3JM Pty Ltd v Turnbull - [2012] NSWDC 1

District Court

New South Wales

Medium Neutral Citation: 3JM Pty Ltd v Turnbull [2012] NSWDC 1
Hearing dates: 6, 7, 8, and 9 September 2011
Decision date: 20 January 2012
Jurisdiction: Civil
Before: Levy SC DCJ
Decision:
1.Verdict and judgment for the second defendant;
2.The plaintiff is to pay the second defendant's costs on the ordinary basis unless otherwise ordered;
3.The exhibits may be returned;
4.Liberty to apply on 7 days notice if further orders are required.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: LEASES & GUARANTEES - claim by lessor against guarantor of lease - unpaid rent and outgoings of commercial premises and cost of clearing land after re-entry by the lessor for alleged breaches of the lease - whether ambiguity established requiring construction of lease - whether claims made out - whether claimed losses relevantly caused by breach of lease
Legislation Cited: Civil Liability Act 2002, s 5D, s 5E
Uniform Civil Procedure Rules 2005, Sch 7 cl 5(c)
Cases Cited: Angel v Hawkesbury Council [2008] NSWCA 130
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 33
Dashwood v Magniac [1891] 3 Ch 30
Masterton Homes Pty Limited v Palm Assets Pty Limited [2008] NSWSC 274
Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Category: Principal judgment
Parties: 3JM Pty Ltd (Plaintiff)
Bros Bins Pty Ltd (First defendant - a deregistered company)
Joshua Herschall Ernest Turnbull (Second defendant - guarantor)
Representation: Mr CD Freeman (Plaintiff)
(No appearance for first defendant)
Mr J Turnbull in person
Maurice Harrison & Associates (Plaintiff)
(No appearance for first defendant)
Mr J Turnbull in person

File Number(s): 2010/328964

Judgment

Table of Contents

Nature of case

[1] - [3]

Background

[4] - [8]

Issues

[9]

Summary of findings

[10] - [14]

Evidence overview

[15] - [24]

Credibility and reliability of testimony

[25] - [27]

Facts

[28] - [122]

Issue 1 - The ambiguity and construction issue

[123] - [139]

Issue 2 - The breach of lease issue

[140] - [189]

Issue 3 - The guarantee issue

[190] - [193]

Issue 4 - The damages issue

[194] - [228]

Conclusion & disposition

[229]

Costs

[230]

Orders

[231]

Nature of case

The plaintiff, 3JM Pty Ltd, as trustee for the Richards Units Trust, is the owner of industrial land situated at 1/109 Gow Street, Padstow.

As lessor of the premises, the plaintiff initially brought these proceedings against two defendants, Bros Bins Pty Limited, formerly known as Recycling Australia Pty Ltd as first defendant and former lessee of that land, and against the second defendant, Mr Joshua Turnbull, as guarantor of the first defendant's obligations under the lease. During the lease, the lessor had permitted the premises to be used by the lessee in its business of sorting and recycling waste building materials.

The claim against the first defendant was for damages for unpaid rent, outgoings, land clearing costs and interest following the lessor's termination of the lease and re-entry into the premises. The claim against the second defendant is made pursuant to a guarantee of the liabilities of the first defendant under the lease.

Background

Before the parties signed a lease on 2 April 2009, which was deemed to have commenced on 1 January 2009, there was an existing tenancy agreement between the plaintiff and the first defendant for a monthly tenancy. In that tenancy, and for some considerable period of time beforehand, the plaintiff had also permitted the first defendant to conduct a business that involved the sorting and recycling of waste building materials.

The plaintiff's claim against the first defendant, the lessee, did not proceed because on 23 January 2011 the first defendant had become a deregistered company. Accordingly, that company took no part in the proceedings. As a result, any issues that arose under the former tenancy agreement between the plaintiff and the first defendant, including claimed back rent under the agreement, did not form part of the consideration of these proceedings.

Instead, the plaintiff proceeded against the second defendant, Mr Turnbull, the former sole director of that company, in his more limited capacity as guarantor of the first defendant's liabilities that arose specifically under the lease.

Until 28 April 2011, Mr Turnbull had been represented by solicitors. At that time, his former solicitors filed a notice indicating that they were ceasing to act for him. Thereafter, Mr Turnbull was self-represented, and he remained so throughout the hearing, conducting his own defence.

The plaintiff's total claim was identified in the amount of $191,082.90. The plaintiff conceded credits to be offset from that claim in the amount of $15,442. The amount of that conceded credit was a matter of contention by the second defendant. The statement of claim identified the balance of the claim under the lease to be in the amount of $175,640.90, plus pre-judgment interest. In final submissions, that amount was adjusted to $174,637.39. After making required adjustments, including for pre-judgment interest, the plaintiff sought a verdict and judgment against the second defendant in the amount of $189,125.61.

Issues

As the proceedings now only involve the second defendant, the following residual issues remain for determination in these proceedings:

Issue 1: Whether there was a relevant ambiguity in the provisions of the lease, and if so, how should the lease be construed (" the ambiguity and construction issue ");

Issue 2: Whether there were any relevant breaches of the lease which justified the plaintiff terminating the first defendant's tenancy on 23 November 2009, when the plaintiff re-entered and took possession of the premises, and if not, what are the legal consequences of that re-entry (" the breach of lease issue ") ;

Issue 3: Whether the second defendant's guarantee of the first defendant's obligations under the lease applies to the claim made by the plaintiff (" the guarantee issue ") ;

Issue 4: The amount, if any, of the plaintiff's entitlement to damages against the second defendant pursuant to the guarantee (" the damages issue ") .

Summary of findings

I have found that before 2009, in connection with the first defendant's longstanding tenancy of the premises, the parties had a history between them of informal dealings and exchanges of industrial favours for mutual benefit.

I have found that in 2008 and in 2009, the plaintiff wanted to undertake capital works in connection with the premises it owned, but it lacked the financial and other resources to afford to do this. As a result, the plaintiff entered into a lease with the first defendant, which was guaranteed by the second defendant, and which provided for those works to be carried out. The lease provided for the first defendant to be relieved of the obligation to pay rent to the plaintiff under the lease to the extent of the value of the proposed capital works.

I have found that some of the critical terms of the lease were left in a deliberately ambiguous and clumsy form, which required construction of the contract between the parties. I have found on that construction, it could not be reasonably concluded that the first defendant was relevantly in breach of the lease. Instead, I have found that the ability of the first defendant to carry out the works required by the lease had become frustrated by the conduct of the plaintiff.

Accordingly, I have found that the guarantee provided by the second defendant, and which the plaintiff sought to invoke in these proceedings, does not relevantly arise for consideration for enforcement. As a result, I have found that the plaintiff is not entitled to damages against the second defendant in respect of the guarantee, as was claimed.

In relation to the damages issues, I have found that if, contrary to my findings, the plaintiff had succeeded in establishing a relevant breach of the lease, nevertheless, the plaintiff's claimed losses had not been relevantly caused by the actions of the first defendant company: s 5D and s 5E of the Civil Liability Act 2002. I have also found relevant failures on the part of the plaintiff to mitigate its claimed losses.

Evidence overview

Affidavits were read as follows:

(a) Mr Grant Richard, a director of the plaintiff company, sworn 16 February 2011;

(b) Mr Robert Harris, the accountant for the plaintiff company, sworn 15 February 2011;

(d) Ms Grace Silveira, the solicitor for the plaintiff, sworn 12 August 2011.

The lease signed by the parties was the document that was crucial to the consideration of the issues in the case. The lease, which comprised a 45-page document, and some related correspondence, was exhibited to the affidavit evidence. I will refer to the detail of this material where relevant.

In the case for the plaintiff, oral evidence was given by Mr Harris, together with oral evidence from Mr Grant Richards and his sister and co-director, Mrs Megan Stevens. These witnesses were all cross-examined on the content of their affidavits. I shall refer to the relevant portions of the evidence of these witnesses in my findings and in my reasons for those findings.

The evidence of Mr Harris was directed at matters of negotiation that led to the signing of the lease. He confirmed that his role had been to simply work out heads of agreement with which both parties would be comfortable. He agreed that in the financial arrangements between the parties, it was not intended that the plaintiff would receive the benefit of the agreed capital works at the premises, and at the same time, receive rent from the first defendant for those premises.

There was an issue as to whether it was the intention of the parties that ultimately, when the capital works were to have been completed, the value of the works would be accounted for in terms of a commensurate rent free period, or whether there would be a rent free period pending the completion of the capital works. The value of the capital works, which were to be undertaken and completed by the first defendant at its own cost, was estimated to be of the order of $250,000.

In addition to the affidavit evidence, the plaintiff tendered exhibits in the series "A" to "F".

Exhibit "A" comprised materials produced on subpoena by Gow Street Recycling Pty Limited for services, which that company had provided to the plaintiff between about 26 March 2010 and 21 April 2010. Those documents were relevant to the plaintiff's claim for damages concerning the claimed incurred cost of removing material from the premises after the first defendant had been excluded when the lease had been terminated by the plaintiff.

Exhibit "B" comprised a copy of a development application lodged by the first defendant company with Bankstown Council on 4 November 2002 concerning the premises, which were at that time being used as a car wrecking yard. The proposed use listed in that document was for the separation and sorting of building waste. The exhibit also contained copies of a facsimile letter dated 4 October 2006 addressed to Bankstown City Council from the Department of Environment and Conservation seeking assistance with an investigation of suspected asbestos waste on the premises, and a suspicion that a stockpile had been placed on the premises unlawfully. The bundle also contained a handwritten file note dated 7 February 2007 concerning a meeting that occurred at the offices of the Department of Environment and Planning on that date.

Exhibit "C" comprised a copy of a surveyor's plan of the premises. Exhibit "D" comprised a copy of a letter dated 16 August 2009 from Mr Turnbull on behalf of the first defendant, and addressed to the plaintiff. That document enclosed a number of annexures, to which I will refer in my reasons in due course concerning their significance to Mr Turnbull's defence of the claim made against him by the plaintiff. Exhibit "E" comprised a 2011 Google " street view " photograph of the premises. Exhibit "F" was a summary of the invoices from Gow Street Recycling Pty Limited referring to some 1414.15 metric tonnes of materials having been removed from the premises by that company between about 26 March 2010 and 21 April 2010.

In the case for the second defendant, Mr Turnbull was the only witness. In addition to his affidavit, which was sworn on 30 July 2011, Mr Turnbull tendered a copy of his contractor's licence issued by the Department of Fair Trading, indicating that he was a licensed bricklayer and stonemason, carpenter and joiner, dry plasterer, excavator, general concretor, glazier, painter and decorator, roof tiler, wall and floor tiler, waterproofing technician and wet plasterer: Exhibit "1". In addition to those qualifications, Mr Turnbull was also a qualified demolisher.

Credibility and reliability of testimony

On behalf of the plaintiff, an attack was made on the truthfulness of the evidence given by Mr Turnbull on the subject of whether he in fact had a partial development consent for the use of the premises to sort and recycle waste building materials. Mr Turnbull did not concede the correctness of that attack, and his rejection of it was in part borne out by a document from Bankstown City Council.

