Brady Flinders Pty Ltd v Medina Property Services Pty Ltd

[2024] VSC 319

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL AND RETAIL LEASES LIST

S ECI 2022 03845

BRADY FLINDERS PTY LTD	Plaintiff
v
MEDINA PROPERTY SERVICES PTY LTD	Defendant

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JUDGE:	Croft J
WHERE HELD:	Melbourne
DATE OF HEARING:	19 & 20 March, 29 April 2024
DATE OF JUDGMENT:	14 June 2024
CASE MAY BE CITED AS:	Brady Flinders Pty Ltd v Medina Property Services Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VSC 319

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CONTRACT — Claim for damages for breach of contract by Landlord — Claim for Landlord’s failure to carry out refurbishment works — Whether Landlord required to complete all refurbishment works if it decided to undertake them at all — Claim for refurbishment works should be dismissed — Whether Landlord failed to replace missing furniture, fittings and equipment — Proper construction of the relevant lease does not give rise to such a claim — Failure to mitigate loss leading to difficulties with claim even if plaintiff were successful — Claim for loss of use of premises while the rectification works are carry out — Rectification costs unreasonable and should not be awarded — Plaintiff’s claim dismissed — Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 — Lopes v Taranto [2018] VSCA 288.

CONSUMER LAW — Claim for misleading or deceptive conduct — Damages claimed pursuant to Australian Consumer Law — Whether Landlord engaged in misleading or deceptive conduct by representing when entering into lease that it would carry out refurbishment works and retain the fixtures fittings and equipment owned by the Tenant — Purported representations only alleged to arise from lease itself — No relevant loss pleaded — Plaintiff’s claim dismissed — Competition and Consumer Act 2010 (Cth) Sch 2, ss 18, 232.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A T Schlicht and Ms E Riordan	Vadarlis and Associates
For the Defendant	Mr D B Bongiorno and Ms C P Middleton	Speed & Stracey Lawyers

HIS HONOUR:

Introduction

1. By Amended Statement of Claim filed on 14 March 2024, the plaintiff, Brady Flinders Pty Ltd (ACN 085 343 488) (‘Brady’), claims damages for breach of contract by the defendant, Medina Property Services Pty Ltd (ACN 062 326 176) (‘Medina’), for:

(a)   failing to carry out the refurbishment works;

(b)  failing to replace missing furniture, fittings and equipment; and

(c)   loss of use of premises while the rectification works are carried out. 

1. In the alternative, Brady claims damages pursuant to s 232 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (‘ACL’) for representations which Brady claims were made by Medina that it would complete the refurbishment works and replace fixtures, fittings and equipment under the relevant lease provisions and, as such, engaged in misleading or deceptive conduct contrary to s 18 of the ACL.

Background

1. On 19 December 2006, Brady became the registered proprietor of all that land contained in Certificate of Title Volume 10984 Folio 158, known as 550 Flinders Street, Melbourne (‘the Premises’). 

1. The Premises is a building of 29 levels comprising retail and serviced apartments (levels 2–12), and residential apartments (levels 13–29).  There is also a multi‑level carpark.  The residential apartments were sold to various purchasers and do not form part of the dispute in this proceeding. 

1. In June 2007, Brady leased to Medina the serviced apartments, being 108 in number and 30 car park spaces (‘the First Lease’).  Whilst the First Lease was executed in June 2007, it did not commence until 1 January 2007 and was for a term of 10 years, with two further options of five years each.  The First Lease provided for a sinking fund to meet the costs of the repair, maintenance and purchase, and the sale and replacement of furniture, fittings and equipment (‘the Sinking Fund’).  Upon the expiration or termination of the First Lease, any remaining amounts in the Sinking Fund were to be transferred to Brady and Medina equally.[1] 

   [1]First Lease, cl 12.6(c).

1. In late 2016, a dispute arose between Brady and Medina which resulted in proceedings being issued in this Court in November 2016 (’the 2016 proceeding’).  One year after the issue of that proceeding the parties settled, signing a Settlement and Release Deed dated 24 November 2017 (‘the Settlement and Release Deed’). 

1. On 24 November 2019, the First Lease was terminated and a new lease was executed between Brady and Medina for a further period of four and a half years commencing on 1 July 2017 together with an option of a further five year term (‘the Second Lease’).  Schedule 1 of the Second Lease set out a list of refurbishment works (‘the Refurbishment Works’).  The Second Lease was the ‘New Lease’ provided for in the Settlement and Release Deed[2] and was, in other words, the product of the settlement of the 2016 proceeding.

   [2]See the Settlement and Release Deed, Clauses 1.2 (‘New Lease’ defined as ‘The Lease in the form of Annexure A to this document’) and 3.3 (and see below [10]).

1. Medina did not exercise its option for a further term of five years under the Second Lease and vacated the Premises on 22 July 2022. 

Lease and other provisions

Lease provisions

1. Critical to the issues in this proceeding are a variety of provisions of the Second Lease, including the following:

4        LANDLORD’S COVENANTS

To the extent that it is not a liability of the Body Corporate, the Landlord covenants with the Tenant:

…

4.2the Tenant may at or prior to the expiration of the Lease take and remove and carry away from the Premises all Tenant’s fixtures, fittings, plant and equipment and other articles upon the Premises (except the Furniture Fixtures and Equipment, unless it is being replaced by a like item) together with all Signage relating to the Service[d] Apartment Business (whether or not such signs form part of the Furniture Fixtures and Equipment). provided the Tenant shall in such removal do no damage to the Premises or shall forthwith make good any damage which the Tenant may occasion thereto and shall remove all rubbish and leave the Premises in a clean state and condition. The Tenant acknowledges that if the Tenant fails or refuses to remove any such fixtures and fittings by the date this Lease ends by the passage of time (or if this Lease [is] terminated earlier) within a reasonable time and in any case not more than one month after any early termination of this Lease, then such fixtures and fittings shall become the property of the Landlord. In exercising its rights under this clause prior to the expiration of the Lease, except in relation to Signage, the Tenant may not take and remove any of the Furniture Fixtures and Equipment without the Landlord’s consent. For the avoidance of doubt, all Furniture Fixtures, and Equipment, whether the original item specified in Schedule 2 or a replacement paid for by the Tenant pursuant to this Lease, is not to be removed by the Tenant;

…

5.7      Maintenance of Services

(1) The Tenant shall maintain and repair and subject to any building warranties, enter into and keep in force a contract for the maintenance and repair of any:

(a)elevators:

(b) Air‑Conditioning Plant; and

(c) Shared Services;

which are wholly within the Premises or Body Corporate No. 2 or exclusively used by the Tenant.

(2) The Tenant will provide a copy of such Maintenance Contracts to Landlord prior to execution and Tenant will use reasonable endeavours to ensure the Maintenance Contracts can be terminated with 90 days’ notice.

(3) The Tenant is responsible for engaging a suitably qualified contractor and paying the costs of repair and maintenance of any Component of the Shared Services which a representative of the Body Corporate advises the Tenant in writing has been determined to require attention in order to comply with the relevant Australian Standards and/or the requirements of the occupancy permit for the Building. The Parties agree that should a Component of the Shared Services require replacement, the Tenant will be responsible for the cost of replacement provided such cost is of a minor or nominal cost (less than $400 excluding GST, including parts and labour). If the costs is $400 excluding GST or more, the Landlord will be responsible for the cost of replacement.

(4) For the removal of doubt, the Tenant is not responsible for the routine testing and maintenance of the Shared Services within the Building or the repair, maintenance or replacement of any element of the Shared Services which is not located within the Premises or the common property owned by Body Corporate No. 2.

…

5.9      Repairs, Maintenance and Capital Improvements

(a) Repairs and Maintenance

(i) Without limiting clause 5.7, the Tenant shall, at its cost, from time to time cause to be undertaken such day to day repairs and maintenance as it reasonably determines to be necessary to keep the Premises and Body Corporate No. 2 in a good and tenantable condition (excluding structural or capital repairs and changes to the Premises or façade of the Building, or replacement (but not maintenance and repairs) of Air‑Conditioning Plant and the lifts servicing Body Corporate No. 2).

(ii) The Tenant shall appoint such contractors to undertake any required repairs and maintenance.

(iii)      For the avoidance of doubt:

(A) the Tenant proposes; and the Landlord has approved the Tenant, to undertake certain refurbishment works, including to the FF&E in the Premises and capital expenditure within the Premises, at the Tenant’s costs, the scope of which is set out in in [sic] Schedule 2 (Refurbishment Works);

(B) the Landlord acknowledges that as at the date of this Lease the replacement of carpet within the guest rooms of the Serviced Apartments Business does not form part of the Refurbishment Works scope. The Tenant will use reasonable endeavours to bring such works within the scope of the Refurbishment Works having regard to the overall budget available, which the parties agree is $2,019,763.76 being the balance of the sinking fund account at the Lease Commencement Date, however makes no guarantee that such replacement will occur;

…

6.5      Other Negative Covenants by Tenant

The Tenant will not at any time during the Term of this Lease commit or knowingly suffer or permit any illegal or unlawful act to be committed or performed or done upon the Premises or the Common Areas and shall not enter or use or permit to be entered or used in the Premises, the Common Areas or any part thereof otherwise than in accordance with the Term of this Lease and the Tenant WILL NOT at any time during the continuance of this Lease:

…

(d) except in the case of an emergency when no consent is required, without the previous consent in writing of the Landlord (which shall not be unreasonably withheld) make any alteration or addition or installation of any kind in or to the Premises, the Common Areas or any part thereof and shall in the course of such alterations or additions made with the consent of the Landlord observe and comply with the requirements of the Landlord and public authorities.

…

6.21 Replacement, Refurbishment & Repair of Furniture, Fixtures and Equipment

(a) The parties acknowledge and agree that all Furniture, Fixtures and Equipment in or on the Premises or common property owned by Body Corporate No. 2 as at the Lease Commencement Date is owned by the Tenant and the extent to which ownership resides with the Landlord, all the Landlord’s right, title and interest is transferred to the Tenant on the Lease Commencement Date.

(b) The Tenant shall be solely liable, at its cost, to maintain, replace, refurbish or repair any part of the Furniture, Fixtures and Equipment during the Term of the Lease or the Additional Term as and when it deems appropriate to maintain  the FF&E in good and serviceable condition suitable for the operation of a Serviced Apartment Business. The Tenant shall be solely responsible for all costs associated with the disposal of any FF&E which is replaced and shall be entitled to any income generated from the sale of any FF&E which is replaced.

(c) Notwithstanding, that the Tenant is responsible for replacement of FF&E during the Term of this Lease and the Additional Term, on expiry or termination of this Lease, all FF&E at the time of termination (including any replacement FF&E purchased by the Tenant, will become the property of the Landlord and the Tenant acknowledges that it is not entitled to make any claim or demand upon the Landlord in relation to such ownership.

(d) The obligation of the Tenant to pay for the maintenance, replacement, refurbishment or repair of FF&E is in consideration of the Landlord consenting to the Tenant being entitled to retain the balance of circa two million dollars ($2,000,000.00) of the sinking fund account at the expiry of the original lease and to release the Tenant from the obligation to contribute to a sinking fund during the Term of this Lease. The right of the Landlord to retain all current FF&E at the end of this Lease is consistent with the intent of the original lease.

