Bradberry Pty Ltd and Hirepoint Pty Ltd v Curtis-Morris
[2009] VCC 559
•15 May 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
GENERAL DIVISION
COMMERCIAL LIST
Case No. CI-08-02048
| BRADBERRY PTY LTD | First Plaintiff |
| (ACN 070 140 706) | |
| and | |
| HIREPOINT PTY LTD | |
| (ACN 074 117 016) | Second Plaintiff |
| v | |
| PAUL THOMAS CURTIS-MORRIS | Defendant |
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| JUDGE: | HIS HONOUR JUDGE SHELTON |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 8 May 2009 |
| DATE OF JUDGMENT: | 15 May 2009 |
| CASE MAY BE CITED AS: | Bradberry Pty Ltd & Hirepoint Pty Ltd v Curtis-Morris |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0559 |
REASONS FOR JUDGMENT
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Catchwords: Action against guarantor under lease – enforcement by assignee of reversion when no express assignment of the benefit of the surety’s covenant – mitigation of loss - Lang v Asemo Pty Ltd [1989] VR 773 - Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms E Ruddle | Rigby Cooke Lawyers |
| For the Defendant | In Person | |
| HIS HONOUR: |
1 This is a claim against the defendant who guaranteed the obligations of the lessee under a lease. The sum claimed is $117,854.18.
The Facts
2 By a Lease dated 25 January 2005 (“the Lease”), 88 Albert Road Pty Ltd (“the Lessor”) leased the premises at Suite 101, 88 Albert Road, South Melbourne (“the premises”) to MNJ Personnel Pty Ltd (“the Lessee”).
3 The Lease provided that the Lessor “shall unless inconsistent with the context mean and include the Lessor, its assigns and successors or other person or persons entitled to the reversion hereunder”.
4 The Lease was for a term of four years with one option to renew for a further period of four years. The commencement date of the Lease was 14 February 2005. The rental payment under the Lease was $42,365 per annum, i.e., $3,530.41 per month, commencing on 17 June 2005. A car park licence fee of $240 per month was payable from 14 February 2005. There was also a conditional signage licence rental of $16,000 per annum, i.e., $1,333.35 per month. The rental was to be increased by 3.5 per cent at the expiration of every twelve-month period from the commencement date of the Lease. Pursuant to Clause 2.1 of the Lease, the Lessee was required to pay the Lessor 11.56 per cent of the outgoings payable by it on 88 Albert Road.
5 It was not in issue that the monthly payment due by the Lessee pursuant to the Lease was $7,351,99 calculated as follows:
Office rental: $3,530.41 Parking rental: $240.00 Signage Licence Rental $1,333.35 Outgoings recovery: $1,579.86 GST: $668.37 ________
Total $7,351.99 ========
6 By a document entitled “Guarantee and Indemnity for Lease” dated 11 February 2005 (“the Guarantee”), the defendant guaranteed the obligations of the Lessee pursuant to the Lease.
7 By Contract of Sale, dated 23 March 2005, the Lessor sold 88 Albert Road to the plaintiffs for the sum of $5,404,000.00.
8 On 14 April 2006, the Lessee abandoned the premises. It is not in issue that it was then $22,055.99 in arrears in payments due under the Lease, i.e., three months in arrears.
9 No further payments have been made by the Lessee pursuant to its obligations under the Lease.
10 The plaintiffs engaged Knight Frank, who were the managing agents for the premises, to obtain a new tenant for the premises. It had no success in letting the premises. Then on 5 October 2006 the plaintiffs engaged Lemon Baxter, Property Consultant & Real Estate Agent, to lease the premises. It was successful in letting the premises to Nylex Corporation Pty Ltd (“Nylex”) at the end of November 2007 for a three year term with an option of a further term of two years. The Lease commenced on 1 February 2007 (“the new Lease”). The rental payable per annum was $50,380 commencing on 1 May 2007. Nylex was given a three-month rent-free period, with rental payments commencing on 1 May 2007.
11 The plaintiffs regarded the Lessee as having repudiated the Lease by its failure to pay the monthly payments due pursuant to the Lease and by its vacation of the premises. It accepted this repudiation on 27 November 2006 when it offered to lease the premises to Nylex.
