GPT Funds Management 2 Pty Limited v Footwear Trading Group Pty Ltd
[2013] NSWDC 199
•30 July 2013
District Court
New South Wales
Medium Neutral Citation: GPT Funds Management 2 Pty Limited v Footwear Trading Group Pty Ltd [2013] NSWDC 199 Hearing dates: 25 and 26 July 2013 Decision date: 30 July 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: 1. Judgment for the second and third defendants against the plaintiff.
2. No order as to costs.
Catchwords: LEASE - breach by tenant - further agreement - liability of covenantors - waiver of forfeiture - election - notice - construction - damages - incentives to new tenant Legislation Cited: Conveyancing Act 1919, s 7, s 13, s 129, s 170, s 171
Corporations Act 2001 (Cth)
Interpretation Act 1987, s 76Cases Cited: 93 GSP Pty Ltd v Advent 8 Pty Limited [2013] NSWDC 135
400 George Street (Qld) Pty Ltd and Ors v BG International Ltd [2010] QSC 66
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 54
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Central Estates (Belgravia) Ltd v Woolgar (No. 2) [1972] 1 WLR 1048
Finley v Russell-Jones (1948) 49 SR (NSW) 96
Holme v Brunskill (1877) 3 QBD 495
Ing Funds Management Ltd v Anz Nominees Ltd; Ing Funds Management Ltd v Professional Associations Superannuation Ltd [2009] NSWSC 243
Louinder v Leis [1982] HCA 28; (1982) 149 CLR 509
Masters v Cameron (1954) 91 CLR 353
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457
Meredith Projects v Fletcher Construction [2000] NSWSC 493
Owendale Pty Ltd v Anthony (1967) 117 CLR 539
Price v Worwood (1859) 4 H & N 512; (1859) 157 ER 941
Pritchard v Djz Constructions Pty Ltd and Ors; Gilles and Anor v Djz Constructions Pty Ltd and Ors [2012] NSWCA 196
Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17
Rasheed v Burns Philp Trustee Co Ltd (1982) NSW ConvR 55-102
Ring v RW & CD Investments Pty Ltd [2004] NSWSC 1045
Segal Securities Ltd v Thoseby [1963] 1 QB 887
Spathis v Hanave Investments Co Pty Ltd [2002] NSWSC 304
Staehr v Federal Lime Co Ltd [1912] SALR 102
Vescio v Westpac Banking Corp [2003] NSWSC 1270
Wong v St Martins Property (Aust) Pty Ltd (New South Wales Supreme Court, McLelland J, 17 October 1990, unreported)Category: Principal judgment Parties: GPT Funds Management 2 Pty Limited ACN 115 026 536 (plaintiff)
Footwear Trading Group Pty Ltd ACN 124 696 751 (first defendant)
Peter Loccisano (second defendant)
Maria Teresa Loccisano (third defendant)Representation: Mr S S Ahmed (plaintiff)
Gadens Lawyers (plaintiff)
No appearance (defendants)
File Number(s): 2012/73426 Publication restriction: No
ex tempore Judgment
A. INTRODUCTION
Footwear Trading Group Pty Limited ("Footwear") as tenant entered into a lease with GPT Funds Management 2 Pty Limited ("GPT") as landlord. Peter and Maria Loccisano were parties to the lease as covenantors. Prior to the terminating date of the lease Footwear ceased making payments in full. Correspondence between the parties occurred and a further agreement was entered. Footwear did not adhere to the agreement and ultimately the landlord, GPT, purported to terminate the lease and sue Footwear and the covenantors for the amount of the loss.
B. BACKGROUND
On 6 March 2008 Footwear as tenant and Peter and Maria Loccisano as covenantors entered into a five-year lease with GPT as landlord. Maria Loccisano was the sole shareholder of Footwear at the time of the hearing and was sole director and secretary up to 24 August 2012 when Peter Loccisano was appointed. Peter Loccisano had previously held shares in Footwear.
The lease was agreed to run from 6 March 2008 until 5 March 2013. In the fourth year the rent was $203,519.03 per annum and it increased by five per cent to $213,694.98 per annum in the final year. In accordance with its obligations under the lease Footwear provided a bank guarantee for $49,635.78 to secure its obligations under the lease.
The landlord relied upon a number of provisions in the lease. The relevant provisions are as follows:
"4.1. You must pay us the rent, any turnover rent, your share of the operating expenses, the cost of chilled water in accordance with clause 13.1, and any other money you owe us, on time, without deduction, set-off or counterclaim. If required by us, you must sign an order on your bank debiting your account and crediting our account. We will provide you with written details of our account.
Note: We send you a monthly tax invoice."
"Part D: Rent
7. You must pay us rent
You must pay us the rent as stated or calculated in item 9, in equal monthly instalments, in advance, on or before the first day of each month (or in the case of the first payment, prior to the commencing date)."
"15.3. We may use the bank guarantee to recover our loss due to any breach of the lease by you. We may draw on the bank guarantee even if this lease is not registered. You must immediately give us a replacement unconditional bank guarantee complying with clauses 15.1 and 15.2 for any amount used."
"27.1. When the lease ends:
(a) regardless of the condition of the premises or any fitout in the premises when the premises were handed over to you, you must vacate the premises and, if we require, give them back to us with all:
(1) fitout (including fixtures, fittings, suspended ceiling, graphics and signage) removed;
(2) finishes removed from the walls, floor slab and roof slab and any damage made good; and
(3) services reinstated to open plan (including sprinklers to a height nominated by us);
..."
"46. Liability of covenantor
46.1. The covenantor agrees that the covenantor
is liable to us if you or any person to whom you assign the lease, breaches the lease or if any of the events referred to in clause 50.1(b) to (d) occur. The covenantor agrees to pay us the amount of our loss.
46.2. The covenantor is liable:
(a) if we do not sue you or do not enforce all of our rights against you;
(c) if the lease is unregistered; and
(d) after the lease ends - for any breach that occurred before the lease ended or arose out of the lease ending."
"Part R: Breach of the lease
48. If you breach the tease
If you breach the lease, we may give you a notice requiring you to remedy the breach."
"50. What we may do if you breach the lease
50.1. If:
(a) you breach the lease and do not remedy it as required;
(b) you or the covenantor are a natural person and become bankrupt, commit an act of bankruptcy or the estate of you or the covenantor is brought within the operation of any law relating to bankruptcy;
(c) you or the covenantor are a corporation and:
(1) an order is made or resolution is passed to wind you up or to wind up the covenantor;
(2) an order is made or a meeting is called for the appointment of an administrator, provisional administrator, liquidator, provisional liquidator, receiver, receiver and manager, or an inspector to you or the covenantor; or
(3) an administrator, provisional administrator, liquidator, provisional liquidator, receiver, receiver and manager, or inspector is appointed to you or the covenantor; or
(d) any act or event mentioned in section 461(1)(a) to (k) of the Corporations Act 2001 (Cth) occurs in relation to you or the covenantor,
we may do any one or more of the following:
(e) re-enter and take possession of the premises;
(f) end the lease (see clause 27);
(g) recover from you or the covenantor any cost, liability or loss we suffer;
(h) use the bank guarantee (see clause
15.3) to recover any loss we suffer as a result, including legal costs and expenses on a solicitor and client basis;
(i) remedy the breach at your cost and enter and remain on the premises for this purpose;
(j) exercise any of our other legal rights."
"50.2. If we re-enter and take possession of the premises, then we may recover from you and/or the covenantor:
(a) arrears up to the date of re-entry;
(b) our costs and expenses in reletting the premises (including any commission or similar charge); and
(c) the difference between the money payable by you under the lease from the date of re-entry until the terminating date in item 8, and the money we actually receive or reasonably anticipate we are likely to receive as rent from other lessee(s) of the premises for the part of the term that had not expired at the date of re-entry."
"Part S: Notices
51. Notices to be in writing
A notice required by the lease must be in writing.
52. Serving notices
52.1. We may serve a notice on you by:
(a) giving it to you personally;
(b) leaving it at the premises; or
(c) leaving it at or posting it to, or faxing it to your registered office or your business address as last known to us."
"61.1. You acknowledge that we have paid to you:
(a) $60,000.00 as a contribution to the cost of fitting out the premises; and
(b) any GST which is imposed on or in respect of the contribution in paragraph (a).
(c) If you:
(1) cease to be the lessee or cease to occupy the premises (other than as a result of granting a licence of the premises to a franchisee that has entered into a franchise agreement with you to conduct the franchise in the premises with our prior consent); or
(2) are a company and there is a change in the majority shareholding,
you must promptly repay to us the whole or part of the amount paid under this clause as set out in the following formula."
"61.2. Formula
Year of the term in which:
Percentage to repay
Year 1:
100%
Year 2:
80%
Year 3:
60%
Year 4:
40%
Year 5:
20%"
The lease was executed by GPT and Footwear and "signed, sealed and delivered" by the covenantors in the presence of a witness.
