Duncan v Big Country Developments Pty Ltd

[2016] NSWCA 163

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Duncan v Big Country Developments Pty Ltd [2016] NSWCA 163
Hearing dates:	9 June 2016
Decision date:	19 July 2016
Before:	Basten JA at [1]; Ward JA at [2]; Leeming JA at [3]
Decision:	Appeal dismissed with costs.
Catchwords:	LANDLORD AND TENANT – long term lease – primary judge found tenant abandoned premises and rejected claim that landlord had repudiated lease – whether landlord wrongfully retook possession – whether landlord repudiated lease – whether landlord mitigated loss   PRACTICE – overseas witness – required to attend for cross-examination – late application for witness to give evidence by audio-visual link – no appellable error in refusing application
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 56
Cases Cited:	Big Country Developments Pty Ltd v Peter Griffiths [2015] NSWSC 414 Big Country Developments Pty Ltd v Peter Griffiths (No 2) [2015] NSWSC 436 Big Country Developments Pty Ltd v Peter Griffiths (No 3) [2015] NSWSC 1182 Gnych v Polish Club Ltd [2015] HCA 23; 255 CLR 414 Howard v Pickford Tool Co Ltd [1951] 1 KB 417 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687 McCleod Nominees Pty Ltd v Tony Sadler Pty Ltd (unreported, Supreme Court of Western Australia, 7 August 1995) McDonald v Denny Lascelles Ltd (1933) 48 CLR 457 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Taupau v HVAC Constructions (Queensland) Pty Ltd [2012] NSWCA 293
Category:	Principal judgment
Parties:	Adrian Duncan (First Appellant) Justin Fox (Second Appellant) Big Country Developments Pty Ltd (Respondent)
Representation:	Counsel: B Coles QC, J Baird (Appellants) J Horowitz, L Robb Vujcic (Respondent)   Solicitors: Smith Leonard Fahey Lawyers (Appellants) & Legal (Respondent)
File Number(s):	2015/291159
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division – Commercial List Citation: [2015] NSWSC 414; [2015] NSWSC 436; [2015] NSWSC 1182 Date of Decision: 13 April 2015; 15 April 2015; 21 August 2015 Before: Kunc J File Number(s): 2011/404546

Judgment

1. BASTEN JA: I agree with Leeming JA.

2. WARD JA: I have had the opportunity of reading in advance the reasons of Leeming JA with which I agree. I also agree with the orders his Honour proposes.

3. LEEMING JA:

Factual background

4. The respondent to this appeal, Big Country Developments Pty Ltd, is the registered owner of land at Mulgoa Road, Penrith in western Sydney, on which was erected a free-standing building, purpose-built as a restaurant. Big Country’s sole director was Mr Peter Hesky. Big Country granted a registered lease of the land to Chilis (Penrith) Pty Ltd (Chilis Penrith) for a term of 12 years commencing 17 February 2004. The initial annual rent was $220,000, increasing by a minimum of 4 per cent each year, payable by equal monthly instalments in advance. The lessee was required to provide an unconditional and irrevocable bank guarantee in the amount of $110,000 to secure the performance of its obligations to pay rent and other money. Chilis Penrith’s obligations were also guaranteed by Mr Peter Griffiths and Ms Adrienne Griffiths, who were the first and second defendants to the proceedings at first instance.

5. Messrs Justin Fox, Adrian Duncan and Christopher White were the third, fourth and fifth defendants at first instance. By deed made 28 July 2006, those three men became additional guarantors of Chilis Penrith’s obligations under the lease. The same deed obliged Chilis Penrith to increase the bankers’ guarantee to $200,000. On the same day, Mr Duncan replaced Mr Griffiths as the sole director of Chili’s Restaurant Developments Pty Ltd (CRD). CRD owned all of the A Class shares in Chilis Penrith. CRD was also the sole shareholder of Chilis (Shellharbour) Pty Ltd and Brinker Australia Pty Ltd, which were associated with four other “Chilis” restaurants in Shellharbour, Wollongong, Wentworthville and Campbelltown.

6. The “permitted use” of the demised premises was as a licensed restaurant and bar. Chilis Penrith had entered into a management agreement with Restaurant Services Group Pty Ltd (RSG). The primary judge found that under that agreement RSG provided:

“1. Full service restaurant and bar operation and management;

2. The selection, employment, remuneration, training, discipline, transfer and dismissal of staff;

3. The acquisition of goods and services for the operation of the various restaurants; and

4. Repairs to equipment, fixtures and fittings.”

The agreement itself was not in evidence. The sole director and shareholder of RSG was Mr Alan Noor.

7. It seems that the restaurant traded as a “Chilis” (or “Chilis Grill & Bar”) restaurant until March 2008. There was an occasion in September 2007 when Chilis Penrith fell behind in rent, which was quickly remedied. Otherwise, rent appears to have been paid in a timely fashion, and, by the beginning of March 2008, Chilis Penrith had paid rent for the period ending 16 March 2008.

