Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited & Ors

[2007] HCATrans 746

[2007] HCATrans 746

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S395 of 2007

B e t w e e n -

GUMLAND PROPERTY HOLDINGS PTY LIMITED

Appellant

and

DUFFY BROS FRUIT MARKET (CAMPBELLTOWN) PTY LIMITED

First Respondent

FERDINANDO PISCIUNERI

Second Respondent

NATALE PISCIUNERI

Third Respondent

GLEESON CJ
KIRBY J
HEYDON J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 7 DECEMBER 2007, AT 10.03 AM

Copyright in the High Court of Australia

MR J.N. WEST, QC:   May it please the Court, I appear with my learned friend, MR N.J. KIDD, for the appellant, Gumland.  (instructed byPricewaterhouseCoopers Legal)

MR G.C. LINDSAY, SC:   May it please the Court, I appear with MR R.G.H. KELLER, for the respondents.  (instructed by MJ Lawyers)

GLEESON CJ:   Mr West, have you and Mr Lindsay made an agreement about division of time between yourselves?

MR WEST:   We have not expressly, but we will attend to it immediately, your Honour.

GLEESON CJ:   Thank you.  Yes, Mr West.

MR WEST:   Your Honour, there are two issues in Gumland’s appeal.  The first issue identified in Part I of Gumland’s submissions on appeal focuses upon the relationship between two critically important documents:  a lease of commercial premises given by the premises’ original owner, Transit, to Duffy as lessee dated 30 March 1993, and the second critically important document is a deed made between those same parties some six years later when Duffy Bros was facing worsening trading conditions and was having difficulty meeting the rental and outgoings requirements of the lease.  Indeed, by that date, Duffy was substantially indebted in arrears.

The question is whether that subsequent deed altered the rental and outgoing covenants in the lease, which covenants were said by the lease to be essential terms of it such that the obligations, as varied, became essential terms of the lease and, accordingly, failure as occurred by Duffy to pay in accordance with the new obligations constituted a breach of an essential term of the lease, ergo, giving the lessor the right to sue them in damages and have those damages assessed on a loss of the bargain basis.

The complication perhaps in this case is that by the time that there arose an attempt to sue Duffy for failure to pay in accordance with the amended obligations, there had been a change in lessor.  Transit had signed the reversion and that reversion had been acquired by our client, Gumland.  So the question was whether or not Gumland could stand in Transit’s shoes and sue as Transit could once have done.

At trial little attention was given to this question, that is, this latter question.  It is fair to say that in a formal opening delivered in accordance with the commercial list practice then applicable in Sydney our client notified that it would be relying on section 117 of the Conveying Act and cognate related provisions in the Real Property Act.

Despite that, there was no point taken by Duffy in its pleading that there was any impediment to Gumland’s title to sue as the original lessor could once have done.  Be that as it may, counsel then appearing for Duffy in a written submission merely noted that no case was available on the subject as to whether or not an assignee of the reversion could claim loss of a bargain damages.  That is where it remained.

Little attention was given to it, it did not trouble the trial judge or anybody else and that was because on the opening of the case at trial counsel then appearing for Duffy said, “We are content to run this trial upon the basis that gumland and our client are bound by the deed, that is, the subsequent document, which we say amended the lease”.

Whatever be the true nature of that position or concession, it seems to have had a mesmerising effect and nothing was thereafter said about this question until we were successful at trial, recovered damages on the basis of loss of the bargain for some $2‑odd million and an appeal went to the New South Wales Court of Appeal where this point about lack of so‑called privity came out.  That matter was debated at length in the Court of Appeal but the Court did not have to deal with it.  It did not have to deal with it because the way in which the Court of Appeal reasoned to its conclusion, although the regime for rental and outgoings was changed by the operation of that second document, the deed, it did not work a variation formally of the deed.

GLEESON CJ:   The lease.

MR WEST:   Of the lease, I am sorry.  Therefore, failure to comply with that regime, whilst being a breach of the deed, was not a breach of the lease; ergo, there was no breach of an essential term of the lease.  It followed there was no right to loss of the bargain damages and we lost most of what had been gained at trial and were left with damages assessed as at the date of re‑entry.

HEYDON J:   Unpaid rent.

MR WEST:   Unpaid rent and contributions to outgoings for the centre.  It is that unhappy state of affairs that brings us here.  Your Honours, with those opening remarks, I would like to take your Honours to what we contend are the essential contractual and commercial documents which lie at the heart of this relationship.

KIRBY J:   At special leave, a limitation was placed upon the grounds of appeal.

MR WEST:   That is so, your Honour.

KIRBY J:   Would you just explain to me how the ground that slipped out was relevant.

MR WEST:   Yes, I shall.  Thank you, your Honour.  Both at trial and in the Court of Appeal Gumland claimed that it was entitled to loss of the bargain damages because, firstly, the failure to pay the amended rental amount constituted breach of an essential term of the lease and, secondly, that there was a term of the lease which required Duffy to continue to trade and it was an essential term of the lease.

Duffy in fact ceased trading.  Our client failed on that issue at trial.  It failed again on it in the Court of Appeal and in this Court this Court denied us leave to appeal, we assume upon the basis it had insufficient prospects of success.

KIRBY J:   It was said you had lost on both levels and you did not put up much of a battle against that.  You saw hovering in the distance the prospect of leave ‑ ‑ ‑

MR WEST:   I thought a bird in the hand, your Honour.

KIRBY J:   That is true.

GLEESON CJ:   I think that was a fairly fact‑specific issue, was it not?

MR WEST:   It was, your Honour, yes, and it really involved trying to extend Mona Homes every so slightly.

GLEESON CJ:   Even so, you got a pretty good result of that special leave application, Mr West.

MR WEST:   Your Honour, I do not wish to say any more.

KIRBY J:   You have not changed since Court of Appeal days, Mr West.

MR WEST:   Thank you, your Honour.  Your Honour, the position with these documents is this, and may I say this by way of prefatory remark.  The approach which commended itself to the Court of Appeal in a judgment written by Justice Giles was such that his Honour, we would respectfully submit, lost sight of the essential commercial purpose of what was being negotiated by these men at a time when the tenant was in severe trouble.  The whole purpose of their labours in bringing into existence the deed was to deal with rental to attempt to relieve the impact of the rental regime fixed by the lease so as to enable Duffy to continue to trade and to allow their commercial relationship to go forward.  The deed actually says all that.

KIRBY J:   It did not seem to strike me as a particularly generous variation.

MR WEST:   Your Honour, what it did was to remove the focus on, as it were, a fixed amount of rent - a base rent every year which would be elevated by movements in the CPI and to provide a minimum rental, but then provide for its being tailored to take or to have account of the trading performance of Duffy because what was really happening was that circumstances either in the economy or in the shopping centre generally were such that they were having difficulty with the rental.

