EMAPTA Group v Woodville Diagnostics and Imaging Pty Ltd - [2016] SADC 96

District Court of South Australia
(Civil)
EMAPTA GROUP v WOODVILLE DIAGNOSTICS AND IMAGING PTY LTD
[2016] SADC 96
Judgment of His Honour Judge Slattery (ex tempore)
15 July 2016
LANDLORD AND TENANT - RETAIL AND COMMERCIAL TENANCIES LEGISLATION - OBLIGATIONS, PROHIBITED TERMS AND PROTECTION FOR LESSEES - MINIMUM TERM OF LEASE AND RENEWAL OF TERM
The plaintiff as lessor claims against the defendant for unpaid rent, make good costs, unpaid outgoings and interest pursuant to a 5 year lease alleged to have been entered into by the parties on or about 16 October 2013.
As at 15 October 2013 the parties’ relationship was governed by a lease that commenced on 16 October 2008. The plaintiff was lessor and the defendant was lessee. That lease contained a right of renewal which required that at the time that an election was made to renew the lease, the lessee observe the whole of the terms of the lease. The defendant lessee mistakenly sought from the plaintiff lessor an offer to renew the lease when there was an extant offer in clause 6 of the 2008 lease to renew the lease which could not be accepted by the lessee because it was in breach of the lease. The plaintiff lessor then accepted the offer of the lessor to enter into a new 5 year lease term.
Prior to that acceptance the lessor had agreed on the amount of rent payable by the lessee under the new lease.
Following acceptance of the lessee’s offer to enter into the new lease, the plaintiff lessor prepared and delivered to the defendant lessee a form of lease which was in identical terms to the 2008 lease apart from the agreed rent amount, there was no right of renewal and the inclusion of a new clause 26.5(g) said to be for the benefit of the lessee.
The lessee refused to execute the new lease document, remained in possession of the premises, intermittently paid rent and outgoings and then abandoned the premises on one months notice in September 2014 without having made good the premises.
In 2007 the plaintiff entered into an arrangement with the defendant to provide phone handsets, PABX facilities, a reception PABX, unlimited phone line for a fixed monthly rate and call fees of between 1c and 2c per call. That agreement subsisted from 2007 until 2013 when the defendant contended that the charge of the plaintiff was for a service, it was an outgoing and the plaintiff were required to comply with the requirements of s33 of the Retail and Commercial Leases Act in respect of that charge.
In 2014, the defendant abandoned the premises and failed to make good including by removing metal doors, copper underfloors and lead lining in walls that it had installed. The plaintiff has undertaken the expense of removing these materials from the premises and has unsuccessfully sought to re-lease the premises using a firm of leasing agents.
Whether, despite the error of the defendant the parties formed a contract to enter into lease for the premises and if so for what period and on what terms.
Whether, in the absence of an executed lease between the parties, any form of equitable lease arises between them and if so for what period and on what terms.
Whether there has been a breach of the lease or equitable lease and if so the consequences thereof including whether the plaintiff had an obligation to mitigate its loss.
Whether the plaintiff breached s 33 of the Retail and Commercial Leases Act in its dealings with the defendant.
Held:
1. Assessed objectively, the defendant offered to the plaintiff to enter into a fresh lease of a further demise of five years on the terms and conditions of lease as if the 2008 lease had been renewed.
2. The plaintiff accepted the offer of the defendant which in the context of the lease arrangement is properly to be seen as a counteroffer.
3. The contract formed between the parties as a result had as its terms by incorporation or by reference, the terms of its 2008 lease subject to any separate collateral agreement between the parties about those terms.
4. The parties separately agreed to variations of the terms of the 2008 lease by agreeing to a rental rate of $250 per m² per annum and that there be no right of renewal.
5. At the date of the parties’ agreement an equitable lease on the terms agreed arose between them.
6. The failure by the defendant to execute the lease tendered to it by the plaintiff for the further demise did not affect the operation of the equitable lease; there was no demise of the legal interest as a result.
7. The tender to the plaintiff of the form of lease or any other conduct of the plaintiff did not amount to repudiatory conduct.
8. The defendant remains liable under the equitable lease under the new demise for a five year lease.
9. The arrangements between the parties on the telephone services was a separate collateral agreement that was not charged on an outgoings basis and required no further disclosure; that arrangement was not inconsistent with the operation of the Retail and Commercial Leases Act.
10. The conduct of the plaintiff did not breach s 33 of the Retail and Commercial Leases Act.
11. The plaintiff’s claim is for unpaid rent, outgoings and make good costs as well as interest. There is no obligation on the plaintiff to mitigate its loss.
12. Assessment of the plaintiff’s damages in accordance with the terms of the equitable lease: the plaintiff is not entitled to unpaid rent for the full period of the term of the lease as the plaintiff was always required to undertake substantial renovations of the premises which was now occurring following the defendant’s abandonment of the premises.
13. Judgment for the plaintiff in the sum of $661,037.33 plus interest of $39,663.00.
14. The Court will hear the parties further on the question of costs.
Retail and Commercial Leases Act s 33, referred to.
Nicholson v Smith (1882) 22 Ch D 640; Ballas v Theophilos (No 2) (1957) 98 CLR 193; Jones v Dunkel (1959) 101 CLR 298; Carter v Hyde (1923) 33 CLR 115; Whitegum Petroleum Pty Ltd v Bernadini Pty Ltd [2010] WASCA 229; Duncan Properties Pty Ltd v Hunter [1991] 1 Qd R 101; Gower-Chapman v Morris (1987) NSW ConvR 55-341; Gerraty v McGavin (1914) 18 CLR 152; Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Maridakis v Kouvaris (1975) 5 ALR 197; Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; Jones v Edwards (1994) 3 Tas R 350, applied.
Swanville Investments Pty Ltd v Riana Pty Ltd [2003] WASCA 121; BS Stillwell & Co Pty Ltd v Budget Rent-A-Car System Pty Ltd [1990] VR 589; Bowman v Darham Holdings Pty Ltd (1973) 131 CLR 8; Karthurmary Pty Ltd v FACAC Pty Ltd [2013] SASC 90; Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193; Hawkins v Clayton (1988) 164 CLR 539; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Sacher Investments v Forma Stereo Consultants Pty Ltd & Ors (1976) 1 NSWLR 5, discussed.
Walton Stores (Interstate) Pty Ltd v Maher (1988) 164 CLR 387; Friedman v Barrett; Ex parte Friedman [1962] Qd R 498; Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326; Moss v Barton (1866) LR 1 Eq 474; Buckland v Papillon (1866) LR 1 Eq 477; In re Leeds and Batley Breweries and Bradbury's Lease [1960] 2 Ch 474; Rider v Ford [1923] 1 Ch 641; Yulin Pty Ltd v Japan Building Projects (Aust) Pty Ltd [1991] ANZ Conv R 390; Re Eastdoro Pty Ltd [1989] 2 Qd R 182; Re Eastdoro Pty Ltd [1990] 1 Qd R 424; Chan v Cresdon Pty Ltd (1989) 168 CLR 242; National Trustees Executors and Agency Co Ltd v Boyd (1926) 39 CLR 72; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; York House Pty Ltd v Federal Commissioner of Taxation (1930) 43 CLR 427; Swain v Ayres (1888) 21 QBD 289; Williams v Frayne (1937) 58 CLR 710; Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834; Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191; Breen v Williams (1996) 186 CLR 71; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2012) 240 CLR 45; Masters v Cameron (1954) 91 CLR 353; J & S Chan Pty Ltd v McKenzie (1994) ANZ ConvR 610; Maridakis v Kouvaris (1975) 5 ALR 197; Boyer v Warbey (1953) 1 QB 234; Francis May Pty Ltd v Tidier Pty Ltd (unreported, NSWSC, Miles J, 2 April 1982); Tall-Bennett & Co Pty Ltd v Sadot Holdings Pty Ltd (1988) NSW ConvR 55, considered.

EMAPTA GROUP v WOODVILLE DIAGNOSTICS AND IMAGING PTY LTD
[2016] SADC 96
JUDGE SLATTERY

In this action, the plaintiff claims for outstanding rent, outgoings and make good costs which it claims were payable by the defendant under a lease of premises at 707 Port Road, Woodville being the whole of the land comprised in Certificate of Title Register Book Vol. 5171 Folio 750 and Certificate of Title Register Book Vol. 5133 Folio 427 (hereinafter called the property).
The plaintiff alleges and the defendant denies that the defendant and the plaintiff entered into a lease for the demise of 506 m² of space (the premises) in 2013 at an agreed rental of $126,500 plus outgoings. This lease space was to continue to be used for a medical diagnostic imaging business called Woodville Diagnostic Imaging conducted by the defendant.
The plaintiff alleges and the defendant denies that the defendant breached the lease by abandoning the premises on or about 19 September 2014. The plaintiff alleges that the defendant has not paid rent or outgoings or made good the premises since that time.
The plaintiff's claim is based upon an alleged renewal of lease on or about 16 October 2013 for five years. The defendant denies the renewal of the lease and pleads a series of breaches of the lease disentitling the plaintiff from seeking relief. The defendant also claims for other relief.
For the reasons which are set out below I consider the plaintiff is entitled to succeed on its claim and in so finding I am satisfied of the following:
1. The lease of 16 October 2008 ended and there was a fresh lease and a fresh demise in 2013 under a separate agreement reached between the parties, comprising the defendant’s counter-offer and the plaintiff’s acceptance. The renewal rights under the terms of the 2008 lease did not apply because the defendant was in breach of that lease and so was not entitled to accept the plaintiff lessor’s offer of renewal contained within the lease.
2. Under the fresh lease and demise the defendant became liable to pay rent on an annual basis of $126,500 per annum plus outgoings. Otherwise the terms of governing the parties’ arrangements were the same as the 2008 lease between them.
3. In accordance with the parties agreement the plaintiff produced to the defendant a form of lease in an appropriate form for its execution for the further demise after 15 October 2013.
4. In breach of the parties’ agreement the defendant failed or refused to execute the proffered lease document.
5. As a result the relationship between the parties was governed by an equitable lease which was in the same terms as those agreed by the parties. The defendant occupied the premises under the terms of obligations of the equitable lease.
6. The defendant breached the equitable lease by abandoning the premises on or about 19 September 2014. At the time the defendant removed the whole of its heavy equipment such as X-ray, CT scan and MRI machines from the premises without making good the premises.
7. The plaintiff has been required to make good the premises in order to re-lease the premises and such costs are claimable by the plaintiff against the defendant as is ongoing rent, unpaid interests and costs. The plaintiff is entitled to judgment in its favour in the sum of $661037.63 plus interest of $39663 and costs.
Background facts
The plaintiff is a body corporate and it is the registered proprietor of the premises. A director of the plaintiff is Mr Tim Vorbach (Vorbach). The defendant is a body corporate. The sole shareholder and director of the defendant is Dr Jacqueline Kew (Kew). Kew is a radiologist. I am satisfied that Kew operated the business of Woodville Diagnostic Imaging in concert with others whom I will later identify, but in particular, Professor Roger Davies (Davies).
The plaintiff's authorised officer was Vorbach. Its agent and associated company was Slice Corporate Services Pty Ltd. That company operated through the agency of Katarina Andreoulakis (Katarina) who was its in-house solicitor. Slice Corporate Services acted as a service provider to the plaintiff. This included as a collections and payment agent of the obligations owed to and by the plaintiff and management functions of the assets of the plaintiff. One of those assets was the premises.
