Hsu v Graham Retailers Pty Ltd
[2004] QDC 230
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- Unreported Judgment
- Hsu v Graham Retailers Pty Ltd[2004] QDC 230
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Hsu v Graham Retailers Pty Ltd[2004] QDC 230
Hsu v Graham Retailers Pty Ltd[2004] QDC 230
DISTRICT COURT OF QUEENSLAND
CITATION: | Hsu & Anor v Graham Retailers Pty Ltd & Ors [2004] QDC 230 |
PARTIES: | STEVE FU-LAI HSU and JOYCE HSUEH-HUA CHIU Plaintiffs v GRAHAM RETAILERS PTY LTD (ACN 009 696 379) First Defendant DAVID FREDERICK GRAHAM Second Defendant PETER ALLAN GRAHAM Third Defendant |
FILE NO/S: | D5723/2001 |
DIVISION: | |
PROCEEDING: | Trial |
ORIGINATING COURT: | District Court, Brisbane |
DELIVERED ON: | 10 August 2004 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 22, 23, 24 September 2003 |
JUDGE: | McGill DCJ |
ORDER: | The defendants to pay the plaintiffs $89,613.10, together with costs of the action, to be assessed, except to the extent those costs have already been dealt with. |
CATCHWORDS: | LANDLORD AND TENANT – Termination of Lease – whether lease repudiated by lessor or lessee – lessee vacating premises and lessor then changing locks and offering to re-let premises – not re-entry or repudiation. Property Law Act 1974 s 124. Progressive Mailing House v Tabali Pty Ltd (1985) 157 CLR 17 – applied. Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 1 NSWLR 105 – applied. |
COUNSEL: | P A Kronberg for the plaintiffs J W Peden for the defendants |
SOLICITORS: | Marie Vidas for the plaintiffs Hopgood Ganim Lawyers for the defendants |
- [1]This is an action for damages for breach of covenant in a lease. The plaintiffs who were the lessors claim that the first defendant lessee[1] repudiated the lease, which repudiation was accepted by the plaintiffs’ entering into possession and terminating the lease on 22 February 2001. In the alternative, the plaintiffs say that the lease was validly terminated by them subsequently in November 2001 by notice in writing, because of a failure of the first defendant to remedy breaches of covenant. The latter is the principal allegation of the plaintiffs, although the lease could only have been validly terminated then if it had not been previously terminated. If the principal case is made out, the plaintiffs also claim further rent payable under the lease before it was terminated. The second and third defendants are guarantors of the first defendant in respect of its obligations under the lease. The defendants say that the lease was repudiated by the plaintiffs in February 2001, in response to which the first defendant terminated the lease in March 2001. If that is correct, the plaintiffs are not entitled to any further relief in this action.
History of the action
- [2]I say further relief because there has already been judgment under r 282 in respect of part of the plaintiffs’ claim, namely rent and other moneys payable under the lease up to 14 March 2001.[2] In respect of the balance of the plaintiffs’ claim the matter proceeded to trial. The action was originally commenced on 30 November 2001 and the initial pleadings closed by the end of February 2002; the pleadings have been much amended since. The application for judgment was filed on 1 July 2002, and judgment in respect of part of the claim was given on 7 February 2003. At that stage directions were given including for amendments to the pleadings, and the action was to be tried in May 2003. However, later the directions were amended to allow for mediation, which was unsuccessful, and after further directions the matter came on for trial on 22 September 2003.
Background
- [3]The premises now owned by the plaintiffs were formerly owned by a company Clearwater Properties Pty Ltd, which leased the premises to the first defendant for a term of ten years commencing on 17 December 1996: Exhibit 1. The lease was subsequently registered. Under the lease, the lessee agreed to pay rent monthly, and each month an amount of estimated operating expenses. The latter was subject to adjustment once actual expenses were known, and both the rent and estimated operating expenses were subject to modification annually. The premises were sublet to a franchisee,[3] who operated an ice-cream shop.
- [4]By deed of guarantee and indemnity dated 22 October 1996 (Exhibit 3) the second and third defendants guaranteed to the lessor the performance of the lease provisions, and payment of the guaranteed money, and agreed to indemnify the lessor in respect of such performance, on the terms and conditions set out therein. The submissions on behalf of the defendants did not suggest that the position of the second and third defendants was different from that of the first defendant.
- [5]In July 1997 the plaintiffs purchased the premises: p. 7. By a deed of covenant dated 24 July 1997 (Exhibit 2) the plaintiffs agreed to be bound by the lease as if bound as lessors and the lessee agreed to release the former owner Clearwater Properties Pty Ltd for the future.[4] The plaintiffs purchased the freehold for a price which was intended to achieve a particular return from the rent. However, not long afterwards, on 1 September 1997, the third defendant wrote to the plaintiffs seeking some rent relief in the short term, on the basis that the turnover of the store had been steadily declining since December 1996, and that the expected annual turnover was substantially less than the amount required to break even at the current rent: Exhibit 7. The lessee sought a meeting with the plaintiffs to be attended by them and their franchisees. The plaintiffs referred the letter to their solicitor, Mr Cruise, who on 24 September 1997 replied rejecting any re-negotiation of the lease, and insisting on punctual payment of the rent: Exhibit 7. The third defendant replied on 25 September 1997 repeating the request for a meeting. It appears however that no meeting took place at that time.
- [6]There were continuing complaints about the financial state of the sub-tenants’ business (p.50) and a meeting was eventually held on 27 November 1998: Exhibit 7. Following the meeting the sub-tenants wrote to the plaintiffs outlining the various difficulties they were facing and seeking a rent reduction of 35 percent for 12 months: Exhibit 24. But the plaintiffs’ position remained that they would not agree to any reduction in rent: p. 55. The plaintiffs were in 1998 aware that the subtenants were persistently asserting that they were experiencing trading difficulties: p. 25.
- [7]On 4 March 1999 the plaintiffs’ solicitor wrote to the lessee advising of changes in the rent because of the indexation provision, and changes to the estimated outgoings, and complaining about non-payment of the February rent:[5] Exhibit 8. On 7 April 1999 there was a further letter, correcting an error in the calculation of increased rent, and noting that the plaintiffs had agreed not to increase the rent for the year ending 16 December 1999: Exhibit 9 and see p. 34. There was also a complaint that rent and outgoings had not been paid punctually since September 1997, and the letter enclosed a notice to remedy breach of covenant in form 7 under the Property Law Act, which sought payment of the April rent and April estimated outgoings, together with payment of the estimated outgoings for the period 17 December 1998 to 16 March 1999. The rent for April had not been paid by 17 May 1999, when there was a follow up letter (Exhibit 10) which apparently produced results. In May 2000 there was again a failure to pay rent, as a result of which the plaintiffs’ solicitor wrote again on 26 May 2000: Exhibit 11.
