Baccello Pty Ltd as Trustee for Mondello Family Trust v Qin Chen as Trustee for the Cao Family Trust
[2018] WADC 138
•23 OCTOBER 2018
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: BACCELLO PTY LTD as Trustee for MONDELLO FAMILY TRUST -v- QIN CHEN as Trustee for THE CAO FAMILY TRUST [2018] WADC 138
CORAM: DAVIS DCJ
HEARD: 5-6 FEBRUARY & 12 APRIL 2018
DELIVERED : 23 OCTOBER 2018
FILE NO/S: CIV 980 of 2014
BETWEEN: BACCELLO PTY LTD as Trustee for MONDELLO FAMILY TRUST
Plaintiff
AND
QIN CHEN as Trustee for THE CAO FAMILY TRUST
First Defendant
WEI DONG CAO
Second Defendant
Catchwords:
Lease - Guarantee and indemnity - Late exercise by tenant of option to renew - Acceptance of late exercise of option by landlord - Whether waiver or new agreement to lease created - Effect on guarantor's obligations - Construction of guarantee - Liability of guarantor for all moneys and damages owed by tenant who occupied the premises after late exercise of option
Legislation:
Electronic Transactions Act 2011, s 9, s 10
Statute of Frauds 1677 (UK), s 4
Result:
Judgment for plaintiff against both defendants.
Defendants' counterclaim dismissed.
Representation:
Counsel:
| Plaintiff | : | Mr S Tribble |
| First Defendant | : | No appearance |
| Second Defendant | : | In person |
Solicitors:
| Plaintiff | : | Arns & Associates |
| First Defendant | : | Not applicable |
| Second Defendant | : | Not applicable |
Case(s) referred to in decision(s):
Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549
Austin v Bonney [1999] 1 Qd R 114
Australia and New Zealand Banking Group Ltd v Manasseh [2016] WASCA 41
Baccello Pty Ltd v Chen [2017] WADC 45
Bakarich v Commonwealth Bank of Australia [2004] NSWSC 283
Bowman v Durham Holdings Pty Ltd (1973) 131 CLR 8
Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242
Chen v City of Stirling [2014] WASC 183
Commonwealth Bank of Australia v McArthur [2003] VSC 31
Duncan Properties Pty Ltd v Hunter [1991] 1 Qd R 101
Fair Investments Ltd v Mahoe Buildings Ltd [1992] 3 NZLR 734
Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29
Holme v Brunskill (1877) 3 QBD 495
Kuligowski v Metrobus (2004) 220 CLR 363
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57
Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23; (2008) 35 WAR 520
Macchia v The Public Trustee (2008) 251 ALR 385; [2008] WASCA 241
Mack v Lenton (1993) 32 NSWLR 259
MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24
Maks v Maks (1986) 6 NSWLR 34
Masters v Cameron (1954) 91 CLR 353
Moleirinho v Talbot & Olivier Lawyers Pty Ltd [2014] WASCA 65
Morgan v Liverpool Corporation [1927] 2 KB 131
O'Brien v Robinson [1973] 1 All ER 583
Quadling v Robinson (1976) 137 CLR 192
Queensland Investment & Land Mortgage Co Ltd v Hart (1894) 6 QLJ 186
Re Attorney‑General (Cth); Ex parte Skyring [1996] HCA 4; (1996) 70 ALJR 321
Re Copperart Pty Ltd (1995) 16 ACSR 351
Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93
Spalla v St George Motor Finance Ltd (No 6) [2004] FCA 1699
SST Consulting Services Pty Limited v Rieson (2006) 225 CLR 516
Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391
Tobin v Dodd [2004] WASCA 288
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Traywinds Pty Ltd v Cooper (1989) 1 Qd R 222
Whitegum Petroleum v Bernadini Pty Ltd [2010] WASC 108
Winstone Ltd v Bourne [1978] 1 NZLR 94
Wren v Emmett Contractors Pty Ltd (1969) 43 ALJR 213
DAVIS DCJ:
The plaintiff, as the trustee of the Mondello Family Trust, owns premises at 835 Beaufort Street, Inglewood.
By a written lease agreement made in July 2006, the plaintiff agreed to lease the premises to the first defendant for a term of five years from 1 July 2006, with the option to renew or extend the term of the lease for two further five year terms.
The second defendant, Mr Cao, provided a guarantee and indemnity for the first defendant's obligations and any moneys owing under the lease.
The plaintiff claims damages for breach of the lease from both defendants.
For the reasons in this judgment, I find that the defendants are liable to the plaintiff for the damages claimed.
The parties' cases – a brief summary
The plaintiff's case is that the first defendant exercised the option to renew so that the lease was renewed in 2011 for a further five year term, until 30 June 2016. The plaintiff has alternatively claimed that the first defendant, with the agreement of the second defendant (Mr Cao), entered into a new lease for the premises on the same terms as the lease, as if the option had been effectively exercised.
In July 2013 the plaintiff terminated the lease and subsequently commenced these proceedings against the defendants, claiming damages on the grounds that the first defendant had breached three essential terms of the lease:
(a)by using the premises for a purpose other than the permitted use. The permitted use of the premises was Chinese oriental relaxation massage, acupuncture, physiotherapy or chiropractor. The first defendant breached the lease by operating a brothel. This was also in breach of the City of Stirling Planning Scheme No 3 and therefore in breach of s 218 of the Planning and Development Act 2005 (the PDA);
(b)by failing to pay rent as and when it fell due; and
(c)by failing to adequately maintain the premises.
The plaintiff also claimed what has been termed 'loss of bargain damages', arising from the early termination of the lease by reason of the first defendant's default and the plaintiff's inability to relet the premises.
In a separate defence and counterclaim filed by each defendant, they denied any breach of the lease by the first defendant. They also denied any liability for loss of bargain damages.
Both defendants claimed that the lease had expired on 30 June 2011, and pleaded that the first defendant had since occupied the premises as a monthly tenant.
In relation to the use of the premises it was not in dispute that the premises had been used as a brothel, but the defendants pleaded that the plaintiff had agreed in private that the leased premises could be used as a brothel and the plaintiff had at all times known the nature of the business run by the first defendant. The defendants pleaded that as a result of the plaintiff's knowledge of and agreement with the defendants' unauthorised and unlawful use of the leased premises, the lease was unenforceable at common law because it was contrary to public policy. They further pleaded that they were required to pay cash for rent in addition to rent due under the lease in consideration of the premises being used as a brothel.
In November 2016 a trial of preliminary issues took place before her Honour Judge Wager (Judge Wager). The issues for determination were:
(1)Whether the plaintiff was or became aware of the usage of the leased premises in question as a brothel and, if so, when the plaintiff became aware of that usage.
(2)Whether the lease was void, in whole or in part as a consequence of the above finding.
