Gembane Pty Ltd v Daher; Daher v Gembane Pty Ltd
[2013] SASCFC 9
•6 March 2013
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
GEMBANE PTY LTD & ANOR v DAHER; DAHER v GEMBANE PTY LTD & ANOR
[2013] SASCFC 9
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice Sulan and The Honourable Justice David)
6 March 2013
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS
LANDLORD AND TENANT - AGREEMENTS FOR LEASE - GENERALLY
DAMAGES - GENERAL PRINCIPLES - DIFFICULTY OF ASSESSING DAMAGES
LANDLORD AND TENANT - TERMINATION OF THE TENANCY - GENERALLY
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH JUDGE'S FINDINGS OF FACT - FUNCTIONS OF APPELLATE COURT - WHERE FINDINGS BASED ON CREDIBILITY OF WITNESSES - PARTICULAR CASES
EQUITY - EQUITABLE REMEDIES - SPECIFIC PERFORMANCE
Appeal from a judgment of the District Court - where the trial Judge ordered specific performance of an agreement to lease in favour of the proposed lessee but dismissed that party’s claim for damages - where it was agreed that the Judge had erred in not proceeding to address the damages - whether the Judge’s findings concerning the reliability of two witnesses were flawed and should be reversed - whether a requirement for written approval was an essential term of the agreement to lease - whether there was a material departure from the approved development plan - whether this Court should assess the damages or whether the assessment should be remitted to the trial Judge - whether the costs award made by the trial Judge was appropriate.
Held per Gray J (Sulan and David JJ concurring): Appeal of the lessor dismissed - appeal of the lessee allowed - the findings of the Judge were fully supported by the evidence and should be sustained - the need for written approval is not an essential term of the agreement to lease - there was no material departure from the approved development plan - order for costs made by the Judge set aside - proceeding remitted to the Judge to assess the damages and further consider costs.
Fox v Percy (2003) 214 CLR 118; Warren v Coombes (1979) 142 CLR 531; Jones v Hyde (1989) 63 ALJR 349; Abalos v Australian Postal Commission (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472; Koompahtoo Local Aboriginal Land Council and Another v Sanpine Pty Limited and Another (2007) 233 CLR 115; Tramways Advertising Pty Ltd v Lunar Park (NSW) Ltd (1938) 38 SR (NSW) 632; Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; Stubing & Anor v Halling & Anor [2012] SASCFC 123; GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296, considered.
GEMBANE PTY LTD & ANOR v DAHER; DAHER v GEMBANE PTY LTD & ANOR
[2013] SASCFC 9Full Court: Gray, Sulan and David JJ
GRAY J.
The appeals in these proceedings arise from a judgment following a trial in the civil jurisdiction of the District Court. The Judge ordered specific performance of an agreement to lease in favour of the proposed lessee but refused that party’s claim for damages.
Gembane Pty Ltd and Suetill Pty Ltd, the defendants, are the registered proprietors of a property at 2 Gawler Street, Mount Barker. The business affairs of Gembane and Suetill were conducted by their director, Scott Thomas. On 24 August 2009, they entered into a contract described as an agreement to lease premises with the plaintiff, Jack George Daher.
The property had been vacant for some time and was advertised for lease or sale. Mr Daher was interested in conducting a café/restaurant business at Mount Barker. He made contact with a Mr Foster of LJ Hooker real estate agents of Mount Barker who suggested that the property may be suitable. Inspections followed as well as meetings between Mr Daher and Mr Thomas. These negotiations led, with the assistance of Mr Foster, to the preparation and entry into the agreement to lease.
There were some unusual aspects to the agreement. Mr Daher was to seek approval from the Mount Barker Council for intended use. It was intended that Mr Daher would convert the property from an office into a café/restaurant. Within 90 days of obtaining approval, Mr Daher was to undertake building renovation works and to fit out the property as a café/restaurant. At the conclusion of the 90 day period, the parties were to enter into a lease over the property for an initial two year term at an agreed rental of $60,000.00 per annum, together with GST and outgoings. There were to be two rights of renewal of three and five years respectively. Mr Daher was also to have a right to purchase the property at an agreed market value.
It is convenient at this point to set out relevant terms of the agreement to lease:
15 USE OF PREMISES:
15.1 The intended use of the premises by the Lessee and the use permitted by the Lessor is CAFE/RESTAURANT.
15.2 The Lessor does not warrant that the premises that you are about to Lease will be for the duration of your Lease be suitable (structurally or otherwise) or able to be used for the Lessee’s intended use of the premises. The Lessee acknowledges that it is the Lessee’s responsibility to ascertain from relevant authorities that the intended use is permitted by those authorities and to obtain all necessary approvals from those authorities to use the premises for the Lessee’s intended use and that this Agreement is not subject to such approvals.
15.3 The Lessee acknowledges and agrees that this offer to lease is made upon the basis of information gained by the Lessees own enquiries and that no representation has been made of the potential or prospects of the business which the Lessee proposes to conduct from the premises or otherwise and agrees to be open for business during normal business hours.
15.4 The Lessee agrees not to keep any pets of any type or guard dogs on the premises without the written permission of the Lessor.
16BUILDING ALTERATIONS:
16.1 Any internal partitioning, alterations and/or modifications to the premises will be made by the Lessee at tis [sic] expense and will be subject to the prior written approval of the Lessor.
16.2 Making good any type of damage or alteration made to the interior or exterior of the premises incurred during the term of this tenancy or extension thereof and shall bare all costs of any type associated with re-instatement, including cleaning and clearing of roof, gutters, pipes and yards of any rubbish.
…
19 BINDING AGREEMENT:
The Lessor and the Lessee agree that upon the execution of this Agreement by or on behalf of both parties this Agreement shall constitute a tenancy agreement which shall be binding upon both parties and shall be enforceable by each of them including the terms and conditions in the disclosure statement and lease provided.
…
26 SPECIAL CONDITIONS:
The Lessee is responsible for repairs and maintenance and the meeting of any regulations particular to their industry and requirements.
The Lessee is responsible for obtaining council approval for land use.
The Lessee is responsible for the costs and connection of electricity to their own meter prior to occupation.
THE LESSOR HEREBY AGREES TO CONTRIBUTE $100,000 TOWARDS CAPITAL WORKS
THE LESSOR FURTHER AGREES TO
GRANTSELL THE PREMISES WITHIN THE FIRST TWO (2) YEARS TO THE LESSEE ATTHEAGREED MARKET VALUE.As noted above, clause 16.1 of the agreement provided that the modifications to the building would be at Mr Daher’s expense and subject to the prior written approval of the lessor. Modifications to the building were subject to a series of revised plans between August and November 2009. At trial, there was a dispute as to whether the final plans were shown to and approved by the lessor, Gembane and Suetill. It was common ground that there had not been written approval. However, it was the case of Mr Daher that all relevant plans were shown to and approved by Mr Thomas such that the lessor was estopped from asserting that there had not been an approval as required by clause 16.1 or, alternatively, the lessor had waived its rights in that respect.