Settlement and Release Deed provisions

1. The following provisions of the Settlement and Release Deed are also of relevance in this proceeding:

2         Conditions Precedent

Save for clause 3, the rights and obligations of the Parties under this document are subject to the satisfaction or waiver of the following conditions precedent:

(a) each Party executing the Escrow Deed and delivering an executed version of the New Lease to the Escrow Agent; and

(b) Brady procuring at its cost, the consent of any mortgagee of the Land to the Lease as contemplated in clause 4.1.

The satisfaction of these conditions precedent may only be waived by written agreement of Medina.

If these conditions precedent are not satisfied or waived by the Condition Precedent Due Date, then this document will be taken to be terminated on that date (or such later date that the Parties may agree in writing), and this document will be of no further force or effect (other than in respect of clause 3).

3         Additional Term under Existing Lease and Escrow Deed

3.1      Exercise of option

Subject to Medina executing the New Lease and the Escrow Deed and providing both these documents to the Escrow Agent, the Parties agree that Medina has validly exercised the option to renew under clause 15.1 of the Existing Lease and that accordingly the Existing Lease renewed for an Additional Term being a period of 5 years commencing on 1 January 2017.

3.2      Sinking fund

In the event that Brady does not satisfy the Conditions Precedent by the Condition Precedent Due Date, any use of the Sinking Fund by Medina under clause 7.2 will be deemed to have been used and disbursed as part of the Approved Operating Plan under clause 12.6(b) of the Existing Lease.

3.3      New Lease

(a) Each Party must execute the Escrow Deed and the New Lease at the same time as this document and provide both documents to the Escrow Agent.

(b) Notwithstanding any term of the New Lease or Escrow Deed, the Conditions Precedent are also conditions precedent for the New Lease and the New Lease will have no force or effect until the Conditions Precedent are satisfied or waived under clause 2 above.

(c) The Parties agree that once the Conditions Precedent are satisfied or waived, the New Lease will then override and cancel the Existing Lease and the Existing Lease is then expressly cancelled.

…

7         Release

7.1      General release

In consideration of the terms of this document:

(a) Medina releases and discharges Brady and its Associates, directors, officers, employees or agents from the Released Claims which it has or which but for this document could, would or might at any time hereafter have or have had against Brady and each of Brady's Associates, directors, officers, employees or agents; and

(b) Brady releases and discharges Medina and its Associates, directors, officers, employees or agents from the Released Claims which it has or which but for this document could, would or might at any time hereafter have or have had against Medina and each of Medina's Associates, directors, officers, employees or agents.

7.2      Sinking fund

(a) The Released Claims include Brady releasing Medina and its Associates, directors, officers, employees or agents from any claim that Brady has or which but for this document could, would or might at any time hereafter have in relation to the Sinking Fund (including amounts in the Sinking Fund Account) and by this document Brady waives and otherwise releases all rights or claims that it has or might have in relation to the Sinking Fund.

(b) Brady and Medina acknowledge and agree that despite any other provision of the Existing Lease, Medina may use the funds in the Sinking Fund in any way that it sees fit. Nothing in this document or the New Lease obligates Medina to contribute funds into the Sinking Fund or maintain the Sinking Fund or a Sinking Fund Account.

(c) Without limiting subclauses (a) and (b), Brady acknowledges and agrees that Medina is permitted to use or apply amounts in the Sinking Fund to cover or reimburse the full amount Medina has incurred in relation to re‑carpeting the conference room located on Level 1 of the Building.

Principles of construction

1. The principles of construction of commercial documents, such as the Second Lease and the Settlement and Release Deed, are not controversial.  Nevertheless, it is useful to set them out briefly. 

1. In the construction of the terms of a commercial contract, such as the documents to which reference has been made, the Court must ask ‘what a reasonable business person would have understood those words to mean’.[3] In answering this question, ‘the reasonable businessperson [is] placed in the position of the parties’,[4] and the Court applies the following principles:

   [3]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ) (‘Woodside’); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ) (‘Mount Bruce’).

   [4]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16] (Kiefel, Bell and Gordon JJ) (‘Ecosse’).

(a)   The terms are construed objectively and the subjective intentions of the parties are irrelevant.[5] 

[5]Ibid.

(b)  The objective approach requires reference to the text and its ordinary meaning, together with:

(i)     the context, being the entire text of the contract including matters referred to in the text; and

(ii)  the purpose. 

These matters will, ordinarily, be identified by reference to the contract alone;[6] but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the ”ordinary meaning” of the words’ may be.[7]  Moreover, a court may, to a limited extent, supply, omit or correct words used in the document to avoid absurdity or inconsistency.[8]  In the present circumstances, regard must be had to the interrelationship between the Settlement and Release Deed and the Second Lease in the construction process.[9]  The Settlement and Release Deed provides the agreed commercial context to the Second Lease in many important respects, as indicated in the reasons which follow.

Parties’ submissions and analysis

[6]Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95, [45]–[47] (Santamaria, Ferguson and McLeish JJA); Mount Bruce (2015) 256 CLR 104, 116 [46]–[48] (French CJ, Nettle and Gordon JJ).

[7]Lopes v Taranto [2018] VSCA 288 [66]–[72] (Kyrou, McLeish and Hargrave JJA); quoted with approval in Canale v Mould [2018] VSCA 346 [45] (McLeish JA with whom Tate and Whelan JJA agreed) cf Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29, 50 [76] (McLure P, with whom Newnes JA and Le Miere J agreed) (‘Hancock’) where the Western Australian Court of Appeal took the contrary view.  Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.  Mount Bruce (2015) 256 CLR 104, 116 [46] and 117 [49] (French CJ, Nettle and Gordon JJ).

[8]Fitzgerald v Masters (1956) 95 CLR 420, 426–7 (Dixon CJ and Fullagar J); MAAG Developments Pty Ltd v Oxanda Childcare Pty Ltd (as trustee for the Oxanda Education Services Trust) [2018] VSCA 289, [53]–[55] (McLeish, Hargrave JJA and Almond AJA); Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317, 322 [6]–[10] (Leeming JA).

[9]See above, [7].

Refurbishment works

Plaintiff’s submissions

1. Brady submits that the key question for the Court to determine is whether Medina was bound to carry out the Refurbishment Works as set out in Schedule 1 of the Second Lease or whether Medina could carry out refurbishment works at its discretion.  In terms of the key question, Medina, in its submissions, proceeds on the same basis.  The parties do, however, diverge significantly on the proper construction of the provisions of the Second Lease in this respect. 

1. Brady submits that the terms of the Second Lease are central.  However, given the ambiguity it says exists in the key clause, 5.9(a)(iii)(A), it submits that an understanding of the surrounding circumstances and some of the extrinsic evidence is required.[10]  On this basis it contends that both parties intended that refurbishment works were necessary and should be undertaken; and that the balance of the Sinking Fund (from the First Lease in the amount of $2,019,763.76[11]) was the budget for the Refurbishment Works.  Brady submits that, on a proper construction of the Second Lease, Medina was obligated to carry out the Refurbishment Works as detailed in Schedule 1 of that lease, on the bases advanced in its submissions as addressed below. 

   [10]Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352.

   [11]Second Lease, cl 5.9(a)(iii)(C).

1. Turning to the provisions of clause 5.9(a) of the Second Lease, Brady contends that clause 5.9(a) is a provision by way of a general, overriding or ‘umbrella’ obligation critically stating that ‘the Tenant shall, at its cost, from time to time cause to be undertaken such day to day repairs and maintenance as it reasonably determines to be necessary to keep the Premises and Body Corporate No. 2 in a good and tenantable condition’.[12]  It is said that its clear, direct and ‘non‑permissive’ language carries down and applies to the whole of clause 5.9(a), and that sub‑clause (iii) is a clarification of part of this overall clause 5.9(a) obligation and, consequently, does not need to repeat the imperative ‘shall’ because it is already stated and continues to apply throughout these provisions.  Thus it is said that the purpose of sub‑clause 5.9(a)(iii) is to clarify the specific and agreed aspects of the mandatory broader or general repair and maintenance obligation as set out in clause 5.9(a).  Moreover, it is said that the use of the words ‘for the avoidance of doubt’ links the general obligation to each of the specific clarification points within sub‑clause (iii); that is to sub‑clauses (iii)(A) through to (iii)(E). 

   [12]Plaintiff’s Closing Submissions, filed 15 April 2024 (“Brady’s Written Closing Submissions”), [25] citing Second Lease, cl 5.9(a).

1. On the basis of these provisions, Brady submits that a reasonable business person in the position of the parties would understand clause 5.9(a)(iii)(A) of the Second Lease as providing that Brady approved the refurbishment works to the Premises, because Medina was required to obtain Brady’s prior written consent to make any alteration or addition or installation of any kind in or to the Premises pursuant to clause 6.5(d) of the Second Lease, and on the condition that the refurbishment works would be carried out by Medina in accordance with Schedule 1 of the Second Lease.  It is conceded that whilst the words of the sub‑clause do not themselves compel Medina to do the works, the obligatory word ‘shall’, from clause 5.9(a), continues to apply and the surrounding circumstances and associated clauses demonstrate that the parties comfortably intended that Medina would carry out the Refurbishment Works as agreed.  In summary, it is said that a reasonable business person would understand the purpose of clause 5.9(a)(iii)(A) of the Second Lease was on the one hand, to permit Medina to carry out the refurbishment works if it decided to undertake the works (which Brady submits it was obliged to do under the Second Lease); and on the other hand, that Medina was committed to Brady to carry out the Refurbishment Works.  Moreover, it is submitted that on no interpretation of the Second Lease could it be contended that the Second Lease authorised Medina to undertake any works except the agreed Refurbishment Works. 

1. In the alternative, Brady submits that if the Court does not accept that the obligatory language carries down to sub‑clause 5.9(a)(iii), it submits that clause 5.9(a)(iii)(A) sets out Brady’s approval of the substance of the refurbishment works and that such works were the only refurbishment works approved by Brady.  Accordingly, it is contended that once Medina started completing works, it was obliged to complete all of the Refurbishment Works.  Thus it is said that there was, in effect, a contract within the Second Lease such that Brady had approved the Refurbishment Works and that Medina, by starting the works, caused the contract to come into effect and in consideration of Brady’s approval, Medina was required to complete the Refurbishment Works.  In this respect, it is said that this contract within the Second Lease is to be implied, and is necessary for business efficacy reasons, such that if Medina was to undertake and complete refurbishment works, they could only be those for which approval had been given.  It is said that this implied term arises from the fact that under the Second Lease, Medina cannot do anything in terms of works without Brady’s approval.[13] 

   [13]Second Lease, cl 6.5(d). 

1. In support of its submissions on the proper construction of clause 5.9(a)(iii)(A), Brady makes reference to a variety of surrounding circumstances which it says render the agreed Refurbishment Works mandatory on the part of Medina. 

1. In this vein, it contends that under clause 7.2 of the Settlement and Release Deed, Brady waived all rights to the Sinking Fund and Medina was not required to maintain or contribute to a sinking fund for the Second Lease.  It is contended that Brady would not have done so without some comfort that the funds would be used in a manner that suited its commercial imperative.  Additionally, it is said that the Medina lease proposal document,[14] an internal Medina document which summarised the proposed commercial terms of the Second Lease before it was signed (‘the Medina Lease Proposal’), set out: ‘[t]he parties are to discuss and agree the scope of these works together with all other clauses for the proposed lease.  The terms proposed are conditional upon this refurbishment taking place.’[15]  This document demonstrates, Brady says, the importance of the refurbishment and that the parties were to agree the scope and the lease was to be conditional on the refurbishment taking place.  It is said that in July 2017 when this document was prepared, it was not the intention of the parties that Medina have full discretion with respect to the refurbishment works.  In this context, it is said that Medina has provided no evidence of what changed in the intervening four months before the Second Lease was signed to allow Medina to have the discretion alleged.  It must be observed, however, that this document precedes the execution of the Settlement and Release Deed and, though it might be an indication of the thinking or position of Medina, there is no evidence of party consensus on its approach.[16]  In any event it cannot, in my view, affect the construction of the relevant provisions of the Second Lease and any associated provisions of the Settlement and Release Deed on the basis of a proper construction of the actual language of these documents, as discussed in the reasons which follow.

