although it looked terrible, it was structurally sound.[31]  The appellants rely on his evidence that “it looked terrible”.
  17. [149]
    The motel’s rusty roof seemingly was not included in the 21 defect items upon which the appellants relied.  Mr Kaplan’s evidence did not suggest that the roof leaked in 2020.  Its surface rust in 2020 made it look terrible.  One might assume that the roof was in a slightly better condition in 2016, before the lease was terminated, but that it had an unattractive appearance during the final years of the appellants’ occupation of the motel.  On one view of the matter, it was the appellants’ responsibility to remove surface rust and to paint the roof.  In any event, surface or superficial rust did not affect the structural state or condition of the premises, as distinct from its appearance.  The appearance of the roof in a weathered, patchy or rusty state would be one of many reasons why the motel looked old and tired.
  18. [150]
    In summary, the motel’s old and tired appearance and the absence of upgrades prior to the termination of the lease explains the decline in its financial fortunes between 2010 and 2016.  This was, in fact, part of the appellants’ case.  It was misconceived because, apart from any specific obligation under clause 14.3, there was no duty to undertake upgrades.
  19. [151]
    The appellants’ global claim for the loss of revenue and consequential loss of profits failed because the appellants either failed to prove the breaches of clause 14.3 alleged by them, or that the alleged breaches of clause 14.3 caused the loss which they claimed.
  20. [152]
    The appellants did not advance an alternative claim for specific financial loss that resulted from specific breaches of clause 14.3.
  21. [153]
    Their global claim for lost profits failed on the issue of causation.

