Gipsy Sky Pty Ltd v Stray Kat Pty Ltd
[2009] VCC 234
•19 March 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
(Not) Restricted
AT MELBOURNE
COMMERCIAL LIST
CIVIL DIVISION
Case No. CI-08-02560
| GIPSY SKY PTY LTD | Plaintiff |
| v | |
| STRAY KAT PTY LTD | First Defendant |
| ANDMA LEGAL PYT LTD (in liquidation) | Second Defendant |
| AND | |
| ANDRE VINCENT DI CIOCCIO | Third Defendant |
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| JUDGE: | HER HONOUR JUDGE COHEN |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 17 March 2009 |
| DATE OF JUDGMENT: | 19 March 2009 |
| CASE MAY BE CITED AS: | Gipsy Sky Pty Ltd v Stray Kat Pty Ltd & Ors |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0234 |
REASONS FOR JUDGMENT
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Catchwords: Lease of premises by plaintiff to first defendant – guarantee by third defendant – assignment of lease to second defendant – arrears of rent – whether first defendant liable for unpaid rent despite not having received disclosure statement under s 8(1) Retail Tenancies Reform Act 1998 – whether third defendant liable as guarantor of second defendant – calculation of penalty interest.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Herskope | Hunt & Hunt |
| For the Defendants | No Appearance | |
| HER HONOUR: |
1 The plaintiff sues each of the defendants in respect of arrears of rent under a lease of retail premises at 19 McKillop Street, Melbourne.
2 The plaintiff leased the premises to the first defendant for a term of five years commencing 1 January 2003[1]. The third defendant was guarantor of the first defendant’s obligations under the lease. He was sole director, shareholder and secretary of the first defendant, its solicitor, and prepared the lease. In March 2006 he requested an assignment of the tenancy to another company controlled by him, ANDMA Legal Pty Ltd, the second defendant, and the plaintiff agreed. He prepared the transfer of lease document. The second defendant occupied the leased premises until approximately 22 November 2007. It paid rent from 28 March 2006 but fell into arrears well prior to the end of the lease.
[1] Exhibit 3; admissions in paragraph 7 of Defence of first and third defendants filed 31 October 2008
3 The second defendant is in liquidation, Con Kokkinos of Worrells and Matthew James Jess having been appointed liquidator on 4 June 2008 by order of the Supreme Court[2]. Leave was granted by Master Efthim to the plaintiff to commence this proceeding. I am satisfied that the liquidator knew of the hearing of this claim and advised that he would take no part in it[3].
[2] Exhibit 11
[3] Exhibit 1
4 The plaintiff’s claim is for amounts equal to the amount of rent left unpaid under the totality of the lease, together with interest.
5 More specifically, the claim against the first defendant is for the sum of $9747.62 as the balance of unpaid rent up to the date of transfer of the lease; and the total of further unpaid rent to the end of the lease, and penalty interest on that amount, pursuant to its ongoing obligations for the tenant’s performance of the lease after the transfer of lease.
6 Against the second defendant the plaintiff claims rent owing of $85,592.01 plus interest on that sum to the date of hearing - $23,476.76, a total of $109,068.77.
7 The claim against the third defendant, Mr di Cioccio, is for all amounts owed by each of the first and second defendants as guarantor of each of them under the lease and transfer of lease.
8 There was no appearance for any defendant at the hearing of this proceeding. I am satisfied that a copy of the order of His Honour Judge Anderson made 28 January 2009, confirming 17 March 2009 as the trial date, was served on the first and third defendants in accordance with that order[4]. I am satisfied that the statement of the expert witness, Mr Cutler[5], was also served on them and receipt acknowledged by Mr di Cioccio[6].
[4] Affidavits of Jane Davies sworn 12 March 2009 with exhibited acknowledgement of receipt by third defendant (Exhibit 2), and affidavit of Geraldine Isabel Barro sworn 12 March 2009.