   [14]Document entitled: Proposal to Lease Adina Northbank, 550 Flinders Street, Melbourne, as from 1 July 2017 under a fixed rent lease;  CB374-8.

   [15]Emphasis added. 

   [16]And see below [32].

1. Brady also relies on other provisions within the Second Lease in support of its contended for construction of clause 5.9(a)(iii)(A). 

1. First, it submits that clause 6.21(d) of the Second Lease clarifies that it was the intention of the parties that the reason for Brady forgoing and Medina being entitled to retain the $2 million balance of the sinking fund was because Medina would ‘pay for the maintenance, replacement, refurbishment or repair of FF&E’.  Again, it is submitted that it would have been a commercial nonsense or absurdity for Brady to forgo the $2 million that was intended for the refurbishment without input as to how the money would be spent. 

1. Secondly, it is submitted that clause 6.5(d) of the Second Lease prevented Medina from making ‘any alteration or addition or installation of any kind in or to the Premises’.  Thus it is said that the proposition that Medina had complete discretion with respect to the refurbishment works is wholly inconsistent with this clause in the Second Lease. 

1. Thirdly, it is submitted that clause 6.9(a) of the Second Lease set out the requirement for Medina to peaceably surrender the Premises, consistent with clauses 5.7 and 5.9, and to the extent that Medina failed to meet this obligation, Brady could make good such repair or maintenance Medina was responsible for and the cost of so doing would then become a debt due by Medina to Brady.  The effect of this clause is, it is said, to reinforce the mandatory nature of clauses 5.9 and 5.7.  Thus it is said that Medina did not have discretion to determine whether and what it could do but, rather, was required to complete the maintenance, repair and capital improvement obligations as agreed under the Lease and if not completed, there were consequences for Medina. 

1. Finally, it is submitted that each of the following references in the Second Lease to the Refurbishment Works is consistent with the fact they were to be completed and would be done within the five‑year period from the Commencement Date:

(a)   Clauses 5.9(a)(iii)(B) and (C) which clarify particular details of repair and maintenance works (namely, that the carpet will not be included in the works, and that the allocated budget is $2,019,763.76) and the works that are not intended to be done in the five‑year period unless they form part of the Refurbishment Works.  The strong implication from this it is said being that the Refurbishment Works will be completed in the five‑year period from the Commencement Date; and

(b)  Clause 5.9(a)(iii)(E) says ‘unless they are identified in the Refurbishment Works to be undertaken by the Tenant’.[17] 

[17]Emphasis added. 

1. Additionally, Brady contends that if, as Medina asserts, it had the discretion to design its own refurbishment works then this should have been expressly set out in the Second Lease.  It is said that the fact that Schedule 1 sets out in such granular detail the substance of the agreed works reinforces the position that the intention of the parties was that the agreed Refurbishment Works were binding in nature.  Thus it is contended that if Medina were to have discretion with respect to the works, the detail of Schedule 1 would be unnecessary and the discretion would have been expressly stated. 

1. Finally, Brady makes reference to the evidence of Christopher Sedgwick[18] and his reliance on legal advice.  Reference is made to Sedgwick’s evidence that he was advised by his legal counsel that as part of the settlement of the 2016 proceeding between Medina and Brady, the Sinking Fund was to become the budget for the scope of works, that Brady had relinquished control of the Sinking Fund; and that, therefore, Medina could utilise the Sinking Fund as it saw fit.[19]  Brady, on the other hand, contends that the relevant legal memo[20] does not support the position, as Medina contends, that it was entitled to have full discretion with respect to the Refurbishment Works.  In this respect, Brady says that Sedgwick accepted that he did what he wanted with respect to the refurbishment works and did not pay any attention to Schedule 1 of the Second Lease.[21]  It is submitted that there was no legal basis for the undertaking of the refurbishment works in complete disregard of the terms of Schedule 1 and the provisions of the Second Lease.  Concluding, it is said that, as a result of Sedgwick’s actions, Medina breached the refurbishment obligation owed to Brady under the Second Lease. As indicated and discussed in oral closing submissions, this is an issue which depends on a proper construction of the provisions of the Second Lease. 

   [18]Group Chief Operating Officer of the TFE Hotels Group (see below [76]).

   [19]Transcript 15.112–17. 

   [20]TFE Hotels Memo Medina v Brady Adina Northbank Dispute — Summary of Settlement Documentation dated 23 November 2019 from Kate Hemphill, Group General Counsel, Toga Group.

   [21]Transcript 166.3–7. 

1. For the reasons which follow, I do not accept the construction contended for by Brady with respect to the provisions of the Second Lease and the effect of provisions of the Settlement and Release Deed.  Neither do I accept that the surrounding circumstances relied upon by Brady in support of its contended for construction of these provisions assists its position on their construction.

Defendant’s submissions

1. Medina contends that, applying the proper approach to construction of commercial documents, such as the Second Lease,[22] it was not obliged to undertake the Refurbishment Works by the provisions of clause 5.9(a)(iii)(A).  Three particular points are emphasised with respect to this contention. 

   [22]Eastbound Estate Pty Ltd v DC Consolidated Investments Pty Ltd [2024] VSC 40, [28]–[30] (Croft J); see also Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, [16] (Kiefel, Bell and Gordon JJ); [73] (Nettle J); cf [52] (Gageler J); Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221, [25] (Croft J).

1. First, although courts must give commercial agreements a commercial and business‑like interpretation, they are constrained by the language used by the parties and, in the absence of some self‑evidently absurd outcome from the application of that language, they are not permitted to rejig that language to achieve what might be contended as a more business‑like outcome.[23]  Moreover, it is said that, in this case, the Court ‘does not know, and it is not relevant for the Court to know, why the parties adopted’[24] the particular words used in the Second Lease.  This, it is said, is relevant to the contentions by Brady regarding the Sinking Fund and what Brady contends was the commercial bargain underpinning the Lease. 

   [23]Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137, [55] (Macfarlan JA, Young JA and Tobias AJA agreeing).

   [24]Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137, [65] (Macfarlan JA, Young JA and Tobias AJA agreeing).

1. Secondly, it is submitted that a Court ought not look to matters such as the quantum of consideration to inform itself of the meaning of otherwise unambiguous words.  A covenant does not change in meaning just because the covenantee paid more for it, so it is said that to have regard to such considerations would be contrary to the ‘settled doctrine [in contract formation] that courts will not inquire into the adequacy of consideration, such that they will not seek to measure the comparative value of one party’s promise and of the act or promise given by the other party in exchange for it’.[25] 

   [25]Evans v Davantage Group Pty Ltd [2019] FCA 884; 291 FCR 663 [68] (Beach J), quoting Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87, 114 (Lord Somervell of Harrow); Wilson Pastoral International Pty Ltd v George Street Steel Pty Ltd [2020] SASCFC 54, [67] (Tilmouth AJ, Kourakis CJ and Parker J agreeing).

1. Thirdly, generally speaking, although post‑contractual conduct may be considered in determining whether a contract exists, it may not be used in determining what a contract means.[26]  For this reason, it is said, any reliance on post contractual conduct fails at the level of principle.  In this case, Medina contends, it fails for another reason because what Medina did following entry into the Second Lease was perfectly consistent with the construction it is propounding in this case; that is, it departed from the initial proposal because it was not bound to undertake works precisely as described in that proposal.  It is submitted that in referring to Medina’s post contractual conduct, Brady is looking to emphasise that Medina undertook refurbishment works of a kind, but ignores the position that Medina undertook works not conforming with Brady’s present construction, and for which Brady now sues Medina. 

   [26]Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 163-4 [25]–[26] (Heydon JA); recently referred to with approval: Al-Freah v Thompson [2023] QCA 175, [86] (Dalton JA, Morrison and Bond JJA agreeing).

1. Now turning to more specific matters with respect to the proper construction of clause 5.9(a)(iii)(A) of the Second Lease, Medina submits that construction must be by reference to the language used in that clause from which the Court will ascertain the objective intention of the parties in accordance with ordinary principles.[27]  In this respect, it is submitted that the following is relevant:[28]

   [27]See eg Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, [16] (Kiefel, Bell and Gordon JJ); [73] (Nettle J); cf [52] (Gageler J); Eastbound Estate Pty Ltd v DC Consolidated Investments Pty Ltd [2024] VSC 40, [28]–[30] (Croft J). See also Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221, [25] (Croft J).

   [28]Defendant’s Closing Submissions (24 April 2024), [26] (original emphasis). 

(a) Clause 5.9(a)(iii)(A)’s basic terms (“the Tenant proposes, and the Landlord has approved the Tenant, to undertake certain refurbishment works…”) do not convey or otherwise connote an obligation. The words convey the Landlord’s approval for works the Tenant has proposed. Their natural meaning falls short of being an obligation. Brady accepts this is the case, that the clause’s words “do not themselves compel Medina to do the works…”[29]

[29]Brady’s Written Closing Submissions, [29].

(b) Clause 5.9(a)(iii)(A)’s “propos[al]” and “approv[al]” contrasts with clear words of obligation deployed in the Lease’s other provisions concerning repairs, maintenance and capital improvements:

(i) Clause 5.9(a)(i): “the Tenant shall, at its cost, from time to time cause to be undertaken…”

(ii) Clause 5.9(a)(ii): “The Tenant shall appoint such contractors…”

(iii) Clause 5.9(a)(iii)(D): “the Landlord’s maintenance and repair obligations under this Lease include…”

(iv) Clause 5.9(b)(i): “then in such all such repairs, changes or replacements must be made by the Landlord and at the Landlord’s sole expense (unless they are identified in the Refurbishment Works)…”

The absence of such wording in Clause 5.9(a)(iii)(A) indicates no obligation was intended.

(c) Objectively ascertained, Clause 5.9(a)(iii)(A)’s contractual function is to:

(i) record Medina’s intention to undertake the Refurbishment Works, without imposing an obligation for Medina to do so;

(ii) grant the Landlord’s permission to undertake those Refurbishment Works, should that permission be required (“[f]or the avoidance of doubt”);

(iii) cast the expense of any of the Refurbishment Works on Medina, should it determine to proceed with them.

Correspondingly, the Refurbishment Works are carved out from the Landlord’s maintenance and repair obligations: Clause 5.9(a)(iii)(E) (“unless they are identified in the Refurbishment Works…”); Clause 5.9(b)(i) (“unless they are identified in the Refurbishment Works…”).

(d) On this construction, although Medina has proposed to undertake the Refurbishment Works, actually undertaking those works is in Medina’s discretion. This aspect needs to be understood against Medina’s other obligations:

(i) under Clause 5.9(a)(i), Medina is responsible “at its cost, from time to time” for “such day to day repairs and maintenance as it [Medina] reasonably determines to be necessary to keep the Premises… in a good and tenantable condition…” In this respect, note Clause 3.34’s expanded definition of Premises to include the “Furniture, Fixtures and Equipment and Operating Equipment”; and

(ii) under Clause 6.21(b), Medina “shall be solely liable, at its cost, to maintain, replace, refurbish or repair any part of the Furniture, Fixtures and Equipment… as and when it [Medina] deems appropriate to maintain the FF&E in good and serviceable condition suitable for the operation of a Serviced Apartment Business…”

In this light, as a matter of the Lease’s commercial operation, these overriding obligations in Clauses 5.9(a)(i) and 6.21(b) protect the Premises’ and FF&E’s upkeep and workability, should Medina choose not to undertake the Refurbishment Works.