So if one put the focus on capacity to trade with an appropriate lower limit, the hope obviously was that the parties would continue to have a useful commercial relationship.  The other important thing that the deed did was to allow Duffy to sublet part of the demised premises.  The demised premises occupied some 20 per cent of the lettable area of the shopping centre, so it was substantial, on any view.  With the capacity to sublet part of the premises which Duffy did not really need it thereby gained, as it were, a bit of a tailwind in being able to remain trading because it had assistance by another economic entity in providing a contribution to the total outgoings and rent for that demised premises.

What they did was that they allowed – they appointed the directors of Transit, the then owner of the land and lessor, to be their attorney and the power of attorney to negotiate the terms of a new sublease for that part of the demised premises and that was done and a company called Austie Nominees moved into that space.  They traded for a short while and then they assigned the sublease to Woolworths and in that area Woolworths conducted what has come to be known as a BWS shop that sells alcohol and little else.  For a time Woolworths paid the full amount of the rental for the sublease and they paid it direct to our client.

KIRBY J:   They had not been secured by your client?

MR WEST:   No, they had not, your Honour.  They, as it were, popped up when it seemed to become clear that Austie wanted to move out.

KIRBY J:   Was there not a condition that Duffy should conduct a fruit, vegetable and meat ‑ ‑ ‑

MR WEST:   Yes, there was, your Honour. There was a variation to the trading limitations in the centre.  That was contained in clause 14, I think of the two ‑ ‑ ‑

KIRBY J:   Anyway, we are not concerned about that.

MR WEST:   We are not concerned with that, your Honour, save only this, that the variation to the permitted user in the centre which the landlord could allow was widened so that the landlord could now allow in another kind of supermarket which it could not up until that point have.  That particular variation became a formal variation of the lease and was registered as such because plainly persons other than Duffy were interested in that.  So that is the only relevance of that particular matter, but it was contained in the deed, otherwise the deed dealt with rental requirements for the immediate parties.

KIRBY J:   You have got to the point where Woolworths were in and they then started to pay less than the amount that they agreed for the rent.

MR WEST:   Yes.  Woolworths were in.  Woolworths wanted to negotiate, as it were, a fresh sublease with our client directly but the trouble with that was that there was an already existing headlease to our learned friend’s client, Duffy.

KIRBY J:   One gets the impression that Woolworths also found that this was not such a good site.

MR WEST:   Your Honour, without necessarily embracing ‑ ‑ ‑

KIRBY J:   Because they agreed originally to pay the full amount.

MR WEST:   Yes, they unilaterally decided they would pay about half.

KIRBY J:   That is right.  That is what you can do if you are a big player.

MR WEST:   The economies of scale, your Honour.  That is market power.  Woolworths unilaterally decided this and they did it at a time at which they had become unsuccessful in trying to persuade our client to deal with them without regard for the fact that there was a headlease in operation with Duffy.  Our client took the view they would not do it.

KIRBY J:   Did they, like Austie Nominees, pay directly to your client?

MR WEST:   They did, your Honour, yes.

CRENNAN J:   In relation to the documents to which you are going to go, is the nub of the Court of Appeal’s reasoning to be found at the bottom of appeal book 1109, the final sentence on the page:

The promise to pay the cl 10.2(c) amount was a promise to pay different amounts at different times from those payable under cl 3 of the Lease.

MR WEST:   Your Honour, that is a piece of reasoning consistent with the approach that their Honours took, but the way in which their Honours dealt with the question of whether there had been a variation of the lease as such was informed by the approach that they had taken in relation to the question of fundamental breach, that is – of repudiation, rather.  They dealt separately with repudiation because there was an expression in the deed called a “Scheduled Breach of the Lease”, and scheduled breach of the lease was either repudiation or breach of an essential term.

So taking the first of that bracket Justice Giles showed how he reasoned to that conclusion.  With great respect, we submit – and I will take your Honours to this it I may in due course – that we wish to suggest that his Honour’s reasoning in that regard is not correct and that his Honour really misdirected himself in the way in which he approached that question, not truly understanding, with respect, not truly giving true account and force to what it was these businessmen were doing.  The result of what his Honour did was to fly in the face of Hunter Valley Freezing.  It, with respect, makes nonsense of the commercial agreement these parties made.

KIRBY J:   There was never a claim in this case based on the so‑called intermediate or innominate terms breach of – it was always based on repudiation or breach of an essential term ‑ ‑ ‑

MR WEST:   Breach of an essential term.  That is so, your Honour.

KIRBY J:   ‑ ‑ ‑ defined as essential by the head lease?

MR WEST:   Absolutely, your Honour, and so ‑ ‑ ‑

KIRBY J:   That issue was not in contest?

MR WEST:   Well, it has become in contest, and we respectfully submit the contest is a very short one.  Indeed, it is no contest, whereas, as the law stands, if the contract between the parties identifies what they say are essential terms, that is that, and there is ‑ ‑ ‑

KIRBY J:   Is that clear law?

MR WEST:   Yes, your Honour, we submit it is.  The cases to which our learned friend ‑ ‑ ‑

KIRBY J:   Just let us test that.  So that even if the contract said in that that if they did not turn up on a Tuesday or something that that would be it.  If they define it as an essential term they are stuck with that?

MR WEST:   Yes, your Honour.  It is a different position which would ‑ ‑ ‑

GLEESON CJ:   Just as if they say time is of the essence.

MR WEST:   Indeed, your Honour.  I am going a little out of order, but if I may I will deal with it immediately so I do not have to come back to it.  The cases to which our learned friends refer in their written submissions, in support of the proposition that the court can effectively go behind the stated position of the parties in the contract are not to the point.  They are cases in which parties have attempted to assign a particular legal characteristic to their relationship, such as landlord and tenant or master and servant or employee or independent contractor, against the call of a relevant statute which gives a benefit or denies a benefit to somebody, depending upon whether or not they truly occupy that legal category.

That is an entirely different position to the one which applies when parties to a contract say we both agree that these terms are essential.  That is not changing their legal characteristics one to the other, nor is it changing or removing any right or entitlement as against a statute, and so those cases we say have nothing to do with the matter.  Therefore, the question really remains ‑ ‑ ‑

KIRBY J:   In any case, one might say that the payment of rent of a particular amount is objectively something which it was open to the parties clearly to say is essential and it is not surprising that they should do so.

MR WEST:   Indeed not, and if the position had been that the contract was silent upon that question, leaving it to the court to give the characterisation, then for the reasons your Honour Justice Kirby has just referred to, the court could do it and would likely do so.  In this case it is a fortiori particularly where the parties have been confronted with an impediment, or a potential impediment, to their commercial continuity in a relationship, namely, the economic circumstances causing inability in one of them to pay the rent and outgoings, and then they sit down and they carefully re‑craft what is to be the obligations of the lessee to the lessor, including giving the lessee the right to sublease and gives the landlord, the lessor, the authority to go away and negotiate what are to be the terms of such a subleasing arrangement, and that is what happened.

We say that that focuses, if anything does, serious attention upon the question of rent and elevates it to a point of primacy in the relationship between the parties such that there could be no doubt but that, firstly, that the obligations otherwise existing in the lease were varied and that that constituted a variation of the essential term.  It is not surprising, we submit, that there was not a formal variation of lease with respect to those changed rental arrangements formally put in place as they did with the nature of the user.