A good and substantial structural state and condition

  1. [154]
    Problems confronted the appellants at trial in proving the cause of each of the 21 alleged defects; their compliance with clause 12.1 so as to trigger a clause 14.3 obligation; the nature and extent of the defect; and that breaches of clause 14.3 caused the global loss claimed by them.  The appellants did not overcome those problems of proof on appeal.  This makes it unnecessary to decide the meaning of “structural” in the Lease and, in particular, the meaning of “a good and substantial structural state and condition” in clause 14.3.
  2. [155]
    Even if (as the appellants contend) the primary judge took too narrow a view of the meaning of “structural”, the appellants did not prove that separate obligations under clause 14.3 arose in 21 respects, that the respondent breached each of those obligations, or that their breaches caused the appellants the large loss in revenue and profits that they claimed.
  3. [156]
    The primary judge considered the meaning of “structural” in the context of clause 14.3.  Consistent with the reasons in Holus Bolus Pty Ltd v The Wicko Pty Ltd,[32] the primary judge had regard to the context in which clause 14.3 appeared.[33]  He considered the Tenant’s obligations and the provisos to the Tenant’s obligations in clauses 12.1 and 12.2.  Simply stated, there was a demarcation between the Tenant’s obligation to keep the premises in “good and substantial repair as a high-quality motel” and the Landlord’s obligation to “take reasonable action to ensure” that the premises were kept “in a good and substantial structural state and condition”.  (emphasis added).[34]  The obligation under clause 14.3 was “not an obligation to effect repairs to any structural element of the Motel”.[35]
  4. [157]
    The primary judge gave a hypothetical example which, on a superficial reading, might suggest that clause 14.3 relates only to structural beams and the like.  The example was of a structural beam that was affected by surface rust that did not affect the premises’ structural integrity.  The primary judge opined that, in such a situation, clause 12.1 was likely to operate so as to require the tenant to remove the surface rust and repaint the beam.  The landlord would not be required to take reasonable steps in relation to the beam so as to keep the premises in a good and substantial structural condition.[36]  The reference in the example to superficial damage or surface rust that did not impact the Motel’s “structural integrity” might be interpreted as suggesting that premises will not be in a “good and substantial structural condition” only where their structural integrity is compromised.  I do not think that the primary judge intended to create a distinction between superficial defects that detract from appearance and defects that jeopardise structural integrity.  For reasons which I will shortly develop, the inquiry is not concerned with a distinction between appearances and structural integrity.  It simply is an inquiry into whether a certain matter has rendered the premises as being other than in a “good and substantial structural state and condition”.
  5. [158]
    Having considered the meaning of clause 14.3 in its context, the primary judge considered the state of the evidence in respect of the 21 alleged breaches of clause 14.3.  He gave a variety of reasons for concluding that the evidence did not enable the Court to find that the respondent breached the repair and maintenance provisions in clause 14.3 in the 21 respects alleged.  As already discussed, the reasons included a lack of evidence as to the cause of the defect or that the defect appeared to fall within the scope of the tenant’s obligation to clause 12.1(a).  The primary judge also concluded in respect of a number of items that the court was unable to conclude that the damage had a “structural element”.  In one instance (item 9: timber shower doors) the primary judge doubted that they had a structural role.  In another case, there was no evidence to support the conclusion that leaking shower cubicles affected the structural integrity of a concrete floor (item 6).  In relation to some items, such as roof guttering and a metal balustrade, there was said to be no evidence to demonstrate any structural element to the defect (items 18 and 19).
  6. [159]
    The appellants complain that this approach to the meaning of “structural” in clause 14.3 is excessively narrow.  The parties at trial and on appeal referred to the decision of this Court in Speets Investment Pty Ltd v Bencol Pty Ltd.[37]  On the hearing of this appeal the respondent submitted that a distinction between matters affecting “structural state and condition” and matters affecting cosmetic or aesthetic state and condition is consistent with a meaning of “structural” in clause 14.3 in its commercial context and with the reasoning in Speets.
  7. [160]
    In my view, Speets is of limited assistance in reaching a conclusion about the meaning of “structural” in clause 14.3.  Callaghan J (with whom Sofronoff P agreed) cited Holus Bolus as to the use of the word “structure” in other contexts.  In the end, “the question is one of interpretation to ascertain the obligation of the party with regard to the words used in the clause in context, and to the surrounding circumstances”.[38]  Callaghan J noted the contentions of the parties in Speets, including authorities relied upon by the tenant in that case that support the conclusion that the term “structural” relates to “features of the building beyond those that relate to load bearing”.[39]  Callaghan J concluded, however, that it was not necessary to reach any conclusion about the interpretation of the term in order to determine the issues that remained relevant on the appeal.