[5] Exhibit 7
[6] Exhibit 10
9 The plaintiff was required to prove its case. As a Defence had been filed on behalf of the first and third defendants when solicitors were still acting for them, I have taken it into account, and have considered each of the defences it raised.
10 The plaintiff called evidence from its director and shareholder, Mr Marios Pittas, who confirmed the lease and guarantee, the transfer of lease and produced the rent book kept by him[7] of payments under the lease. It also called Mr Lindsay Cutler, actuary, as to calculation of interest on overdue rent, and Mr Michael Bromby, solicitor, as to service of a letter making demand on the third defendant.
[7] Exhibit 4
11 I am satisfied that under a lease in writing, dated 1 January 2003, the plaintiff leased the premises at 19 McKillop Street, Melbourne, to the first defendant for a term of five years at rent commencing at $2,192.30 per week plus GST, payable weekly in advance, to be increased by five per cent per annum plus GST every 12 months. Accordingly, from 1 January 2006 the rent (including GST) was $2,791.65 per week, and from 1 January, 2007, $2,931.26.
Arrears of rent by first defendant
12 I am satisfied from the evidence of Mr Pittas and the rent book, that the first defendant was in arrears of rent from February 2005, and although continuing to pay rent at times, by 20 March 2006 its rental arrears totalled $21,662.62.
13 The Defence filed alleges an agreement to accept $20,000 in full and final satisfaction of the rent owed by the first defendant. Mr Pittas gave evidence that at the time that the third defendant requested a transfer of the lease from the first defendant to the second defendant in March 2006, he did agree to accept the sum of $20,000 in full and final settlement of the amount of $21,662.62 which the first defendant owed for rent. However, he said that the $20,000 was not all paid. I accept his evidence, confirmed through the rent book[8] he kept for the plaintiff in respect of this property, that the plaintiff did not receive the promised $20,000 but rather received two payments of $5,000 – the first on 21 March and the second on 31 March - and a further $2,000 on 19 April. I am satisfied that no further amounts were paid by the first defendant, that as the sum of $20,000 was not paid the first defendant is not entitled to the benefit of the agreement to accept that lesser sum, and that the payments it made reduced its arrears of rent to $9,662.62, which is all still owing.
[8] Exhibit 4
14 The plaintiff in fact claimed the sum of $9,747.62, but the extra $85 was not explained. I find that the outstanding amount for rent incurred by the first defendant was $9,662.62. The plaintiff has not claimed interest on this amount.
Can the first defendant avoid liability pursuant to s 8(2) of the Retail Tenancies
Reform Act 199815 In the Defence filed it is alleged[9] that “the first defendant was not given a disclosure statement and therefore it was not obliged to pay rent.” Notwithstanding that there was no appearance at the hearing to argue this point, I heard submissions on behalf of the plaintiff and have considered the allegation, as, if Ihave interpreted it correctly, it invokes a question of law.
[9] Paragraph 11(e)
16 As pleaded this allegation is in very general terms, but I take it to be an allegation based on the operation of s.8(2) of the Retail Tenancies Reform Act 1998 as in force at the time of commencement of the lease. Section 8(1) provided that at least 7 days before a prospective tenant of retail premises entered into a lease the landlord must give a disclosure statement. Sub- section (2) provided:
“(2) If a tenant has not been given a disclosure statement in accordance with
sub-section (1) before entering into a retail premises lease –(a) the tenant may withhold payment of rent until the end of 7 days after
the landlord gives the tenant a copy of the disclosure statement; and
(b) the tenant is not liable to pay the rent attributable to the period
before the landlord gave the tenant a copy of the disclosure statement;
and
(c) the tenant may give the landlord a written notice of termination at
any time before the end of 7 days after the landlord gave the tenant a
copy of the disclosure statement. “
17 The plaintiff concedes that there was no disclosure statement provided at any stage of this lease. Mr Pittas points out that both the lease document and the transfer of lease were in fact prepared by the third defendant, a solicitor, and acting for the first defendant, but that would not answer the proposition that there was a duty on the landlord to give a prospective tenant a disclosure statement in the form of the schedule to the Act.
