Brunswick Developments Pty Ltd v Shock Records Pty Ltd
[1996] FCA 1024
•20 NOVEMBER 1996
CATCHWORDS
LANDLORD AND TENANT - Agreement for lease - Whether parties still in negotiation - Whether binding agreement subject to execution of formal lease - Contract for sale of land executed prior to agreement for lease - Whether deprived landlord of capacity to grant lease - Effect of contract - Damages for breach of agreement for lease - Whether loss in capital value recoverable.
DAMAGES - Breach of agreement for lease - Resale of land - Whether loss in capital value recoverable as damages - Forseeability.
Masters v Cameron (1954) 91 CLR 353
Encino Plaza Pty Ltd v Wilson International Pty Ltd (1988) V ConvR 63,908
Sindel v Georgiou (1984) 154 CLR 661
Stern v McArthur (1988) 165 CLR 489
De Medina v Norman (1842) 9 M & W 820
Nangus Pty Ltd v Charles Donovan Pty Ltd [1989] VR 184
Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 3 CLR 672
Buchanan v Byrnes (1906) 3 CLR 706
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Robinson v Harman (1848) 1 Ex 850; 154 ER 363
The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Peet & Co v Rocci [1985] WAR 164
C Czarnikow Ltd v Koufos [1969] 1 AC 350
Moschi v Lep Air Services Ltd [1973] AC 331
Nangus Pty Ltd v Charles Donovan Pty Ltd [1988] VR
BRUNSWICK DEVELOPMENT PTY LTD (ACN 004 584 476) v SHOCK RECORDS PTY LTD (ACN 006 982 289), FRANK MATTHEW FALVO, ANDREW CHARLES McGEE and DAVID ROY WILLIAMS VG 662 of 1995
COURT:Sundberg J
PLACE:Melbourne
DATE:20 November 1996
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 662 of 1995
GENERAL DIVISION )
BETWEEN:BRUNSWICK DEVELOPMENT PTY LTD (ACN 004 584 476)
Applicant
AND:SHOCK RECORDS PTY LTD (ACN 006 982 289), FRANK MATTHEW FALVO, ANDREW CHARLES McGEE and DAVID ROY WILLIAMS
Respondents
COURT:Sundberg J
DATE:20 November 1996
PLACE:Melbourne
MINUTES OF ORDER
The Court orders that:
Judgment on the claim be entered against the first respondent for damages in the sum of $338,650.80 together with interest in the sum of $20,000 in respect of the period concluding on the date hereof and interest at the rate of 9 per cent per annum from the date hereof until payment.
The cross-claim be dismissed.
The respondents pay the applicant's taxed costs of the claim and cross-claim.
The Court declares that the second, third and fourth respondents are jointly liable as guarantors for the amount referred to in paragraph 1.
Paragraph 1 be stayed for the period of 28 days from the date hereof.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 662 of 1995
GENERAL DIVISION )
BETWEEN:BRUNSWICK DEVELOPMENT PTY LTD (ACN 004 584 476)
Applicant
AND:SHOCK RECORDS PTY LTD (ACN 006 982 289), FRANK MATTHEW FALVO, ANDREW CHARLES McGEE and DAVID ROY WILLIAMS
Respondents
COURT:Sundberg J
DATE:20 November 1996
PLACE:Melbourne
REASONS FOR JUDGMENT
SUNDBERG J:
Brunswick's claim
The applicant ("Brunswick") claims that by an agreement made in May 1995 the first respondent ("Shock") agreed to take a lease of Factories 1 and 2/24 Lincoln Street, Brunswick for six years at a rental of $120,000 per year, and the other respondents, Shock's directors ("the directors"), agreed to guarantee Shock's performance of the agreement. It alleges that Shock agreed to execute and return to Brunswick, within fourteen days of being forwarded to Shock, a lease containing the terms and conditions set out in the agreement and
the terms and conditions of the standard lease used by Schetzer Brott & Apel, Brunswick's solicitors. It also alleges that the directors agreed to execute and return to Brunswick a joint and several guarantee of Shock's performance under the lease.
It is further alleged that on or about 23 May 1995 Brunswick forwarded "the leases" and guarantee to the respondents for execution, that in breach of the agreement they failed to execute them, and that by letter of 23 June 1995 the respondents repudiated the agreement, which repudiation Brunswick accepted. Brunswick claims damages, including loss of rent and loss in value of the freehold as a result of not obtaining Shock as a tenant.
The defence and cross-claim
In their defence the respondents deny that any concluded agreement was reached, and allege that if there were a concluded agreement:
•it was subject to a number of conditions precedent (that the zoning of the land would permit Shock's intended use of the premises, that the premises would be suitable for that use, would be free of damp and would be able to accommodate the fit out designed by Shock's architect, that the net usable space would be not less than 32,000 square feet, that the whole of the area inspected would be included in the lease and was included in the Certificate of Title, and that Brunswick had the capacity to grant a lease of the premises) which were not fulfilled, with the result that "there was no concluded agreement"
•Brunswick made representations along the lines of the conditions precedent referred to above, that the document relied on as the agreement was only an expression of interest, and that only one lease would be entered into, which representations were
designed to induce them to enter into the agreement and were untrue, and that upon discovering this Shock informed Brunswick that it was "discontinuing their negotiations" with the result that "there was no concluded agreement"
•under the agreement the respondents were obliged to execute only one lease for the whole of the premises
•the leases submitted for execution by Brunswick were not in compliance with the agreement, in that the agreement contemplated only one lease document, the area described in the leases was not the same as that discussed in negotiations, the title description of the land in the leases was inconsistent with the certificate of title, and the rental in the leases was not that agreed to because the leases apportioned the agreed composite rent between the two parts of the property.
In their cross-claim the respondents allege that the representations referred to in the defence were misleading and deceptive and contravened s 52 of the Trade Practices Act 1974, and that they have suffered loss as a result. Particulars of loss were payment of the $20,000 holding deposit, loss of the use of that sum, and expenses incurred in carrying out investigations in the course of the negotiations.
The premises
The premises are described in the statement of claim as "Factories 1 and 2/24 Lincoln Street". They consist of two buildings sharing a common wall. The layout of the premises is complicated, and it will assist if I describe them by reference to the following plan which was in evidence.