Kew is the defendant’s only shareholder and director. There was no contest before me that Kew had no day to day commercial involvement in the affairs of the defendant. She left the whole of the conduct of the affairs of the defendant company, in particular, on the matters the subject of the proceedings before this court to Davies and the practice manager of the company, Mr Richard Neill (Neill). The impression that I formed was that Kew involved herself in the bookkeeping and finance side of the defendant’s affairs. It is not a matter for decision on the papers before me whether Kew could ever be said to have acted as a director of the defendant company or whether de facto control of the affairs of the company were vested in others.
There was no challenge to the proposition that for the defendant, Davies and Neill were persons authorised by it to conduct negotiations on its behalf as authorised agents. Davies and Neill were in slightly different positions. At one level, the whole of the work done by Davies on behalf of the defendant was the usual work of an executive director. Neill was a general manager and he was held out by the defendant in that position and he acted as such; he fell into the usual category of an authorised agent.
I consider that Davies acted in a different category because no formal holding out of him as an agent occurred. I do not think that this is a matter of particular consequence because Davies acted in a different capacity than Neill when regard is had to the whole of the circumstances of the case. I will develop these matters later in these reasons. There is a clear inference that arises from the whole of the evidence and the circumstances that Davies had the authority of the defendant to act on its behalf and to bind it. At the least he was an actual or implied agent of the defendant. At its highest Davies fulfilled the role as would be expected of an executive director of a closely held company. It is not necessary to make any formal findings on that issue which does not arise on the pleadings before me. I am satisfied of Davies’ authority as an agent.
I am also satisfied that Davies had authority to negotiate on behalf of and to bind the defendant. No contrary proposition was put by Kew; she agreed that Davies had the authority of the defendant to bind it. In my opinion that is consistent with the whole of the history of this matter and the position taken by Davies. It is not in dispute that Davies and Kew had personally been lessees of the premises before the 2008 lease and I refer to the content of Exhibit P5.
The plaintiff led evidence from Vorbach and from Mr Matthew Wilkins (Wilkins), a builder. The defendant led no evidence. I have satisfied myself that the defendant made an informed, conscious and deliberate decision to lead no evidence. At the time that the defendant elected not to call evidence, I closely questioned Kew. She was emphatic that she had no intention of calling any evidence. I explained to Kew the rule in Jones v Dunkel,[1] I explained to her the risks of not calling any evidence and I explained to her that the decision not to call evidence must be a conscious choice on her part.
[1] (1959) 101 CLR 298.
I was assured by Kew that it was a conscious choice by her and that notwithstanding her formal admissions of the availability of both Davies[2] and Neill to be called to give evidence, the decision had consciously been made not to call them in evidence in this matter. As a result there is no contradictor of the evidence given by Vorbach.
[2] Kew volunteered that at all relevant times Davies was working in their new radiology practice at Woodville.
In my assessment, the witnesses called by the plaintiff were both witnesses of truth. If they had any doubt in their minds about any aspect of the evidence they were asked to give then they said so voluntarily. I was satisfied that neither of them embellished their evidence in any way.
In any event, I am satisfied that there is a very strong documentary trail in this matter which entirely supports the case of the plaintiff. This documentary trail creates an objective contemporaneous record of events generally. It is my preference in commercial matters to rely upon objectively available material, usually in the form of a documentary trail. I have done so in this case. I consider that the whole of the documentary trail corroborates the oral evidence given by the plaintiff’s witnesses. I therefore am in a position where I may accept the truth, accuracy and reliability of the evidence given by them.
The plaintiff tendered a number of exhibits but, in particular, Exhibit P1 in two volumes. This exhibit sets out the history of the parties' dealings, their communications and, in my opinion, is the best evidence of the parties' contractual position. The plaintiff also tendered other exhibits dealing with ancillary issues and I will refer to those exhibits from time to time.
The issues for determination
There are at least five issues for determination by me.
The first issue: whether a lease of the premises was renewed as between plaintiff and defendant or whether a new lease on certain and clear terms was entered into between the plaintiff and the defendant?
The second issue: what were the terms of the renewal of the lease or the new lease in particular, in relation to rent area and any further terms of the lease (if any)?
The third issue: whether, after abandonment (and the defendant concedes that abandonment is not in issue), whether and if so what lease operates. If a lease operates, has the plaintiff come under a duty to mitigate its loss? If the plaintiff has a duty to mitigate, has it mitigated its loss?
The fourth issue: whether the defendant is liable to make good the damage to the premises and, if so, under what identifiable obligation and to what extent?
The fifth issue: whether the plaintiff has properly calculated outgoings and whether costs charged for a telephone system are inside or outside of outgoings chargeable under the lease?
The lease arrangement between the parties
I am satisfied from all of the evidence that the initial lease of the premises is Exhibit P5. That was a lease between Vorbach Enterprises Pty Ltd and Andrew Victor Abrahamson as lessors and Davies and Kew as lessees.
By a second lease executed on 16 October 2008,[3] EMAPTA Group Pty Ltd and Andrew Abrahamson agreed to lease to Woodville Diagnostic Imaging Pty Ltd the premises for a period commencing 16 October 2008 and ending 15 October 2013 for the amount of rent as prescribed therein. The rent is prescribed in item 9 of the reference schedule.[4] The rent was in the amount of $8140.13 plus GST per month. There was also the usual obligation to pay outgoings and other obligations all of which are contained within the lease.
[3] Exhibit P1, p. 1.
[4] Exhibit P1, lease p. 41.

I have earlier referred to a lessor by the name of Mr Andrew Abrahamson. There is no contest that after the commencement of the October 2008 lease, Abrahamson ceased to be a proprietor of the property and therefore a lessor. The plaintiff EMAPTA Group Pty Ltd became the sole lessor. No particular issue arises because of this change.
Under the terms of the lease, outgoings were defined in clause 1 of the lease to mean the costs of the lessor of charges for utilities and services and other outgoings. “Services” is defined to mean electricity, gas, water, sewerage, telephone communications and any other service of similar nature provided or available to leased premises in the building or to the common areas of the building.
The renewal of the lease is referred to in clause 6.1 and under that clause the lessor offers a renewal of the lease to the lessee on terms specified in the clause. That clause reads as follows:-
6. Option for renewal
6.1 Offer of renewal
The lessor offers a renewal of this Lease to the Lessee on the terms specified in this clause which the Lessee should accept strictly in accordance with the provisions contained in this clause, otherwise this offer will lapse.
Under clause 6.2 the lessee may only accept the offer and exercise the option if there is no subsisting breach of any lease. That clause reads as follows:-
6.2 Conditions for exercise of option
The Lessee may only accept this offer and exercise the option if:
(a) There is no subsisting breach of any lease covenants by the Lessee at the date of serving notice of exercise of this option and also at the date of expiry of this Lease; and
(b) The Lessee is to have served on the Lessor notice of exercise of this option during a period not less than three (3) months and not greater than six (6) months before the date of expiry of the term of this Lease.
It is accepted as a fact before me that at the relevant time for renewal of this lease under clause 6, the defendant was in breach of the 2008 lease for failure to pay rent and outgoings in full. There is also no challenge to the contention that the defendant was therefore not in a position to accept the offer of renewal. This was a fundamental point of the defendant’s defence of this claim.
Clause 6.4 sets out the conditions of the renewal of this lease. Under that clause the lessee may accept the offer of the lessor under clause 6.1 from the day after the date of expiry of the term of the lease. The renewed lease shall contain identical covenants to the covenants of the lease except this clause. That clause reads as follows:-
6.4 Conditions of renewal
The renewal which the Lessee may accept under this clause is for the renewal of this Lease for the further term of years specified in Item 8 in the Reference Schedule from the day after the date of expiry of the term of this Lease, containing identical covenants to the covenants of this Lease (except this clause) and containing such further options for renewal as are specified in Item 8 in the Reference Schedule.
The lease also contained a written review provision in clause 10. That clause sets out the structure for rent review and the review dates. The reference schedule sets out the review date in item 10 as being the fifth anniversary of the commencement date. The fifth anniversary of the commencement date is the last day of the 2008 lease. Under clause 10.2 the lessor is required to make an assessment of the rent for the renewal term and serve it upon the lessee in writing within the time limit therein specified.
The lessee may within the time specified in clause 10.3 agree or disagree with that assessment. If there is disagreement, either party may apply for the appointment of a nominee under clause 10.4 of the lease and the nominee shall make a determination as an expert of the appropriate lease renewal rental amount under the costs of determination regime set out in clause 10.6.
The mechanism in relation to rent review ends at para.10.7. That clause reads as follows:-
10.7 Rent
If the Current Market Rent is not determined until after the relevant Review Date:
10.7.1 The Lessee is to continue to pay the current instalments of rent due immediately before the relevant Review Date until the new rent is determined, from which date the new rent will apply.
10.7.2. When the new rent is determined, the parties will adjust and pay any shortfall or excess in the rent paid from the relevant Review Date up to the last day for rent payment before the rent determination and such payment is to be made on the date when the next monthly instalment of rent is payable.
If the current market rent was not determined until after a relevant review to be carried out by a person acting as the nominee, the lessee is to continue to pay the current rent instalments due immediately before the relevant date, that is at the existing lease rate.
Clause 26 sets out the lessor's repair obligations. Clause 27 sets out the lessee's repair obligations. It reads as follows:-
27. Lessee’s repair obligations
27.1 Lessee’s general obligation
The Lessee is to keep the Leased Premises and the Lessor’s fixtures and chattels situated in the Leased Premises in good repair and working condition throughout this Lease and will on expiry or termination of this Lease yield up the Leased Premises to the Lessor in the state of repair and condition as is specified in this clause.
27.2 Limiting Lessee’s repair obligation
The Lessee is not responsible for
(a)    Latent Defects;
(b)    Structural repairs, unless the need for repair occurred:
i.   Through the conduct or negligence of the Lessee or of its employees, agents or contractors; or
ii.     Through the Lessee’s use and occupation of the Leased Premises or the use of fixtures, plant and machinery in the Leased Premises;
(c)    The condition of the Leased Premises at the commencement of this Lease;
(d)    Fair wear and tear since the commencement of this Lease, throughout the term of this Lease;
(e)    Repairs required as a result of natural disasters, deliberate damage or accident, such as fire, flood, storm, earthquake, explosion, which are beyond the Lessee’s responsibility or control, unless
i.   The damage occurred as a result of or was contributed to by the negligence of the Lessee or its agents, employees or contractors; or
ii.     The Lessor is legally unable to recover from its insurer insurance money for the damage because of some act, neglect, default or misconduct by the Lessee or by its agents, employees or contractors.
27.3 Lessee’s additional specific repair obligations
In addition to the Lessee’s obligations under clause 27.1, the Lessee will throughout the term of this Lease, notwithstanding clause 27.2 (which does not apply to the matters listed in this paragraph), carry out the following repair and maintenance:
(a)    Promptly repair or replace all broken, cracked or damaged glass in the Leased Premises, with glass of the same or similar gauge and quality, unless the damage was caused by the Lessor or the Lessor’s tradespersons;
(b)    Promptly repair or replace all damaged, broken or faulty light globes, fluorescent lights, power points, light switches, heating, lighting and electrical appliances, services and wiring in the Leased Premises;
(c)    Promptly repair and keep in proper working order and free from blockage plumbing fittings, drains, water pipes, sewerage pipes, toilets and sinks, to the extent to which they are situated in or under the Leased Premises and provide Services or Facilities to the Leased Premises;
(d)    Maintain and repair all door and window locks and fittings in the Leased Premises; and
(e)    Repair any damage or breakage to the Leased Premises, to the Lessor’s Fixtures and property in the Leased Premises, and to Services and Facilities in the Leased Premises, caused by lack of care or misuse by the Lessee or by its employees or agents.