During the course of final submissions, I indicated I was not satisfied that Mr Turnbull had given untruthful evidence, as was put to him, or otherwise. In my view, despite the difficulty of him being self-represented, Mr Turnbull gave his evidence honestly and truthfully. I am satisfied that his evidence was both truthful and reliable.

For the reasons I have outlined where it was relevant to do so in my reasons for judgment, on critical matters, I have preferred the evidence of Mr Turnbull as being more reliable and correct when compared to the conflicting evidence of Mr Richards and Mrs Stevens.

Facts

I set out my findings of fact in the paragraphs that follow. Where there was a relevant dispute of fact, I have identified the dispute in the context in which it arose, together with my reasons for resolving those disputed matters.

Against the background of his longstanding involvement in the building industry, including as a licensed builder and demolisher, between 2001 and 2008, through the variously named corporate vehicle that had comprised the first defendant company, Mr Turnbull conducted a business of sorting and recycling waste building materials at the premises rented from the plaintiff.

The history of the plaintiff's ownership of the premises was that in the past, they were held in conjunction with combinations of entities and management personnel. It is not relevant to review those historical arrangements as the residue of the present proceedings are only concerned with an action over a guarantee arising from and within the terms of the lease between the remaining parties.

As at early 2008, the first defendant company had the benefit of a monthly tenancy of the plaintiff's premises at an agreed monthly rent plus GST and certain outgoings. The history of the relationship of the parties was that they had in the past conducted their common business interests with some informality, which at times had extended to the mutual exchanges of industrial services or favours in lieu of the exchanges of monies for those services.

Over time, those mutual informal arrangements became more formal when, apparently due to rearrangements within the shareholding and management of the plaintiff company. Following those events, Mr Grant Richards took charge of the management decisions of the plaintiff company in the place of his father, Mr Jim Richards.

In 2008, prior to the parties entering into the formal lease which is the subject of these proceedings, and against the background of proposed capital improvements to the premises, there were discussions between landlord and tenant over back rent owed by the first defendant. In those discussions, it was clear that the plaintiff company wanted to have some capital improvements carried out on the premises but it could not afford to have these works carried out on the basis of commercial payment. In the course of these events, before the first defendant signed the lease in question, a lease of the premises in question had also been offered to another prospective tenant.

In those events, it appeared that the first defendant company had the presence, the expertise, and the capacity to carry out the works contemplated by the plaintiff. The inference that I draw from these circumstances is that the first defendant was seen by the plaintiff to be the most advantageous tenant for its own purposes. As a result of those dynamics, the parties considered that it was in their mutual interests to come to a practical arrangement on the matters of rent and capital works. That arrangement was described by Mrs Stevens as one that was necessarily clumsy in its terms because the plaintiff could not afford to pay for this work. The arrangement was based on heads of agreement drawn up by Mr Harris after consulting with Mr Turnbull.

The effect of that clumsy arrangement whereby the first defendant company would carry out agreed capital improvement works to the premises in return for a rebate or an offset from its liability to pay rent to the plaintiff to the value of these works.

As the plaintiff no longer proceeds against the first defendant company, it was no longer relevant to analyse those events in further detail.

In August 2008, the commercial relationship and plans of the parties were unfortunately interrupted to a degree and placed on hold for some months because of Mr Turnbull's family situation.

As part of the background to the dealings between the parties it is relevant to here record that on 9 August 2008, Mr Turnbull's wife Sophie unfortunately took her own life in tragic circumstances. This was as a result of her condition of post-natal depression, as was described by Mr Turnbull. The relevance of these events to this litigation is that at the time Mr Turnbull signed the lease, and at the times he participated in the subsequent dealings with representatives of the plaintiff, he was, as he described it, and which I accept, in a terrible emotional state. That however does not serve to avoid the consequences of an agreement that the parties entered into at that time.

According to the evidence of Mrs Stevens on this topic, the plaintiff gave Mr Turnbull and the first defendant some space in time, about 6 months, to assist Mr Turnbull to come to terms with and deal with those events, both personally and in terms of the mutual business relationship. This was obviously a difficult time for Mr Turnbull both personally and in respect of the day-to-day business operations of the first defendant.

It was against that background, that on 2 April 2009, the parties entered into a formal lease of the premises, which incorporated aspects of that intended arrangement concerning the proposed capital works. The lease was for a 5-year term commencing on 1 January 2009 and terminating on 31 December 2013, with 2 further options for renewal for a total potential tenancy of 15 years. The agreed rental was $3500 plus GST per calendar month ($3850) plus 100 per cent of the cost of the outgoings, including GST on those outgoings.

The negotiations for that lease took place between Mr Turnbull on behalf of the first defendant company, and Mr Harris, the accountant representing the plaintiff company. In that agreement Mr Turnbull guaranteed the liability of the first defendant company under the terms of the lease.

The clear intention of the parties was for capital works to be carried out on the premises in return for a rental rebate for the value of the capital works so that the capital works would be " repaid in full ", meaning that the value of such works would be offset against the rent and outgoings that would have otherwise been due for payment.

The arrangement that I have summarised in the preceding paragraphs was embodied in clause 31 of the lease which was in the following terms:

"31. RENT FREE

The parties have agreed that certain capital works are required to be undertaken on the subject property and that the costs of the same are to be borne by the Lessee. The capital works consist of concreting which is to be undertaken in three stages, namely:-

(a) Stage 1 - top one third of the land area - to take approximately 2 months;

(b) Stage 2 - middle section of the land area - to take approximately 2 months; and

(c) Stage 3 - demolition of the bottom shed, installation of a retention tank and concreting of this area - to take approximately 3 months.

The Lessee is to provide the Lessor with a full detailed costing of the total capital works such costings to include specifications of the concrete, its thickness, the retention tanks to be installed, demolition of the old buildings, such costings to be examined by the Lessor's consultants for accuracy. The cost of the Lessor's

consultants shall be borne by the Lessor. The Lessor's consultants shall check the progress of the works on a progressive nature to ensure that what has been completed, has been completed in accordance with the agreed specifications - in particular the thickness of the slab prior to the laying of the concrete. Subject to the Lessee complying with the above, the Lessor shall grant the Lessee a rent free period equivalent to the total cost of the capital works. for example if the total cost of the works is $35,000.00 then the Lessee shall be granted a 10 month rent free period commencing on completion of the capital works." (sic)

In due course I shall return to a consideration of clause 31 in connection with Issue 1 concerning the construction of the last 6 lines of the above quotation, which has been accurately reproduced above, as punctuated in the lease.

As is evident from the terms of clause 31 of the lease, the time frame for the completion of the capital works was loosely approximated as being 7 months. The word " approximately " appearing in clause 31 of the lease takes on some significance in this case as the correspondence to which I will shortly refer shows, because in contrast, the plaintiff company seems to have proceeded on the basis that the 7 months estimate was in fact a total time frame that commenced from the time when the lease was signed.

It is clear from the described nature and extent of the works, that some time would have to be taken up with the planning and execution of the works in question. The evidence of Mr Turnbull on this topic was that some of the preparatory planning was carried out by him before the lease was signed. I accept that evidence, particularly where the lease contains no stipulation to the contrary. The defined stages for the works, as set out in the lease, did not specify the precise order in which the preparatory work would be undertaken for the 3 identified stages, as distinct from those stages themselves. The 3 stages of the proposed capital works were identified by the placement of the handwritten numbers 1, 2 and 3, which were marked in pencil on the survey plan of the premises that comprised Exhibit "C".

Although the lease was executed on 2 April 2009, it was clearly intended by the parties that the lease would commence to have effect from 1 January 2009 for 5 years, with options for renewal for 2 further periods of 5 years. Clearly, the first defendant had planned for a significant business operation involving the recycling of waste building materials to be conducted from the premises.

The terms of the lease were silent as to the actual dates by which the first defendant company would have to both commence to carry out, and to complete, the contemplated capital works. Accordingly, in light of that identified ambiguity, certain aspects of the agreement between the parties had to be construed both from the wording of the lease and from other evidence drawn from the surrounding circumstances: Codelfa Constructions Pty Lt d v State Rail Authority of NSW [ 1982 ] HCA 2 4 ; (1982) 149 CLR 33 . Relevantly , the expectation of Mrs Stevens was that the timing of the requirement to commence the physical work involved in these capital works was after the lease had been signed.

As the outcome of the claim against Mr Turnbull arising under the guarantee that was embodied within the lease is dependent upon matters of construction of the agreement between the parties, it is therefore necessary to set out in summary form, some of the general effects of the lease, before considering the specific matters calling for decision.

The effect of the lease was to allow the premises to be used for " builder's waste recycling " for the specified term of 5 years with options for renewal. The lease contained a number of standard terms that are commonly described in drafting parlance as " boilerplate ", and which clearly had no application to the premises, for example, the references to lifts and escalators, window surfaces, plate glass and air-conditioning equipment.

The lease also contained a number of contextually defined terms. Significantly, a number of matters which are relevant to the determination of this dispute, including the terms " rubbish ", " builder's waste recycling ", " recycling ", " accumulation of useless property ", " thorough state of cleanliness ", " refuse " and " first class premises ", were not relevantly defined, and the meanings of those terms must be derived from an objective commonsense contextual analysis, and according to ordinary use of language.

In the paragraphs that follow I set out a summary of the relevant provisions of the lease.

There was a severability and reading down provision that allowed for the possibility that a particular provision may be found to be unenforceable or void: lease, page 7 of 45.

There was no warranty from the lessor as to the permitted use of the premises; lease, clause 6.3.

The lessee was obliged to keep the premises in a thorough state of cleanliness, and not allow any accumulation of useless property or rubbish: lease, clause 7.8.

Similarly, the lessee was obliged to remove all wet refuse and other waste materials periodically so that they do not become visible from " Common Areas " (which were defined as areas not licensed, designed or intended for use by tenants or other occupiers in common with the lessee) and for the lessee to comply with the directions of the lessor from time to time: lease, clause 7.9.

In addition, there was the general obligation on the lessee to maintain the premises and to keep them in a state of good and substantial repair and in working order and condition as first class premises, fair wear and tear excepted, with the exception that the lessee was not obliged to carry out structural work where the need for such work was not necessitated by any act, neglect or default of the lessee in its use and occupancy: lease, clause 8.1.1.

There were 4 specific requirements or obligations on the lessee, according to the requirements of clause 8.1.1. I shall refer to and analyse them in turn as follows.

The first requirement, according to clause 8.1.1(a) was to keep and maintain clean in good working order, repair and condition all fittings, plant furnishings and equipment of the lessee. Although there was no reference to fixtures, such as a retaining wall or fence, for the purposes of the lease, I shall proceed upon the basis that the fence and retaining wall came within the meaning of fittings.

The second requirement, according to clause 8.1.1(b) was to from time to time make good any breakage, defect or damage to the common areas or to any adjoining premises or facility or appurtenance of adjoining premises occasioned by any want of care, misuse or abuse by the lessee, or otherwise occasioned by any breach or default of the lessee, including under the rules and regulations made under the lease.

An examination of the evidence alongside the requirements of the 10 regulations made under the lease does not reveal any relevant breach of an applicable regulation that would require a conclusion that the lessee was in breach of the lease on account of those regulations.