The business moved out
- [8]The sub-tenant who was operating the store continued to have problems, and ultimately decided to relocate the business, which involved moving out of the plaintiffs’ premises: p. 167. A letter was sent to the plaintiffs dated 16 August 2000 by the lessee indicating an intention to close the store “within the next month” but asserting that someone else had been found to take over the lease: Exhibit 21. In response Mr Cruise wrote on 6 September 2000 drawing attention to the requirements in clause 14 of the lease for assignment of the lease, and seeking payment of rent for the months of August and September immediately: Exhibit 12. The letter sought various particulars of the proposed assignee, and pointed out that if the assignment was approved the proposed assignee would be required to sign a deed of covenant upon assignment of the lease. It was also pointed out that no assignment would be approved while payment of rent was in arrears, consistently with clause 14.1(e) of the lease: Exhibit 1. Apparently the August rent was paid in due course, but on 4 October 2000 a notice to remedy breach of covenant was served under cover of a letter of that date from Mr Cruise alleging a failure to pay rent and estimated operating expenses for the months of September and October: Exhibit 13. The September rent was received by the plaintiffs on 6 October 2000 (p. 146), and the October rent on 20 October 2000, but no further payments were made after that date, until recently: p. 149.
- [9]Mr Cruise received a phone call from the sub-lessee, Mr Cooper on 19 October 2000 advising that the first defendant had approved the relocation and that he was moving the business on 23 October: Exhibit 19.[6] On 9 November 2000 the second defendant telephoned Mr Cruise advising that they may have found a new tenant: Exhibit 19. Apparently some further material about the proposed tenant was forwarded in November 2000, because on 23 November 2000 Mr Cruise had another telephone conversation with the second defendant about the proposed new tenant: Exhibit 19.
- [10]On 27 November there was some further conversation between Mr Cruise and the second defendant, referring to a proposed new tenant, and Mr Cruise also spoke to Mr Jennings, the agent engaged by the first defendant, who gave some information about what the new tenant was proposing, which was a new lease: Exhibit 19. On 29 November Mr Cruise wrote to the first defendant pointing out that what was being proposed was a new lease with a significantly reduced rent, rather than assignment of the existing lease: Exhibit 14. The first defendant could grant a sub-lease to this proposed tenant but would continue to be responsible to the plaintiffs for the payment of rent; alternatively they could compensate the plaintiff for the reduction in the value of the asset.
- [11]There is no acceptable evidence about just when the sub-lessee vacated the premises,[7] but they were found to be vacant by the plaintiffs at the end of November 2000: p. 8. The fit out had been removed: p. 152. Mrs Chiu did not recall seeing a “for lease” sign on the premises, but the lessee placed the premises in the hands of Mr Jennings to find a replacement tenant, and he placed a sign on the premises: p. 153, p. 173. He said that there were subsequently a number of inspections, and some interest in the premises, but matters never proceeded to the stage where there was something signed by a proposed new tenant or sub-tenant: p. 173.
- [12]On 4 December 2000 Mr Cruise wrote again to the first defendant giving details of the adjustment to the rent and estimated operating expenses which occurred in accordance with the lease as from 17 December 2000: Exhibit 15.[8] This corrected figures given in a separate letter of 29 November 2000, which is not in evidence. Reference was made to some concession in relation to underpaid outgoings, and the letter concluded with a statement that “from 1 December 2000 monthly outgoings of $547.52 should be paid.” There is nothing in this letter to suggest that at that time either the rent or the estimated outgoings did not have to be paid in accordance with the lease.
- [13]Various people at different times expressed some interest in taking the premises, but not at anything like the rent payable under the existing lease.[9] Mr Cruise dismissed the first defendant’s efforts as laughable, and as displaying no concern for the lessee’s obligations under the lease: p. 128. I suspect however that the first defendant was genuinely seeking some replacement tenant. It may be that the rent was above the market rent for these premises.[10] Two sub-tenants of the first defendant had been unable to make the premises pay, and the agent Mr Jennings was unable to find anyone else willing to pay what was payable under the lease. Later the plaintiffs also had difficulty in finding a replacement tenant.
- [14]It was suggested at one point (Exhibit 25) by the sub-tenant that at the time the shop was opened there were hopes that the business would be boosted by the construction of a light rail line from the city to St Lucia via West End. Following a change of government and the unfortunate abandonment of this proposal, any benefit from it did not eventuate.[11] One benefit which might otherwise have arisen was the removal of a bus stop close to the store, which the sub-tenants said impacted adversely on their business.[12] Perhaps the rent originally payable under the lease was fixed on the basis of an unduly sanguine view of the long term prospects of the site. In any case, the failure to locate someone willing to pay the rent payable under the lease does not I think indicate any lack of effort on the first defendant’s part.
- [15]There were a number of phone calls during November and December 2000 during which there was some discussion about efforts to find a replacement tenant: pp.102, 104. The rent was not paid after 20 October 2000, presumably because the sub-tenant had moved out. Part of the arrangement with the sub-tenant was that the sub-tenant would pay the rent payable to the plaintiffs: p.196. The first defendant does not appear to have taken seriously the fact that it was obliged to pay rent to the plaintiffs under the lease whether or not there was a sub-tenant.
Estoppel
- [16]In the amended defence paragraph 14(c) it was alleged that the plaintiffs were estopped from asserting that non-payment of rent between November 2000 and February 2001 was a breach of an essential term of the lease, on the basis that: 1. Between October 2000 and March 2001 the first defendant was in frequent contact with Mr Cruise about attempts to find a replacement tenant; 2. At no time during that period did Mr Cruise demand immediate payment of outstanding rent; 3. Between October 2000 and February 2002 the first defendant with the permission of Mr Cruise showed various parties through the premises with a view to inviting those parties to become a sub-lessee or replacement tenant. It was further alleged that, in reliance on that conduct, the first defendant did not make payments of rent while seeking a replacement tenant or sub-tenant, and that had the plaintiffs through Mr Cruise not engaged in that conduct the first defendant would have had the opportunity to make the payments and avoid being at risk of being in breach of an essential term of the lease.
- [17]For the defendants to be able to rely on estoppel as a justification or excuse for failing to pay rent in and after November 2000, in my opinion it was necessary for there to have been some express or implied representation on the part of the plaintiffs that rent need not be paid until a sub-lessee or assignee had been located and installed. In my opinion what was pleaded was insufficient to amount to such a representation, and this plea fails on the ground that it is bad in law.
- [18]There was as well no acceptable evidence of any representation from Mr Cruise to the effect that rent did not need to be paid until such time as a new sub-lessee or assignee had been located. The closest the defendants’ evidence came to this was a passage in the re-examination of the second defendant at p.199. This is not in the form of acceptable evidence, since it merely gives evidence about a conclusion which Mr Graham drew, without giving any evidence of what Mr Cruise said or did which was supposed to justify that conclusion. But in any case, I do not accept the evidence of Mr Graham in that passage at p.199. It was clearly contrary to his earlier evidence, and to the contemporaneous correspondence.
- [19]Mr Cruise had indicated in a letter in May 2000 that the rent had to be paid on time: Exhibit 11. The requirement in September 2000 that the August and September rent be paid immediately is inconsistent with the notion that rent may be left in abeyance until an assignment has been effected, although the requirement that the rent be up to date as a condition of any assignment was also relied on: Exhibit 12. In my opinion Exhibit 12 cannot be sensibly read as some sort of representation that rent need not be paid until the assignment takes place. Mr Graham said that Mr Cruise did not ever say anything different in relation to the obligation to pay rent from what was set out in Exhibit 12: p. 187.[13] On 4 October a notice to remedy breach of covenant was served relying on the failure to pay rent, under cover of a letter in which Mr Cruise stated that the plaintiffs “insist on strict compliance with the terms of the lease in relation to payment of rent and outgoings”: Exhibit 13. The letter on 4 December 2000 expressly required payments of estimated outgoings in a particular sum to be made from 1 December 2000: Exhibit 15. At p. 188 Mr Graham could not recall a conversation that gave him the impression that rent need not be paid until someone else was in place to take over the premises, and at p. 189 lines 8-13 he denied that he ever got that impression.