1. The submission by Brady that ‘Clause 5.9(a) is the general, overriding or “umbrella” obligation’, such as to make clause 5.9(a)(iii)(A) mandatory should, Medina submits, be rejected.[30]  More particularly, Medina submits that this submission misstates the structure of clause 5.9 as these words attributed to clause 5.9(a) are, in fact, to be found in clause 5.9(a)(i).  Rather, it is observed, that clause 5.9(a) is to be found under the heading ‘Repairs and Maintenance’ which applies for three separate provisions which are contained, respectively, in sub‑clauses (i), (ii) and (iii).  That heading is, it is contended, the unifying feature of the terms contained in the sub‑clauses; and a similar drafting structure is to be found in clause 5.9(b). 

   [30]See above [15].

1. Additionally, within clause 5.9(a), sub‑clauses (i) and (ii) use mandatory language.  Their obligations concern ‘day to day repairs and maintenance’.[31]  In contrast, sub‑clause (iii) uses permissive language.  Its obligations go beyond day-to-day repairs and maintenance, to include Furniture, Fixtures and Equipment (“FF&E”) and capital repairs.  In my view, there is much force in the submission by Medina that the difference in language between the sub‑clauses is stark and cannot be ignored.  The different words used in these provisions should, as Medina submits, bear their particular and different meanings; an approach well recognised in the authorities.[32]  Thus Medina submits that if the obligation in clause 5.9(a)(iii)(A) was intended to be mandatory, the same mandatory language as has been used in other sub‑clauses in this suite of provisions would have been used. 

   [31]Second Lease, cl 9(a)(i).

   [32]Eureka Funds Management Ltd v Freehills Services Pty Ltd (2008) 19 VR 676, 691–2 [52]–[53] (Cavanough AJA, Neave and Redlich JJA agreeing).

1. In my opinion, the approach to the interpretation of clause 5.9(a)(iii)(A) as contended for by Medina in its submissions, as has been set out, is an entirely conventional approach to the construction of a commercial agreement, such as the Second Lease and, in accordance with the authorities, has proper regard to the actual language of these provisions.  Accordingly, in my view, the approach to the construction of these provisions as advocated by Brady should be rejected as it fails to have regard to the actual language of the critical provisions and relies upon extraneous matters and assertions that are either not matters to which, on the authorities, regard should be had or are, essentially, assertions and speculation.  The same applies with respect to provisions as to the Sinking Fund; an issue to which I now turn. 

1. In addition to construing clause 5.9(a)(iii)(A) of the Second Lease, an issue also arises with respect to the role or relevance of the “sinking fund” which is referred to in clauses 5.9(a)(iii)(B) and 6.21(d). 

1. The Sinking Fund was established under clause 12.6 of the First Lease and required Medina, on a monthly basis, to contribute a certain percentage of its total revenue (increasing over the first three years) to this fund which was to be maintained ‘for replacement, substitutions and additions to Furniture, Fixtures and Equipment’ (as defined in clause 12.6(a)(iv) of the First Lease).  The 2016 proceeding by Medina against Brady[33] related to renewal of the First Lease, the use of a garbage room as well as the paying of rent and owners’ corporation fees.  In its defence to these proceedings, Brady sought reimbursement for various expenses incurred with respect to the Premises.  As observed by Medina, this litigation did not consider a sinking fund. 

   [33]S ECI 2016 01263 in this Court.

1. On 24 November 2017, Medina and Brady executed the Settlement and Release Deed which, among other things, settled the 2016 proceeding.  Under the Settlement and Release Deed, the Sinking Fund was expressly addressed as follows:[34]

   [34]Defendant’s Closing Submissions (24 April 2024), [28(c)] (original emphasis). These provisions are also set out in a broader context at [10], above. They are repeated in part here to indicate the emphasis placed on parts by Medina.

(i)As a condition precedent, each party was to provide an executed version of the Lease to be held in escrow: Clauses 2(a) and 3.3(a).

(ii)Upon satisfaction of the conditions precedent, the Lease was to become operative and “override and cancel” the previous lease over the Premises: Clause 3.3(a) and (b).

(iii)Clause 7.2 provided as follows:

(a)The Released Claims include Brady releasing Medina and its Associates, directors, officers, employees or agents from any claim that Brady has or which but for this document could, would or might at any time hereafter have in relation to the Sinking Fund (including amounts in the Sinking Fund Account) and by this document Brady waives and otherwise releases all rights or claims that it has or might have in relation to the Sinking Fund.

(b)Brady and Medina acknowledge and agree that despite any other provision of the Existing Lease, Medina may use the funds in the Sinking Fund in any way that it sees fit. Nothing in this document or the New Lease obligates Medina to contribute funds into the Sinking Fund or maintain the Sinking Fund or a Sinking Fund Account.

(iv)Brady released and discharged Medina from the “Released Claims” (including “Medina’s past and future contribution to and use of the Sinking Fund as set out in more detail in clause 7.2”): Clause 7.1.

1. The Sinking Fund is expressly referred to twice in the Second Lease:[35]

(i)In Clause 5.9(a)(iii)(B), where the sinking fund’s balance ($2,019,763.76) is referred to as the “budget available” for undertaking the Refurbishment Works. Tellingly, because use of the sinking fund is in Medina’s discretion, Medina “makes no guarantee that such replacement will occur”.

(ii)In Clause 6.21(d), where it is explained that Medina’s obligations with respect to the FF&E are “in consideration of the Landlord consenting to the Tenant being entitled to retain the balance of circa two million dollars ($2,000,000.00) of the sinking fund account at the expiry of the original lease and to release the Tenant from the obligation to contribute to a sinking fund during the Term of this Lease.”

[35]Defendant’s Closing Submissions (24 April 2024), [28(d)].

1. I accept Medina’s submissions that nothing in the language of these provisions supports Brady’s allegation that clause 5.9(a)(iii)(A) imposes a positive obligation on Medina to undertake the Refurbishment Works.  More particularly, I accept that two particular matters also favour Medina’s construction:[36]

(1)Under the “Settlement and Release Deed,” Medina was indubitably entitled to do as it wished with the sinking fund. The Lease does not amend this position.

(2)The sinking fund is expressly recognised as consideration for Medina’s FF&E obligations under Clause 6.21 – not any alleged obligation regarding the Refurbishment Works under Clause 5.9.

[36]Defendant’s Closing Submissions (24 April 2024), [29].

1. Medina also makes reference in its responsive submissions to the submissions by Brady that its waiver of rights to the Sinking Fund was in exchange for ‘comfort that the funds would be used in a manner that suited its commercial imperative’;[37] contending that these submissions should not be accepted.  More particularly, Medina submits:[38]

   [37]Brady’s Written Closing Submissions, [36].

   [38]Defendant’s Closing Submissions (24 April 2024), [30] (original emphasis).

(a)First, [Brady’s submission] invites the Court to reverse engineer the bargain. This is contrary to established principle. It also fails at a factual level.[39] The Court is not in a position to unscramble the multitude of matters likely informing that bargain, including: the various issues in dispute in [the 2016 proceeding]; the costs occasioned by that litigation; the terms and duration of the Lease; and, more generally, the parties’ commercial motivations as they then existed. The Court simply does not know.

[39]See above [29].

(b)Second, the contention impermissibly seeks to insert Brady’s subjective intentions into the construction exercise. So too does Brady’s reliance on Medina’s “lease proposal document”:[40]

[40]Lease Proposal Document (see above n 14); Brady’s Written Closing Submissions, [37].

(i)This document is dated 8 December 2016, almost one year prior to entry into the Lease (not, as Brady submits at [37] of its closing submissions, in July 2017). The words quoted foreshadow that an agreement may be reached at some point in the future. Taken on its face, this does not advance Brady’s case.

(ii)Even so, any subjective belief held by either party is not only irrelevant, but excluded from consideration by Clause 20 of the Lease:

This document embodies the entire understanding and the whole agreement between the parties hereto relative to the subject matter hereof and all previous … representations … and statements (if any) whether expressed or implied or the intentions of either of the parties hereto are merged herein and otherwise are hereby excluded and cancelled.[41]

(c)Third, it requires the Court to construe Clause 7.2 of the Settlement and Release Deed contrary to its very plain meaning: that Medina was entitled to do what it pleased with the sinking fund amount.

[41]Second Lease, cl 20.

1. In my opinion, Medina’s submissions should be accepted in this respect as they are entirely consistent with the actual language of the relevant provisions of the Second Lease and the Settlement and Release Deed. Moreover the construction contended for by Medina is consistent with the authorities on construction of commercial documents and, as observed previously, does not introduce extraneous matters and assertions.

1. Brady made further submissions with respect to whether clause 5.9(a)(iii)(A) of the Second Lease imposed obligations on Medina with respect to the Refurbishment Works on the basis of clause 6.5(d) of the Second Lease because it required Medina to obtain Brady’s permission to undertake any refurbishments and that, conversely, Medina was not permitted to undertake any works except the Refurbishment Works.[42]  In response, Medina submitted that this contention should be understood against the provisions of clause 5.9(a), which required Medina to undertake ‘repairs and maintenance as it reasonably determines to be necessary’.  Thus it is said that whether permission was required to undertake each individual item listed in Schedule 1 as part of the Refurbishment Works depends on construing the relationship between the provisions of clause 6.5(d) with clause 5.9(a) and then applying those provisions to each item in Schedule 1 as appropriately characterised.  It is said that this laborious exercise would ignore the provisions of clause 5.9(a)(iii)(A) itself, which puts Brady’s permission to undertake the Refurbishment Works beyond doubt in its express language.  In this respect, Medina emphasises that, as indicated previously, one of the contractual functions of these provisions in clause 5.9(a)(iii)(A) is to grant the landlord’s permission to undertake those Refurbishment Works, should that permission be required.  In this respect, Medina contends, and in my view correctly, that even if Brady’s permission was required to undertake the Refurbishment Works, it does not follow that, once granted, Medina was required to undertake them.  As Medina contends, an obligation to undertake these works is a conceptually distinct and additional step from the mere permission to undertake them and, for the reasons indicated previously, the proper construction of clause 5.9(a)(iii)(A) is simply not in obligatory terms. 

   [42]See above [16].

1. In this context, Brady also claims that ‘there was in effect a contract within the [Lease]’ which required Medina to complete all the Refurbishment Works if it decided to undertake them at all.[43]  It is observed by Medina, the existence of a separate and implied contract within the Second Lease is not pleaded and nor is a term to this effect contained in the Second Lease.  Moreover, it does appear that Brady disavowed such a claim in its opening submissions.[44]  But, in any event, I accept, as Medina contends, that these matters are not so obvious that they go without saying, so as to justify such an implication.  Brady also claims that, under this implied contract within the Second Lease, if Medina were to complete refurbishment works, it could only be those for which approval had been given.  Again, as Medina observes, this is not pleaded.  Moreover, as Medina has apprehended, Brady’s case has only been concerned with Medina’s failure to undertake the Refurbishment Works, not Medina’s undertaking of additional works beyond Schedule 1 of the Second Lease. 

Summation

[43]Brady’s Written Closing Submissions, [33].