This dispute of fact was addressed in detail by the Judge and resolved in favour of Mr Daher. The Judge summarised his conclusions as follows:[1]
[1] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [119], [123].
The above findings of fact demonstrate that the defendants through their principal Mr Thomas, were aware in material respects of the proposed works, had obtained a copy of the final and approved proposal of 24 November 2009 and that he on their behalf gave verbal approval thereto. Those findings encompass proof on balance of the following statements or conduct by Mr Thomas:
• the failure to mention the importance and significance of removing sandstone and the subsequent failure to raise it as an issue of concern (at paras [65-69]);
• that the revised proposal was a ‘much better idea … an improvement’ (at para [25]);
• telling Mr Daher it was ‘fine, go ahead …’ that he could ‘start work’ and that he was ‘more than happy’ (at para [32]);
• that the final proposal was a ‘good idea’, a ‘better idea’ a ‘worthwhile alteration’ and provided ‘more exposure’(at paras [51, 52]).
…
The conclusions reached by the court thus far further demonstrate that Mr Thomas continued to take steps in the nature of affirmation after ‘discovering’ that building work had commenced without his approval. These steps were instructing a final lease be prepared, providing a statement of outgoings and placing the electricity accounts in Mr Daher’s name.
The Judge made findings as to the negotiations between the parties concerning the several development plans. The Judge summarised the position as follows:[2]
At all events Mr Daher remained in continuous negotiations with the Mount Barker Council over planning and building issues, through Mr Burgess. On both accounts concept drawings were prepared and shown to Mr Thomas around late August 2009. Mr Foster gave evidence that Mr Daher showed him various plans for the site in LJ Hooker’s office before January 2010.
According to the evidence of Mr Daher, copies of the revised plans dated 17 September, 23 September, 7 October and 24 November 2009 were discussed and A3 copies left with Mr Thomas at his Glen Osmond Road office. According to Mr Daher as the concept developed and changed Mr Thomas accepted them, expressing the view they were ‘a much better idea and …it was an improvement’. In contrast Mr Thomas was adamant that the only plans he saw up to late January 2010 were those of 20 August 2009.
[Footnotes omitted.]
[2] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [24]-[25].
The Judge then noted that much depended on the resolution of this dispute and, in particular, observed:[3]
A great deal depends on the resolution of this stark disagreement since the later plans reveal a markedly different proposal from that Mr Thomas claims to have been appraised of. As noted earlier in this judgment, the later plans moved the seating area from the north-east to the north-west corner and involved the removal of sandstone from a substantial wall to the front west of the house itself and from the two dwarf verandah walls in that vicinity. It is this revised concept that Mr Thomas completely denies having any knowledge of or of giving his assent thereto. This factual dispute is considered in more detail later.
[Footnote omitted.]
[3] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [26].
Later in his reasons, the Judge summarised the evidence of Mr Daher and Mr Thomas:[4]
[4] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [32]-[33].
In the meantime Mr Daher claims to have kept Mr Thomas fully informed so far as the developments, change in concept and his intentions were concerned. For instance, he says he relayed the favourable intimation communicated by Burgess:
… straight away … by telephone … a week afterwards … “I said to him that I’d be starting work in the New Year, towards the end of January” … he said …“I’m more than happy with everything, go ahead and start the work.” Basically, he gave me a full Okay.
He further claims to have rung Thomas again in early January ‘just to reconfirm that we were starting work on the building, and again he said ‘Fine, go ahead.’
Mr Thomas’ account is completely at odds with that of Mr Daher on this topic. He deposed that the discussions went only so far as to furnish his consent to external work that did not necessitate prior Council approval:
A … The reason I suggested that is because neither of that work would require council approval and the re-roofing had to be done in any case. Also there was tanks stored at the back of the building which were old and were slightly leaking. So I thought it would be of benefit to actually have all that work done. So it’s work that I had to do anyway.
Q You said you could do the roof. Was that what you regarded a part of your capital contribution, replacing the roof.
A Yes, similarly with the work to the rear of the building. I was talking about the external to the building and the rear. I specifically said after I talked about that that there was no other work that we could actually do until we got council approval and I was very specific about that.
He specifically denied having agreed to any other work taking place.
[Footnotes omitted.]
The Judge addressed the evidence of Mr Daher and Mr Thomas in considerable detail and also the evidence of other witnesses relevant to the resolution of the dispute. The Judge concluded that the evidence given by Mr Foster supported Mr Daher’s position, in that respect observing: [5]
The evidence of Mr Daher in this respect is supported by that given by Mr Foster, in as much as the latter recalled a meeting at the Glen Osmond Road office ‘within a couple of months’ of 24 August, at which Mr Daher produced and went through changes by reference to large A3 size plans. Mr Foster identified these because of ‘an alteration from the eastern to the western side, with the dining area – external dining area’, and because there was ‘one with four parking spaces because … it’s an issue with the planning consultant’ and because ‘exposure of the dining area on the western side was a draw card for the restaurant’. It might be noticed that car parking spaces first appeared on the plans of 17 September. Mr Foster identified the plans as those of 7 October 2009, however he did not recall seeing those of 24 November on this occasion. According to Mr Foster, Thomas ‘considered it was a worthwhile alteration’, he ‘seemed to be fine with everything’ and ‘everyone seemed to be happy’.
[Footnotes omitted.]
[5] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [52].
The Judge noted that Mr Thomas’ account received some support from his friend and co-tenant Ms Gaertner.
The Judge then pointed out that Mr Thomas’ account was difficult to reconcile with a number of matters:[6]
[6] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [57]-[58].
This evidence on the defence side is difficult to reconcile with several objective facts. It conflicts with the defendants’ own pleaded position that the plan was provided to him on 20 August. Pinpointing the occasion by reference to a rendezvous between Thomas and Gaertner the following day is of little significance given that this was one of several meetings with Thomas at her Victor Harbour office. It was the evidence of Mr Paraskevopoulos that the very plan in question did not come into existence in that form until at the earliest 11.29 am on 21 August. This accords with Mr Daher’s account that he did not receive the plan until the week after the 24th. And it dovetails with the evidence of Mr Burgess to the effect that during an on-site meeting with Mr Daher on 24 August, Burgess requested of him ‘a set of plans that set out the internal layout of the café’. Mr Daher responded that ‘he had an architect working on the plans and that he had to collect a set and provide them to me’, which in fact he did on the 26th. The analysis of the evidence to this point suggests that the precision as to critical events professed by Mr Thomas is not necessarily as reliable or accurate as would at first sight appear and it demonstrates that it is unlikely he received those early plans on either 20 or 21 August.