  8. [161]
    In separate reasons Bond JA (with whom Sofronoff P also agreed) adopted Callaghan J’s description of the relevant evidence and agreed that the evidence did not support a conclusion that the landlord’s repair obligation under the lease had been triggered.  The evidence was said to warrant only a conclusion that rusted areas needed treatment and painting, and once that conclusion was reached, the obligation to treat them fell within the tenant’s obligation to keep the building clean and in good repair.[40]  Therefore, Speets does not offer any authoritative interpretation of the meaning of “structural” in the context of commercial leases, let alone in other contexts.  It helpfully emphasises that the meaning of the word depends on context.  The primary judge applied this approach.
  9. [162]
    The primary judge was correct to conclude that clause 14.3 did not impose a general obligation to effect repairs to any structural element of the premises.  This is because the obligation to maintain and repair a part of the structure may fall on the tenant under clause 12.1.  A matter requiring attention, such as cracked paint on the wall of the structure, does not mean that the building is not in a good and substantial “structural state and condition”.
  10. [163]
    The issue is whether the defect affects the premises so that it is no longer in “a good and substantial structural state and condition”.  A related question is whether an item relates to “the Motel” and the “Landlord’s Property”.  One might doubt whether a garden bed consisting of a single rise of ordinary bricks, concreted together at their ends, is part of the Motel’s structure.  If it is, a small crack in the concrete between the bricks may not affect the garden bed’s “structural state and condition”.  The erosion and disappearance of the concrete because of its poor quality may affect the structural state and condition of the garden bed.  Cracks to the brickwork associated with garden beds was item 2 on the appellants’ list.  The primary judge found that the cracks did not have a structural element.
  11. [164]
    As noted, item 3 related to a lattice panel on the rear building stairs.  One might take the view that a lattice panel forms part of the premises’ structure, even if it does not provide structural support.  The same might be said in relation to internal walls that are not load-bearing.  The respondent accepted at the hearing of the appeal that a non‑load-bearing internal wall is part of the structure.  According to the respondent, the issue was whether the defect was such as to render the structural state and condition something other than “good and substantial state and condition”.[41]
  12. [165]
    In my view, this is the correct approach rather than choosing to categorise a defect as either being to the appearance of the motel or to its structural integrity.  A matter that detracts from the appearance of the motel and that occurs notwithstanding the tenant’s compliance with its obligations under clause 12.1, such as the onset of rust holes in a gutter at the end of the gutter’s normal operating life, might be argued to affect the structural state and condition of the gutters that are part of the premises.  Although not part of the framework of the building, the gutter is part of the structure and rust holes causing water to leak would affect the structural state and condition of the premises.  If, however, the state of the gutters was due to a failure by the tenant to keep them in “good and substantial repair”, then an obligation to clause 14.3 would not arise.  Similar considerations apply in relation to items like rotting lattice panels.
  13. [166]
    It is sufficient to conclude that the appellants failed to prove at trial the defects in the lattice were not the result of a failure to comply with their obligation under clause 12.1(a) to keep the lattice in good and substantial repair.  It is unnecessary to decide whether the lattice work is structural.  There are good reasons to argue that it is and I would not wish to be thought to be adopting or endorsing an excessively narrow meaning of “structural” in the context of clause 14.3.
  14. [167]
    Depending on the circumstances, an item may be in poor repair due to a tenant’s failure to comply with its repair obligations, and that unattractive feature may not be such as to render the premises as not being in a good and substantial structural state and condition.  Superficial rust, which needs to be removed from the surface and the surface repainted, is an example of a defect which, at that stage, does not affect the structural state and condition of the premises.  By contrast, a gutter that has completely rusted in places may be said to mean that the premises are not in a good and substantial structural state and condition.  If the cause of the rust holes was the tenant’s failure to comply with clause 12.1, the landlord would not have an obligation under clause 14.3 to repair or replace the gutter.
  15. [168]
    It is insufficient for the appellants’ purposes to establish that the primary judge took too narrow a view of the word “structural”.  This is because, even adopting a broad view of the term and concluding that items like lattice panels are structural, the appellants failed to prove that they complied with their obligation to clause 12.1(a) in relation to that part of the structure.  In addition, even assuming a breach of clause 14.3 and that the defect left the premises in something other than a “good and substantial structural state and condition”, and that this outcome was the result of the respondent’s failure to take “reasonable action”, the appellants failed to prove that the alleged defects caused them to suffer the global and very large loss and damage that they claimed.