27.4 Carrying out repairs
When carrying out any repair in accordance with this clause, the Lessee will ensure that:
(a)    The work is carried out by appropriately licensed and qualified tradespersons;
(b)    The work is carried out promptly;
(c)    The work is completed in high class workmanship and with good quality materials;
(d)    Fittings and materials of similar style and quality are used to the items being repaired or replaced;
(e)    The required consent or approval of any statutory authority is obtained to carry out the work and the conditions of approval are observed; and
(f)     The work is carried out without creating undue noise, nuisance or interference with the use and enjoyment of adjoining or nearby leased premises.
Under clauses 31.1, 31.2 and 31.3, the defendant as lessee is under an obligation to make good.[5] Those clauses read as follows:-
[5]    Exhibit P1, p. 27 et seq.
31. Removal of alterations and fixtures
31.1 Removal and reinstatement
The Lessee will:
(a)Remove:
i.Any alterations, additions, fixtures, partitions and fittings made or installed by the Lessee in the Leased Premises during this Lease (“Lessee’s alterations”);
ii.All signs and notices erected or affixed by the Lessee to the Leased Premises and to the Building; and
iii.All nails and screws inserted by the Lessee into any part of the Leased Premises;
(b)     Reinstate:
i.The Leased Premises to their condition before any alterations, additions, installations and partitions were made or installed by the Lessee; and
ii.Make good, in a proper and workmanlike manner, any damage caused
31.2 Period of removal
The Lessee will comply with the obligations under clause 31.2 before the expiry or termination of this Lease or it this Lease is terminated by suddenly or unexpectedly, by forfeiture, destruction or other event, within fourteen (14) days after the termination of this Lease.
31.3 Consequences of failure to remove and reinstate
(a)    if the Lessee fails to comply with the obligations under clause 31.1 within the required period the Lessor may, at its option:
i.   cause the removal, reinstatement and repairs to be carried out, and the Lessee is responsible for and will reimburse the Lessor for the Lessor’s reasonable costs and expenses; or
ii.     leave the Lessee’s alterations permanently affixed to the Leased Premises in which case they will be and remain the property of the Lessor.
(b)    If the Lessor incurs further loss in re-letting the Leased Premises by reason of the Lessee’s failure, the Lessor may recover from the Lessee the loss of rent and operating expenses which would have been received from a prospective Lessee.
Under the 2008 lease (whether at holding over or otherwise) the defendant was required to restore the premises to the condition at handover. The defendant has not led any evidence to contradict the factual position asserted by the plaintiff in the evidence before me that the defendant has not restored the premises. That has been left to the lessor plaintiff. I have no basis in evidence to disregard any part of the evidence of the plaintiff on this topic.
The lessor's entitlement to damages on breach of lease is set out in clause 47. That clause reads as follows:-
47. Lessor’s entitlement to damages
47.1 Damages for breach or for repudiation
(a) in the event that the Lessee’s conduct (whether acts or omissions) constitutes:
i.a repudiation of this Lease (or of the Lessee’s obligations under this Lease);
ii.a breach of any Lease covenants; or
iii.a breach of an essential term of this Lease;
the Lessee covenants to compensate the Lessor for the loss or damage suffered by the Lessor as a consequence of the repudiation or breach, whether this Lease is or is not terminated for the repudiation, breach or on any other ground.
(b)    The Lessor’s entitlement to damages is in addition to any other remedy or entitlement, including termination of this Lease.
(c)    The Lessor is entitled to recover damages against the Lessee in respect of the repudiation or breach of covenant or essential term for the loss suffered by the Lessor during the term of this Lease, including the periods before and after termination of this Lease.
(d)    The Lessor’s entitlement to recover damages is not affected or limited by any of the following:
i.If the Lessee abandons or vacates the Leased Premises;
ii.If the Lessor elects to re-enter or to terminate the Lease;
iii.If the Lessor accepts the Lessee’s repudiation; or
iv.If the parties’ conduct constitutes a surrender by operation of law.
47.2 Additional entitlement of Lessor
The Lessor’s entitlement to damages is in addition to:
(a)    The entitlement to recover rent, Rates and Taxes, Outgoings and Operating Expenses until the date of expiry or termination of this Lease;
(b)    Interest on law payments in accordance with this Lease; and
(c)    Costs of any breach or default, including the costs of termination.
Under clause 47.1(c) the lessor is entitled to recover damages against the lessee in respect of the repudiation or breach of covenant or essential term for the loss suffered by the lessor during the term. Under clause 47.1(d) the lessor's entitlement to recover damages is not affected or limited by circumstances including the lessee's abandoning or vacating the premises or any re-entry by the lessor.
The premises
The physical layout of the relevant premises are set out in Exhibit P1, p. 44. There is a section on the exhibit which is outlined in yellow that indicates the area of the premises; it sets out the extent of the lease constituting 506 m². I am satisfied from the evidence that above the main door there is an illuminated sign installed by the defendant, that the premises faces onto Port Road and that adjacent and to and west of the premises is a further space that has been created by a purchase of land made by the lessor. This creates a further car parking space for the defendant. There is also a mix of other medical specialists within the building including physiology, cardiology and other similar types of medical services.
Outgoings
I am satisfied from the terms of the lease that the definition of outgoings includes services. A definition in the lease of the term “services” includes telephone and communications. An issue arose in this matter as to whether or not the cost of the provision of telephones and telecommunications came within the general description of a charge that may be made for services and therefore outgoings. If the answer to that question is yes, the further question arises whether s 33 of the Retail and Commercial Leases Act has application. I will deal with that matter later; I am satisfied that a separate collateral agreement was made between lessor and lessee sometime in about 2007 about telephone and telecommunication services. I am satisfied that the nature of that agreement enabled the defendant to obtain telephone services at a much cheaper rate than would have otherwise been available to it. I am satisfied that this agreement provided substantial commercial benefits to the defendant.
The renewal (or not) of the lease
The plaintiff first asserts that an agreement has been made on a renewed lease amount. The plaintiff asserts that by an agreement made between Mr Vorbach and Davies, a settled lease rental amount for a renewed term of $250 per m² per annum was agreed. The plaintiff contends that if it is wrong about that contention, then under the terms of the “renewed” lease (which expression I interpolate must include a fresh lease in the same terms under a separate demise) there would in effect be a default to the amount payable by the lessee under clause 10.7. This is the amount payable at the end of the term.
I am satisfied from the evidence that the defendant has paid an increased rent after the date of the termination of the 2008 lease. I refer to Exhibit P1, pp. 238-239 which discloses evidence of payments by the defendant of increased amounts of rent. For example, on 21 March 2013[6] the defendant paid the increased rate of rent that matches the annualised rate of $250 per m².
[6] Exhibit P1, p. 238.
In the result and for the reasons explained below, I am satisfied that under the terms of the arrangements made between the parties there has been an agreement to enter into a new lease for a further term as specified in schedule 8 for a period of five years on identical covenants as those contained in the 2008 lease except where the parties have agreed differently. In so finding, I have accepted that there was not and could not be a renewal of the 2008 lease under clause 6 of its terms. Any ongoing contractual relationship between the parties was required to be established on a separate basis even though such basis could include the adoption of the terms of the 2008 lease in general. If (as I have found) a figure was agreed on market rent then in my opinion the rent fixing clause of the 2008 lease has no work to do. Otherwise the final default position is that the rent does not change until the review. As I have already indicated and is apparent from the documentary evidence before me, the defendant has paid an increased rent from time to time after the expiration of the period of the lease in 2013.
I turn to the findings about the lease. On Monday 8 July 2013 the following email exchange took place between Davies and Neill:-
Richard Neill
To: Roger Davies
Hi Roger
Next Monday, 15^th July 2013, is the last day to renew the least for 707 Port Road, Woodville (three months prior to end of current term). Please let me know if there is any action required.
Cheers,
Richard
Roger Davies
To: Richard Neill
Yes action required.
Need offer from landlord for next term plus options to renew.
Prob 3+3+3
At least get written request for renewal details to them this week saying we wish to renew but need a proposal from them
Richard Neill
To: Roger Davies
Ok. I will send email tomorrow.
BTW – I haven’t heard back from Katerina (Solicitor) today regarding handset rental query!
On 9 July 2013 a letter was sent from Neill to Vorbach by email.[7] That exchange read as follows:-
[7] Exhibit P1, p. 137.
Richard Neill
To: Tim Vorbach
Cc: Roger Davies, Katerina Andreoulakis
Hi Tim
Woodville Diagnostic Imaging would like to renew the lease at 707 Port Road, Woodville, South Australia after the current 5 year term expires on 15^th October 2013.
Could you please prepare all the necessary documentation and email to Roger Davies, and copy me.
With Kind regards,
Richard Neill
Business Manager
Diagnostic Imaging Group
Tim Vorbach
To: Richard Neill
Cc: Roger Davies, Katerina Andreoulakis
Hi Richard
Thank you and will do.
Regards
Tim
In my opinion properly considered this is an offer by the defendant in relation to the renewal of the lease terms as if renewed under clause 6 of the 2008 lease. It is necessary to explain that view. The letter says that the defendant would like to renew the lease at the premises, after the current five year term expires on 15 October 2013. The offer was made within the window as would ordinarily apply under the lease and assuming an entitlement to accept the offer. Regardless of the content of Davies’ email to Neill of 8 July 2013 at 3.12pm, the objective evidence is that the defendant intended to renew the lease. Davies appears not to have read the lease before writing this email because if he had done so, he would have been aware of the extant offer of the landlord to renew set out in clause 6 of the lease.[8] Whether that offer could be accepted depends on whether the defendant had complied with its obligations under clause 6.2 of the lease. It had not complied and so it was prevented from accepting the plaintiff’s offer. Notionally at least, aspects of waiver may arise but in light of what follows it is not necessary to consider that question.
[8][8] Exhibit P1, p. 10.
Thus, the exchange of correspondence between the parties must be considered in that background. It was perhaps prescient that Davies talked about an “offer” in the emails of 8 July 2013. This is because under the lease, there could only be a continuation of the relationship of lessor and lessee if some new arrangement was made that was referrable to sufficiently certain terms of the parties’ own bargain.

The letter of 9 July 2013 then requests the plaintiff to prepare all necessary documentation and to email Davies and copy to Neill. A response was made on the same day by Vorbach. The response was: “Thank you and will do”.[9]
[9] Exhibit P1, p. 137.
I consider that objectively assessed, this response of the plaintiff is an acceptance of an offer by the defendant.[10] The plaintiff then set about to prepare disclosure statements in respect of a new lease and to have those documents forwarded to the defendant. The disclosure statement and memorandum of lease prepared by the plaintiff is at P1, p.161 and P1, p.169 respectively. The disclosure statement shows the rent payable as at 15 July 2013.[11] After the initial exchanges of emails there was then exchanges between Neill and Katerina on behalf of the defendant.[12]
[10] Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436-437.
[11] Exhibit P1, p. 138.
[12] Exhibit P1, p. 151.
By her email of 23 September 2013, Katerina informs Neill that the new lease will be on the same terms as the existing lease, save and except for the rent. It is the lessor's intention to increase the yearly rent to $126,500 plus GST, calculated at the $250 per m² agreed by “Tim and Roger” (Vorbach and Davies) earlier this year, multiplied by 506 m² as confirmed by the CBRE valuation of 23 December 2011, effective from 23 October 2013 plus outgoings.