12 The plaintiffs now claim the sum of $117,854.18 is due to it from the Lessee, and as a consequence from the defendant, pursuant to the Guarantee. This sum is calculated as follows:
Summary of Plaintiffs’ Loss and Damage Claimed
Date On account of Amount
April 2006 Arrears at 14 April when tenant abandons $22,055.99 premises May 2006 Lease still on foot – rent, outgoings and fees $7,351.99 not received June 2006 Leave still on foot – rent, outgoings and fees $7,351.99 not received July 2006 Lease still on foot – rent, outgoings and fees $7,351.99 not received August 2006 Leave still on foot – rent, outgoings and fees $7,351.99 not received September 2006 Leave still on foot – rent, outgoings and fees $7,351.99 not received October 2006 Lease still on foot – rent, outgoings and fees $7,351.99 not received 1-27 November 2006 Leave still on foot – rent, outgoings and fees $6,616.79 not received
28-30 November 2006 Repudiation accepted – damages – rent, $735.20
outgoings and fees not received
December 2006 Damages – rent, outgoings and fees not $7,351.99 received January 2007 Damages – rent, outgoings and fees not $7,351.99 received February 2007 Damages – rent, outgoings and fees not $7,351.99 received March 2007 Damages – rent, outgoings and fees not $7,351.99 received April 2007 Damages – rent, outgoings and fees not $7,351.99 received May 2007 New tenant commences rental payment.
Loss ceasesOctober 2006 Advertising expenses paid to Lemon Baxter $818.00 for signage and internet advertising 14 April 2006 Interest at 4% above the penalty interest rate $6,756.31 – May 2008 for arrears of $22,055.99
Total $117,854.18
13 As to the last item, Part C, Clause 7 of the Lease allows the Lessor to claim interest on monies outstanding under the Lease at the rate prescribed by the Penalty Interest Rate Act plus 4 per cent.
The Issues
14 The defendant, who appeared in person and acquitted himself well on the hearing, indicated that he contested the plaintiffs’ claim on two bases: firstly, the plaintiffs’ standing to sue under the Guarantee; and, secondly, whether the plaintiffs had mitigated their losses.
15 As to the rights of the plaintiffs to sue the defendant upon the Guarantee, there was here no express assignment of the benefit of the Guarantee from the Lessor to the plaintiffs. The defendant sought to rely upon s.134 of the Property Law Act 1958.
16 Ms Ruddle, who appeared for the plaintiffs, relied upon the decision of the Full Court in Lang v Asemo Pty Ltd [1989] VR 773. There Gobbo J was dealing with a situation similar to here where the plaintiff, seeking to enforce the Guarantee, was neither a party to the Guarantee nor the assignee of the benefit of the Guarantee.
17 His Honour considered the House of Lords decision in P. & A. Swift Investments v Combined English Stores Group Plc. [1988] 2 All E.R. 885; [1988] 3 W.L.R. 313. He stated:
“The question was whether the surety's covenant in respect of an underlease could be enforced by the assignee of the reversion, there being no express assignment of the benefit of the surety's covenant. It was held that reversion of a lease was land for the purpose of the common law rule that the benefit of a covenant which touched and concerned the land ran with the land. The principal speech was that of Lord Oliver of Aylmerton who, at (All E.R.) p.891; (W.L.R.) p. 320, put forward the following as a satisfactory working test for whether in any given case a covenant touched and concerned the land:
‘(1) The covenant benefits only the reversioner for the time being, and if separated from the reversion ceases to be of benefit to the covenantee. (2) The covenant affects the nature, quality, mode of use or value of the land of the reversioner. (3) The covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations only of a specific tenant). (4) The fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, to or in relation to the land.’
There is no reason in principle why the decision of the House of Lords should not be followed by the court. …”
18 Ms Ruddle submitted that the tests outlined in Lang were complied with here.
19 As to (1), the Guarantee only benefitted the plaintiffs and was of no use if held by a person not the owner of the land.