It will be seen that what the statement of claim describes as 1/24 Lincoln Street is Lot 11 on the plan. What it describes as 2/24 Lincoln Street is Lot 12, though the plan describes the premises as "2 & 3/24 Lincoln Street". The building on lot 11 consists of a ground floor and a basement, and the lot has a total area of approximately 1453 square metres. The building on lot 12 has a ground floor and a first floor, and the lot has a total area of approximately 2105 square metres. There is no direct access between the buildings. To get from one to the other it is necessary to traverse Lincoln Street via the two "nibs" shown on the plan.
Brunswick's evidence
Brunswick's principal witness was Mario Lo Giudice, one of its directors. He said that in March 1995 Brunswick had decided to lease or sell the premises. If the premises were to be leased, Brunswick wanted a secure, long term tenant, so as to maximise the capital value of the property, and thus be able to sell it as a fully leased investment property. On 28 March Shock's Andrew McGee wrote to John Camilleri, Brunswick's agent, offering to take a lease of the premises at a rent of $85,000 per annum "payable on completion of warehouse office
space". The term was for four years with two four year options. The letter contained a list of required refurbishments. Mr Camilleri passed the letter on to Mr Lo Giudice.
On 30 March Mr Lo Giudice and Mr Camilleri met the directors and Jane Mills, one of Shock's employees, at the site. They walked through the premises and discussed the refurbishment works that would be needed for the purpose of Shock's occupation. At this meeting Mr Lo Giudice had with him a small map in the form set out above and a larger plan which had been prepared some years earlier for the purposes of another interested person. Mr Lo Giudice said he would prepare a plan indicating the required works.
On 5 April Mr Lo Giudice met Miss Mills and the directors at Shock's premises. Shock's letter of 28 March was discussed. Mr Lo Giudice detailed the problems he had with some of the suggested terms. In particular, the rent was too low and the initial term was too short. He said that a financier looking at the property would be influenced by the length of the term, and would value the property accordingly.
Following this meeting Mr Lo Giudice prepared an Offer to Lease which he sent to Miss Mills under cover of a letter of 6 April. Although prepared by Brunswick, the Offer was to be made by Shock. The premises were described as "Factories 1 and 2, 24 Lincoln Street, Brunswick and 12 Lincoln Street, Brunswick having a total area of approximately 2912 sq m (31,359 sq ft)". Beside the heading "Carparking" were the words "as indicated on the attached plan". It seems that no plan was physically attached to the Offer, but a plan showing car spaces did accompany it. The term of the lease was eight years, to commence on completion of the works specified in the Offer. There was an option to renew for a further eight years. The rent was to be $130,000 per annum, with annual rent reviews. The premises were to be used for the warehousing, packaging and distribution of compact discs.
Special condition 1 required Brunswick to carry out the works specified in an annexure headed "Scope Works". The annexure listed the four floors, gave their areas and listed the works to be done on them.
On or about 11 April Mr Lo Giudice received a letter from Shock (addressed to Mr Camilleri) advising that Shock was considering leasing another property, and asking Brunswick to state the lowest rent at which it would consider leasing the premises to Shock. On 3 May Mr Lo Giudice received another letter from Shock (addressed to Mr Camilleri) offering to lease the property for six years at $95,000 per annum, with two four year options and a yearly rent review of 3 per cent "or CPI which ever is lowest". On 4 May another meeting was held at Shock's premises. Mr Lo Giudice and Mr Camilleri represented Brunswick, and Miss Mills and "some of the directors" represented Shock. Various matters were discussed, including the rent, the length of the initial term, and outgoings and maintenance costs. On 5 May Mr Lo Giudice sent a revised Offer to Lease to Shock. The initial term was reduced to six years. There were to be two options of four years. The rent was reduced to $120,000 per annum. Brunswick would pay for any partitions that were required. An associated company of Brunswick would reimburse Shock $5,000 per month for a period of eight months after the commencement of the lease. The reimbursement was described by Mr Lo Giudice as a "commercial incentive to finalise the lease agreement".
On the same day Mr Lo Giudice telephoned Mr McGee who said he agreed with everything in the revised Offer except the market review on the exercise of the option. Mr McGee said that if Mr Lo Giudice agreed that the rent be reviewed at 3 per cent per annum on the exercise of the option, he would arrange for the Offer to be signed. Mr Lo Giudice agreed, and said he would arrange for Mr Camilleri to collect the signed document.
On 6 May Mr Lo Giudice received from Mr Camilleri a facsimile copy of the revised Offer signed by Shock's directors. Although the Offer made provision for the affixing of Shock's common seal, this had not been affixed. Mr Camilleri told Mr Lo Giudice that the directors had not had the seal with them. Mr Lo Giudice told Mr Camilleri he would send him a copy of the facsimile signed by Mr Lo Giudice confirming acceptance of the offer. He asked Mr Camilleri to obtain a copy of the signed Offer with Shock's seal affixed.
On 8 May Mr Lo Giudice initialled (or as he said, signed) each page of the Offer and the rent review clause which had been altered in accordance with Mr McGee's request, and faxed it to Mr Camilleri. Apart from the changes described above, the Offer was in the same form as that sent to Miss Mills on 6 April, save for the insertion of special condition 3, which concerned the reimbursement of $5,000 per month. Special condition 2, which was in the earlier Offer, was as follows:
The terms of the proposed Lease shall incorporate the relevant terms of this Offer and the terms and conditions of the standard Lease prepared by Schetzer Brott & Appel, Solicitors for the Lessor in relation to properties owned by the Banco Group of Companies.
Brunswick was a member of the Banco Group. The Offer concluded with these words in large heavy type:
Shock Records Pty Ltd ("Shock") hereby offers to lease the above premises on the terms and conditions detailed herein and encloses a cheque equivalent to two months rent in advance to be held by the lessor on account of Shock's first rental payment. If this offer is accepted by the lessor, Shock and the Guarantors specified below agree to execute and return the proposed lease within fourteen days of same being forwarded to Shock's address detailed herein.
Then followed the signatures of Shock's three directors. The next page of the document was the "Scope Works" annexure.