There was no evidence that the first defendant used the car park of the premises for storage of containers, goods, wares or merchandise of any description: lease regulation 2. Nor was there any evidence of the first defendant carrying on , in or upon the car park any noxious, nois ome, offensive activity to the annoyance, nuisance, disturbance or damage of other persons: lease regulation 3. Neither was there any evidence that the first defendant had placed any dirt, rubbish, trade waste or garbage in the car park area: lease regulation 4. In this regard, and in this context, I draw a distinction between " dirt " as mentioned in the lease, in the sense of it being rubbish, and " dirt " which was stockpiled by the first defendant as part of it's trading stock recovered from the recycling process. There was no evidence of the infringement of any other of the 10 regulations described in the lease.

A similar examination of the evidence against the 12 rules made under the lease does not reveal any relevant breach of an applicable rule that would require a conclusion that the lessee was in breach of the lease on account of those rules.

There was no evidence of obstruction to the areas described in rule 3, or in the common areas specified in rule 4, or parking infringements as referred to in rule 5, or any storage or placement requirements as provided for in rule 6.

The third requirement, according to clause 8.1.1(c) was to from time to time immediately repair all plate glass windows, and all damages or faulty heating, lighting and electrical equipment installed in the premises. No relevant breach has been proven in relation to this sub-clause as there was no evidence of specific defaults by the lessee concerning these matters.

The fourth requirement, according to clause 8.1.1(d) was to maintain and keep in good working order all lighting equipment and illuminated signs attached to the premises. As was the case with clause 8.1.1(c), there was no evidence called by the plaintiff to establish a relevant breach of this sub-clause.

In return, the obligations on the lessor included permitting the lessee to have peaceable possession and quiet enjoyment of the premises without interruption or disturbance from the lessor: lease, clause 11.1(a). This is a matter to which I shall return in connection with the consideration of Issue 2 .

Provision was made in the event of default under the lease. Relevant to the circumstances of this case, the lease provided that in the event of rent or monies payable on demand remaining unpaid for 14 days, or the failure to perform any express or implied covenants not waived or excused by the lessor in writing, this constituted default under the lease, as did a failure on the part of the lessee to effect repairs, maintenance or replacement within a reasonable time following a request to do so: lease, clause 14.1. The reference to implied covenants is not relevant to these proceedings. The plaintiff only proceeds upon the express covenants as claimed.

In this regard, as the question of back rent relating to the tenancy that preceded the lease was not mentioned in the lease, I consider that a failure of the first defendant to pay back rent could not properly be characterised as being a breach of the lease.

In the event of any deemed default of any essential or fundamental covenant or provision of the lease, or a default under clause 14.1, the lessor was permitted at any time to re-enter and take possession of the premises and eject the lessee without any prior demand or notice, and determine the lease: lease, clause 14.2.

In the event of a breach of essential and fundamental terms of the lease being established, here relevantly being the payment of rent and outgoings due under the lease, a failure of repair and maintenance, this entitled the lessor to damages: lease, clauses 14.4.1(a), (b) and (d), and 14.4.2. This clause has to be read in conjunction with clause 31 which provides for a rent free period to cover the proposed capital works. In this context, according to the limited terms of the lease. This supports the view that the relevant rent in question must be the rent payable under the lease and not any back rent owing by the first defendant.

In the event of any damage done to the premises, the buildings or the land in consequence of removal of stock-in-trade or chattels, the lessee was deemed to be liable for this and in respect of any costs incurred by the lessor for the removal of these things: lease, clause 15.4.2.

The lease also provided for the lessee to be liable for the removal of garbage and waste materials from the premises: lease, clause 27.

I have already referred to the rent-free period to be applied to the value of the proposed capital works. That work was identified as being in 3 stages comprising concreting work to the top one third of the land, the middle section of the land, and the demolition of the structure referred to as the bottom shed, together with the construction of a retention tank and associated concreting: lease, clause 31.

The lease contained a contamination clause which required the lessee to indemnify the lessor from liability for contaminants which may make the premises unsafe or unfit for human[s] or animals, or degraded in any way or materially diminishing in val[u]e: lease, clause 32. In my view, that provision must be construed to apply to contamination caused by the activities of the first defendant on the premises.

It is clear from the lease, that the second defendant, Mr Turnbull, agreed to a comprehensively expressed guarantee that was embodied within the lease: lease, clause 28. I shall refer to the significance of that clause in my consideration of Issue 3 .

As lessee, the first defendant's obligations to carry out certain tasks under the lease were very different to Mr Turnbull's obligations under the lease, which must be strictly limited to the terms of his guarantee. This must in turn be related to the alleged breaches of the lease that were specifically relied upon by the plaintiff in issuing its breach and termination notices.

I now turn to the relevant events that followed the signing of the lease on 2 April 2009, and then to the events that unfolded from that time up until the lease was terminated, some 7 months later, on 23 November 2009.

On 5 May 2009, some 33 days after the lease was signed, the plaintiff wrote to the first defendant noting that the amount owing for back rent of $8817.74 from the previous tenancy agreement had not yet been paid. As the lease itself, which is the basis of these proceedings, made no reference to back rent, this is not a relevant matter for me to consider. The letter dated 5 May 2009 also noted that a detailed plan for the capital works had not yet been received, and that compliance with government requirements in relation to the first defendant's business remained to be addressed. The fact that these matters remained outstanding, whilst undoubtedly a matter of concern for the plaintiff, do not constitute a relevant breach of the lease, and these matters, together with the back rent claim, do not form part of the consideration in these residual proceedings against Mr Turnbull under the terms of the guarantee.

In any event, the correctness of the assumption that there were no council plans must be doubted in view of the later evidence of Mrs Stevens where she conceded that she must have seen such documents and paperwork and where she conceded that her affidavit evidence to the contrary was not accurate.

It is clear from the terms of the letter dated 5 May 2009 that the plaintiff was seeking to advance the first defendant's preparation for the works, with an air of some impatience. It is also clear that the plaintiff was seeking to unilaterally alter the previously agreed terms that governed the relationship between it and the first defendant. The fact that such a course was being embarked upon by the plaintiff did not automatically mean that the terms of the already signed agreement which was embodied in the lease would, without the passing of further contractual consideration between the parties, then be altered.

Critically, in that regard, the remainder of the 5 May 2009 letter from the plaintiff to the first defendant company, was in the following terms:

"...

The problem of leasing the property is further compounded in that in your email of 23/10/08 you stated that the capital works would be undertaken in 3 stages. To date only the demolition of the bottom shed has occurred. As outlined in your email, and agreed to by 3JM Pty Ltd the capital works had a total time frame of 7 months. If rent had been paid during this time the delay in doing the capital works would be easier to accept. Therefore putting it bluntly we have had enough and seek your assistance in getting the capital works completed as a matter of priority or alternatively pay the back rent in full which is outstanding from 1/11/07.

Therefore, we request the following plan be adhered to:-

1. - No more fill to be placed on the land until the existing stockpile is reduced to a more acceptable level. The acceptable level which was outlined to you today is to be in line with the bottom of the colorbond fence. We expect this to be done by 15/5/09. Whilst we understand that you have a business to operate, we fe e l sufficient time has elapsed in the past to have this stockpile reduced to a more acceptable level. The request to reduce the stock pile has been made to you verbally on numerous occasions and unfortunately we continue to see the pile grow bigger and bi gger. Hence we have had enough.

Whilst we are prepared to work with you and as a final measure of good faith, if you feel that this action cannot be achieved by 15/5/09, would you kindly provide us by this same date a satisfactory time frame showing how the stock pile w ill be reduced to the agreed level. The stockpile in future is not to exceed this agreed level.

2. - Detailed plans for the capital works to be provided to us by 22/5/2009 detailing the acceptable time frame for finishing the capital works.

3. - No more demolition of the buildings or the removal of existing concrete is to be undertaken on the property site until you provide us with your detailed capital works plans and this has been agreed to by u s in writing.

4. - Written assurance by you that your company is adhering to full compliance of any government or stautory requirements relating to the operation of your business from the premises.

In summary, we feel sufficient time has elapsed and expect that you adhere to your side of the lease / agreement by doing the capital works as agreed.

We look forward to receiving your written responses and acknowledgment to the above questions. Please feel free to contact us or alternatively contact Ron Harris should you wish to discuss the matter further.

Yours sincerely

Megan Stevens

Director

3JM Pty Ltd

Hi Rob"

[Emphasis added]

By this letter the plaintiff sought to assert a position that " a total time frame of 7 months " was agreed for the capital works, when in fact the period of 7 months was only expressed in the lease as an approximation without a specified commencement date. It is clear that the author of the letter dated 5 May 2009 had proceeded upon a contrary wrong assumption that 7 months was the total time frame for the capital works when the lease was silent on the starting and finishing dates for the works.

The plaintiff's comment within that letter as to the delayed works being " easier to accept " if rent had been paid during the delay was also based on a misconception of the agreement embodied in the lease, because, as was conceded on behalf of the plaintiff, there was no expectation of payment of rent whilst the works remained incomplete. In this regard, the works had already been partly commenced. This was variously, by the demolition of a shed on the premises, the planning of the works as already referred to, the various movements of the stockpile, and work carried out on Stage 1, as appears from the following evidence given by Mr Turnbull, which I accept:

"Q. I put to you that in relation to stage 1, no work at all was done in relation to stage 1 by yourself, by Bros Bins, by its employees or by any third party contractor.

A. That's not entirely true.

Q. What was done?

A. In one of the many times that I cleared the materials off stage 1, I dug with my excavator a trench from the I think southern side where the workshop was to the right of way which I believe is the northern side, and I laid a series of preparatory pipes and cables or lighting, dust control, watering devices, and hopefully a new power supply to the workshop, as the old power supply was insufficient.

Q. In fact the power supply was cut off, wasn't it?

A. It was cut off when I did that work, yes."

It would therefore appear from the correspondence that I have cited, that the plaintiff was seeking to incorrectly redefine the obligations of the first defendant under the lease.

In the same letter, the plaintiff made it clear that it would be pursuing a more defined timetable for the works, which was a different regime to that which had been outlined and agreed to in the lease, where, for whatever reason, and which I assume had some sound commercial basis, there was no such defined timetable. This was understandable given the nature and extent of the capital works that were under discussion at the time the lease was signed, and the arrangements necessary for those works were described as a mov ing feast that was evolving day- b y- day due to the need to make adjustments to the plans for such works because of other factors including encroachment of a nearby weighbridge and a near by right- of- way for an adjoining property.

It was plain from this letter dated 5 May 2009, that the plaintiff was seeking to place pressure on the first defendant beyond the terms agreed to in the lease, and was seeking to bind the first defendant with new terms.

The plaintiff was on the face of it, asserting an understanding of the need of the first defendant to conduct its business, yet at the same time, and somewhat inconsistently, it was pressuring the first defendant to reduce its stockpile, that is its business stock, to what I interpret to be at or a little above ground level, which would appear to make little commercial sense for the continued operation of the first defendant's business.