20 As to (2), she submitted that the Guarantee affected the value of the land. In Lang, Gobbo J stated, at 776 and 777:
“The existence of the surety was an additional source of recovery that could on no view reduce value and it could properly be assumed could only add value.”
21 She submitted that the same situation applied here.
22 As to (3), she relied upon Clause 8 of the Guarantee which states:
“IN this document the terms ‘the Guarantor’, ‘the Lessor’ and ‘the Lessee’ shall include their respective successors and assigns respectively the singular shall include the plural and where at any time there is more than one Guarantor reference shall be to each Guarantor jointly and severally and reference to each party shall include a reference to their respective heirs executors administrators and permitted assigns and in the case of companies their successors and permitted assigns.”
She submitted that these words are not expressed to be personal.
23 As to (4), here there is a covenant to pay monies outstanding under the Lease.
24 I agree with Ms Ruddle’s submissions.
25 Gobbo J stated in Lang, at p.777:
“There is nothing therefore in this terminology that supports the argument that the guarantee was intended on a proper reading to be limited to the specific lessor and the specific lessee.”
26 I make the same comment here.
27 I accept Ms Ruddle’s submission that the Guarantee is enforceable, notwithstanding that there has been no express assignment of it on the basis that it “ran with the land”. In the circumstances, s.134 of the Property Law Act is not applicable.
28 As to the alleged failure of the plaintiffs to mitigate their loss, the law is clear. In Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507, Murphy J, with whom the other members of the Full Court agreed, stated, at p.513:
“So long as the respondents can be seen to have acted reasonably and justifiably in the circumstances, they should not be debarred from recovering the actual loss flowing to them simply because it is asserted that, by taking some other course, the loss might well have been lower.”
29 In my view, the plaintiffs have acted “reasonably and justifiably” in the circumstances. They engaged Knight Frank to re-let the property promptly. Knight Frank erected a sign on the property and advertised on a property website prior to the end of April 2006. When Knight Frank were unable to find a new tenant for the premises, the plaintiffs then engaged Lemon Baxter, who found a tenant for the property. The defendant submitted that the property may have taken some time to lease on account of an excessive rental being sought as evidenced by the rent finally agreed upon under the new Lease of $50,380 per annum. There is no evidence before me that the rental sought was too high. There is, in my view, no substance in this submission. The rental under the Lease by February 2007 would have been increased on two occasions by 3.5 per cent. A tenant was found promptly who was prepared to pay $50,380 rental per annum. Further, Luke Conquest, commercial leasing and sales agent with Lemon Baxter, indicated that the new tenant for the premises here had been obtained relatively quickly and that it may well have taken up to twelve months to lease the premises. Nylex did not pay a signage licence rental under the new Lease and thus the plaintiffs’ financial position is not as favourable as it had been under the Lease.
30 The defendant further referred to the rent-free period of three months under the new Lease. Conquest indicated that it was normal to give a rent-free period for one month for each year of the Lease and so three months rent-free period was standard with the new Lease here. In fact, under the Lease which was for a term of four years, the Lessee had received a four month rent-free period.
31 The defendant submitted that an allowance should be made to him since, had the Lease run its four years and the option to renew had not been exercised, the plaintiffs would have given a rent-free period to the new tenant when found. This rent-free period here had in fact been borne by the plaintiffs at an earlier point in time and they would not be faced with a rent-free period when they would otherwise have been, had the Lease not been breached. In my view, there is no substance in this submission. In fact, the tenant under the new Lease, Nylex, is under administration and the plaintiffs may well be seeking yet another new tenant and have to give a rent-free period. The Lessee vacated the premises after only fourteen months and, as indicated, the plaintiffs are now in a worse position financially than had the Lease run its course. The plaintiffs have certainly not received a windfall.
32 The defendant also referred to the delay between 30 November and the commencement of the Lease on 1 February 2007. There was no evidence before me that the plaintiffs did not act reasonably in the circumstances, particularly given the Christmas period.
33 There will be judgment for the plaintiffs in the sum of One Hundred and Seventeen Thousand Eight Hundred and Fifty Four Dollars and Eighteen Cents ($117,854.18).
34 I will hear from the parties on the question of further interest payable and costs.
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