Later on 8 May Mr Lo Giudice received from Mr Camilleri a copy of the execution page of the Offer with Shock's common seal affixed. He then sent a copy of the executed Offer, a lay out plan and building plans to Brunswick's solicitors for the purpose of preparing "the formal Leases". In the letter covering the documents Mr Lo Giudice said it was necessary to alter the description of the premises to "Factory 1/24 Lincoln Street, Brunswick more particularly described as lot 11", and "Factories 2 and 3/24 Lincoln Street, Brunswick more particularly described as 12 Lincoln Street, Brunswick or Lot 12 Lincoln Street, Brunswick".
On 9 May Mr Lo Giudice and a designer employed by the Banco Group, Robert Giano, met Miss Mills and the directors on site. They went through the premises again, focussing on the "first floor", the fit out details of which had not been finalised. Mr Lo Giudice handed the keys to Miss Mills. At the conclusion of the inspection Mr Williams said Shock would come back with a final fit out proposal for the first floor.
Two formal leases prepared by Brunswick's solicitors were delivered to Shock on or about 23 May. Each included a guarantee for execution by the directors. One lease related to "Lot 11 on Plan of Subdivision 315172P being the premises coloured yellow on the plan annexed hereto and known as factories 2 and 3, 12 Lincoln Street Brunswick". The other lease related to "Lot 12 on Plan of Subdivision 315172P being the premises coloured yellow on the plan annexed hereto and known as factories 2 and 3, 12 Lincoln Street Brunswick". In each case the plan annexed is essentially the plan I have used to described the premises. Although both leases describe the same factories, the coloured area on each plan corresponds with the lot number.
In late May or early June Mr Lo Giudice and Mr Giano met with Miss Mills, Mr McGee and Mr Williams to discuss the lay out of the offices. Miss Mills, whose job it was to co-ordinate the move into the premises, said she wanted Brunswick to provide her with a time schedule.
On 2 June Mr Lo Giudice received a letter from Miss Mills in which she expressed concern that the tenant then occupying lot 11 did not propose to move out until the end of July. Mr Lo Giudice arranged for the tenant to move out by 30 June, or at the latest seven days thereafter, and informed Miss Mills of this arrangement. Mr Lo Giudice then went overseas, and while he was away someone in his office telephoned him to say that Shock had decided not to proceed with the leases.
In cross-examination it was put to Mr Lo Giudice that he had told the directors the building area of the premises exclusive of the basement was approximately 33,000 square feet. He denied having said this. He agreed he had said the basement was effectively thrown in "dollar wise", by which he meant that his calculation of the rent ignored the basement, because if the ground floor was let to Shock, no one else would lease the basement.
Mr Lo Giudice said the premises had been sold to one Nejat Mackali on 1 February 1995. The sale price was $700,000, payable by a deposit of $70,000 by 1 April 1995 and the balance by 1 August. A cheque for part of the deposit ($20,000) was handed over on 1 February but was dishonoured. After initially seeking to hold the purchaser to the contract, on or about 13 June 1995 Brunswick gave him a fourteen day rescission notice, and the contract came to an end on or about 27 June.
Pressed to concede that at the date of the signed Offer the description of the land was still uncertain, Mr Lo Giudice said that at the initial inspection he walked the directors over the whole of the property. They knew what the property looked like, and while there was an issue about the postal address, the metes and bounds were not in doubt.
Mr Lo Giudice disagreed with the suggestion that the procedure whereby the Offer was signed was a most informal way of leasing a property. He agreed that the parties had not sat down with identical parts and exchanged them, but said that Shock had a copy of the document signed by him and he had a copy signed by the directors. He didn't think it was informal. It was the way he normally did business.
Much time was spent exploring with Mr Lo Giudice the different descriptions of the property contained in the Offer on the one hand and the formal lease documents on the other. He appears to have accepted that the lease of lot 11 should have described the land as 24 Lincoln Street and not 12 Lincoln Street. He attributed the confusion to the council records, and said that in any event there was no doubt as to what the properties were. If one looked at the Offer, lot 12 was described as consisting of a ground floor and a first floor each having an area of 936 square metres, and lot 11 was described as a ground floor and a basement each having an area of 620 square metres. If one looked at the Leases, in each case the subject matter was identified by the coloured area on the attached plan.
Mr Camilleri gave evidence about Miss Mills' approach to him about leasing the premises, his communications with her and Mr Lo Giudice, and his attendance at the various inspections of the property. He said that on 5 May he collected the signed Offer from Shock's premises together with a cheque for $20,000. The cheque butt was in evidence, and described the payment as "rent on new premises". He confirmed Mr Lo Giudice's evidence
about the request that Shock's common seal be affixed, and said he had spoken to Miss Mills, received the execution page from her with the seal on it, and sent it to Mr Lo Giudice.
In cross-examination Mr Camilleri explained in more detail the sequence of events in relation to the signing of the Offer. Mr Lo Giudice caused the document to be sent by courier to Shock. Mr Camilleri collected it from Shock's premises on 5 May, at which time it had been signed by the directors. He faxed a copy of the signed document to Mr Lo Giudice on 6 May. He received a return fax from Mr Lo Giudice with the latter's signature or initials on it. He then called Miss Mills to say he had received formal acceptance by Brunswick, and requested that Shock's seal be affixed to the document he would send her. He faxed her the document signed by the directors and Mr Lo Giudice, and she returned the execution page by fax with the seal affixed.
Mr Camilleri denied that during the initial inspection Mr Lo Giudice had said the area of 30,000 square feet did not include the basement.
Mr Giano gave evidence that after an on-site meeting with Miss Mills and the directors he prepared a plan for the required alterations which he sent to Miss Mills and to consultants and contractors who would be involved in carrying out the works. Quotes were obtained from most of them. He had meetings with Miss Mills about Shock's electrical requirements and about the sound-proofing of rooms. He had incorporated all the desired changes into a plan when he was told that Shock did not intend to proceed. He then stopped work. He said that at that stage the only matter that needed to be attended to in order to obtain a building permit for the works was the water proofing treatment for the new shower. This was a straightforward matter, and it would not have taken more than a week from 23 June for the permit to be obtained.
In cross-examination Mr Giano agreed there was a shortfall of 2.69 metres in the north-south measurement of the building on lot 12, but said the proposed works could still be accommodated in the building by taking 100 millimetres or so from each room.
Jeffrey Appel, of Schetzer Brott & Appel, produced the standard form lease used by the Banco Group, and said the two lease documents forwarded to Shock followed that form with appropriate changes to suit the particular transaction. He said that no objection had been taken by the respondents to the form of the leases prior to the delivery of the defence.