The nature of the user question was a simple cognate question but to re‑craft the whole of the rental provisions making allowances was a significant job and so what they did was to allow the agreement embodied in the deed to affect a variation and the parties complied with it.  They did not need to do anything else, and the way in which the Court of Appeal approached the matter is to, as it were, slice very narrowly through these layers of complexity and say, well, in one breath, as their Honours do, what was payable under the regime in the deed was for rent and outgoings, it could not have been anything else, and we agree, with respect, with that, but when it comes to coming to the question of whether or not failure to comply with that was a breach of an essential term of the lease, this fine distinction is drawn between a term of the deed only and a term of the lease.

GLEESON CJ:   The primary question is a question of construction of the lease and the deed?

MR WEST:   It is, your Honour.

GLEESON CJ:   Anything else, or is it just the lease and the deed?

MR WEST:   It is the lease and the deed, your Honour.

GLEESON CJ:   If that question is resolved in your favour, then we get on to the other questions about privity and so forth?

MR WEST:   That is so, your Honour.

GLEESON CJ:   If that question is resolved against you that is the end of the matter?

MR WEST:   Yes, I have to go home, your Honour.

KIEFEL J:   The time remained of the essence with respect to payments under the deed?

MR WEST:   It did, your Honour.

KIEFEL J:   Did the Court of Appeal deal with that at all?

MR WEST:   With respect, they simply said that that was insufficient.  The fact that the deed made time of the essence did not mean that failure to comply with it was a breach of an essential term of the lease.

KIEFEL J:   Do you say that that is a complete answer?  Do you rely upon the essentiality of time?

MR WEST:   We do rely on the essentiality of time.

KIEFEL J:   Is that an alternative argument to the construction argument as to whether there is a variation of the term as to essentiality?

MR WEST:   Your Honour, we need to be able to show that the terms of the lease were in fact varied by what was done in the deed.

GLEESON CJ:   Because you need to bring yourself within the lease’s definition of “essential terms”?

MR WEST:   Yes, your Honour, I do.

KIEFEL J:   Why do you need to do that if time was made of the essence of the deed?

MR WEST:   If one were merely relying on time of the essence, the argument becomes a little more difficult because there have been cases that hold that merely stating that time is of the essence does not elevate that requirement to be one of an essential term of the particular contract.

KIEFEL J:   I see.

KIRBY J:   What is the doctrinal basis on which the Courts have said that?

MR WEST:   It emerges in Shevill; it emerges in the ‑ ‑ ‑

KIRBY J:   I remember that that is what it says, but it does not seem very consistent with your theory that it is up to business people like Transit and Duffy to decide for themselves what are the essential ‑ ‑ ‑

MR WEST:   No, your Honour, but Shevill was a case where they had not done that.  In Shevill the question was whether or not the term was essential.  But that was in the face of there being no provision in the contract saying it was.

KIRBY J:   I see, that was left to the general law to categorise it.

MR WEST:   This Court did it in Progressive Mailing House v Tabali, and this Court did it again in AMEV, which we have put on our list.

KIRBY J:   Yes, I remember.

MR WEST:   In AMEV, in the joint judgment of Justice Mason and Justice Wilson, as though their Honours wished to make it clear beyond argument, they pointed out that where the parties have said that a term is an essential term, it is an essential term; and breach of an essential term gives right to a loss‑of‑the‑bargain damages.

KIEFEL J:   Where you say the clauses say time is of the essence, may not always render each obligation of the essence, is there a distinction between a general clause which says time is of the essence in all respects and one which says time is of the essence with respect to payment?

MR WEST:   A distinction in the sense that the narrower the clause is ‑ ‑ ‑

KIEFEL J:   The more likely it is to be an essential term.

MR WEST:   Yes.

KIEFEL J:   That is the general theory.  In the deed it is specified to be with respect to payment, is it not?

MR WEST:   It is, your Honour.

KIEFEL J:   Under the lease, there was no express provision that time be of the essence?

MR WEST:   It was not put in that way.  It was made that the payment of the rental and outgoings in accordance with the covenant to pay was an essential term.

KIEFEL J:   So in the lease you would construe clause 7 to require payment of the rent within time.  Time was made of the essence with respect to payment specifically by that clause.

MR WEST:   It is, your Honour.

KIEFEL J:   When the parties came to do a deed, they required payment without expression of time but separately made a clause which says that time is of the essence with respect to payment.  Do you read the two together as having the same result?

MR WEST:   We read the requirement in clause 14, which is the provision dealing with time, as, as it were, reinforcing the importance of payment and reinforcing the obligations which the deed was creating and which it was causing the lease to vary.

KIEFEL J:   You do not rely upon a combination of clauses 10 and 14 as amounting to the same thing as clause 7.1.1 of the lease?

MR WEST:   No, your Honour; we do it this way.  Clause 10 deals with payment of rental and outgoings – moving forward.  There are earlier provisions dealing with the payment of arrears of rental and outgoings as at the date that this varied arrangement came into play.  Your Honour will note that, at page 624 of volume 2 of the appeal books, where the deed is found, in paragraph 10.1:

For the purpose of interpreting clause 10.2 any payment due by Duffys under Clause 10.2(d) is not due and payable until the 29^th March, 2008 or upon an earlier Scheduled Breach of the Lease by Duffy’s or an earlier breach of this Deed by Duffys which subsists for a period of 7 days after Transit has given notice to Duffys of such breach -

So it draws a distinction between those two but “Scheduled Breach the Lease” is defined on page 619 in paragraph l.1(p):

“Scheduled Breach the Lease” means a breach of the Lease as defined in paragraph 7 of the Lease as essential terms of the Lease -

that is, breach of a covenant to pay rental.  When you go back to clause 7 of the lease which is found on page 574 there are a couple of things that are notable about this provision.  It is not just picking up payments of rental.  I say that because if one looks at 7.1.1:

The covenant to pay rent throughout the lease term at a date not later than seven (7) days after the due date for the payment of each monthly instalment of rent and any other monies payable under the terms of this Lease –

The reference in “(clause 3)” is, in our respectful submission, nothing more than an aide‑mémoire as to where one might find these, but it is not itself exclusive, or does not attempt to have an effect so as to read down that which comes before it so that any other moneys payable under the lease picks up not merely the payment of rent under the covenant to pay rent, which is a couple of pages earlier on at 567, section 3 “COVENANT TO PAY RENT AND ALL MONIES DUE INCLUDING INTEREST”.  The covenant is 3.1.  The timing is in 3.2:

The Lessee covenants to pay the annual rent by equal monthly instalments in advance and to pay the rent and other monies hereby secured within seven (7) days of the day on which each monthly instalment of rent falls due or the other monies secured become payable and this covenant to pay shall continue for the term of the Lease –

and so on.  That last coupling picks up what appears in paragraph 4 “PAYMENT OF OUTGOINGS BY LESSEE”.  In 4.1:

In addition to the Annual Rent hereinbefore provided, the Lessee shall in respect of each year or part of a year of the term of this lease reimburse and pay to the Lessor the Lessee’s Proportion of the Outgoings –

So that what the lease was doing was making the payment of rental and the outgoings under separate clauses of the lease, 3 and 4, essential terms of it.  In addition to that the provisions of the lease contained the following provisions of note in relation to what I will describe as damages.  Now, 1.1 is not on this question, it is a slightly different issue, but may I deal with it now.  On page 562:

The term “Lessor” means the Lessor its successors and assigns and where the context permits its servants or agents.