In 2011 Footwear had difficulty in meeting its lease commitments. Mirella Loccisano was the Accounts Manager of Footwear. She met with representatives of GPT in July 2011 and informed them that Footwear was unable to sustain its operations and asked if it could surrender the lease. On 20 July 2011 GPT forwarded a proposal to Footwear, which was not accepted.
C. THE AGREEMENT
On or about 30 August 2011 GPT sent a revised proposal in relation to the lease. The 30 August document in evidence provided as follows:
"30 August 2011
Footwear Trading Group Pty Ltd
Attention: Mirella Loccisano
Unit 11, 286 - 288 New Line Road
DURAL NSW 2158
Without Prejudice
Dear Mirella,
Re: Undated Surrender of lease
Lease from GPT Funds Management 2 Pty Ltd ("we")
to Footwear Trading Group Pty Ltd ("you")
Shop GR 133, Rouse Hill Town Centre ("premises")
Further to recent discussions we confirm that we have agreed to the following:
1. Your request to an undated surrender of the lease
2. You enter into an undated deed of surrender (a copy of our standard deed is attached for your reference); and
3. The surrender of lease will not take effect until we locate an acceptable permanent replacement tenant and enter into a binding lease agreement (although, at our option, we can require the surrender to take effect without this requirement being satisfied)
4. On your request to minimise exit costs, the Lessor has secured a Casual Tenant to commence trading from GR 133 effective from 1 September 2011, for a 3 month period.
5. The monthly rental achieved from BMS Wholesale Pty Ltd is $14,025.00 inclusive of GST.
6. The income received from BMS Wholesale will be offset against your monthly rental and you will be required to pay the balance.
7. In order to secure the Casual Tenant, the wall between the store and the back storeroom is required to be removed. To minimise cost, our maintenance team have organised the removal of the wall and any makegood required as a result of the wail being removed
8. A cost of $700 including GST, will be charged to your account for the disposal of the materials.
9. Whilst you remain the Lessee, the electricity costs will be incurred by Footwear Trading Group Pty Ltd.
10. The Lessor has committed to review the Chilled Water system to ensure it is running efficiently.
11. Whilst, we are in the market you are required to remit to GPT the monthly rental in accordance with the lease, less the balance of the income received from the casual lease tenant. In the event the casual lease tenant vacates and we have not secured a replacement, you are required to pay the monthly rental as per the statement issued.
12. You are required to bring all arrears up to date. As at 30 August 2011, rent outstanding is $23,074.96. You are required to clear this debt in-line with the payment plan outlined below:
31/08/2011
$ 7,691.65
5/09/2011
$ 7,691.65
12/09/2011
$ 7,691.65
Total
$ 23,074.95
13. As the rental statement for September 2011 has been issued, the rent payable for September is as follows:
Sept 11 Rental
$ 19,354.13
Plus - Cost of Bin Hire
$ 700.00
Less - Casual Lease Rental
($ 14,025.00)
Due and Payable 26 September 11
$ 6,029.13
14. You are required to remove all external signage relating to closing down sales and also remove the blade signage.
15. On vacating the tenancy you are required to ensure the tenancy is left clean and ready for use by the incoming tenant. This involves patching of any holes as a result of removing alarm systems, camera's, cupboards, etc.
16. You are required to provide GPT with keys to the tenancy prior to 1 September 2011 and ensure any alarms etc have been disconnected
Once a permanent replacement tenant is found, and we enter into a binding lease agreement, we will liaise with Footwear Trading Group Pty Ltd on finalising dates.
Footwear Trading Group Pty Ltd will be liable for the following:
· Re-pay our fitout contribution in accordance with clause 61.1 of the lease.
· You will be required to pay rent up to and including the day prior to the new lease commencement date.
· We will give you at least one month's notice of the date by which you must surrender the premises. We can give you that notice at any time. You must vacate the premises and, unless we otherwise agree, make them good in accordance with the requirements of the lease by the end of the period of notice.
· You will be liable for the cost and loss we suffer by reason of the surrender. The potential extent of your liability is set out in the attached deed. That loss will include any shortfall in income derived by us from the premises for the balance of the term of your lease after the surrender date.
· You are required to pay legal fees for processing of the surrender agreement
· In the event we secure a replacement tenant and the market rent is lower than the current rent payable under the lease, you will be required to pay the difference in rent for the remainder of the term of the lease
Please sign and return the enclosed copy of this letter to confirm acceptance of the above conditions. We will then instruct our solicitors to prepare and issue the execution copy of the deed of agreement to the undated surrender lease.
We recommend that you obtain legal advice in connection with this transaction.
If you have any questions please do not hesitate to contact the undersigned on telephone number 0457 862 144 or 02 9421 2300.
Yours faithfully
[signature]
Sonia Davis
Retail Manager
We Footwear Trading Group Pty Ltd acknowledge and agree to the terms and conditions set out in this letter.
ACCEPTED BY TENANT (for company)
Director/Secretary
Execution Date
[signature]
Signature
30/8/11
Mirella Loccisano
Full name
..."
The affidavit evidence read by the landlord stated as follows:
"24. The August proposal was signed by Maria [sic] Loccisano as being accepted by Footwear Trading and dated 30 August 2011.
25. The August Proposal relevantly contemplated that the proposed surrender of the Lease would not occur until an acceptable permanent tenant was located but until that time:
(a) in order to minimise 'exit costs' the Premises would be occupied by a casual tenant, BMS Wholesale Pty Ltd and the monthly it paid would be offset against the rental payable by Footwear Trading;
(b) Footwear Trading would be liable for the rental due under the Lease less the amount of the monthly rental paid by BMS Wholesale Pty Ltd;
(c) Footwear Trading would remain liable for electricity costs; and
(d) Footwear Trading would bring the then current arrears of $23,074.96 up to date within three months.
26. On 1 September 2011, pursuant to the August Proposal, Footwear Trading vacated the Premises and provided [the landlord] with a number of post-dated cheques in payment of the arrears of $23,074.96.
27. All the cheques provided by Footwear Trading were subsequently dishonoured, leaving Footwear Trading in breach of its payment obligations under the August Proposal. Further, Footwear Trading failed to pay the instalments of rent due on 1 September 2011 and 1 October 2011.
28. On or about 28 September 2011, [the landlord] received an email from Peter Loccisano informing that he would clear the arrears."
On 11 October 2011 the landlord, GPT, appears to have disregarded the August 2011 agreement ("the August Agreement") and returned to the obligations of the lease. It sent a notice under s 129 of the Conveyancing Act 1919 requiring Footwear to remedy breaches arising from non-payment of various amounts including rent and requiring payment within 14 days to remedy the breaches claiming an entitlement to re-enter or forfeit the lease in the event of non-compliance. A copy of the notices and a reminder of the obligations on the covenantors to meet any loss were sent to the covenantors.
The Court was not favoured with all of the correspondence. In several respects the landlord's letters in evidence refer to correspondence from Footwear or the covenantors which is not in evidence. In any event, on 26 October 2011 the landlord extended the period for payment of amounts outstanding to 2 November 2011. At this stage BMS Wholesale Pty Ltd ("BMS Wholesale") was in occupation of the premises as contemplated by the 30 August 2011 agreement.
On 3 November 2011 GPT's solicitor sent a letter addressed to Footwear and marked "Attention: Mirella Loccisano", with copies to Maria Loccisano and Peter Loccisano. The letter noted that Footwear provided a number of post-dated cheques and that GPT:
"accepts the proposed payment plan, subject to:
· your company providing a further cheque for $2,500 to make up the shortfall, dated on or before 7 December 2011;
· there being no further requests that our client delay banking each cheque; and
· none of the cheques being dishonoured.
Our client believes that in these circumstances these conditions are reasonable and should be acceptable to your company. If any of the above conditions are not met, however, please note that our client reserves its right to terminate the Lease, draw upon the bank guarantee to recover the outstanding arrears and commence legal proceedings against your company and you and Peter Loccisano personally as covenantors to recover the amounts specified at point 3 of our letter of 26 October 2011.
Our client reserves all rights under the Lease and otherwise at law.
..."
The basis for asserting that Mirella (as distinct from Maria) Loccisano was liable "personally as [covenantor]" was not explained. There was further correspondence from the landlord on 10 November 2011 although again it was not in evidence. On 28 November 2011 the landlord wrote again to Footwear "Attention: Mirella Loccisano" with copies to Maria Loccisano at one address and Peter Loccisano at another:
"By express Post
...
We refer to our letters dated 3 and 10 November 2011.
Our client retains the following cheques from your company:
1. cheque for $5,500.00 dated 23 November 2011 (request received to delay banking to 30 November 2011);
2. cheque for $5,459.00 dated 30 November 2011; and
3. cheque for $5,460.77 dated 2 December 2011.
These cheques total $16,419.77 which is $8,000 less than the current arrears $24, 419.77.