[44]Transcript 9.30–10.8.

1. For the preceding reasons, for the reasons and on the basis of matters referred to in the submissions of Medina to which reference has been made, together with the reasons I have indicated, more particularly, for accepting particular matters in these submissions, I am of the view that Brady’s claim for the Refurbishment Works should be dismissed. 

Furniture, Fixtures and Equipment

Plaintiff’s submissions

1. Brady in its submissions put its position with respect to the Schedule 2 provisions of the Second Lease, contending that the Court must, in this context, determine whether Medina lost, misplaced or destroyed the number of fixtures, fittings and equipment (‘FF&E’) as alleged by Brady.

1. Brady made specific reference to a number of provisions of the Second Lease in support of its position with respect to this claim. First it submits that clause 4.2 of the Second Lease means that Medina was not entitled to remove any of the FF&E set out in Schedule 2 of that lease whether it was the original item or had been replaced by Medina; secondly, that under clause 5.9(a)(iii)(A) of the Second Lease, Medina was required to undertake refurbishment works to the FF&E; and under clause 6.2(b) of the Second Lease, Medina was solely liable to maintain, replace, refurbish or repair any part of the FF&E as and when it deemed appropriate to maintain it in good and serviceable condition.

1. Brady says that its claim with respect to FF&E of $293,716.20 can be broken down into six categories as detailed in Simon Pethica’s witness statement.[45]  These six categories are set out in tabular form in the Plaintiff’s Closing Submissions.[46]  Brady also says that Medina in its Defence admits that certain items are missing. 

   [45]Simon Pethica’s undated witness statement, [91], CB87; and see below [71].

   [46]15 April 2024, [50].

1. Brady makes reference to a spreadsheet prepared by Nigel Maxey[47] that compares the stock count provided by Brady.  Brady says however that this spreadsheet appears to be unreliable in some respects.  For example, it is said that Maxey notes that 228 bath robes were supplied at the start of the lease and 24 bath robes were counted by Medina in its audit.  This, it is said, corresponds to a shortfall of 204 bath robes, however it is listed in the spreadsheet as ‘TFE stock count 24 less’, not 204 less.  The spreadsheet entries in respect of bath towels, hand towels, bath mats, face washers and tea towels are said to suffer the same problems.  A further example, Brady says, is display pillows which are recorded as having a shortfall of 22, and yet are listed as ‘TFE stock count 9 more’.  On this basis, Brady contends that this snapshot of the inaccuracies of the audit conducted by Medina means that the spreadsheets produced by Medina are unreliable and ought to be disregarded.  It is said that the ‘cogent and fulsome evidence of Brady’ is to be preferred over the ‘contradictory and inaccurate’ spreadsheet provided by Medina.[48] 

   [47]CB1548; and see below, [78].

   [48]See Brady’s Written Closing Submissions (15 April 2024), [52]–[54].

1. Additionally, by letter dated 23 September 2023 accepting, Brady says, that Medina failed to return various items of FF&E, Medina made an offer to return the items as set out in Attachment A of that letter; an offer which constituted 87 per cent of Brady’s total claim.[49]  Brady says that it did not accept this offer because it was concerned that the Attachment A items would not be like for like, fit for purpose, of sufficient quality, suitable for the rooms at the Premises and would be comprised of surplus items from other Medina operated hotels.[50] 

   [49]See Transcript 95.5. 

   [50]See Transcript 96.24–31 and 97.1–3. 

1. Thus Brady submits that it is clear that there were missing FF&E items at the end of the Second Lease.  Thus it is said that the onus is on Medina to rectify the missing items, not to shift the onus onto Brady.  Brady maintains that Medina breached the relevant FF&E clauses of the Second Lease and the evidence provided by Pethica and Moore establishes Brady’s loss in this respect.[51] 

Defendant’s submissions

[51]Brady’s Written Closing Submissions (15 April 2024) [50] citing Simon Pethica’s undated witness statement, CB87; And see Robert Moore’s witness statement [18] CB98B.

1. The submissions of Brady in relation to the FF&E claim are, as Medina emphasises, based on Brady’s submissions and contentions on factual and legal matters with respect to the FF&E obligations of Medina under the Second Lease.  Medina challenges both bases of Brady’s claim in this context and, in so doing, emphasises the following:

(a)The list of FF&E, on which the entirety of Brady’s claim is based, is defective. The FF&E list was, on Brady’s own evidence:

(i)drafted in 2007 in connection with the original lease over the Premises (that is, it is 16 or 17 years old); and

(ii)even at that time, inaccurate in its description of FF&E at the Premises.[52]

[52]Simon Pethica’s undated witness statement, [7].

Its is marked “Printed on 7/06/2007” on the bottom left hand corner page. It is also marked with an old name “Medina Executive Northbank” (“Medina” being an old brand name).[53]

[53]Transcript 183.24–27 (Maxey).

(b)Because of its age, the same list of FF&E contains various outdated items. Maxey gave evidence that he reviewed this document in conducting his audit prior to Medina vacating the Premises. In summary, he thought that, given its age, it was irrelevant and he accordingly did not use it:[54] “I found a multitude of items that are no longer used in hotels or have expired as usable items.”[55]

[54]Transcript 183.16–184.3 (Maxey).

[55]Transcript 183.22–184.2 (Maxey).

(c)As with the Refurbishment Works, [an issue which is considered further in the reasons which follow,] Brady did not lead any evidence that Brady:

(i)had to purchase, or did purchase, any of the items claimed before the commencement of the “Brady” branded hotel;

(ii)has purchased any of the claimed items since that commencement; or

(iii)plans to purchase those items at some point in the future.

(d)Brady has no need for these items in the Premises. In the 20 months since resuming possession, it has not bothered to replace them. As already mentioned in paragraph 16 above, prior to the Lease’s expiry, Maxey conducted an audit against Medina’s own brand standards. Those items were left for Brady to use. Brady led no evidence that the hotel’s FF&E was, on resuming possession, unsuitable in any way. As with its claim regarding the outstanding “Refurbishment Works,” if there is any breach at all, Brady is “merely using a technical breach to secure an uncovenanted profit.”[56]

Moreover, as considered further below, Brady has, in my view, as Medina submits, failed to mitigate its loss.  By letter dated 20 September 2023, Medina offered to replace the vast majority of the chattels the subject of this claim.  Medina submits that accepting, for argument’s sake, Brady’s quantum calculations,[57] Medina offered to provide $256,755.76 (or 87 per cent) in the value of those goods. 

[56]Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, [16] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).

[57]Simon Pethica’s undated witness statement, [91].

1. Critically, in support of its submissions that Brady has proceeded on a flawed basis with respect to the FF&E claim, Medina makes reference to the provisions of clauses 6.21(b) and 4.2 of the Second Lease, contending that there has been no breach of either of these provisions. 

1. In relation to clause 6.21(b) of the Second Lease, Medina submits that it has not breached this provision, requiring as it does that Medina ‘at its cost, to maintain, replace, refurbish or repair any part of the Furniture, Fixtures and Equipment[58] … as and when it deems appropriate to maintain the FF&E in good and serviceable condition suitable for the operation of a Serviced Apartment Business’.  Medina submits that this clause does not require the individual maintenance and replacement of each singular item of FF&E.  Its concern is with the maintenance of the FF&E or any part thereof for the operation of the business operated at the Premises.[59]  Thus, it is said, it required Medina to ‘maintain … any part of the Furniture, Fixtures and Equipment’; to exercise its discretion as to how that is to be done (‘as and when it deems appropriate’); and to exercise that discretion so as ‘to maintain the FF&E in good and serviceable condition suitable for the operation of a Serviced Apartment Business’.  Thus, Medina contends that Brady has failed to prove Medina breached clause 6.21(b) in terms of its central element ‘as and when it deems appropriate to maintain the FF&E in good and serviceable condition suitable for the operation of a Serviced Apartment Business’.  In my view, this is clear from the language of clause 6.21(b) and, consequently, it follows that Brady has failed in its proof in relation to this claim. 

   [58]Under clause 3.20 of the Lease, ‘Furniture, Fixtures and Equipment (or FF&E) shall mean those items referred to in Schedule 2 and any items in replacement of the items specified, paid for by the Tenant during the Term of this Lease and the Additional Term.’

   [59]See clause 3.39 of the Lease, ‘Serviced Apartment Business means the business operated at the Premises in accordance with this Lease’.

1. Additionally, as observed by Medina, clause 4.2 of the Second Lease, does not impose any obligation regarding the FF&E beyond that already imposed in clause 6.21(b):

(a)   Clause 4.2 is principally directed to something other than the ‘Furniture Fixtures and Equipment’ or ‘FF&E’; namely, the Tenant’s right ‘at or prior to the expiration of the Lease [to] take and remove and carry away’ the following things:

(iii)             the ‘fixtures, fittings, plant and equipment and other articles upon the Premises …’ (note the lack of capitalisation here); and

(iv)             the ‘Signage relating to the Services Apartment Business …’

(b)  The Clause 4.2 references to ‘FF&E’ make clear that, unless the FF&E forms part of the Signage, it may not be removed in the exercise of the rights conferred on the Tenant under that Clause.  FF&E (unless it forms part of the Signage) is carved out from the permission granted by that provision.  This is not a separate obligation regarding FF&E. 

This position is, Medina contends, supported by clause 6.21(a) and (b), essentially providing that the Tenant owns the FF&E during the course of the Lease (clause 6.21(a)), with title to revert to the Landlord on the expiry of the Lease (clause 6.21(b)); in other words, a requirement that a “circulating body” of FF&E be maintained.[60]  Thus it is said that it makes no sense for the Lease to restrain the Tenant from ‘taking and removing and carrying away’ chattels that it actually owns.  Medina contends that because clause 4.2 does not impose any freestanding obligation regarding FF&E, it has not been breached.  In my view, Medina’s submissions with respect to clause 4.2 are correct for the reasons advanced in its submissions as to the construction of these provisions.

[60]See Transcript 228-230.

1. As indicated in the preceding paragraphs, I am of the view that, as Medina contends, Brady’s claim with respect to FF&E fails but even if that were not the case, there are difficulties with its claim with respect to the quantum of damages and with respect to its failure to mitigate. 

1. In relation to the quantum of damages Medina submits that if it were found to have breached the Second Lease, various matters bear on the quantum of Brady’s claimed damages.  It is conceded that, although it is not presently the subject of any proof, it is said that the likely reason for failing to accept, or even respond to, Medina’s offer to supply the claimed FF&E items is that Brady had no need for such items in the running of its hotel at the Premises.  If this were the position, it is said that this underscores that Medina did not breach clause 6.21(b) of the Second Lease; and that any prospective purchase of these items is not reasonable, no loss having been established.  In the alternative, it is said that if there was some ongoing need for the FF&E items, the failure to accept that offer to Brady was unreasonable.  Moreover, it is said that if Brady has suffered any loss, that loss was not appropriately mitigated. 

1. Turning now to mitigation aspects, Medina contends that even if Brady established a breach of the Second Lease in relation to FF&E, its failure to reasonably mitigate its loss requires the Court to reduce damages on the FF&E claim by $256,755.76 (or 87 per cent of the claim).  The essential background to the contention that there has been a failure to mitigate is, Medina says, as follows:[61]

   [61]Defendant’s Closing Submissions (24 April 2024), [54] (citations in original).

(a)On 20 September 2023, Medina offered to supply replacements for certain of those items listed as the subject of Brady’s claim:[62]

[62]CB2019.