Further defects in the recollection of Mr Thomas emerge from other sources. He was repeatedly insistent that his first meeting with Mr Daher was on 9 June 2009 in his Glen Osmond Road office. His recollection in that respect is contradicted by four witnesses affirming his presence at three site meetings before 9 June, namely:
• Mr Foster and Mr Daher who spoke of an internal inspection sometime between February and April in order to determine what needed to be done to convert to a restaurant;
• Evidence of a second on site meeting in the presence of Foster, Paraskevopoulos and Daher;
• Evidence of a subsequent onsite meeting in the presence of Messrs Foster, Vlachos and Daher.
In addition Mr Meline’s evidence was that he received directly from Mr Thomas more than the initial plans of 20 August 2009, including those of 7 October 2009. The latter Mr Thomas claims to have never received as of that time.
[Footnotes omitted.]
Having reviewed this evidence, the Judge concluded:[7]
Given this evidence and the self-professed interest in the progress of the conversion proposal, the evidence of Mr Foster that Mr Thomas told him he ‘wanted to be there - … when those people were - when those trades were – just to confirm what sort of work would be done …’ makes eminent sense, and is therefore more likely to reflect the true course of events. The combined force of the evidence of the witnesses just summarised leads inevitably to the conclusion that Mr Thomas was mistaken as to the occurrence of important meetings that took place prior to execution and more to the point, as to his level of involvement and the extent to which he was kept appraised of developments.
[7] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [59].
The Judge, having further analysed the respective positions of the parties, reasoned:[8]
Quite apart from these multiple and therefore compounding considerations, Mr Thomas proceeded to undertake a course of events suggestive of affirmation. These included instructing conveyancers on 25 January to put ‘together the lease’, in addition to supplying a sample lease and a statement of outgoings as contemplated by clause 25 of the subject agreement. Furthermore he requested Mr Daher to connect the electricity in Mr Daher’s own name, which he in fact did and which Daher subsequently paid.
[Footnotes omitted.]
[8] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [70].
Finally, the Judge concluded:[9]
In the result the recollection of Mr Thomas as to the number of on-site visits preceding the subject agreement are flawed. This reflects on his reliability when it comes to the number and content of the post contractual discussions. The only sensible purpose of any substance for attending meetings with architects, builders and with Mr Daher, could only have been to discuss the details of plans for the proposed redevelopment. For these reasons as well as those articulated earlier, the distinct probabilities are that Mr Daher must have presented the plans, including the critical plans of 24 November 2009 when they were made available to him to Mr Thomas for his perusal and as a focus for discussion during the course of the meetings in August, October, November and December 2009.
[9] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [78].
The Judge ordered specific performance of the agreement to lease and in that respect declared and ordered as follows:
THE COURT DECLARES THAT:
1. The Plaintiff and the Defendants entered into an agreement to lease dated 24 August 2009 (the Agreement).
2. The Notice of Intention to Terminate the Agreement dated 4 March 2010 be set aside and the Notice of Termination of the Agreement dated 1 June 2010 served on the Plaintiffs by the Defendants is declared invalid.
3. In accordance with the terms of the Agreement, the Plaintiff is entitled to be granted a lease (the lease) over the property described in Certificate of Title Volume 5662 Folio 794 and known as 2 Gawler Street Mt Barker in the State of South Australia (the premises) which lease is to include the following terms:
a.The commencement date of the lease is to be 90 days following the granting of any extension by the District Council of Mount Barker for the Plaintiff to undertake alterations and modifications of the same or substantially the same as those contemplated by the said Council’s Development Approval dated 25 of January 2010, more particularly referred to in District Council of Mount Barker Development Number 580/895/09 (the Approval);
b.The rent payable by the Plaintiff pursuant to the lease is to be $60,000 per annum plus GST and outgoings for the initial two year period of any such lease and thereafter may be increased by the Defendants in accordance with the Consumer Price Index for Adelaide;
c.The Plaintiff is to have the option to renew the lease for further periods of three and five years respectively as specified in clause 11 of the Agreement;
d.The Plaintiff is to have the right to purchase the premises at agreed market value at a time to be nominated by the Defendants during the initial two year lease period and any such purchase is to be effected within the two year period.
e.The Defendants are liable to contribute to the extent of $100,000 towards the costs incurred by the Plaintiff in the undertaking of structural alterations to the premises within a reasonable time of receiving any request for payment from the Plaintiff.
4. The Defendants are estopped from asserting that the Plaintiff did not have permission to undertake alterations and/or modifications to the premises the same or substantially the same as those of [sic] subject of the Approval.
5. The Plaintiff:
a.Bares the primary responsibility for the undertaking of any structural and other modifications to the premises as contemplated by the Approval;
b.Bares the primary responsibility for the undertaking of any structural and other modifications to the premises he considers necessary for converting the premises into a cafe restaurant use.
AND THE COURT ORDERS THAT
6. The Plaintiff is to expeditiously apply for an extension of the Approval (the extension application) on the same or substantially the same as those contemplated in the Approval of [sic] if necessary apply for a new approval in the same terms or on terms approved by the District Council of Mount Barker.
7. The Defendants are to provide the Plaintiff with reasonable access to the premises for the purposes of preparing and facilitating consideration of the extension application by the District Council of Mount Barker without charge.
8. In the event that the Plaintiff obtains an extension to the Approval (the extension), the Defendants shall within 14 days of notification of the granting of the extension deliver up to the Plaintiff a memorandum of lease in standard form, (the memorandum of lease), incorporating the terms referred to in paragraph 3 herein.
9. During the period in which the Plaintiff is seeking to obtain the extension the Defendants are without charge to provide the Plaintiff with free and unfettered access to the premises in order to obtain quotes and to secure the services of such tradespersons, contractors and other persons as may be required by the Plaintiff to undertake works related to the extension and or conversion of the premises into a cafe restaurant (the Works).
10. Following the obtaining of the extension or the Approval on the obtaining of a new approval, and for an additional period of 90 days, the Defendants are to provide the Plaintiff with free and unfettered access in order to carry out the Works and to establish the cafe restaurant.
The Appeal
Issues on Appeal
Separate appeals against the Judge’s decision were brought by Gembane and Suetill, and Mr Daher. Gembane and Suetill complained about the Judge’s conclusions that their termination of the agreement to lease was invalid and a breach of the agreement to lease. In support of their complaint, it was said that the Judge’s findings concerning the reliability of Mr Thomas and Mr Daher were flawed and should be reversed. It was argued that the evidence did not support the conclusion that Mr Thomas had been shown the 24 November 2009 plans, or that he had authorised work to proceed in accordance with those plans. It was pointed out that it was common ground that written approval as required by clause 16.1 had not been given and it was said that this represented a fundamental breach of the agreement. A reversal of the findings on reliability would, it was also said, lead to a reversal of the Judge’s conclusions concerning estoppel. It was further argued, in the alternative, that even if the Judge was correct in his conclusions concerning approval and estoppel, the work that proceeded did not comply with the authorised development plan and that, in these circumstances, Mr Daher was in breach of the agreement to lease.