- [20]Mr Cruise certainly drew attention to the requirement in the assignment clause that any outstanding rent had to be paid before the lessors had to consent; but that is very different from a representation that rent did not have to be paid until that occurred. The defendants cannot rely on the former to prove the latter. If Mr Graham’s evidence at p. 172 goes beyond the former, I do not accept it.
- [21]The plaintiff, Mrs Chiu, said that she did not agree to the rent being left in abeyance until a new tenant was available: p. 31, p. 152. I have no hesitation in accepting that evidence as it is entirely consistent with the evidence of her attitude throughout, that she was insisting that the rent under the lease be paid and paid on time.[14] I do not doubt that that attitude was conveyed to Mr Cruise and think it most unlikely that he would have said anything to the contrary to Mr Graham.[15] I find that nothing was said by Mr Cruise to the effect that it was unnecessary for the first defendant to pay the rent in the period between the former sub-lessee moving out and someone else occupying the premises. Although there was no express demand for rent after the sub-lessee moved out, that was unnecessary, and nothing was done to alter the clearly expressed insistence prior to that time that the rent be paid and paid on time. I do not consider that there was any sort of representation, express or implied, to the contrary, and insofar as the defendants’ case depends on such a representation, it is not made out. The position is simply that the sub-lessees were no longer paying the rent, and the first defendant did not pay it.
The locks changed
- [22]At some stage after late November the plaintiffs were in Taiwan for a time; this may explain why there was then no demand for payment of the rent. After they returned they spoke to Mr Cruise and obtained some advice: p. 9, p. 68. They subsequently went to the shop where they found it in the same state. They did not have a key to the shop, so they engaged a locksmith who opened the lock from the outside and at their direction changed the locks: p. 153. They engaged a different real estate agent to locate a new tenant,[16] and that agent placed a sign on the premises: p. 9. Mrs Chiu said that she went to the premises on 20 February 2001: p. 152. It appears to be common ground on the pleadings that the locks were changed on 22 February 2001, which is not necessarily inconsistent with Mrs Chiu’s evidence. I will proceed on the basis that the locks were changed on 22 February 2001.
- [23]At some time after the locks were changed the defendants’ agent, Mr Jennings went to the premises with someone who was interested in seeing over them, but found that he could not get in: p. 174. He said that he subsequently spoke to the second defendant. He did not say on what date this occurred. After this incident he did not take any further action in relation to the premises or attempting to find another tenant.
- [24]Mr Graham said that on 22 February 2001 he was told something about the premises and subsequently rang Mr Cruise to say that the locks had been changed: p. 177. He said that he telephoned Mr Cruise immediately after he found out that the locks had been changed: p. 190. He gave evidence of a brief conversation, saying that Mr Cruise said that he would get instructions and ring back, and he did subsequently ring back and say that the premises had been abandoned, but the conversation did not appear to have gone any further. He said that he then immediately obtained legal advice: p. 191.
- [25]Mr Cruise agreed he had been called by Mr Graham and told that the locks had been changed, but said that this occurred on 5 March 2001: p. 68. He denied that it had occurred on 22 February 2001: p. 122. He had a diary note of a conversation with Mr Graham on that day, and of conversations with his client: p.133. Mr Cruise said that he did not have a diary note of a subsequent conversation with the second defendant, but his diary note showed he had obtained instructions from his client, and it would have been in accordance with his usual practice to have telephoned and passed on his instructions to the other party: p. 135. He had no independent recollection and no diary note, but Mr Graham also said there were two telephone conversations, and I am prepared to find that there was a second conversation on that day in which Mr Cruise passed on his instructions to the client. He said that that was the last time he spoke to Mr Graham: p. 124.
- [26]In all the circumstances, I am prepared to accept Mr Cruise’s evidence that this conversation took place on 5 March, and not on 22 February. I do not accept Mr Graham’s evidence to the contrary. In the light of all of the evidence, I generally prefer the evidence of Mr Cruise to Mr Graham. In addition, Mr Cruise’s fixing of the date has the support of contemporaneous diary notes, whereas Mr Graham’s evidence is not as consistent with the fact that on 14 March 2001 the solicitors for the first defendant stated among other things that their client “recently took the potential franchisees to the premises for inspection as the potential franchisee has expressed an interest in them. However, our client was not then able to enter the premises as the locks had been changed without our client’s knowledge.”: Exhibit 22. When this was drawn to Mr Graham’s attention, he said that the letter was wrong: p. 195. The reference to a potential franchisee does appear to have been wrong, but what is significant is the reference to this having occurred “recently”, which is more consistent with the visit by Mr Jennings having been on 5 March than on 22 February.
- [27]I think moreover that the phone call on 5 March was prompted by receipt of a letter dated 1 March enclosing a notice to remedy breach of covenant: Exhibit 16. The notice relied on the failure to pay rent from November 2000 to March 2001, or to pay estimated outgoings from November 2000 to March 2001. The payments referred to in that notice were not made within a reasonable time.
- [28]Mrs Chiu said that her attitude after she changed the locks was that, if the lessee was wanting access to the shop for the purpose of showing through a replacement tenant they could contact the agent she had engaged, L J Hooker: p. 157. She also said that if the lessee had wanted to move back in and reopen she would have been agreeable to that provided that they paid up the rent: p.158. That of course was a hypothetical question, but it is consistent with her attitude that what she particularly wanted was to have the rent on the premises paid. She said that she had not thought at the time about the conditions under which a key would be provided to the lessee: p. 159. A key allowing continuing access to the premises was not provided spontaneously to the lessee, nor was one offered.
- [29]On the other hand, Mr Graham admitted that the lessee did not ask for one: p. 198. Mr Cruise said at first that in the conversation on 5 March he told Mr Graham that if he wanted access to the premises he could contact the plaintiffs’ agent, and that a key would be provided if all the outstanding rent was paid: p. 68. However, on further questioning he was uncertain whether this was actually said: p. 129. He thought at one stage that this might have been said only in the letter of 4 July 2001, Exhibit 23, but, although that letter did refer to prospective replacement tenants being referred to the plaintiffs’ agent, it did not offer a key or access to the premises on any particular terms.
- [30]The defendants’ solicitors on 14 March 2001 asserted that the changing of the locks constituted a repudiation of the lease, which the first defendant accepted: Exhibit 22. They also claimed damages, and asserted that the previous franchisee had left the premises in breach of the franchise agreement and sublease, and that the client was left negotiating with a new potential franchisee. This is clearly contrary to Mr Graham’s evidence, which is supported by other evidence, that the former franchisee had relocated, and that another franchisee would not be located at this site so close to the other one. This may have been a misunderstanding on the part of those solicitors. I am not persuaded that the defendant suffered any loss as a result of its inability to obtain access to the premises after 20 February 2001, whenever that may have occurred.