Termination: ground 2.6

  1. [169]
    This issue is previewed at [26]–[27].  The appellants challenge the primary judge’s finding that 17 days was a reasonable period to give the appellants to remedy their breach of lease in failing to pay rent of $13,141.61 that was payable on 16 July 2016.
  2. [170]
    The primary judge’s conclusion that the appellants had not demonstrated that 17 days was an unreasonable period within which to remedy that default was not in error.  The appellants did not ask for more time to pay.  The evidence at trial from the appellants was that the decision to not pay the rent that was payable on 16 July 2016 was a tactical decision.  The fact that the lease was not a short-term lease and there was no history of rent defaults did not affect the respondent’s right to demand payment of unpaid rent and to issue a notice to remedy a breach of covenant.
  3. [171]
    The appellants point to the commencement proceedings in Queensland Civil and Administrative Tribunal by the respondent and the commencement by the appellants of this proceeding.  However, they do not affect the reasonableness of the 17 days that were allowed to remedy non-payment.  The respondent did not seek relief from the court that would give them more time to pay.  They erroneously asserted that they were not required to pay the claimed rent.
  4. [172]
    The appellants’ submissions (which were not settled by counsel) tend to confuse a reasonable period to remedy the relevant breach, namely non-payment of a month’s rent, with what might be a reasonable period to allow a long-standing tenant to vacate the premises.  As the primary judge noted, the latter addressed a different question.  On the hearing of the appeal, counsel for the appellants accepted that allowing 17 days to pay an amount of rent that had been withheld for a tactical reason was not unreasonable.[42]  No error has been shown in the primary judge’s evaluative judgment that 17 days was not an unreasonable period in the circumstances within which to remedy the default.
  5. [173]
    Ground 2.6.2 of the notice of appeal sought to challenge the primary judge’s finding that reference in a covering letter to termination occurring on 15 September 2016, “was an obvious mistake in the covering letter” and that the respondent was not confused by the mistake.  No error has been shown on these points.  The notice requiring possession to be delivered up on 15 August 2016 was received.  When Mr Mackey and a companion attended at the motel on the evening of 15 August 2016, and inquired whether the appellants intended to vacate in accordance with the notices, Mr Klein-Carter did not express surprise or say that she thought that the appellants had until 15 September 2016 to vacate.  Ground 2.6.2 is without merit.
  6. [174]
    At the hearing of the appeal counsel for the appellants attempted to raise a new argument based upon tax invoices that the respondent issued for outstanding rent, and the respondent’s application in 2016 for summary judgment.  However, there was no argument at the trial that the respondent somehow waived its rights arising from the termination of the lease, or was estopped from arguing that it had terminated the lease as at 15 August 2016.  Mr Mackey was not cross-examined on the issue.  No issue in relation to waiver or estoppel was pleaded.  No such unpleaded defence was relied upon by the appellants in their submissions at trial.  It was not nominated as a ground of appeal.  In the circumstances, the appellants should not be permitted to advance such an argument for the first time on appeal.
  7. [175]
    The appellants failed to remedy the breach which was the subject of a notice to remedy.  They failed to do so within a reasonable time, namely 17 days.  The lease was validly terminated as at 15 August 2016.  Contrary to ground 2.6.3, the respondent did not repudiate the Lease in purporting to terminate it.  The appellants did not terminate the Lease on 30 September 2016, as they purported to do.  The lease had been terminated on 15 August 2016.

Trespass claim: ground 2.7

  1. [176]
    The appellants’ trespass claim faced the fundamental obstacle that from close of business on 15 August 2016 they had no right to possession of the Motel.  No proper basis has been established to challenge the primary judge’s findings about Mr Carter’s attempt to retake possession on the evening of 15 August 2015.[43]
  2. [177]
    The primary judge was correct to dismiss the appellants’ claim for substantial damages, including exemplary damages for trespass.
  3. [178]
    The appellants in ground 2.7 of their appeal refer to alleged interference with the use and occupation of the motel, including its telecommunication systems.  This refers to events that are canvassed in appropriate detail in the judgment at first instance.[44]  In brief, Mr Mackey swore a statutory declaration on 17 August 2016 which was given to Telstra.  It declared that the appellants had breached the terms of their lease and had been given formal notice of eviction.  He requested the transfer of telephone and fax numbers in order to preserve the value and goodwill of the motel.  This notice was given after the lease was terminated.  Therefore, it could not have been a breach of its terms in relation to not interfering with the appellants’ use and occupation of the motel.  The appellants do not plead a discernible cause of action in relation to the diversion of the telephone and fax lines.  The primary judge was correct to not award damages for alleged interference with the motel’s telecommunication systems.
  4. [179]
    Counsel for the appellants accepted in oral submissions that, if the Lease had been validly terminated on 15 August 2016, then any claim for trespass in relation to events after termination fell away.  He also acknowledged that any consequences of the respondent’s conduct on 17 August 2016 in redirecting telephone numbers would only be relevant to the awarding of exemplary damages for trespass in respect of the alleged contumelious disregard of any right that the appellants had to possession and to carry on the business from the premises after 15 August 2016.  The appellants had no such right.