Mr Daher rejected these complaints. It was submitted on his behalf that the Judge’s findings concerning reliability were not only open to the Judge but were plainly correct. It was pointed out that the Judge had identified that Mr Daher’s evidence had received considerable support from other witnesses. It was further submitted that the work that had been undertaken on the premises had only proceeded for two days before Mr Thomas peremptorily ordered the work to stop. It was said that no fair comparison could be made between the work at this early stage and the plans. The builder encountered unexpected difficulties. This required immediate adjustments to allow the work to proceed safely. Ultimately it was said that there would be full compliance with the approved plans.
Mr Daher’s appeal concerned damages and costs. It was contended that the Judge was wrong in concluding that Mr Daher was not entitled to an award of damages in addition to the award for specific performance. In their responding outline, Gembane and Suetill stated, “[t]he respondents accept that, in the event that the Gembane Appeal fails, based on the trial judge’s extant findings the trial judge ought to have assessed damages for loss of the chance to operate the plaintiffs’ business” and so agreed that the Judge had erred in not addressing Mr Daher’s entitlement to damages. At this point, the parties’ positions diverged. Mr Daher submitted that this Court should assess the damages. Gembane and Suetill submitted that the assessment should be remitted to the Judge.
On the question of costs, the Judge allowed Mr Daher 85 per cent of his costs. It was said that there was no proper basis for making the reduction. It was pointed out that as the issue of Mr Daher’s damages had to be addressed, the order for costs would need to be revisited in any event.
The Approach of the Appeal Court
The powers and functions of a Court of Appeal were discussed by the High Court in Fox v Percy.[10] Gleeson CJ, Gummow and Kirby JJ referred to the earlier decisions of Warren v Coombes,[11] Jones v Hyde,[12] Abalos v Australian Postal Commission[13] and Devries v Australian National Railways Commission[14] and observed:[15]
[10] Fox v Percy (2003) 214 CLR 118.
[11] Warren v Coombes (1979) 142 CLR 531.
[12] Jones v Hyde (1989) 63 ALJR 349.
[13] Abalos v Australian Postal Commission (1990) 171 CLR 167.
[14] Devries v Australian National Railways Commission (1993) 177 CLR 472.
[15] Fox v Percy (2003) 214 CLR 118, 126-128.
Within the constraints marked out by the nature of the appellate process, the appellate court is obliged to conduct a real review of the trial and, in cases where the trial was conducted before a judge sitting alone, of that judge’s reasons. Appellate courts are not excused from the task of “weighing conflicting evidence and drawing [their] own inferences and conclusions, though [they] should always bear in mind that [they have] neither seen nor heard the witnesses, and should make due allowance in this respect”. In Warren v Coombes, the majority of this Court reiterated the rule that:
“[I]n general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge but, once having reached its own conclusion, will not shrink from giving effect to it.”
As this Court there said, that approach was “not only sound in law, but beneficial in ... operation”.
After Warren v Coombes, a series of cases was decided in which this Court reiterated its earlier statements concerning the need for appellate respect for the advantages of trial judges, and especially where their decisions might be affected by their impression about the credibility of witnesses whom the trial judge sees but the appellate court does not. Three important decisions in this regard were Jones v Hyde, Abalos v Australian Postal Commission and Devries v Australian National Railways Commission. This trilogy of cases did not constitute a departure from established doctrine. The decisions were simply a reminder of the limits under which appellate judges typically operate when compared with trial judges.
The continuing application of the corrective expressed in the trilogy of cases was not questioned in this appeal. The cases mentioned remain the instruction of this Court to appellate decision-making throughout Australia. However, that instruction did not, and could not, derogate from the obligation of courts of appeal, in accordance with legislation such as the Supreme Court Act applicable in this case, to perform the appellate function as established by Parliament. Such courts must conduct the appeal by way of rehearing. If, making proper allowance for the advantages of the trial judge, they conclude that an error has been shown, they are authorised, and obliged, to discharge their appellate duties in accordance with the statute.
Over more than a century, this Court, and courts like it, have given instruction on how to resolve the dichotomy between the foregoing appellate obligations and appellate restraint. From time to time, by reference to considerations particular to each case, different emphasis appears in such reasons. However, the mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not, and cannot, prevent the performance by a court of appeal of the functions imposed on it by statute. In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.
[Footnotes omitted.]
I have approached this appeal in accordance with these principles.
The Appeal of Gembane and Suetill
The primary submission advanced in support of the appeal was that the findings of the Judge resolving the conflict of the evidence of Mr Daher and Mr Thomas could not be sustained.
The substance of Mr Thomas’ account was that he was shown plans on or about 20 August 2010, but that thereafter those plans were substantially modified and he was not shown any of the modified plans. It was submitted that the following seven objective facts supported Mr Thomas’ account of what had occurred. No documentation forwarding the final plans of November 2010 to Mr Thomas existed. On 20 January 2010, when the builder, Mr Vlachos, commenced work he had not prepared any quotation for the building work. When Mr Thomas visited the building site on 22 January 2010, he was angry. On that occasion, Mr Thomas required the building work to cease forthwith. At a subsequent meeting on 26 January 2010, Mr Thomas requested Mr Daher to provide the plans approved by the Council. On 27 January 2010, Mr Thomas forwarded a letter to Mr Daher advising of the alleged breach of clause 16.1 of the agreement to lease, requiring immediate cessation of building work and requiring Mr Daher to provide a copy of the building plans. In April 2010, Mr Thomas was unable to provide his building consultant with a copy of the November plans.
Counsel suggested that the Judge had either not considered the above matters, or had given them inadequate weight. It was contended that common experience strongly supported Mr Thomas’ account of what had occurred.
Counsel also complained about an aspect of the evidence that it was suggested told heavily against Mr Daher’s credibility. At or about the time Mr Thomas ordered the cessation of building works, he requested information from the licensed builder conducting the works. The builder engaged by Mr Daher had a restricted builder’s licence. To address this problem, a project manager, the holder of a builder’s licence, had been informally approached to oversee the builder’s work and thereby to ensure compliance with the relevant legislative regime. Mr Daher arranged for the project manager to produce an account in respect of the work undertaken before cessation. The account was presented as an account payable to the project manager. Apparently the account was prepared at the direction of Mr Daher, including the detail of the work performed. The project manager had not at any time been on site to inspect the work. The account was presented by Mr Daher to Mr Thomas as representing a legitimate claim for work undertaken by the project manager and a request for payment was made. Mr Daher’s explanation was that it was not intended to claim moneys that were not due, but that work had been undertaken of a capital nature and Mr Daher was attempting to protect his position following cessation of the work.