- [31]On 4 July 2001 Mr Cruise replied, asserting that the property had been abandoned by the first defendant by February that year, and threatening action to recover loss suffered by the plaintiffs: Exhibit 23. On 27 November 2001 notice of termination of the lease, in reliance on the failure to remedy the breaches of covenant detailed in the notice in form 7 dated 1 March 2001, was given to the first defendant: Exhibit 17.
- [32]At some point prior to 22 January 2002 the plaintiffs’ agent located a replacement tenant for the premises. The plaintiffs had apparently sought a new tenant on the same terms as before, but had stipulated an additional requirement, that the tenant provide a bank guarantee in an amount equal to three months rent: p.16. One proposed new tenant provided a deposit, but ultimately the tenancy did not proceed, apparently because the proposed tenant was not prepared to provide the bank guarantee. The deposit was forfeited and an amount of $2,820 was recovered by the plaintiffs as a result: p. 162, Exhibit 26. Ultimately another replacement tenant was found, who did enter into a lease, commencing on 8 January 2002: p. 19, p. 21, Exhibit 4.
Credibility
- [33]I should say something else about the question of credibility. I have already mentioned some aspects of the evidence of Mr Graham which I found unsatisfactory. Overall he was a thoroughly unimpressive witness; insofar as demeanour tells against a witness, it told against him. He said that he did not recall the notice to remedy breach of covenant Exhibit 13 (p. 169), although this and other notices to remedy breaches of covenant had been served, and I find this assertion surprising. Mr Cruise on the other hand gave his evidence in an open and straightforward way. He did on occasions concede that something he had said earlier was wrong, for example, at p. 125 he conceded that a statement in the letter Exhibit 23 was not correct. There was also some inaccuracy about the time when there were a number of phone calls from Mr Graham, about attempts to locate an alternative tenant. I think he was understandably unimpressed by the willingness of the first defendant to put forward almost anyone who was prepared to pay anything as an alternative tenant, which was unrealistic in circumstances where the plaintiffs had been quite insistent on their rent being preserved, and in circumstances where the plaintiffs were entitled already under the lease to be paid that rent by the first defendant. In these circumstances, Mr Cruise was not particularly impressed by, and hence interested in, the details of this sort of activity on the part of the defendants, and it is therefore unsurprising if there is some unreliability about his evidence about them. But I think that his evidence was honest, and he was giving his best recollection of the event that had occurred. In all the circumstances, to the extent that there is any conflict, I prefer the evidence of Mr Cruise to that of Mr Graham.
- [34]With regard to the evidence of Mrs Chiu, the plaintiff, I think she had communication problems on the first day of the trial when she attempted to give evidence without an interpreter. Although she probably has a reasonable practical grasp of English, it was really not quite adequate for giving evidence in court, particularly under cross-examination. I think that this was the explanation for the difficulties encountered on the first day, not any prevarication or reticence on her part. I thought her evidence was generally given in a straightforward and reliable manner, and I generally accept it. I have no reason to reject any of the evidence given by Mr Jennings.
Did the first defendant repudiate the lease?
- [35]The first issue which arises is whether the conduct of the first defendant prior to 22 February 2001 amounted to repudiation of the lease. The plaintiffs rely on the persistent failure of the first defendant to pay the rent and contributions to outgoings on time, or, after 20 October 2000, at all, and the vacating of the premises. This was a breach of the clause in the lease requiring the first defendant to carry on a particular business in the premises, but it was not just that the business was not being carried on; the business had been moved out completely, so the shop was vacant, and it was being offered as available for lease through real estate agents. The question is whether this means that the first defendant has evinced an intention no longer to be bound by the lease, or an intention to fulfil it only in a manner substantially inconsistent with its obligation and not in any other way.
- [36]That finding is not readily made by courts.[17] In Progressive Mailing House v Tabali Pty Ltd (1985) 157 CLR 17 it was held that there was repudiation by the tenant in circumstances where there was a failure to pay rent for a period of some months, coupled with an express assertion that there was no liability on the tenant to pay rent, because of a failure to carry out certain work satisfactorily. The court held that maintaining the claim that there was no liability to pay rent in circumstances where there was no foundation for such a claim, even if the work had not been carried out satisfactorily, amounted to a refusal to carry out its obligations according to the terms of the lease and a persistence in carrying them out in a way substantially inconsistent with those terms. There had also been some breaches of covenant in relation to repairs, but they were regarded as not deliberate and apparently not of any great significance. Mason CJ noted that in earlier cases where it had been held that there was a repudiation of a lease, the tenant had abandoned the premises, although he expressed the opinion that actual abandonment would not necessarily be required to amount to repudiation.
- [37]What occurred in the present case did not amount to abandonment, because the tenant had retained control of the premises, by keeping them locked up and retaining the keys, and was exercising some dominion over them by placing them in the hands of real estate agents to secure a replacement tenant. So there was no abandonment.[18] There was also no express refusal to pay rent. The first defendant’s attitude was in fact that it was not going to pay rent until some replacement tenant of the premises was found, and indeed it was the defendants’ case that the plaintiff had, through Mr Cruise, accepted that position. However, I have rejected that case, and indeed I am not persuaded that it was ever clearly communicated to Mr Cruise that that was the defendants’ position. Repudiation is not something which depends on the state of mind of the tenant; it depends on what the tenant has made manifest as to its attitude to the lease, that is to say, what has been communicated to the landlord about the state of mind of the tenant.[19] Although there had been a persistent failure to pay rent, nothing had been communicated to the plaintiffs to indicate that the defendant would not pay rent, if rent were demanded.[20]
- [38]No case was cited to me where circumstances like the present have been held by another court to amount to repudiation. In all the circumstances I am not prepared to find that the first defendant had prior to 22 February 2001 repudiated the lease. It follows that the plaintiffs’ action in entering the premises and changing the locks did not amount to an acceptance of the first defendant’s repudiation.
The effect of the changing of the locks
- [39]The defendants submitted that the action of the plaintiffs in changing the locks on the premises amounted to a re-entry and repudiation of the lease by the plaintiffs. The plaintiffs on the other hand relied on clause 16.14 of the lease. That clause provided as follows:
“16.14 Landlord’s rights upon abandonment
If the Tenant vacates or abandons the Demised Premises prior to the Expiry Date or otherwise repudiates this Lease the Landlord may find another tenant for the Demised Premises. The Landlord shall not be under any obligation to find another tenant. For that purpose the Landlord may:
(a) accept the keys for the Demised Premises;
(b) enter upon the Demised Premises;
(c) permit prospective tenants to view the Demised Premises;
(d) advertise the Demised Premises for re-letting;
(e) change the locks of the Demised Premises; and
- (f)otherwise do all such acts as the Landlord may think necessary to renovate restore clean and secure the Demised Premises, without accepting or being deemed to have accepted a surrender of this Lease.
The Tenant’s estate or interest in this Lease shall cease upon:
(g) the Term expiring through effluxion of time;
- (h)the Landlord accepting by written notice a surrender of this Lease;
(i) the Landlord otherwise terminating this Lease; or
(j) any surrender by operation of law.