Other evidence was given relating to Brunswick's loss and damage. I will defer a summary of that evidence pending the determination of liability.
Shock's evidence
Shock's principal witness was Mr McGee. He said Shock had needed larger premises than its existing premises. It wanted a useable area of between 30,000 and 40,000 square feet together with car parking facilities. He commissioned Miss Mills to find suitable premises. He said that during an on-site meeting Mr Lo Giudice had said the building would be ideal for Shock's purposes, that it had a net useable area of 33,000 square feet exclusive of the basement area, and that there were at least 51 car spaces available. Mr Lo Giudice had also said the basement, which was to be "thrown in" by Brunswick, would be ideal for the storage of Shock's music products.
According to Mr McGee, at a meeting on 5 May Mr Lo Giudice told him that pending conclusion of the negotiations and the preparation and signing of a formal lease, a holding deposit would have to be paid and an Offer to Lease signed by Shock. Mr Lo Giudice also said that refurbishment work would not commence until after the lease document had been
agreed to by the solicitors and executed by all parties. Mr McGee said that only one lease was ever contemplated during negotiations, and that if it had been suggested that there would be two leases, Shock would not have continued with the negotiations. It would not have risked the possibility of having two different landlords should Brunswick sell the two lots to different purchasers.
Mr McGee said Shock decided to break off negotiations when its experts and solicitors reported adversely on certain aspects of the proposal. These were that
•Shock's designer was of the opinion that the fit out, which had been finally agreed with Brunswick, could not be accommodated by the physical dimensions of the buildings
•the plan of subdivision referred to in the leases had not been registered
•Brunswick was insisting on two leases, which had never been agreed to
•the net lettable area was less than had been represented by Mr Lo Giudice
•the basement area was included in the net lettable area
•the basement was not suitable for storage as it was subject to flooding and was damp
•the number of car spaces was less than the number represented by Mr Lo Giudice
•Brunswick had unilaterally apportioned the rental between the two lots without consultation with Shock.
Mr McGee said that upon discovering these matters Shock wrote to Brunswick informing it that Shock was "no longer interested in negotiating the lease for the premises". He said he had discovered that before Brunswick had started negotiating with Shock it had entered into a contract to sell the property to Nejat Mackali.
He also said he and his co-directors had signed the Offer document on the basis that "the final approval of the lease would be ratified by Shock's solicitors" and that he had told Mr Camilleri this.
In cross-examination Mr McGee agreed there was no doubt in his mind about what Shock would be leasing. It was the area within lots 11 and 12 on a plan of subdivision, and there "was no doubt about the perimeters of the building" Shock was seeking to lease. Nor was he in any doubt as to what was situated on the two lots. Lot 11 had a building with a basement and a ground floor. Lot 12 had a building with two floors. He agreed that whether the premises were described as 1/24 or 2 & 3/24 Lincoln Street or in any other way did not really matter, because he was clear as to what was comprised in lot 11 and lot 12.
Mr McGee said that at the initial meeting Mr Lo Giudice had said he would throw in the basement. But he agreed that the total rent was what was being argued about. He appears to have accepted that what was meant by "throw in" was that when the $120,000 rent was spread over the area other than the basement on a square metre basis, Shock would not be paying anything for the basement. He agreed that on or about 8 May Shock was informed that Brunswick had accepted its offer.
As to Mr Giano's plan, Mr McGee agreed that it could be modified to meet Shock's requirements, and that there was no prospect at any stage of the works being carried out literally in accordance with the plan. Rather, it was a basis for a working out of what was actually going to be built. He agreed that the directors had been asked to guarantee Shock's performance of the lease, and that they had agreed to do so.
Pressed about the reasons he had given in his witness statement for Shock's decision to withdraw from negotiations, Mr McGee agreed that
•the fit out, which he had said could not be accommodated by the dimensions of the building, had not been finally agreed - it was a proposal only
•although the plan of subdivision had not been registered, he was in no doubt as to what it was that was to be leased
•Shock had been provided with the lease documents about a month before the letter of withdrawal from negotiations, but had not claimed it was obliged to execute only one lease
•the really significant matters were that the plan of subdivision was unregistered and that two leases were required
•the precise area of the premises was not crucial: what mattered was that Shock would be getting four floors in the two buildings that had been inspected
•the basement area was included in the area to be leased
•when he discovered that the basement was subject to flooding he began to have second thoughts about the suitability of the premises
•it was likely that the proposed works would remedy the physical problems from which the building suffered.
Mr Falvo, another of the directors, gave evidence to much the same effect as Mr McGee. He said that when he signed the Offer to Lease he thought the document was "simply a sign of the bona fides of Shock in continuing the negotiations". He would not have agreed to enter into any binding agreement without first seeing the standard lease to be prepared by Brunswick's solicitors. He also said that Shock would not have entered into a final agreement until the proposed fit out, which was vital to Shock, had been worked out in detail. Like Mr McGee, Mr Falvo said that after considering the reports of Shock's consultants and solicitors, he decided that Shock ought not to proceed with the negotiations.
In cross-examination Mr Falvo agreed he was in no doubt as to the identity of the premises for which Shock was negotiating. He said he and his fellow directors signed the Offer "as part of the negotiation to lease the property". As to the "withdrawal factors", Mr Falvo agreed that
•the fact that the plan was unregistered would be of significance only if it affected Shock's security of tenure as lessee
•it was clear at the time the Offer was signed that the total lettable area was 2912 square metres
•Mr Lo Giudice said the basement would be "included for nothing, be thrown in"
•Mr Giano's fit out plan was only a provisional one, and Shock had engaged its own expert to make a plan to meet its actual requirements.
Mr Williams gave evidence which supported that of Mr McGee and Mr Falvo. He, too, said that Shock resolved to withdraw from the negotiations because of the matters specified by Mr McGee. He also said the two plans provided by Mr Lo Giudice in April were preliminary lay out plans which would be refined by Shock's own designer if the lease went ahead. Mr Williams said he was in no doubt as to the identity of the land to be leased - lots 11 and 12 on the plan set out above, having a total area of approximately 32,000 square feet. He was also in no doubt that he and his fellow directors were being asked to guarantee Shock's performance of the lease. With respect to the withdrawal factors, he believed the lease did not include the basement, which was to be thrown in free of charge, and agreed that there had been no final agreement about the fit out.