(i)With respect to the number and identification of those goods, Medina offered to replace those items listed as being “missing,” “leased” or “Medina owned” in accordance with [12(b)] and Annexure 1 of the Amended Defence. Where there was any dispute as to the number of those items, it deferred to Brady’s asserted number. In these circumstances, the offer was for 87 per cent of the items claimed by Brady in value. Under the offer, Brady could accept delivery of all or only some of the items.

(ii)With respect to the quality of the goods, Medina offered the items “in good and serviceable condition suitable for the operation of a Serviced Apartment Business (within the meaning of the lease)”.[63] This aspect of the offer is identical to the wording of Clause 6.21(b) of the Lease. Furthermore, “Attachment B” to the letter of offer is a brochure of the sample of items to be provided.[64] By comparing this brochure with actual pictures of the hotel,[65] the Court will readily appreciate that this brochure displays various items matching the hotel’s actual décor, which Medina itself had installed in the hotel in 2018.

[63]CB2019.

[64]CB2023–2029.

[65]CB2044–2090; CB91–2100.

(iii)This offer did not require Brady to compromise its present claim for the FF&E. Accordingly, as part of the offer, Brady was not obliged to amend its claim or otherwise consent to a dismissal of the proceedings. This meant Brady could have accepted some of the goods as offered and continued to pursue Medina for the remainder.

(b)In summary, proceeding on the basis that Brady has established some breach, Medina has, by this letter, offered to replace those items:

(i)in the number claimed by Brady in this proceeding; and

(ii)so far as quality is concerned, precisely in accordance with the contractual standard: cf Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648, [79]‑[86] (Mason P, Beazley JA agreeing).

(c)Brady never responded to this offer or explained why it did not want the items replaced. The first explanation for not accepting this offer was by way of Pethica’s cross‑examination.[66] He explained that Brady was concerned with whether the goods would be suitable and acceptable to be placed into the hotel or of suitable quality.[67] Pethica’s witness statement in the proceeding did not give that explanation. Nor did this explanation address “Attachment B” to the letter of offer, being a brochure of the sample of items to be provided.[68] No evidence was led as to what, if anything, Brady thought of this document.

[66]Transcript 94.27–96.8 (Pethica).

[67]Transcript 95.12–21 (Pethica); Transcript 96.25–97.4 (Pethica).

[68]CB2023–2029.

1. Thus, applying what are cited as established principles,[69] Medina contends that Brady could have avoided most of its loss if it had acted reasonably and accepted, or even enquired about, Medina’s offer.  So it is said, and in my view correctly, Medina should not be liable for Brady’s loss in the circumstances where it failed to accept a reasonable offer, or even enquire as to it, hence its conduct was unreasonable in the circumstances. 

Summation

[69]Ardlethan Options Ltd v Easdown (1915) 20 CLR 285 (Isaacs J, Gavan‑Duffy and Powers JJ agreeing); Powercor Australia Ltd v Thomas (2012) 43 VR 220, 232-233 [52]–[53] (Osborn JA, Warren CJ and Bongiorno JA agreeing).

1. In my opinion the submissions by Medina with respect to all aspects of the FF&E claim by Brady must be accepted on the basis of a proper construction of the relevant Second Lease provisions and relevant factual matters for the reasons indicated in those submissions and also for the reasons I have indicated in the course of considering those submissions. 

Contractual damages for Refurbishment Works and Loss of Capital Rent

Plaintiff’s submissions

1. Brady’s submissions with respect to this claim depend upon its establishing that Medina was under any obligation to undertake or complete any Refurbishment Works.  For the reasons indicated previously I am of the opinion that no such obligation lies upon Medina and so Brady’s submissions in this respect proceed on the assumption the position is otherwise, a position which I reject. 

1. Brady submits that as a result of the failure by Medina to complete the Refurbishment Works, Brady is obliged to carry out these works.  Whilst Brady intends to complete the works, Brady relies upon two matters.  First, the principle in Joyner v Weeks[70] that the damages payable by Medina in breach of clause 5.9(a)(iii)(A) are the cost of repair, irrespective of whether Brady ever does the repairs.  In this respect reference is made to the judgment of Fry LJ who said:[71]

Where the action is brought upon the covenant to repair at the end of the term, the damages are such as will put the premises into the state of repair in which the tenant was bound to leave them.

Reliance is also placed on the decision of the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (‘Tabcorp’)[72] such that the cost of rectification is the appropriate measure of damages, which includes any loss of rent while the repairs are being undertaken, for the loss sustained as a result of Medina’s breach. 

[70][1891] 2 QB 31.

[71][1891] 2 QB 31, 46 quoting Morgan v Hardy 17 QBD 770 (Denman J, quoting Mayne on Damages).

[72][2009] HCA 8, [15]: ‘So here, the Landlord was contractually entitled to the preservation of the premises without alterations not consented to; its measure of damages is the loss sustained by the failure of the Tenant to perform that obligation; and that loss is the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached’.

1. In this context, Brady makes reference to the evidence of Robert Moore[73] who gave evidence that the rectification works would be undertaken by Brady in the near term and that it is proposed that they be done in a staged process.  The reason for this, Moore said, is to minimise disruption to the hotel and ensure particular room configurations are available to its customers — noting that the hotel offers five different room configuration types being studio king, one bedroom apartment, one bedroom apartment twin, one  bedroom apartment balcony and two  bedroom apartment.  Brady also notes that in the week for which Mr Moore gave his evidence the hotel was at 100 per cent capacity.  

   [73]Robert Moore’s witness statement [5] CB96.

1. Apart from the critical assumption underlying these submissions by Brady that there was some obligation on Medina to undertake the Refurbishment Works under the provisions of the Second Lease, the other essential basis of the Brady submissions is evidentiary; namely, that established on the evidence any real intention to carry out these works.  On the basis of the submissions and material relied upon by Medina, I am of the opinion that this factual position has not been established and, further, neither Joyner v Weeks nor Tabcorp assists Brady’s claim. 

Defendant’s submissions

1. As a matter of law, Medina submits that for contractual damages for Refurbishment Works and loss of rent to be available ‘the work undertaken [must] be necessary to produce conformity’ and, of particular importance in this case, ‘it must be a reasonable course to adopt’.[74]  Moreover, as Medina submits, the rule in Joyner v Weeks is not absolute[75] so that rectification damages apply unless the rectification works are unnecessary and unreasonable.[76]  The question of reasonableness ‘may involve consideration of the point of view of both the claimant and the defendant’.[77]  Generally speaking, as Medina contends, rectification as a measure of damages may be unnecessary and unreasonable where:

   [74]Bellgrove v Eldridge (1954) 90 CLR 613, 618 (Dixon CJ, Webb and Taylor JJ); see also Metricon Homes Pty Ltd v Softley (2016) 49 VR 746, 793 [195] (Robson AJA, Warren CJ and Tate JA agreeing).

   [75]Cf Brady’s Written Closing Submissions (15 April 2024), [59].  See Roberts v Goodwin Street Developments Pty Ltd (2023) 110 NSWLR 557, 580 (‘Roberts’), [100] (Kirk JA and Griffiths AJA).

   [76]Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 (‘Westpoint’), [64] (Giles JA, McColl and Campbell JJA agreeing), see analysis of authorities [41]–[62]; Stone v Chappel (2017) 128 SASR 165 (‘Stone v Chappel’), [72]–[75] (Kourakis CJ); [263] (Doyle J); Roberts, [115] (Kirk JA and Griffiths AJA).

   [77]Roberts, [112] (Kirk JA and Griffiths AJA).

(a)   rectification would be ‘out of proportion to the benefit to be gained’[78] or ‘disproportionate to [any] diminution in value’;[79]

[78]See especially Stone v Chappel, [249]–[265] (Doyle J); Westpoint, [59]–[62] (Giles JA, McColl and Campbell JJA agreeing).

[79]Roberts, [110] (Kirk JA and Griffiths AJA).

(b)  despite a departure from the contractual standard, the promisor has fulfilled the relevant contractual objective, whether functional or economic;[80]

[80]Stone v Chappel, [258] (Doyle J).

(c)   the promisee is ‘merely using a technical breach to secure an uncovenanted profit’;[81]

(d)  a supervening event has occurred affecting the reasonableness of rectification;[82] and

(e)   rectification works have neither been undertaken, nor are expected to be undertaken at some future point. 

[81]Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, [16] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) quoting Radford v De Froberville [1978] 1 All ER 33, 42 (Oliver J)

[82]Westpoint, [61] (Giles JA, McColl and Campbell JJA agreeing).

1. Medina concedes that, in the final instance, the lack of intention or prospect of the rectification works being undertaken will not, of itself, render rectification damages unreasonable.  It says it will, however, be evidence of the unreasonableness of any proposal to undertake the works, potentially founding the conclusion that the promisee has not been deprived of the benefit of performance of the contract, and thus has not suffered a compensable loss.[83] 

   [83]Westpoint, [54]–[64] (Giles JA, McColl and Campbell JJA agreeing); Roberts, [115], [119(3)] (Kirk JA and Griffiths AJA).

1. Applying Medina’s analysis of the authorities to which reference has been made, an analysis which in my view is correct, rectification costs would, as it is said, be unreasonable and should not be awarded.  Properly characterised, Medina contends that Brady is ‘merely using a technical breach to secure an uncovenanted profit’.[84]  In support of this position, Medina says that it undertook a refurbishment of the Premises which significantly improved its aesthetics, functionality and, ultimately, its attractiveness to potential customers; demonstrated by photographs taken before and after the works were carried out.[85]  Medina says that the works were carefully selected by Sedgwick[86] based on need, having regard to the existing state of the Premises by an audit and walk through process.[87]  The works, costing around $2,100,000, produced modern and functional serviced apartments and in completing those works, Medina fulfilled clause 5.9(a) of the lease in terms of the ‘contractual objective’[88] of maintaining the Premises in a way which, among other things, would attract and enable the next serviced apartment operator to commence business in the Premises. 

   [84]Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, [16] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) quoting Radford v De Froberville [1978] 1 All ER 33, 42 (Oliver J).

   [85]CB379–432; CB2044–2090; CB2091–2100.

   [86]Chris Sedgwick witness statement, CB101-112.

   [87]Chris Sedgwick witness statement, [17]–[21], [25]–[27].

   [88]Westpoint, [59]–[62] (Giles JA, McColl and Campbell JJA agreeing); Stone v Chappel, [28], [34], [35], [53], (Kourakis CJ); [206]–[208], [220]–[221], [223]–[224], [229], [253], [257]–[259], [284]–[288] (Doyle J).

1. The latter is, Medina submits, borne out by what occurred following Medina’s departure from the Premises.  Brady resumed occupation of the Premises on 21 July 2022 and a serviced apartment business under the ‘Brady’ brand recommenced very soon after handover.  Moreover, as Medina submits, there was no evidence that:

(a)   before recommencing as a ‘Brady’ hotel, Brady had to undertake any rectification works, including the Refurbishment Works;

(b)  there would be any benefit to Brady by the balance of the Refurbishments being completed;

(c)   any rectification works, including the Refurbishment Works, have been undertaken since; or

(d)  Brady intends to undertake any rectification works, including the remaining Refurbishment Works, in the near future. 