On 30 March 2007 Judge Wager, for written reasons set out in her judgment published as Baccello Pty Ltd v Chen [2017] WADC 45 (Baccello v Chen), found:
(1)the plaintiff was not, nor did it become aware of the usage of the leased premises in question as a brothel. In coming to this conclusion Judge Wager rejected the evidence from the defendants that they were required to pay cash for rent in addition to rent due under the lease in consideration of the premises being used as a brothel[1]; and
(2)the lease was not void in whole or in part.[2]
[1] Baccello v Chen [124] - [127] and answers to specific questions, no 1.
[2] Baccello v Chen answers to specific questions, no 2.
With the preliminary issues determined by Judge Wager, the balance of the pleaded issues, namely whether the plaintiff is entitled to its claimed damages for breach of the lease, proceeded to trial before me.
The first defendant did not appear
The first defendant failed to appear at the trial, although notice of the trial dates had been given to her. On the application of the plaintiff, the trial took place in her absence.
The second defendant was unrepresented
The second defendant, Mr Cao, appeared in person but with the assistance of an interpreter.
I have assumed the burden of endeavouring to ascertain what Mr Cao is raising by way of defence and counterclaim, careful to ensure that I do not overlook a viable defence or other issues: Tobin v Dodd [2004] WASCA 288; Re Attorney‑General (Cth); Ex parte Skyring [1996] HCA 4; (1996) 70 ALJR 321. This is particularly important in this case because Mr Cao does not have English as his first language: Moleirinho v Talbot & Olivier Lawyers Pty Ltd [2014] WASCA 65 [51].
However, Mr Cao was not an inexperienced litigant, having represented himself in the trial of the preliminary issues before Judge Wager. In addition, it became clear from the written submissions he provided and from what he told me, that Mr Cao has had legal assistance.
The evidence at trial
The evidence at trial consisted primarily of documentary evidence, which included two lever arch files of plaintiff's documents[3] and one lever arch file of Mr Cao's documents[4], tendered by consent. Many of the documents in the plaintiffs' file are duplicated in Mr Cao's files. There were also other documents tendered during the hearing.
[3] Exhibits 1 and 2.
[4] Exhibit 7.
Both Mr Mondello and Mr Cao gave evidence.
Apart from being a director of the plaintiff, who had dealings with the defendants, Mr Mondello is also a developer, a registered builder and a real estate licensee. His evidence was given by way of two written statements[5], which stood as his evidence‑in‑chief, with some further evidence given orally. He was cross‑examined by Mr Cao.
[5] Exhibits 3 and 4.
Mr Cao gave evidence orally, with the assistance of an interpreter. Mr Cao was cross‑examined by counsel for the plaintiff.
The relevant facts
A number of findings of fact were made by Judge Wager in her determination of the preliminary issues in Baccello v Chen. These must apply in the matter before me, pursuant to the principles of res judicata, issue estoppel and generally, the power of the court to prevent an abuse of process: Macchia v The Public Trustee(2008) 251 ALR 385; [2008] WASCA 241 [32] (res judicata); Kuligowski v Metrobus (2004) 220 CLR 363 [21] (issue estoppel); Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93[4] ‑ [11] and Spalla v St George Motor Finance Ltd (No 6) [2004] FCA 1699 [58] - [70] (abuse of process).
There are some additional facts relevant to the issues which I must determine. Many of those facts are neither contentious nor disputed.
In the following summary, I have identified findings of fact made by Judge Wager in Baccello v Chen. I have identified where I have made findings of fact on the evidence before me and also where there are matters in dispute about which I must make findings.
The plaintiff had purchased the premises in May 1989. At the time of the purchase the premises were vacant.[6]
[6] Baccello v Chen [13].
By a written lease made 17 November 1998 the plaintiff leased the premises to Ms Helen Ma, with a guarantee of her obligations from Guang Xing Yuan. This was a lease for an initial term of six months, with an option to renew for a further term of five years from 1 June 1999 to 31 May 2004.[7]
[7] Exhibit 1, pages 10 - 42.
The permitted use of the premises, as described in the Schedule to the lease, was 'Chinese/Oriental Relaxation Massage, Acupuncture, Physiotherapy, Chiropractor, office and residential'.[8]
[8] Exhibit 1, page 37, item 6.13.
In November 1998 Mr Mondello applied for development approval from the City of Stirling for this use of the premises. The application stated that the proposed use was 'traditional Chinese/Oriental Relaxation Massage and Chinese Acupuncture with the possibility of the business developing in the future to incorporate physiotherapy and chiropractor'. Approval was granted by the City of Stirling on 20 November 1998.[9]
[9] Exhibit 1, pages 46 - 49.
In around the year 2000, Ms Ma sub‑leased the premises to the defendants. The date of the sub‑lease as pleaded by the defendants in each of their defences is 2001, but the date as found in Baccello v Chen is August 2000.[10]
[10] Baccello v Chen [14].
Ms Ma introduced the defendants to Mr Mondello. The defendants told him they intended to operate Ms Ma's business as a Chinese massage and acupuncture. Mr Mondello did not object to the sub‑lease of the premises.[11]
[11] Exhibit 4, par 11.
The business which operated from the premises was known as 'Top 835'. That business was first registered on 28 September 1999 in the name of Golden Triple One Pty Ltd as registered proprietor (person carrying on the business), with the premises nominated as the place of business. The specified nature of the business set out in the business registration details was 'massage studio'. Mr Cao took over as the registered proprietor from 1 April 2006 and then the first defendant became registered as the person carrying on the business from 1 July 2006.[12]
[12] Exhibit 7, pages 1 – 7.
Mr Cao was married to the first defendant, Ms Chen, who was the trustee for the CAO Family Trust. Mr Cao had arrived in Perth in March 2000 and became one of three stakeholders and effectively the manager of the business. While he was not present at the business on a full-time basis, he lived nearby and went to the premises at least once a day.[13]
[13] Baccello v Chen [9] and [14].
Mr Mondello attended the premises to collect rent and inspect the premises. He would do this each month unless he was unavailable, in which case he would direct another family member to attend.[14]
[14] Baccello v Chen [15].
Mr Mondello and Mr Cao developed a friendship and socialised together with their wives.[15]
[15] Baccello v Chen [15].
After the expiry of Ms Ma's lease, the plaintiff and the defendants entered into the written lease agreement made in July 2006 (the lease).[16] The first defendant, in her capacity as trustee for the Cao Family Trust, signed the lease as 'the tenant'. Mr Cao signed as 'the Guarantor', providing a guarantee for the due performance and observance of the first defendant's obligations pursuant to the lease, and an indemnity to the plaintiff against all loss, costs, damages and expenses incurred by the plaintiff arising from any breach or non‑observance of the first defendant's obligations pursuant to the lease.[17]
[16] Exhibit 1, pages 50 - 94; see also Baccello v Chen [18].
[17] Clause 19.1 of the lease, admitted by Mr Cao in his defence, par 10.