In the circumstances, our client is entitled to call upon the bank guarantee provided by your company under the Lease to make up the $8,000 shortfall and to then enforce clause 15.3 of the Lease, which requires your company to immediately provide a replacement bank guarantee for the amount called on.
To avoid our client taking this action our client requires payment of $8,000 by EFT by no later than 30 November 2011.
Our client reserves all of its rights under the lease and otherwise at law.
Yours sincerely
..."
On 12 December 2011 the landlord sent another letter to Footwear "Attention: Mirella Loccisano" with copies to Footwear at the shop address and Maria Loccisano and Peter Loccisano at the separate addresses as previously. The letter of 12 December 2011 said as follows:
"We refer to our previous correspondence and recent discussions with our client in relation to the terms of the surrender proposed by your company.
We confirm that your company's proposal is unacceptable to our client and is rejected.
Our client now requires payment of the arrears due under the Lease. Subject to clearance of your company's most recent cheque for $5,460.77, these total $24,130.52 including GST. If the cheque is dishonoured (as the last two have been), the amount outstanding will be $29,591.29.
Our client demands your company or you and/or Peter Loccisano, as covenantors under the Lease, pay the all arrears by 14 December 2011 and gives notice that if payment is not received by this time, our client will terminate the Lease on 15 December 2011.
Termination of the Lease will result in our client being entitled to claim:
1. the amount of the arrears outstanding as at the date of termination;
2. the amount of the fitout contribution repayment ($24,000); and
3. damages covering the following losses:
(a) lost future rent, estimated at $197,534 (based a loss equivalent to 12 months gross rent);
(b) legal fees, design review fee and survey fees payable that will be incurred in respect to a new lease, estimated at $4,800;
(c) fitout contribution payable to a replacement tenant, estimated at $60,000;
(d) leasing fee payable to secure a replacement tenant, estimated at $19,753; and
Our client will apply the proceeds of the bank guarantee provided under the Lease against these claims, and then intends to commence legal proceedings against your company and you and Peter Loccisano personally as covenantors to recover the balance of its claims.
As stated previously, our client has is confident it we will be able to successfully prosecute the claims set out at points 1 to 3 above in either the Administrative Decisions Tribunal or civil courts.
To avoid the action foreshadowed above, please ensure that payment of all arrears (currently $29,591.29 including GST) is made by 14 December 2011.
Our client reserves all rights under the lease and otherwise at law.
Yours sincerely
...
for GADENS LAWYERS" [emphasis in original].
I infer from this letter that the arrears at 14 December 2011 include the rent for December 2011 in accordance with clause 7 of the lease.
On 13 December 2011 GPT sent an email to Peter Loccisano and Mirella Loccisano in the following terms:
"Dear Peter and Mirella,
Further our legal letter emailed to you yesterday 12 December 2011, I write to advise the cheque banked on 9 December 2011 for $5,460.77 has dishonoured. Therefore, the debt outstanding as at today's date is $29,591.29.
As per our letter attached, you are required to provide GPT with a bank cheque totalling $29,591.29 by 14 December 2011 to remedy the breach of lease.
As stated in our letter, failure to comply will result in the lease being terminated on 15 December 2011 and we will apply the proceeds of the bank guarantee provided under the Lease against the outstanding debt and commence legal proceedings against your company and covenantors under the lease to recover our losses.
Regards,
Sonia Davis
Sonia Davis
Retail Manager
Rouse Hill Town Centre
The GPT Group
..."
The email includes reference to an earlier email at 4.53pm on 12 December 2011 which refers to an attached legal letter, and the letter of 12 December 2011 follows, although it is unclear whether the 12 December letter was attached to the 12 December email, to the 13 December email or to both.
A request for further time from lawyers representing Peter Loccisano dated 14 December 2011 was rejected by GPT and on 15 December 2011 the landlord sent a letter in the following terms again to Footwear "Attention: Mirella Loccisano" with copies to Footwear at the shop, Maria Loccisano and Peter Loccisano at their separate addresses and by email to the law firm acting for Peter Loccisano saying:
"We refer to our previous correspondence regarding the above matter.
Despite numerous notices, your company has failed to remedy its breach of clauses 4, 5, 7, 11 and 12 of the Lease by paying the arrears (currently $29,591.29 including GST). Our client is accordingly entitled to exercise its right to terminate the Lease under clause 50.1 of the Lease, and hereby exercises that right.
A notice of termination is enclosed. The Lease is accordingly at an end.
As indicated previously, our client will now draw on the bank guarantee and apply its proceeds against the arrears of $29,591.29 and the fitout contribution repayment of $24,000 is due to our client under clause 61 of the Lease.
Further, we confirm that our client intends to commence proceedings against your company and its covenantors for the balance of its losses, costs and expenses incurred as a consequence of the early termination of the Lease, including lost future rent. Particulars of those losses have been provided in previous correspondence.
Our client reserves all rights under the Lease and otherwise at law.
Yours sincerely
[signature]
Daniel Fitzpatrick
for GADENS LAWYERS
..."
The notice of termination of the lease was enclosed which repeated the assertions in the letter of 15 December 2011 and said in part:
"Notice of breach and failure to remedy
3. The landlord has given the Tenant notice requiring the Tenant to remedy the breaches specified above on 11 October 2011, 26 October 2011, 10 November 2011, 12 December 2011.
4. The Tenant has failed to remedy the breaches as required. The arrears remain outstanding.
Termination
5. The Landlord hereby exercises its right to terminate the Lease under clause 50.1 of the Lease arising pursuant to the Tenant's failure to remedy the breaches specified above.
6. The lease is hereby at an end.
..."
GPT then called upon the bank guarantee. By this stage the three-month licence of BMS Wholesale running from September to November inclusive had concluded. A further "casual licence" by GPT to one "Stuart Smith" had already commenced on 1 December 2011 and continued until the end of February 2012.
On 6 March 2012 GPT commenced proceedings against Footwear and Peter and Maria Loccisano. Another licence agreement was entered into between GPT and LLS Corporation Pty Limited covering the month from 1 April 2012, which ultimately continued until 21 May 2012. It appears that the reason why the licence ended on 21 May 2012 was that GPT as the landlord had reached an agreement on 17 April 2012 with Reidwell Investments MV Pty Ltd ("Reidwell") (pursuant to a letter dated 12 April 2012) for a ten-year lease of the premises for the purpose of conducting a restaurant business.
The agreement with Reidwell provided for the premises to be handed over to Reidwell on 29 May 2012 for the fit out. Although the agreement obliged Reidwell to pay rent from 24 July 2012, GPT allowed a further two-month rent-free period so rent commenced on 24 September 2012. In addition, GPT as landlord paid $51,600 for work to the shop to make it suitable for a restaurant business and $170,000 as a fit out contribution to the incoming tenant, Reidwell. These amounts and others are claimed from the tenant and the covenantors.
On 17 October 2012 a liquidator was appointed to Footwear. That appointment operates to stay proceedings against Footwear under the Corporations Act 2001 (Cth). No order was sought by GPT against Footwear.
At the time appointed for the hearing, the matter was called three times outside the court. There was no appearance for any defendant. I was informed that there had been no appearance on previous occasions. There was a notice of ceasing to act filed by the previous solicitor of the covenantors and the landlord, GPT, wished to proceed ex parte. I acceded to that request.
GPT also sought leave to file an amended statement of claim. I was told that the amended claim was placed in the mailbox of the covenantors the afternoon before the hearing. Under those circumstances, I was reluctant to allow the amendments, as there was no evidence of an adequate period of notice between apparent service of that document and the commencement of the hearing and no opportunity to ascertain the attitude of the defendants. Further, the nature of the amendments did not appear to be crucial to GPT's claim. Leave was accordingly refused.
The defences filed by the covenantors are different although at the time of filing the same solicitor represented both covenantors. Peter Loccisano does not admit that GPT was a registered proprietor of the shop and that Footwear agreed to the various provisions of the lease but both covenantors deny that they agreed to be liable to GPT for Footwear's breaches of the lease and also deny liability by reason of clause 46.2. Both covenantors do not admit that Footwear "failed to pay any amount of the arrears" and do not admit that the lease was terminated by GPT re-entering the premises on 15 December 2011.
D. THE ISSUES
Accordingly, the issues that arise appear to be as follows:
(1) What is a proper construction of clause 46.2.
(2) What is the effect of the August Agreement, and in particular, do the covenantors' obligations under the lease survive that agreement. I note that the pleadings do not expressly refer to the 30 August 2011 agreement although, as I have indicated, the evidence did so.
(3) By demanding rent on 12 December 2011, has the landlord, GPT, elected to waive any previous failures of the tenant? It may be thought that a demand for the December rent presupposes that there is no termination prior to that right accruing in accordance with the authorities collected in my decision of 93 GSP Pty Ltd v Advent 8 Pty Limited [2013] NSWDC 135.