8. On 7 March 2008, voluntary administrators were appointed to RSG. Ultimately, there was no dispute that it was the voluntary administrators who thereupon changed the locks to the premises. The first report issued by the administrators, dated 8 April 2008, sets out the background to their appointment as follows:

“On 30 October 2007, Brinker International, Inc. (‘Brinker International’) issued a Notice of Breach to CRD, Brinker Australia, Chilis (Shellharbour) and Chilis (Penrith). The breaches were required to be rectified by 29 November 2007 and were as follows:

Failure to provide accounting records;

Failure to pay Royalty Fees; and

Failure to pay Advertising Fees.

Failure to address the breaches would terminate the Development Agreement and Franchise Agreements.

On 5 December 2007, as the breaches had not been addressed, Brinker International issued a final demand for rectification by 12 December 2007.

On 13 December 2007, Brinker International issued a letter providing an extension of the deadline to 21 December 2007 in response to a request from CRD.

On 20 February 2008, Brinker International issued a notice terminating the Development Agreement and Franchise Agreements as at that date. Accordingly, the company had no choice but to cease trading the five (5) restaurants.

Further to the above, the director advised the other reasons for the failure of the company are as follows:

Lease contracts with the landlords of the five (5) restaurants held by Brinker Australia, Chilis (Shellharbour) and Chilis (Penrith) required significant cash flow.

Bad press in relation to accusations of staff exploitation under the AWA reduced trade significantly.

Suppliers reducing terms of payment from 90 days to Cash on Delivery as a result of the bad publicity.

No further funds to inject into the company.

On 6 March 2008, the company closed all restaurants and terminated all its employees. We were subsequently appointed Joint and Several Administrators on 7 March 2008.

On 10 March 2008, Brinker Australia was placed into Official Liquidation and David Lewis Clout of Woodgate & Co was appointed the Official Liquidator.”

9. None of the documents underlying that account was in evidence. Nor did any of the witnesses give evidence of those matters. However, as an unchallenged and relatively contemporaneous statement made by administrators in a report to creditors as to the events precipitating their appointment, there is no reason to doubt its accuracy.

10. The events of critical importance for this appeal took place in the second week of March 2008.

11. On 7 March 2008, Mr White and an executive assistant, Ms Maria Edwards, visited the premises. There was evidence that Mr White had been the point of contact for Big Country on behalf of the tenant. Ms Edwards gave evidence that Mr White made a phone call when they saw that the business was not trading and the locks had been changed, and that he mentioned the name “Peter”.

12. Mr White now lives in the United Kingdom. He swore an affidavit in 2013 in which he said that he rang Mr Hesky on 7 March 2008, in which he asked him “Why have you locked us out?”, and told him that “We intend on putting a new contract manager in, or else running the business ourselves”. He said that Mr Hesky told him, “I am acting to protect my own interests. Don’t try to get back in. I have put two Tongan security guards at the premises so no one can get in”. However, no witness gave evidence of having seen any security guards, Tongan or otherwise, at the premises.

13. The primary judge refused to admit that affidavit, on the basis that Mr White had been required to attend for cross-examination. His Honour rejected applications that Mr White be permitted to give evidence by audio-visual link at the commencement of the hearing: Big Country Developments Pty Ltd v Peter Griffiths [2015] NSWSC 414, and again, on the third day, after the evidence had completed: Big Country Developments Pty Ltd v Peter Griffiths (No 2) [2015] NSWSC 436. The latter decision is challenged on appeal.

14. The primary judge found that the visit by Mr White and Ms Edwards to the premises on 7 March 2008 was the first and last attempt made on behalf of Chilis Penrith to re-enter the premises. The primary judge also found that at no time after 7 March 2008 did Mr White or anyone else on behalf of Chilis Penrith attempt to contact the landlord to communicate anything about Chilis Penrith’s intentions for the premises.

15. Mr Hesky was on holiday at the time but learned that the premises were not trading. In part of his affidavit in reply, which was not read, he denied having any conversation with Mr White on 7 March 2008. He said that he telephoned Mr Stephen Skipper, a real estate agent with whom Mr Hesky had a longstanding professional relationship, and told him that Chilis Penrith had “abandoned” the premises and asked him to go out and have a look. He instructed him to start the process of finding a new tenant. The primary judge then found, at [30]-[32] of the primary judgment (Big Country Developments Pty Ltd v Peter Griffiths (No 3) [2015] NSWSC 1182):

“On 11 March 2008 Mr Skipper attended the Premises, during what would otherwise have been normal operating hours for the restaurant, to check if the Premises were in fact vacant. Mr Skipper noted that the front door of the Premises, usually open to the public, was locked. He saw that there were no staff present at the Premises but that the fitout, fixtures and equipment remained. He did not attempt to obtain access to the Premises through either of the two side doors. Posted on one of the side doors he saw a notice on Chilis’ letterhead saying ‘This restaurant is now closed’. Mr Skipper informed Mr Hesky of these observations within the next 48 hours.