It is important that in her email Katerina makes reference to Vorbach and Davies and that there is an agreed (rental) rate of $250 per m². The response by Neill of 25 September 2013 is at Exhibit 1 p. 150. The response indicates that the lease would be renewed for the area of 506 m² but asks for advice in relation to the current area in m² used for invoicing purposes. A response is sent by Katerina on 30 September.[13] That response indicates that the area is 506 m² which is occupied by the defendant. That is per the CBRE valuation tendered in evidence[14] and indicates that an assessment of square meterage had been made by CBRE as a valuation report at the time of the buyout of Abrahamson. It discloses that on the measurements of CBRE the lettable space is 506 m². There is no evidence before me that contradicts the accuracy of this assessment and I accept it as accurate.
[13] Exhibit P1, p. 150.
[14] Exhibit P7.
There was then correspondence between Neill and Katerina in July 2013. By an email of 25 July 2013 Neill informs Katerina of a leak in the roof of the premises.[15] Vorbach responds by email of 5 August 2013[16] advising that a builder had been engaged, the matter had been investigated, the leak had been fixed and repairs done.
[15] Exhibit P1, p. 148.
[16] Exhibit P1, p. 148.
Then on 1 August 2013 Neill sent to Katerina a letter[17] indicating that he could not verify the authenticity of the outgoings documents received as it was unsigned. Quite why that would be an authenticity issue is not clear. He then suggested the document forms no valid grounds to argue that “the handset rental is not an outgoing”. He then goes on to say that:-
Since we have met in your office on 17 June 2013 we (the defendant) have established that:
1. Slice Services do not have a contract with the defendant for handset rental.
2. Slice Services have been charging the defendant for handset rental and argue that these charges are not an outgoing.
3. In that case, there is no valid contract for handset rental and then these rental charges would fall into the category of outgoings.
[17] Exhibit P1, pp. 146-147.
What follows is a suggestion that because of those facts, there should be no charge for handset rental. There are a number of issues within this email which require my consideration, which I set out hereunder. On the whole, the approach of Neill and the defendant is misconceived. At one level it may be thought to be mischievous but it is not known what Davies had told Neill.
Katerina responds by an email of 21 October 2013.[18] The email does not address the question of the allegations concerning the outgoings, except to say that in respect of carpets, that Mr Vorbach has offered for the parties to take a shared costs approach moving forward. She goes on then to address the question of the clean-up from the leak and confirms:-
Hi Richard,
I have reviewed the least and as I expressed (after a quick glance at the lease) in our meeting last week and can now formally confirm, there is nothing contained in the lease agreement relating directly or even impliedly to the issue of carpet cleaning/maintenance/repair.
I can confirm however that Tim has offered for the parties to take a shared cost approach moving forward, which I can add to the new least to be drafted to ensure that this is covered in future.
In this instance however Tim has also kindly arranged for FaB Cleaning Services to arrange a quality carpet cleaner to steam clean and deodorise the front waiting area carpets at WDI and then Tim will as a (one off) gesture of goodwill pay the whole bill himself.
Please let me know if this email has addressed the last of the outstanding issues between the parties and what else you require before I can finalise the lease and forward this to you to arrange for execution by Roger.
Please let me know if you have any questions.
Regards
Katerina
[18] Exhibit P1, p. 145.
Neill then responds by an email of 21 October[19] referring to the carpets and then saying that Davies wanted a meeting with Vorbach. There was then a discussion about suitable dates and ultimately an agenda was sent by Neill to Christine Flores of Slice Services of 23 October 2013[20] saying that a meeting to occur on the following Monday had the following agenda:
1. Current accounts
2. Rebate handset rental
3. AGL electricity for illuminated street sign
4. Lease area / sublease options
[19] Exhibit P1, p. 145.
[20] Exhibit P1, p. 143.
As things turned out there were difficulties in arranging dates for a meeting due to the parties' unavailability. However on 11 December 2013 a formal document in the form of a renewed lease, was sent to the defendants via email.[21] This document then came to the attention of Davies who responds in an email of 14 December 2013[22] in the following terms:-
Dear All, (the defendant) has not agreed to new lease and we do not know why you have produced one.
It is not an excuse to introduce a swag of new terms and conditions that have not been discussed, far less agreed to. Tim, please direct your team accordingly.
We await the documents reflecting an extension of the existing lease in accordance with our rights of renewal.
[21] See Statement of Claim para. 13, Exhibit P1, pp. 212, 161 and 169.
[22] Exhibit P1, p. 140.
In my opinion this email is wrong at a number of levels. I have read and compared the documents; there is no “swag of new terms”. The rent is at the rate as allegedly agreed between Vorbach and Davies; namely, $126500 per annum plus GST.[23] A question for me is whether it has been agreed. Further, Davies asserts a right of renewal. I am satisfied that there is no right of renewal because of the breaches by the defendant in relation to rent and outgoings as at that date. If Davies had taken the trouble to read the terms of the lease he would likely have become aware of the true contractual position.
[23] Exhibit P1, pp. 191 and 206.
And for the reasons which follow, I consider that the assertions made by Davies in the email are misconceived. Under the terms of the lease the defendant was in breach and had no right to accept the offer.[24]
[24] See Exhibit P4.
The response by Katerina to the email was of 13 January 2014.[25] The text of that document is set out as follows:-
Dear Roger,
Thank you for your email, and please allow me to respond to each the points you have made.
To the contrary the lease agreement provided to you has been sent in continuation of good faith and reflects identical terms to the original lease but for clause 26.5 which was previously agreed with Richard Neill in his capacity as your representative (and with a cc email to yourself) that this would be inserted into the lease document for the new term of renewal so that there would be an understanding between the parties and no ambiguity moving forward if a similar situation were to arise as per last year, ie when the carpets were water damaged as a result of entry of water into the building.
The new clause stages that if this were to happen again it would be rectified on a shared cost basis as between the landlord and lessee but if you prefer I can remove this to return the least to its previous “original” condition though I would point out that this new clause is actually in your favour and protects you from having to dispute this issue in future and/or pay the whole cost of its resolution. I await your instructions in this regard.
We have not created a new lease nor “introduced a swag of new terms and conditions that have not been discussed far less agreed to”. You currently have in your possession “the documents reflecting an extension of the existing lease, in accordance with your rights of renewal” and the only reason these weren’t provided earlier were because of the outstanding issues to be resolved between the parties.
As regards the rates, I am instructed that Tim sent you an sms 6 months or so ago with the square meterage rates and all aspects of the new terms for the renewal. Tim anticipated that by the continuation of your discussions that this part of the renewal terms was not in contention because there is an awareness that the rate on offer to you is below market rate though it seems from our conversation with Richard Neill this morning that this is not in fact your perception/belief.
That being the case Tim is very happy to follow the provisions of the current lease and write to the President or principal officer of the Australian Institute of Valuers and Land Economists (SA) Inc to nominate a licensed valuer to determine the new Current Market Rent because he does not want you to feel you’re being disadvantaged, and unless you have a document that supersedes the valuation we hold of 2011 then that is the one we are continuing to rely on in the absence of anything else.
We await your/Richard’s instructions in relation to the above, and to the issue of the phone line which we discussed in detail with Richard today, so that we may move forward.
[25] Exhibit P1, p. 139.
There is an assertion in that letter of an agreement on rates, and there is no later denial by or on behalf of the defendant of that assertion. There is an assertion as well that particular matters are not in contention, such as the square meterage and other matters. There is no later denial of that assertion. In relation to rent, there is a confirmation that the rate per m² had been agreed. Katerina had earlier referred to this rate ($250 per m²) as agreed between Davies and Vorbach. It had earlier been confirmed in exchanges of SMS messages between Vorbach and Davies. In evidence Vorbach informed the Court that these text messages had been deleted and I accept that evidence. I gave leave for Vorbach to give oral evidence of the content of those text messages. I am satisfied of the correctness of what Vorbach has said to me about the negotiations on these issues between he and Davies. In any event the letter contains an offer that if there is a contention about rent then the matter can be resolved by referral of the matter to the president under the terms of the lease. There was no response to this letter.[26]
[26] Exhibit P1, p. 139.
I am satisfied in all of the circumstances that I have considered that the stance taken by Davies on behalf of the defendant in his email was calculated in nature. I refer in particular to an email of Friday, 8 November 2013 between Davies and Neill. In that email sent by Neill, he informs Davies of a current summary of issues relating to the lease, and sets out some notes. I consider that a clear inference arises on this material that what is being done is to attempt to create a list of issues so that some negotiation may take place in relation to the lease. In the period between November 2013 and September 2014, the defendant remained in possession of the premises, paid rent variably,[27] paid outgoings variably and did not at any time assert that it was not bound by the lease. The failure to make such an assertion is irrelevant to the question of the formation of a further lease. It is only relevant to the question of the operation of the contract of lease and its terms.
[27] See Exhibit P4 and Exhibit P1, pp. 238-239.
On 19 August 2014 Davies sent to Vorbach an email.[28] In it he says that the situation is desperate, that patients are going elsewhere in droves: “And unless we can reach a new arrangement on lease terms, please accept 30 days' notice as we are currently on periodic lease by default.”
[28] Exhibit P1, p. 224.
I consider that the following arises from that email: it is a notice of abandonment by the defendant of the premises; its contents are factually unsubstantiated; there is no evidence in support of any of the matters which are set out in the email; and the document could be treated as a surrender of lease. There was then some correspondence from the plaintiff which followed, but the legal position on the facts did not change. The defendant did not resume the premises and had abandoned it for good within one month of that letter on 19 September 2014.
The evidence, especially Exhibits P14 and P15 shows some of the state of the premises after the departure of the defendant. Kew made an assertion from the bar table of work done to restore the premises. She did not give evidence to support that assertion; she consciously chose not to call any evidence in support of the defendant's case. I find that Kew’s assertions made from the bar table are unsubstantiated on the evidence before me. I am satisfied that the defendant took no steps to restore the premises and the plaintiff is entitled to succeed on its claim for reinstatement of the premises (to the extent provided for under the operable lease).
The plaintiff lead evidence of two witnesses, Vorbach and Wilkins. I turn first to the evidence of Vorbach. I have already indicated that I accept his evidence without any reservation. He was not seriously challenged in cross-examination and it is necessary to deal with a number of matters that arise on the evidence given by him about which I am required to make findings. I turn now to those matters.
Vorbach said that all of his dealings with the defendant were with Davies. Vorbach negotiated the original lease with Davies (Davies was a party to that lease) on behalf of himself and Kew. Davies then renegotiated the 2008 lease even though Davies was not a director or officer of the defendant that became the lessee of that lease. It was Davies who then participated in the negotiation (from the defendant's viewpoint) about whether there had been a renewal of the lease. No resistance was offered by Kew to the suggestion that Davies represented and had the authority to bind the defendant company in all of these dealings. During the hearing of the trial before me, Kew readily conceded from the bar table that she did not know from time to time or at any particular time what Davies was negotiating on behalf of the defendant. She relied entirely upon him to tell her of the position about those negotiations at their end.
The second topic is the telecommunications telephone issue. I have already set out the terms of the lease definition concerning services. The plaintiff's case is that a separate contract was established on this topic for a variety of reasons. Vorbach explained that a company that he controlled ran a call centre.[29] That company operated from an area adjacent to the premises and in the same building. That company had a large PABX function. He informed Davies in the period 2007-2008 that the plaintiff could arrange for the supply of handsets, and an internal reception PABX function for a fixed cost and that it would then provide a local call function to the defendant at a cost of between one cent and two cents per call (ordinarily these calls would cost 20‑30 cents).
[29] T59.
In these discussions which Vorbach said ranged over a fairly long period of time, the issue for the defendant was whether it would continue to pay for an incremental and more costly expansion of its own phone system whilst paying a $40 cost per line for multiple lines or take up the plaintiff's offer. The defendant took up Vorbach’s offer.