(4) Has the landlord satisfied the requirements of clause 48 of the lease and s 129 of the Conveyancing Act 1919 in giving notice allowing re-entry and forfeiture. This issue includes whether there is application of the notice by post requirement under s 170 of the Conveyancing Act 1919, that the time of service by post is deemed to be four business days after postage in accordance with s 76 of the Interpretation Act 1987, and also whether there has been reasonable time in accordance with s 129 of the Conveyancing Act 1919.
(5) Has the breach been remedied by the time the guarantee is called upon on 15 December 2011 or thereabouts.
(6) Is GPT entitled to end the casual tenancies to secure a ten year tenant and require the tenant and the covenantors to pay all incentives paid to the new tenant and the various other costs and damages claimed.
(1) Construction of clause 46.2
A literal reading of clause 46.2 seems counterintuitive. Why would it be a precondition to the liability of the covenantor that the tenant not be sued or that the lease be unregistered? This seems an uncommercial construction, whether clause 46.2 stands as an independent basis for the covenantors' liability or as a further restriction on the liability agreed in clause 46.1. But this construction does not seem to me to be demanded by the terms of the clause since there is no "only if" requirement in the clause.
No independent right against the covenantors is sought by the landlord under clause 46.2.
Ultimately, the landlord submitted that the clause should be construed as if the words "under 46.1" appeared at the end of the first line of clause 46.2 and the word "even" appeared at the beginning of each subparagraph. This would result in clause 46.2 clarifying that the liability under clause 46.1 persists notwithstanding the circumstances mentioned in clause 46.2. I agree this seems to be the intent of clause 46.2 even though it may have been better expressed.
Accordingly, I reject the proposition advanced in the defence that clause 46.2 provides any defence to the liability of the covenantors.
(2) The effect of the August Agreement
I noted earlier that the execution clause in the lease provides some support for the lease being a deed. Whether the lease is a deed depends more on matters of substance than form. In 400 George Street (Qld) Pty Ltd and Ors v BG International Ltd [2010] QSC 66, McMurdo J stated at [53]:
"With one possible exception, the effect of the authorities, in my view, is well summarised in Butt, Land Law as follows:
Although all deeds must comply with the relevant statutory and (to the extent that they survive) common law formalities, not all instruments that comply with those formalities are deeds. Whether an instrument is a deed depends on whether the parties intended it to be a deed. That intention is gleaned from considering the instrument's form, substance and object as a whole. Important factors include whether the instrument reflects the phraseology and structure commonly found in deeds, and whether it is cast in the most solemn form of documentation appropriate for that particular transaction. Generally, an unregistered Torrens title dealing is not a deed (although nothing prevents the parties from amending its form to make it one), but it becomes one on registration.
For this purpose, extrinsic evidence is admissible in determining the parties' intention when executing the instrument. The parties' subjective intention is relevant - the court is not restricted to deducing their intention solely from the instrument itself. The instrument's self-description as a 'deed' or as a mere 'agreement' is also relevant, but not decisive: for the cases show that an instrument calling itself an agreement may be a deed and that an instrument calling itself a deed may be a mere agreement."
And see also Meredith Projects v Fletcher Construction [2000] NSWSC 493 at [122] - [131], [138] - [176], especially [175] - [176]. If the lease were a deed a question would arise as to whether any agreement not under seal could override the terms of the lease.
The principle that a deed can only be amended by a deed was discussed by Barrett J, as his Honour then was, in Ing Funds Management Ltd v Anz Nominees Ltd; Ing Funds Management Ltd v Professional Associations Superannuation Ltd [2009] NSWSC 243 at [72] -[75]:
"In the case of a deed inter partes - in essence, a deed embodying the contract of its parties - there can be no variation except by another deed. The common law rule was stated by Bosanquet J in West v Blakeway (1841) 2 Man & G 751; 133 ER 940 (at ER 949): a contract under seal cannot be varied by parol contract.
[73] Tindal CJ (also at ER 949) referred to the maxim unumquodque ligamen dissolvitur, eodem ligamine quo et ligatur (or, as it appears in R H Kersley, "Broom's Legal Maxims", 10th edition (1939) at 592, nihil tam conveniens est naturali aequitati quam unumquodque dissolvi eo ligamine quo ligatum est: 'nothing is so consonant to natural equity as that every contract should be dissolved by the means which rendered it binding'). The Lord Chief Justice then said:
But in the case of a covenant the whole matter is under the seal of the party; and the contact into which he has entered can be discharged only by an instrument of the same nature as that by which the contract was created.
[74] The matter was put thus by S M Phillipps and A Amos in "A Treatise on the Law of Evidence", London, 1838, at 774:
Where, however, the parties have defined the terms by a writing under seal, (which must be taken to be made with great care and formality,) the policy of the law will not permit it to be altered by matter of a lower nature.
[75] A concept different from variation or abrogation of the covenant itself is that which leaves the covenant intact but superimposes some promise not to sue on it or otherwise superseding it. Such a promise will be effective if given for consideration and otherwise supportable as a contract: Nash v Armstrong 142 ER 451. The effect and force of a covenant in an inter partes deed can in this way be mitigated by a collateral contract of the parties to the deed. At law, the covenant remains but equity sees the collateral contract as a source of a right to enjoin reliance on the covenant by the party having the benefit of it."
Accordingly, it appears that despite the common law rule that a deed cannot be varied by an agreement not under seal, equity would nevertheless enforce an agreement impacting on the deed, presumably by precluding reliance on a provision in the deed that is contrary to the agreement.
However, it is unnecessary for me to finally decide these questions because GPT disavowed any reliance on the lease being a deed, on this common law rule and on the proposition that the agreement cannot amend or impact on the lease.
Rather, GPT submits that the August Agreement is not a valid agreement. This is an odd submission, because it is GPT that tendered the agreement and led evidence to support it. The chronology relied upon by the landlord indicated no other basis for termination other than a failure to comply with the August Agreement. When GPT discovered that the agreement might not assist its case, it had no reluctance in seeking in submissions to impugn the agreement and the evidence in support.
In challenging the August Agreement, the landlord, GPT, first submits that Mirella Loccisano, who executed the agreement, had no authority to bind Footwear as she was not a director or secretary.
I do not have any evidence as to the authority of Mirella Loccisano. Being "accounts manager" may give ostensible authority to enter some contracts or settle some disputes, although it may be debated whether that would include the authority to make the 30 August Agreement which had the effect of varying the lease.
However, I do not think I can or should infer that Mirella Loccisano had no actual authority to enter the August Agreement in the absence of any evidence to that effect, and when no question about her authority was raised as an issue on the pleadings.
Moreover, the evidence supports a finding that the agreement has been acted on. The tenant vacated the premises "pursuant to" the agreement. A challenge to the authority of Mirella Loccisano raises questions of part performance, estoppel and whether there has been ratification of the agreement by Footwear.
There is a further matter that I have taken into account in not accepting the contention that the August Agreement is not valid because Mirella Loccisano lacked authority.
The landlord's affidavits, served some nine months ago, evidenced a case relying on a valid agreement. These affidavits were read in the proceedings. To allow GPT to put in issue the validity of the agreement and the authority of the signatory is to allow it to maintain a case different from that presented. As there was no appearance by the defendants, I am concerned that fairness required that notice of that change be given to the defendants.
The second challenge to the August Agreement is that GPT submits that the agreement was in the third class of case in Masters v Cameron (1954) 91 CLR 353 at 360 where no obligations were intended to be created by the agreement until the deed referred to in the agreement was executed.
I do not accept this submission. The agreement was dated 30 August 2011 and pursuant to it on that date the tenant vacated the premises. It would be surprising if the landlord could thereafter disregard the agreement because no deed had at that date been entered.
The agreement is set out in some detail. The landlord "confirms" its agreement, the document calls for a signature "to confirm acceptance" and recommends legal advice "in connection with this transaction". It was signed and dated with the signatory's name also written. All these matters suggest to me that the parties were intending to be bound immediately. The third class of case in Masters v Cameron concerns the case of a formal document still to be signed (see at 361), not a case such as the present involving:
"an agreement embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor" (at 361-362).
Such an agreement is not "less coercive because of the technical formality which remains to be made" (see Masters at 362).
I also attach some significance to the absence of any reservation of rights pending the execution of a deed such as by a "subject to deed" clause. A draft of the deed, although not in evidence, appears to have been attached to the agreement document indicating that the terms of the proposed deed were agreed.
For these reasons, I conclude that the August Agreement was intended to create immediately binding obligations.
Thirdly, the landlord, GPT, submitted as an alternative that the August Agreement amended certain obligations such as Footwear's obligation to trade at the premises, but left the lease intact including the obligations on the covenantors. It submitted "it cannot have been the intention of the parties to enter into a new lease agreement merely on terms limited to those set out in the August proposal".
The August Agreement contemplated a continuation of many of the terms of the lease. By making reference to several of the obligations included in the lease it thereby incorporated those obligations into the August Agreement. The reference to clause 61(1) is an example. Many other obligations became irrelevant because of the agreement for Footwear to vacate the premises.