From on or shortly after 11 March 2008 Mr Skipper started to take steps to find a new tenant for the Premises.

At some time between 11 March 2008 and 14 March 2008, Mr Hesky became aware that the Premises were not secure. A side door was open through which equipment and food could be seen. Mr Hesky instructed his builder to get one of his employees, a gentleman called Seamus who was working on another part of Big Country’s Mulgoa Rd property which included the Premises, to put a nail in the side door of the Premises ‘to secure it shut’.”

16. No further rent was ever paid, save to the extent that in October 2008 Big Country received $200,000 by calling on the bank guarantee. It was not until March 2011, some three years later, that a new tenant, Hoot Penrith Pty Ltd, entered into a lease, at a rent of $175,000 per annum and with a rent free period for the first three and a half months.

17. Chilis Penrith was deregistered on 26 July 2011. CRD was deregistered on 19 July 2009.

18. Throughout the period from March 2008 until 2011, Big Country continued to render invoices for unpaid rent to Chilis Penrith.

The proceedings heard and determined at first instance

19. Big Country commenced proceedings in the Commercial List in 2011 against the five guarantors. A default judgment was obtained against Mr White. Orders were made by consent in relation to the claim against Mr and Mrs Griffiths at the commencement of the hearing. Following a five day trial, the primary judge ordered judgment against the remaining defendants, Messrs Duncan and Fox, in the amount of $664,613. Mr Duncan and Mr Fox appeal from that judgment.

20. There are five grounds of appeal. Grounds 3 and 5 relate to evidence. Ground 3 challenges the refusal to permit Mr White’s affidavit sworn 12 August 2013 to be read, and ground 5 asserts error in allowing Mr Skipper to give expert evidence for Big Country. The remaining three grounds challenge the finding that Chilis Penrith had abandoned the premises by between 11 and 14 March 2008 and thereby repudiated the lease (ground 1), the failure to find that the actions by Big Country were repudiatory and amounted to a retaking of possession of the premises wrongfully (ground 2) and the failure to find that Big Country had not taken reasonable steps to mitigate its damages when re-leasing the premises (ground 4).

21. I will summarise the relevant aspects of the reasons of the primary judge when dealing with each of the grounds of appeal. It is sensible to deal with grounds 3 and 5 first, for if those grounds are made out, there would need to be a retrial.

Rejection of the affidavit of Mr White (ground 3)

22. Mr White had been required to attend for cross-examination, by notice given three weeks before the trial. Shortly before the trial, there were some communications between the solicitors acting for the appellants and the court concerning the possibility of Mr White giving evidence remotely, by audio-visual link from the United Kingdom. It became clear that that course was opposed by Big Country. The application was made, and refused, on the first day of the trial, and then renewed and refused again on the third day of the trial.

23. Although ground 3 challenged both decisions refusing Mr White’s affidavit to be read, in oral submissions the appellants made it clear that this challenge was confined to the second decision. That was an appropriate course to take, in light of the dispositive reasoning of the primary judge on the first day of the trial, which accurately recorded the position at [23]:

“First, not only was there no medical evidence but there was no explanation for the absence of medical evidence. Second, there was no explanation for the delay in making the application, notice having been given for cross-examination some three weeks ago. Finally, there is also no evidence that the video link can in fact take place. Mr Baird, from the bar table, indicated that inquiries were being made for Mr White to attend at a solicitor’s office in London where the relevant facilities would be available. Whilst I accept that Mr Baird and those instructing him were hopeful that those arrangements could be put in place, the fact remains that there is no evidence before me that [that] can and will be done.”

24. The application to read Mr White’s affidavit, and to make him available for cross-examination by audio-visual link from the United Kingdom, was renewed on the third day of the trial. By that time, all of the evidence was complete, and a series of forensic decisions had been made by Big Country. First, neither Mr Duncan nor Ms Edwards was cross-examined at all, in light of the consequential rulings made in relation to the conversation of 7 March 2008. Secondly, parts of Mr Hesky’s affidavits were not read, notably, those parts responding to (and disputing) Mr White’s evidence. Thirdly, another witness (Mr Pittaway, who said that he had first alerted Mr Hesky to Chilis Penrith ceasing to trade) was not called in Big Country’s case. All of those matters were raised on behalf of Big Country in opposition to the renewed application for Mr White’s evidence being taken by audio-visual link.

25. The only error identified in the appellants’ written submissions was that the exercise of the primary judge’s discretion “miscarried by not taking into account, or giving insufficient weight to, the extent to which the Appellants’ case would be prejudiced by Mr White not giving evidence and his affidavit not being read”. As formulated, that ground is readily disposed of. To the extent to which it is said that prejudice was not taken into account, the primary judge expressly took into account the prejudice occasioned to the appellants. His Honour did so in terms at [13]:

“the additional evidence and what Mr Baird calls the further prejudice which his client suffers (and which, for present purposes, I will assume is such prejudice), does not overcome a very significant factor in applications of this kind ...”