In my view, by the use of expressions such as " putting it bluntly, we have had enough ", and requiring the first defendant to reduce its stockpile whilst at the same time expecting the first defendant to somehow carry on its business under such constraints, and at the same time requiring the plaintiff to undertake substantial and expensive capital works for the benefit of the plaintiff at the first defendant's own cost, was seeking to unilaterally impose unrealistic commercial conditions on the operations of the first defendant. This was contrary to the non-specific terms of the lease that the plaintiff had entered into with the first defendant.

There was nothing in the specific terms of the lease that permitted the plaintiff lessor to dictate to the first defendant lessee the " acceptable " levels of stock to be stockpiled on the premises, yet this is precisely what the plaintiff was seeking to achieve by its letter dated 5 May 2009. I infer from these circumstances, and from such unrealistically proposed economic trading conditions that were being pressed onto the first defendant by the plaintiff, that the plaintiff was in effect, either intentionally or unintentionally, setting up the first defendant's business for potential failure.

Subsequently, on 9 July 2009, which was only about 3 months into the approximated 7 month period for the anticipated works, the plaintiff, by its solicitors, issued a notice of breach of covenant addressed to the first defendant company and to its then solicitor, alleging breaches of clauses 7.8, 8.11 and 10.2.2 of the lease. The notice stated that the lessor was entitled to re-enter the premises or forfeit the lease in the event that the lessee failed to comply with the notice within 21 days. The due date for compliance with the notice dated 9 July 2009, was 30 July 2009.

I find that these events within the correspondence that I have thus far reviewed, marked a period of great instability in the personal and business relationship between the parties and which later resulted in the termination of the lease by the plaintiff.

Since the subsequent re-entry into the premises relied upon by the plaintiff related to allegations of specific breaches of the lease, those alleged breaches require examination to determine whether they in fact reasonably arose as claimed by the plaintiff.

The plaintiff's allegations of breaches of covenant on the part of the first defendant were expressed as follows:

" NOTICE OF BREACH OF COVENANT

...

With reference to the lease of the premises at 1/109 Gow Street, Padstow, dated the 2 nd April 2009 from 3JM Pty Limited A.C.N. 079506157 to Recycle Australia Pty Limited A.C.N. 053 474 310 and the covenants by the Lessee therein contained, namely:-

7.8 The Lessee shall keep the Premises in a thorough state of cleanliness and shall not allow any accumulation of useless property or rubbish thereon

8.1.1 The Lessee will maintain repair and keep the Premises in good and substantial repair, working order and condition as first class Premises.

10.2.2 The Lessee will not at anytime do or allow any act or thing to be done to the Premises or bring or keep anything on the Premises which may render void or voidable any other insurance policy which is obtained by the Lessor.

And the breach by you of these covenants, the Lessor gives you notice and requires you to remedy those breaches by:-

(a) Removing the existing stockpile to a level which is in line with the bottom of the colour bond fence and to immediately cease placing more fill on the Premises

(b) Remove machinery from the top of the stock pile to a safer area

(c) Repair the retaining walls on the boundary that have been damages (sic) as a result of the ever increasing stock pile

(d) Ensure that no fill is to (sic) placed or falls on the common driveway which will impede its use by adjoining neighbours.

Dated this 9 th day of July 2009."

The remedial work s sought by the plaintiff were first, the removal of the first defendant's stockpile effectively to or near ground level, as the expression " in line with the bottom of the colour bond fence " would seem to have no other reasonable meaning from the context; secondly, the removal of machinery from the top of the stockpile, which effectively prevented the stockpile from being moved by machinery; thirdly, the repair of retaining walls on the assumption that the " ever increasing stock pile " caused them to be damaged; and fourthly, the prevention of fill placement on the common driveway to avoid impeding use by adjoining neighbours.

It seems to me that the unilateral requirement of the plaintiff that the first defendant remove its stockpile was contrary to the terms of the lease which permitted the lessee to have quiet enjoyment of the property, and which permitted the placement, sorting and storage of the first defendant's trading stock on the premises: lease clause 11.1(a).

Similarly, the unilateral requirement that the first defendant move it's industrial machinery seems to have been based upon an unqualified expression of opinion as to safety, which was unsupported by any cogent explanation in the evidence to the effect that the location of the machinery posed any significant safety risk of any kind. There was no evidence of a relevant safety issue concerning industrial machinery and the stockpile.

The requirement that the retaining walls be repaired would, on the face of the notice of breach seem to be a reasonable request, provided that the damage to the retaining wall was due to the operations of the first defendant such that clause 8.1.1 could be invoked to require the first defendant to effect repairs to that wall if such damage was due to the activities of the first defendant, absent fair wear and tear. Although the cause of the need for repair was a fact assumed by the plaintiff, on the evidence I consider that this requirement nevertheless remained an unproven factual matter upon which I should not speculate as to the cause of the damage complained of by the lessor.

The allegation of fill material either falling onto or being placed on the common driveway is a matter for analysis as to the validity of the assumption that the reference to the " common driveway " in the letter, equated to the " common areas " referred to in the lease. There was also the unproven matter as to who had placed the fill in that position, and when this had occurred.

The lease defined the interpretation of " common areas " to mean all those parts of the land, including the car parking area, not let or licensed to tenants, or intended to be used by other occupiers of the land. I shall return to this definition in connection with the consideration of whether or not the plaintiff has established a relevant breach of the lease in that regard.

It seems plain from the letter of 5 May 2009, and from the notice of breach dated 9 July 2009, that the plaintiff had, from a relatively early stage during the currency of the lease, decided to seek to exclude the first defendant from the premises before the agreed approximate time frame for the carrying out of the capital works referred to in clause 31 of the lease. Similarly, it seems plain that the plaintiff was seeking to not only place increasing pressure on the first defendant company in order to try and achieve that outcome before the expiry of the agreed term of the lease, but the plaintiff was also seeking to alter the first defendant's business operation conditions by reference to the size of its stockpile, and therefore limit the ability of the first defendant to carry on its business.

On 3 August 2009, which was a little more than 4 months into the approximated 7 month period for the contemplated works, it appears that the first defendant had not adequately responded to the plaintiff's 9 July 2009 letter and notice of breach letter, because on this date, the solicitor for the plaintiff wrote to the solicitor for the first defendant in the following terms:

"...

We refer to our letter dated the 9 th July 2009.

We are instructed that, despite the Notice of Breach of Covenant having been served on the Company, it has failed to comply with the notice. In fact, on a visual inspection of the subject property by our client, there was no appreciable reduction in the stockpile which existed at the time of the service of the said Notice on the Company.

We have been instructed to advise that unless the Company complies with the said Notice by the close of business on the 13 th August 2009, our client will re-enter the subject premises and the lease will be at an end. Should this occur, proceedings will be commenced against the Company and the guarantor, Joshua Turnbull to recover the costs of remedying the matters referred to in the said Notice."

The solicitor for the plaintiff was, by the letter dated 3 August 2009, asserting on behalf of the plaintiff, that " there was no appreciable reduction in the stockpile which existed " at the time the notice of breach had been issued. The basis of that observation, which was necessarily subjective, was self-serving in an adversarial sense, and should not be regarded as representing cogent proof that there had been no appreciable reduction in the stockpile. The statement was in effect, the expression of an unsubstantiated opinion, which was necessarily subjective in its nature.

In fact the evidence of Mr Turnbull is to the contrary. He stated that the stockpile moved up and down in size, and in those fluctuations, it had been cleared many times over. I accept that evidence as being more likely to be c orrect as Mr Turnbull had a day- to- day presence on the site.

By the time of the plaintiff's 3 August 2009 letter, although the date of the plaintiff's threatened re-entry into the premises had been put back from 30 July 2009 to 13 August 2009, the working relationship between the parties had in effect broken down.

These events were undoubtedly stressful to Mr Turnbull in his circumstances, but that is not a consideration that I may take into account in analysing these events.

What then followed was a meeting that took place at the premises in the days leading up to 17 August 2009. The meeting was attended by Mr Richards, Mr Brad Stevens and Mr Turnbull. The plaintiff sought to make much of this meeting. No minutes of that meeting were tendered, however, following that meeting, on behalf of the plaintiff company, Mrs Stevens who was not present at the meeting, wrote to the first defendant in the following terms:

"...

We refer to the meeting which was held last week between Grant Richards and Brad Stevens from 3 JM Pty Ltd and you.

We are writing to document what was discussed in that meeting so as to confirm those discussions and to reiterate what we expect to occur over the next few weeks.

1 - Formal Council Plans. It has been agreed that you will supply us with a stamped copy of your council plans showing what has been approved in order to comply with your D/A. Would you kindly include surveyor's, structural and hydraulic plans again which have been stamped by council for our evaluation. As discussed we expect these to be in our hands by 20 August 2009.

2 - Removal of the remaining excess stockpile of dirt by 13 September 2009.

3 - Payment of the back rent of $8,817.34 by 1 September 2009. As previously stated this is the portion that 3 JM Pty Ltd is entitled to up until the date of set tlement. John Hartney and Paul Downey are entitled to a similar amount but we understand that you have provided skip bins to them in exchange for this.

4 - Our previous letter dated 5 May 2009 in essence outlined what was expected in terms of the lease and what we required in terms of you operating your business at the property. We are disappointed that we are now writing again to request similar information and to outline our requirements.

5 - The retaining wall located on the driveway boundary was cracked and we require this to be repaired at your cost.

Please find enclosed a copy of the spreadsheet showing the amount of outstanding rent (including GST) which is payable. You will note that the outstanding rent now totals $67,064.52 and covers, the period 19 March 2008 to 31 August 2009. As this rent in essence covers the proposed capital works, we would like you to demonstrate to us how you can cover the construction works to this value. In other words as the landlord we have already allowed you to do capital works to this value but have very little to show for it at present. We are therefore concerned that you may not have the necessary capital to fulfil your side of the agreement.

Finally, we require this information to be provided to us as promised by the due dates. Failure to observe these requirements will leave us with no alternative but to review the terms of the lease with a view towards terminating it.

Yours sincerely

Megan Stevens

Director"

In that letter, the plaintiff sought, amongst other things, to require the first defendant to observe the new conditions sought to be imposed by the plaintiff in the conduct of the first defendant's business. The plaintiff also sought to blame the first defendant for cracks that were evident in a retaining wall at the premises, and called upon the plaintiff to repair that damage. The plaintiff also sought, wrongly in my view, to combine the back rent issue (which was not covered by the lease or by the second defendant's guarantee) with the rent monies remaining unpaid under the lease at that time.

In addition, the plaintiff speculatively asserted that the first defendant may not have the necessary capital to fulfil its obligations under the lease. As a consequence, the plaintiff threatened to review the lease with a view to terminating it.

This was a surprising position for the plaintiff to take in view of the guarantee that the plaintiff had obtained from Mr Turnbull. In my view, the plaintiff's reference to the suspected financial position of the first defendant in that letter indicated a resolve on the part of the plaintiff to terminate the first defendant's lease at the earliest possible time, and upon grounds that were not provided for within by the terms of the lease.

On 23 November 2009, on behalf of the plaintiff company, Mrs Stevens wrote to the first defendant terminating the lease of the premises. The letter of termination was in the following terms:

"...