18 The plaintiff relies upon the decision of the Court of Appeal in Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd[10] allowing the appeal of a landlord of a retail tenancy which had been ordered to repay several years’ worth of rent paid by a tenant to whom a disclosure statement had not been given. The Court held that the landlord had a good defence to the tenant’s claim for restitution of the rent paid, notwithstanding that the tenant had made the payments in question in ignorance of its right under sub-s.(8)(2)(a) to withhold them. The Court held that the statutory provision did not preclude a landlord from being entitled to be paid money at approximately the same - or typically the very same - rate as was set out as the rent under the lease. This was based on principles of quasi contract for use and occupation of the property. The Court found that the tenant had had the benefit of the use and occupation of the premises from the commencement of the lease, and for it to have that benefit without any payment would not be seen as just and fair.
[10] [2006] VSCA 6
19 Amendments were made by the Retail Leases (Amendment) Act 2005, which provided that sub-section (2) of s 8 ceased to apply on 1 May 2006[11]. As found by Deputy President McNamara in a VCAT decision involving these parties and this lease[12], by reason of that amendment s 8(2) simply did not apply to amounts of rent falling due after 1 May 2006 – including all payable by the second defendant in this claim – and non-provision of a disclosure statement did not debar the landlord’s claim for rent.
[11] Sub-section 8(14) introduced by s 46 of the Retail Leases (Amendment) Act 2005
[12] 19 November 2007
20 I have also had the benefit of reading a decision of Her Honour Judge Kennedy in Open Door Pub Pty Ltd v Stefanidakis and Hayden[13] which involved application of s 8(2) in similar circumstances, including the fact that there had never been a withholding of rent by the tenant on the grounds of non-receipt of a disclosure statement, and no disclosure statement was subsequently provided. Her Honour found that on its proper construction, the legislative amendment by introducing sub-section 8 (15) meant that unless the tenant before 1 May 2006 had withheld rent under ss 8(2)(a), commenced proceedings to recover the rent for which the tenant was not liable under ss 8(2)(b), or commenced a retail tenancy dispute under that Act, then a tenant to whom sub-section (2) applied immediately before 1 May 2006 will be liable on and after 1 May 2006 for any rent attributable to the period referred to in ss (2)(b)-the rent attributable to the period before the landlord gave the tenant a copy of the disclosure statement. In that case the tenant in question was in occupation before and after 1 May 2006.
[13] [2008] VCC 1300
21 In the present case, I am not satisfied that ss 8(15) applies because immediately before 1 May 2006 the first defendant was no longer the “tenant”, having transferred its tenancy from 1 April (or 28 March) 2006, even though it had ongoing obligations for continued performance of the lease by the new tenant.
22 The general principles discussed by the Court of Appeal in Ovidio Carrideo Nominees would appear applicable in the present case, particularly when the lease was signed for and on behalf of the first defendant by the third defendant, a qualified solicitor, who was described as the company’s sole director and sole secretary at the time, and no request for a disclosure statement was made before the lease was entered into nor at any time afterwards. However, that decision was not to the effect that the landlord was entitled to rent under the lease in the face of the statutory provision – s 8(2) - but rather there was a different characterisation of the entitlement to retain the amounts which had been paid.
23 In the present case, the amended statement of claim relied upon claims for the outstanding amount on the sole basis that it was rental under the lease. Mr Herskope, on behalf of the first defendant, conceded that there ought to have been a pleading at least by way of a Reply to the otherwise vague allegation in paragraph 11(e) of the Defence, which could have raised the right to compensation for the tenant’s use and occupation of the premises during the period for which rent remained unpaid. He also argued that the allegation should not succeed as there was no attempt to counterclaim for repayment of amounts of rent paid, but I do not accept that the failure to counterclaim defeats what is argued to be a statutory defence – although it may have been raised to challenge the defendants’ credibility had Mr di Cioccio given evidence.