The term of the lease was for five years from 1 July 2006. The lease granted the first defendant an option to renew the term for what was referred to as the 'first renewed term' of five years, commencing 1 July 2011 and expiring 30 June 2016 (cl 18.2 and Schedule Items 3 and 8 of the lease). Written notice of intention to renew had to be given in writing no earlier than six months and not later than three months before the date of the expiration of the term, ie between 30 December 2010 and 30 March 2011 (cl 18.2.2.1).
Rent was to be paid in the sum of $4,400 on the first day of each month, with rent reviews each year. Clause 4 of the lease, when read together with items 4 and 5 of the Schedule to the lease, provided that the rent was payable monthly in advance on the first day of each month and that the rent was to increase by 5% each year on 1 July.[18]
[18] Exhibit, 1 pages 58 and 90.
The first defendant was to pay all charges for utilities and services (cl 5.1 of the lease) and all rates, taxes, charges, duties, assessments or impositions of any kind (cl 5.2).
The first defendant was also to pay all costs, charges and expenses (including solicitors' costs on a full indemnity basis) incurred by the plaintiff for the preparation and service of any notice arising from any breach of the lease (cl 5.5).
In addition, (pursuant to cl 5.7), the first defendant had to pay to the plaintiff, on demand, 'all legal and Managing Agents and other costs charges and expenses for which [the plaintiff] is liable in consequence of or in connection with':
(a)the exercise or attempted exercise of any power, right or remedy of the plaintiff under the lease arising from any default by the first defendant;
(b)obtaining or attempting to obtain payment of the rent or any other money to be paid under the lease;
(c)any action or proceeding concerned with any of the matters referred to above or any other matter in connection with the lease, including legal costs and disbursement on a solicitor and own client or indemnity basis (whichever is greater) which the plaintiff has paid or pays to any other person if they are of a reasonable amount and have been reasonably incurred. This did not apply if the first defendant was awarded costs as against the plaintiff in any such action or proceeding or the plaintiff discontinued its claim for any reason.
Interest on amounts overdue by more than 7 days was to be paid by the first defendant at the rate of 18% per annum (cl 5.6).
The first defendant had an obligation, at her own expense, during the term of the lease or period of occupation of the premises to 'maintain, replace, repair and keep' the premises 'in good and substantial tenantable repair, order and condition' (cl 6.1.1). This extended to fixtures, fittings, equipment, furnishings, lighting, heating, air conditioning, sewerage and plumbing fixtures, fittings, installations and facilities.
The first defendant also had an obligation to promptly replace broken or damaged glass and all damaged, defective or broken heating, lighting and electrical equipment installed on the premises (cl 6.2.1) and to also pay the cost of repairing and making good any damage to the premises caused by or through her act, neglect, default or omission (cl 6.2.2).
The first defendant also had to pay the costs of the running, maintenance, service or repair of all air conditioning equipment, subject to cl 13.5 (cl 6.2.4). Clause 13.5 provided that the first defendant's obligation to pay for maintenance of the air conditioning system under cl 6.2.4 was 'limited to servicing costs and costs of minor replacement parts to the extent that they form part of the servicing of the system'. It was the plaintiff's obligation to 'promptly carry out and pay for all major replacement parts or total replacement of the air conditioning equipment where reasonably necessary to ensure that the Leased Premises remain adequately air conditioned for the Term'.
There was an obligation on the first defendant to repaint the premises at least once in every three years during the term of the lease and during the last six months of the term or immediately on any sooner determination of the term (cl 6.4).
The plaintiff as landlord had an obligation to maintain all structural parts of the premises in a sound structural condition and repair all items of damage which were not otherwise the responsibility of the first defendant to repair (cl 13.3).
It was an express term of the lease that the first defendant 'must use the Leased Premises only for the Use' (defined as the permitted use referred to in Item 6 of the Schedule) and for no other purpose without first obtaining the written approval of the plaintiff (cl 7.1). Item 6 of the Schedule to the lease set out the permitted use to be 'Chinese Oriental Relaxation Massage, Acupuncture, Physio Therapy ar [sic] Chiropractor'.
If the rent or any part of it was in arrears and unpaid for 14 days after it had become due, the plaintiff was entitled to retake possession of the premises and the lease would terminate (cl 15.1.1).
In the case of any breach or default in the terms of the lease, the plaintiff could retake possession and thus terminate the lease if the first defendant failed to fully comply, within 14 days, with any notice served by the plaintiff on the first defendant requiring her to remedy the breach (cl 15.1.2).
If the plaintiff terminated the lease following a breach of an 'essential term' of the lease, the plaintiff was entitled to recover from the first defendant, as and by way of liquidated damages for the breach, the difference between the rent and other moneys which the first defendant would have paid but for the termination of the lease, less any rent and other moneys which the plaintiff, by taking proper steps to re‑let the premises, obtains or could reasonably be expected to obtain by re‑letting the premises for the unexpired residue of the term after such determination (cl 16.1.3).
The lease specified what were essential terms of the lease, and they included the following (cl 16.1.1):
(a)The covenant to pay rent;
(b)The covenant to keep the premises in good repair;
(c)The covenant to use the premises only for the permitted use.
The lease provided for the situation of 'holding over' - what would happen if the first defendant, with the consent, express or implied, of the plaintiff remained in occupation of the premises after the expiry of the term. The first defendant would do so as a monthly tenant at a rental equal to 1/12 of the aggregate of the rent, outgoings and rates and taxes payable by the first defendant during the period immediately preceding the date of expiration of the term, increased by 10% (cl 9.5.1). The monthly tenancy was subject to the rights and obligations contained in the lease (cl 9.5.3).
The guarantee and indemnity provided by Mr Cao is set out in cl 19 of the lease. The terms of the guarantee and indemnity and Mr Cao's liability under those terms is the main dispute in this action, which I will address later in these reasons.
In 2009 the first defendant and Mr Cao separated. Mr Cao gave evidence that they had separated in 2010, but the documentary evidence suggests otherwise. Applications were made by each of them in the Family Court during 2009.
Orders were made in the Family Court on 27 January 2010, which included, by Order 1, that 'By consent, orders are hereby pronounced in terms of the Minute of Consent Orders dated 27 January 2010, a sealed typewritten copy of which is attached'.[19]
[19] Exhibit 8.
The attached minute of consent orders, also dated 27 January 2010, provided, relevantly (with the 'Applicant' and 'Husband' being Mr Cao, and the 'Respondent' and 'Wife' being the first defendant):
1.1Until further Order the Applicant is not to enter the business premises situate at 835 Beaufort Street, Inglewood WA 6052 (the Business premises) during the hours 6pm to 2am daily.
1.2Until further Order the Respondent is not to enter the Business premises situate at 835 Beaufort Street, Inglewood WA 6052 during the hours 2am to 6am daily.
2.Until further Order, any income generated by the business Top 835 ("the Business") operated from the Business premises, less expenses of Business including but not limiting to payment of rates, rents, taxes expenses and are other outgoings of the Business be distributed to the parties equally and the parties jointly instruct the receptionist referred to in paragraph 3 or any other receptionist to implement this Order.