We refer to your lease between 3 JM Pty Ltd & Recycle Australia Pty Ltd (now known as Bros Bins Pty Ltd) dated 2 April 2009 and hereby advise that we have terminated the lease effective from today. Accordingly as landlord 3JM Pty Ltd has taken possession of the property.

This decision has not been made lightly and we draw your attention to our letter dated 17 August 2009, whereby we sought information in order to assess what work you proposed to do at 1/109 Gow Street, Padstow. This request also requested payment of outstanding rent. To date this information has not been provided, nor has the rent been paid and to put it simply we have had enough. The final straw came earlier this week when we visited the property and noticed that part of the property had already been concreted. This work has been done in direct contravention of our requests to view the appropriate plans, engineer specifications etc to enable us to evaluate the project. We have also made it clear in the past that no concreting was to be done without 3 JM Pty Ltd having our nominated engineer evaluate the form work before the pouring of the concrete. This has not happened and therefore we have been left with no other alternative but to terminate the lease.

Naturally we seek your assistance in removing as soon as possible the balance of the waste material from the property, payment of the outstanding rent in full, removal of the site office shed, removal of your storage bins and your equipment. You will note that we have secured the property and accordingly you will need to make suitable arrangements with us in order to remove your equipment.

Yours sincerely

Megan Stevens

Director"

It is clear from the second paragraph of that letter, that the plaintiff had based its decision to terminate the first defendant's lease, at least in part, on purported concerns held by the plaintiff over the first defendant's financial ability to carry out the capital works at a time which was only some 4 months into the currency of the lease and still well within the approximated time frame of 7 months estimated by the first defendant. In other words, the plaintiff had in effect decided not to afford the first defendant the agreed opportunity to complete its side of the bargain as was embodied within the lease and which was secured with a personal guarantee.

After the plaintiff re-entered and took possession of the premises, it arranged for the placement of a fence around the premises so as to exclude Mr Turnbull from entry to his business. The plaintiff had placed a makeshift fence around the property. Mrs Stevens conceded that this step had the effect of stopping the first defendant, or in effect, Mr Turnbull, from conducting business and deriving his sole source of income in order to support himself, his family, and to pay his staff.

Thereafter, on 21 December 2009 the plaintiff obtained a report from David Lane Associates. Those consultants advised that all soils on the stockpile on the premises would have to be disposed of as general solid waste in a landfill as portions of the stockpile and a test pit were respectively noted to have contamination by fibro cement fragments containing asbestos, and asbestos containing materials.

Mr Turnbull took issue with the claimed cause of that asbestos contamination. The state of the evidence adduced by the plaintiff on this issue was the subject of criticism from Mr Turnbull as to the cause of such contamination. He denied this was due to his operations on the site. In his submissions he pointed to ample opportunities for site contamination to occur after he had been excluded from the premises. Ultimately, the cause of the contamination is a matter that the plaintiff must prove.

Subsequently, between 20 March and 21 April 2010, the plaintiff arranged for external contractors, Orange Bins and Gow Street Recycling, to remove the first defendant's stockpiled materials from the premises and dispose of them. In this regard, the evidence comprising invoices from those companies show that loads were removed from the premises between 23 March 2010 and 21 April 2010, at a total cost of $107,022.58, including GST. The plaintiff sought reimbursement of this sum from Mr Turnbull under the guarantee.

Before dealing with the legal issues raised in the proceedings, lest it be thought I have not given sufficient consideration to matters that appeared to be related in time to the death of Mrs Turnbull, I wish to record the following remarks.

Whilst the loss of his wife and the mother of his daughter was a sad and tragic misfortune for Mr Turnbull, there was no suggestion in the evidence that he was not capable of handling his business affairs. That said, on the evidence of Mr Turnbull, which I accept, there is little room for doubt that in the months following the untimely passing of his wife, and until the time when the plaintiff company re-entered the premises, Mr Turnbull was having to deal with a lot of difficult personal and family issues. I have no doubt that those events had a substantial distracting practical impact and negative bearing upon his ability to attend to the day - to- day affairs of his business, and the decisions that would have been involved in connection with such matters. This would also have undoubtedly had an impact upon the commercial operations of the first defendant that was contemplated by the parties.

Whilst those events naturally evoke great sympathy for Mr Turnbull's circumstances as were described in the evidence, and which now extend to the fact that he is homeless and without fixed address, with the result that he is presently dependent upon the kindness of friends and relatives for the day-to-day needs of himself and his daughter, with one exception, such considerations can play no part in analysing the contractual arrangements between the parties.

Instead, the contractual documents, namely the lease, stands to be construed in the context in which it was created. The exception to which I have referred, relates to the explanation for the chronology of events that concerned Mr Turnbull's obligations under the lease. Obviously, there were some delays. Whilst these may be understandable in the context of Mr Turnbull's personal situation, ultimately, the obligations have to be viewed against the requirements of the lease. Whilst this may render the events understandable, considerations of sympathy cannot be the basis of determination of the contractual rights and obligations of parties to a dispute, especially where they sought to define those rights, obligations and potential remedies by executing a lease.

Accordingly, the consideration and resolution of the issues between the parties must proceed upon the interpretation of the meaning and effect of the lease, and the application of the principles of the law of contract to the relevant events. That consideration follows.

Based on timing of the signing of the lease and the evidence of Mrs Stevens, on an objective analysis of the intention of the parties, I find that the obligation of the first defendant to commence the physical components of the contemplated capital works programme could only have reasonably started after 2 April 2009. A different construction would impose a retrospective obligation to commence as yet un-commenced works. In my view, that is a construction that lacks business efficacy.

Issue 1 - The ambiguity and construction issue

Where it becomes necessary to consider the obligations arising under the lease, and whether those obligations have been breached, where there is an ambiguity of the terms of the obligations, where reasonably possible, the question must be determined according to considerations of reasonableness as well as ensuring the requirements of business efficacy: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, at p 179, [40].

Returning to the terms of clause 31 of the lease, the plaintiff submitted that there was no relevant ambiguity in the wording of that clause. In contrast, Mr Turnbull's position was that there was a relevant ambiguity. The issue is of critical importance to the outcome of the proceedings.

In the present case, the fundamental contractual principle is that absent an ambiguity in the lease, the parties are bound by the documents they have signed: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [43]-[47]. However, if a relevant ambiguity is shown to exist, then regard may be had to the surrounding circumstances in construing the document, in this case, being the lease: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 33 , as applied in Masterton Homes Pty Limited v Palm Assets Pty Limited [2008] NSWSC 274, per Einstein J at [26]-27].

The starting point of this part of the analysis is therefore to determine whether or not an ambiguity exists in clause 31. In my view, a relevant ambiguity is apparent in the last two sentences of clause 31, which, for convenient reference, I shall again cite below:

" ... Subject to the Lessee complying with the above, the Lessor shall grant the Lessee a rent free period equivalent to the total cost of the capital works. (sic) for example (sic) if the total cost of the capital works is $35,000.00 then the Lessee shall be granted a 10 month rent free period commencing on completion of the capital works."

The question that immediately arises is whether the phrase " commencing on completion of the capital works " raises an ambiguity. In my view it does, because of the manner in which the concluding lines of the clause has been punctuated. The provision for a rent-free period equivalent to the cos t, which I take to mean value, w here the works were to be performed by the first defendant, ends with a full stop. What then follows is just an example. That example is expressed to operate " on completion of the capital works ."

I consider the example raises a relevant ambiguity because when the clause is read as a whole, the uncertain cumulative estimates of time of " approximately " 7 months, when read with the rent free period, must be read with business efficacy or a sensible business operation in mind. In that regard, the concluding sentence of clause 31 that contains the example is just that, an example, and not the operative part of the lease.

A further ambiguity in the clause is the uncertainty of the term " approximately " in connection with the duration of the work, taken together with the unspecified commencement date for the works. In my view, these elements render the contextual meaning of clause 31 to be sufficiently ambiguous to require that the lease be construed to give it business efficacy or a sensible business operation.

For that purpose, I have had regard to the evidence of the intention and understanding of the parties. In this regard, the person who drafted the heads of agreement, Mr Harris, was of the firm view that it was not intended that the plaintiff obtain the benefit of the proposed capital works and at the same time receive rent to that value: T 38.7 to T 38.17. Furthermore, in his email to the first defendant in the negotiations that led to the lease being prepared, Mr Harris made that position very clear, in the following terms:

"In exchange for your payment of the capital works you will have no rent to pay until the cost of the capital works is repaid in full."

The understanding that the rent free period should subsist pending the completion of the capital works was confirmed as fact by Mrs Stevens at T 47.10 to T 47.15, as a concession made to Mr Turnbull during cross-examination. That question was not the subject of objection.

In my view, these circumstances justify the need to construe the last two sentences of clause 31 of the lease in the context of the lease as a whole. In taking that view, I am mindful of the need, without good reason, for courts to avoid re-writing the agreement of the parties to seek to avoid apparently harsh, inconvenient, capricious, unjust or unreasonable results, save in the case of ambiguity: Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114, per McColl JA at [69].

On being satisfied that a relevant ambiguity has arisen, I find the lease falls within this category of exceptions to the general rule that requires the document to be interpreted by reference only to its agreed content.

Accordingly, I construe the lease as requiring the first defendant to commence the capital works at an uncertain time. The uncertainty of that timing was necessarily so because of the planning and regulatory requirements that needed to be resolved before the major construction components of the works could commence. Having regard to the history of the site and the regulatory inspections of the site before the lease was executed, I consider this to have been the reason for the lack of precision or certainty behind the word " approximately " in the definition of the stages of the capital works referred to in clause 31.

The works obviously required the first defendant to either pay an external contractor to do the works, or to itself carry out the works, which were labour intensive, concurrently with its own business operations, which were also labour intensive, or to possibly give the works a priority over its own operations. In my view, having regard to the estimate d value of the works, the latter proposition lacked business efficacy or a sensible commercial or business operation because it would be unreasonable for the first defendant to effectively cease its business operations in order to , in effect , become it's landlord's banker and contractor by carrying out the work in return for a rent free period.

In this sense, the financial position of the plaintiff is a relevant consideration. It clearly could not afford to pay for the works. It therefore opted for what was described as the " clumsy arrangement " embodied in clause 31 of the lease. This was a practical and pragmatic arrangement that suited both parties at the time they struck their agreement. This was consistent with the representation made to the first defendant on behalf of the plaintiff by it's accountant, Mr Harris.

I therefore find that the agreement between the parties involved the deferral of the obligation of the plaintiff to pay rent until the completion of the contemplated capital works. In my view, the words to the contrary in the example cited in clause 31, namely " commencing on completion of the capital works " are severable on the ground that they create an uncertainty in conjunction with the provisions of the remainder of the document. As such, the operation of those words is voided because of uncertainty.

In coming to this conclusion I have had regard to the submission made on behalf of the plaintiff that the first defendant " had the best of both worlds - no rent and no payment for capital works." That submission assumes a static state of affairs on the premises and ignores the effect of Mr Turnbull's efforts in carrying out preparatory tasks, and as well as some of the required work as described in the portion of Mr Turnbull's evidence that I have extracted at paragraph [8 4] above, whilst at the same time acceding to the distracting requests of Mr Richards for the stockpile on the premises to be reduced.