Also, I do not see the difficulty with the parties entering an agreement in the terms of the August Agreement. To me that is the obvious intent of the parties expressed in clear terms.
For these reasons, I find the August Agreement to be a valid and binding agreement between the landlord and the tenant. The covenantors, Maria and Peter Loccisano, did not execute the August Agreement and so cannot be bound by it.
Does the creation of the August Agreement or its breach by the tenant impact upon the obligations of the covenantors under the lease?
GPT submits that the August Agreement did not have the effect of discharging the obligations of the covenantors. It relied upon the words of Whealy J in Pritchard v Djz Constructions Pty Ltd and Ors; Gilles and Anor v Djz Constructions Pty Ltd and Ors [2012] NSWCA 196. But Whealy J dissented. The governing principles are those set out by Bathurst CJ at [54] to [62] and Barrett JA at [581] to [593], compare Whealy JA at [256]-[259].
According to Pritchard any change to the obligations guaranteed by the surety must be "without inquiry evident" that "it cannot be otherwise than beneficial" to the covenantor and "the court will not go into an inquiry as to the effect of the alteration" but the covenantor "must be the sole judge...and if he has not consented he will be discharged" (see Holme v Brunskill (1877) 3 QBD 495 at 505, approved in Pritchard at [54] - [55]).
The Court of Appeal in Pritchard continued:
"[55] In Ankar Pty Ltd v National Westminster Finance (Aust) Ltd [1987] HCA 15; (1987) 162 CLR 549, the plurality made the following comments (at 558):
'Then it has been said that any departure by the creditor from the suretyship contract 'which is not obviously and without inquiry quite unsubstantial, will discharge the surety from liability, whether it injures him or not, for it constitutes an alteration in the surety's obligations': Halsbury's Laws of England, 4th ed., vol 20, par 259. The final clause in the passage quoted from Halsbury indicates that this proposition is founded not so much on cases dealing with a breach of a term in the suretyship contract, as on cases in which conduct on the part of the creditor materially altered the surety's obligations. Such an alteration takes place when the creditor agrees to a variation of the principal contract or to an extension of time within which the debtor may comply with that contract. The creditor's agreement with the debtor thereby alters the nature of the surety's obligations without the surety's consent.'
After citing Holme v Brunskill above, the plurality expressed the principle in the following terms (559):
'According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, eg, a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety.
The foundation of the rule is that the creditor, by varying the principal contract or extending time, has altered the surety's rights without consulting it though the surety has an interest in the principal contract, and that the creditor cannot be permitted to do.'"
Pritchard establishes that if the lease between GPT and Footwear is amended and the covenantors have not consented, unless it is self evident that the amendment is "unsubstantial" or that it cannot be otherwise than beneficial to the covenantors, the covenantors will be discharged (see also Pritchard at [54] and [256]).
Clause 46.1 of the lease imposed on the covenantors (relevantly) an obligation to pay the loss to the landlord resulting from a breach by the tenant. Thus, the covenantors have guaranteed the performance of the tenant and are in the position of a surety.
GPT submits:
"The August Proposal is unsubstantial and not prejudicial to the second and third defendants; indeed it is beneficial to them as it does not increase the risk. The only material impact on the second and third defendant by the August Proposal is a reduction in its potential liability to the Plaintiff".
This submission does not give any details as to why the August Agreement could only be beneficial to the covenantors. The following provisions seem to be contrary to this submission.
First, clause 3 of the August Agreement provides for surrender of the lease at the option of the landlord (see also the third bullet point in the August Agreement) whether or not a new tenant has been secured. Until GPT secures "an acceptable permanent replacement tenant", Footwear remains in some form of deemed occupation of the premises and liable for all the obligations as tenant. The obligations include the electricity costs (clause 9) and rent (second bullet point). GPT is under no obligation to find a new tenant. Footwear is also liable for any loss arising by reason of the surrender compelled by the landlord (see the fourth bullet point).
Secondly, clauses 7 and 8 of the August Agreement impose additional building related costs upon Footwear.
Thirdly, clause 12 provides an extension of time for Footwear to comply with the provisions for payments under the lease.
Fourthly, clause 15 requires remedial work to be done at the cost of Footwear without relieving Footwear of the obligation to make good the premises on "surrender" (see third bullet point).
Fifthly, Footwear is obliged to repay the fit out contribution whether or not that represents a loss recoverable under the lease, or is alternatively a penalty (see first bullet point).
Sixthly, the August Agreement requires an additional cost, namely additional legal fees, to be met by Footwear (see penultimate bullet point).
Seventhly, Footwear is required to pay the differential between the market rent (not necessarily the rent achieved) and the rent under the lease (see final bullet point).
It may be that these additional obligations are not all prejudicial to the covenantors or that on balance they benefit the covenantors, but there is no evidence to establish this.
I am persuaded that there is at least the possibility of detriment to the covenantors. Therefore, the covenantors' obligations are discharged and they are entitled to judgment in the proceedings.
No order for costs is sought by the covenantors and so I would propose that there be no order as to costs.
(3) The effect of the 12 December 2011 demand for rent
In case I am in error in respect of the August Agreement, I propose to consider the alternative circumstances where the August Agreement did not discharge the covenantors' obligations either because the August Agreement did not bind the parties or because it did not impact adversely on the covenantors' position.
GPT submits that it determined the lease on 15 December 2011. The notice of this date relied upon the failure of the tenant to remedy the breaches specified on 11 October, 26 October, 10 November and 12 December 2011. Each of these breaches related to the non-payment of rent and other monies.
The notice dated 12 December 2011 demanded payment of, among other things, the December rent. But the December rent would only be payable if there had been no forfeiture of the lease. A demand for the December rent constitutes an election by GPT not to determine the contract because of earlier failures.
In Staehr v Federal Lime Co Ltd [1912] SALR 102 at p 110, Murray J stated:
"It is familiar learning that a landlord will lose an accrued right of re-entry for breach of covenant if he with full knowledge accepts rent falling due after the breach has been committed."
In Owendale Pty Ltd v Anthony (1967) 117 CLR 539 at p 556, Windeyer J said:
"A waiver in this sense is more properly understood as an election. The essence of the doctrine, in cases between landlord and tenant, is that where a lease contains provisions for forfeiture and a right of re-entry upon breach of a covenant by the lessee, then, upon a breach occurring, the lessor can either take advantage of his right of forfeiture and re-enter or waive this and treat the lease as still subsisting. If, with knowledge of a breach, giving him a right of re-entry, he does an act inconsistent with his avoiding the lease, he is deemed to have elected not to avoid it."
In Central Estates (Belgravia) Ltd v Woolgar (No. 2) [1972] 1 WLR 1048, Buckley LJ at p 1054 stated:
"If the landlord by word or deed manifests to the tenant by an unequivocal act a concluded decision to elect in a particular manner, he will be bound by such an election. If he chooses to do something such as demanding or receiving rent which can only be done consistently with the existence of a certain state of affairs, viz., the continuance of the lease or tenancy in operation, he cannot thereafter be heard to say that that state of affairs did not then exist. If at the time of the act he had a right to elect whether to forfeit the lease or tenancy or to affirm it, his act will unequivocally demonstrate that he has decided to affirm it. He cannot contradict this by saying that his act was without prejudice to his right of election continuing or anything to that effect. In this respect his act speaks louder than his words, because the act is unequivocal: it can only be explained on the basis that he has exercised his right to elect."
In Segal Securities Ltd v Thoseby [1963] 1 QB 887 at pp 897-898, the Court stated that a waiver occurs even where the demand or acceptance of rent was made without prejudice or under protest that it was not to be construed as a waiver.
In Finley v Russell-Jones (1948) 49 SR (NSW) 96 at p 101, the Court stated:
"When an event occurs which gives a lessor a legal right to give his tenant a valid notice to quit, the legal effect of the acceptance by the lessor of the rent accruing due after the occurrence depends on the circumstances. At common law, if the event comes to the knowledge of the lessor, and he accepts rent accruing due after he becomes possessed of the knowledge, this operates as an irrevocable waiver of his right to determine the tenancy: by accepting rent he is estopped from enforcing the legal right which he would otherwise possess".
In Spathis v Hanave Investments Co Pty Ltd [2002] NSWSC 304 at [118], Campbell J said:
"It is well enough established that, if a landlord is entitled to terminate a lease for breach of covenant, and he or she knows of that breach but subsequently accepts rent, that is a waiver of the landlord's rights to terminate the lease on the basis of that breach. The principles are succinctly summarised by Windeyer J in Owendale Pty Ltd v Anthony (1967) 117 CLR 539, at 556.
'...One act which, by the common law, is always regarded as unequivocal, and therefore necessarily a waiver of a right of re-entry on account of a breach of covenant by the lessee, is the lessor's acceptance, with knowledge of the fact of the breach, of rent accrued due after the breach. Apart from any special term in the lease ... or any statutory modification of the common law, acceptance of rent due in respect of a current period is an obvious recognition of a tenancy then subsisting.'"