3.The parties jointly instruct Ms Amy Zhang the receptionist of the Business or any other receptionist employed jointly by the parties to provide both parties with documentation evidencing the weekly income and expenses for the Business.
4.Until further Order the Husband be restrained from setting up any new business entity from the Business premises and to provide monthly account for all income derived and expenses incurred by the Husband in any entity set up by the Husband in the last twelve months.
…
9.Until further order the Husband reinstate the Wife as the Trustee of the CAO Family Trust and the parties jointly make all decisions relating to the Trust including the tax returns for the Trust and the distribution of income from the Trust.
10.1Until further orders the parties shall be restrained from making any changes to the CAO Family Trust.
…
11. Until further Order the parties shall be restrained from making any changes to the existing Lease to the Business premises including the replacement of the Wife as Trustee for the said Trust as the lessee of the Business premises.
A divorce order was made on 9 March 2010, with the divorce to take effect and terminate the marriage of Mr Cao and Ms Chen on 10 April 2010.[20] Mr Cao did not tender or otherwise introduce into evidence any Family Court orders in operation after the date of the divorce relating to the operation of the CAO Family Trust or the business.
[20] Exhibit 7, pages 78 - 79.
It is apparent, however, that Mr Cao was still actively involved in the operation of the business from the premises. In fact Judge Wager in Baccello v Chen found that Mr Cao was the de facto manager of the premises and that most of Mr Mondello's dealings were with Mr Cao.[21] Mr Cao admitted during his evidence that he was the one who usually wrote cheques for payment of the rent.[22] Mr Cao was also the one who had dealings with the City of Stirling, as I set out below.
[21] Baccello v Chen [90].
[22] ts 348 – 349.
In October 2010 Mr Mondello received a letter dated 12 October 2010 addressed to the plaintiff from the City of Stirling seeking details of the type of business being carried out at the premises, details of parking availability and the hours of business operations.[23]
[23] The letter from the City of Stirling is in exhibit 1, page 370 and also exhibit 7, page 81.
Correspondence with the City and also between Mr Mondello and Mr Cao followed, during which the City made it known to Mr Mondello that it was concerned that the business being operated from the premises was a brothel.
The City wrote again by letter of 3 December 2010 to both the plaintiff[24] and to the Manager of Top 835[25], advising that it had received a written complaint regarding the use of the property and had undertaken a site inspection of the premises on 24 November 2010, during which an employee of the business had admitted that sexual services were offered at the site. Notice was given that the unauthorised business operations had to cease by 31 December 2010.
[24] Exhibit 1, page 372 ‑ 373.
[25] Exhibit 7, page 84.
Mr Mondello forwarded the letters he had received from the City of Stirling to Mr Cao by facsimile dated 7 December 2010.[26] In that facsimile Mr Mondello asked Mr Cao to 'please call me and let me know what goes on Urgent'.[27]
[26] Exhibit 1, page 374.
[27] Exhibit 1 page 374; exhibit 7 page 86.
Mr Mondello subsequently wrote to the City of Stirling by letter dated 7 December 2010[28] advising as follows:
Further to your letter dated 3rd December 2010 and received by us on the 7th December, 2010, we would like to advise you that we have been in contact with our tenant and made him aware of your letter and your complaint. We also faxed a copy of your letter to the tenant and strongly advised him to run their business as per our lease.
[28] Exhibit 1, page 375.
The City of Stirling then wrote by letter dated 14 January 2011 to The Manager, Top 835. That letter, among other things, gave notice that the sexual services provided from the premises was an unauthorised land use and that this unauthorised used was required to cease within 14 days, ie by 28 January 2011.[29]
[29] Exhibit 1, pages 376 ‑ 377; Exhibit 7, pages 87 – 89.
On 21 January 2011 the plaintiff's solicitors served a default notice dated 20 January 2011 on the first defendant.[30] This default notice has been referred to as 'the first default notice' and receipt of that notice has been admitted by both defendants on the pleadings. Relying on the letter from the City of Stirling to the plaintiff dated 14 January 2011, the first default notice specified that the first defendant was in breach of the lease cl 7.1 because she had used the premises for an unauthorised use.
[30] Exhibit 1, pages 378 ‑ 379; Exhibit 7 pages 90 ‑ 91; see also Baccello v Chen [20].
The plaintiff pleaded that both defendants verbally satisfied the plaintiff that the breach was remedied.[31] The defendants denied this, but the findings of Judge Wager in Baccello v Chen included that Mr Mondello advised the City of Stirling that various undertakings in relation to the nature of the business would be carried out and, once those undertakings had been carried out and the City of Stirling advised, the first default notice was withdrawn in February 2011.[32]
[31] Statement of claim par 13.
[32] Baccello v Chen [20].
Mr Cao also wrote a letter dated 10 February 2011 to the City of Stirling, received by the City on 14 February 2011 in which he stated: [33]
Further to your letter dated on the 14/01/2011, we would like to advice [sic] you that we are running our chinese traditional and body relaxation massage centre to the best of our ability and knowledge which we believe that complies with coucil [sic] regulations…
[33] Exhibit 7, page 94.
On 9 March 2011 the City of Stirling wrote a letter addressed to the Cao Family Trust 'Attn: Mr Jerry Cao, with the salutation 'Dear Mr Cao'.[34] The City of Stirling thanked him for his letter of 10 February 2011 advising, among other things, that the City would be investigating further action.
[34] Exhibit 7, page 95.
It is apparent from this letter of 9 March 2011 that the City of Stirling was of the view that the Development Approval issued on 20 November 1998 was for 'Consulting Rooms' and 'Residence'.
It is also apparent from this and other correspondence at around this time from the City of Stirling, that the City raised other issues about car parking and plumbing. I am satisfied that this has no relevance to the permitted or approved use of the premises or any of the issues in this case.
However, so far as the approved use was concerned, by letter dated 15 March 2011, the solicitors for the plaintiff wrote to the City of Stirling.[35] The solicitors confirmed that Mr Mondello had provided a copy of his application for development approval dated 19 November 1998 specifically for using the property for Chinese acupuncture and massage, correspondence between the City and the plaintiff which referred to using the property for Chinese acupuncture and massage and the written approval from the City of Stirling dated 20 November 1998.
[35] Exhibit 7, pages 99 ‑100.
This was the position with the City of Stirling in 2011, at the time the option to renew had to be exercised (between 30 December 2010 and 30 March 2011). I turn now to the documentary evidence concerning the exercise of the option to renew.
There is a particular observation I need to make about one of the documents produced by Mr Cao. This was an undated letter drafted by a friend of Mr Cao who worked at a university, addressed to 'the landlord', advising that the Cao Family Trust has been considering whether to exercise the option to renew the lease, suggesting a proposal for a monthly tenancy, and then stating that if the proposal was not accepted the premises would be vacated on 30 June 2011.[36] On Mr Cao's evidence this was drafted sometime after the end of March 2011, and this was never signed nor sent to the plaintiff or Mr Mondello.[37]
[36] Exhibit 7, page 101.