The rights and remedies of the Landlord including, without limitation, those under this part 16, shall not be affected or limited by this clause. For the purpose of this clause the Tenant vacates the Demised Premises if the Tenant ceases to carry on the Permitted Use for a period of 5 consecutive Business Days without paying in advance the instalments of Base Rent and Estimated Operating Expenses payable in respect of that period.”
- [40]The first question is whether the first defendant had vacated or abandoned the demised premises. As I indicated above I am not persuaded that it abandoned the premises. On the other hand, the business had moved out, and the premises were empty, vacant in popular parlance, and there was a sign put up by a real estate agent offering them to alternative tenants. In a context where the lease refers separately to “vacates” and “abandons” the inference would be that the former word would not require the tenant to do whatever would amount to abandonment of the premises, and in any case the clause contains a definition of “vacates” which was certainly satisfied. Although it is unclear just when the sub-tenant moved out, it is clear that it was much more than five days prior to 22 February 2001 and that during that period the rent was unpaid. That definition was therefore satisfied, but even apart from that, what occurred here amounted to vacating the premises in accordance with the ordinary meaning of that term.
- [41]The defendants submitted that this clause did not relieve the plaintiffs from compliance with s 124 of the Property Law Act, and that is plainly correct. The obligation imposed by that section operates notwithstanding the terms of the lease. But the plaintiffs’ argument is that the whole point of the clause is to prevent certain actions by the landlord, which would otherwise amount to a re-entry terminating the lease, from having that result. In effect the clause says that in the circumstances that have occurred the landlord is entitled to do these things in order to secure the demised premises and facilitate offering them to another tenant, without thereby terminating the lease.
- [42]Ordinarily of course the point about a lease is that it gives the tenant exclusive possession of the demised premises,[21] although it has long been recognised that some rights on the part of the landlord to enter the demised premises for specific purposes are not inconsistent with the proposition that there is a lease. A power conferred in general terms on the landlord to enter the demised premises, change the locks and renovate, restore, clean and secure the premises might well be said to be inconsistent with the grant which is the basis of a lease, but where the right exists only in circumstances where the premises have been abandoned or vacated by the tenant this is not inconsistent with the basic right granted to the tenant under the lease.
- [43]I am satisfied that the plaintiffs’ acts fell within clause 16.14. They were acting for the purpose of attempting to find another tenant, and, not having keys to the premises, had to change the locks in order to put their agent’s sign in the window (thereby advertising the premises for reletting) and to make it possible for prospective tenants to view the premises. Accordingly they did nothing which was not permitted under the lease.
- [44]The question remains however whether the power given by clause 16.14, or perhaps the particular part of that power which was exercised in the present case, was within the scope of the prohibition in s 124 of the Property Law Act, so that doing what the plaintiffs did in the circumstances amounted to a breach of that section.
- [45]Section 124(1) is concerned with a “right of re-entry or forfeiture”. This clause does not confer a right of forfeiture; rather it provides that something done under it will not amount to a forfeiture. In my opinion the reference to “re-entry” in the section is also used in the technical sense, a reference to the process by which a landlord terminates a lease by taking possession of the demised premises back from the tenant. On the face of it this clause is intended to achieve the result that even something which in a practical sense amounts to the retaking of possession would not amount to a re-entry so as to terminate the lease. The question remains however whether that is effective, that is, whether a lease can provide that something which would otherwise amount to re-entry will not do so.
- [46]The essence of a re-entry is that it is an unequivocal act indicating an intention to determine the lease. It has always been recognised that one way in which that can be achieved is by bringing an action to recover possession of the premises. It can also be achieved by physically entering upon the premises with the intention of determining the tenancy, or by attending at the premises and making an unequivocal demand for immediate possession from the tenant in possession: Ex parte, Whelan [1986] 1 Qd R 500. If the tenant has abandoned the premises, the landlord can enter upon the premises without bringing an action, and if this is done with the intention of terminating the tenancy it will amount to a surrender by operation of law. But the landlord can enter without necessarily bringing about a surrender of the term by operation of law. If the tenant abandons premises without the agreement of the landlord, in circumstances manifesting in intention to bring the lease to an end, whether or not the subsequent taking of possession by the landlord brings the lease to an end by surrender by operation of law depends on whether the landlord intends by taking possession to put an end to the lease. But it is recognised that in such circumstances a landlord will not necessarily by taking possession produce that result: Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 1 NSWLR 105 at 133.
- [47]In Oastler v Henderson (1877) 2 QBD 575 the tenant left the premises before the end of the lease and gave the keys to an agent with instructions to let the premises if he could, but if not to try to induce the landlord to accept a surrender. The agent did not succeed in reletting the premises and handed over the keys to the landlord who also attempted to let them but was not successful for some years. During that period the landlord’s workmen were let into two of the rooms for a time, but this was not treated as the landlord’s taking possession of the house, so that there was no surrender effected until the landlord let the premises to two new tenants.
- [48]That case was relied on by the High Court in Buchanan v Byrnes (1906) 3 CLR 704, where a tenant had indicated his intention to abandon the lease of a hotel, and the landlord bought some of the furniture which was being sold by the tenant at auction, and continued to operate the hotel. It was held that this was not necessarily surrender by operation of law. In Wood Factory (supra) the tenant moved out of premises and had persistently failed to pay rent, and had returned the keys to the landlord, who when receiving them expressly indicated that he regarded the lease as still continuing. It was held that there was no surrender by operation of law until the landlord re-let the premises to another tenant.
- [49]These cases show that the crucial question is not whether the landlord is entering onto the premises, but whether the landlord is dealing with the premises in a way which is inconsistent with the continued existence of the lease. Although the plaintiffs in the present case changed the locks, and did not spontaneously hand over a key to the defendants, nothing was done on the premises which would have made it impossible for the first defendant, had it been provided with a key, to re-occupy the premises and continue to carry on the business as required by the lease. Nothing was done which was inconsistent with the express terms of the lease. Indeed, the plaintiff said that if the tenant had paid the rent it would have been given a key to the premises after the locks were changed. That indicates a willingness at that stage to treat the lease as being still on foot, provided the tenant was prepared to do the same thing, although this is really irrelevant as it was not communicated to the tenant at the time. Of course the tenant had no intention of doing so, so the issue never arose. But for practical purposes all that the plaintiffs did was deal with the premises in such a way as to enable them to attempt to re-let the premises. The authorities to which I have just referred all indicate that for a landlord merely to attempt to re-let premises does not effect a surrender by operation of law, which does not occur until the landlord actually leases the premises to someone else. Up to that point it is still open to the tenant to resume possession under the lease. There was no communication from the plaintiffs to the effect that they regarded the lease as at an end.
- [50]That the plaintiffs were not thereby intending to terminate the lease is confirmed by the fact that shortly afterwards, on 1 March 2001, a further notice to remedy breach of covenant was sent by the plaintiffs’ solicitor to the first defendant. That was a clear affirmation of the lease. Had there been prior unequivocal conduct inconsistent with the continuation of the lease of course it may have been too late to seek to affirm the lease on 1 March, but in circumstances where the conduct of the plaintiffs was at least consistent with the continuation of the lease, this act tends to confirm that there was at the earlier time no unequivocal intention to terminate the lease on the part of the plaintiffs.