Whilst it is true that the parties were each represented by legal practitioners at the time the lease was drawn up and executed, legal representation does not of itself operate as insurance against the eventuality that a provision in a lease turns out to be void for uncertainty. Instead, the ambiguity so created must be construed in its context, as I have sought to do, as above.

Issue 2 - The breach of lease issue

There can be no reasonable basis for disputing that if a relevant breach of the lease by the first defendant is established, subject to a causation analysis, this would in turn invoke the liability of the second defendant as guarantor under the lease, to pay damages to the plaintiff in the event the first defendant was unable to satisfy the payment of those damages: lease clause 28(3)(d).

According to the notice of breach, the plaintiff claimed that the first defendant company was in breach of the lease by permitting rubbish and waste materials to be accumulated and stored on the premises, as well as keeping a stockpile of dirt on the premises, thereby causing damage to a boundary retaining wall. As a consequence, the plaintiff claimed that there were relevant breaches of clauses 7.8, 8.1.1 and 10.2.2 of the lease. Subsequently, the plaintiff sought to claim an additional breach due to the alleged failure of the first defendant to pay rent under the lease from the time the lease commenced on 1 January 2009 until it was terminated on 23 November 2009 : paragraph 11 of the statement of claim and clause 4.1 of the lease.

Apart from the rent claim, which I shall shortly consider, those alleged breaches of the lease involved an alleged failure to keep the premises thoroughly clean and without the accumulation of useless rubbish: lease clause 7.8; an alleged failure to keep the premises in good repair as first class premises: lease clause 8.1.1; and taking actions that allegedly may void the plaintiff's insurance policies: lease clause 10.2.2.

The basis of the plaintiff's underlying claim was that consequent upon such alleged breaches, on 9 July 2009, it gave the first defendant company a notice to remedy the breaches, and following an alleged failure on the part of the first defendant to do so, this resulted in the plaintiff re-entering the premises on 23 November 2009. Those events then led to these proceedings.

The nature and content of these allegations requires that each of the allegations be examined in detail.

Alleged breach of clause 4.1 of the lease

I find that the first defendant was not in breach of clause 4.1 of the lease concerning the requirement to pay rent from the commencement of the lease until its termination on 23 November 2009.

It is clear from the lease, and from the surrounding circumstances of their transaction, that the parties envisaged an unusual commercial arrangement between themselves whereby the first defendant occupied the premises under the lease and would also have the benefit of a rent-free period commensurate with the cost or value of the proposed capital works.

Crucially, the lease did not provide either a commencement or completion date for those works. The agreement to that effect was not as a result of any mistaken belief or clerical error on the part of either party. Instead, the parties deliberately set these terms as they had their commercial reasons for agreeing to such an ambiguous and clumsy arrangement. It was clearly advantageous for each of them, especially where the plaintiff could not afford to commercially pay for the works it wanted to have carried out, and the first defendant had the skills, the presence on site, and the labour capacity to have those works carried out over time, concurrently with the operation of its business of sorting and recycling waste building materials on site.

It is clear that the capital works were to be carried out over time, hence the use of the word " approximately " to describe the 3 stages of the work in clause 31 of the lease. Whilst the progress of the work had undoubtedly been delayed, and whilst this caused some obvious impatience amongst the directors of the plaintiff company, absent a refusal of the first defendant to carry out the agreed works, and there was no such refusal, the circumstances did not allow the plaintiff to treat the non-payment of rent as a relevant breach as was claimed in paragraph 11 of the statement of claim. That point only arose and was pleaded by the plaintiff opportunistically, after the termination of the lease. It did not form a relevant or notified basis for the termination of the lease.

The claim that the non-payment of rent constituted a breach of clause 4.1 of the lease was contrary to the terms of the agreement entered into between the parties, especially clause 31, as I have construed it. The plaintiff is not able to now assert an entitlement to rent under the lease in addition to the capital works it required to be carried out on its behalf. This component of the claim ignores the effect of the agreement as to the rent-free period the plaintiff entered into with the first defendant.

Accordingly, I find that the plaintiff cannot reasonably maintain that rent was due and payable under the lease pending the completion of capital works, especially where, as I find, the plaintiff terminated the first defendant's lease precipitously, and wrongfully according to the terms of the agreement. It follows that there was no relevant breach of clause 4.1 of the lease at the time the lease was terminated by the plaintiff.

Alleged breach of clause 7.8 of the lease

Clause 7.8 of the lease relevantly requires the lessee to keep the premises first, in a thorough state of cleanliness, secondly not to allow any accumulation of useless property, and thirdly, not to allow any accumulation of rubbish.

In the absence of an agreed definition of these terms in the lease, the lease requires interpretation involving ordinary use of language, consistent with ensuring, so far as is reasonably possible, business efficacy.

The requirement to keep the premise s in a thorough state of cleanliness must, in the context of industrial land, be a relative term that must have regard to the use of the premises for the sorting and recycling of builder's waste. For example, in the context of a builder's waste sorting and recycling yard, the term could not mean a state of cleanliness such as free from dust or even small or large particles of building materials, as this would appear to be inconsistent with the activity of sorting builder's waste for recycling on the premises. It could not, for example, have a meaning equivalent to a state of cleanliness that is required of places where food is kept or served, or where medial treatment is given, as those activities involve differing uses of premises. Furthermore, the context could not equate cleanliness with a state of tidiness, as there was no requirement in the lease for the premises to be kept tidy or in a state that did not involve mess. In my view, this analysis demonstrates the subjective nature of the requirement in the context of the agreed use.

As there was no evidence of the plaintiff having relevantly brought unclean materials onto the premises, or that the plaintiff allowed the presence of unclean materials on the premises, I do not consider there has been any relevant breach of the requirement of keeping the premises in a thorough state of cleanliness.

The requirements of not allowing the accumulation of useless property or rubbish also involve terms that are both relative in their nature. The subjective nature of the term useless property, is at once apparent. The term begs the question: useless to whom?

In my view, the context of the agreed use of the premises provides the answer to this question. Because the agreed use of the premises was for sorting and recycling building waste, the term useless property could not be reasonably interpreted to mean waste building materials. The definition of useless must be informed or aided by a consideration of the purpose for which the waste building materials were on the premises, namely for recycling. This must lead to the conclusion that building waste on the premises was intended for recycling, and could therefore not reasonably be considered to be useless.

Furthermore, the adjectival term useless could not reasonably mean useless to the lessor, as the permitted use of sorting and recycling of waste building materials on the premises was a use allowed by the lessor, and any requirement by the lessor for that activity to cease during the currency of the lease must be seen as being inconsistent with the lessor's covenant of quiet enjoyment for the benefit of the lessee. In addition, the term accumulation could not be prescriptive or absolute . It must also be relative because no attempt has been made in the lease to define the term accumulation by reference to the location, volume or height of stockpiles of accumulated materials.

There was evidence that there were accumulated piles of dirt on the land comprising the premises, which I interpret to mean there were piles of saleable soil and fill, as is evident from the evidence of Mr Turnbull. By definition, that could not reasonably be said to be useless, even though the quantification of the accumulation was not empirically described or measured. Instead, I interpret the presence of that material to be part of the first defendant's trading stock for sale. Again, by definition, that could not be reasonably considered to be useless.

As there was no evidence of an unreasonable accumulation of useless property, I do not consider there has been any breach of the requirement that the lessee not allow the accumulation of useless property on the premises.

The requirement that the lessee not allow rubbish to accumulate on the premises has simply not been made out. Rubbish in this context cannot refer to waste building materials that are on the premises for sorting and recycling, as this was the very purpose of the lease. Even assuming that there was a residual quantity of such materials on the premises that could not be considered to be recyclable, and therefore justifying a construction that some of it was rubbish, there was no evidence that provided proof that this was the case, either in a noxious form or offensive quantity, or at all.

In this context, the question of asbestos contamination of the premises was raised. In this regard, the plaintiff tendered a letter from David Lane Associates dated 21 December 2009, which was addressed to Mr Warren Daley. The connection of Mr Daley to the premises or to the litigation remains unclear. Nevertheless, the letter requires consideration.

It appears from the letter, that on an unstated date prior to 21 December 2009, David Lane Associates obtained from the site in question a series of 5 samples of soil, stones, plant matter, synthetic mineral fibres, fragments of fibro plaster, plaster, glass and debris. Of those samples, chrysotile asbestos was found in a fragment or in fragments of fibro plaster cement from sampling site numbered 3 of 5. It appears from the tendered documents that the sample was forwarded for analysis on 1 December 2009.

The documentation attached to the David Lane Associates correspondence comprised laboratory certificates, which were not readily understandable without expert explanation. None of the documents complied with the requirements of the expert witness code within the Uniform Civil Procedure Rules 2005, namely UCPR Schedule 7 clause 5(c). That is not a criticism of t he author of the correspondence, as it is not clear as to whether a rules- compliant expert report had been requested.

Aside from questions as to whether or not the materials accompanying the letter from David Lane Associates relied upon by the plaintiff comprised expert evidence, and accepting the statement within the letter that there was some asbestos found on the premises at sample site 3, the question remains as to whether the first defendant was responsible for the presence of this material on the site. In these proceedings, this is a matter which the plaintiff must prove: s 5D and s 5E of the Civil Liability Act 2002.

Mr Turnbull made no concessions in this regard. In my view, the hiatus in the evidentiary chain between 23 November 2009 and 1 December 2009, is a significant one, and without adequate explanation establishing the isolation of the site to prevent unauthorised dumping access, as was outlined by Mr Turnbull in his submissions, and without explanation of the circumstances of the sampling , and the safe custody of the samples from an evidentiary perspective, I am not prepared to infer that the asbestos was on the premises as a result of defaults on the part of the first defendant, in breach of clause 7.8 of the lease or otherwise.

In my view, the plaintiff has not established on the balance of probabilities either that the asbestos was on the premises at the time of re-entry, or that the presence of the asbestos on the premises was caused by the activities of the first defendant: s 5D and s 5E of the Civil Liability Act 2002. As a result I cannot reasonably conclude that the asbestos found on the site and referred to in the David Lane Associates letter was a relevant breach of clause 7.8, or any other clause of the lease.

The remainder of clause 7.8 referred to the need to keep the exterior surfaces of windows clean. That residual requirement of clause 7.8 was not in any way relevant to these proceedings.

Accordingly, for the reasons I have outlined in the preceding paragraphs, I consider that the plaintiff has failed to establish a relevant breach of clause 7.8 of the lease at the time it acted to terminate the lease an d re-enter the premises.

Alleged breach of clause 8.1.1 of the lease

Clause 8.1.1 of the lease is a clause of general application that requires the lessee to maintain, repair and keep the premises in good and substantial repair, working order and condition as first class premises.

In each case, the term good and substantial repair, and an allegation that there has been a failure to comply with a covenant in such terms, is a question of fact to be determined form the context in which the term is used.