[37] ts 330, 332.
On the evidence, the first written communication received by the plaintiff concerning the renewal of the lease was a letter dated 3 May 2011 which Mr Mondello received on or about that date. The letter was written by the first defendant's then solicitors, Su & Co. The letter was addressed to Multistruct Developers and Builders, which is a trading name used by Mr Mondello for his building and property development businesses. There is no issue that the letter was written to Mr Mondello regarding the lease.
In the letter of 3 May 2011 the solicitors stated that they acted for the first defendant, referred to cl 18.2.2.1 of the lease and then stated:
Our client has instructed that we provide the Landlord with written notice of her intention to renew the Lease. We are aware that this notice is outside the three month notice period and we ask that you forgive the delay. As you may be aware, our client has extremely limited English and has previously left all business dealings to her now ex husband, Wei Dong Cao. As a result our client has only recently become aware of her obligation to provide notice of her intention to extent [sic] the Lease.
We ask that you accept this letter as the Tenant's notice to renew the Lease and look forward to hearing from you.
Mr Mondello spoke by telephone to a lawyer from the first defendant's solicitors and said that he would accept the letter as the tenant's notice to renew or, as he expressed it in his evidence (which was not challenged, and which I accept), he said 'That's not a problem to renew the lease'.
The first defendant's solicitors then wrote a further letter dated 16 June 2011 which stated:
In both your email of 3 May 2011 and telephone conversation with Ms Mills [the first defendant's solicitor] you confirmed that the Lease for the Property has been extended by five years. We have been instructed by our client, Madame Qin Chen, to draft a Deed of Extension of Lease for purpose of formalising the lease extension. We will send this document to you for signing upon competition [sic].
Both letters of 3 May 2011 and 16 June 2011 were tendered in evidence.[38] However, the email of 3 May 2011 referred to in the letter of 16 June 2011 was not produced. Mr Mondello explained that in the course of moving house he had lost emails on his computer before a certain date.
[38] Exhibit 2, pages 438 and 439; Exhibit 7 pages 102 and 105.
While Mr Mondello has not produced and could not recall the substance of his email of 3 May 2011 or the precise substance of his telephone conversation with Ms Mills as referred to in the letter of 16 June 2011, he confirmed that the matters stated in the letter of 16 June 2011 were correct.
While Mr Cao has been critical of Mr Mondello's explanation for not producing the email 3 May 2011, I am satisfied I am able to proceed on the basis that Mr Mondello did send the email of 3 May 2011. This is because the letter of 16 June 2011 is, in my view, clear and convincing proof not only of the existence of the email of 3 May 2011, but also of the relevant contents: Maks v Maks (1986) 6 NSWLR 34, 36 (McLelland J); Mack v Lenton (1993) 32 NSWLR 259, 261 (Young J).
A deed of extension of lease was prepared by the first defendant's solicitors and sent to and received by the plaintiff.[39] It is dated June 2011. Although I have no evidence as to exactly when this was received by the plaintiff, Mr Mondello acknowledged that it was received, but it was not signed. He gave evidence that he did not consider a deed of extension necessary. If it was necessary he would have had the plaintiff's own solicitors prepare a deed. In addition, the deed of extension purported to vary the lease in a way which Mr Mondello did not accept, and which had not been the subject of correspondence, by providing that should the business run from the premises 'be closed by the City of Stirling', the lease would be automatically terminated, with no right to the plaintiff as landlord to claim or receive compensation or damages for early termination.[40]
[39] Exhibit 7, page 109.
[40] Exhibit 7, page 118, Item 7 of the deed of extension.
Mr Mondello's evidence, which was not challenged and which I accept, was that after receiving this deed of extension, he contacted the first defendant's solicitors and told them:[41]
… 'Look, if you want to go ahead that's - well, the lease is already in play. Just continue on' and that was the last thing I heard and everything just went accordingly.
'Everything carried on accordingly' so what do you mean by that?‑‑‑Well, I refused signing this lease because I didn't like the way it was drawn out and I told the tenants, 'If you want to carry on I'll give you five years. I already told your lawyers in writing and verbally. Carry on' and I - that was the last I heard from them. …
[41] ts 279.
On 27 June 2011 Mr Cao sent an email to Mr Mondello.[42] It is necessary to set out the contents of that email in full:
Hi Sam
Please see the email below I sent to my lawyer and the consent order between Qin and me.
Refer to the clause 9 of the consent order, the lease will be invalid if the final decision has not made [sic] by both parties.
Sam, di [sic] you forget you always say 'Man to Man talk' and you don't do business with woman?
Anyhow, you should admit I am a good tanent [sic] during the more than 10 years we have cooperated. When the business was good and no complain from Council, I always said ok when you requested me to do anything and to pay anthing [sic]. Currently, the business has hit difficulties. Do you think both sides has to make some concessions? We know each other not one day, one months….
Regards,
Jerry
[42] Exhibit 7, page 106.
The consent order referred to by Mr Cao in this email was the Family Court order of 27 January 2010 which I have referred to in [57] above (although Mr Cao refers to it as the Consent Order 2009).
The email to Mr Cao's lawyer which was sent to Mr Mondello as part of Mr Cao's email read as follows:
As you may be aware, the lease will be expiring at the end of June. Qin Chen intends to sign the lease without consulting me. Currently, I was told by the receptionist that she instructed her lawyer drafting a new leases and going to sign with the owner of the 835 in her name. As you know, clause 9 of the Consent Order 2009 prohibits either party making business decision re to trust without permit of other party. Her action will breach the consent order.
Could you please notify the other party that such contract/leases is in breaching the CO and any action in relation to the trust business should be jointly made.
In response Mr Mondello wrote an email of 28 June 2011, in which Mr Mondello stated:[43]
Hi Jerry,
Further to our telephone conversation the extension for the next 5 years will stay the same so per the old lease.
We agree that you have been a good tenant and I have been a good landlord and we didn't mean to upset you in any way.
Regards,
Sam Mondello
[43] Exhibit 7, page 108.
In the same email string, the next email was another from Mr Mondello to Mr Cao on 29 June 2011 at 12:28 saying 'Please find invoices as requested'.[44]
[44] Exhibit 7, page 108.
Mr Cao responded on the same day by email and indeed, his response is part of the same email 'string'.[45] In his email of 29 June 2011 sent at 13:46 Mr Cao said:
Hi Sam,
Thank you for your calling. It appears the communication has still continued. I believe all issues can be resolved by good communication.
I remember you mentioned previously the 5% annual increase will be waived and the further term can be 3 years.
I have beared in mind you helped us when the business was not good. Now the situation is worse than previously. As the macro environment has been changed, our business cannot make profit currently.