- [51]I accept that ordinarily for a landlord to change the locks on leased premises and exclude the lessee would amount to taking possession of the premises so as to constitute a re-entry: Curtin v Meadlow Holdings Pty Ltd [2001] QCA 145 at [28]. The basic concept of a lease is that it involves a transfer from the landlord to the tenant of the right to exclusive possession of the leased premises, but it has long been accepted that some qualification of that right is not inconsistent with the existence of a lease. An example is a covenant to enter to view and effect repairs. In my opinion the authorities referred to earlier show that it is not inconsistent with the continued existence of a lease for a landlord to do things on premises which have been vacated by the tenant, with a view to making those premises secure, and facilitating the re-letting of those premises.
- [52]If the tenant had abandoned the premises, the plaintiffs would have been entitled, without the benefit of the specific term of the lease, to do what they did in the present case without effecting a surrender by operation of law. If the premises had been abandoned, the lease is terminated by surrender rather than by re-entry or forfeiture, and s 124 does not apply. Because the tenants in the present case had not abandoned the premises, the plaintiffs were entitled to do what they did only by virtue of clause 16.14 of the lease. But if doing what they did would not have amounted to accepting a surrender by operation of law if the tenant had abandoned the premises, it seems to me that it cannot amount to a re-entry, because it was not an unequivocal act to determine the tenancy. Doing something which one is permitted to do under the lease without determining the tenancy is not an act which is inconsistent with the continuation of the lease, and therefore not a re-entry. Accordingly it was not necessary in the circumstances that have occurred for the plaintiffs first to comply with s 124 of the Property Law Act before they did what they did. That is because the plaintiffs were not thereby exercising any right of re-entry or forfeiture.
- [53]Even if I were wrong about this, and the plaintiffs were purporting to re-enter in breach of s 124, that simply meant that their re-entry was wrongful and not effective to terminate the lease. There is nothing however in the statute which treats a breach of s 124 as a repudiation of the lease by the lessor.[22] In circumstances where the lessor is exercising a power conferred by the lease, such conduct cannot be characterised as a repudiation of the lease. In my opinion therefore, whether or not there was a breach of s 124, there was no repudiation of the lease by the plaintiffs in doing what they did.
- [54]Mrs Chiu’s attitude as expressed in the witness box, to the effect that she would have required the lessors to pay up the back rent before she would have allowed them to move back in and continue to occupy the premises, is irrelevant because it was not communicated at the time to the lessees, and so cannot amount or contribute to conduct constituting a repudiation. In any case, expressing a willingness to continue to allow the tenant to occupy the premises if the tenant is willing to comply with the terms of the lease as to payment of rent and outgoings is it seems to me difficult to characterise as a refusal to comply with the lease or amounting to a willingness to comply with only in a way which is substantially different to its terms. Rather it is an indication of a willingness to comply with the lease provided that the tenant is prepared to do so as well, and I have difficulty in seeing how this could amount to repudiation even if it had been communicated to the defendants. But since it was not communicated at the relevant time, it cannot have that effect.
- [55]Repudiation does not depend on the state of mind of the party to the lease; it depends on what has been made manifest to the other party by words and actions.[23] The actions in this case consisted of changing the locks on the premises, but in circumstances where the tenant had vacated the premises, and where clause 16.14 applied, that could not have amounted to a refusal to carry out the lease according to its terms or only in a way substantially inconsistent with those terms.
- [56]As for words, the only ones relevant are what passed between Mr Cruise and Mr Graham on 5 March 2001, and what was said in the letter of 1 March 2001, Exhibit 16. As to the former, although Mr Cruise initially claimed he had told Mr Graham something about restriction on access to the premises, later he largely resiled from that assertion (p. 129). Mr Graham’s evidence for what it is worth appeared to be to the contrary (p. 178), and on balance I am not persuaded that it was actually said.[24] Exhibit 16 says nothing about any restrictions on access, and forwarding a notice to remedy breach of covenant amounts to a clear assertion that the lease remains on foot. It is therefore inconsistent with any repudiation. The letter of 4 July 2001 (Exhibit 23), mentioned by Mr Cruise in his evidence, said nothing about any conditions on access to the premises, although it did assert that the premises had been abandoned. I have concluded that the premises had not been abandoned, but even if that letter was erroneous in that respect, it is difficult to interpret it as a refusal to carry out the lessors’ obligations according to the terms of the lease, or to require something substantially inconsistent with those terms. That letter of course must be understood in the context where the defendants’ solicitors had, before them, on 14 March 2001 purported to terminate the lease by acceptance of the lessors’ repudiation: Exhibit 22.
- [57]Accordingly I reject the submission of counsel for the defendants that the plaintiffs’ action in changing the locks constituted re-entry and repudiation of the lease. In summary, it did not effect a re-entry for the following reasons:
- (a)In the light of Wood Factory (supra) and the other authorities to which I have referred, if the lessee had abandoned the premises what the lessors did would not have brought about a surrender by operation of law, and accordingly, the lessees having vacated the premises, what the lessors did did not amount to a re-entry.
- (b)Apart from this, clause 16.14 of the lease applied, and pursuant to that clause doing no more than what was done in the present case did not amount to a re-entry so as to terminate the lease.
- (c)If I am wrong about this, and clause 16.14 did not apply, there was no effective re-entry because s 124 had not been complied with, and therefore the lessors’ acts were not able to put an end to the lease.
- [58]I reject the submission that the lessors’ acts amounted to repudiation of the lease, in summary on the following grounds:
- (a)If on the authorities, the lessors’ act was not effective as a re-entry anyway apart from the specific term of the lease (reason (a) above), it could not amount to a repudiation of the lease.
- (b)If I am wrong about that, the lessors’ actions fell within clause 16.14, and actions of the lessor expressly permitted under the terms of the lease cannot amount to a repudiation of the lease.
- (c)Even if contrary to my finding the conduct was not within clause 16.14, at the very least the lessors were arguably acting in accordance with clause 16.14, and had not communicated to the lessee anything which would have amounted to a repudiation of the lease for the purposes of Progressive Mailing House v Tabali Pty Ltd (supra). The mere fact that there was a breach of the lease, or that a party is contending for a particular interpretation of the lease which is ultimately held not to be correct does not amount to repudiation.[25] As mentioned earlier, on the authorities courts do not readily find the repudiation of a lease. This is not a case where the actions of the landlord prevented the tenant from occupying the premises. The only practical effect of the landlords’ actions was that the search for an alternative tenant came to be in the hands of the agent they had appointed, rather than the agent engaged for the same purpose by the defendants.
- (d)Even if there was a breach of s 124 of the Property Law Act that in itself does not mean that the lessors had repudiated the lease. Nothing in the Act produces that result, and indeed there is nothing in Tabali or the other authorities on repudiation of a lease to indicate that the fact that a lessor was acting in breach of s 124 would even be a relevant consideration in determining whether there had been repudiation.