There is no doubt that the Judge was fully aware of the above circumstances. They were addressed in his reasons. The Judge first observed:[16]
… [Mr Daher] also purported to deliver an account from TK Designs for the payment of $15,565. It became clear [that] this ‘account’ was legally ineffective. It was prepared by Mr Kaissi at Daher’s request and then produced by Mr Daher for some purpose remaining unclear. …
[Footnotes omitted.]
Later in his reasons, the Judge noted:[17]
By the same token the evidence of Mr Daher is not without its blemishes. He was shown to be mistaken when he claimed each of the builders ‘knew each other’s work and ability … and reputations. The presentation of the ‘bogus’ quote on 8 December 2009 demonstrates a willingness to cut corners when it suited his ends. He proceeded in ‘hands on’ haste in planning and in proceeding with the alterations, when to his knowledge they were unauthorised by the Council. However justifiable in the interests of safety or maintaining the structural integrity of the building they might otherwise have been, he took the risk without first notifying the Council or Mr Thomas.
[Footnotes omitted.]
Although in this paragraph the Judge refers to a “‘bogus’ quote”, this is apparently a reference to the earlier referred to account.
[16] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [42].
[17] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [74].
Counsel for Mr Daher submitted that the Judge had addressed the issues concerning the credibility and reliability of Mr Daher and Mr Thomas. Emphasis was placed on the paragraphs from the Judge’s reasons extracted above. It was pointed out that a number of witnesses whose credibility and reliability were not in issue had given evidence that materially conflicted with that of Mr Thomas and which supported the evidence of Mr Daher. It was said that the Judge had addressed those matters adverse to Mr Daher in reaching his conclusions.
My review of the reasons of the Judge of the relevant extracts from the evidence and of the submissions of both counsel has led me to the conclusion that the findings of the Judge should be sustained. I consider that those findings were not only open on the evidence but were fully supported by the evidence. It may be that Mr Thomas did not put his mind to the detail of the plans that he was shown and discussed. However, it is clear that he approved the works. His actions in ordering a cessation of work and directing the builder to leave the site were made after the work had barely commenced. It appears that he was angry and upset, at least in part, with the order in which the works were being undertaken. He expected the work on the roof to proceed first.
It is to be understood that the acceptance of the findings by the Judge in this respect do not resolve the appeal of Gembane and Suetill. It was argued that there was non-compliance with an essential term, namely, the need for written approval and that, in any event, the work being undertaken did not comply with the approved plans of 24 November 2009.
Essential and Non-Essential Terms
The High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited[18] reviewed the legal principles addressing the breach of a term of a contract. Gleeson CJ, Gummow, Hayden and Crennan JJ concluded that a party may terminate a contract where there has been either a breach of an essential term or a sufficiently serious breach of a non-essential term by the other party. Their Honours applied and approved the observations of Jordan CJ in Tramways Advertising Pty Ltd v Lunar Park (NSW) Ltd[19] on this topic and, in particular, they remarked:[20]
For present purposes, there are two relevant circumstances in which a breach of contract by one party may entitle the other to terminate. The first is where the obligation with which there has been failure to comply has been agreed by the contracting parties to be essential. Such an obligation is sometimes described as a condition. In Australian law, a well-known exposition was that of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd who, in comparing conditions and warranties, employed language reflected in many statutory provisions. The widespread statutory adoption of the distinction between conditions and warranties, or essential and inessential terms, is an established part of the background against which the common law has developed. The Chief Justice of New South Wales said (references omitted):
…
The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge. …
[Emphasis added. Footnote omitted.]
[18] Koompahtoo Local Aboriginal Land Council and Another v Sanpine Pty Limited and Another (2007) 233 CLR 115.
[19] Tramways Advertising Pty Ltd v Lunar Park (NSW) Ltd (1938) 38 SR (NSW) 632, 641-642.
[20] Koompahtoo Local Aboriginal Land Council and Another v Sanpine Pty Limited and Another (2007) 233 CLR 115, [47].
Their Honours considered that whether a sufficiently serious breach of a non-essential term justifying termination has occurred is to be determined primarily upon a construction of the contract, after which a judgment about the seriousness of the breach and the adequacy of damages is made. Breaches of this kind are described as “going to the root of the contract”[21] and involve the application of the doctrine concerning intermediate terms. In reaching the above conclusion, their Honours adopted or relied on the observations of Lord Diplock in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd.[22]
[21] Koompahtoo Local Aboriginal Land Council and Another v Sanpine Pty Limited and Another (2007) 233 CLR 115, [54].
[22] Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
When regard is had to the entire terms of the agreement to lease, it is difficult to see how the need for written approval could fit the description of an essential term.
Counsel for Gembane and Suetill submitted that the Judge correctly found that a breach of clause 16.1 would provide a proper basis for termination of the agreement to lease. It was submitted that Tabcorp Holdings Ltd v Bowen Investments Pty Ltd[23] confirms the essential character of clauses that require a lessor’s prior approval before alterations to a premises can be made by a lessee. It was contended that in confirming the essential character of such clauses, the High Court made no distinction between approval in writing and approval simpliciter. This argument has little weight. In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd,[24] the tenant was specifically informed that the landlord did not consent to any alteration to the foyer. There was nothing before the High Court that required it to distinguish written approval from approval otherwise than in writing when determining the essential character of the term.
[23] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, 285.
[24] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272.
The important matter was that the lessor approved the work to be undertaken on the premises. This was particularly so as the works were intended to be substantial and to include works of a capital nature to which the lessor would contribute the amount of $100,000.00. I do not consider that the evidencing of the approval in writing was essential. I also consider that the absence of written approval was not so serious a breach such as to justify termination of the agreement. The breach did not in any sense go to the root of the contract and did not, of itself, lead to any loss or damage. I reject the contention that the work having proceeded in the absence of written approval provided the basis for the termination of the agreement.
The final point for consideration on this aspect of the appeal concerns the question of whether the work undertaken was not authorised by the 24 November 2009 approved plan and that, as such, it was a breach of the agreement justifying termination.
As earlier indicated, the work on the premises had only proceeded for two days. The work was going to extend over a number of weeks, if not months. Evidence before the Court suggested that the proposed works, in all, would involve an expenditure of approximately $203,000.00, together with GST. The extent of the work before termination had a value of about $11,000.00.
The Judge addressed the nature of the work undertaken and, in his reasons, set out a detailed table of what were said to be departures from the approved plans:[25]
[25] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [48].