Regards,
Jerry
[45] Exhibit 7, page 108.
There is no evidence of any further communication from Mr Mondello in response to this.
Mr Cao has produced another email which he wrote to his lawyer on 29 June 2011 at 13:11 – written before his last email to Mr Mondello – in which he said:[46]
Landerlord [sic] rang in and said he realized the consent order. So he wont sign lease with Qin. Hence It is not necessary to notify other party she will breach the consent order…..
[46] Exhibit 7, page 108.
After the expiry of the first five year term of the lease, from 1 July 2011 the first defendant remained in occupation of the premises. The basis upon which the first defendant continued in occupation of the premises from 1 July 2011 is in dispute and the principal matter about which I must make a finding.
In January 2012, Mr Mondello was contacted by the City of Stirling and advised in effect that a brothel was still being operated on the premises. An onsite meeting was held on 23 January 2012 between a representative of the City, Mr Cao and Mr Mondello.
Following that meeting Mr Cao wrote an undated letter to Ms Lara Bloxham, the compliance officer at the City of Stirling, advising that the first defendant agreed to take a number of measures to ensure the business complied.[47] After setting out those measures, Mr Cao wrote:
I will endeavour to make every effort to comply with directions from both the City and yourself so as to ensure the legitimacy of the business operation.
Regards
Jerry Cao
[47] Exhibit 1, page 386.
On or about 10 February 2012 the City of Stirling brought a prosecution against the plaintiff and the defendants in the Magistrates Court of Western Australia for a breach of s 218 of the PDA. The City of Stirling alleged in the prosecution that the leased premises had been leased for a use that was not approved under the Local Planning Scheme, and that each of the plaintiff and the defendants was doing an act enabling the use of the leased premises contrary to the planning approval.[48]
[48] Exhibit 1 pages 388 and 389, and see also Baccello v Chen [21].
Each of the plaintiff and the defendants entered pleas of not guilty to the charge.[49]
[49] Baccello v Chen [22].
On 7 March 2012 the City of Stirling wrote a letter to Mr Cao and the first defendant referring to 'your correspondence' received by the City on 12 February 2012. As the City's letter repeats the measures set out by Mr Cao in his undated letter which I have set out in [94] above, I am satisfied that this is the correspondence to which the City was referring. The City advised that it had conducted an inspection of the premises on 22 February 2012 and noted that there had been no change to the business operations and that none of the actions set out in Mr Cao's letter had occurred. The City was not satisfied that the actions would eliminate sexual services from being provided by the business and the City intended to pursue the matter.[50]
[50] Exhibit 1, page 387 and see also Baccello v Chen [21].
On 5 April 2012 the plaintiff's solicitors served a second default notice dated 4 April 2012 on the first defendant (the second default notice).[51] There are three things about that second default notice which are important to the issues in this case:
(a)The second default notice referred to the lease and the terms of the lease.
(b)The defaults specified in that second default notice included not only the unauthorised use of the premises, but a failure to repair and keep the premises in good repair and paint the leased premises.
(c)The defendants admitted having received that notice and there is no evidence of any dispute or objection by either of them as to what was set out in that notice.
[51] Exhibit 1, pages 392-395; Baccello v Chen [23]; this is also admitted by the defendants in their pleadings.
The City of Stirling's prosecution proceeded to trial against the defendants only. On 14 June 2013 both defendants were convicted of breaching s 218 of the PDA and each was fined.[52]
[52] Exhibit 1, pages 401 to 406 and see also Baccello v Chen [24].
The first defendant subsequently brought an application in the Supreme Court for leave appeal against sentence (relating to the amount of the fine), which was refused. There was no appeal against conviction: Chen v City of Stirling [2014] WASC 183.
In the meantime, so far as the prosecution against the plaintiff was concerned, the City of Stirling advised the plaintiff's lawyers that they would agree to drop the charge if the plaintiff terminated the defendants' lease and paid the City of Stirling's costs of the prosecution.[53]
[53] Exhibit 4, pages 24 and 25, and see also Baccello v Chen [25].
On 8 July 2013 the plaintiff's solicitors served a third default notice on the first defendant.[54] This third default notice:
(a)referred to the lease and the terms of the lease;
(b)specified a default not only in using the premises for a purpose other than provided for in the lease, but also a failure to repair and keep the premises in good repair and paint the leased premises.
[54] Exhibit 1, pages 407 - 411 and the evidence Elizabeth Jane Bradley, exhibit 6.
The plaintiff took steps to terminate and re-entered possession of the premises on 25 July 2013. There was no issue before me about either the fact or the date of the re‑taking of possession. Mr Mondello's evidence which was not challenged, and which I accept, was that the first defendant gave him the keys on that day and told him that she had ceased carrying on business from the premises.
The City of Stirling's prosecution against the plaintiff was dismissed on 9 August 2013.[55]
[55] Exhibit 4 page 25, and see also Baccello v Chen [26].
I am satisfied from the evidence in this case, and find, that the prosecution against the plaintiff was dismissed on the basis that the plaintiff paid the sum of $2,000 to the City of Stirling, being the amount agreed between the plaintiff and the City of Stirling.[56]
[56] Exhibit 2, pages 512 and 513, exhibit 4 pars 13 and 14.
With these facts I turn now to consider the plaintiff's claims. I will first consider the claims against the first defendant and then I will determine the liability of the second defendant, pursuant to the terms of the guarantee and indemnity in the lease.
The claims against the first defendant
It is convenient to deal first with the issue of whether the lease term was renewed or extended or whether, as the defendants claim, the first defendant occupied the premises as a monthly tenant.
I would observe, however, that whether or not the lease term was renewed or extended, the first defendant remained in occupation of the premises and was bound by the terms of the lease. If the first defendant was a monthly tenant, the terms of the lease were incorporated by the holding over provisions of the lease, in particular cl 9.5.3. Accordingly, even as a monthly tenant the first defendant would be liable for any breach of the lease terms – in particular using the premises other than for the permitted use, failure to pay rent, or failure to maintain the premises – although she would not be liable for any 'loss of bargain damages' as a monthly tenant.
Was the lease renewed?
With the term of the lease expiring on 30 June 2011, as required by cl 18.2.2.1 of the lease, written notice exercising the option to renew for a further five years had to be given in writing no earlier than six months and not later than three months before the date of the expiration of the term, ie between 30 December 2010 and 30 March 2011. Written notice of intention to renew was not given during that period.
I must determine whether the letter of 3 May 2011 and the correspondence which followed amounts to a valid exercise of the option.
An option to renew or extend the term of a lease is a conditional agreement to grant a lease for a further term and gives the lessee the right, provided that they have performed stipulated conditions, to become lessees for such further term: Traywinds Pty Ltd v Cooper (1989) 1 Qd R 222 at 225 ('Traywinds'); Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, 71 – 76; Quadling vRobinson (1976) 137 CLR 192, 200 – 201.