These authorities refer to the act of accepting rent that accrued after the act of default or refer to some other unequivocal act of affirming the lease such as a demand for rent accruing after the act of default.
See also Rasheed v Burns Philp Trustee Co Ltd (1982) NSW ConvR 55-102 at p 56,603; Price v Worwood (1859) 4 H & N 512 at [516]; (1859) 157 ER 941 at pp 942-943 as per Martin B; Wong v St Martins Property (Aust) Pty Ltd (New South Wales Supreme Court, McLelland J, 17 October 1990, unreported) and Owendale (at pp 557-558) where Windeyer J said:
"In the argument for the plaintiff there was a suggestion that, at common law, when a landlord becomes aware of an occurrence giving him a right of re-entry on forfeiture he must at once elect either to avoid the lease or to affirm it. That I think is a mistake. I see no reason why he may not do neither, for a time taking the risk of an inference of waiver or abandonment arising from his failure to assert his right of re-entry. As Bramwell B. said in the often-quoted and always approved passage in his judgment in Croft v. Lumley: 'In strictness, therefore, the question in such cases is, has the lessor, having notice of the breach, elected not to avoid the lease? Or has he elected to avoid it? Or has he made no election?' See too Clough v. London and North Western Railway Co. Of course, a lessor cannot adopt inconsistent attitudes: he cannot say 'I accept rent, but nevertheless deny that the lease continues'. But I can see no reason why he cannot say 'I have now a right to avoid the lease and to re-enter; but, if within a given time the lessee does some specified thing, I shall waive my rights; until then I make no election either way'." [Footnotes and italics omitted].
While the landlord need not act immediately on a default, in this case the landlord did act, by sending the 12 December letter. In my view, the landlord had elected to affirm the contract notwithstanding all prior failures by Footwear (both in failing to pay the rent, and in failing to remedy those breaches as required by notice) because that letter encompassed a demand for the December rent. GPT, by that letter, indicated a willingness to accept payment of all arrears including the December rent by 14 December 2011. I cannot read the 12 December letter as preserving a right in GPT to terminate the contract for a failure entitling forfeiture occurring prior to the December rent falling due because of its demand for the December rent.
(4) Clause 48 and section 129 of the Conveyancing Act 1919
Therefore, any entitlement the landlord had to forfeit the lease must arise from the non-payment of the rent due in December.
GPT had an entitlement to terminate the lease under clause 50.1(f) if, under clause 50.1(a), the tenant both breached the lease and did not remedy the breach as required. This second element arose out of clauses 48 and 50, which gave the landlord an entitlement to give a notice requiring a breach to be remedied. Neither clauses 48 or 50.1 give an entitlement to the landlord to terminate the lease by reason of a mere breach, whatever be its gravity. Rather, there must be a breach, a notice requiring the breach to be remedied and a failure to remedy the breach.
Footwear has evidently breached the lease by failing to pay the rent and other monies. Further, it has failed to pay the rent and other monies by 14 December 2011, so that if remedy of the breach has been required by proper notice it follows that there has been a failure to remedy the breach.
That leaves a question of whether there has been a valid notice requiring remedy of the breach. The landlord relies upon the notice of 12 December 2011. It requires a remedy of payments of the "arrears" by 14 December 2011. Is this a valid notice under clause 48? A similar issue arises under s 129 of the Conveyancing Act 1919. Section 129 relevantly provides:
"129 Restrictions on and relief against forfeiture of lease
(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:
(a) specifying the particular breach complained of, and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and
(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,
and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.
(2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.
...
(8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.
..."
Section 129 does not apply to failures to pay rent pursuant to s 129(8). A question might arise as to whether a failure to remedy a notice requiring the payment of rent, like a failure to pay rent, falls within the exemption in s 129(8). I am inclined to think that it does. It remains a "case of non-payment of rent" even though the lease imposes the additional requirements of a notice to remedy and a failure to comply with the notice.
In the present case the notice concerned not only rent but other monies in the nature of outgoings as well. These other monies were not "rent" as defined in s 7(1) of the Conveyancing Act 1919 or as defined under the lease. Although the definition in the Act is an inclusive definition it seems clear enough that rent is a time based charge for the use of property that would not include such matters as operating expenses, chilled water costs and interest claimed by GPT as arrears.
Nevertheless, it seems that the landlord's rights arising from non-payment of rent would be unaffected by s 129 of the Conveyancing Act 1919, because of s 129(8), even if other charges were also referred to in the notice. GPT remains entitled to rely on the failure to pay rent even if it is unable to rely on other failures specified in the notice because of s 129. In that event, the lack of a s 129 notice would not prevent termination. This does not, however, relieve GPT of the need for a notice requiring the breach to be remedied, under clauses 50.1(a) and (f) and 48 of the lease.
I return to the notice of 12 December 2011. GPT required Footwear to remedy the arrears by payment by 14 December. Clause 48 of the lease does not expressly require that the "notice requiring you to remedy the breach" allow a reasonable time to remedy the breach as is provided in s 129.
In Louinder v Leis [1982] HCA 28; (1982) 149 CLR 509, Mason J stated at p 526: "Unreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify rescission".
In this case, the remedy notice itself operates to inform the defaulting party of the need to cure the default on penalty of termination and that right is supported by clause 51(f). In my view, the notice is analogous to a notice to complete making compliance with the contractual notice an essential term. There is no need for a further notice. Failure to remedy the default - to act in accordance with the notice - justifies termination.
But the notice must allow a reasonable period to remedy the default. Otherwise the failure to comply with it does not evidence "unreasonable delay". There must be unreasonable delay in complying with the stipulation in accordance with Louinder v Leis.
It also would seem an unlikely construction of the lease that a notice could require a breach to be remedied in an unreasonably short period. Clause 48 is silent about the period within which the breach must be remedied, or the period that can be specified in the notice. In the circumstances, I would infer that it must be a reasonable period.
The five requirements in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266: obviousness, reasonableness, clear expression, consistent with other terms and necessary for business efficacy also support a reasonable period in my view.
What is a reasonable period must depend on the nature of the breach and the remedy. In respect of rent that is overdue, it seems to me that a period of two days may be a reasonable period allowed for the tenant to pay. But were two days allowed?
The notice is dated 12 December 2011. It expressly states that it is sent by "express post". Service by post is an authorised method of service under s 171(1)(b) of the Conveyancing Act 1919 for notices required under, for example, s 129 of that Act.
Section 76 of the Interpretation Act 1987 provides:
"76 Service by post
(1) If an Act or instrument authorises or requires any document to be served by post (whether the word 'serve', 'give' or 'send' or any other word is used), service of the document:
(a) may be effected by properly addressing, prepaying and posting a letter containing the document, and
(b) in Australia or in an external Territory-is, unless evidence sufficient to raise doubt is adduced to the contrary, taken to have been effected on the fourth working day after the letter was posted, and
(c) in another place-is, unless evidence sufficient to raise doubt is adduced to the contrary, taken to have been effected at the time when the letter would have been delivered in the ordinary course of post.
(2) In this section:
working day means a day that is not:
(a) a Saturday or Sunday, or
(b) a public holiday or a bank holiday in the place to which the letter was addressed."
In the result, a notice posted under the Act would be taken to have occurred on four business days after 12 December, which in this case would be 18 December 2011, that is after the expiry of the specified remedy period. Since the period to remedy the breach expired prior to the date of the notice, it could not be a reasonable period to remedy the default. It is not a period at all.
Whether this presumption in s 76 has application to notices served pursuant to the lease that are not "required" or "authorised" by a statute, might be doubted. However, because of the reference to other breaches besides rent in the notice, s 129 of the Conveyancing Act 1919 does "require" the notice to be served.
In any event, the landlord submits that evidence is adduced to the contrary. The words at the foot of the letter might indicate that the document was copied and sent to the two covenantors by express post, but relevantly to Footwear at the shop by "deliver".
It must be remembered that the shop was, in a practical sense, vacated by Footwear on 30 August. Any correspondence to the shop would not immediately come to the attention of Footwear because the shop was occupied by others. This was plainly known to GPT, it having entered into licences with other parties in respect of the shop. On the other hand, clause 52 of the lease contemplated that notices could be left at the premises.
I am not satisfied that the mere presence of the word "deliver" after the shop's address at the foot of the letter (which may indicate an intention as to where a copy would be sent), is sufficient to persuade me that the letter was delivered to Footwear at that address or that it was delivered on 12 December 2011 or at any other time. It would have been a simple matter for GPT to prove service or delivery of the letter by a certain time, but it elected not to do so.
Further, I would infer that service of a notice could only occur by "leaving it at the premises" (under clause 52.1 of the lease) if it occurred during working hours since otherwise the premises would presumably be locked and inaccessible. Yet it seems unlikely that a notice would (or would in good faith) be left there during working hours in circumstances where an unrelated party, Stuart Smith, was occupying the premises pursuant to a monthly licence with the landlord.
