Heriot Pty Ltd v Choe

[2021] NSWCATCD 160

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Heriot Pty Ltd v Choe [2021] NSWCATCD 160

Hearing dates:

7 and 28 August 2020

Date of orders:

10 February 2021 [amended 12 February 2021]

Decision date:

10 February 2021

Jurisdiction:

Consumer and Commercial Division

Before:

D Goldstein, Senior Member

Decision:

The decision issued on 10 February 2021 is amended pursuant to section 63 of the Civil and Administrative Tribunal Act 2013 and should read as follows: (amendments are shown in bold type)

1. Jeong Hwan Choe and Jian Ming Li are jointly and severably liable to Heriot Pty Ltd in the sum of $750,000.00 such amount to be paid immediately.

2. In the event that a party wishes to bring a costs application, the costs application must be lodged in the Tribunal and served on the costs respondent within 14 days of the date of the orders in these proceedings either attaching or referring to the documents relied upon in support of the application.

3. The costs respondent will have 14 days after the date he or it receives the application to lodge in the Tribunal and serve on the costs applicant his or its submissions, if any, in response to the costs application, such submissions either attaching or referring to the documents relied upon.

4. The cost applicant will have 14 days after the date it or he receives the cost respondent’s submissions to lodge in the Tribunal and serve on the costs respondent its or his submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon.

5. The parties must state in their submissions whether or not they consent to the costs application being determined on the basis of the parties written submissions and attached documents, if any, without the need for a hearing.

6. Subject to the parties’ submissions, the Tribunal will determine any costs application on the basis of the papers lodged in the Tribunal.

Catchwords:

LEASES AND TENANCIES — Retail leases — Guarantee — Mitigation

Legislation Cited:

Conveyancing Act 1919 (NSW)

Real Property Act 1900 (NSW)

Retail Leases Act 1994 (NSW)

Cases Cited:

Australian Securities and Investments Commission v Kobelt [2019] HCA 18

Brown v Tavern Operator Pty Ltd [2018] NSWSC 1290

Texts Cited:

Nil

Category:

Principal judgment

Parties:

Heriot Pty Ltd (Applicant)
Jeong Hwan Choe (First Respondent)
Jian Ming Li (Second Respondent)

Representation:

Counsel:
Mr Boadle (Applicant)
Mr Munro (Second Respondent)

Solicitors:
Baron & Associates (Applicant)
Longton Legal (Second Respondent)

File Number(s):

COM 19/55752

Publication restriction:

Nil

REASONS FOR DECISION

1. These proceedings concern a lease that the applicant entered into with Sydney Korean BBQ Pty Ltd (the ‘lessee’) on 1 August 2018 in connection with premises on Campbell Parade, Bondi Beach. The first and second respondents are named as guarantors in the lease document.

2. The applicant seeks an order against the first and second respondents pursuant to the Retail Leases Act 1994 (the ‘Act’) in the sum of $1,520,161.97, plus costs. The jurisdictional limit of the Tribunal under the Act is $750,000.00.

3. There is no dispute that the Tribunal has the jurisdiction to hear these proceedings and to make orders under the Act.

4. In these Reasons I will refer to the applicant as the ‘lessor’ and to the second respondent as the ‘guarantor’.

5. The evidence in these proceedings is:

1. Exhibit A, affidavit of Errol Mark Diamond and exhibit ‘ED1’ thereto;

2. Exhibit B, Joint Trial Bundle;

3. Exhibit C, email dated 3 August 2019;

4. Exhibit D, news.com.au bundle; and

5. Exhibit E, text messages 30 May 2018.

6. The first respondent did not appear at the hearing or participate in the proceedings. He has not disputed the case against him.

7. The guarantor admits that he signed the lease as co-guarantor. However he denies liability on the following grounds:

1. The lease is invalid;

2. His signature on the lease as a guarantor was not made in the presence of an attesting witness;

3. Misleading and deceptive conduct , the Utilities Representation;

4. The lease was terminated by him on 18 October 2018; and

5. His signature was obtained by the undue influence of the first respondent.

8. The basis for contending that the lease is invalid is that the lease did not contain a deposited plan of subdivision, a subdivision certificate or a survey.

9. I find that the lease commenced on 1 August 2018. The term was 10 years. The lease allowed the lessee a rent free period of 5 months. The rent payable under the lease was $150,000.00 per annum plus GST, by monthly instalments of $12,500.00 plus GST payable on the 1^st day of the month.