- [59]It follows that the first defendant was not entitled to treat the plaintiffs’ action as amounting to repudiation of the lease and in response to terminate the lease, as the first defendant purported to do by its solicitors’ letter of 14 March 2001. A purported acceptance of a repudiation in circumstances where there has been in truth no repudiation to accept may itself amount to a repudiation of a contract, entitling the other party to terminate. However, it is not alleged by either party that the first defendant had in this way repudiated the lease and that the plaintiffs had accepted that repudiation and thereby terminated the lease. The reply from the plaintiffs’ solicitor on 4 July 2001 does not in terms amount to an acceptance of any repudiation by the first defendant by the letter of 14 March 2001.
Termination of lease
- [60]The first defendant failed to remedy the breaches alleged in the notice of 1 March within a reasonable time. Accordingly s 124 of the Property Law Act had been complied with, and the lease was therefore validly terminated by notice given on 27 November 2001: Exhibit 17. It was not disputed by the defendants that, if the lease had not previously come to an end, it was terminated at that point.
Debts arising before termination
- [61]It follows that the first defendant is liable to pay any amount which became payable under the lease prior to the time when it was terminated. Judgment has already been given in respect of the rent and other moneys payable under the lease up to 14 March 2001. The lease was terminated by the notice given on 27 November 2001. Monthly instalments of rent and estimated operating expenses became payable on or before the first day of each month: Exhibit 1, clause 4.1, 4.2.
- [62]The defendants submitted that there is no evidence of loss as to outgoings in the 2001 calendar year, and no basis for the award in respect of that period. There was however evidence that the estimated outgoings for the 2001 year were $547.52, in the letter from Mr Cruise, Exhibit 15. At the end of the year there was supposed to be a determination of the actual outgoings, and if this differed from the estimated outgoings the difference was to be payable by one party to the other depending on whether the actual outgoings were higher or lower than the estimate. There is no evidence of what the actual amount of outgoings was at the end of this period, but this is not a point raised by the defendants in the amended defence, and accordingly I am prepared to proceed on the basis that there is no evidence that the actual outgoings were different from the estimated outgoings.
- [63]The period from 15 March to 27 November 2001 is a period of eight months 13 days. The monthly rent was $2,821.23[26] and the estimate of operating expenses was $547.52 per month.[27] Hence the amounts payable for this period came to $23,775.59 and $4,614.16, a total of $28,389.75. In respect of past liquidated sums, that is, the amounts payable under the lease prior to its termination, the defendants are liable to pay interest at the default rate of 15 percent per annum under clause 16.6 of the lease. That amount became payable over the period 15 March to 27 November, and the interest payable will be the same as if the whole amount were treated as payable from the midpoint 22 July 2001. The period to judgment is three years 18 days. This comes to $12,985.39.
Damages after termination
- [64]The plaintiffs also seek damages for breach of contract, that is for the loss of the benefit of the lease, which damages extend to the period after the termination of the lease, but only if there was prior to the termination of the lease a breach giving rise to such an entitlement to damages.
- [65]By the time the lease was terminated there had been a failure to pay any rent since October 2000, over 12 months, the tenant had vacated the premises and was therefore persistently and apparently permanently in breach of the covenant to carry on the business in the premises, and the tenant had asserted a right to terminate for repudiation and purported to exercise that right, so that it was asserting that there was no longer a lease in force, and the tenant had done nothing consistent with the continuation of the lease since some time in February 2001. In the light of all those circumstances I am satisfied that by the time the lease was terminated the first defendant had repudiated the lease, so there is an entitlement to damages based on the loss of the benefit of the lease.[28]
Mitigation of damages
- [66]In late February 2001 the plaintiffs engaged an agent to find a replacement tenant. It took a long time before that occurred. A new lease was not entered into until 8 January 2002. However, a question arises as to whether the plaintiffs can recover damages for all of that period, because they failed to accept a tenant who was apparently willing prior to this to take a lease of the premises.[29] That proposed lease did not go ahead, because the plaintiffs wanted some further security in the form of a bank guarantee, which that prospective tenant was not prepared to provide.
- [67]I can understand how the plaintiffs would feel that, following their unsatisfactory experience with the defendants, they would want some better security for proper performance by any replacement lessee. Nevertheless the question of whether the plaintiffs were acting reasonably in my opinion in these circumstances needs to be assessed by reference to the position the plaintiffs would have been in under the lease to the first defendant. I do not consider that it was reasonable for the plaintiffs to require better terms from a replacement tenant than the terms which had been obtained from the defendants.
- [68]The question of whether the plaintiff is acting reasonably in relation to mitigation of loss is something which has to be assessed not in the abstract or only from the point of view of the plaintiffs, but as between the plaintiffs and the defendants. Viewed in that context, in my opinion it was not reasonable for a landlord to claim from a former tenant an additional loss which arises because the landlord sought better terms from a replacement tenant than the terms on which the former tenant held the premises. Leaving aside the question of whether in some circumstances it might not be reasonable for the landlord to accept a replacement tenant on terms which are less favourable than the terms of the former lease, it is difficult to see how in principle it can be reasonable as between the parties for the landlord to require a lease on more favourable terms.
- [69]The difficulty however with relying on this as a failure to mitigate is that there is no evidence that what was being offered by this prospective tenant was otherwise as good as what the plaintiffs had been achieving under the lease to the first defendant, or as good as Exhibit 4. There is no evidence as to terms upon which this prospective tenant was willing to take the premises, and in particular there is no evidence that, had the premises been let to that tenant without the requirement of a bank guarantee, the loss to the plaintiffs would have been any less. It follows that the defendants cannot rely on the failure to enter into this lease to support a claim that there was a failure to mitigate, because they cannot show that the plaintiffs’ damages would have been reduced by entering into a lease with that prospective tenant. The plaintiffs may have ended up better off with the replacement lease that ultimately was entered into. The defendants have therefore failed to discharge the onus of proving a failure to mitigate in this way.
- [70]Apart from the question of whether a lease without a guarantee should have been accepted, there is no evidence of failure to mitigate on the part of the plaintiffs. The defendants’ witness, Mr Jennings, expressed the opinion that advertising (other than a sign in the shop) was not really effective: p.175. That is no basis for a finding that there was a failure to mitigate in not advertising the premises more extensively. No other failure to mitigate on the part of the plaintiffs has been shown.
Calculation of damages
- [71]The replacement lease which was entered into, Exhibit 4, commenced on 8 January 2002: clause 6. Accordingly, part of the damages flowing from the defendants’ breach by way of repudiation is the loss of rent and contribution to outgoing expenses between the date of termination of the lease, 27 November 2001, and the date of commencement of the replacement lease, 8 January 2002. This is one month and 10 days, for which period the loss of rent comes to $3,748.73, and the loss of operating expenses comes to $727.52, a total of $4,476.25.
- [72]The lease, Exhibit 4, was for five years, and therefore ran just beyond the date on which the lease Exhibit 1 concluded, 16 December 2006. It was however on terms which were not as favourable as Exhibit 1, in two respects. The first, the rent during the first year was $35,000 per annum, or $2,916.67 per calendar month, whereas following the rent review due on 16 December 2001 the rent payable under Exhibit 1 would have been $2,962.29.[30] The defence does not assert that this is not the amount which would have been payable per month under Exhibit 1 had it continued, and therefore it seems to me that the correctness of this figure for that purpose is taken to be admitted on the pleadings. Accordingly there was a deficiency in monthly rent of $45.62 per month, at least at the commencement of the new lease.