Then over the page on 563, 1.13:

It shall be a fundamental obligation of the Lessee to ensure that the Lessor shall receive the rental provided for in the Lease during the full term thereof.

Then passing back to 574 under the heading “ESSENTIAL TERMS” section 7.2 says:

In respect of the Lessee’s obligation to pay rent and other monies payable under the terms of the Lease including the Memorandum, the acceptance by the Lessor of arrears or of any late payment of rent or other monies payable shall not constitute a waiver of the essentiality of the Lessee’s obligation to pay rent ‑ ‑ ‑

KIRBY J:   Which clause is that?

MR WEST:   Clause 7.2, your Honour, on 574:

and any other monies in respect of the Lessee’s continuing obligation to pay rent and all monies payable hereunder during the Lease term.

7.3      The Lessee covenants to compensate the Lessor in respect of any breach of an essential term of this lease and the Lessor is entitled to recover damages from the Lessee in respect of such breaches.  The Lessor’s entitlement under this clause is in addition to any other remedy or entitlement to which the Lessor is entitled (including to terminate this Lease).

What we are seeing unfold here is ‑ ‑ ‑

GLEESON CJ:   Well, the entitlement following the word “remedy”, that is, remedy or entitlement, would include an entitlement to the arrears of rent.

MR WEST:   Yes, your Honour, it would.

GLEESON CJ:   So the reference to damages presumably is intended to create a right to damages in addition to recovery of the arrears of rent or what you call loss of bargain damages?

MR WEST:   Yes, your Honour.  There is – I hesitate to use the word “preoccupation”, but in a commercial lease it is probably not surprising, with the real purpose of their relationship, which is economic.  They are setting out to make it clear here that the obligation to pay rent is essential, and the same with outgoing, and that there is a right not just to unpaid rent but to damages as well.  One gets to 7.5 on 575:

The Lessor shall be entitled to recover damages against the Lessee in respect of repudiation or breach of covenant for the damage suffered by the Lessor during the entire term of this Lease.

Now, breach of covenant, breach of the covenant to pay rent, breach of the covenant to pay rent as varied in accordance with the deed.  In 7.7:

The Lessor shall be entitled to institute legal proceedings claiming damages against the Lessee in respect of the entire Lease term, including the periods before and after the Lessee has vacated the Demised Premises, and before and after the abandonment, termination, repudiation, acceptance of repudiation or surrender by operation of law referred to in paragraph 7.6, whether the proceedings are instituted either before or after such conduct.

GLEESON CJ:   Now, the breach that occurred was a breach of 10.2 of the deed, putting aside the question we are concerned with?

MR WEST:   Yes, your Honour, the breach of 10.2.

GLEESON CJ:   Is there any dispute about that?

MR WEST:   I do not believe so.  It is characterisation that is in dispute and its result.

GLEESON CJ:   Put it this way, there was a failure to pay.

MR WEST:   There was a failure to pay, and it was the failure to pay, your Honour, the unpaid rent by Woolworths, the 57,000 that had not been paid by Woolworths as a result of their unilateral decision to only pay half rent when they could not get their own way.  Under the terms of the deed the obligation which was created, which was called the 10.2(c) amount, that is the Woolies rental, fell upon Duffy Bros to make that payment.

GLEESON CJ:   The question of construction is whether the failure to pay under 10.2(c) of the deed was within clause 7 of the lease.

MR WEST:   Yes, your Honour.  Then, your Honour, just to complete the question of the rights and including the rights to damages, there is – in paragraph 12, “RIGHT OF THE LESSOR TO TERMINATE THE LEASE”:

The Lessor may re-enter the Demised Premises or any part thereof in the name of the whole and thereby determine the estate of the Lessee therein not only on the happening of the events entitling the Lessor so to do under the terms of the Real Property Act, 1900, and/or the Conveyancing Act, 1919, but also on the happening of any of the following events –

and they are listed, arrears in 12.1, and 12.2 breach of covenants of the lease:

In the event that default is made in the fulfilment of any covenant, condition or stipulation on the Lessee’s part whether expressed or implied and such default is continued for a period for seven (7) days -

They are the relevant provisions and then, as if all of that were not enough, in paragraph 16 on page 587 of the lease there is a heading “CONTINUING RIGHTS AND REMEDIES IN THE EVENT OF DETERMINATION OF THE LEASE”:

The determination of the Lease shall not prejudice or affect any rights or remedies of the Lessor against the Lessee or any person or company jointly liable with the Lessee on account of any antecedent breach by the Lessee of any of the terms, covenants and restrictions on the part of the Lessee.  Further the Lessee acknowledges that it is the Lessee’s fundamental obligation to ensure that the Lessor shall receive the rental provided for in this Lease during the full term thereof and in the event that the Lease is determined consequent upon default of the Lessee then the Lessee shall be liable to the Lessor for the full loss and/or damages suffered by the Lessor by reason of the non‑receipt of such rental for the full term or the non‑receipt of any part of it and shall be liable also for the cost of finding new tenants and the costs . . . involved in the recovery of possession, preparing the Demised Premises for reletting –

and so on. 

KIRBY J:   Does that define the entirety of the entitlements of the lessor?  In other words, what about damages?

MR WEST:   Given the existence of these covenants, your Honour, our case is that if it were the original lessor who had re‑entered and taken possession and was suing for breach of a covenant which was an essential term of the lease, he could recover loss of the bargain damages, that is, damages assessed by reference to the damage done to the reversion through to the nominal expiry date of the lease.  So he gets his money now as against money then, subject to a set‑off for what he has already got in that regard and reduced by the appropriate interest rate to bring it back to today’s money.  That is exactly how it was calculated.

KIRBY J:   How does that fit within the language of 16?

MR WEST:   Your Honour, with respect, it does not need to because the common law gives us that right.

KIRBY J:   But if you spell out with great particularity what you are entitled to, why should you not be confined to that particularity both for good and ill?

MR WEST:   Your Honour, under this particular provision what the parties to the lease are seeking to do is no more than make it clear that there is an obligation in the event of re‑entry and suing for breach for the damages to reflect the damage done to the reversion and what this is doing is indicating what those damages are.

HEYDON J:   There is no difference between clause 16 and the common law.

MR WEST:   There is none.  We put on our list, your Honour, the Canadian case of Highway Properties which was not a case involving the assignment of the reversion.  It was an action by the original lessor.  We put it there because in the Supreme Court of Canada on appeal from British Columbia the Full Court of the Supreme Court dealt with the nature of the lessor’s remedy where there has been breach of – in that case it was repudiation, but it is clear from the judgment that it also applied to breach of a fundamental term, or breach of an essential term, so it makes no difference and the approach of the court was that the lessor in those circumstances is entitled to re‑enter – terminates the lease, re‑enters and he is entitled to have his damages assessed by reference to the value of - the damage to the reversion right through to the end of the lease. 