24 In my view, in the situation which has arisen, the plaintiff should be entitled to amend its statement of claim to add as an alternative basis for the claim for the sum of $9,662.62, that the first defendant owed the plaintiff such sum for the first defendant’s use and occupation of the premises during the period up to 1 April 2006. I take into account the apparent intention of the amendment inserting sub-sections (14) to (16) of section 8, and the fact that there is nothing before me to indicate unfair prejudice to the defendants by the allowing of this amendment, that they have been well aware of the arguments since the hearing in VCAT and sought to rely on a legalistic defence.
25 On allowing that amendment, I would allow that sum in the nature of damages against the first defendant, and for the same reasons such sum is recoverable against the third defendant as guarantor under the guarantee or indemnity provided for in the lease.
Liability of second defendant
26 During March 2006 the third defendant requested that the plaintiff assign the balance of the lease to another company of which he was an office holder, ANDMA Legal Pty Ltd. The request for the assignment or transfer of lease included that it could be prepared by the second defendant at its cost and that there would be the same security and guarantor requirements – Andre Di Cioccio - with the transfer date of 1 April 2006.[14]
[14] Exhibit 8
27 On behalf of the plaintiff Mr Pittas agreed to this transfer and signed a document prepared by the third defendant to achieve it.[15] Under that agreement the first defendant as “old tenant” remained liable under the lease, its obligations continuing until the end of the lease but not for any period of over holding, nor for any renewed term.[16] Similarly, the transfer expressly did not end the obligations of the old tenant’s guarantor under his guarantee or indemnity which continued until the end of the lease but not for any period of over holding nor any renewed term[17].
[15] Exhibit 5
[16] Clause 6
[17] Clause 6
28 Although proposed to be from 1 April, it seems that the second defendant started paying rent from 28 March 2006. At that stage the rent pursuant to the terms of the lease, including GST, was $2,791.68 payable weekly in advance. Until early May it made all such payments on or only a day or so later than the dates they fell due, and despite failing to pay rent on 15 May 2006 rectified those arrears later that month and did not fail to make rental payments again until 26 June 2006.
29 I am satisfied that from 1 January 2007 the applicable rent under the lease, including GST, rose to $2,931.26.
30 I am satisfied that with effect from 22 November 2007 the plaintiff re-entered or retook possession of the premises. Although there is mention of 19 November 2007 being the date of re-entry, the decision and orders of Deputy President McNamara of VCAT reflect that in dismissing the tenant’s application for an interlocutory injunction to prevent the landlord from exercising its right to forfeiture for rental default, the landlord’s undertaking not to re-enter prior to that was released as from 12 noon on 22 November 2007. I also note the evidence of Mr Bromby, the solicitor having the carriage of the matter on behalf of the plaintiff at his then firm at that time, to the effect that it is his memory that the tenant had agreed to vacate on 22 November 2007 under the landlord’s exercise of its right to re-enter.
31 I find that as at 22 November 2007 the amount owing by the second defendant in unpaid rent pursuant to the lease was $70,935.71. This figure is reached by deducting the total of the amounts recorded in the rent book as having been paid as rent by the second defendant from the total of rent due up to that date. The evidence of the actuary Mr Cutler takes the same approach, but he calculated the total due at 31 December when the lease was due to expire, at $85,592.01. From that sum I have deducted $14,656.30 being the five last payments of rent due, namely those from 27 November to 25 December 2007, both inclusive, at $2,931.26 per week.
32 I find that that sum of rent - $70,935.71 was and is still owed by the second defendant under its obligations as transferee of the tenancy. As already stated, and as also found by Deputy President McNamara whose reasons I would respectfully adopt, there can be no argument that rent after 1 may 2006 was not required to be paid, notwithstanding there not having been a disclosure statement delivered prior to the assignment of the tenancy.