By a letter dated 17 May 2010 Mr Gaetan detailed the alterations undertaken in January that were not in his opinion in accordance with Council approvals. The departures were tabulated in some detail by the engineer Mr Kokkinakis in his report of 27 October 2010:
Plan & Photo Reference As Approved As Observed (a) A 150 x 150 x 12 mild steel angle was specified to support some brickwork and roof & ceiling after the creation of an opening to front office southern wall.
The wall was removed to full height and a 240 x 45 timber LVL strutting beam has been adopted to support the roof and ceiling. (b) & (c) A full length opening was specified to be created in the southern rear office wall (between the office and the store). The wall is a double wall and a 150 x 150 x 10 mild steel angle and a 150 x 100 x 10 mild steel angle was specified to support the external and internal leafs of wall above and roof and ceiling.
Instead of one large opening 2 smaller openings were created (one either side of the existing chimney) The wall above and the roof and ceiling are supported by, in one case a 100 x 100 x 6 GALINTEL and a 100 x 100 x 8 mild steel angle and in the other case 2 x 100 x 100 x 6 GALINTELS. (d) A full length opening was shown to be created to the eastern wall of the rear store.
No support beam was shown.A 1m opening was created in this wall with the brickwork above supported by a 75 x 10 mild steel flat bar. (e) 2 x 100 x 100 x 10 Mild steel angles were specified to support the brickwork above and the roof and ceiling loads above the newly created opening to the southern double wall of the kitchen.
2 x 150 x 90 x 10 mild steel angles have been used. (f) A solid wall is shown between the rear office and kitchen. A opening has been created in this wall (possibly to create a servery). The wall above the opening has been supported by a 100 x 100 x 6 GALINTEL.
(g) A 2.195m wide external opening has been specified to be created in the western external wall to the front office with a 150 x 150 x 10 Mild steel lintel shown to support the external leaf of brickwork (and roof and ceiling) and a 150 x 100 x 10 Mild steel lintel to support the internal leaf of brickwork.
Saw cuts have been provided to create the opening in the wall; however the wall has not been removed although a 150 x 100 x 10 Mild steel lintel has been installed to the external leaf. The opening width is approximately 1.8m wide. (h) An opening has been shown to be created at door head height in the front wall to the rear office area (separating the small store area) A 150 x 100 x 10 Mild steel angle is specified to support the brickwork above and roof and ceiling load.
An opening has been created but all the brickwork has been removed. A strutting beam has not been provided to support the roof and ceiling above. (i) The architectural plans show the low masonry verandah wall between the verandah piers to be removed with café-style bi-fold doors to be installed between the piers. No details of the support were provided. The low wall between the piers has been removed. [Footnotes omitted.]
The Judge discussed the expert engineer’s opinion in respect of the departures and he extracted aspects of the report: [26]
[26] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [49].
In his report Mr Kokkinakis expressed the following opinions about these departures:
I do not consider the alterations to the building to be a major departure from the council approved documents as all proposed use areas within the building are essentially the same it is the size of openings within walls and the type of support lintels/beams used that has varied.
…
I consider the following items need to be addressed, as a minimum, so that the building work is amenable to the council approval.
. Install new timber LVL strutting beam and strengthen existing timber LVL strutting and make good struts in the vicinity of previously existing small store area (near building’s entry)
. Replace or strengthen existing 75 x 10 mild steel flat bar in old store to laundry opening at rear of building.
. Complete construction of the opening in the western external wall of the building and install internal leaf lintel.
. Install any lintels that may be required and new bifold doors to previous verandah columns.
. Installation of approved ramps etc.
. Installation of plumbing suitable for café/restaurant use, (i.e. Grease arrestor, hand washing basins etc)
. The installation of appropriate fire protection devices (i.e. fire extinguisher, smoke alarms, fire exit doors.)
To determine an accurate timing and costing for the above work reference should be made to a suitably qualified Quantity Surveyor or Cost Consultant.
My best estimate would be a construction phase of the order of 2 to 3 months and costs of the order of some $80,000.00 to complete the works that have already commenced. This is based on the premise that re-plastering painting and other such non-critical, fit-out items are excluded.
Mr Gaeten had no issue in substance or form with this analysis. He was in fact ‘satisfied that's all true and correct’ … ‘it can all be fixed, absolutely’.
[Footnotes omitted.]
The Judge then concluded: [27]
The considered opinion of Mr Kokkinakis was that such are the departures from the approvals that they ‘are of no real structural significance’. He estimated it would take in the order of 2-3 months to rectify to compliance standard. He recommended a qualified architect be engaged to redesign the alterations accordingly. More-or-less the same departures were identified by the defendants building surveyor and planner Mr Meline. He readily acknowledged the opinions of Mr Kokkinakis appeared ‘consistent with my observations’. Like Mr Gaeten he took ‘no issue’ with the table.
[Footnotes omitted.]
[27] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [50].
The Judge, later in his reasons, considered the significance of what was described in his reasons as being the “breach of council approvals” and in that respect observed:[28]
Another troubling aspect of this litigation relates to the consequences of the undoubted breach of the building approval occasioned over the two days or so when building work actually proceeded before it was stopped by Mr Thomas. This has been described above. The position of the defendants is that a breach of the building approvals necessarily entails a breach of the agreement to lease itself.
…
A close perusal of the agreement reveals there is no express provision governing the consequences of the failure to comply with planning or building requirements as such. Reading the agreement to lease as a whole reveals that the failure to obtain third party approvals or consents from ‘relevant authorities’ (clause 15.2) or ‘council’ (special condition 2), or the failure to comply therewith is a matter between the lessee and the authority or Council, not as between lessor and lessee. The special condition is confined to ‘council approval for land use’.
Clause 15.2 is wider for it applies to ‘all necessary approvals’, an expression apt to include planning (or land use) as well as building approvals. The rider to clause 15.2 is critical, ‘… this Agreement is not subject to such approvals’. The effect of these plain words is that the consequences of non-compliance with ‘all necessary approvals from … relevant authorities’ and the failure to obtain ‘approval for land use’ are matters falling outside the four walls of the contract.
There is no doubting that planning approval was obtained so there is no question of breaching the second special condition. Accordingly the admitted departures from the terms of the building approval fall for resolution under clause 15.2 which expressly excludes the agreement being subject to such approval. The admitted breach of the building approval therefore did not as such furnish a right of termination because it could not amount to a breach of the agreement to lease. Accordingly, these are not matters upon which the lessor can act to terminate for breach because the agreement was not expressly subject to such approvals.
[28] Daher v Gembane Pty Ltd & Anor [2012] SADC 68, [93], [95]-[97].
Counsel for Gembane and Suetill submitted that the Judge’s conclusions established a substantial breach sufficient to warrant termination.