Chattels: ground 2.8

  1. [180]
    The primary judge’s findings in relation to the appellants’ claim for breach of clause 14.5 of the Lease have been summarised above at [35]–[37].  Clause 14.5 created a regime for the Landlord to purchase the “Chattels”, as defined in the Lease once the Lease had been terminated.  In essence, it obliged the Landlord to purchase the Chattels from the Tenant upon retaking possession of the motel.  The Chattels were defined as “the movable furniture, office equipment, chattels and effects owned and used by the Tenant in the operation of the Tenant’s business and set out in the annexed inventory …” (emphasis added).  However, there was no evidence that any such inventory had been annexed to the Lease.  Because there was no annexed inventory there were no items that qualified as “Chattels” as defined.  The appellants’ claim under clause 14.5 therefore failed.
  2. [181]
    The appellants contend that the primary judge erred in his construction or interpretation of clause 14.5.  There is no challenge to the primary judge’s finding that an inventory was not annexed to the Lease.  Neither party invited the judge to have regard to extrinsic evidence so as to supply a missing “annexed inventory”.  In fact, there was no evidence that an inventory that was supposed to be annexed to the Lease went missing.  The fact that the appellants purchased certain items from the Galeas under a sale agreement does not mean that the items that they purchased were to be included in an inventory to the Lease.
  3. [182]
    The appellants do not challenge the principles that the primary judge applied where parties have left words or certain figures blank in a contractual document, or not included a schedule or appendix.[45]  As the primary judge noted, this is not a case of a blank in a document which may be dealt with by simply ignoring it and reading on as if it were not there.  The problem was that the definitions of “Tenant’s Property” in clause 14.5 and the definition of “Chattels” were tied to the “annexed inventory”.
  4. [183]
    Because there was no inventory, the primary judge concluded that the provisions of the Lease did not fasten onto any property of the tenants.  On this view, clause 12.1(b) did not oblige the Tenant to keep any chattels of the Tenant clean and in good repair.  Clause 14.5 that obliged the Landlord to purchase the “Chattels” at termination and clause 14.6 that provided on termination the Landlord must not use the “Tenant’s Property” did not apply.  Instead, the primary judge found that:[46]

“… the usual principles of property law continue to apply. At termination, for example, the tenant remains able to take his or her wallet, car keys as well as any other plant, equipment or other property which comprises the tenant’s own property. Fixtures, of course, are the property of the landlord under conventional property law. However, the compulsory purchase regime in clause 14.5 does not fasten onto any specific property because no property is identified by an inventory.”