- [73]Under that lease rent went up by only $1,000 per year for the second year, and $2,000 per year for the third year, with CPI increases thereafter: clause 4.2, and item 7 in the schedule. On the other hand, under Exhibit 1 the rent was increased each year, either by five percent on an odd numbered anniversary of the commencement date, or in accordance with a CPI increase on an even numbered anniversary of the commencement date: Schedule 1, Schedule 2. It seems to me to follow that the rent would have increased faster under Exhibit 1 than it did under Exhibit 4, so the loss increases on each anniversary of the commencement of the new lease. But the plaintiffs have claimed only on the basis of the rate of loss as at the commencement of Exhibit 4. That is to the advantage of the defendants, as is the conclusion that the plaintiffs lost rent at the rate of $45.62 per month during the balance of the term in Exhibit 1. Because of the considerations I have mentioned, that will actually be an underestimate of the plaintiffs’ loss of rent, but that is the only loss of rent that is claimed.
- [74]Although the figures in paragraph 16 of the statement of claim did not reflect the increase in rent to be received by the plaintiffs under the new lease, they also do not reflect the increase in rent which would have been payable under the old lease, and therefore, insofar as they are not comprehensive, they amount to an under estimate of the plaintiffs’ loss.
- [75]The plaintiffs however also claim that they have lost the benefit of the clause in Exhibit 1 under which the lessees were obliged to contribute to the operating expenses. Exhibit 4 contains no equivalent provision. The estimated operating expenses in 2001 were $547.52 per month.
- [76]In the period covered by the new lease, there would presumably have been a different amount of estimated outgoings, and ultimately actual outgoings, but there is no reason to think that these would have been less than the outgoings estimated for 2001, and every reason to think that they would have been more.[31] Accordingly the plaintiffs have lost at least the amount of $547.52 per calendar month in respect of the balance of the term of Exhibit 1. Accordingly the total monthly loss to the plaintiffs during the balance of the term of the lease was not less than $593.14 per month.
- [77]For the months from January 2002 to August 2004 this loss has already accrued, and so for that period I will allow 32 months at $593.14 or $18,980.48. There are however three adjustments to be made to this. The plaintiffs incurred additional costs because of the new lease, legal fees of $3,259.88 (Exhibit 6) and commission to the real estate agents of $5,833.33 (Exhibit 5).[32] Set off against this must be the amount received from the forfeited deposit of one prospective tenant, $2,820 (Exhibit 26). After these adjustments, the loss from January 2002 comes to $25,253.69. For the balance of the term of Exhibit 1 there are a further 27 months of future loss, an undiscounted amount of $16,014.78, but I accept that that should be discounted on the three percent tables in respect of the period of 2.25 years,[33] at the rate of $136.51 per week, which becomes a discounted loss of $15,152.61.
- [78]In respect of the past damages, I will allow interest under the Supreme Court Act 1995 s 47 at eight percent per annum. The first part of the damages accrued between 28 November 2001 and 7 January 2002, so I will allow interest from 18 December 2001, 2.6 years, $931.06. The second part of the damages accrued from March 2002 to now, so I will allow interest at four percent from March 2002, 2.4 years, which comes to $2,424.35. This gives a total for interest on damages of $3,355.41. Accordingly the plaintiffs are entitled to judgment against each defendant for a total sum of $89,613.10, made up of:
- (a)Payable under the lease $28,389.75
- (b)Interest under the lease $12,985.39
- (c)Damages – past $29,729.94
- (d)Interest by statute $3,355.41
- (e)Damages – future $15,152.61
Conclusion
- [79]The amended defence filed 4 September 2003 omitted the counter-claim, and accordingly it is not necessary for me to say anything further about the counter-claim; it has been abandoned.
- [80]There will accordingly be judgment that the defendants pay the plaintiffs $89,613.10. The defendants are of course liable jointly and severally. I will hear submissions in relation to costs, but unless some other order is appropriate the defendants should pay the plaintiffs’ costs of the action, to be assessed, except to the extent that those costs have already been dealt with.
Footnotes
[1] The name of the first defendant has subsequently changed to “ACN 009696379 Pty Ltd”. On the first day of the trial an order was made to amend the proceeding accordingly.
[2] That judgment was satisfied a couple of weeks before the trial: p. 130.
[3] Graham p. 195-6; the subtenant paid the rent directly to the plaintiffs.
[4] It follows that there is no substance to the matters raised in paragraph 9(b) of the defence.
[5] Rent was paid directly to the plaintiffs’ bank account, so he would be aware of any late payment only if instructed: p. 42.
[6] There were a number of other phone calls during October. Mr Cruise said five or six, (p. 63) and that he told Mr Graham that the rent had to be paid up to date before the plaintiffs would agree to any assignment: p. 66.
[7] Graham at p. 168 volunteered November, but was then led to 26 October.
[8] Confirming telephone advice on 1 December: Exhibit 19.
[9] See for example Exhibit 25.
[10] If so, it means that the first defendant had signed up to pay too high a rent. Had it not done so, the plaintiffs would not have paid as much as they did to buy the premises.
[11] See also Graham p. 163.
[12] Letter 4 February 1998, in Exhibit 7.
[13] See also p. 184: “He was saying that he always wanted the rent to be paid”.
[14] See for example p. 31.
[15] See also Mr Cruise at p. 111. I understood this evidence as indicating that Cruise was careful about what he could actually recall, but was well aware of the plaintiffs’ attitude.
[16] Because they did not have a key to the existing locks, they had to change the locks to enable them to make a key available to those agents, to enable them to show the premises to prospective lessees.
[17] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 657.
[18] See also BBF Toowoomba Pty Ltd v Nebrean Pty Ltd [2001] QSC 313
[19] Laurinda (supra) at p. 658.
[20] The first defendant was failing to carry on the ice cream shop business in the premises, in breach of the lease (clause 7.1) but that was not of sufficient significance to amount to repudiation.
[21] Radaich v Smith (1959) 101 CLR 209 at 222.
[22] The lessor would be in breach of the covenant for quiet enjoyment, and would also be liable in tort for trespass: Butt, “Land Law” (4th Ed 2001) p. 342.
[23] Laurinda (supra) p. 658.
[24] I note that counsel for the defendants in para 58 of the written submissions sought a finding that this was not said.
[25] DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431-2. See also Inverstanley Holdings Pty Ltd v South East Queensland Water Corp’n Ltd [2004] QSC 201, and the authorities reviewed at [101] – [113].
[26] Statement of claim para 9, admitted defence para 4.
[27] Exhibit 15.
[28] Progressive Mailing House v Tabali (supra) at p. 55-56.
[29] The plea of failure to mitigate is paragraph 12 of the defence.
[30] This is alleged in para 16 of the amended statement of claim. Under Exhibit 1 schedules 1 and 2, the rent was 105 percent of the previous month’s rent, so the figure is correct.
[31] If necessary I can fall back on the presumption of continuance. I must assess damages as best I can on the evidence available.
[32] The amount shown in this exhibit is more than the amount claimed in the statement of claim, which I have allowed.
[33] Using a multiplier of 111.