33 I am of the view that after the landlord retook possession the lease was terminated and therefore the balance of what would have been payable for under the lease, should not be categorised as rental. However, I am satisfied that at the time the plaintiff took possession the premises were not in a condition suitable to be relet, and could not reasonably have been made so within the 5 to 6 weeks left of the term of the tenancy under the lease. No reasonable opportunity existed for the plaintiff to mitigate its losses by receiving rent from an alternative tenant before 31 December 2007. Accordingly, I am satisfied that the plaintiff is entitled to damages in the nature of “mesne profits” being the amounts it would have been due in rent until the expiry of the lease on 31 December 2007 - a total of $14,656.30.
34 Accordingly, I find that the second defendant owes to the plaintiff the sums of $70,935.71 in the outstanding rent and $14,656.30 in damages for loss of rent for the balance of the term of the lease.
35 The plaintiff claims, in addition, penalty interest on both of those sums. This claim is based on clause 2.1.10 of the lease (as transferred to the second defendant) and item 14 in the schedule which set the penalty interest rate at prescribed penalty interest rates plus four per cent. An experienced actuary, Mr Lindsay Joseph Cutler, was engaged to calculate that interest. I am satisfied from his statements[18] that he calculated such interest in accordance with the provisions of the lease, including that he calculated no interest on any amounts that were not outstanding for at least seven days, but once each rental payment was outstanding for seven days, calculated interest for the whole of the time it was outstanding. I am further satisfied that under clause 2.1.10 the plaintiff is entitled to claim interest calculated at those rates until the overdue money is paid, even beyond the duration of the lease. Accordingly, I accept Mr Cutler’s second calculations, provided by letter of 27 February 2009.
[18] Exhibit 7
36 I have considered whether the same penalty interest is appropriately applied to the sum I have designated as damages for the value of the lost rent for the balance of the duration of the lease rather than as rent due under the lease. I am satisfied that the plaintiff is entitled to claim such rate of interest under clause 2.1.10 of the lease as it refers not only to interest on any rent but alternatively on “other money which the tenant has not paid within seven days of the due date”.
37 Although Mr Cutler did not separate the sums by reference to the date of re- entry, I am satisfied that it was appropriate for the entire amount on which Mr Cutler calculated penalty interest to be included as subject to that penalty interest, and, accordingly, I am satisfied from his evidence that the plaintiff is entitled to interest on the amounts overdue from the second defendant totalling $23,476.76.
38 The total for which the second defendant is liable is therefore $109,068.77.
Is the third defendant bound as guarantor of the second defendant
39 The transfer of lease also provided for the new tenant’s guarantor to guarantee to the landlord and to the old tenant that the new tenant would pay rent promptly and would do everything the lease required. It specifically required that the new tenant’s guarantor must indemnify the landlord and the old tenant so that they suffer no harm from breaches of the lease by the tenant, including losses resulting from the insolvency or winding up of the new tenant.[19]
[19] Clause 8.3
40 While the existence of the assignment or transfer of lease is admitted in the Defence, the third defendant asserts that he was not a party to it.[20]
[20] Paragraphs 10(c) and 10A(c) of the Defence to Amended Statement of Claim.
41 I am satisfied that the third defendant was party to the assignment or transfer of lease, and is the person described as the “new tenant’s guarantor”, and that the obligations of the new tenant’s guarantor are enforceable against him. I reach this conclusion for the following reasons:
(i)
I accept Mr Pittas’s evidence that it was Mr di Cioccio who delivered to him the letter dated 13 March 2006 confirming a request for the transfer of the lease from the first defendant to the second defendant, and including that the same security and guarantor requirements would be included – Andre di Cioccio.[21]
(ii)
I accept from the evidence of that letter and of Mr Pittas that it was the third defendant who drew the documentation for the transfer of lease, which documentation named him in the schedule both as old tenant’s guarantor and as new tenant’s guarantor, but which omitted a signing clause for either the new tenant’s guarantor or the old tenant’s guarantor.