  1. [184]
    In their written submissions, the appellants complain about the respondent’s use of chattels that were left behind in the motel after the appellants vacated it on 4 October 2016.  However, the only cause of action pleaded in relation to chattels was one pursuant to clause 14.5.  That claim failed because there was no annexed inventory, and so there were no items that qualified as “Chattels” as defined.[47]
  2. [185]
    The appellants complain that the trial judge’s interpretation was not commercially realistic and that the better approach is to “sever the reference or simply exclude or give no meaning to the words ‘and set out in the annexed inventory’”.  The construction adopted by the primary judge is said to produce an unreasonable result in circumstances in which it may have been anticipated that the inventory would change from what was present in 2002.
  3. [186]
    This submission is unpersuasive in circumstances in which the intention of the parties at the time of the Lease is not clear enough to conclude that they intended the words “and set out in the annexed inventory” to be ignored.
  4. [187]
    There are reasons why a party might not wish to include an inventory and thereby assume obligations in relation to “Chattels” over the life of a lease that might last two, 12 or 20 years.  For example, the tenant might have preferred to remove and not replace a chattel that the tenant owned in 2002, rather than keep it clean and in good repair.  In the context of clause 14.5, the landlord might not wish to assume an obligation to purchase chattels in two or 20 years’ time, being unwilling to predict the commercial imperatives that would apply to the landlord at the time or the state of the chattels.  A landlord might prefer to leave the purchase of any chattels at the end of the lease to be a matter of choice, rather than compulsion.  A landlord might be willing to offer to buy only some of the chattels that were owned by the tenant at the termination of the lease.  Much would depend on the landlord’s interest in being able at the end of the lease to operate the business or to lease the premises under a new lease on the basis that certain furniture was included.
  5. [188]
    By the same token, the tenant might have wished to have the opportunity at some uncertain future date to have the choice of removing all of its property, leaving the landlord with an empty motel that the landlord or incoming tenant would be required to furnish by buying new or replacement furniture.  This would give the tenant a bargaining position in such an event.
  6. [189]
    In addition, the parties might wish to avoid potential arguments at some uncertain future date as to whether clause 14.5 applied to a bed or other piece of furniture that replaced the same or a similar item that was on the inventory.  For example, it is possible to imagine an inventory that simply referred to a double bed in room 1, and an argument by a tenant when the lease was terminated 10 years later that clause 14.5 applied to the bed that replaced the bed that once was in that room.
  7. [190]
    Therefore, there are possible commercial reasons as to why the parties to the lease did not intend to include an inventory as an annexure to the lease.  The non‑inclusion of an annexure would leave the parties (or their successors) to their legal rights under the general law, and a negotiation process when the lease came to an end.
  8. [191]
    The primary judge noted that at trial neither party contended that the definition of “Chattels” could be severed from the Lease.  Insofar as the appellants urge an interpretation of the Lease, and clause 14.5 in particular, that severs the words “and set out in the annexed inventory”, a case for severance has not been established.  Severance would have significant consequences on the parties’ rights.  Applying the modified definition of “Chattels”, clause 14.5 would impose an obligation on the landlord to purchase the chattels that were owned and used by the tenant in the operation of the tenant’s business.  To use an extravagant example, if the tenant owned a grand piano that was used in the operation of the motel business, the landlord would be obliged to purchase it pursuant to clause 14.5 at the termination of the lease.  This example highlights the consequences of severance:  changing a list of chattels to an uncertain number of chattels of any description.
  9. [192]
    One cannot suppose that the parties intended to agree that the words “and set out in the annexed inventory” in the definition of “Chattels” should be ignored.
  10. [193]
    No extrinsic evidence was called to explain the absence of a “missing” annexure and there was no evidence that an annexure that was drafted for the purpose of being annexed to the lease existed and went missing.
  11. [194]
    In summary, the issue is whether the intention of the parties is clear enough to overcome the fact that no inventory was annexed to the lease, such that the words “and set out in the annexed inventory” can be ignored.  Such an intention has not been proven in circumstances in which there might be sound commercial reasons to not prepare and include an annexure.  In particular, the parties may have preferred to leave their rights and obligations in relation to chattels owned by the tenant at the time the lease was terminated, at some uncertain future date, to be determined according to their legal rights under the general law and a negotiation process in the commercial circumstances in which they then found themselves.
  12. [195]
    I conclude that the primary judge did not err in interpreting clause 14.5 of the Lease.
  13. [196]
    The appellants complain that the primary judge erred in arriving at a valuation of the chattels.  The primary judge only did so on a precautionary basis in case he was wrong and clause 14.5 was engaged.[48]  The primary judge, however, was not wrong and the valuation issue falls away.  In any case, the appellants have not established a basis for appellate intervention to overturn an evaluative judgment about the value of items made after hearing lay and expert evidence.  The issue turns on which of two figures given by a court-appointed expert might be chosen, and whether the fact that certain items were used after termination was a basis to conclude that the items should be classified as “average overall”.
  14. [197]
    Finally, the appellants complain that the primary judge found no basis in the pleadings and evidence for any amount to be paid for the chattels that were used and dealt with by the respondent, in circumstances in which the appellants invoiced the respondent for the chattels, and the respondent refused or failed to make any payment.  The appellant fails to engage with the primary judge’s finding that its only pleaded claim in relation to the chattels was one under clause 14.5.  The primary judge was not entitled to award damages on the basis of an unpleaded claim for detinue, conversion, or what is now often referred to as a claim for restitution.  Therefore, the final ground of appeal also fails.

Conclusion

  1. [198]
    I would dismiss the appeal, and order the appellants to pay the respondent’s costs of and incidental to the appeal.

Footnotes

[1] Carter v Mackey Motels Pty Ltd [2023] QSC 128 at [176(b)] (“Carter”).

[2] Carter at [97].

[3] Carter at [116].

[4] Carter at [183].

[5] Carter at [183].

[6] Carter at [17(b)].

[7] Carter at [35].

[8] Carter at [37].

[9] Carter at [39].

[10] Carter at [40]–[42].

[11]  See for example Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170 at 174-80 which applied the principles in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 to a claim for property damage.  And see generally Halsbury’s Laws of Australia ‘Insurance’ [235-890] in the case of a third party identified as a person whose interests in the subject matter of the insurance are covered and who may bring an action against the insurer to enforce the contract.