26. His Honour also had regard to the alleged prejudice at [14], where his Honour said:

“As things have developed, I am no longer so sure that any of this evidence is ultimately going to be of such importance to the outcome of the litigation but, again, for the purposes of this application I will accept what Mr Baird has put to me that this is crucial evidence for his case. On that basis it must also be a very important piece of evidence for the plaintiff’s case. Nothing has been advanced by Mr Baird that changes my mind in relation to the disadvantage of cross-examining Mr White on this assumedly very important point by audio-visual link.”

27. To the extent that the submissions complain that insufficient weight was given by the primary judge to that prejudice, that is not a matter that gives rise to appellable error in relation to a decision of this nature. Nor was it clear what was meant by this complaint. If it were being suggested that to give the evidence its proper weight required that the application be allowed, that was not so; there were powerful reasons for rejecting it. If something less were being suggested, it was an invitation for this Court to re-exercise the discretion on a matter of trial procedure, which this Court should not do, absent established error.

28. In oral submissions, it was put that the primary judge had failed to have regard to the obligations in s 56, especially s 56(2), of the Civil Procedure Act 2005 (NSW), and at one stage it was even said that the decision was so unreasonable that no reasonable judge could ever have made it. Those submissions must be rejected. The primary judge expressly had regard to s 56 of the Civil Procedure Act, and understandably so, because the inevitable consequence of acceding to the application, made on the afternoon of the third day of the hearing set down for three days, would have been the calling or recalling of up to five witnesses. That was the gravamen of what his Honour said at [11] and [12]:

“Any order I make under the rules must be made in accordance with and to further the overriding objective set out in s 56 Civil Procedure Act 2005 (NSW), namely the just, quick and cheap resolution of the real matters in dispute between the parties. Having regard to that requirement, I refuse the application for these reasons.

First, it would be prejudicial to the plaintiff in the light of the forensic decisions that have been made to allow Mr White to give evidence at this late stage of the proceedings. That prejudice could not be undone in a way consistent with the overriding purpose by allowing the case to be reopened so that the plaintiff would have to reshape its evidence or the way in which it conducted the matter by reference to the fact that Mr White’s evidence was now going to be before the Court. In any case, to do so would inevitably increase the hearing length by at least another day or more. I make that estimate on the basis of my own knowledge now of the issues in the case and the way in which it has been conducted, including the time it has taken already. In saying that I am not being critical of anyone and I am certainly not suggesting that time has been wasted. Nevertheless, to try to unscramble the egg now (if that can be done at all, which I seriously doubt) will take, in my view, at least a day, if not more, of additional court time.”

29. I would add one further matter. I share the view of the primary judge that Mr White’s evidence may well not have been nearly so vital as was put, both at first instance and on appeal. At first instance, Mr Hesky was cross-examined vigorously to the effect that he had given specific instructions to lock Chilis Penrith out, something which he denied. I do not doubt that that was done in accordance with instructions from the cross-examiner’s client. However, by the conclusion of the trial, it was common ground that it was the administrators, not the landlord, who had changed the external locks (as they had said in terms in their report to creditors dated 8 April 2008). It follows that Mr White’s recollection of a conversation he had had more than five years earlier was demonstrably erroneous in a material respect.

Challenge to allowing Mr Skipper to give expert evidence (ground 5)

30. Mr Skipper had been retained in 2008 to re-let the premises. He had a longstanding commercial relationship with Mr Hesky, and also gave expert evidence relating to the appropriate marketing of the premises. Ground 5 of the appeal asserted error “in allowing Mr Skipper to give expert evidence for the respondent”. The ground was not developed in oral submissions, and for good reason. No objection was made to Mr Skipper’s affidavit, and although counsel raised his lack of independence at the outset of the trial, this fell short of an objection. To the contrary, counsel said that “I’m prepared to meet that as your Honour has heard from me”. There can be no error in the decision to allow a well-qualified expert to give expert evidence to which no objection was formally made.

Abandonment, wrongful retaking of possession, repudiation and surrender at law (grounds 1 and 2)

31. The primary judge found that by the time Mr Hesky gave instructions for the premises to be secured by the side door being nailed shut (some time between 11 and 14 March 2008), Chilis Penrith had abandoned the premises. His Honour relied upon Chilis Penrith’s failure to ask for or attempt to take possession of the premises after 7 March 2008, its failure to make any such request to Big Country, the absence of any evidence that anyone on behalf of Chilis Penrith returned to check the premises or their contents, the absence of any explanation on behalf of Chilis Penrith to Big Country as to what had occurred or Chilis Penrith’s intentions, and the failure to take any steps to place any sign of its own on the premises explaining what had occurred or giving any indication that the premises might be reopening soon as a restaurant under new management. The primary judge relied upon both conduct before and after the date, relying upon what had been said by Ipp J in McCleod Nominees Pty Ltd v Tony Sadler Pty Ltd (unreported, Supreme Court of Western Australia, 7 August 1995).