The term has been the subject of judicial interpretation. To take an example cited from Stroud's Judicial Dictionary, 5 th Edition, a direction to a life tenant requiring that tenant to keep the demised premises in good and substantial repair, order and condition, did not impose on that life tenant an obligation to " scour and cleanse an ornamental lake in a park near the mansion house which at the testator's death had been allowed to become foul and choked with weed mud and filth ": Stroud's , p 1104, citing Dashwood v Magniac [1891] 3 Ch 30.

In my view, the sentiment behind the statement in that example applies with equal force if not more so to a lease of industrial land in NSW in 2009, where in the present case, it was intended by the parties that the business of sorting and recycling waste building materials be conducted on the premises. This is especially so where there was no survey evidence which coul d have served as a base line documentation of the state of the premises immediately before the lease was signed.

Other than the claim of slight damage to a retaining wall, which was built by Mr Turnbull, there was no evidence that the premises were not kept in good and substantial repair and working order. In the case of the retaining wall, the described damage was minor. The photographic evidence of the damage was in keeping with that description, and it is also consistent with considerations of reasonable wear and tear.

I consider that the less or 's complaint in this regard is an inconsequential matter of no significance to the lease and any alleged breach. In my view, this is a matter to which the maxim de minimus non curat lex applies, and it is not a matter that justified the less or treating the described damage as a breach of a covenant in the lease. Furthermore, Mrs Stevens conceded that it could not be shown that the damage was caused by the first defendant's activities. Accordingly, I consider that it has not been demonstrated on the evidence that the damage in question was occasioned by the activities of the first defendant and that it was as a result of abuse or misuse of the premises or the fittings thereon: lease clause 8.1.1(a).

In my view, there was no satisfactory evidence that the retaining wall was in any different condition to that shown in the photograph at the time the lease was entered into by the parties. Mrs Stevens conceded that there was no photographic evidence showing the state of the premises before the lease was signed. As was correctly pointed out by Mr Turnbull, the photos that were tendered required interpretation, and such interpretation depended upon the angles at which the respective photographic views had been taken. In this regard, photographs must be interpreted with caution and should not trump oral evidence: Angel v Hawkesbury Council [2008] NSWCA 130.

There is a conflict between the evidence of Mr Richards and Mrs Stevens (who are brother and sister) on the one hand, and Mr Turnbull on the other, on the issue of whether the stockpile fluctuated in its dimensions during the lead - up to the termination of the lease. The relevance of this was the potential for the stockpile to cause damage to the nearby fence. On the one hand, Mr Turnbull stated that it fluctuated in its height and content over time and the combined effect of the affidavit evidence of Mr Richards and Mrs Stevens was that it remained " the same ", thereby seeking to justify the action of re-entry of the premises and termination of the lease.

In resolving this conflict in the evidence I consider that the account given by Mr Turnbull is more likely to be the correct version. I have come to this view because he was on the site more regularly than the attendances of Mr Richards and Mrs Stevens, and because the latter two witnesses sought to justify their observations by reference to the photographs, which I consider were effectively rebutted by Mr Turnbull, who correctly pointed out that the photographs were not a reliable source of factual confirmation.

I also prefer the evidence of Mr Turnbull to that of Mrs Stevens because she conceded that aspects of her evidence were not accurate and she appeared to have difficulty recalling events with accuracy, which led her to make concessions. This caused me to doubt the reliability of her testimony on matters of contention.

In considering the evidence of Mr Richards where it conflicted with that of Mr Turnbull, it was clear that Mr Richards had adopted a hostile attitude to Mr Turnbull. This was evidence from Mr Turnbull's description of their interchanges, in which Mr Richard s had, in Mr Turnbull's perception, " barked at " him , with orders to " load the stuff up and fuck it off ", referring to Mr Richards instructions to Mr Turnbull to reduce the level of his stockpile, notwithstanding the covenant of quiet enjoyment in the lease that contradicted such a course.

The hostile attitude exhibited to Mr Turnbull by Mr Richards during Mr Turnbull's cross-examination of Mr Richards confirms my view that Mr Richards was not well disposed towards Mr Turnbull or his interests. The exchange to which I refer was at T 76.6, where Mr Richard s stated " I am 3JM Josh ", which was incorrectly recorded in the transcript as " I'm in 3JM Josh ".

In coming to this view of the hostile dynamics, I am mindful of the fact that the observations of both Mr Richards and Mrs Stevens that are under present review, were in similar terms, namely that their affidavits deposed to the stockpile observations being " the same " over time. I consider those observations to be unlikely to be correct as described because of the ongoing operations and movements within the stockpile on the premises.

On analysing the affidavits of Mr Richards and Mrs Stevens in this regard, I considered that the similarities were accounted for in the form of the drafting, and were less likely to be correct than the evidence of Mr Turnbull.

For these reasons I prefer the evidence of Mr Turnbull on these matters of contention.

Accordingly, this component of the claim that there had been a relevant breach of the lease, based as it was on the evidence of Mr Richards and Mrs Stevens, must also fail.

The remainder of this component of the plaintiff's complaint, namely the allegation that the premises were not in the condition expected of first class premises, is necessarily entirely subjective. In my view, absent an agreed definition of what constituted first class premises, which in my view ordinarily connotes a meaning of being in a class ahead or above others, in the context of a yard where waste building materials were being sorted for recycling, I consider this undefined requirement of first class premises to be so vague and meaningless, that it is void for uncertainty.

There was no relevant standard or comparator introduced into the evidence so as to permit a reasoned judgment as to what would have been expected to have been seen to be the case with industrial land used for sorting and recycling waste building materials so as to enable a non-subjective and reasoned judgment that premises were or were not kept in first class condition.

I therefore conclude that the plaintiff has not made good any components of the allegation that the first defendant was in breach of any of the elements of clause 8.1.1 of the lease.

Alleged breach of clause 10.2.2 of the lease

In it's statement of claim, and before that, in the lessor's notice to the lessee of alleged breaches of the lease, which was relied upon for the lessor to obtain re-entry into the premises, the plaintiff relied upon an alleged breach of clause 10.2.2 of the lease. This was concerned with the obligation of the lessee not to do anything that may render void or voidable any insurance policy obtained by the lessor, or to do anything that might have the effect of increasing the rate for premiums on such policies. Ultimately, in argument, this item was not pressed, and there is therefore no need to give it any further consideration.

Conclusion on alleged breaches of the lease

For the reasons that I have outlined in the preceding paragraphs, I consider that the plaintiff has not made good any of its assertions that either at the time of re-entry into the premises, or at the hearing, the defendant had relevantly breached clauses 7.8, 8.1.1 or 10.2.2 of the lease, as was initially alleged by the lessor. Similarly, on a construction of clause 31 of the lease concerning the rent free period to accommodate the cost of capital works, the plaintiff has not established a relevant breach of clause 4.1 of the lease concerning the obligation to pay rent and outgoings.

Issue 3 - The guarantee issue

In my view, there can be no issue that Mr Turnbull had executed a valid guarantee by which he agreed with the plaintiff that he would personally guarantee to the plaintiff the first defendant company's obligations as defined under the lease. In that regard, the wording of clause 28 of the lease is both specific and unambiguous in its terms, and in my view there can be no doubt that the guarantee under which the plaintiff claims, would be valid if the circumstances justified it being invoked.

However, I consider that the issue does not arise, for the reasons I have outlined in rejecting the claim that there was a relevant breach of the lease. In my view, the plaintiff acted precipitately in wrongly assuming that there had been relevant breaches of the lease.

I find that but for that erroneous view taken by the plaintiff company, the plaintiff would not have acted to re-enter the premises and terminate the lease in the manner described, and as a result, the losses claimed by the plaintiff have not been relevantly caused by the first defendant, but rather, were caused by its own precipitate actions: s 5D and s 5E of the Civil Liability Act 2002.

Notwithstanding those findings where I have determined that the plaintiff has not made good it's claim, lest it be found on appeal that my primary findings involve error, convention requires that I review the components of the damages claim made by the plaintiff. That consideration is in the paragraphs that follow.

Issue 4 - The damages issue

The damages issues can be conveniently divided into the categories of rent under the lease in the claimed sum of $41,323.33, outgoings under the lease in the claimed sum of $11,038.65, repair, reinstatement and land clearing costs in the claimed sum of $107,022.58, and loss of rent whilst the premises were vacant following the termination of the lease, in the claimed amount of $31,898.34, totalling the sum of $191,082.90, all components including GST.

There is a question as to whether the GST is legitimately claimed in respect of all the amounts that comprised the plaintiff's damages claim. I shall refer to this issue where it appropriately arises.

The plaintiff conceded the sum of $15,442.00 as a relevant offset from this claim, reducing the amount claimed to $175,640.90. Of the offset amount, $11,942.00 represented a pre-paid bond that was applied to the amount claimed to be outstanding. The amounts of $1500 and $2000 were said to be credits respectively allowed for the value of concreting work carried out by the first defendant, and for the use of the first defendant's excavating machine when clearing the land. These latter two amounts, totalling $3500, seemed to have been estimated on an arbitrary basis.

Rent

The claim for rent in the amount of $41,323.33 including GST has been correctly calculated for the period between 1 January 2009 to 22 November 2009. If the plaintiff had been successful in establishing that there had been a relevant breach of the lease, ordinarily, it should follow that the plaintiff would be entitled to this amount, including GST, as provided for under the lease. However, clause 31 would have to be accounted for in that consideration.

In my view, a consideration of the effect of clause 31 of the lease for the determination of whether there had been a relevant breach of the lease during the currency of the capital works, which would also include consideration of the preparation and planning for the physical work to be undertaken for capital works. That consideration would require that the claimed rent for the period would be unrecoverable by the plaintiff.

It is a well-established principle that the plaintiff is not able to appropriate and reprobate in respect of the provisions of the same document. In this regard, under the lease, the plaintiff has sought to selectively claim a retrospective entitlement to receive rent for the period the first defendant was undertaking work, which included planning, preparation, demolition of a shed, whilst at the same time attending to the requirements of the landlord to reduce or remove stockpiles.

In this regard, the plaintiff is not entitled to simply declare the lease terminated and ignore the antecedent force and effect of clause 31 for the period the lease was on foot, during which time the first defendant was taking steps that constituted components of the capital works. Accordingly, the plaintiff's claim for rent for the period between 1 January 2009 and 22 November 2009 should not succeed.

Outgoings

The plaintiff's claim for $11,038.33, including GST for outgoings comprising council rates, water rates and land tax was not clear-cut. The claim on its face was for all outgoings for the period between 1 January 2009 to 22 November 2009. However, this aspect of the claim was clouded by concessions made by Mrs Stevens during cross-examination, in which she had acknowledged that Mr Turnbull had contributed to the outgoings during the period in question.

On that evidence, which I accept, if a relevant breach of the lease had been established, the claim for outgoings would have necessarily required some downwards adjustment to accommodate those concessions. The evidence did not identify the amount of the required adjustment. However, I conclude that for the same reasons that the rent claim has been unsuccessful, the claim for outgoings for this period should also not succeed.

Repair, reinstatement and land clearing costs

The plaintiff's claim for repairs, reinstatement and land clearing costs was in the amount of $107,022.58 including GST, and represented the total of amounts paid to contractors for the removal of the first defendant's stockpile from the premises.