Mr Williams said his understanding was that when everyone had signed the Offer document Mr Lo Giudice could not have let the land to anyone else. That would have been a breach. However, the Offer was later going to be embodied in a formal document.
Miss Mills gave evidence to the same effect as the directors. In cross-examination she maintained her evidence that Mr Lo Giudice had said the basement would be thrown in, and that it was not included in the area for lease.
Geoffrey Berry, a licensed surveyor, gave evidence that he had been retained by Shock to carry out a survey of the land described as lot 11 and lot 12 on Plan of Subdivision 315172P.
His searches at the Land Titles Office disclosed that Plan of Subdivision 315172P was an unregistered dealing, and the same area of land the subject of that unregistered Plan was included in Certificate of Title Volume 10089 Folio 402 and shown thereon as lot 15.
Mr Berry said his investigations led him to conclude that the title particulars in the leases were incorrect in that Certificate of Title Volume 10089 Folio 402 referred to lot 15 and not lot 11 or lot 12; that because Plan of Subdivision 315172P was unregistered, it did not accurately describe the title to the land; and that even if that plan had been registered, the common property area which bisects the northern part of lot 11 would not be part of the land described in any Certificate of Title issued in respect of that lot, contrary to the impression conveyed by the leases.
In cross-examination Mr Berry agreed that lots 11 and 12 referred to in the Offer and the Leases were readily identifiable by reference to the unregistered plan, that Brunswick was the registered proprietor of the land described in Certificate of Title Volume 10089 Folio 402 which was lot 15 on a registered plan, that lot 15 had been cut up into lots 11 and 12, and that there was no possible adverse effect as a matter of title arising from the fact that the plan of subdivision had not been registered when the Offer was made and accepted.
Frank Masten, a building designer, said his company had been retained by Shock to prepare designs to assist in the fabrication of a fit out of the premises. Mr Masten was given copies of Brunswick's drawings and a preliminary design scheme upon which the documentation was to be based. Having inspected the premises he concluded that the proposed fit out could not be effected on them. Brunswick's drawings were incorrect in that the north-south internal dimension of the first floor of the building on lot 12 was 2.69 metres shorter than shown, the east-west dimension was 0.26 metres longer than shown, the plans did not show
penetrations to the west wall (ground floor), and the proposed entry to the premises could only be constructed after substantial structural modifications which would cost about $30,000.
The 2.69 metre shortfall could be "picked up" only by altering the fit out dimensions or reducing the thickness of the partitions. The latter was not feasible because the thickness was already at the lowest tolerance for a recording studio, in which soundproof partitions were necessary. On about 22 June Mr Masten advised Shock that its fit out as planned could not be accommodated within the physical dimensions of the building.
In cross-examination Mr Masten said he had been provided with the plan prepared by Mr Giano and asked to prepare working drawings. He was not asked to reconsider Mr Giano's plan or re-arrange it so as to provide a better flow through between the offices. His only function was the mechanical one of producing a set of working drawings. Mr Giano's plan was a "frozen design". Mr Masten agreed that, but for the freeze, difficulties with respect to the location of stairs in the reception area, caused by a beam across the ceiling, could have been avoided, and Mr Giano's design substantially accommodated. What he reported, in accordance with his brief, was that the precise design could not be translated on the ground. He also agreed that a possible solution to the 2.69 metre shortfall was to reduce the dimensions of each of the rooms by 6 or 7 per cent.
Christopher Laffey, a town planning consultant, was asked by Shock to advise whether the premises and their proposed use complied with the relevant planning scheme. The land is zoned Light Industrial. No permit is required for warehouse use, but office use involving an area of more than 500 square metres is a prohibited use. The amount of office space proposed exceeded 500 square metres. However, office space in excess of that maximum is permissible if it is ancillary to some permitted use. The question therefore was whether
Shock's office use would be ancillary to its warehouse use. Mr Laffey accepted that in terms of floor area the warehouse activities represented the predominant use. But, he said, the office component would accommodate a greater number of employees than the warehouse component. The ratio was about two to one. Mr Laffey's conclusion on the ancillary use question was that Shock's activities "represent a marginal situation". It was "so marginal" that it would have been prudent to seek the responsible authority's views on the proposed use. The "uncertainty with the intended use" was compounded by the potential for the use, in certain circumstances, to adversely affect the amenity of the area, and therefore be in breach of the condition imposed on the warehouse use by a provision of the planning scheme.
In the course of cross-examination Mr Laffey conceded that in a draft report preceding his actual report he had said that "on balance" there was an association between the two components of Shock's business, the primary function of which is to distribute compact discs, and that "although marginal, the proposed office area could be considered as ancillary to the permitted warehouse use". The draft was supplied to Shock's solicitors for their comments, and this passage was altered in the final report.
Shock also called valuation evidence, but I will defer consideration of that.
Still in negotiation?
The respondents contended that no concluded agreement for a lease had been made. Rather the parties were still negotiating, the signed Offer document being but a step in the negotiations. On 6 May, when Mr Lo Giudice accepted Shock's offer, all the essential matters had been settled: the identity of the lessor and lessee, the term, the commencement date, the options for further terms, the rent, the rent review mechanism, and the use of the
premises. Further, it had been agreed that outgoings, insurance and energy charges would be borne by Shock, and that Brunswick would carry out the works specified in an annexure to the Offer. The respondents' contention that the subject matter of the agreement had not been ascertained has no substance. There was indeed some uncertainty as to the correct description of the two lots in terms of street numbers. But the directors were in no doubt as to what they were proposing to lease. Each of them said that having inspected the site and looked at the plans he was quite clear as to the identity of the land.
The parties had been negotiating for nearly six weeks, and the last unresolved matter, the rent review clause, had been agreed to on 5 May. In my view the essential terms of the agreement were then settled, and when Brunswick's acceptance of Shock's offer was communicated to Shock, an agreement came into being that Shock would take a lease of the premises on the terms contained in the Offer document.
Was the agreement subject to the execution of a formal lease?