What our learned friends put against us in their written submissions, if I might, is in part to say, well, that amounts to getting your rent whilst you have also got possession, but that misses the point.  The point of loss of the bargain damages in a rental case is that you have lost the bargain which was struck on day one in the light of the conditions that then applied and what you are faced with is the loss of that income fixed by reference to those commitments and you must then try and do your best by way of re‑letting ‑ ‑ ‑

GLEESON CJ:   Yes.  I was going to say your loss of bargain damages would be reduced by the rent that you get when you re‑let the premises and there would be obligations to mitigate damages, would there not?

CRENNAN J:   Clause 7.8 makes that clear.

MR WEST:   Yes, indeed, your Honour.

GLEESON CJ:   This is the old argument that always used to arise in relation to leases of motor vehicles, for example, as to whether something was a penalty.

MR WEST:   Yes.

KIRBY J:   But there is no question in this case of your not having mitigated your damage?

MR WEST:   No.  The issue that is put against us is, firstly, the matter of the proper construction of the relationship between the deed and the lease.  It is said that the Court of Appeal was right and if they lose on that, our opponents say the other big problem you have is that because you are a reversioner you do not have privity of contract, you only have privity of estate.

KIRBY J:   Remember you said to the Chief Justice that if you lose that, you go home.  But I thought you were building up, in your very opening words, to a suggestion that, by reason of the way in which counsel at the trial had raised the issue, there was some procedural unfairness to you in dealing with this issue.  You do not raise any such complaint?

MR WEST:   No, your Honour.  What we say is that because of what happened, there is an estoppel by convention which operates against our learned friends running this argument that there is no privity.

GLEESON CJ:   Was there any problem about relief against forfeiture floating around here?

MR WEST:   It is floated, your Honour, but a bit like a balloon put up to see if anyone will shoot it down.  It did not run live at the trial in any way.  It is now said that we cannot get what we want because of issues of relief against forfeiture.

GLEESON CJ:   But when you apply for relief against forfeiture you have to offer to pay the rent, have you not?

MR WEST:   Yes.

GLEESON CJ:   Indeed, you would normally seek relief against forfeiture in a suit, would you not?

MR WEST:   You would, but there was no issue of relief against forfeiture in this case.  It is just raised now against us as a legal argument to say you cannot get what you want because that interferes with the way in which the equity court might approach relief against forfeiture.  We say it is just nothing to the point.

GLEESON CJ:   The first thing the equity court says, when you seek relief against forfeiture is, what is the colour of your money?

MR WEST:   Yes.

KIRBY J:   I notice that the guarantors were separately represented in the Court of Appeal.  They are dropped out in the Court of Appeal.

MR WEST:   They were there.

KIRBY J:   I realise they were there then, but they are not here before us, are they – or is Mr Lindsay appearing for them?

MR LINDSAY:   We are appearing for all the respondents, including the two guarantors, your Honour.

MR WEST:   They are here with us, your Honour, more than just in spirit.

KIRBY J:   Are we concerned with the claim against them?

MR WEST:   Yes.  It arises if our learned friends get special leave to cross‑appeal.  We have put on submissions on that question as to why they should not have it.  In a nutshell, they seek to turn the law back at least a good 30‑odd years.  We say the law is clear in this country, as a recent Queensland decision - the Court of Appeal in Queensland, which we have put on the list, which gathers together all of the cases ‑ ‑ ‑

KIRBY J:   All the horrible law on guarantees.

MR WEST:   Your Honour, it in fact is a nice simple point, we would say, but it is Simmons v Lee [1998] 2 Qd R 671, a decision of the Court of Appeal comprising Justices McPherson, Thomas and Dowsett and it ‑ ‑ ‑

KIRBY J:   I have taken you a bit off your course and I think it may be better to deal with that in due course.

MR WEST:   Thank you, your Honour.  I just mentioned to your Honour, we have put on submissions about that as well as to why they should not have special leave.  I think I was dealing with a point that your Honour Justice Kirby asked me and I responded as to why it was our opponents say we cannot succeed even if we won on the first point and that is, they say, we have no privity of contract because we are a reversioner.  They say there was no formal assignment of the lease at the time that the reversion was assigned.

We have three answers to that.  The first is that even if it were true that there was no assignment it does not matter because section 117 of the Conveyancing Act, which is the modern form of a statute which first saw breath in 1540 in the reign of Henry VIII when he was busy sacking the monastic lands which had ‑ ‑ ‑

KIRBY J:   Do not touch on that subject lightly, please.  There might be different views about that matter.

MR WEST:   Yes.  Your Honour, I will not tread there.  I will simply stay, as Lord Upjohn suggested we should, in the modern world and look at the statute as it stands.  Section 117 replicates section 141 of the English Law of Property Act.  In a case Re King – which we have put on the list to be read - the English Court of Appeal dealt with in a way which has been regarded as one of the leading judgments in this area, how the English section 141 operates.  We respectfully submit that if we have privity of estate, as we do, by reason of the relationship of landlord and tenant, having come from acquiring the reversion, we can sue for the same remedies as could have been sued for by the original lessor.

We can sue for breach of covenant.  We can sue to enforce the covenants.  All we need is to be the party in receipt of the income of the land and we are.  That is how section 117 is structured.  That is our first answer.  There are provisions of the Real Property Act which came into force before section 117 of the Conveyancing Act which operate as, in part, a mirror of these provisions.  We have referred to them but we do not essentially need them because of the way in which 117 of the Conveyancing Act operates and its very broad provisions.

The second answer we have to our learned friends is to say by reference to looking at the terms of a purchase and sale contract between Transit, the original freehold owner and ourselves, there was in fact an assignment.  There is enough there to show that what they were really doing was assigning to us the benefit of the lease and we say, using the words in Renals v Cowlishaw, you can collect together these bits, pieces and show that they effect an assignment.  Notice of the assignment was given by the notice of attornment, which Transit gave upon the assignment of the reversion.  That is our second answer.

KIRBY J:   Transit gave Duffy the notice of the assignment.

MR WEST:   Yes, it did, your Honour.

HEYDON J:   That was a section 12 assignment, was it, of the Conveyancing Act?

MR WEST:   Yes.  I do need to take your Honours to the parts of the purchase and sale contract upon which we rely for that.  We have given a reference to it in our written submissions and I do not wish to weary the Court but if one reads those provisions, we say they are there, but I am more than happy to do it on the way through. 

HEYDON J:   Mr West, I am getting a slight sense of circular motion.  I get the feeling we are not sort of thoroughly covering each point you are dealing with and a kind of sinking sensation that we are going to come back to it.  What is the plan?

MR WEST:   The plan is, your Honour, that I should go to the terms of the deed.

HEYDON J:   We are going to deal with the first point, are we, relation of deed?