In the outgoings charged by the plaintiff to the defendant as at 2008 no phone charges were made by the plaintiff as the defendant was providing its own phone system.[30] Vorbach confirmed in his evidence that this was the position. He then gave evidence of an agreement that he reached with Davies that for a fixed cost of $292 per month (which Vorbach explained was cost to the plaintiff and included no profit) the defendant would be supplied with handsets, a reception PABX, unlimited telephone lines and flexibility, and on top of that only be required to pay between one and two cents for each call for local calls. I am satisfied on the evidence that such an agreement was made. At a number of levels it would be commercially foolhardy for the defendant not to have made this contract. I am satisfied that it was readily made by Davies with Vorbach and was implemented immediately. It was a fixed price contract and the terms of it do not require any disclosure by the plaintiff to the defendant under that contract, or for that matter, under the lease, or under the Retail and Commercial Leases Act. As a result I find that this Act has no application to the issues now before me. Any disclosure required is reflected in the changes made by the plaintiff to the defendant from time to time. This was not a charge on a percentage basis shared amongst the tenants of the property. It was a separate charge made by the service provider to the defendant under the terms of the agreement made between them. That agreement operated separately and in quite specific circumstances and so removes the matter from the purview of the operation of the Retail and Commercial Leases Act.
[30] See Exhibit P1, vol 2, pp. 153-160; T64-66.
I also accept that at the time of the end of the lease period of the 2008 lease (in 2013) Davies and Neill started to raise questions about this contract. The attitude of Vorbach[31] was that this was an open ended deal and the defendant could terminate at any time. The defendant did not do so for solid commercial reasons: it likely could not have made a better deal for these services and arrangements.
[31] T68.17.
I am satisfied that from time to time prior to but especially in June and July 2013 onwards, Neill was requesting the plaintiff to provide details about handset charges. In Exhibit P6 the plaintiff placed in evidence the details of charges made upon it by it service provider, AAPT.[32] The unchallenged evidence of Vorbach was that the line usage charge accounts (showing line number usage and costs), were always provided to the defendant. The other charges were not disclosed, being the fixed billing aspects, because the defendant had no entitlement to them,[33] and in any event the AAPT bills do not disclose that cost.[34] The charge of $292 per month is obviously not included in any AAPT account because it is part of a private and separate arrangement made between the plaintiff and the defendant.[35]
[32] T83.27.
[33] T85.28.
[34] T86.8.
[35] T86.28.
I am satisfied on the evidence that a private arrangement was made between the plaintiff and the defendant for the plaintiff to supply phones, PABX reception, PABX access and lines for a fee of $292 per month. I am also satisfied that this rate provided no profit to the plaintiff, it was provided at cost and that the defendant received the whole of the benefit of the call charges at the rate of between one and two cents per call instead of the usual higher amount of between 20c to 30c per call.

And the most cursory review of the facts would reveal that position and Neill would not necessarily know what Davies had negotiated on behalf of the defendant. This indirectly points to Davies, and perhaps Neill, looking for arguments of convenience in their attempts to obviate what they appear to have perceived as the weakness of the defendant's negotiating position. This is a common enough trait in these types of situations.
I consider that Vorbach's version of this agreement is correct, credible and reliable. I have no reason to doubt his evidence and Davies was not prepared to enter the witness box and give any evidence on the topic. Kew confirmed to me that throughout the course of the whole trial Davies was in good health and practising in a radiology business on Port Road straight across from the premises. Davies was in court on the first day of the trial. He was not prepared to give any evidence to challenge the version put forward by Vorbach. I therefore accept the evidence of Vorbach and I find that the contract about the phone system was made as he described. The plaintiff's claim on this part succeeds.
The third issue is the renewal rent of $250 per m². Vorbach gave evidence[36] that within a month of the defendant first requesting a renewal of the lease, he had discussions with Davies about the new rent payable. That discussion concerned the outstanding accounts payable by the defendant, the square meterage rate payable for the premises and the prospect of subletting. Vorbach told Davies[37] that on renewal, the annual square meterage rate was to be $250. This was discussed on many occasions; that is not surprising because this rate represents an increase of about 25% on the existing rental rate.
[36] T80.20 et seq.
[37] T81.12.
The discussions first occurred prior to the defendant's offer of renewal letter of 9 July 2013.[38] Vorbach had a number of bank valuations of similar style centres where the square meterage rate varied between $350 per m² to $500 per m². He used those valuations in his negotiations with Mr Davies. As well, Vorbach used as a “bargaining chip” the fact that the plaintiff had purchased further adjoining land and it had made that land available for provision of increased parking for the defendant's customers.
[38] Exhibit P1, vol 2, p137; T81.21.
Vorbach said that in the end, Davies conceded that the rent under the terms of the new lease could rise to $250 per m² at renewal.[39] This agreement was confirmed in an exchange of mobile telephone text messages between Vorbach and Davies.[40] Vorbach did not keep those texts which were deleted after six months in the usual way but he was able to recall and give evidence of the content of his text message to Davies and Davies text message confirming accepting the rate of $250 per m².
[39] T82.2.
[40] T82.14.
On the fourth topic of the state of the premises, I also accept the evidence of Vorbach that the defendant wholly failed to comply with the terms of the 2008 and the renewed lease.
The evidence about the state of the premises and their repair was given by Wilkins. He informed the Court of the work undertaken by his company to restore the premises. He identified the work being undertaken which is disclosed on pp.242, 244, 245, and 247 of Exhibits P1 and P10. I am satisfied that the work done by Wilkins is required to be carried out by the defendant under the terms of the 2008 lease and the further lease between the parties. I am also satisfied that the charge for this work is reasonable.
There are some particular aspects of this work that require separate consideration. Some of the floor areas in the premises were protected by an underlay of copper. All of the walls in the premises were lined with lead of variable thicknesses; for example, the lead lining of the walls around the reception/waiting area were thicker than elsewhere. All of this metallic material is required to be removed under applicable health standards once the premises ceased to be used as a diagnostic centre; this has occurred.
Wilkins gave evidence and I accept, that the scrap metal merchants in Adelaide will not accept this metal because it has been used in a diagnostic centre. Some other method of disposal will have to be found at extra cost to the plaintiff. That extra cost has not yet been determined.
Wilkins also informed the Court, and I accept, that structural alterations of the premises were required in order to remove very heavy metal doors that had been used on the premises and installed by the defendant. These apparently were associated with the diagnostic services provided by the defendant. This has required the removal of sections of wall and it has also been necessary to remove large sections of flooring and ceilings to renovate the site. There has been no challenge to the reasonableness of the charges of Wilkins’ company.
A renewal or a fresh lease
I turn then to the question of whether there has been a renewal or some other form of fresh agreement. The 2008 lease contained a right of renewal, and I refer to Exhibit P1, p.10 and clause 6 of the lease. The option for renewal is required to be exercised between three and six months before the date of the expiry of the lease, and as the lease shows, the date of expiry was 15 October 2013. Under its terms, clause 6 requires that the defendant as lessee must not be in breach of the lease before it may accept the plaintiff lessor’s offer of a lease renewal. If the lessee defendant is in breach it cannot accept the offer, because the requirement of the lessee to observe the terms of the lease is a condition precedent to its acceptance. The lessee was in breach of the lease at the relevant time and this fact is not put in contest by the plaintiff. Nor does the plaintiff assert that it waived the requirements of the lease at any time.
At this juncture it is necessary to give consideration to the question of the exercise of an option to renew and then to give consideration to the position when the option to renew is lost, as I have found in this case. The legal principles are all usefully summarised in the text Commercial Leases in Australia.[41] The matters that I set out below are taken directly from the text and therefore I will merely summarise the principles without making continual attribution to the learned author’s text. The relevant discussions commences at paragraph 12.80 of the text and the summary below is taken from the text commencing from that subparagraph.
[41] WD Duncan, 6^th ed, Law Book Co 2011.
The rules in relation to the exercise of an option to renew are as follows:-
The option does not have to be exercised in any particular form.[42]
[42] Nicholson v Smith (1882) 22 Ch D 640 at 658.
The exercise of the option must clearly and unequivocally express the fact that it was intended.[43]
[43] Ballas v Theophilos (No 2) (1957) 98 CLR 193 at 197.
The test is whether the person who receives the exercise of the option would fairly understand it to be that exercise in the particular circumstance of the case.[44] The test is whether a hypothetical reasonable person who received the purported exercise of the option, aware of the circumstances of its receipt, would fairly understand the option to have been exercised.[45]
[44] Carter v Hyde (1923) 33 CLR 115 at 126 per Isaacs J.
[45] Whitegum Petroleum Pty Ltd v Bernadini Pty Ltd [2010] WASCA 229 at [48]-[49] per Buss JA.
If the exercise of the option is in any way qualified, it is ineffective as the exercise of an option and its legal effect would be as a counter-offer to the grantor of the offer.[46]
[46] Duncan Properties Pty Ltd v Hunter [1991] 1 Qd R 101 at 106 per de Jersey J.
It is a question of construction whether the document purporting to exercise the option is effective as an exercise or whether it takes effect as a counter-offer.[47]
[47] Gower-Chapman v Morris (1987) NSW ConvR 55-341.
An option to renew is, properly understood, a right to call for a fresh lease and this is the case even if all of the provisions in the fresh lease are identical to the old lease.
It is a fresh demise and therefore a fresh lease with fresh covenants.[48]
[48] Gerraty v McGavin (1914) 18 CLR 152 at 163.
Even if new instrument is not executed by the parties after the exercise of the option to renew, the parties will still be treated as having an enforceable agreement for lease between them.[49]
[49] Swanville Investments Pty Ltd v Riana Pty Ltd [2003] WASCA 121.
Where there is an option to renew (properly described as an offer, as in this case) and it requires all the terms of the lease to have been complied with and observed before the date for exercise, including the payment of rent, then that offer, upon those terms, is properly understood as creating a condition precedent to the exercise of the option.
A failure to perform that condition precedent prevents the lessee from exercising the option irrespective of whether the lessor has waived the right to forfeit for breach of covenants.[50]
[50] BS Stillwell & Co Pty Ltd v Budget Rent-A-Car System Pty Ltd [1990] VR 589 at 594-595 per O’Bryan J.
The acceptance by a lessor of an exercise of an option absent the performance of the conditions precedent to the exercise could still constitute an acceptance of a counter-offer and would not constitute a waiver of the terms of the original offer.[51]
[51] Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122.
The proper analysis of the contractual position is the lessee becomes the offeror and the lessor becomes the offeree. The question of formation (or not) of a contract of lease is dependent upon the choice of the lessor to accept or reject the lessee’s offer.
As a matter of common sense and logic, if the lessor accepts the counter-offer of the lessee then there is also a fresh demise and a fresh lease with fresh covenants. In the same fashion as occurs when there is a valid acceptance (by the lessee) of an offer to renew, this remains the position even if there is no fresh lease executed between the parties as long as the requirements of writing is observed in the offer and acceptance process. This is because as a matter of logic and inference, the parties are negotiating by reference to the existing lease and any agreement on that basis assumes the incorporation of its terms. Upon agreement, (if that be the case) the terms of the parties’ bargain will be reflected in the terms of the lease as agreed by them. These terms will form the content of the equitable lease between those parties. Those terms actually and inferentially are to be found in the terms of the existing lease that, mutatis mutandis, will form the basis and terms of the parties’ new bargain.
I consider that the letter of the defendant to the plaintiff of 9 July 2013 is sufficient to at least give notice of an attempt to renew the lease, but due to the operation of the condition precedent (of the requirement to observe the terms of the lease) it could not operate or have effect as an acceptance of the renewal. I consider that the letter has a totally different character. I have earlier explained my view that any further lease between plaintiff and defendant (by acceptance of a lessee’s counter-offer) in these circumstances is a fresh lease and it is not the continuation of the old lease.