32. The primary judge noted the only positive evidence to meet the case of abandonment adduced by Chilis Penrith were three emails, dated 27 March 2008, 28 March 2008, and 4 April 2008, to Mr Duncan concerning the absence of interest in the stores, and a statement in Mr Duncan’s affidavit as follows:

“Chilis Penrith did not voluntarily vacate the Penrith Premises on either 5 or 6 March 2008 or at any other time … I did not give any instruction then or at any other time to abandon the Penrith Premises or to close the Chilis Penrith restaurant business.”

33. At the forefront of the submissions of Chilis Penrith was a challenge to the finding of abandonment. Chilis Penrith emphasised that the rent was up to date, that leaving goods in premises was inconsistent with abandonment of the premises, and that Big Country should be required to adhere to its pleaded case that the abandonment occurred on or about 7 March 2008. It submitted that the lease did not require it to carry on the “permitted use” (it will not be necessary to determine whether or not that was so).

34. The prominence given to whether Chilis Penrith had abandoned the premises reflected the contentions in Big Country’s Amended Commercial List Summons and the conflicting recollections of Messrs White and Hesky. However, the question of abandonment was, at least arguably, not dispositive. There was no dispute that another three years passed without any rent being paid. In order to succeed, Chilis Penrith had to establish not merely that the primary judge had erred in finding that it had abandoned the premises, but also that Big Country had repudiated the lease by the conduct relied on, thereby entitling Chilis Penrith to accept the repudiation.

35. Accordingly, the appellants also challenged (in ground 2) the conclusion by the primary judge that Big Country had not repudiated the lease. His Honour had found at [125] that:

“Big Country’s intention was to do no more than secure the Premises and, to the extent necessary, facilitate the inspection of the Premises by allowing potential tenants to inspect the Premises. Big Country did not intend by those arrangements to re-enter, forfeit, repudiate or terminate the Lease. Its intention was to keep the Lease on foot.”

36. The primary judge applied the principles stated by this Court in Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [154] and Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687 as to whether there had been a surrender at law. Ultimately, his Honour regarded the question as one of fact, as to whether the actions by the landlord unequivocally indicated that it no longer regarded the lease as remaining in existence. The primary judge reproduced what was said by Clarke JA in Konica Business Machines at 697, that:

“If it is found that the landlord has acted in such a manner as unequivocally to indicate that it no longer regards the Lease as in existence then it will follow that a surrender has taken place. If the landlord’s actions are consistent with the Lease remaining in existence, or are equivocal, then it would not be correct to infer that a surrender had occurred.”

37. The primary judge then gave three reasons for concluding that the nailing shut of the side door and the subsequent control of access to the premises did not evidence an intention to treat the lease as at an end. The first was that there was no actual re-entry by Big Country. The second was that what was done was either consistent with the lease remaining in existence, or at worst equivocal, given that Big Country continued to invoice Chilis Penrith for rent, and never removed any of the existing fixtures. The third was that the conduct of Big Country said to amount to repudiation was either required or alternatively authorised by provisions (summarised below) in the lease.

38. Chilis Penrith claimed that the primary judge had erred in failing to find that Big Country had repudiated the lease. In written submissions, it directed attention to what it said was a breach of the covenant for quiet enjoyment, through nailing the side door shut and otherwise controlling access to the premises, concluding:

“[Big Country] thereby exercised dominion over the Premises and physically excluded Chilis from them. This is objective evidence of [Big Country’s] intention no longer to be bound by the terms of the Lease.”

39. Orally, in support of the submission that the primary judge should have reached the contrary conclusion on repudiation, Big Country relied on five matters:

1. Mr Hesky’s instructions to Mr Skipper on 10 March 2008 that, Chilis Penrith having abandoned the premises, he should find a new tenant;

2. Mr Hesky’s instruction to nail a side door to the premises shut, some time between 11 and 14 March 2008, so that the premises could not be entered without permission;

3. the attendance on 11 March 2008 by Mr Skipper noting that although the front door was shut, Chilis Penrith’s fit out, fixtures and equipment remained on the premises;

4. Mr Skipper showing prospective tenants through the premises from 27 March 2008, by the means of removing the nail on the side door to permit them to enter, and then resecuring the side door nail when the inspection was complete; and

5. the transfer of the liquor licence to Mr Hesky in late 2008 (the evidence showed that the transfer application was provisionally approved by the Casino, Liquor & Gaming Control Authority in November 2008).