MR WEST:   Yes, your Honour, and that will complete my treatment of the first point and then I can go into the areas I have just been speaking about in a kind of prefatory averment style to deal with those points, if that is a convenient course, your Honour.

HEYDON J:   Are we going straight to the deed now?

MR WEST:   Yes.

HEYDON J:   In the special leave application you gave the impression that the problem with the Court of Appeal was they sort of got confused by the detail of analysis and had failed to notice that they said the right thing in some paragraphs but contradicted themselves in another paragraph.  But this morning you suggested there might be more to it than that, that the Court of Appeal did not see itself as contradicting itself but was adopting a refined analysis of the relationship between the deed and the lease.

MR WEST:   Your Honour, the Court of Appeal certainly, with respect, we submit, did confuse itself.  There was a disconformity in the judgment in the paragraphs that we identified.  When one looks to see how that happens, it seems to us, with respect - we submit it comes from the way in which the Court of Appeal approached the question of a scheduled breach of the lease because that is where the reasoning is really exposed as to how these two documents operated.  I am happy to take your Honours there now.  It might be of more use if I continue with the deed and look at that and then come back to this question, if that is a convenient course.

The deed is at 614 and following and we would simply ask your Honours to note the following provisions of it.  In the recitals on page 616 in G it identifies the initial rent under the lease as $245,000‑odd per annum.  That is described as initial rent.  In fact, the lease describes it as the base annual rent in clause 1.25 of the lease at appeal book page 567.  There is a recital that:

Duffys is in arrears of rent and outgoings due under the lease.

But:

As at the 31st July, 1998 Duffys owed Transit the sum of $222,11.181 for unpaid rent and outgoings under the Lease . . . 

K.       Duffys wishes to occupy only that part of the Leased Premises being the area hatched in green on the plan annexed marked “B” and make the area hatched in red on the plan annexed marked “C” available for occupation by a subtenant.

Those plans are not in full colour but are at pages 628 to 630 of the appeal book.  The demised premises are shown in A which is the larger area.  B is the one at page 629.  Part of the B can be seen in the top right‑hand part of the page written over part of the diagram.  C is what appears at 630, the bottom of the sweep of the letter C appearing in roughly the same position as B appeared on the previous page.  Back to 616:

L.        After extensive negotiations the parties wish to continue their commercial relationship based on the circumstances as the parties have found them to be in Campbelltown . . . 

N.       The agreement is based on the sums due and owing by Duffys to Transit as at 31st July, 1998 taking into account payments made –

and there set out.  In recital O there is a recital dealing with the further but unpaid accounts with respect to outgoings for Duffy’s share of the costs of running the general centre.  “INTERPRETATION” on 617 in “Specific Terms” 1.1(c):

“Transit” includes its successors in title, assigns and where the context permits its servants or agents.

I then go across to 619 and look at paragraph (p) just above halfway:

“Scheduled Breach the Lease” –

which I have taken the Court to before, and that is a reference back to appeal book page 574 where the provisions of paragraph 7 of the lease are found.  Page 620 clause 2, “Ratification and affirmation”:

Subject to the terms of this Deed the parties ratify and affirm the terms of the Lease.

We submit, with great respect, that is a clear indication that they are varying the terms of the lease, and the lease as varied is ratified.  The “Area occupied”:

From the date hereof Duffys shall continue to occupy that part of the Leased Premises being the hatched area in the plan annexed marked “B” and carry on the business permitted by the Lease in the said area.

Then there is a provision about sub-letting:

The parties agree to seek a sub-lessee for that part of the Leased Premises being the hatched area in the plan annexed marked “C” and for the purpose of putting this agreement into effect -

and then under 4.1 is the matter I have referred to in passing, that Duffys appoint the directors of Transit to locate suitable sublessee and negotiate with them the terms of the lease – the sublease, rather.  Then in 4.2:

It will be a term of any sublease that any sublessee shall pay all rent and outgoings under any such sublease directly to Transit.

That paragraph is relied upon by our learned friends to say, but the sublease that was given to Austie and assigned to Woolworths did not contain a provision reflecting 4.2, therefore that is not a sublease within the call of clause 4.  We say, well, that cannot be right, there is only one sublease, and secondly, you appointed the directors of Transit to be your attorneys to go away and negotiate and their authority was not limited, and if that is what they have come back with, that is it.

HEYDON J:   You say it is a breach of 4.2, it is not a non-sublease, is it?

MR WEST:   No, nothing turns on it, but that submission is made against us that the – the Woolworths sublease was not such as to found a breach of the term of the deed because the failure to pay was not failure to pay rental demised under the sublease, required under the sublease, because the sublease does not answer the call of the paragraph, and we say there is just no point in it.  Then there is an acknowledgment of the debt in 5:

Duffys acknowledges it owed Transit the sum of $222,111.81 as at the 31st July 1998 calculated in accordance with the schedule attached and marked “D”.

The schedule appears at page 631 of the appeal book.  That collects together the arrears of rental and outgoings as at that date, 31st July.

KIRBY J:   Why do you take us to that?

MR WEST:   Merely, your Honour, to indicate that it is there, but I pass quickly on.  May I then go over, your Honour, to the – I can ignore, with respect, and I would invite your Honours to pay no real attention to the detail of how the hire amount and the first hire amount of the adjusted rental falls out; it does not matter, nothing to it.

KIEFEL J:   That is a pity because I would very much appreciate a comparison between what the lease called rent and what was agreed to be paid.  Can you just summarise it very shortly?

MR WEST:   Well, your Honour, it started with identifying a new figure for base rent.  The interim sum on page 618 at $156,000, that is 168 paragraph (m).  Now, that was a substantial ‑ ‑ ‑

HEYDON J:   That compares with 245,343.

MR WEST:   Absolutely.

HEYDON J:   Recital G at page 616.  Yes.

MR WEST:   Substantial difference.  It started from a much lower base.  The idea was that fixing a lower base and then tying it to turnover was likely, subject to audit of the turnover figures, because of the way in which the parties were trading, to produce a fairer, more reasonable rental than otherwise would have been the case.

KIEFEL J:   Where is the tie‑in to the – if we go to clause 8.2, they are paying $13,000 a month instead of $22,931, I think.

MR WEST:   Yes.

KIEFEL J:   Where are the outgoings?  How has that altered, or is that part of the ‑ ‑ ‑

MR WEST:   The outgoings were paid up until the date of the debt as at July.

KIEFEL J:   So they disappear from the picture.

MR WEST:   Yes.

KIEFEL J:   The balance of what is paid on a regular basis in place of rent and outgoings is rent and then you said a proportion then tied to gross receipts.

MR WEST:   Turnover, yes, your Honour.  There is a provision in the deed to enable the parties to measure turnover.

KIEFEL J:   Can you just tell me what ‑ ‑ ‑

MR WEST:   It is 623, verification of Duffy’s gross receipts.

KIEFEL J:   Is it a percentage?  Is that what is paid?  Is it 8.3 through to 8.5?

MR WEST:   No, it is page 618:

“Initial Gross Receipts Payment” means an amount calculated to be five (5) per cent of Duffy’s Gross Receipts calculated over the period between the 1st August, 1998 and the 30th June, 1999.