1. In this respect, Medina contends that the bulk of Brady’s evidence was directed to the cost of a hypothetical project that will not be undertaken.  This position is, in my view, established and reinforced by a consideration of the evidence as it stands as to the handover of the Premises and the prospect or intention on the part of Brady to undertake any refurbishment works.  That evidence is conveniently considered separately in the reasons which follow.[89]  Additionally, Medina observes that neither was evidence led by Brady that it derived less revenue from the Premises than it would have if the full extent of the Refurbishment Works had been completed.  Rather, the contrary was the position as Moore gave evidence that forecast occupancy in 2024 was materially higher than in 2023.[90]  Nor did Brady establish that any claim of failure lead to a diminution in the value of the Premises.  It follows, for the reasons submitted by Medina that Brady has not proven its allegation that it ‘now has to carry out the refurbishment’, nor that it is ‘obliged’ to do so. 

   [89]See below, [71] to [83].

   [90]Transcript 117.30–118.21 (Moore).

1. It also follows, in my view, on the position established that the court cannot be satisfied that Brady will undertake any rectification works and so it should not be compensated for any loss of rental income.  This follows, naturally, because if no works are undertaken, there will be no occasion for rooms in the serviced apartments to be out of order and Brady would therefore not forego the opportunity to earn that income.  In any event, even if it were to be assumed that rectification works would be undertaken, that would be done, as Brady claims, in a staged manner in circumstances where Brady’s own evidence demonstrates that, even accounting for those rooms under construction, often there will be sufficient rooms to provide for the forecast demand.[91] 

   [91]Transcript 119.4–120.28 (Moore).

Evidence with respect to refurbishment works, Brady’s audit and costings

Brady’s witnesses

1. Brady led evidence from three witnesses, namely, Simon Pethica, Brady’s director; Robert Moore,[92] Brady’s Group General Manager; and Eddie Tan, Brady’s Senior Estimator.  For a variety of reasons, which now follow, I am of the view that the Court should give the evidence of all three limited weight. 

   [92]See Robert Moore’s witness statement (CB96–98; CB98A–98C).

1. As to Pethica, he was not familiar with the hotel business or Premises.  As the General Manager of the Brady Group, he was not involved in the day to day operations of the hotels[93] and had not made any assessment of what was needed in the apartments.[94]  He was not familiar with the contents of the Brady Flinders Hotel website[95] and, strikingly and perhaps surprisingly, he had not been in the Premises and the rooms since Brady resumed possession.[96]  He also accepted that he had barely been to the Premises in any event.[97]  Between November 2022 and February 2023, Pethica oversaw Eddie Tan’s assessment of the costs of the ‘Refurbishment Works’ not undertaken by Medina.  In so doing, he failed to scrutinise Tan’s various assessments and further, gave evidence that he was not qualified to do so.[98]  As observed by Medina, his witness statement is replete with his opinions on costings which, in itself, bears on his credibility. 

   [93]Transcript 46.5–6 (Pethica).

   [94]Transcript 51.11–15 (Pethica); Transcript 53.31–54.1 (Pethica).

   [95]Transcript 58.17–19 (Pethica).

   [96]Transcript 58.24–26 (Pethica); Transcript 79.24–27 (Pethica).

   [97]Transcript 79.22–23 (Pethica).

   [98]Transcript 79.9–10 (Pethica).

1. In looking to explain why Pethica had not scrutinised Tan’s estimates, he sought to distinguish between ‘broader estimates for construction works’ and ‘making estimates of the costs to do the works …’ in which Tan was qualified; and his own responsibility, being ‘interpreting other — the information provided, yes, but not in terms of making my own assessments as to the values of works or otherwise’.[99]  As contended by Medina, a position which I accept, this distinction does not make any sense.  If Pethica is not relevantly qualified in assessing the cost of the works, then his opinions and various estimates, occupying the vast majority of his witness statement, should be given minimal weight, if any. 

   [99]Transcript 78.18–31 (Pethica).  See also Transcript 79.9–15 (Pethica): ‘I believe I am qualified to give opinions about the refurbishment works, ah, but not specific elements of the costings that are — I know I have relied on other’s information, as I clearly say in my witness statement.’

1. Moreover, at times, Pethica acted as advocate for Brady.  In his various assessments, his witness statements repeatedly used and referred to a quotation provided by Toga Constructions NSW Pty Ltd, notwithstanding that he was not involved in its creation or even familiar with the circumstances in which it was created.[100]  Additionally, he was willing to give evidence on costings: by reference to quotations for other hotels (see, for example, the artwork claim for $146,000 plus GST);[101] without assessing whether the relevant items would fit in their intended location (see, for example, balcony furniture claim for $172,000 plus GST);[102] and without considering whether the works were, from a functional or aesthetic perspective, needed.[103]  Perhaps none of this is surprising given his clear lack of familiarity with the day to day operations of the hotels and the lack of familiarity with the needs and contents of the Premises. 

   [100]Transcript 48.18–22 (Pethica).

   [101]Transcript 65.5–27 (Pethica).

   [102]Transcript 68.13–70.31 (Pethica).

   [103]Transcript 51.7–15 (Pethica); Transcript 53.31–54.1 (Pethica).

1. Robert Moore, as Brady’s Group General Manager, gave evidence concerning an audit of the hotel in late July or early August 2022 as well as Brady’s prospective loss of clientele in having to conduct certain works, commencing in April or May 2024. Medina makes no general submission as to Moore’s credibility but says that his evidence that works will commence in April or May 2024 should not be accepted; and certain aspects of his loss calculations should not be accepted. Eddie Tan, Brady’s Senior Estimator, gave evidence of his estimation of the uncompleted Refurbishment Works. Importantly, as Medina contends, neither Moore nor Tan engaged in any assessment as to what the Premises required, either aesthetically or functionally. Moore’s role was limited to assessing, on Brady’s resumption of the Premises, what was missing according to Schedule 1 and Schedule 2 of the Second Lease, and also facilitated Tan’s access to the Premises. Tan’s role was limited to estimating the cost of those works in Schedule 1 not undertaken by Medina. Medina makes no criticism of either witness in this respect but does submit that their evidence does not bear on Brady’s proof of its damages. Additionally, it is observed that Brady itself is inexperienced in refurbishments. It runs five hotels but since their original fit out, neither Pethica nor Brady have undertaken a major refurbishment of its hotels.[104]

Medina’s witnesses

[104]Transcript 45.29–46.3 (Pethica).

1. Medina led evidence from two witnesses.  Christopher Sedgwick,[105] Group Chief Operating Officer for the TFE Hotels Group (‘TFE Hotels’), gave evidence that, in early 2018, he managed the refurbishment works on the Premises at a cost of $2,100,000.  Sedgwick, focusing on matters of priority, conducted a refurbishment not conforming in all respects with the Refurbishment Works as defined under the Second Lease, but nevertheless, undertook works of most significance for the hotel.  I accept that as Medina contends, Sedgwick’s evidence was not undermined in cross‑examination in any significant or relevant manner and it was otherwise credible and should be accepted; though there was some general discussion as to whether legal advice he obtained supported the position he expressed with respect to Medina’s freedom to determine which refurbishment works to undertake.[106]  Nigel Maxey,[107] Cluster Hotel Manager with TFE Hotels, gave evidence regarding the hotel’s general condition and FF&E in returning the Premises to Brady in 2022.  Contrary to its pleaded claim,[108] the Premises were returned to Brady in such a condition that it did not and will not in the near future have to undertake the rectification works it claims.  As with Sedgwick, Maxey’s evidence was not undermined in cross‑examination and, as contended by Medina, was otherwise credible and should be accepted. 

Refurbishment works

[105]See Chris Sedgwick’s witness statement (CB101–112).

[106]See above [26].

[107]See Nigel Maxey’s witness statement (CB113–114).

[108]Statement of Claim, [20], [21].

1. In 2018, Medina undertook refurbishment of the Premises at a cost of $2,100,000.  For reasons which Sedgwick explained, Medina did not undertake certain categories of the ‘Refurbishment Works’ provided for in Schedule 1 to the Second Lease. Rather, it undertook works beyond those in the Schedule; including replacing the carpet in the rooms and common areas; and painting all walls, doors, architraves and skirtings (but not the ceilings) in both the rooms and common areas.[109]  The precise cost of these works was $2,108,320 (excluding GST).[110]  In undertaking these works, Sedgwick understood that the Sinking Fund was the budget for the refurbishment,[111] exercising his discretion as to what was needed.  Sedgwick was the only witness who gave evidence regarding what the hotel needed.[112]  As submitted by Medina, his assessment in this respect was not substantially challenged.[113] 

Premises handover

[109]Chris Sedgwick’s witness statement, [27(b) to (d)] (CB107).

[110]Chris Sedgwick’s witness statement, [61] (CB111).

[111]Transcript 150.4–6; Transcript 154.5–8; Transcript 159.11–13 (Sedgwick).

[112]Sedgwick witness statement, [26]–[27] (CB106–107).

[113]Annexure A to the Defendant’s Closing Submissions (24 April 2024) addresses, by reference to Sedgwick’s witness statement and the various witness’ oral evidence, each head of the Refurbishment Works that Medina did not undertake.

1. Medina, having undertaken the refurbishment works to which reference has been made at the conclusion of the Second Lease in July 2022, returned to Brady a functional and aesthetically pleasant hotel to operate.  Maxey gave evidence in this respect as follows:

Prior to handing back the premises to Brady, various work was undertaken at Medina’s cost so that it could be handed back to Brady in the best possible condition so that the next operator could move in straight away. This included, for example, having the floors in the lobby polished, doing a thorough clean of all areas, steam cleaning the carpets in the corridor, and repainting some areas.[114]

As observed by Medina, Maxey was not challenged on this evidence and there is no evidence to the contrary.  Maxey also gave evidence that, approximately two to three weeks prior to vacating the Premises, he oversaw an audit of the rooms to ensure compliance with Medina’s own brand standards.[115]  This involved detailed evidence as to the use of a ‘smart sheet’:[116] ‘if you don’t hit the number in that room when it’s counted, it won’t let you have the room as a ticked off room[117] … our objective was to ensure every room had the right replenishment of FF&E as we depart’.[118] 

Brady’s audit and costings

[114]Nigel Maxey’s witness statement, [9] (CB114).

[115]Transcript 177.18–181.4 (Maxey).

[116]Transcript 178.15–179.1 (Maxey); see also Transcript 194.1–25 (Maxey); Transcript 195.24–196.4 (Maxey).

[117]Transcript 178.19–21 (Maxey).

[118]Transcript 178.30–179.30 (Maxey).

1. Medina vacated the Premises on 22 July 2022 and very soon thereafter, in August 2022, Brady opened ‘Brady’ branded serviced apartments.  The precise date in August 2022 is uncertain as Pethica did not have a specific recollection[119] and neither did Moore.[120]  In any event, there is no evidence or minimal evidence that, on resuming possession of the Premises, Brady suffered any issues in commencing the running of the ‘Brady’ branded serviced apartments.  No Brady witness gave evidence to the contrary. 

   [119]Transcript 45.14–22 (Pethica).

   [120]Transcript 104.14–17 (Moore).

1. On resuming possession of the Premises, Brady has directed its attention to the compliance, with respect to the Premises, with Schedules 1 and 2 to the Second Lease.  Medina offered a timeline in this respect; a list of various matters which has not been challenged:[121]

   [121]Defendant’s Closing Submissions (24 April 2024), [19].

(a)Soon after handover, in late July 2022, Pethica instructed Moore to conduct an audit of the premises. Audit sheets were provided to eight other employees whose work Moore oversaw.[122] Those audit sheets reflect Sch 2.