Because of what has been put to me in submissions it is necessary to discuss waiver by a lessor and whether the lessor is in a position to waive a breach by the lessee. The situation postulated is that it is possible for a lessor to waive the breach of the terms of a lease and so treat itself as bound by the acceptance by the lessee of the lessor’s offer of renewal in the lease (here in clause 6) in whatever circumstances that may arise. As I understand the argument, the waiver by the lessor would in some way operate retrospectively to the time when the lessee had an entitlement to accept the lessor’s offer set out in the lease. This construction of the factual position is necessary in these particular circumstances where the argument revolves around the operation of the specific terms of the lease that are to be interpreted in the usual way under the law of Australia.
I have real difficulty with that argument because I think it is almost impossible for the principles of waiver to apply here. This is because the offer of the lessor (in the lease) is subject to the requirement to satisfy the condition precedent of observance of the lease within the “window” of time within which this acceptance may occur. If one or other or both of those conditions precedent are not satisfied the opportunity to accept the offer is lost and cannot be restored except in some form of offer made by the lessor which the lessee may accept under a new arrangement which is to be assessed on the usual contractual principles. Waiver of a breach after a contractual right is lost (because of the breach) would not, logically, create any contractual right because the right is lost: a waiver would have no effect. In the absence of some binding authority on me, I consider that the doctrine of waiver has no part to play here. I also consider that the better approach is to consider the matter on the basis of well settled contractual principles.
The position at common law is that any lessee in breach of the terms of a lease that prevents the acceptance of the offer of renewal may make a counter-offer to the lessor's offer contained within the lease. The lessor's offer is set out in para.6.1 of the lease. I consider that properly understood the letter of 9 July 2013,[52] may be described and have legal effect as a counter-offer. The option to renew was not capable of acceptance but the offer of the defendant as a counter-offer may be accepted by the plaintiff. As well, if the letter of 9 July 2013 is considered to be a counter-offer, no issue of any condition precedent arises, because the offeree (the lessor) may accept unconditionally or may reject the offer and itself make a counter-offer.
[52] Exhibit P1, p. 137.
If my analysis of the legal situation is correct then the next matter for my consideration is whether this lessee’s counter-offer has been accepted. Irrespective of whether the option contained within clause 6 of the lease, is lost, I consider that the offer by the defendant lessee of a renewal may be accepted by the lessor and that acceptance can occur by words, actions or a combination of both. I am unable to see any good reason why the equitable principles arising upon the operation of the rights created under the lease and which are known and have contractual force would not equally apply to rights arising as between lessor and lessee upon the acceptance by the lessor of the lessee’s counter-offer.
Consistent with common law principles and the operation of the rule of equity that no particular formal words or conduct are necessary on the part of the plaintiff lessor in order to constitute the exercise of an option, I consider that no particular formal words are necessary to constitute an acceptance of the defendant lessee’s counter-offer. That is because the Court is here required to make a determination of fact assessed on an objective basis that there has been an acceptance by the lessor plaintiff of the lessee’s counter-offer. The test is the same: whether the hypothetical, reasonable observer would, if receiving the purported exercise which is a counter-offer, fairly understand that by acceptance of the counter-offer a contract of lease is formed upon terms that are identifiable and that are in the contemplation of the parties. The question thus becomes whether the reasonable observer would, upon considering the counter-offer and the conduct of the plaintiff, fairly understand that the counter-offer has been accepted.
In Stillwell & Co Pty Ltd v Budget Rent-A-Car System Pty Ltd[53] the Court of Appeal of Victoria was required to consider an appeal from the decision of a trial Judge concerning a lease and sublease. The sublease included an option for a further three year term and Clause 6 of the sublease provided that the option could only be exercised three months before the expiration of the term. The proviso was that at that date, there could be no subsisting breach or non-observance by the sublessee of any of the covenants, obligations and provisions contained in the lease. The sublessee had been paying rent on the wrong days and had made late payments for rent. Despite that, the trial Judge held that the option had been validly exercised. The Court of Appeal overturned that decision. At p594 of the report, O’Bryan J said as follows:
“There is overwhelming authority for the proposition that an option to renew a lease does not constitute a contract, but constitutes an offer to grant a further term which the lessor is contractually precluded from withdrawing so long as the option remains exercisable … In West Country Cleaners (Falmouth) Ltd v Saly [1966] 1 WLR 1485, Danckwerts LJ… held that an option for renewal of a lease was a privilege which required strict compliance with the terms and conditions upon which it was granted before it could be exercised…
In Gilbert J McCaul (Aust) Pty Ltd v Pin Club Ltd (1957) 76 WN (NSW) 72 the Full Court in New South Wales was concerned with a clause in a lease granting the tenant an option to renew the lease for a further term of five years subject to the giving of three months' previous notice in writing to the lessors, the punctual payment of rent and the due performance of covenants by the tenant. An issue arose as to whether performance of the term relating to payment of rent was a condition precedent to the tenant being able to accept the offer of renewal of the lease contained in the option clause.
The Full Court… held that an option of renewal of a lease "is no more than an offer to make a contract". The court said, at 74: "In the present case the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter-offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter-offer and that counter-offer is accepted, it is a loose although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter-offer and in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer."
The court also determined that because the lessee was required to perform the conditions stated in the option clause before the offer to renew the lease could be accepted, performance of the conditions was the only way by which the offer could be accepted. Accordingly, non-performance of a condition could not be waived by the offeror (lessor).
[53] [1990] VR 589.
O’Bryan J went on to observe that McCaul’s case was considered by the High Court in Bowman v Darham Holdings Pty Ltd (1973) 131 CLR 8 where the majority of the Court, Barwick CJ, Menzies and Stephen JJ upheld an argument that the doctrine of waiver was inapplicable in circumstances where there is a right available to the grantee to purchase by exercise of an option but only by observance by it of certain conditions precedent to that right of acceptance. Although Stephen J only specifically mentioned the McCaul decision, he did not doubt the correctness of that decision and the other members of the High Court agreed.

At [80], North J set out the reasoning of the trial Judge which his Honour accepted. That paragraph reads as follows:-
The reasoning of the trial judge
[80] The trial judge held that the redundancy provision imposed on Riverwood a binding obligation to pay Mr McCormick a redundancy payment in accordance with the terms of cl 6(i). There were two alternative bases for this conclusion: (a) that the redundancy provision was incorporated by reference into the contract of employment; or, (b) that alternatively, the provision was an implied term of the contract of employment. For present purposes it is sufficient to examine his Honour’s reasons for concluding that the provision was incorporated by reference. His Honour set out the applicable principles as follows (McCormick v Riverwood International (Aust) Pty Ltd (1999) 167 ALR 689):
[70] It is important to note that virtually every document contained in Cartons’ manual provides a benefit of some sort to that company’s employees. No burden of any kind is imposed, except upon the employer. That is a matter of considerable significance. The obligation purportedly imposed upon the applicant to “abide” by all company policies and practices must, in my view, be understood in light of this fact.
[71] I accept that the word “abide” has, as one of its primary meanings, when combined with the word “by”, “to remain faithful to or act upon”. The respondent submitted, not without considerable force, that an obligation couched in such terms could not impose upon Packaging any legal duty which required it to act upon its own policies and practices.
. . .
[74] In ascertaining the meaning of an expression contained in a contract such as the requirement that the applicant “abide” by all “company policies and practices currently in place, any alterations made to them, and any new ones introduced”, the approach to be adopted differs from that taken in statutory interpretation. It must rest on the premise that the contract was made in good faith with the object of at least potential mutual benefit by due performance.
[75] The court approaches the task of ascertaining the meaning of the parties’ expressions from an objective point of view. In the case of a disputed clause in a commercial agreement “the essential question is what would reasonable business people in the position of the parties have taken the clause to mean”: Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 at 840 per McGarvie J. In Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 Lord Diplock said:
“. . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”
[76] The parties may be bound by the meaning reasonably to be inferred in the circumstances, even if it does not conform to the interpretation advanced by either. It is not necessary that a statement should be subjectively intended to be a term of a contract in order to be one; it is enough if it can reasonably be so understood.
[77] In Cheshire & Fifoot’s Law of Contract, 7th Aust ed, 1997 it is stated (p 345) that:
“In interpreting the expressions of the parties, the court will consider them in their context. Except to the extent to which evidence is inadmissible, the court will as a matter of course take into account the objective background of the transaction, that is, its factual matrix, genesis and aim, and the common assumptions of the parties.”
[78] The actual terms of a contract are those which the parties intended to incorporate in that contract. They comprise the terms expressed by the parties as well as terms which it must be inferred were intended though not expressed. The law may infer such an intention from the nature and context of the transaction. The difference between inferred terms based on actual intention, and implied terms based on presumed intention is not always easy to discern: see Hawkins v Clayton (1988) 164 CLR 539 at 570; 78 ALR 69 per Deane J; Breen v Williams (1996) 186 CLR 71 at 91; 138 ALR 259 per Dawson and Toohey JJ. Particular terms will be considered in the light of all of the facts which bear upon their meaning.
At [145], Mansfield J expressed his agreement with the approach of North J and of the trial Judge. The decision has not met with unanimous critical approval.[61]
[61] See Robertson [2005] 29 MULR 21.
It is also clear from the decision of the High Court in Hawkins v Clayton[62] that the actual terms of the contract are ordinarily those expressed by the party but the law recognises that the parties may have intended to include terms in their contract which are not otherwise expressed. As a corollary, it is also clear that my task is to ascertain the meaning of the parties’ expressions on an objective basis. The test is what meaning would the objective outsider attribute to the contract in the particular circumstances of the case at bar.
[62] (1988) 64 CLR 539 at 570; see also Griggs v Norris Group of Companies [2006] SASC 23 at [18]-[22].
In Maggbury Pty Ltd v Hafele Australia Pty Ltd[63] the High Court held as follows:-
[11] The ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
[63] (2001) 185 ALR 152 at [11].
Similar sentiments were expressed by the High Court in their decision on Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[64] where the Court said as follows:-
References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties and the purposes and object of the transaction.
[64] (2004) 219 CLR 165 at [41].
There still continues to be some controversy about the meaning of the last sentence in this passage from the decision of the High Court. It has been applied by the Court a number of times since 2004 without further comment and the High Court has made clear that the content of that sentence does not in any sense ameliorate the operation of the rule in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales.[65]
[65] (1982) 149 CLR 337 at 354; see Royal Botanic Gardens and Domain Trust v South Sydney City Council (2012) 240 CLR 45.
The question of the application of the objective approach is ordinarily referable to the terms of the parties’ bargain. This is slightly different in that the question for my consideration is what, objectively assessed, were the actual terms of the parties’ own bargain as opposed to the interpretation of those terms. I am satisfied that by their conduct leading up to the exchange of correspondence, that the parties had agreed upon a new rental amount. I am also satisfied from the exchanges of correspondence between them following the end of the 2008 lease that, objectively assessed, the parties intended the terms of their bargain to be terms of the 2008 lease, as amended by the increased rental amount. I consider that position is so certain as to be beyond peradventure.