“Annual Gross Receipts Payment” means an amount calculated to be five (5) per cent of Duffy’s Gross Receipts for each year ending the 30th June between the 1st July 1999 and the 30th June, 2007 –

That takes it up to just short of a year – nine months short of a year before ‑ ‑ ‑

KIEFEL J:   So it is five per cent over different periods.

MR WEST:   Over different periods.

KIEFEL J:   That is basically what they are paying – rent plus five per cent of gross receipts.

MR WEST:   Yes, and a provision – final gross receipts payment in (k) for the period between the cut off of the annual gross receipt payment and the end of the lease which was fixed for 29 March 2008.

KIEFEL J:   Thank you.

MR WEST:   Then, your Honour, a calculation has to be performed.  The final higher sum is in subparagraph (h) on page 618:

“Final Higher Sum” means:

i)the Final Gross Receipts Payment or

ii)       the Interim Sum ‑

which is the 154,000‑odd ‑

whichever is the higher.

So you have a chance of paying rental which is just a bit more than half what you were paying before, subject to doing a little better by referencing your gross receipts, in which case you will pay that amount.

GLEESON CJ:   Those were the amounts to be paid for that part of the premises that Duffys continued to occupy,; but the relevant default was in the payment of the amount for the other part of the premises.

MR WEST:   That is right.

GLEESON CJ:   Was that a straight rent, or was it related also to turnover?

MR WEST:   It was a straight rent payable under the sublease which had been negotiated between Transit and Austie and assigned to Woolworths.

CRENNAN J:   In respect of which Woolworths always paid a lesser sum.

MR WEST:   Not always, your Honour.

CRENNAN J:   Not always.

MR WEST:   They started paying the full amount and then a point came after about a year, I think, and they stopped paying it – they almost halved it.

CRENNAN J:   Thereafter continued to pay it as a sum.

MR WEST:   Thereafter they continued to pay half up until there was re‑entry.  That then takes us, your Honours, to the payment of rental and outgoings provision in 10.1.  For the purpose of interpreting 10.2 – perhaps before I get into the detail of it, what this clause does is to require Duffy to pay the arrears of rent identified in the deed, to pay the turnover related sums identified in the deed and all rent and outgoings payable under the sublease and if they do that and there is no scheduled breach of the lease or breach of the deed and that position pertains until the expiry of the lease at March 2008 then what they have been paying under 10.2(a), (b) and (c) is all they will ever pay.

GLEESON CJ:   The question of construction is whether their obligation under 10.2(c) is brought within the covenants referred to in clause 7.1 of the lease.

MR WEST:   Yes, your Honour.

GLEESON CJ:   The Court of Appeal said, “No, this is a side agreement”.

MR WEST:   Yes, that is right.  If they commit a scheduled breach of the lease then 10.2(d) is triggered and the concession that they do not have to pay the amount by which “rent and outgoings payable by Duffys under the Lease up to the date” of termination is taken away and they then have to pay the full rental which they would have had to have paid but for the concession.

KIRBY J:   Was there any evidence about the background of the entering into this deed?

MR WEST:   Apart from the recitals in the deed itself, your Honour ‑ ‑ ‑

CRENNAN J:   L does not tell you very much, I suppose.

MR WEST:   No.  Otherwise it was not something that was covered in the evidence, as I recall.  No, it was not.  If I may then go to what we wish to submit about the way in which the Court of Appeal approached the matter.

GLEESON CJ:   Just before you leave the deed, Mr West, 10.2(c) refers you back to 4.

MR WEST:   It does, your Honour.

GLEESON CJ:   Under 4.2 it was to be a term of any sublease that the sublessee would pay the rent direct to Transit?

MR WEST:   Yes.

GLEESON CJ:   Is 10.2(c) in the nature of some kind of guarantee?  Clause 4 seems to contemplate but let me, for simplicity, call it Woolworths, that Woolworths will pay Transit the rent and outgoings under the sublease, not Duffys, and clause 10.2 seems to contemplate that Duffys will pay the rent to Transit.

MR WEST:   Yes, it is, your Honour.  It is to catch the position that if Woolworths do not pay Transit, Duffys have to pay.

KIEFEL J:   Or is it, 10.2(c), a statement of their continuing obligation but with the payment by Woolworths as simply being a method by which the lessor is ensured of payment?

MR WEST:   With great respect, I would adopt your Honour’s method of describing it, yes.

GLEESON CJ:   In that respect, is 10.2(c) really a reflection of what the common law position would be if there were no specific agreement about it?

MR WEST:   Yes, your Honour, it is.

GLEESON CJ:   Before you leave the deed, does clause 17 have anything to do with this problem?

MR WEST:   With respect, no, your Honour.

KIRBY J:   That probably explains why no evidence of any background, no matrix, was provided, it was just the deed relied on.

MR WEST:   Certainly, that is what happened, your Honour.  Whether that was the reason for it, I have no recollection.  But be that as it may, what this agreement does is even within the umbrella of the whole of agreement clause involves a ratification of the lease, subject to what is in this, so that it does not prevent, your Honour, the agreement varying the terms of the lease in the way which we suggest.

HEYDON J:   Clause 2 is paramount to clause 17.

MR WEST:   Yes, your Honour, with respect.

KIRBY J:   You have not shown us the document by which Transit notified Duffy of the entry onto the drama of Gumland.

MR WEST:   Your Honour, 836 of the appeal book, the notice of attornment.  Your Honour, in our written submissions we point to paragraphs 177 and 136 in the reasoning of the Court of Appeal as being inconsistent with what appears in paragraphs 120 and 155 in the same reasons.  That is dealt with in paragraphs 43, 44 through to 48.

In paragraph 49 of the written submissions we deal with a matter which her Honour Justice Kiefel put to me a little earlier about what the Court of Appeal was saying about the time of the essence provision in the deed, and the Court of Appeal was simply saying that:

Even if time were of the essence for payment of the cl 10.2 amounts, failure in timely payment did not make out breach of an essential term of the Lease.

So that the approach of the Court of Appeal in those parts of its reasons that decided this case involves a departure, and a serious departure, from the approach which informed their Honours’ reasoning which we set out and underline in paragraphs 43 and 44 of the written submissions.

What the Court of Appeal really failed to do, in our respectful submission, is to appreciate that the deed and the lease had to be read together.  There was no point.  The deed itself had no purpose as a freestanding document.  It did not grant anybody an estate or interest in land.  Its only purpose was to set out the agreement of the parties to change their relationship with respect to rental on a contingent basis for the future, and to enable the debt which had built up to be accommodated.

The idea that they were creating a separate freestanding deed, in our respectful submission, makes no sense, with great respect.  The deed contained a mechanism for dealing with the position in the event that there was breach.  It was self‑contained.  No one needed to terminate it for breach of it.  Breach of it would not get us very far because the deed provided in 10.2 what was to happen in the event that there was a scheduled breach of the lease or a breach of the deed.  You did not have to terminate it.  It simply had no work to do once it had spoken to vary the lease.  In our respectful submission, reality dictates that that is the way in which the Court of Appeal should have approached the matter.