Shock contended that even if the parties had reached agreement upon the essential terms of the lease, they did not intend to be contractually bound until a formal lease was executed. It said the case fell within the third class mentioned in Masters v Cameron (1954) 91 CLR 353 at 360:
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of these terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or
addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
In the first case there is a binding contract, whether or not the contemplated formal document comes into existence. In the second case there is a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. In the third, there is no contract. Although the terms have been agreed, the parties do not intend to be bound until the formal contract is executed. The intention of the parties is to be ascertained on an objective basis: Encino Plaza Pty Ltd v Wilson International Pty Ltd (1988) V ConvR 63,908.
In my view the parties intended to be bound upon the signing of the Offer document. The document is expressed with some formality and precision. It has a distinct legal flavour. It uses the language of offer and acceptance. It provides for payment of two months rental as a deposit. Shock's common seal was to be affixed. That Mr Lo Giudice attached importance to the formality of a seal was apparent to the directors, for after they had signed the document he returned it to them for the seal to be affixed. The fact that the parties contemplated the execution of a formal lease does not of itself mean they did not intend then and there to be bound. In Masters v Cameron, speaking of the first class of case, the Court said at 360-361:
Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v Miller (1878) 3 App Cas 1124 when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation.
Shock's counsel submitted that what happened was really rather informal, and the fact that there was no formal exchange of executed parts of the Offer document argued against an intention that the parties were to be immediately bound upon acceptance of the offer. It has often been said that the usual method of making a contract for the sale of land is by the exchange of parts, and that in the absence of an exchange no binding agreement exists: Allen v Carbone (1975) 132 CLR 528 at 533; Sindel v Georgiou (1984) 154 CLR 661 at 655-656. No evidence was led as to whether in Victoria the usual practice in relation to leases or agreements for leases involves the exchange of parts. Cf Voumard, Sale of Land 5th ed at 27-28. In Encino Plaza at 63,915 Ormiston J rejected an argument, based on the sale of land analogy, that no binding agreement should be found in the absence of an exchange of counterparts of an agreement for lease.
In my view the case falls within the first class in Masters v Cameron. The objective intention of the parties, viewed in the context of their negotiations, was that they were to be immediately bound, although they also intended that the terms of their bargain would be restated in a form which would be "fuller or more precise but not different in effect". That was the burden of special condition 2. The formal lease was to incorporate the terms of the Offer, and would be made fuller or more precise by reference to the standard lease in use by the Banco Group.
Did Brunswick have a good title?
It will be recalled that the respondents pleaded that if there was a concluded agreement it was subject to a number of conditions precedent, that these conditions were not fulfilled, and accordingly no concluded agreement was reached. One of the conditions was that Brunswick had the capacity to lease the premises. It was said that it lacked that capacity because at the date of the Offer the equitable interest in the land had passed to Mackali under the contract
made in February 1995 which was still on foot on 8 May. Brunswick was but a trustee for Mackali.
In some of the older cases there are statements to the effect that upon the making of a specifically enforceable contract for the sale of land the equitable interest passes to the purchaser and the vendor becomes a trustee for him. But the true position is more complex. In Stern v McArthur (1988) 165 CLR 489, at 521-522 Deane and Dawson JJ said:
It has been said in a variety of ways that a vendor under a valid contract for the sale of land holds the land as trustee for the purchaser. He is, however, a trustee only in a qualified sense and the qualifications are such as to rob the proposition of much of its significance or, for some purposes, its validity. The vendor must make title before there can be any alteration in the equitable ownership of the land, although the alteration may then relate back to the date of the contract. Even so the vendor retains a substantial interest in the property until the whole of the purchase money is paid. He is entitled, subject to the contract, to possession and to the rents and profits in addition to a lien on the land as security for any amount outstanding. Any right to equitable ownership on the part of the purchaser is contingent only, being subject to the payment of the purchase money and being said to exist only so long as the contract remains specifically enforceable at his suit.
...
... it is not really possible with accuracy to go further than to say that the purchaser acquires an equitable interest in the land sold and to that extent the beneficial interest of the vendor in the land is diminished. The extent of the purchaser's interest is to be measured by the protection which equity will afford to the purchaser. That is really what is meant when it is said that the purchaser's interest exists only so long as the contract is specifically enforceable by him.
Their Honours then pointed out that specific performance in this context is not limited to specific performance in the strict sense of requiring the contract to be performed, but extends
to all the remedies available to the purchaser in equity to protect his interest under the contract. Of these other remedies, the principal one is the injunction.
What protection would equity have afforded Mackali on 8 May? The contract obliged him to pay a deposit of $70,000 by 1 April 1995, $20,000 of which was said to have been paid on the signing of the contract. The cheque for the $20,000 bounced. He did not pay any of the deposit by the due date or at all. It may be doubted that in those circumstances equity would have granted him specific performance or have enjoined Brunswick from dealing with the property. But I need not pursue this matter, because at common law a lessor is not required to show title at the date of an agreement for lease, so long as he can do so at the date he executes the lease: De Medina v Norman (1842) 9 M & W 820; 152 ER 347. Therefore, if at the time the agreement to lease was made Brunswick's title was in any way deficient, that did not justify Shock's withdrawal from negotiations on 23 June. The common law was modified by the Vendor and Purchaser Act 1874 (44 & 45 Vict c 41, s 13), the present Victorian counterpart of which is s 44(2) of the Property Law Act 1958, but not in a fashion that assists Shock's present submission.
Other conditions precedent
The evidence does not establish the existence of a condition that the premises would be free of damp. None of the other conditions appears to me to be a condition precedent to the agreement for lease itself, as opposed to a condition precedent to the obligation to take a grant of the lease. In any event, Shock has not made out the non-fulfilment of any of these conditions.