40. Big Country pointed to the non-payment of rent for some three years, and maintained that the question of abandonment was not dispositive. The appellants maintained, when asked by the Court, that it remained important to determine whether there was error in the finding of abandonment, even if they failed to set aside the findings that Big Country had not repudiated the lease. This stance was prompted by a desire to demonstrate that there had been a wrongful retaking of possession by Big Country. It is far from clear to me that that stance was open on the pleadings, or having regard to the way the litigation was run at first instance. The pleaded defence in the Further Amended Commercial List Response (for which leave was granted at the conclusion of the trial) turned on establishing repudiatory conduct on the part of Big Country which was impliedly accepted thereafter by Chilis Penrith. That reflected what was established by Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, namely, that general principles of contract law apply to leases, although it sometimes remains necessary to conceive a lease as possessing a “duality of character ... [being] both an executory contract and an executed demise” (see for example Gnych v Polish Club Ltd [2015] HCA 23; 255 CLR 414 at [41], by reference to the language of Deane J in Progressive Mailing House).

41. I would dismiss both these grounds of appeal. I will deal below with the challenge to the finding of abandonment, but after dealing with repudiation.

42. The primary judge gave careful reasons directed to repudiation. I would accept the primary submission made orally and in writing by Mr Horowitz, who appeared at trial and on appeal for Big Country, that the matters relied upon by the appellants as constituting a repudiation of the lease amounted only to Big Country doing what was expressly authorised pursuant to the lease. To the extent that it was said that Big Country had breached its covenant to permit Chilis Penrith the quiet enjoyment of the premises, that covenant (cl 9.1) was expressly subject to the rights, powers, remedies and reservations in favour of the lessor. Clause 10.8.3 obliged the lessor to take reasonable steps to mitigate its damages and to endeavour to lease the premises at a reasonable rent and on reasonable terms in the event that the lessee vacated the premises. Clause 10.12 empowered (but did not oblige) Big Country to remedy at any time any default by the lessee, and rule 4 of the Rules and Regulations (which by cl 13.13 were deemed to form part of the lease) obliged the lessee to “keep safe the Premises and … keep all doors and windows and other openings closed and securely fastened when the Premises are not in use”. Moreover, cl 13.24 provided in terms that “entry into the Premises by the Lessor or by any person on the Lessor’s behalf for the purposes of … showing the Premises to prospective tenants … shall not constitute a re-entry or forfeiture or waiver of the Lessor’s right to recover in full all rental and other moneys from time to time payable” and “[a]ny entry by the Lessor into the Premises in the meantime shall be deemed an entry by the leave and licence of the Lessee”.

43. Thus, the steps taken to retain Mr Skipper to find a new tenant, and thereafter to show potential tenants through the premises, were an element of Big Country’s obligation to mitigate under cl 10.8.3, as well as being squarely within the deeming provision in cl 13.24. The transfer of the liquor licence to Mr Hesky was a measure to preserve the licence, which could then be transferred to the new tenant and thus also fell within Big Country’s obligation to mitigate. The nailing shut of the side door was authorised by cl 10.12 given that the tenant had itself failed to keep the premises secure.

44. In response, Mr Coles QC (for the appellants) submitted that the covenants in the lease could not be determinative of the question where conduct by the landlord amounted to repudiation; if the lease were at an end, the covenants could not operate. Mr Coles submitted that it was necessary for Big Country to explain why the clauses relied upon were ongoing covenants or what might be called accrued rights within the language of McDonald v Denny Lascelles Ltd (1933) 48 CLR 457. I do not agree. Repudiatory conduct does not of itself bring the lease to an end; that is why “an unaccepted repudiation is a thing writ in water and of no value to anybody”: Howard v Pickford Tool Co Ltd [1951] 1 KB 417 at 421. In the first instance, there must be an assessment of the conduct relied on to amount to a repudiation, and that assessment must take place against the rights and powers and privileges established by the lease. The ultimate question is whether the landlord has evinced an intention no longer to be bound by the lease or that the landlord intends to fulfil the lease only in a manner substantially inconsistent with the landlord’s obligations and not in any other way: Progressive Mailing House Pty Ltd v Tabali Pty Ltd at 33.

45. In disagreeing with Mr Coles’ submission in its application to this appeal, I would acknowledge the possibility of extreme cases where the covenants in a lease are not determinative of the question. (Consider for example a landlord, who is empowered to perform noisy works during business hours on common property next to a tenancy, and who does so, repeatedly, in circumstances where there is evidence of a predominant intention to cause serious disruption to the tenant’s business.) But the facts of this appeal are a world away from such a situation. There is nothing unusual about the clauses relied on by Big Country and no basis in the evidence for suggesting that Big Country was improperly motivated.

46. Further, consistently with the reasons of the primary judge, repudiation is not lightly to be inferred, and the steps taken by Big Country, which were responsive to the situation where the business had ceased to trade, the locks had been changed by the voluntary administrators, and Chilis Penrith was not communicating with its landlord, cannot be regarded as evincing an intention no longer to be bound by the lease. That is so whether attention is confined to the second week of March, or whether one has regard to the events later in the year (for example, the transfer of the liquor licence).