Counsel for Mr Daher traced in some detail the work being undertaken over the two days before Mr Thomas ordered cessation. Attention was then drawn to the evidence of the engineer, Mr Kokkinakis, and, in that respect, in a written submission, counsel for Mr Daher said:
One of the very first observations made by Kokkinakis was “the building was in an incomplete state of renovations/alterations, predominantly internal at the time of my inspection,” Kokkinakis further commented generally “In the ‘as observed’ case the general intent of the architectural designs depicted on 24/11/09 architectural drawings has been maintained but the extent of the new openings within existing walls has been varied somewhat from those drawings and, for the most part, the size of the openings has been reduced.” Kokkinakis also expressed the view in Exhibit P13 “Noting that the intended alterations to the building had not yet been completed, the work undertaken is, for the most part, appropriate from an engineering perspective.” He noted minor exceptions in relation to a roof support where a small storeroom walls were removed and a mild steel arch bar used to support the brickwork in the nearly created opening to the coolroom The extent of work to remediate the above he deemed to be minor and may involve costs of some of $2,000-$3,000.
He further noted that he did not consider the beam to be structurally unsafe.
Later in his report he opined “I do not consider the alterations to the building to be a major departure from the Council approved documents as all proposed use areas within the building are essentially the same, it is the size of the openings within walls and the type of support lintel beams used that has varied.
[Footnotes omitted.]
It was pointed out that the expert adviser to Gembane and Suetill considered that Mr Kokkinakis’ comments were consistent with his observations and the council officer responsible for building approvals had no issue with the views expressed by Mr Kokkinakis.
It is unsurprising that the renovation work being undertaken on the premises would encounter unexpected difficulties. Problems that could only be identified as the work proceeded would need to be addressed. The suggested departures from the authorised plan were addressed by evidence from Mr Daher, the builder Mr Vlachos and Mr Kaissi. In a table attached to the written submission of counsel for Mr Daher, an explanation was provided for each of the departures. A point often being made was that as the work had only just commenced, it was necessary to proceed with temporary positions which, in the course of time, would be remedied. Counsel submitted that it was quite unfair to reach a final conclusion about departure on work that had barely commenced. For example, the builder explained that as some of the required beams had not arrived, he improvised and that, in time, the required beams would be utilised.
Another example relates to the removal of a wall. The plan authorised the removal of the entire wall and the work had proceeded so as to remove only part of the wall, leaving a chimney in situ. The builder’s evidence was that this was not removed immediately because of danger. When the work was finished, there would be, it was said, full compliance with the plan.
In my view, there is substance to these submissions. Mr Thomas ordered cessation of the work before the work had barely begun. As Mr Kokkinakis observed, the extent of the work to remediate these problems was minor and would involve a cost of $2,000.00 to $3,000.00.
I do not consider that it had been established that there was a material departure from the approved development plan. The problems that arose were unsurprising, were temporary and would have been addressed as the project proceeded.
For these reasons, I would dismiss the appeal of Gembane and Suetill against the Judge’s conclusion that the agreement had been unlawfully terminated.
It is relevant to observe that the Judge concluded that Gembane and Suetill were estopped from asserting that clause 16.1 of the agreement to lease had not been complied with. It may be understood from my reasons that issues of estoppel did not arise. Were it necessary to do so, I would conclude that, for the reasons advanced by the Judge, an estoppel by conduct would arise.
The Appeal by Mr Daher
At trial, counsel for Gembane and Suetill accepted that, in the event of the Judge concluding that there had been an unlawful termination, an order for specific performance could be made. Apparently there was no objection as to the terms of the order and no appeal was lodged in respect of the appropriateness of such an order, given the Judge’s findings.
To my mind, there are many difficulties arising from the order for specific performance of the agreement to lease. It is sufficient to identify several matters to illustrate my concern. The first relates to the right of Mr Daher to purchase the property. It is expressed to be at an agreed market price. No mechanism has been provided for the determination of the market price, should there be no agreement.
Counsel for Mr Daher saw no difficulty. He submitted that the parties would use their best endeavours to agree a market price and this may be accepted as a necessary implication. Counsel agreed that there may be a legitimate difference of view, each side supported by his expert or experts. Counsel then submitted that the experts would confer, they would, as he described, be “hot tub[ed]” and, if no agreement was reached, there would be mediation followed ultimately by a court hearing. Counsel for Gembane and Suetill did not accept that any of these steps would necessarily take place.
A second matter related to the contribution to be made by Gembane and Suetill of $100,000.00 towards capital works. The meaning of “capital works” is not clarified in the lease agreement. Counsel for Mr Daher submitted that there was no difficulty and that Mr Thomas in his evidence had accepted that capital works went to matters of the structure of the building and the fabrication of the building. It appears that Mr Daher is prepared to accept Mr Thomas’ description of capital works. However, it may be that reference to matters of structure and fabrication raise as many problems as they solve. Do the capital works form part of the works to be undertaken by the lessee at his expense in accordance with clause 16.1. Does special condition 26 qualify clause 16.1. Counsel for Gembane and Suetill did not accept the submissions put by Mr Daher on this topic. The order for specific performance does not address or resolve these questions.
Other problems relate to the passage of time. Apparently the rent for the initial two year period of any lease remains at the same figure as fixed some years earlier. The obligation of the lessor to contribute $100,000.00 also remains fixed. Yet the building works to be undertaken by the tenant will incur expenses set at an appropriate rate at the time at which that work is undertaken. The market value of the property to be the subject of the agreement will also be determined at a later point in time.
Unsurprisingly, an order for earlier trial was sought and made. However, on the date fixed for trial, no Judge was available and the matter was adjourned for nine months. The Judge adjourned part-heard during the course of the trial for a period of about six months. These were unfortunate delays, particularly in circumstances where specific performance was sought.
These problems compound the other difficulties that arise in regard to the assessment of damages. Before an assessment of loss can be made, there needs to be an assessment of the expenses that Mr Daher will incur in the development of the premises. As earlier discussed, a builder in 2010 assessed these expenses as $203,000.00 plus GST. It might be expected that those costs, both in regard to labour and materials, will have increased by 2013. The work may not start until 2014. Is Mr Daher bound to proceed with the work regardless of cost. Will the agreement to lease proceed. Will council approve the development plan. It does not appear that the substance of these concerns was addressed at trial.
Assessment of Damages
As noted above, it was agreed that the Judge had erred in not proceeding to address the damages, if any, suffered by Mr Daher. I say “if any” because Gembane and Suetill contended that when regard is had to all of the evidence, it may be that Mr Daher suffered no loss. The issue on the appeal is whether this Court should proceed to address damages itself or whether the assessment should be remitted.