I consider that having regard to the evidence before me, the counter-offer has been accepted by the lessor on the basis of the agreed rent and the terms of the lease as if it had been renewed under clause 6. In equity these terms would be treated as being within the terms of a lease. They would, apart from the separately agreed items such as rent, be in the same terms as the lease which commenced in 2008 and ended on 15 October 2013. The terms of that lease contained a right of renewal which as a matter of construction would not be carried into the further equitable lease. This is because it would be inconsistent with the position under the 2008 lease that gave only one right of renewal as at October 2013. The suggestion that there may or should be a further right of renewal is anathema to the creation of the equitable lease arising upon the acceptance of the counter-offer. That counter-offer did no more than reflect the terms of the previous lease as amended by the agreed rental. Even if I am wrong about that, then the default position is that the rent payable under the old lease subsists until such time as the rent is reviewed.[66] If it be the case that a form of estoppel arises, there would be a mutual assumption at least that the terms of the old lease would apply. However, the evidence before me indicates that a new rental had been discussed and agreed. In that context there is no uncertainty because none exists about the terms of the new lease.
[66] Exhibit P1, p. 140.
An issue has been raised about the lease that was submitted for execution by the defendant in December 2013. Reference is made to para.26.5(g). It reads as follows:-
26. Lessor’s repair obligations
The Lessor will:
…
26.5 be responsible, in respect of the Building and the Leased Premises, for:
…
(g) In the case of the carpets where they have been water damaged as a result of the entry of water into the building, on a shared cost basis with the Lessee in respect of the repair or replacement of these.
This is an additional sub-paragraph that is not found in the 2008 lease. It is within the lessor's obligations. It is accepted by the plaintiff that it is an obligation upon the lessor and on that basis it contends that it cannot be a burden upon the lessee. However, that is not necessarily accurate and that is because under 26.5(g) where carpets had been water-damaged as a result of entry of water into the building, then they would be repaired or replaced on a shared basis with the lessee. I do not agree that this was for the benefit of the lessee or the lessor. On one view, it may be seen to be for the benefit of both of them but I consider that argument assumes an interpretation of the lease in favour of the lessor. There is no indication in the lease that this should be the case. This argument overlooks the obligation on the lessor to make repairs under the lease. The ingress of water from a faulty roof is usually a matter that requires the action of a lessor under a lease. I will consider this matter later. I consider that on the authority of the decision of the Court of Appeal of Western Australia in Swanville Investments Limited v Riana Pty Ltd[67] this position put by the plaintiff lessor (of the inclusion of clause 26.5(g)) does not affect the binding nature of the equitable lease made between plaintiff and defendant. I will discuss that matter later in these reasons.
[67] [2003] WASCA 121.
After acknowledging the offer in relation to renewal, the plaintiff said that it would set about preparing the necessary documentation.[68] One aspect of this situation raised by the plaintiff was whether or not it might be alleged that this was merely an agreement to agree under the principles enunciated by the High Court in Masters v Cameron.[69] I consider that the principles discussed by the High Court in that decision have no application here.
[68] Exhibit P1, p. 137.
[69] (1954) 91 CLR 353.
I agree with the plaintiff's contention that an objective test about terms and therefore certainty and the binding nature of the contract has application here. No question of reasonableness arises for decision. I am satisfied that the counter-offer is in the same terms as might have been accepted if the lessee was in the position to accept the lessor's offer of renewal. That means that it would have been accepted as allowed for under the existing lease and in my opinion no new conditions were stipulated. This is because the amount of the rent payable was already agreed well before the letter and it had been the subject of discussions obviously in anticipation of the lease. The rental rate had been settled between Vorbach and Davies prior to the July letter and there is no challenge to the authority of Davies. This rate of rent was then confirmed in correspondence without any opposition from the defendant’s authorised agents.
I am also satisfied that the other terms and conditions within the lease remain largely unchanged as a matter of construction therefore the response of the plaintiff[70] of “Yes, thank you and will do”, is confirmatory of the acceptance of the counter-offer. Vorbach then gave instructions to his in-house solicitor to prepare a new lease[71] and this was sent to the defendant for consideration.
[70] Exhibit P1, p. 137.
[71] Exhibit P1, p. 169.
I consider that on the evidence before me, that document was seen and understood by the defendant. I am satisfied that consistent with these findings the lessee did on occasions pay the increased rent and all of the outgoings. That was sporadic but it occurred and there was no payment made under protest. As well, the agreement about rent and terms is confirmed in the email of Katerina of 23 September 2013. In that email she referred to the increased rent of $250 per m² payable for 506 m² of space. I am satisfied that Neill and Davies were receiving all of this information and that they understood the position of the plaintiff. Through them, the defendant was aware of and were bound by the terms of their bargain about rent. If what was stipulated about the rent payable was wrong, I would have expected a response and in the circumstances as they pertained, I would have expected a vigorous response. None was forthcoming and I consider that any contention to the contrary is without any merit. I also accept the evidence of Vorbach that there was an exchange of SMS messages between he and Davies and that this exchange of text messages was confirmed in any event by Katerina in her letter.[72]
[72] Exhibit P1, p. 139.
I therefore find that there was an agreement for a further five years at a rental rate of $250 per m² for 506 m² of space.[73] An equitable lease in those terms arises at the time of the agreement dependant only upon me being satisfied of the certainty of those terms. The terms of that lease are identical to the terms of the 2008 lease apart from the rent payable (which was amended and varied by agreement to $250 per m² per annum), I will later discuss the question of the inclusion of clause 26.5(g) in the draft lease tendered by the plaintiff to the defendant for its consideration.
[73] See the CBRE valuation Exhibit P7.
Davies and also Neill did not give evidence to contradict the evidence of the plaintiff's witnesses on the creation of the equitable lease and its terms about rent. They were available to be called and there was a conscious decision not to do so. In my opinion a Jones v Dunkel[74] inference is available that any evidence that may have been given by them would not have assisted the defendant’s case.
[74] (1959) 101 CLR 298.
Even though I have accepted all the evidence of Vorbach in making my decision I have relied substantially upon the available contemporaneous records, all of which are in favour of the plaintiff.[75] Davies was a recipient of all of the relevant emails but he remained silent. I am satisfied that between the plaintiff and the defendant at the relevant time there was a mutuality of intention, that terms (of what became the equitable lease) were agreed, that the obligations under that equitable lease were understood and were accepted and that a lease in equity was intended to be created.
[75] See, for example, Exhibit P1, p. 151; Exhibit P1, p. 150 and Exhibit P1, p. 139.
I am also satisfied that subsequently any dispute, e.g. about phones, was raised by the defendant only as a means to create a point of negotiation and I consider it was something of a faux negotiating point. This is because I am satisfied that the liability of the defendant under the arrangement made about the phones arises under a separate and collateral contract. This contract covered a range of issues and services and was of such a nature that it did not fall within the general description of outgoings. I accept the plaintiff’s evidence that the services were provided at cost and also that the defendant could not have procured the landlines, software services, connections and facilities at a commercial price better than was being supplied by the plaintiff.
I turn then to the question of whether there was any repudiatory conduct which may affect my findings. I have referred to para.26.5(g). The defendant asserts from the bar table but without evidence that it carpeted and tiled some areas of the premises. However, Exhibit P5, clause 33 tends to suggest that the plaintiff installed all floor coverings. The lessee's repair obligation under clause 27 suggests that the lessee is not responsible for fair wear and tear. That clause reads as follows:-
27. Lessee’s repair obligations
27.1. Lessee’s general obligations
The Lessee is to keep the Leased Premises and the Lessor’s fixtures and chattels situated in the Leased Premises in good repair and working condition throughout this Lease and will on expiry or termination of the Lease yield up the Leased Premises to the Lessor in the state of repair and condition as is specified in this clause.
27.2. Limiting Lessee’s repair obligation
The Lessee is not responsible for
(a) Latent Defects;
(b) Structural repairs, unless the need for repair occurred:
i.    through the conduct or negligence of the Lessee or of its employees, agents or contractors; or
ii.   through the Lessee’s use and occupation of the Leased Premises or use of fixtures, plant and machinery in the Leased Premises;
(c) the condition of the Leased Premises at the commencement of this Lease;
(d) fair wear and tear since the commencement of this Lease, throughout the term of this Lease;
(e) repairs required as a result of natural disasters, deliberate damage or accident, such as fire, flood, storm, earthquake, explosion, which are beyond the Lessee’s responsibility or control, unless
i.    the damage occurred as a result of or was contributed to by the negligence of the Lessee or its agents, employees or contractors; or
ii.   the Lessor is legally unable to recover from its insurer insurance money for the damage because of some act, neglect, default or misconduct by the Lessee or by its agents, employees or contractors.
27.3   Lessee’s additional specific repair obligations
In addition to the Lessee’s obligations under clause 27.1, the Lessee will throughout the terms of this Lease, notwithstanding clause 27.2 (which does not apply to the matters listed in this paragraph), carry out the following repair and maintenance:
(a) promptly repair or replace all broken, cracked or damaged glass in the Leased Premises, with glass of the same or similar gauge and quality, unless the damage was caused by the Lessor or the Lessor’s tradespersons:
(b) promptly repair or replace all damaged, broken or faulty light globes, fluorescent lights, power points, light switches, heating, lighting and electrical appliances, services and wiring in the Leased Premises;
(c) promptly repair and keep in proper working order and free from blockage plumbing fittings, drains, water pipes, sewerage pipes, toilets and sinks, to the extent to which they are situated in or under the Leased Premises and provide Services or Facilities to the Leased Premises;
(d) maintain and repair all door and window locks and fittings in the Leased Premises; and
(e) repair any damage or breakage to the Leased Premises, to the Lessor’s Fixtures and property in the Leased Premises, and to Services and Facilities in the Leased Premises, caused by lack of care or misuse by the Lessee or by its employees or agents.
27.4   Carrying out repairs
When carrying out any repair in accordance with this clause, the Lessee will ensure that:
(a) the work is carried out by appropriately licensed and qualified tradespersons;
(b) the work is carried out promptly;
(c) the work is completed in high class workmanship and with good quality materials;
(d) fittings and materials of similar style and quality are used to the items being repaired or replaced;
(e) the required consent or approval of any statutory authority is obtained to carry out the work and the conditions of approval are observed; and
(f) the work is carried out without creating undue noise, nuisance or interference with the use and enjoyment of adjoining or nearby leased premises.

Clause 26.5 of the lessor's obligations includes to be responsible for fair wear and tear but that is limited to those matters raised in 26.5(a)-(h). Those clauses read as follows:-
26.5   be responsible, in respect of the Building and the Leased Premises, for:
(a)     structural repair;
(b)     Latent Defects; and
(c)     fair wear and tear,
but the Lessor is not required to carry out structural repairs or to remedy Latent Defects or to remedy fair wear and tear, except
(d)when required for the stability or safety of the Building; or
(e)to maintain the reasonable use and enjoyment of the Building and the Leased Premises by the Lessee and other lessees of the Building; or
(f)to maintain the Building in the condition in paragraph 26.1(d).
There is a drafting error in clause 26.5(f) as there is no clause 26.1(d) that I have been able to identify. It may well be that the proper reference is 26.5(d) and I will assume that that is the case. These references are all to the draft form of lease tendered by the plaintiff for consideration by the defendant.
It may well be that under the former lease (and under the draft of the fresh lease) carpet replacement may fall into the obligation of the lessor under clause 26.5(e) which is an obligation upon the lessor in relation to repairs except to maintain the reasonable use and enjoyment of the building in the leased premises by the lessee and other lessees of the building.
The plaintiff contended that clause 26.5(g) is an exclusionary provision. The lessor’s obligation is to repair except those repairs necessary to maintain the reasonable use and enjoyment of the building by the lessee. At one level this suggestion of an exclusion may be likened to a distinction without a meaning. It requires the formulation of a test to determine when the lessor is obligated to make repairs. One example would be the exterior of the building (apart from changes made by the lessee), services into and out of the building, internal structures such as ceilings, fittings and the like. These are usually the lessor’s obligations and it would only be in the most specific circumstance expressed in a contract that they would fall to the lessee. If there is any doubt about the drafting of those terms, the preponderance of view would be that the benefit must be given to the lessee. I would therefore not accept the lessor’s argument about the effect and operation of clause 26.5(g) of the lease and the draft lease.