47. I also see no error in the finding that there had been abandonment. The position established by the evidence was that a sign had been placed on the door to the effect that “This restaurant is now closed”, one of the side doors had been left open, and Mr White was not taking telephone calls from Mr Hesky. There was no evidence to the contrary from the appellants. There was no evidence that Chilis Penrith made any effort to re-enter the premises. Nor does it appear to have been disputed that Chilis Penrith made no attempt to contact Mr Hesky at any time after 7 March 2008 (and there is no evidence of any such attempt). Mr Hesky’s evidence in cross-examination was that there was no conversation about returning to run the business from the premises, and that Chilis Penrith never asked to remove its fixtures and fittings.

48. The foregoing is consistent with the report provided to creditors by the voluntary administrators.

49. The further submissions advanced on appeal may be dealt with concisely. First, it was said that Big Country should not be permitted to depart from its pleaded case that Chilis Penrith had abandoned the premises “on or about 7 March 2008”. The focus here was on the finding by the primary judge that abandonment had occurred “at some time between 11 and 14 March 2008”. I do not regard there to have been any impermissible departure from the pleaded allegation.

50. Secondly, it was said that it was wrong for the primary judge to have had regard to the non-payment of rent, when Chilis Penrith had been locked out of the premises. I disagree. Entirely unexplored in the evidence were (a) the circumstances in which the voluntary administrators of RSG were appointed, (b) the relationship between Chilis Penrith and RSG, and (c) whether the administrators were entitled to lock out Chilis Penrith. It was not established that Chilis Penrith was unable to gain possession to the leased premises from the voluntary administrators. And it was not ultimately disputed that Chilis Penrith being locked out was not the act of its landlord. In those circumstances, it was entirely appropriate to have regard to non-payment of rent, and the absence of any explanation for that non-payment.

51. Thirdly, it was submitted that the primary judge erred in placing no weight upon Mr Duncan’s affidavit evidence that Chilis Penrith had not voluntarily vacated the premises and had given no instruction to close the restaurant. The primary judge dealt with this at [120]-[121]:

“Chilis must always have understood that the case being made against it in these proceedings was that it abandoned the Premises. However, with the exception of annexing three emails (see paragraphs [37], [38] and [43] above), the only positive evidence to meet the case of abandonment was in the affidavit of Mr Duncan, where he said:

Chilis Penrith did not voluntarily vacate the Penrith Premises on either 5 or 6 March 2008 or at any other time ... I did not give any instruction then or at any other time to abandon the Penrith Premises or to close the Chilis Penrith restaurant business.

That evidence and Chilis’ approach generally to the allegation of abandonment has, with respect, missed the point. It is no answer to the allegation of abandonment that Chilis did not cause or procure the closure of the restaurant and the desertion of the Premises.”

52. That, with respect, was a response to what appears to have been an identical submission made at first instance which discloses no error whatsoever.

53. Fourthly, it was submitted that the primary judge “failed to take into account, or give sufficient regard to, the continued presence on the Premises of Chilis’ goods, fittings and chattels” and the emails between 27 March and 4 April 2008. Plainly, as the passage reproduced above records, the primary judge did take those matters into account; the only submission open to the appellants was that his Honour gave insufficient regard to their presence. However, the submission was not otherwise elaborated, and I see no error in his Honour’s reasoning that those matters did not displace the finding of abandonment.

54. Fifthly, it was submitted that the primary judge failed to have regard to the fact that Mr Hesky gave evidence that he told Mr Skipper, on or about 10 March 2008, that Chilis Penrith had “abandoned the premises”. The language used by Mr Hesky is immaterial in respect of the question whether the premises had been abandoned; the issue is resolved objectively as set out above.

55. Sixthly, it was said that the primary judge erred in inferring that Chilis Penrith did not ask for or attempt to take possession of or re-enter the premises after 7 March 2008. There is no error in that inference. Conspicuous by its absence was any evidence from the appellants as to what had happened after 7 March. Mr Hesky’s evidence was uncontradicted. He said that he was unaware of anyone on behalf of Chilis Penrith ever asking to remove the tenant’s fixtures and fittings. It was put thus in oral submissions:

“WARD JA: But there’s no suggestion that Chilis contacted the voluntary administrators and said, what are you doing? If your company is not able to run this business, it’s our lease, we’ve got an entitlement to do so, you’ve got to let us back in, is there?

COLES: There’s no evidence, your Honour, no.”

56. Seventhly, it was said that the primary judge failed to give “sufficient weight” to “admissions” said to have been made by Mr Hesky that if someone on behalf of Chilis Penrith had sought to get access to the premises, they would have to contact him and obtain permission. But the primary judge dealt with this expressly and elaborately at [127]-[129], by reference to the fact that it was the administrators who had caused the locks to be changed, and (alternatively) on the basis that it had not been put to Mr Hesky in cross-examination that, if asked, he would not have let Chilis Penrith back into possession. Once again, there is nothing in this point.