Mr Laffey's evidence fell short of demonstrating that the zoning of the land did not permit Shock's intended use. Putting to one side my strong impression that his draft conclusions
more accurately represent his true view than does the opinion expressed in his final report, to say as he did in that report that Shock's activities "represent a marginal situation", even a very marginal one, does not establish that Shock could not have lawfully used the land for the purposes of its business. The condition that the premises would be suitable for Shock's business use looks to a time after completion of the proposed works. Shock's "withdrawal from negotiations" meant that the works were never done. There is no evidence that this condition would not have been satisfied once the works were completed. The next condition is that the premises would be able to accommodate the fit out designed by Shock's architect. The complaint in Shock's evidence seems to have been that the premises could not accommodate the fit out designed by Brunswick rather than that designed by Shock. In fact there seems not to have been any fit out designed by Shock's architect. In any case, Mr Masten's evidence was that he was asked to prepare working drawings from Mr Giano's "frozen design". He was not at liberty to modify it so as to remedy any problems. He agreed that the difficulties with the stairs and the beam could have been solved but for the freeze, and that a possible solution to the 2.69 metre shortfall was to reduce the dimensions of the rooms. Mr Masten concluded, consistently with his limited brief, that Mr Giano's fit out could not be accommodated by the building. The parties may have contracted on the basis that the premises could be fitted out in a way that would suit Shock's business. But the evidence does not establish that they could not have been. Indeed Mr Masten's evidence is to the effect that, had he not been deprived of any discretion in the preparation of drawings, an appropriate fit out could have been prepared. And it is to be remembered that the evidence of each director was that Mr Giano's plan was only a proposal, to be adjusted as required in order to suit Shock's needs.
The next complaint is that the net useable space was less than 32,000 square feet. In fact the area was 31,359 square feet or thereabouts. But Shock's concern was not about the
difference between these two figures. The respondents' case was conducted on the basis that Shock was led to believe it would be getting at least 32,000 square feet excluding the basement, whereas it was only getting 32,000 square feet including the basement. But that is not what is pleaded, and given that Shock's grievance is not about the difference between 31,359 and 32,000 square feet, the claim is not made out. There is no evidence to support the claim that the whole of the area inspected by the respondents was not to be included in the lease, or that it was not included in the Certificate of Title. What was inspected was lots 11 and 12 as shown on the plan set out above and the buildings on the lots. That is what was included in the Offer to Lease, and all of it was included in Certificate of Title Volume 10089 Folio 102. I have dealt separately with the capacity to lease condition.
Because I have not found that any of the conditions was not fulfilled, I need not determine whether, had they or any of them not been, that would have entitled Shock to refuse to proceed with the agreement to lease or to refuse to take a lease. In any event, all that is pleaded is that because the conditions were not fulfilled, no final agreement was ever concluded.
The representations
The defence recasts five of the six conditions precedent as representations inducing the contract. There is no evidence that representations about zoning, damp, fit out or title were made. Even if representations about zoning, fit out or title were made, there is no evidence that they were untrue. As to the suitability of the premises for use in Shock's business, Brunswick may well have impliedly represented that, on completion of the works, the premises would be suitable. There is however no evidence that they would not have been. Shock's refusal to proceed with the matter prevented Brunswick from fulfilling its obligation
to carry out the works. The useable space representation was rather a term of the contract, and as I have said, was not broken.
The contention that Brunswick represented that the Offer to Lease was only an expression of interest is not supported by the evidence. Mr McGee's evidence that Mr Lo Giudice had stated that pending conclusion of the negotiations and the preparation and execution of a formal lease document a holding deposit would have to be paid and the Offer document executed, falls short of establishing a representation that the Offer document was only an expression of interest. The final representation is that if a binding agreement was concluded, only one lease document would be executed in respect of the whole of the premises. I do not accept that there was any representation to this effect. It was however a term of the contract that there would be but one lease. Brunswick tendered two documents for execution by Shock. It could not have required Shock to execute either. What Brunswick did amounted to a request to vary the contract which Shock could have agreed to or refused at its will. It did neither for a month, and then simply withdrew from negotiations. Shock did not treat the tender as a repudiation by Brunswick which entitled it to bring the agreement to an end.
Because I have found that the representations were either not made or if made were not false, I need not consider whether, had the representations or any of them been false, that would have entitled Shock to refuse to proceed with the agreement or take the lease. As with the conditions, all that is pleaded is that upon discovering that the representations were untrue, Shock discontinued the negotiations, and thus no concluded agreement was reached.
It will be recalled that a reason given by each of the directors for not proceeding was that the number of car spaces on site was smaller than had been represented by Mr Lo Giudice.
There was some evidence to support Shock's claim, though Mr Lo Giudice denied having made the representation. On the fifth and last day of the hearing, after the conclusion of evidence and addresses, Shock applied to amend its defence so as to include a plea about the number of spaces. I refused to allow the amendment.
Conclusion on liability
As at 23 June there was in existence a binding agreement to lease the premises. Shock's letter of 23 June was a repudiation of the agreement which Brunswick accepted, either by selling the land in January 1996 or by delivering the further amended statement of claim.
Damages
The damages Brunswick claims fall under five heads. The first relates to rates and taxes and the insurance premium Brunswick would not have had to pay had Shock proceeded with the lease. These total $9,936.37. The second relates to loss of rent on the premises between 1 August 1995 and the dates of settlement of the two sales. This totals $48,836.43. The third head relates to the cost of preparing the premises for occupation by Shock, which was thrown away in the events that happened. This totals $19,600. The fourth head relates to additional expenses (Mr Camilleri's commission, advertising expenses, search fees and legal fees) totalling $19,278. Counsel for Shock did not cross-examine on any of these heads of damage, and I find that Brunswick has established all of them.
The only area of controversy with respect to damages relates to the main item claimed, namely the loss in value of the freehold resulting from breach of the agreement for lease. Brunswick's valuer, Lionel Theobald, valued the premises at $1,090,000 with Shock in possession under the proposed lease. He arrived at this figure by capitalising the rent of $120,000 at 11 per cent, that rate being based on five sales of comparable leased properties.
From the $1,090,000 he deducted selling costs ($35,000), the cost of refurbishment ($123,000) and the net sale prices ($644,000) to produce a capital loss of $288,000. In fact the cost of refurbishment was $150,000, and in cross-examination Mr Theobald accepted that the capital loss should be reduced by the difference between his assumed figure and that amount, namely $27,000. On that basis the loss of capital value is $261,000.
Shock's valuer, Barry Waters, assessed the loss of capital value at $33,800. This was based on a market value of the tenanted premises of $960,000, and an assumed cost of renovation of $250,000 which, together with other amounts, he deducted from the market value. He said that before any weight could be given to the assumed cost of renovation, it would be necessary to prepare a work specification and have a building estimator accurately cost the work. Mr Waters reached his market value of $960,000 by capitalising the rent at 12.5 per cent. This rate purported to be based on the same comparable sales as Mr Theobald's 11 per cent rate. However Mr Waters wrongly treated the rental on one of the properties as $285,000, giving a capitalised rate thereon of 19.5%. In fact the rent was $219,000, giving a rate of 15%. Because of this error, and Mr Waters' unsupported cost of renovation of $250,000, I prefer Mr Theobald's evidence, and accept his capital loss figure of $261,000.