Mr Turnbull raised two criticisms of this claim. The first criticism, which arose from paragraph 15 of the filed defence, was that the plaintiff has failed to mitigate the claimed loss, and the second criticism related to an analysis of the invoices that went to make up the quantum of the claim.

Whilst the mitigation defence was not the subject of much argument, and whilst the evidence on the point was meagre, since it was pleaded as a defence, as a matter of law, it nevertheless requires consideration.

The first point of consideration in connection with mitigation is that the plaintiff could have asked the first defendant, through Mr Turnbull, to simply move the stockpile, as had occurred in the past when Mr Richards had issued such demands to Mr Turnbull and when Mr Turnbull had, for his own reasons, complied, in order " to quell" the complaints that had been emanating from the plaintiff. In this regard, in the context, I do not consider Mr Turnbull's compliance with those requests to amount to an admission that the complaints were properly based.

I find that if such steps had been taken to ask Mr Turnbull to remove the stockpile, given that the stockpile had a value to the first defendant, and given that Mr Turnbull had complied with previous requests of a similar nature, I consider that it was highly probable that Mr Turnbull would have used his resources and arranged for the removal of the stockpile if he had been permitted to do so. Instead, he was excluded from the premises and was prevented from having any further dealings with the property of the first defendant company.

The second point of consideration in connection with the mitigation issue is that as the stockpile had a commercial or salvage value, reasonable steps could have been taken to realise that value. Such steps could, for example have involved putting out tenders for removal of the material if Mr Turnbull was not in a position to move it or have it moved.

There is a third point of criticism in connection with the mitigation issue, namely the actual cost incurred in removing the materials. There was no evidence presented by the plaintiff as to the fairness and reasonableness of the cost. All that was presented was evidence of the cost incurred. There was no basis within the evidence to enable an assessment to be made as to whether the costs incurred by the plaintiff in this regard were in fact fairly and reasonably incurred.

I am therefore satisfied that on an examination of the plaintiff's claim for repairs, reinstatement and land clearing costs, that there has been an unreasonable failure on the part of the plaintiff to take reasonable steps to mitigate its claimed losses.

However, that said, on the evidence, the monetary consequence of such failure, in terms of damages, remains difficult to assess.

The second criticism made by Mr Turnbull concerning the details of this aspect of the quantum of the plaintiff's claim relate to the content of Exhibit "A", which included a 4 page printed spreadsheet of particulars of 118 tipping loads taken from the premises on 8 non-consecutive days in the 30 day period between 23 March 2010 and 21 April 2010. Mr Turnbull focussed upon the details within that spreadsheet of truck movements to cast doubt upon the veracity of the claim. His criticisms can be summed up in the following example.

Between 2.06pm and 2.24pm on 23 March 2010, in the space of some 18 minutes, the same identified truck loaded some 14,300kgs of material, took it to a weighbridge to be weighed and recorded, drove to a dumping site, emptied the load, returned to the loading site to take on a further load of some 13,800kgs of material, took this to a weighbridge to be weighed and recorded before again driving to a dumping site. The period 18 minutes for these events to occur seems, on an initial analysis, to be a remarkably short space of time.

The spreadsheet permits a similar analysis to be undertaken throughout because the trucks are identified, along with the weighing or departure times. For the purpose of dealing with Mr Turnbull's submission on the point, it is not necessary to undertake a comprehensive analysis beyond the above example.

Whilst Mr Turnbull's criticisms of the content of the spreadsheet do raise some doubts about the information recorded in the exhibit, the document nevertheless comprised a business record. It was received into evidence without objection. On its face the document could not be said to contain inherently incredible material. Whilst the matters raised by Mr Turnbull do raise some doubts, on the other hand, there was no evidence of the location or the driving distance to the dumping site, which would be a critically relevant matter to assessing whether the relatively short journeys for the trucks listed in the schedule were credibly described.

Further, there was evidence that the stockpile on the premises was shifted with the aid of the first defendant's machinery, which was said to be capable of shifting large quantities of materials in a relatively short space of time. There was no evidence to indicate whether there was, or was not, additional similar machinery used to aid or hasten the process, which might possibly serve to explain the relatively fast turn around times for the tipper trucks loading and then reloading on multiple trips.

Whilst Mr Turnbull raised understandable concerns on this issue, the state of the evidence does not permit a finding that the content of the entries in the schedule of loads was in any way wrong or unreliable. Nothing turns on the reference in the schedule, or in the related invoices and paperwork within Exhibit "A", to the premises being referred to as 111 Gow Street instead of 1/109 Gow Street Padstow, as the evidence disclosed that the premises were known by both descriptions.

As I have found that there was no relevant breach of the lease, it is unnecessary for me to attempt to resolve the issue of the credibility of the record of trips and loads which underpin the related invoices that go to make up this component of the claim by the plaintiff, especially as on the state of the evidence, an attempt to undertake that task, on the evidence, would require a degree of unwarranted speculation.

Nevertheless, I consider that an aspect of the mitigation defence has been made out. That said, it is not reasonably possible to dissect the claim to arrive at a non-speculative alternative estimation of the quantum of this component of the claim that would reasonably accommodate the mitigation point that has been identified.

Loss of rent whilst premises were vacant

The plaintiff made a claim for the loss of rent for the period of 23 November 2009 to 31 July 2010, when the premises were vacant. The claim was in the sum of $31,698.34, which included GST.

There is a question as to whether this GST component of the plaintiff's claim is properly claimed, as the GST, if received during that period, was not something that the plaintiff could properly retain as income, since any amount collected on account of the GST would necessarily have to be remitted to the ATO. On the evidence in this case, I consider that there is no effective answer to that proposition. Accordingly, any amount that could have been recovered on account of this item, must be calculated to be net of GST.

On the assumption that there was a proper basis for the claim for loss of rent, paragraph 15 of the defence filed raised the claim that the plaintiff had failed to mitigate its loss in respect of the claim for loss of rent until re-letting.

The period for the claimed loss of rent was for 35 weeks. Assuming there was a relevant breach of the lease which justified the plaintiff's re-entry onto the premises, and therefore enabled this claim to be made, there is no evidence that adequately explained the efforts of the plaintiff to take mitigatory steps to seek to let the property before 31 July 2010.

Assuming that the period 23 November 2009 to some time in December 2009 was taken up with establishing whether or not there was an asbestos issue to be dealt with, and also assuming that it may have taken some weeks to arrange for a contractor to become available to carry out the removal works, there is no explanation in the evidence as to why the site clearing commenced on 23 March 2010, which was some 17 weeks after re-entry. Nor is there any explanation as to why the site clearing only proceeded on only 8 of the 30 days in the period between 23 March 2010 and 21 April 2010.

Further, given that the evidence discloses that site clearance was completed by 21 April 2010, which was the date of the last load identified in Exhibit "A", there is no explanation of the efforts made by the plaintiff in the intervening 14 weeks between 21 April 2010 and 31 July 2010 concerning any mitigatory attempts to seek to re-let the premises.

On that evidence, absent such explanations, I am satisfied that there has been an unreasonable failure to mitigate on the part of the plaintiff in connection with the re-letting of the premises. Accordingly, I find that if a relevant breach of the lease had been established, the amount claimed for loss of rental would have to be reduced by the amount claimed for GST and to also take into account a reduction for failure to mitigate the claimed loss.

The evidence does not permit me to identify a precise amount of the reduction on that account. Although arbitrary, it would appear that a reduction of the order of about 25 weeks would be appropriate, which would reduce the claimable period to about 10 weeks, rounded up to 3 months rental instead of the claimed 8 months.

Summary of damages findings

In my assessment, assuming that the plaintiff had been successful in establishing a relevant breach of the lease, on a construction of the lease, the claim for rent and outgoings would have been unsuccessful. On the same assumed basis, the claim for repairs, reinstatement and land clearing costs would have required reduction on account of a failure of the plaintiff to mitigate its loss. A similar position would have arisen with respect to the claim for loss of rent for the period following termination of the lease. On an assessment of damages, some GST adjustments would have been required to the amount claimed.

Conclusion and disposition

The plaintiff has not succeeded in establishing that the defendant was relevantly in breach of the lease. As a consequence, the plaintiff's action for damages under the guarantee must be determined in favour of Mr Turnbull. This appears to leave open the question of the fate of the conceded offset of the sum of $15,442. As the first defendant has been de-registered as a company, there is no present basis upon which orders could be made in respect of that conceded amount.

Costs

As there must be a verdict for the second defendant, unless some other basis for costs can be established, the ordinary costs rule should apply. Accordingly, the plaintiff must pay such legal costs as the second defendant has incurred in the defence of these proceedings, on the ordinary basis unless some other basis can be shown.

Orders

I make the following orders:

(a) Verdict and judgment for the second defendant;

(b) The plaintiff must pay the second defendant's legal costs in defending the proceedings, those costs to be assessed on the ordinary basis, unless some other basis is established;

(d) Liberty to apply on 7 days notice if further orders are required.

Decision last updated: 20 January 2012

Medium Neutral Citation:	3JM Pty Ltd v Turnbull [2012] NSWDC 1
Hearing dates:	6, 7, 8, and 9 September 2011
Decision date:	20 January 2012
Jurisdiction:	Civil
Before:	Levy SC DCJ
Decision:	1.Verdict and judgment for the second defendant; 2.The plaintiff is to pay the second defendant's costs on the ordinary basis unless otherwise ordered; 3.The exhibits may be returned; 4.Liberty to apply on 7 days notice if further orders are required. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	LEASES & GUARANTEES - claim by lessor against guarantor of lease - unpaid rent and outgoings of commercial premises and cost of clearing land after re-entry by the lessor for alleged breaches of the lease - whether ambiguity established requiring construction of lease - whether claims made out - whether claimed losses relevantly caused by breach of lease
Legislation Cited:	Civil Liability Act 2002, s 5D, s 5E Uniform Civil Procedure Rules 2005, Sch 7 cl 5(c)
Cases Cited:	Angel v Hawkesbury Council [2008] NSWCA 130 Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 33 Dashwood v Magniac [1891] 3 Ch 30 Masterton Homes Pty Limited v Palm Assets Pty Limited [2008] NSWSC 274 Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Category:	Principal judgment
Parties:	3JM Pty Ltd (Plaintiff) Bros Bins Pty Ltd (First defendant - a deregistered company) Joshua Herschall Ernest Turnbull (Second defendant - guarantor)
Representation:	Mr CD Freeman (Plaintiff) (No appearance for first defendant) Mr J Turnbull in person Maurice Harrison & Associates (Plaintiff) (No appearance for first defendant) Mr J Turnbull in person
File Number(s):	2010/328964

Nature of case	[1] - [3]
Background	[4] - [8]
Issues	[9]
Summary of findings	[10] - [14]
Evidence overview	[15] - [24]
Credibility and reliability of testimony	[25] - [27]
Facts	[28] - [122]
Issue 1 - The ambiguity and construction issue	[123] - [139]
Issue 2 - The breach of lease issue	[140] - [189]
Issue 3 - The guarantee issue	[190] - [193]
Issue 4 - The damages issue	[194] - [228]
Conclusion & disposition	[229]
Costs	[230]
Orders	[231]