As a consequence, I also consider that if for example, the roof of the premises leaked then the lessor would be responsible to carry the necessary work to seal the roof and to make good the consequential losses and damages. This is what the lessor did when the roof failed. That is the proper approach to the interpretation of the landlord’s obligations under the lease and the draft lease. The lessor always carried the obligation to repair the carpets if they were damaged as a result of the leaking roof. If they were damaged from the lessee’s activities the position may well be different.
The suggestion in argument by the plaintiff that the proposed clause 26.5(g) was an agreement by the landlord to accept an obligation that otherwise does not arise under the form of the 2008 lease is not correct. I am unable to accept that submission. That said, I do not consider the tender of this lease document in this form as the terms of the fresh demise in any way amounts to repudiatory conduct. Properly analysed it does not affect the position in equity of the existence of the equitable lease.
The mere tender of a document in this form is no more than an invitation to treat and it does not in any way constitute conduct that may be said to evince an intention not to be bound by the equitable lease. That is a self-evident proposition that hardly needs to be stated. If the lessee had conducted itself as it was contractually obligated to do then it could have accepted or rejected that term. It would have been entirely appropriate to have rejected that subclause in the lease. It did nothing.
The absence of any action on the part of the lessee leads to my consideration of the second point. I do not consider that there is a lacuna in the present contractual position on this further lease. No further lease document has been executed. Consistent with the decision of the High Court in Chan v Cresdon an equitable lease (without a demise of the legal interest) exists from the time of the agreement between lessor and lessee following the acceptance of the lessee’s counter-offer. The documentary trail makes plain that the parties expected that the fresh demise would be upon the same terms as the 2008 demise subject to any further agreement between them on terms. There is only one further aspect of agreement between the parties which is the amount of rent. That agreement logically would form a term of the equitable demise as I have described earlier in these reasons. Properly analysed the tender by the plaintiff lessor to the lessee of a form of lease containing clause 26.5(g) is no more than an invitation to treat which impliedly if not actually has been rejected by effluxion of time.
In the result the equitable lease that binds the defendant is in the same terms as the 2008 lease, without a right of renewal and with the rent payable in the amended amount of $250 per m². Otherwise the terms and conditions, mutatis mutandis, remain the same.
Section 33 of the Retail and Commercial Leases Act 1995 reads as follows:-
33—Adjustment of contributions to outgoings based on actual expenditure properly and reasonably incurred
A retail shop lease is taken to include provision to the following effect:
(a)within three months after the end of each accounting period, there is to be an adjustment between the lessor and the lessee to take account of any under‑payment or over-payment by the lessee in respect of those outgoings;
(b)the adjustment is to be calculated on the basis of the difference between the total amount of outgoings in respect of which the lessee contributed (that is, the estimated total expenditure by the lessor on outgoings during the accounting period) and the total amount actually expended by the lessor in respect of those outgoings during that period as shown in the auditor's report, but taking into account only expenditure properly and reasonably incurred by the lessor in payment of those outgoings;
(c)contribution by the lessee towards, and expenditure by the lessor in respect of, repairs and maintenance is not to be taken into account for the purposes of the adjustment to the extent that the contribution is, and the expenditure is in respect of, contributions required to be paid into a sinking fund as referred to in section 29.
This provision requires an annual adjustment of outgoings. The method is set out in s.33(b) and exclusions which are not applicable are set out in s.33(c).
There is no evidence before me of any reconciliation particularly concerning the telephone; in 2013, requests were made for such reconciliations. However, I am satisfied of a number of things concerning outgoings and rent charges. They are as follows:-
1.Until the end of 2012 the plaintiff charged the defendant outgoings only at the rate of $916.66 per month.
2.As is disclosed in Exhibit P1 at p.80, the plaintiff informs the defendant of the fact of the undercharging of outgoings.
3.In January 2013, the plaintiff made a calculation that the outgoings were truly in the amount of approximately $1778.24 per annum.
4.Exhibit P8 reconciles figures and proves that the plaintiff has undercharged the defendant on outgoings.
5.That is further proved by comparing the disclosure statement at Exhibit P1, p.158.
The result is that notwithstanding any failure of the plaintiff to comply with s.33 of the Retail and Commercial Leases Act, (if that be the case) that failure is not and cannot be the cause of any loss to the defendant and does not give rise to any set-off.
The defendant vacates the premises
I turn to the topic of vacation of the premises. The defendant gave to the plaintiff 30 days' notice on 19 August 2014.[76] The question is whether there was an entitlement to do so. A 30 day entitlement would only arise if the defendant was a tenant at will and that would only arise if there was no lease entered into. My decision in this matter is that in equity the defendant has entered into a new five-year term. The result is that the defendant has abandoned the premises and the defendant remains liable for rent. I am also satisfied that there is no evidence of the acceptance by the plaintiff of the termination of the lease. I am therefore satisfied that I may make an allowance for future rent unpaid by the defendant and give the plaintiff a remedy for unpaid rent to date plus damages for making good of the premises, plus interest and costs.
[76] Exhibit P1, p. 224.
I consider that here no obligation to mitigate arises. The court has accepted that there is a five year term and the tenant remains liable for the rent until the end of that term. No obligation to mitigate arises upon the lessor where the lessee abandons the premises and remains liable for the rent of the premises. There is no obligation upon the lessee to relet the premises.[77] I have already expressed a view that the defendant abandoned the premises and the question may arise whether the plaintiff’s claim is one for damages as opposed to rent. This is dealt with by Lang’s Commercial Leasing in Australia at paragraph 30-430 which, with my emphasis, reads as follows:-
If the lessee commits breaches of lease covenants, or repudiates the lease (e.g. by abandoning the premises), the lessor is not required to accept the repudiation or to terminate the lease. The lessor is entitled to permit the lease to continue and to sue for rent while the lease continues. In those circumstances, there is no duty on the lessor to mitigate the loss and to attempt to lease the premises (J & S Chan Pty Ltd v McKenzie (1994) ANZ ConvR 610; Maridakis v Kouvaris (1975) 5 ALR 197; Boyer v Warbey (1953) 1 QB 234; Francis May Pty Ltd v Tidier Pty Ltd (unreported, NSWSC, Miles J, 2 April 1982)). That conclusion was also reached in Tall-Bennett & Co Pty Ltd v Sadot Holdings Pty Ltd (1988) NSW ConvR 55-428, where the legal position was discussed in detail by Young J.
…
If the lessor accepts the lessee’s repudiation, there is a duty to mitigate damages, based on general contractual principles. The acceptance of the repudiation may be constituted or evidenced by conduct that amounts to a surrender by operation of law. If so, the lessor’s entitlement to damages must be based on a contractual entitlement, relying on repudiation or (at least) on breach of covenant. That entitlement continues and there is no duty on the lessor to mitigate damages until the time when the repudiation is accepted. From that point of time the lessor has a duty to mitigate damages, e.g. by taking reasonable steps to relet the premises.
[77] Maridakis v Kouvaris (1975) 5 ALR 197.
Under the principles described above, even if there was a claim for damages, then at least until June 2016 when work started on the premises to make good the damage, there was no duty to mitigate. In any event, mitigation of damage is largely only of significance when there is an allegation of a failure to mitigate and no such allegation has been made good by the defendant in these proceedings. The defendant carries the onus of establishing any failure to mitigate.[78] On this topic, the relevant test was as stated by Yeldham J in Sacher Investments v Forma Stereo Consultants Pty Ltd & Ors[79] as follows:-
“Although a plaintiff cannot recover for lost consequent upon a defendant’s breach of contract where he could have avoided such loss by taking reasonable steps, nonetheless a defendant who seeks to rely upon a failure to mitigate must show that the plaintiff ought, as a reasonable man, to have taken certain steps for the purpose of doing so. The plaintiff is not under any obligation to do anything other than in the ordinary course of business and the standard is not a high one, since the defendant is a wrong doer. See generally Chitty on Contracts, 23^rd ed, Volume One, paragraph 1482 et seq p691 et seq. See also Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at p506: the law is satisfied if the party placed in a difficult situation by reason of the breach of duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the costs of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.
It is clear that the plaintiff is not required to sacrifice or risk any of his property or his rights in order to mitigate his loss. See generally also McGregor on Damages 13^th ed, paragraph 209 et seq, paragraph 148 et seq and Cheshire & Fifoot’s Law of Contract 3^rd edition (Australia) paragraph 733 et seq.
[78] Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313.
[79] (1976) 1 NSWLR 5 at p 9D.
I also refer to Jones v Edwards[80] and Karacominakis v Big Country Developments.[81]
[80] (1994) 3 Tas R 350.
[81] [2000] NSWCA 313.
The evidence is that Colliers were retained by the plaintiff to re-lease the premises. There has been no success despite every attempt made by the plaintiff. Actually and implicitly Colliers are a competent firm of commercial real estate agents. They are an obvious and appropriate choice to be used by the plaintiff in an attempt to re-lease these premises. They have not succeeded in obtaining a new tenant and this is what the plaintiff desires.
The evidence discloses that the property has a “For Lease” sign on it and it has been advertised regularly on the internet as being available for lease. I accept the evidence given by Vorbach that he has made enquiries himself with other radiologists and health professionals as to whether they would be interested in the premises but no suitable tenant has been found. I also accept that in part this may be as a result of the state of the premises which is disclosed in the photographic evidence before me but it also might be due to other reasons. I have made some observations of the outside of the premises from these photographs before me. I am satisfied that the premises are slightly dated and require upgrading. That said, there is no evidence from the defendant and no submissions from it which would indicate what steps should have been taken by the plaintiff or how such additional steps would have reduced any loss. In Jones v Edwards[82] Wright J held, after referring favourably to the decision of Yeldham J in Sacher Investments as follows:-
In my opinion it has not been shown that the plaintiffs failed to take all reasonable steps to mitigate their loss once the defendant ceased paying rent and repudiated the agreement. The plaintiffs engaged the services of Estate Agents and the property was advertised as being available for lease both by the plaintiffs and their agents. The plaintiffs also placed large signs on each shop window. Some prospective tenants made enquiries but these came to nought through no fault of the plaintiffs or their agents until the existing tenants entered into occupation of the two shops in 1993. (at p6 of 6).
[82] (1994) 3 Tas R 359.
The plaintiff described itself as a motivated lessor. I accept that description. I am therefore satisfied that some allowance needs to be made for future rent unpaid, however my calculation of that amount is a more difficult task. I am satisfied that this calculation must also take into account that there are other matters for which I have not specifically made a separate provision.
The task is more difficult because I am satisfied that substantial works have been done on the premises. Inferentially because of the appearance, look and nature of the premises, those works would have been done in any event. I would not therefore make an allowance greater than for one and a half year’s full year’s rent over and above the claim to date. This is because of a number of variables and they are: the potential time taken in the work that had to be done anyway; the potential different nature of the premises, the let up time for them; and finally exigencies generally.
Including outgoings the amount of outstanding unpaid rent is $189,750.06 plus outgoings of $27,986.94 for a total of $217,737. To that sum is to be added the sum of $354,244.63 as described in Exhibit P4, the accuracy of which I accept. This gives a total of $571,981.63 in respect of rent and outgoings. To that sum is to be added make-good costs of $89,056 for a total of $661,037.63. I would allow interest at $39,663.
I will hear the parties as to costs.