Shock contended that a lessor could not recover loss in the value of the property as damages for breach of an agreement for lease. Counsel relied on Nangus Pty Ltd v Charles Donovan Pty Ltd [1989] VR 184 for this proposition. In that case a lessee wrongfully repudiated a lease and the lessors accepted the repudiation and sued for damages for loss of rent. The lessee unsuccessfully argued that the lessors were not entitled to recover lost rent in respect of a period beyond the cessation of their ownership of the premises. Kay and Southwell JJ, with whom Young CJ agreed, said:
[Counsel] was unable to cite any authority in direct support of his principal submission that changes in the property rights of the lessors affected the assessment of the damages to which they are entitled. We know of no principle of law which could support the submission. It tends to equate proprietary rights with the lessors' contractual rights, which are the subject of this action. It cannot be that variations in the lessors' proprietary shares could be held to have increased the extent of the lessee's liability to pay damages; logically, there is no reason why they should decrease that liability.
This was the passage particularly relied upon by counsel. I have derived no assistance from this part of the judgment. Where the case is of assistance, however, is in confirming earlier authority that the ordinary principles of contract law, including those relating to the assessment of damages, apply to the repudiation of a lease. The usual measure of damages is the difference between the rent reserved by the lease and that recovered on a reletting of the premises: Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 3 CLR 672. But the general principle is that stated by O'Connor J in Buchanan v Byrnes (1906) 3 CLR 706 at 721, that the landlord can recover damages for the loss of the benefit of the lease. Or as Deane J put it in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 55, the landlord can "in accordance with ordinary contractual principles sue the tenant for damages for loss of the benefit of the tenant's covenant to pay future rent and outgoings". Where, as here, the landlord does not re-let but sells, I see no reason why it should not recover the difference between the value of the premises with the tenant in occupation and their value without a tenant. That accords with the general principle that a person who has sustained loss by reason of a breach of contract is entitled to be placed in the same position, so far as money can do it, as if the contract had been performed: Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81, 98, 117, 134. In Peet & Co v Rocci [1985] WAR 164, where the lessor had not re-let but had sold the premises at a loss, Rowland J said, at 178:
... there are several ways one may assess damages for breach of a lease agreement and in the end the method adopted may have to depend upon the circumstances of the existing case and the attitude taken by the lessor. In my view in this case the true measure of damages is the difference between the value of the premises as a going concern with a tenant in possession pursuant to the contractual term and one without a tenant in possession at the relevant time at which such valuation is to be made being either the date of the breach or the date of acceptance of that breach.
I do not regard loss of the value of the premises as being too remote in the present case. In C Czarnikow Ltd v Koufos [1969] 1 AC 350 at 385, in a passage approved by Mason CJ, Brennan and Dawson JJ in Amann at 92, 99, Lord Reid said:
The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.
On 5 April Mr Lo Giudice had told the directors that the initial term proposed by them was too short, and that a financier looking at the property would be influenced by the length of the term and would value the property accordingly. The directors must have realised that Mr Lo Giudice was contemplating a possible sale of the premises, and that he was of the opinion that the value of the property would be increased if it was occupied by a tenant under a lease for a reasonably lengthy term. At the 4 May meeting at which "some of the directors" were present Mr Lo Giudice's reimbursement proposal was discussed. Before that meeting the most Shock was prepared to pay for rent was $35,000 less than Brunswick was prepared to accept. Shock was induced to pay $120,000 by Mr Lo Giudice's offer of reimbursement of $5,000 per month for eight months. He did not offer to reduce the rent. That, he said, was because it would adversely affect the capitalisation of the property. The directors, or such of
them as were present, must have realised that the reimbursement was to be made rather than the rent reduced so that the property would be valued for sale purposes as if it had a sitting tenant paying $120,000 per annum, and that Mr Lo Giudice feared a lower valuation if the rent itself were reduced. A reasonable man in the position of a director would have realised that Mr Lo Giudice had in mind a possible sale of the premises, and that if Shock did not proceed with the lease a loss of capital value of the premises on a sale was likely to result.
I propose to include the loss of capital value of the premises in Brunswick's damages. The total recoverable is $338,650.80, namely $358,650.80 less the $20,000 paid on 5 May 1995 which is still in Mr Camilleri's trust account.
Guarantees
Counsel for the respondents submitted that in the absence from the Offer document of any words of guarantee, the directors were under no obligation to Brunswick. It is true that there are no words by which the directors agree to guarantee Shock's performance of the agreement to lease. There are two references to guarantors. The first identifies the "Directors of the Lessee" as "Guarantors". The second is in the concluding words of the document - "Shock and the guarantors specified below agree to execute and return the proposed lease ...". Then follow the printed names of the three directors and their signatures.
In the course of their evidence the directors agreed that Mr Lo Giudice required guarantees from them, and that they agreed to provide them. In the absence of any further elaboration of the obligations of the guarantors, the agreement was simply that they would guarantee Shock's performance of its obligations under the agreement to lease. The signed Offer is a note or memorandum of their agreement. The guarantors' obligation survived the rescission
of the agreement for lease: Moschi v Lep Air Services Ltd [1973] AC 331; Nangus Pty Ltd v Charles Donovan Pty Ltd [1988] VR at 193-196.
In the absence of evidence that the directors were to be jointly and severally liable, the presumption prevails that they are jointly liable for the damages payable by Shock.
Conclusion
Brunswick is entitled to judgment against Shock for damages in the sum of $338,650.80 together with interest and costs. I will declare that the directors are jointly liable under the guarantee for that amount if it is not paid by Shock. I will dismiss the cross-claim.
I certify that this and the preceding thirty three pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg
........ ........ ........ ........ ........ ........ .
Associate
20 November 1996
Counsel for the Applicant: J G Larkins QC and J A J Nixon
Solicitors for the Applicant: Schetzer Brott & Appel
Counsel for the Respondents: H W Fraser
Solicitors for the Respondents: F Butera & Co
Date of Hearing: 28 October to 1 November 1996
Place of Hearing: Melbourne
Date of Judgment: 20 November 1996
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