(iii)
I accept Mr Pittas’s evidence that beside clause 8 of the transfer of lease document, being the clause headed “Guarantee and Indemnity”, it is his own signature on the left and the third defendant’s signature on the right, and that each of them signed there in the presence of each other, upon Mr di Cioccio telling Mr Pittas that this was the section dealing with his guarantee.
[21] Exhibit 8, paragraph 1
42 I am satisfied that Mr di Cioccio’s signature, appearing as it does beside clause 8 of the transfer of lease, is sufficient for the purposes of s.126 of the Instruments Act 1958, and that the document is sufficient memorandum in writing of his guarantee. I am further satisfied that in each of his roles, as director of the first defendant, and as a director of the second defendant, and as the solicitor drawing the transfer of lease on behalf of each of those companies, he was well aware of the fact of the transfer and that he was the named guarantor for the new tenant, and that it was a condition of the plaintiff agreeing to the transfer of the tenancy that he be guarantor of the obligations of the new tenant.
43 It was submitted for the plaintiff that, on a proper construction of clause 15.1.3 of the lease, a formal demand would not be needed for the third defendant to be ordered to indemnify the plaintiff for any amounts for which the first or second defendant is liable to the plaintiff. However, out of caution, the plaintiff called Mr Bromby to confirm service on the third defendant of demand for such payments. I accept from his evidence that he forwarded by email to the third defendant a copy of a letter dated 21 November 2007[22] and on the same date caused a copy of that letter to be hand delivered to the premises at 19 McKillop Street, Melbourne, where he believed the third defendant would still be in occupation having regard to the discussion as to the vacation of those premises by 12 noon on Thursday 22 November.
[22] Exhibit 9
44 I am satisfied that that letter was served on the third defendant. Whilst it asserts that there were continuing obligations under the lease until 31 December 2007, for the purposes of the present proceeding, I accept that the letter set out that there were substantial arrears of rent due from the second defendant which stood as at 13 November 2007 at $68,089.45 and would continue to accrue. The letter also set out that under clause 2.1.10 of the lease the tenant is required to pay interest on all outstanding rent and that confirmation from an actuary of the interest presently outstanding was being sought. The letter also noted that as he had guaranteed the obligations of his company under the lease, he was personally liable for all claims brought by the plaintiff against the company. Finally, it reserved its rights arising out of inter alia the plaintiff’s claim for rent unpaid by the first defendant for the period prior to its transfer of the lease to the second defendant, and noted that, as a director of the first defendant, he had guaranteed that company’s performance under the lease. I am satisfied that this letter amounts to sufficient demand being made on the third defendant as guarantor, whether or not any demand is required for an assertion of an obligation to indemnify.
45 I am therefore satisfied that the third defendant is liable to the plaintiff for the following sums:
•
$9,662.62 owed by the first defendant for its occupation of the premises up to the time of transfer of the lease;
•
$70,935.71 in rent and $14,656.30 in damages for lost rent for the balance of the lease, being a total of $85,592.01 owed by the second defendant;
• $23,476.76 interest on amounts owing by the second defendant. 46 I am satisfied that the terms of transfer of lease made the first defendant liable for all amounts for which the second defendant became liable through its default in payment of rent under the assigned tenancy. I am, therefore, satisfied that in addition to the $9,662.62 for which the first defendant is liable up to the time of transfer of the lease, it is liable – severally – with the second defendant for the amounts for which the second defendant is liable. The total for which the first defendant is liable is $118,731.39.
47 I propose to enter judgment for the plaintiff against each defendant in respect of the amounts for which I have found each defendant liable. In addition, I propose to order that the defendants pay the plaintiff’s costs of this proceeding, including reserved costs, on Scale D of the County Court scale of costs. I certify for counsel for a brief fee of $2,750, and for attendance to make further submissions and hear judgment today $750.
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