I note that the original correspondence was directed to Footwear at its Dural address. Dural is more proximate than the shop at Rouse Hill to the address of the landlord's solicitors, from whence the 2011 letter originated, and is also more proximate to the address of the landlord. But I do not think these matters are of significance in determining whether the letter was actually received.
Nor does it matter that the notice was given by the landlord's solicitor whereas the lease requires the notice to be given by the landlord. The lease defines the term "we", the landlord, as including "any person we authorise". This must include the landlord's solicitor.
Section 76(1)(b) of the Interpretation Act 1987 excepts from the application of the "fourth working day" presumption the circumstances where "evidence sufficient to raise a doubt is adduced to the contrary". Even if the reference to "deliver" raises a doubt about service on the fourth day, to my mind that simply excludes any presumption of the time of service and would not be sufficient to persuade me that delivery occurred earlier (see generally Ring v RW & CD Investments Pty Ltd [2004] NSWSC 1045 at [27] and Vescio v Westpac Banking Corp [2003] NSWSC 1270 at [45]).
There is some other evidence, however.
The solicitor for Mr Loccisano sent an email at 3.34pm on 14 December 2011 which evidenced that Mr Loccisano received the 12 December letter at least by that time and date. It is unclear whether Mr Loccisano received a copy addressed to him or the copy addressed to the attention of Mirella Loccisano. Given that a copy was sent to him, that he was not an officeholder in the company on 14 December 2011 and that there was no evidence that he was employed by the company, I think the probabilities are that he received a copy sent to him rather than a copy that was sent or delivered to the company.
This justifies the conclusion that the express post mail was received by Mr Loccisano at Maraylya, by 3.34pm on 14 December and provides some evidence that the letter sent to Footwear at its address in Dural, apparently by that same method of express post, may have arrived by about the same time on 14 December 2011.
I am persuaded by this matter that I should find on the balance of probabilities that the 12 December letter was received at Footwear's address by 3.34pm on 14 December 2011. However, although I found that two days might be a reasonable period to remedy the fault, I do not accept that something in the order of two hours or less (before the close of business on 14 December 2011) is a reasonable period. Accordingly, I do not accept that proper notice was given under clause 48 of the lease. It follows that a right to terminate the lease has not arisen under clause 50.1 as at 15 December 2011.
There remains the question of whether the landlord could terminate the lease at common law for a breach of an essential term as stated by Deane J in Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at pp 55 and 56:
"A party entitled to terminate a contract for repudiation or fundamental breach may rely upon both a specific contractual right to terminate the contract and the common law right to terminate unless, as a matter of construction, the former excludes the latter...where a contractual right to terminate for past breach and the common law right to terminate for repudiation or fundamental breach exist concurrently, the reliance upon the contract involved in the exercise of the contractual right to terminate will not preclude the recovery of damages for loss of the future benefit of the contract by reason of repudiation or fundamental breach unless the contract expressly or impliedly so provides"
Whether the lease contemplated the preservation of a right to terminate at common law for breach may be doubted. Clause 50 begins, "What we may do if you breach the lease" and purports to give an exhaustive list of the remedies in paragraphs (e)-(j) of clause 50.1. Paragraph (i) says, "Exercise any of our other legal rights", which might suggest a preservation of the common law remedies but this paragraph is conditional on, relevantly, both breach and failure to remedy, and I have already found that there can be no relevant failure to remedy in the absence of proper notice.
Even if common law rights are preserved the landlord's position is not improved. Whilst the obligation to pay rent is an essential term the obligation to pay rent on time is generally not. The time for payment of rent by or on the first day of the month pursuant to clause 7 was not expressed to be essential. Equity generally treated time stipulations as non-essential and this rule prevailed over the restricted common law position as a result of the enactment of s 13 of the Conveyancing Act 1919.
Accordingly, to render a failure to pay rent by a certain date a fundamental breach entitling rescission, a notice is required to make time essential, effectively evidencing that a failure to pay by that date is a repudiation of the contract. As I said earlier, in referring to a passage by Mason J in Louinder v Leis [1982] HCA 28; (1982) 149 CLR 509, to be effective the notice needed to specify a reasonable time for payment. The notice in this case was received in the afternoon of 14 December 2011. It thus effectively specified less than a period of approximately two hours to remedy the breach, which I have found not to be a reasonable time. Failure to pay within that period could not be evidence of an intention not to be bound by the contract.
As I have indicated, the earlier notices were ineffective because the landlord elected not to act upon them so as to forfeit the lease; the election being evidenced by the 12 December 2011 letter calling for payment of the December rent. I also note that the email service of notices is not a method contemplated either under s 170 of the Conveyancing Act 1919 or under the notice provision of the lease and so would not assist GPT.
(5) Payment by bank guarantee
The landlord called upon the bank guarantee on 15 December 2011 and subsequently received payment. I do not think the receipt of monies under the bank guarantee remedied the default, since by the date and time of receipt the landlord had purported to terminate the lease. Thus, the requirement to pay by 14 December, if it was valid, had not been met whether by monies under the bank guarantee or otherwise.
Ultimately, the landlord received an amount greater than the money outstanding as at 15 December 2011. Thus, if the lease as amended by the August Agreement was not validly terminated as I have found, the tenant had paid all of the outstanding monies and was in credit to a significant extent. That credit amount might need to be reduced by the amount of the fit out contribution refund. Whether the excess gives rise to any entitlement in the tenant is not a matter I need to decide. No orders are sought in relation to the excess and accordingly, I do not propose to make any.
(6) Quantum of damage
The landlord is only entitled to recover damage for future losses from 15 December 2011 if it validly terminated the lease. If the landlord did not validly rescind the lease there is no entitlement for damages of future losses or the loss of the bargain (see Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at pp 30-31). I have found that GPT did not validly terminate the lease. No argument was raised that Footwear remained obligated to pay rent (rather than damages) although not in occupation after the invalid purported termination by the landlord.
In case I am mistaken as to the liability of the covenantors for the loss of bargain, I propose to consider the question of the appropriate measure of damage. This exercise involves in the first place an assessment of the liability of the tenant.
GPT claims that after deducting the rent outstanding as at 15 December 2011 from the bank guarantee amount, the tenant was in credit $22,713.67. GPT claims against the credit the fit out contribution refund of $26,400 inclusive of GST, and the following items of damages:
(a)
Vacancy downtime 16 December 2011 to 29 September 2012
$163,036.75
(b)
Credit casual leases
-$21,202.76
(c)
Legal fees
$1,450.00
(d)
Lessor works
$51,600
(e)
"Defit Costs"
$15,000
(f)
Fit out contribution
$155,000
(g)
Variance in base rent 24 September 2012 to 5 March 2013
$28,409.44
Total
$393,293.43
First, I deal with the fit out contribution refund. Clause 61 obliges Footwear to pay the landlord 40 per cent of a $60,000 fit out contribution if the tenant "ceases to be the lessee or ceases to occupy the premises" in the fourth year of the lease. In the fifth year the fit out contribution reduces to 20 per cent.
On 30 August 2011 Footwear ceased to occupy the premises in fact, although by means of the August Agreement the two parties agreed:
"The surrender of the lease will not take effect until we locate an acceptable permanent replacement tenant and enter into a binding lease agreement".
This event, locating a permanent tenant and entering into a binding lease agreement occurred on 17 April 2012 when the officers of Reidwell signed a document dated 12 April 2012, agreeing to lease terms. As the commencement date of the lease with Footwear was 6 March 2008, the final year of the lease commenced on 6 March 2012. Thus, the agreement with Reidwell occurred in the final year of the lease. This results in only 20 per cent of the fit out contribution being payable to the landlord. This is a sum of $12,000, which is 20 per cent of $60,000 plus GST.
The landlord submits that as the lease was terminated on 15 December 2011, that date should be the date from which the tenant's fit out contribution repayment is calculated.
Ignoring the effect of the August Agreement for the purpose of the hypothetical calculation, this submission appears to be correct. Once the lease has ended the tenant ceases to be a lessee and thus ceases to occupy the premises. In that event, $24,000 would be payable. However, that amount may operate as a credit in respect of damages, a matter to which I will return.
The August Agreement makes express reference to clause 61.1. It provides Footwear "will be liable for...[repayment of] our fitout contribution in accordance with clause 61.1 of the lease". When read with clause 3 it is unclear whether the August Agreement imposes a 40 per cent fee on the tenant because it was vacating the premises on 30 August 2011 (and thus, in practical terms ceasing to occupy) or left the amount of the fee uncertain because the tenant was not surrendering the premises. I favour the second construction. It is consistent with the future tense indicated in the first bullet point on page 2 of the August Agreement, because at that stage it was unclear whether the surrender would happen and when, whether in the fourth year, in the fifth year, or at the end of the fifth year.
Also the purpose of the 30 August Agreement seems to be to "Minimise exit costs" which would occur if the fit out contribution percentage was postponed and potentially reduced.