KIRBY J:   Why does that work better as a commercial matter?

MR WEST:   Your Honour, to treat it as freestanding and not affecting a variation to the very terms which the parties had decided for themselves were essential terms is a very odd result, but they have decided that to pay in accordance with the covenants in the lease are essential terms.  For breach of them, loss of the bargain damages.  But when they set down to negotiate a change in that rental arrangement, which is contingent only, namely, the lesser obligation is contingent only upon there being no scheduled breach of the lease, it makes little sense if the obligations themselves contained in the lease are not brought into conformity with the deed.

GLEESON CJ:   It attributes to the parties, does it, a contractual intention to make inessential that which they have previously taken trouble to make essential?

MR WEST:   Yes, your Honour, and to do it in circumstances where they wanted to continue their relationship and where there was hanging over Duffys, as it were, the risk that if they did not comply with the new regime, the lesser regime, they would have to pay in accordance with the original demised rent.  To suggest that that is not essential, in our respectful submission, would be a surprise to most businessmen.

KIRBY J:   Business people.

MR WEST:   I am sorry, your Honour.  The reasoning to which I was going to take your Honours in the Court of Appeal’s judgment about scheduled breach of the lease which we respectfully submit contains a further illustration of the erroneous approach commences at page 1094 of the appeal book. 

“Failure to pay – a Scheduled Breach of the Lease?” is the question Justice Giles is addressing.  His Honour sets out the submissions until 1096 and we will pick up at paragraph 133:

That there was properly a variation of the Lease, Gumland said, was evident from the effect of cll 3 and 4 of the 1999 Deed in varying the user covenant in cl 14 of the Lease and from the express reference in cl 11 to the Lease being “further varied” by the deletion of cl 21 of the Lease.  Further, Gumland said, “Scheduled Breach of the Lease” would have no content in relation to either payment of rent and outgoings or user unless the 1999 Deed varied, rather than suspended, the covenants to pay rent and outgoings and the user covenant.

GLEESON CJ:   So you bought the lease, you did not inherit it.

MR WEST:   No, and we have the same size feet.  That is our real point.  The last point our learned friend made about item 5 ‑ ‑ ‑

KIRBY J:   On page?

MR WEST:   This is in his outline, your Honour, which is:

Measure of any Loss of Bargain Damages:  Calculated by Reference to 1999 Deed –

our response to that is at page machine numbered 1046 in the appeal book, which is paragraph numbered 11.  That is our response.  On the costs order which is referred to in our orders, what happened in the Court of Appeal was that we succeeded against the guarantors, but the amount of money that we were able to recover, of course, was substantially reduced.  Nevertheless, we recovered our costs against the guarantors in the Court of Appeal and below because we had failed against them below and so therefore were we to be successful in this appeal here, we would only be looking for an order for costs of these proceedings in this Court against the guarantors.  That is why it is put in that way.

KIRBY J:   Did your grant of special leave extend to your case against the guarantors?

MR WEST:   Yes, it did, your Honour.  The costs order made by the Court of Appeal is at appeal book page 1132.  The order for special leave is relevantly at page 1137:

b.The Court below erred by failing to find that . . . 

iii.the appellant was entitled to recover loss of bargain damages and costs of reletting from the second and third respondents under the terms of the guarantees they had given.

May I end, with respect, on this.  I did indicate this morning, perhaps not as clearly as I might have, that the section 117 point had been mentioned in the trial proceedings but at the stage of the commercial list opening statement stage, and that is where it got a mention ‑ ‑ ‑

KIRBY J:   But I thought you told us that it was not pleaded, whereas Mr Lindsay says it was pleaded.

MR WEST:    Your Honour, we did not plead it ‑ ‑ ‑

KIRBY J:   It is not the other way round?

MR WEST:    There was a paragraph numbered 50 in then lead counsel for Duffy’s written submissions at the conclusion of the hearing of the trial.

KIRBY J:   Anyway, you needed it.  Did you plead it?

MR WEST:   I do not believe so.  I do not think we did.  I could not find it, your Honour.  I do not believe it is there.  I do not think so.  It was mentioned by my learned friend, Mr Kidd, who prepared our opening…..statement.  That is where it was mentioned, and that was it.

HEYDON J:   That was an outline of facts, issues and contentions.  It is in paragraph 4.  Is it a fact, an issue or a contention?  It sounds like a fact because it is in the trunk headed “lease” just before the trunk headed “the guarantees”.

MR WEST:   Yes.  That is where it was.

HEYDON J:   Was there an answering document that said paragraph 4 is wrong?

MR WEST:   I do not believe so, your Honour.  The only one I have seen is the written submissions at the end of the trial in which there was an assertion made that there was no case on the point that the signee of a reversion could not sue for loss of the bargain damages.  That is where it was left, but it did not trouble the trial judge.  He was happy to find that privity of estate was sufficient and in that we submit he was correct.  All that was said orally on the subject matter was on the opening at the start of the trial when senior counsel then appearing for Duffy simply said:

We are content to see the case approached on that basis, that this deed ran with the land and bound both the plaintiff and the defendant.

My learned friend Mr Kidd said relevantly:

We are prepared to proceed on the assumption we have the rights and are bound by the obligations in this document.

That is page 41 of the appeal book.  In our written submissions dealing with the guarantee question, we deal with the submissions of our learned friends relying upon Naylor’s Case in this Court and Sacher’s Case – the decision of Justice Yeldham.

The most convenient place in which to find a decision of a superior court which declined to follow those cases, firstly because the mortgage case was an inappropriate comparator to the position of a guarantee under a lease and that of Justice Yeldham because he did not actually consider this argument, as it were, is the Queensland Court of Appeal judgment in Simmons v Lee [1998] 2 Qd R at 671 to which I referred earlier this morning. It is a case which we put on our list to be read from and may I just indicate the passages on which we would rely.

KIRBY J:   It is not a very long.

MR WEST:   It is not very long, your Honour.

KIRBY J:   It is not long reasons for decision.

MR WEST:   It is not.

KIRBY J:   Justice McPherson basically says, “Well, it may look intuitively the other way when you analyse, but it is the conclusion you come to.”

MR WEST:   Yes, that is so.  Your Honour, we rely upon that case because it collects together all of the Australian authorities.  At 673, your Honour, from line 25 down to line 43; 674, from lines 5 down to 52; 675, the whole page and 676 down to line 5; 677, from line 14 down to the bottom of the page.

KIRBY J:   There is not much else.

MR WEST:   There is not a lot else, your Honour, but I ‑ ‑ ‑

KIRBY J:   You want us to read everything.

KIEFEL J:   Is not the essential part at page 675 from line 37?

MR WEST:   Yes, it is, your Honour, rather than read it out to this Court at this hour of the day.  Your Honour, they are the submissions we wish to make.

GLEESON CJ:   Thank you, Mr West.  We will reserve our decision in this matter and the court will adjourn until 12.15 pm on Monday, 10 December.

AT 3.48 PM THE MATTER WAS ADJOURNED