Counsel for Mr Daher considered the assessment of damages to be straight forward. He submitted that another restaurateur in the town had provided an expert report that established that during the period of delay, Mr Daher would have suffered a loss of net profit of between $560,000.00 and $860,000.00. He suggested that the figure of $560,000.00 be taken as a starting point and some unspecified reduction be made on account of what were described as “minor contingencies”. He suggested that the restaurateurs, Mr Daher and Mr Najjar, were able to provide expert evidence as to the building costs in order to comply with the development plan. This ambitious submission requires close analysis. Neither Mr Daher nor Mr Najjar had the relevant expertise in that area and Mr Najjar specifically disavowed any expertise as a builder. Evidence before the Court from a building expert suggested a materially greater cost than the assumed cost in Mr Najjar’s estimate of the net profit that would have been earned. The costs of finance were factored in, but no allowance appears to have been made in respect of the capital cost involved. It would appear that the capital cost may approach as much as $200,000.00, let alone the costs associated with a café/restaurant fit out.
There are further difficulties. Once the agreement to lease was terminated, Mr Daher did not sit on his hands. He set about establishing another café/restaurant in close proximity to the subject premises. Gembane and Suetill submitted that in these circumstances, any damages could only flow in regard to a closed period of less than a year. It was pointed out that this café/restaurant business may have an impact on the profitability of the proposed café/restaurant business at the subject premises.
Having regard to the foregoing, this Court is not in a position to proceed to assess damages. The inadequacies of the evidence are readily apparent. There is a real risk that an injustice will result. Further, the parties did not make full submissions to the Judge, a matter to which specific reference was made by the Judge. It may well be that further evidence should be led to assist the Judge in what may be a difficult task. For these reasons, I would remit the proceeding to the Judge to assess the damages, if any, to be awarded to Mr Daher.
Costs
The Judge provided separate reasons for his order as to costs and his reasons for making a reduction of 15 per cent. In particular, his Honour observed:[29]
In the primary judgment the court made an order for specific performance in favour of the plaintiff with respect to an agreement to lease over a property. That agreement required the lessee to obtain the prior written approval of the lessor, before making alterations or modifications to the subject premises. The court found the defendants had by their actions affirmed the agreement inconsistently with their rights to insist on such written approval, which they had thereby waived. The primary judgment also dealt with other consequential issues such as the proper construction of certain parts of the agreement, rectification and whether or not certain implied terms should be incorporated therein. In the result the plaintiff was substantially but not wholly successful. He failed on questions of implied terms, on some construction points and on the question of rectification.
…
In this particular case most of the evidence called was necessary on any view in order to establish the background facts and in order to set up the factual basis for the successful estoppel and waiver issues. Some additional evidence was led on the subject of rectification and implied terms, but not much. However a greater portion of the final addresses were devoted to those considerations. It is therefore reasonable for the plaintiff to bear the expense of litigating that portion of his claim as to those issues upon which he has failed: Hughes v Western Australian Cricket Association (Inc),[30] Cretazzo v Lombardi,[31] and Oshlack v Richmond River Council.[32]
…
Because of the findings adverse to the plaintiff alluded to and the time and effort devoted to pursing those issues, doing the best one can in the circumstances, it is appropriate to order that the prima facie entitlement to costs of the whole action on a party/party basis be reduced by 15 per cent, to give effect to those considerations.
[29] Daher v Gembane Pty Ltd & Anor (No 2) [2012] SADC 87, [2], [4], [6].
[30] [1986] ATPR 40-748 at 48, 136 per Toohey J
[31] (1975) 13 SASC 4 at 12
[32] (1998) 193 CLR 72 at [69]
As a general rule, costs follow the event. In GT Corporation Pty Ltd v Amare Safety Pty Ltd, Robson J conducted a comprehensive review of relevant authorities before concluding:[33]
[33] GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296, [59].
Based on these authorities, the general principles relevant to GT’s application in relation to costs are as follows.
1.The award of costs is in the discretion of the Court or Judge: …
2.The discretion must be exercised judicially: Donald Campbell & Co v Pollak; Cretazzo v Lombardi.
3.The discretion cannot be exercised arbitrarily or capriciously and it cannot be exercised on grounds unconnected with the litigation: Cretazzo v Lombardi; or the circumstances leading up to the litigation: Oshlack v Richmond City Council.
4.Costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings. The order is not made to punish the unsuccessful party: Latoudis v Casey.
5.As a general rule, costs should follow the event, and a successful party should obtain all of the costs of the action even though it failed to establish some of the alternative heads of its claim: Ritter v Godfrey; McFadzean v CFMBEU.
6.[The Rules permit] the court, in its discretion, to make an order not only as to a distinct question or issue in the pleading sense, but also to any part of the proceeding: Woolf v Burmon; Cretazzo v Lombardi.
7.The court may, in its discretion, decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim: McFadzean v CFMBEU.
8.It is not necessary that the issue concerned was raised unreasonably by the party: Rosniak v GIO. Although, a relevant consideration may include whether the issue was raised unreasonably: Mickelberg v Western Australia.
9.The court may, in its discretion, make an order that is a single order, fixing what proportion of a party’s costs should be paid by another party, thus obviating cross-orders or particular orders as to particular costs: Byrns v Davie; McFadzean v CFMBEU; Nolan v Nolan.
10.The caveat referred to by Jacobs J in Cretazzo v Lombardi may have less weight today than when it was decided: Primcom Pty Ltd v Sqarioto; Mickelberg v Western Australia; and Victoria v Master Builders Association of Victoria.
11.Although the quantum of damages recovered compared to that claimed may be a relevant consideration to the court in exercising its discretion, greater emphasis should be given to the failure or loss on discrete claims or issue and the time occupied in relation to them.
[Footnotes omitted.]
These observations were approved by the Full Court in Stubing & Anor v Halling & Anor.[34]
[34] Stubing & Anor v Halling & Anor [2012] SASCFC 123.
The issue of costs is now further complicated as the Judge’s conclusion in regard to damages being sustained by Mr Daher has been reversed. The Judge is now to address that question. In my view, the order for costs made by the Judge should be set aside. There is no reason why Mr Daher should not recover 85 per cent of his costs as ordered. The question is whether he should be entitled to further costs. In those circumstances it is appropriate that the entire matter be remitted for further consideration.
Conclusion
Having regard to the foregoing, I would order that the appeal of Gembane and Suetill be dismissed, that the appeal by Mr Daher be allowed, that the proceedings be remitted to the Judge to proceed to assess the damages, if any, to be awarded to Mr Daher as a result of the unlawful termination of the agreement to lease, and for the Judge to reconsider the appropriate orders as to costs following the conclusion of the remitted proceedings. I would hear the parties as to the costs of the appeals.
SULAN J: I agree with the reasons of Gray J and the orders he proposes.
DAVID J: I agree with the reasons of Gray J and the orders he proposes.
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