In this case, the only relevant condition is that relating to the time for the exercise of the option in cl 18.2.2.1.
No particular form of words is necessary for the purpose of exercising an option. All that is necessary is the statement by the option holder is unqualified, stating a desire or intention to exercise the option: Traywinds (226).
In my view, the letter of 3 May 2011 unequivocally stated the first defendant's desire or intention to exercise the option.[57] Anyone receiving the letter would fairly understand that the first defendant was purporting to exercise the option.[58] It is apparent that the first defendant also recognised that she was late in the exercise of the option.
[57] Traywinds; Whitegum Petroleum v Bernadini Pty Ltd[2010] WASC 108 [16].
[58] Traywinds (226).
I find that Mr Mondello accepted the late exercise of the option. As evidenced by the letter of 16 June 2011, and also Mr Mondello's evidence, he did so by his email of 3 May 2011 and a telephone discussion with the first defendant's solicitor. While Mr Mondello's email of 3 May 2011 is not in evidence, from the letter of 16 June 2011 I am able to infer and accept that Mr Mondello did by that email, and by his telephone conversation with the first defendant's solicitor, accept the first defendant's late exercise of the option.
What was the result of the plaintiff's acceptance of the late exercise of the option? Was it possible for the plaintiff to waive strict compliance with the terms of cl 18.2.2.1, or was there a new lease by agreement; or did the lease expire and the first defendant remain in possession as a monthly tenant?
The case of Traywinds concerned a similar situation to the one in this case, where the appellants had been lessees of premises under a lease which provided for an original term of three years and an option to renew for a further three years. Notice of the intention to renew was required to be given in writing not more than 90 days and not less than 60 days before the expiration of the original term. Less than a month before the expiration of the original term one of the two lessees wrote saying that he 'would like to take on the 3 year option as written in the lease agreement. If you could please furnish me with matters concerning the aforementioned'. The lessor's solicitors prepared a deed of extension of the lease and made no point about the late notice of the exercise of the option. The lessees did not sign the deed of extension of the lease, but paid rent for three months and then vacated the premises and stopped paying rent. They were successfully sued by the landlord for loss of rental.
The trial judge in Traywindsfound that the lessees had given notice that they intended to exercise the option to renew in accordance with the lease, but that while this was given well outside the time limit imposed for the giving of notice, that time limit was capable of being waived by the lessor. The lessor had indicated its intention to waive that time limit.
In dismissing the lessees' appeal from that decision, the Full Court of the Supreme Court of Queensland[59] held that the stipulation as to the time for the giving of notice of an option of renewal under a lease could be waived, alternatively varied, by requiring some lesser period of notice than that originally stipulated.
[59] Kelly SPJ; Macrossan and Derrington JJ agreeing.
Following Traywinds, the plaintiff has submitted that Mr Mondello's response to the letter of 3 May 2011 amounted to a waiver of the stipulation in cl 18.2.2.1 of the lease for the giving of notice by the first defendant of her intention to renew.
In the alternative, if the option was not validly exercised, the plaintiff has pleaded and submitted that the letter of 3 May 2011 constituted an offer to lease on the same terms as if the option had been validly exercised.
Mr Cao has argued, in essence, that the option to renew lapsed when notice had not been given by the time stipulated in cl 18.2.2.1 of the lease, and the doctrine of waiver does not apply. Mr Cao relied on the authorities of Duncan Properties Pty Ltdv Hunter [1991] 1 Qd R 101 (Duncan Properties), and Re Copperart Pty Ltd (1995) 16 ACSR 351 (Copperart) which followed Gilbert J McCaul (Aust)Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122 (McCaul). Mr Cao has argued that since the option to renew lapsed, once the lease expired on 30 June 2011 the first defendant remained in possession as a monthly tenant.
In each of the authorities relied on by Mr Cao, there was a similar situation where a lessee purported to exercise an option to renew the lease out of time, or the issue was whether the option had been validly exercised and the lease renewed. While it was held in each of Duncan Properties, Copperart and McCaul that the option to renew had lapsed, it was also held that the lessee's late exercise of the option and the lessor's acceptance of that, constituted an agreement to give and take a fresh lease in the same terms as if the option had been effectively exercised.
McCaul is a decision of the New South Wales Full Court where, in a joint judgment, the Court said that an option of renewal is no more than an offer to make a contract which is irrevocable and which prescribed the time and manner for acceptance. The Court went on to say:[60]
Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted, it is a loose although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter-offer and in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer.
[60] Gilbert J McCaul (Aust)Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122, 123 – 124.
The judges in the cases of Duncan Properties and Copperart followed McCaul and expressed the view that in circumstances where the option has not been exercised in accordance with the terms of the agreement, it is open to the grantor of the option to accept a counter‑offer by the grantee.
Traywinds was also considered in Duncan Properties and Copperart. Having reviewed all the authorities I agree with the observations of White J in Copperartthat neither Kelly SPJ nor Macrossan J in Traywinds expressed a concluded view as to whether the doctrine of waiver did in fact apply.[61]
[61] Re Copperart Pty Ltd (1995) 16 ACSR 351 (Copperart) 356.
What Kelly SPJ did in Traywinds was to state that if waiver was 'permissible', the finding of waiver would be sustainable.[62] McCrossan J in Traywinds observed also that 'there are reasons for thinking that the doctrine of waiver may operate', but it was not necessary to seek to provide a definitive answer on the question.[63]
[62] Traywinds (226).
[63] Traywinds (228).
Kelly SPJ in Traywinds considered McCaul and noted that McCaul was impliedly accepted in obiter comments by the High Court in Bowman v Durham Holdings Pty Ltd (1973) 131 CLR 8, 10 (Barwick CJ) and 17-18 (Stephen J). Kelly SPJ then held that if the purported exercise out of time of the right of renewal is to strictly be regarded as a counteroffer as it was in McCaul, the result would be no different.[64] Whether by the exercise of the option (applying the doctrine of waiver) or by the coming into existence of a fresh agreement by the acceptance of a counter-offer (being the offer to exercise the option out of time) the position was that the lessees in that case held the premises under a lease for a term of three years.
[64] Traywinds (228).
Similarly, McCrossan J in Traywinds found that if the purported exercise of the option of renewal is 'strictly to be regarded as a counter‑offer by them', then the lessees were found to be no better placed'.[65]
[65] Traywinds (228).
In my view, Traywinds does not authoritatively state that the doctrine of waiver applies in this situation. The authorities of McCaul, Bowman v Durham Holdings Pty Ltd (being High Court authority), Duncan Properties and Copperart are persuasive and should be followed. Accordingly, I must conclude that the requirement as to time in cl 18.2.2.1 of the lease could not be waived.
It matters not that first defendant's solicitors in the letters of 3 May 2011 and 16 June 2011 referred to the 'renewal' of the lease, or that Mr Mondello agreed to this and also stated in his email to Mr Cao on 29 June 2011 that 'the extension for the next 5 years will stay the same so per the old lease'. As a matter of law, waiver cannot apply to support the effectiveness of a purported notice of the exercise of an option given out of time, and there could have been no valid exercise of the option.