Thirdly, the rationale for repayment appears to be, at least in part, that if an incentive payment is made in return for a five-year lease and only a part of the five-year lease eventuates then the related proportion of the incentive should be refunded. As the intent of 30 August Agreement was to preserve the lease, postpone surrender and retain the obligation on the tenant to pay the rent and other payments under the lease, it seems unlikely that the parties intended that the incentive should be refunded while the premises have not been surrendered and the lease remained on foot.
I recognise that clause 61.1(c)(2) may indicate an alternative view.
The landlord appeared to accept my preferred construction of this aspect of the August Agreement in submissions. It contended that the fit out repayment contribution became payable not on 30 August but on 15 December 2011 when the purported termination occurred.
Clause 3 of the August Agreement also gave the option to the landlord to "require the surrender to take effect without this requirement being satisfied". The meaning of "this requirement" is unclear. It could mean "enter into a binding lease agreement" or it could mean "locate an acceptable permanent replacement tenant and enter into a binding lease agreement". In the former case, the landlord's option is still restricted by the need for a permanent replacement tenant to be located and, in my view, it may be difficult to find that this has occurred without some form of agreement.
With some hesitation I favour the second construction, which regards the obligation to locate the replacement tenant and enter an agreement as one "requirement". However, in this case there is no evidence that the landlord exercised the option to make the surrender take effect "without this requirement being satisfied".
The landlord submitted that by the purported termination of 15 December 2011 the August Agreement was terminated ab initio and could be disregarded. This submission is faulty in two respects. The purported termination was of the lease not of the August Agreement. Indeed the August Agreement is ignored in the notice of termination. There is no evidence of any action taken by the landlord to terminate the August Agreement.
Secondly, termination does not avoid a contract but only precludes new rights accruing after the date of termination.
As Dixon J said in McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at pp 476 to 477:
"When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach."
Accordingly, the obligations created by the August Agreement could not simply be disregarded. Accrued rights remained unaffected by any termination. According to the terms of the August Agreement there was no surrender until a new lease was entered or until the landlord exercised its option to require the surrender to take effect. Nor was there any purported termination of the August Agreement. From 11 October 2011 the landlord simply ignored the existence of the August Agreement.
I find that the landlord did not exercise its option to require the surrender to take effect, and the new lease was entered into the final year of the Footwear lease. Thus, if the August Agreement was valid, as I have found, the tenant was liable to pay the fit out contribution sum of $13,200, being 20 per cent of the tenant's incentive plus GST.
The remainder of the items alleged together make up the claim for damages. In the period until 21 May 2012 the landlord took in short term licensees. After that date the premises were handed over to the permanent tenant, Reidwell, pursuant to an agreement to lease the premises for ten years, although Reidwell was given a four-month rent-free period and some significant incentives.
The landlord is obliged to mitigate the tenant's loss, but the onus of proving that there has been a failure to mitigate the loss lies upon the party alleging it: see 93 GSP Pty Ltd v Advent 8 Pty Limited [2013] NSWDC 135 at [66] to [72] and the authorities there cited.
There is no allegation here of a failure to mitigate. No evidence of a failure to mitigate has been tendered. The agent of the landlord gave evidence. His affidavit reveals no advertising but some contact with about five potential tenants. The evidence did not persuade me that the landlord had diligently attempted to secure the best return for the premises, but as the issue was not raised and there was no contrary argument for evidence put by the defendants, I am not persuaded (nor can I be in the absence of a contrary pleading) that there has been a failure to mitigate by the landlord.
If the landlord, GPT, was entitled to recover loss over the period of the Footwear lease that loss includes, as a component, loss incurred in the period from the end of the lease to Footwear to the commencement of the lease with Reidwell, the period is from 15 December 2011 until 20 May 2012. The loss is the rent payable under the lease less the licence fees received from the casual licensees. Those sums amounted to $72,407.84 under the Footwear lease, less the $21,202.76 licence fees, equating to damages for lost rent to 21 May 2012 of $51,205.08.
In addition, the landlord would be entitled to the difference between the value of the lease to Reidwell over the period of the lease to Footwear compared to what was payable under the Footwear lease. This is for the period 21 May 2012 (when the casual licences ended and Reidwell had access to or occupation of the premises) until 5 March 2013, the anticipated end to the five-year lease to Footwear. The rent anticipated over this period under the Footwear lease was $168,888.02. The return on the Reidwell lease, a credit to the tenant against this sum, is not so straightforward.
Reidwell took a lease for ten years from 24 September 2010. It also occupied the premises from about 22 May 2010 after it had signed the agreement to lease, but no rent was paid in the eighteen weeks from 22 May until 23 September. Further, some expenses were incurred by the landlord to secure the ten-year lease, including works costing $51,600, legal costs of $1,450, and tenant's incentive by way of a fit out contribution of $170,000 (including the "Defit Costs").
As I have indicated, whilst these amounts seem very high, again, I do not propose to reduce them because a failure to mitigate has not been established. These amounts do appear to relate to the shop and the attempt to secure a tenant.
However, on a proper analysis these expenses need to be properly apportioned against the whole of the new lease.
The starting rent of the new lease was $150,500 with a four per cent uplift each year. Doing the best I can on the evidence, I propose to ignore the uplift on the basis that it largely compensates for inflation over the deferred payment of the rent. Thus, in the ten years Reidwell will be expected to pay $1,505,000 in rent (since the ten years appear to commence at the end of the rent-free period). From this amount must be deducted the total expenses. I have allowed $223,050 being the sum of $170,000 incentive, the $51,600 works and the $1,450 legal fees. Thus, the net return on the lease after these expenses incurred was $1,281,950. This return has been achieved over a period of 10 years and 18 weeks or 10.35 years, once the rent-free period is included.
Thus, the Reidwell lease produces a return of $123,859.90 per annum. As the lease obligation of Footwear was $213,694.98 per annum, the loss is $89,835.08 per annum or $246.12 per day, being the difference between the return on the Reidwell lease and the obligation in the Footwear lease. When calculated over the period from 22 May 2012 until 5 March 2013, a period of 41 weeks or 287 days, this difference produces a loss of $70,637.44 for this period.
Thus, the loss after 15 December 2011 is the summation of $70,637.44 and $51,205.08, being $121,842.52. From this must be deducted the amount of $22,713.67, being the amount in credit to the tenant's account after the bank guarantee was called upon. Thus, the amount of damage (excluding interest) that I would allow if the lease was validly terminated and the covenantors were liable to pay for the loss under clause 46.1 would be $99,128.85.
In respect of this amount I note the following matters. In my view, the repayment of the fit out contribution (in whatever amount) should not be added to this sum. If the fit out contribution was paid the damages would need to be reduced by a corresponding amount, as the damages represent what the landlord has lost by Footwear not abiding by the lease. Had Footwear done so, the fit out contribution payment would not have been paid. To allow the fit out contribution payment in addition to damages would place GPT in a position more favourable than if Footwear had met its obligations under the lease.
Secondly, the landlord sought to have the tenant pay the sum of $223,050 for costs expended by GPT to secure the new tenant. But the landlord receives a benefit from these costs over the next ten years. It is not appropriate to attribute them to the period of less than one year that remained in the Footwear lease. The method I have adopted is to amortise these costs over the entire period of the new lease and the rent-free period in an attempt to assess the true value of the new lease.
Thirdly, GPT submitted that there is a risk that the new tenant, Reidwell, might not honour its obligations. I accept this possibility but I am disinclined to add a further amount in the absence of any evidence. In the event that the current lease is terminated before the ten-year period has elapsed a further tenant may be obtained on as favourable or possibly even more favourable terms than the present tenant.
Further, the four per cent annual uplift is currently in excess of the rate of inflation and in excess of what I would regard as an appropriate discount factor to be applied to the postponed payment of money (although again I am not favoured with any evidence on this matter). To that extent the four per cent offers some compensation for future vicissitudes.
However, I do think some interest would be appropriate. The loss of $99,128.85 was incurred largely over the period from December 2011 to March 2013. Adopting a midpoint of end July 2012, there should be interest for 12 months to today. At the statutory interest rate this would equate to $7,127.77. Thus, the total quantum of damage would be an amount of $106,256.62 inclusive of interest if Footwear were liable for damages after 15 December 2011, according to the following interest calculation:
From (date)
To (date)
Interest rate per year (%)
No. of days in period
Interest rate per day (decimal)
Interest per day ($)
Interest for period ($)
31-Jul-2012
31-Dec-2012
7.5
154
0.000205
20.37
3,136.82
01-Jan-2013
30-Jun-2013
7
181
0.000192
19.01
3,440.99
01-Jul-2013
30-Jul-2013
6.75
30
0.000185
18.33
549.96
Total interest
7,127.77
Principal
$99,128.85
Principal plus interest
$106,256.62
E. ORDERS
The orders of the Court shall be:
1. Judgment for the second and third defendants against the plaintiff.
2. No order as to costs.
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Decision last updated: 16 October 2013
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