[12]  See Insurance Contracts Act 1984 (Cth) s 48.

[13] Carter at [65], [73].

[14]  (1989) 60 P & Cr 258.

[15] Carter at [67(g)].

[16] Carter at [116].

[17] Carter at [107].

[18] Carter at [107(d)].

[19] Carter at [110].

[20] Carter at [112].

[21] Carter at [116].

[22]  An email from the Carters to Mackey Motels of 24 August 2011, which refers to the defect in broad terms, was accepted into evidence on the basis its use was limited to non-hearsay purposes.

[23] Carter at [118]-[120].

[24] Carter at [119].

[25]  Appellants’ Submissions [26].

[26]  Appellants’ Submissions [48].

[27] Carter at [184].

[28] Carter at [183].

[29]  Appellants Submissions [31].

[30]  Appellant [38] – check 5-39, page 3504.

[31]  Transcript 5-46, lines 27-29.  Defendant’s trial submissions, page 4045, para 176.

[32]  [2012] NSWSC 497 at [30] (“Holus Bolus”), cited with approval in Speets Investment Pty Ltd v Bencol Pty Ltd [2020] QCA 247 at [128] (“Speets”).

[33] Carter at [100].

[34] Carter at [101]-[103].

[35] Carter at [104].

[36] Carter at [105].

[37]  [2020] QCA 247 (“Speets”).

[38] Speets at [128], citing Holus Bolus at [30].

[39] Speets at [126].

[40] Speets at [39].

[41]  Transcript 1-48, lines 25-35.

[42]  Transcript 1-33, lines 25-37.

[43] Carter at [159].

[44] Carter at [160]-[164].

[45] Carter at [86].

[46] Carter at [90].

[47] Carter at [221].

[48] Carter at [222].

Close

Editorial Notes

  • Published Case Name:

    Carter & Anor v Mackey Motels Pty Ltd

  • Shortened Case Name:

    Carter v Mackey Motels Pty Ltd

  • MNC:

    [2024] QCA 68

  • Court:

    QCA

  • Judge(s):

    Morrison JA, Dalton JA, Applegarth J

  • Date:

    30 Apr 2024

  • White Star Case:

    Yes

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2023] QSC 12822 Jun 2023Proceedings relating to disputes between parties to lease of motel; plaintiffs' claims dismissed; judgment for defendant on counterclaim for outgoings in the sum of $7,016.13 with interest: Freeburn J.
Appeal Determined (QCA)[2024] QCA 6830 Apr 2024Appeal dismissed: Applegarth J (Morrison and Dalton JJA agreeing).

Appeal Status

Appeal Determined (QCA)

Cases Cited

Case NameFull CitationFrequency
Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170
2 citations
Jump To
Cite 1 - (1992) 26 NSWLR 170
Cite 2 - (1992) 26 NSWLR 170
Carter v Mackey Motels Pty Ltd [2023] QSC 128
2 citations
Jump To
Cite 1 - [2023] QSC 128
Cite 2 - [2023] QSC 128
Holus Bolus Pty Ltd v The Wicko Pty Ltd [2012] NSWSC 497
2 citations
Jump To
Cite 1 - [2012] NSWSC 497
Cite 2 - [2012] NSWSC 497
Speets Investment Pty Ltd v Bencol Pty Ltd [2020] QCA 247
3 citations
Jump To
Cite 1 - [2020] QCA 247
Cite 2 - [2020] QCA 247
Cite 3 - [2020] QCA 247
Trident General Insurance Co Ltd v McNiece Bros Pty Limited (1988) 165 CLR 107
2 citations
Jump To
Cite 1 - (1988) 165 CLR 107
Cite 2 - (1988) 165 CLR 107
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44
1 citation
Jump To
Cite 1 - [1988] HCA 44
Vural Ltd v Security Archives Ltd (1989) 60 P and CR 258
2 citations
Jump To
Cite 1 - (1989) 60 P and CR 258
Cite 2 - (1989) 60 P and CR 258

Cases Citing

No judgments on Queensland Judgments cite this judgment.

1

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