Despite Mr Cao's submissions, however, that is not the end of the matter. The alternative claim and submission from the plaintiff is that even if the doctrine of waiver does not apply, the letter of 3 May 2011 should be characterised as a counter-offer to lease the premises on the same terms as if the option had been effectively exercised, which counter‑offer was accepted by the plaintiff.
I have no difficulty in accepting the plaintiff's submission, and I find, following the authorities of Duncan Properties, Copperart and McCaul, that by the letter of 3 May 2011 the first defendant was making an offer to lease the premises on the same terms as the lease, as though the option had been effectively exercised. Mr Mondello on behalf of the plaintiff accepted this offer by his email of 3 May 2011 and his telephone conversation with the first defendant's solicitor, as evidenced by the letter of 16 June 2011.
I am thus satisfied that the plaintiff and the defendant entered into an agreement for a lease of the premises on the same terms as the lease, as though the option had been exercised. The position was that from and after 1 July 2011 the first defendant held the premises subject to the terms of the lease for a term of five years commencing 1 July 2011 and ending 30 June 2016. For ease of reference, I will refer to this agreement for lease as the 'extended lease'.
There is a further matter which arises and that is whether the legal requirements of s 4 of the Statute of Frauds 1677 (UK) which applies in this State, have been satisfied in respect of the extended lease.
Section 4 of the Statute of Frauds provides that no action shall be brought on an agreement, inter alia, relating to an interest in land (such as a lease) unless the agreement, or some memorandum or note thereof, is in writing 'and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised'.
I am satisfied that there was compliance with the Statute of Frauds. I find that the letters of 3 May and 16 June 2011 and Mr Mondello's email of 3 May 2011 as referred to in the letter of 16 June 2011 is a sufficient memorandum of the agreement for the purpose of s 4 of the Statute of Frauds. An email meets the requirements for writing and signature pursuant to s 9 and s 10 of the Electronic Transactions Act 2011 (WA). In any event, the party 'to be charged therewith' is the first defendant, and the letters signed by her solicitors constitute sufficient memorandum.[66]
[66] Duncan Properties Pty Ltdv Hunter [1991] 1 Qd R 101 (Duncan Properties) (105).
If I am wrong about there being writing sufficient to constitute memorandum of the agreement, then I find that it is enforceable by reason of the following acts of part performance: Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23; (2008) 35 WAR 520 (Lighting by Design).
First, the first defendant continued in possession of the leased premises after 30 June 2011 for more than two years. I accept that continuing in possession is not in itself an unequivocal act of part performance of the extended lease; it may also be consistent with a holding over.[67] It is, however, relevant that even with her issues with the City of Stirling and even after she was convicted of the offence pursuant to s 218 of the PDA in June 2013, the first defendant did not give notice to terminate.
[67] Lighting by Design [79]; [177] ‑ [178].
Secondly, along with the continuance of possession the first defendant also paid rent consistent with the extended lease. From 1 July 2011 to 25 July 2013, save for the last two instalments, rent was paid consistent with the provisions of the lease dealing with the payment of rent during a renewed or extended term, as opposed to the rent payable during a holding over period under cl 9.5.1 of the lease, ie increased by 10%. This payment of rent is significant.[68]
[68] Lighting by Design [182].
In relation to item [257](d) there is an invoice dated 18 July 2011 for the supply of a Rinnai 16 HWU (hot water system) for the amount of $939.62.[108] However, it is clear from the provisions of cl 6.1.1 and also cl 6.2.1 that it was the first defendant's obligation to replace all heating and plumbing fixtures. Accordingly I do not allow this claim.
[108] Exhibit 7, page 69.
Similarly, in relation to the cost of repairing the water pipeline, item [257](e), this too was an obligation of the first defendant pursuant to cl 6.1.1 and not the plaintiff's obligation. As to the claimed cost of $2,725, I am unable to find any invoice which corresponds with this amount.
Mr Cao has produced a number of other receipts and tax invoices dated between 9 and 18 August 2006 relating to bathroom repairs including the purchase of towel rails, 'basin/bath/shower' sets and vanity sets and wall stops, the fixing of ceramic tiles, and the fitting of door panels, shower screens and mirrors.[109] He also produced further tax invoices dated between 31 December 2006 and 9 August 2007 relating to other bathroom repairs, such replacement of tiles to a shower, the fitting of taps and a shower rose, and clearing blocked sinks and basin.[110] Finally there are two further invoices dated 25 March 2009 and 25 March 2009 relating to plumbing matters, namely replacing a cistern inlet valve and flush-core rubber, activating the laundry hot tap and replacing taps in the laundry.[111] These tax invoices vary in amounts. They do not form part of the pleaded counterclaim, and I find that they all relate to matters which the first defendant had to either repair or replace pursuant to the lease cl 6.1.1 or 6.2.1.
[109] Exhibit 7, pages 55 – 58.
[110] Exhibit 7, pages 60 – 65.
[111] Exhibit 7, pages 66 and 68.
In any event, I accept the plaintiff's submission that for those claims are said to have risen in 2006, they are statute barred pursuant to s 13(1) of the Limitations Act.
As to item [257](i) there is a copy of an invoice dated 2 September 2006 in the sum $1,200.[112] The description of the work is to 'repair and replace' a 'rangehood and installation services'. I am not satisfied that this relates to structural matters forming part of the plaintiff's responsibilities pursuant to the lease cl 13.3. I consider it to be part of the first defendant's responsibilities pursuant to either cl 6.1.1 or 6.2.1. I do not allow this claim.
[112] Exhibit 7, page 73.
This claim is in any event statute barred pursuant to the Limitation Act s 13(1).
There has been an invoice produced for the cost of window treatments in the sum of $2,550, item [257](j).[113] This claim does not relate to any structural matter for which the plaintiff was responsible pursuant to cl 13.1 of the lease. In my view it falls firmly within the first defendant's responsibilities to replace furnishings, as set out in cl 6.1.1.
[113] Exhibit 7, page 70.
Finally, as to item [257](l), the legal costs for a meeting with the plaintiff's previous lawyer in 2010 in relation to a rent increase proposed by the plaintiff, there is a tax invoice from a firm of lawyers for the sum of $440.[114] However, I can see no legal basis for this claim and I do not consider the plaintiff liable for this claim under the terms of the lease, or otherwise.
[114] Exhibit 7, page 77.
For these reasons, I dismiss the counterclaims made by the defendants.
Conclusion and orders
The plaintiff is entitled to judgment against both defendants in the sum of $294,372.73, plus interest as claimed. The defendants' counterclaims must be dismissed.
I will hear from the parties as to what orders should be made, including as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
DC
ASSOCIATE TO JUDGE DAVIS23 OCTOBER 2018
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