(b)On 1 and 3 August 2023, via two separate emails, Moore conveyed the results of this audit to Pethica.[123] It is likely that the second of these is what Moore referred to as the “final document.”[124] There are differences between those two documents,[125] some of which Moore put down to “oversized fingers.”[126] Moore also accepted that, when these audits were conducted, he was not familiar with the Premises.[127] These documents form the basis of Brady’s claim for misplaced chattels.

(c)By two emails dated 21 November 2022 to Tan,[128] Pethica instructed Tan to assess the cost of undertaking certain of the “Refurbishment Works” not completed by Medina.[129]

(d)By mid‑January 2023, Pethica was “chasing” Tan for his pricing to be finalised.[130] In response, Tan emailed Moore to progress access to the Premises.

(e)In February 2023, Tan provided those costings, along with their underlying quotations, to Pethica in person.[131] Tony Brady had requested that Pethica obtain these costings[132] so that Tony Brady himself might assess whether to undertake the balance of the Refurbishment Works.[133] More is said of this evidence below.

(f)These events closely coincided with a discovery deadline. By Order 3 made on 10 November 2022, this Court had ordered that the parties make general discovery by 4pm on 28 February 2023. That order was extended by Order 1 made on 16 March 2023. As things transpired, Brady filed their list of documents on 24 March 2023 in compliance with that order.

[122]Robert Moore’s undated revised witness statement, [2]–[4] (CB96).

[123]See email from Moore to Pethica dated 1 August 2023 (CB1544); email from Moore to Pethica dated 3 August 2023 (CB1659).

[124]Transcript 106.4 (Moore).

[125]See eg CB1548, line 22 (5 remotes missing); CB1664, line 22 (56 remotes missing); Transcript 106.26–108.17 (Moore); Transcript 84.11–87.23 (Pethica).

[126]Transcript 123.4–7 (Moore).

[127]Transcript 108.18–20 (Moore).

[128]CB1813–1816.

[129]Transcript 53.26–28 (Pethica).  The purpose of this exercise was ‘to understand the value of the works that hadn’t been completed, to give to Mr Brady for consideration.’

[130]CB1855.

[131]Transcript 56.17–27 (Pethica); Transcript 135.26–136.6 (Tan).

[132]Transcript 51.30–52.15 (Pethica).

[133]Transcript 53.4–7 (Pethica); Transcript 53.26–28 (Pethica); Transcript 80.13–17 (Pethica); see also Transcript 55.4–6: ‘I was requested to get the information from Mr Brady to consider what he would or wouldn’t do.’  See Transcript 78.9–11 (Pethica), regarding the shower works: ‘I can’t speak to what plans have or haven’t been made, that’s a matter between Mr Brady, and Mr Moore.’

1. I accept that as Medina submits, this timeline demonstrates a number of things. First, that Brady has not assessed whether the remaining Refurbishment Works, from a functional or aesthetic perspective, need to be done. Its concern has been merely compliance with Schedule 1 and Schedule 2 to the Second Lease. Secondly, Brady did not obtain Tan’s costings as a step to undertaking the Refurbishment Works. I accept, that as Medina submitted, Brady obtained Tan’s costing for the purpose of this litigation.[134]  At points in his cross‑examination, Pethica denied this,[135] stating that he sought the costings of the uncompleted Refurbishment Works so that Tony Brady might determine whether to proceed.[136]  Notwithstanding that evidence, the unexplained failure to proceed with the works combined with when Tan’s costing were obtained — that is, just prior to discovery — does, in my view, support the inference that this litigation was the primary reason — or at least a major reason — that Tan’s costings were obtained.  This conclusion is also supported by other aspects of Pethica’s evidence; namely that the upcoming discovery date was one reason Pethica was ‘chasing’ Tan in mid‑January 2023;[137] and, in addition to wanting to give the costings to Tony Brady, Pethica was looking to obtain quotes and costings so they could be included in Brady’s discovery.[138] 

   [134]Medina did not pursue an objection to the admissibility of Tan’s evidence on the basis of the operation of s 69(3) of the Evidence Act 2008; see Eastbound Estate Pty Ltd v DC Consolidated Investments Pty Ltd [2024] VSC 40, 33-35 [78]–[81] but did not see the need to pursue the objection in light of Tan’s lack of knowledge of the litigation (see T224-225).

   [135]Transcript 50.11–17 (Pethica); Transcript 54.6–9 (Pethica).

   [136]Transcript 53.4–7 (Pethica).

   [137]Transcript 55.29–31 (Pethica).

   [138]Transcript 56.1–3 (Pethica).

1. Having regard to these circumstances, the position is that Brady has led no evidence or minimal evidence that, having resumed possession of the Premises, these works, from a functional or aesthetic perspective, needed to be done.  There was no or minimal evidence that, between Medina’s vacation of the Premises and Brady’s opening of its serviced apartments, it undertook any of the Refurbishment Works or purchased any of the items underpinning its FF&E claim.[139] Also, contrary to its pleaded claim,[140] and notwithstanding Brady resuming possession of the Premises in July 2022, there is no or minimal evidence that it has undertaken any of the outstanding Refurbishment Works or purchased any of the items underpinning its FF&E claim.

   [139]Cf Transcript 59.14–21 (Pethica): ‘I think clearly works were undertaken to the rooms to prepare them ready for the opening of the hotel. The extent of that I’ve not privy to. I wasn’t personally involved in it, but clearly the rooms had to be made up, amongst other things. I’m not sure of the extent of any other works that were required to be done, that would be a matter for Mr Moore to give evidence, who was supervising that process.’

   [140]Statement of Claim, [20], [21].

1. Moreover, as Medina contends, the evidence does not indicate that Brady can be expected to undertake any of the outstanding Refurbishment Works anytime soon.  More particularly, Medina submits:[141]

   [141]Defendant’s Closing Submissions (24 April 2024), [22].

(a)There is no documentation supporting the notion that Brady plans or intends to undertake the Refurbishment Works. Recalling that this would be a construction worth over $1,000,000 involving multiple streams of work and tradesmen, this is not feasible.

(b)As already submitted, Brady has not assessed whether any Refurbishment Works are, from a functional or aesthetic perspective, necessary or desirable. The Court can quite safely consider that Brady, being a commercial entity looking to minimise cost, would not undertake the Refurbishment Works without undertaking such an assessment.

(c)There is only one piece of evidence supporting any intention to undertake the Refurbishment Works. By a revised witness statement of Robert Moore provided as recently as 13 March 2024, he asserted that the refurbishment will commence in “April/May 2024.”[142] This evidence should not be accepted. Although Moore clearly held the view that works were to commence at this time,[143] the basis for this view is unclear. In cross‑examination, it was established that Moore had not seen any documents that would evidence the existence of such a plan, including a budget, purchase orders, updated quotations, construction plans, planning schedules or memoranda setting out the plans.[144] He could not attest to deposits being paid for tradesmen.[145] The best he could do was refer to emails dated November 2022 and February 2023.[146] In short, there is no evidence to substantiate that works are to proceed in “April/May 2024” as Moore stated.

[142]Robert Moore’s undated revised witness statement (CB98A–98C).

[143]Transcript 117.1–3 (Moore).

[144]Transcript 115.14–116.8 (Moore).

[145]Transcript 116.22–25 (Moore).

[146]Transcript 116.26–29 (Moore).

(d)On 21 November 2022, in response to Pethica’s email requesting he cost various works, Tan wrote to Pethica as follows:

Noted, I will get onto it.

Sub‑contractors will be contracted with Brady Constructions? And anticipated start is around easter 2023?[147]

[147]CB1821.

There is no evidence of any response to this email from Tan. Nor was Brady’s intention at that time explained. Pethica gave evidence that “I didn’t have an intention at that point in time as to when they were to going to start… I was requested to get the information from Mr Brady to consider what he would or wouldn’t do.”[148]

(e)Pethica’s repeated evidence was that Tony Brady was to determine the works to be done. He gave evidence that:

I was asked by Mr Brady to obtain the costs for the purposes of understanding what it was going to cost to do the works that hadn’t been done, and for Mr Brady to then make a determination about those works and his capacity or otherwise to proceed with them.[149]

…

[The purpose] was to understand the value of the works that hadn’t been completed, to give to Mr Brady for consideration.[150]

This was consistent, as Medina contends, with Pethica’s evidence that he would refer any significant capital expenditure (that is, in excess of $50,000) to Brady before giving approval.[151]  However, for reasons which were not explained, Tony Brady himself did not give evidence.  I accept that, for these reasons, the Court should infer that his evidence would not have assisted his case.[152]  In this case, this permits the Court to draw the contended inference — that Brady does not intend to undertake the Refurbishment Works — as Medina says, more comfortably.[153]  I also accept that the failure to call Tony Brady also ‘underscores a hole’ in Brady’s proof; namely that the actual decision maker has not been called to prove the matters which are the subject of the relevant allegations with respect to the Refurbishment Works in its pleaded case.[154] 

Summation

[148]Transcript 55.2–6 (Pethica).

[149]Transcript 53.4–7 (Pethica).

[150]Transcript 53.4–7 (Pethica); Transcript 53.26–28 (Pethica); Transcript 80.13–17 (Pethica); see also Transcript 55.4–6: ‘I was requested to get the information from Mr Brady to consider what he would or wouldn't do.’  See Transcript 78.9–11 (Pethica), regarding the shower works: ‘I can’t speak to what plans have or haven’t been made, that’s a matter between Mr Brady, and Mr Moore.’

[151]Transcript 46.22–31 (Pethica).

[152]Jones v Dunkel (1959) 101 CLR 298, 308.

[153]See eg Jagatramka v Wollongong Coal Ltd [2021] NSWCA 61, [49] (Bathurst CJ; Bell P; White JA); Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361, 386 [64] (French CJ and Gummow J).

[154]Statement of Claim, [20], [21].

1. For the preceding reasons, I accept the submissions of Medina with respect to Brady’s contractual claim for refurbishment works and loss of rent for the reasons set out in its submissions and the material relied upon and, additionally, the reasons I have indicated in the course of considering those submissions. 

Misleading or deceptive conduct

1. Brady also claims that Medina engaged in misleading or deceptive conduct, contrary to s 18 of the ACL,[155] by representing, when entering into the Second Lease, that it would carry out the Refurbishment Works and retain the fixtures, fitting and equipment owned by Brady. 

   [155]Competition and Consumer Act 2010 (Cth), Schedule 2; see Statement of Claim, [13]–[19].

1. I accept Medina’s submissions that this claim fails because the representations are only alleged to arise from the Second Lease itself, whereas the Second Lease does not convey these representations.  Moreover, Medina did not make them as indicated in the preceding reasons.  Additionally, even if Medina did convey these alleged representations and did ultimately fail to undertake what was represented, that does not make the relevant conduct misleading or deceptive.[156]  It is, in my view, still unclear how Brady frames its case in this respect.  Additionally, no relevant loss has been pleaded in this respect and none has been proved.  Specifically, Brady has not articulated, and has not led evidence of, any counterfactual scenario wherein the alleged contravening conduct did not occur.  The only damage articulated is at the contractual measure.[157]  Accordingly, no relevant loss has been established.

   [156]See eg Australian Securities and Investments Commission v Commonwealth Bank of Australia [2022] FCA 1422, [121]–[123] (Downes J); Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154, [95] (Meagher JA, Beazley P and Ward JA agreeing).

   [157]Cf Statement of Claim, [19], [20].

Conclusion

1. For the preceding reasons, the Brady’s claim should be dismissed and judgment should be entered for Medina. 

1. The parties are to bring in orders to give effect to these reasons.  I reserve the question of costs and will hear the parties on this issue if necessary. 

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