57. For those reasons, I would dismiss these grounds of the appeal.

Mitigation (ground 4)

58. This ground challenged the finding by the primary judge that throughout the period after March 2008, “particularly in relation to the period from April 2009 to May 2010”, Big Country complied with its obligations under cl 10.8.3 to take reasonable steps to mitigate its loss. On its face, given that Big Country took some three years to put in place a new tenant, it might be thought that this ground had some substance. However, it is important to bear in mind that this was no ordinary residential or commercial property, but a purpose built structure intended to operate as a large restaurant. The primary judge addressed this issue in some detail at [146]-[179].

59. Given that the appellants were content not to develop this ground orally in their submissions in chief, but to rely on their written submissions, this ground may be dealt with relatively concisely.

60. In his original report, Mr Malcolm Gunning (the expert witness originally retained by Mr and Mrs Griffiths, but called by Mr Duncan) identified what he regarded as a number of deficiencies in the marketing campaign conducted on behalf of Big Country. However, it became clear, following cross-examination, that Mr Gunning had not been fully advised as to the steps taken. Mr Gunning agreed that his “really basic criticism is the narrowness of the advertising campaign”, but then, having been shown what in fact the real estate agents retained by Big Country did he was asked:

“HIS HONOUR: ... I am inviting you in the light of that material, if that had been shown to you at the time you prepared your report would you have still come to the view that you’ve previously expressed that the marketing campaign was too narrow?

WITNESS GUNNING: No.”

61. Mr Gunning also conceded that the rent achieved (of around $215,000 gross, with a rent free period of three and a half months), was “a good deal”, bearing in mind that the rent was towards the top of the market and the rent free fit out period relatively short.

62. Part of the appellants’ submissions on this ground criticised the reliance by the primary judge on the evidence of Mr Skipper. However, in light of the foregoing, it is fair to say that there was little difference between the opinions of the two experts. The appellants submitted in writing that the substance of Mr Gunning’s evidence was that more should have been done to market the property, and that Mr Gunning would have recommended a different marketing campaign. The short answers to this submission are that (a) after cross-examination, Mr Gunning gave the concessions summarised above, and (b) it is not sufficient to show that a different real estate agent would have conducted a different marketing campaign; the question is whether Big Country discharged its obligation to take reasonable steps to mitigate its loss.

63. Part of this ground overlapped with ground 5, insofar as it was submitted that Mr Skipper ought not to have been permitted to participate in the expert conclave (although no objection had been taken to that). In part, the submission went further, putting that the evidence of Mr Gunning, who was a “truly independent expert”, should have been preferred wherever it conflicted with that of Mr Skipper. I cannot accept that submission. The preference of one expert over another, to the extent there is conflict (which, very substantially, was resolved by reason of Mr Gunning’s concessions referred to above), is a matter which is classically for the trial judge, and could only exceptionally turn upon the relative independence or otherwise of the expert, as opposed to the cogency of the opinions expressed and the reasons underlying them: see for example Taupau v HVAC Constructions (Queensland) Pty Ltd [2012] NSWCA 293 at [132]-[133].

64. Finally, it was submitted that the primary judge had reversed the onus, which at all times lay upon Big Country, to demonstrate that it had taken reasonable steps to mitigate its loss. That submission seems to be based on the third sentence of [178] in his Honour’s reasons, commencing “Chilis has failed to demonstrate”. The whole of that paragraph is as follows:

“As it happened, it was ultimately one of the local agents whose introduction of Hoot led to the successful re-leasing of the Premises. The Court is satisfied that the steps identified in the preceding paragraph undertaken by Big Country during the second period were ‘reasonable steps’ to achieve the result contemplated by clause 10.8.3 of the Lease. Big Country has failed to demonstrate that those steps were not reasonable or to identify other reasonable steps which a reasonable person would have concluded Chilis ought reasonably to have taken during the second period. Therefore, this final criticism of Big Country’s mitigating conduct fails.”

65. Taken in context, the third sentence of that paragraph does not support any such error. To the contrary, it reflects the fact that a series of criticisms were advanced in relation to the measures taken by Big Country, which the primary judge rejected.

66. I would dismiss this ground of appeal.

Conclusion and orders

67. For those reasons, I propose that the appeal be dismissed. The appellants should pay Big Country’s costs of the appeal.

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Amendments

20 July 2016 - Following amendments to the judgment [2015] NSWSC 1182, the following amendments have been made:

[35] - reference to [127] replaced with [125]

[51] - reference to [122]-[123] replaced with [120]-[121]

[56] - reference to [129]-[131] replaced with [127]-[129]

[58] - reference to [148]-[181] replaced with [146]-[179]

[64] - reference to [180] replaced with [178]; "would have concluded Chilis ought" replaced with "would have concluded Big country ought" in quote.

Decision last updated: 20 July 2016