10. The premises leased to the lessor (the ‘premises’) were described in the lease as:

‘FOLIO IDENTIFIER 2 / SP 82048

PART Being Shop 5, 152 -162 Campbell Parade, Bondi Beach as identified on the plan annexed hereto shown cross-hatched’

11. The lease provided that if the rent was not paid for 14 days, that would constitute a breach of an essential term of the lease which would entitle the lessor to re-enter the premises and remove the lessee. Such a re-entry was deemed to be an election by the lessor to treat the lessee’s actions as a repudiation of the lease.

12. Clause 18 of the lease provided among other things, that the guarantor jointly and severally guaranteed to the lessor on demand every sum of money that may become payable by the lessee to the lessor under, or in accordance or by virtue of, or in consequence of the lease.

13. I find that the lessee failed to pay rent of $13,750.00 on 1 February 2019. On 12 March 2019 the lessor re- entered the premises and removed the lessee.

14. I will deal with each ground relied upon by the guarantor in the order pleaded in his Amended Points of Defence as a basis for avoiding the consequences of the guarantee signed by him.

Misleading and deceptive conduct [27] – [40] of the Amended Points of Defence

Utilities representation

15. The guarantor alleges that in or about March 2018 the lessor by its agent Mr J. Regan represented to the first respondent and the guarantor that the premises included an active metered:

1. Electricity connection that would be available to the lessee upon commencement of the lease; and

2. Gas connection that would be available to the lessee upon commencement of the lease.

16. The above representations are referred to as the ‘utilities representations’.

17. The guarantor alleges that the utilities representations were false and misleading in that the premises did not have an active metered gas or electricity connection.

18. It is common ground that the premises did not have within them an active metered gas or electricity connection.

19. The guarantor’s affidavit which is in exhibit B, addresses the premises at Bondi Beach at [56] – [90]. The guarantor’s evidence is that he inspected the premises in or about March 2018 with Mr Regan and the first respondent who asked Mr Regan:

‘Does the shop have exhaust gas and electricity ?’

20. His evidence is that Mr Regan replied:

‘Yes it does. Hungry Jack’s is next door. They have gas and electricity. There is not going to be a problem.’

21. The lessor’s agent did not provide a written statement or the like. He attended the hearing in compliance with a summons to attend.

22. Mr Regan stated that he told the guarantor and the first respondent that the previous tenant of the premises was using power from the neighbouring tenancy, ‘Hungry Jacks’.

23. To the extent that the guarantor alleges that the utilities representations were made by Mr Regan, I find that Mr Regan did not unequivocally state that the premises included an active metered gas and electricity connection that would be available to the lessee upon commencement of the lease. I find that Mr Regan told the guarantor that the previous tenant of the premises was using power from the neighbouring tenancy, ‘Hungry Jacks’. I further find that this conveyed to the guarantor at the time the statement was made that power came from next door. I further find that the guarantor did not rely on what was said by Mr Regan when the inspection took place.

24. I reject the guarantor’s assertion that the guarantor relied on the utilities representations in signing the guarantee. I find that the utilities representation was overtaken by the events relating to the Lessor’s Disclosure Statement.

Lessor’s Disclosure Statement

25. It is further alleged that a Lessor Disclosure Statement was provided by the lessor to the lessee and that the guarantor returned the Lessor Disclosure Statement to the lessor’s agent, Mr Regan, with a handwritten notation that the lessee required the premises to include a metred electricity connection that would be available to the lessee.

26. The guarantor’s evidence is that he amended a Lessors Disclosure Statement by writing ‘separate electricity meter’ on it.

27. The history of the Lessor Disclosure Statement is highly relevant. Mr Diamond’s evidence is that the Lessors Disclosure Statement was first provided by the lessor’s solicitors to the lessee on 24 May 2018. I accept that evidence. I find that the Lessor’s Disclosure Statement as sent to the lessee on 24 May 2018 did not in item 1.4 state that the lessor would provide a separate utility meter of any type or an electrical distribution load. I also find that the Lessor’s Disclosure Statement as sent to the lessee in 28.1, item 7 contained the following representation or statement:

‘In the event that the Premises are not separately metered maintained the Lessor will carry out any apportionments of the meter usage by the whole of Lots 1 and 2 and apportion the costs by reference to the square meterage of the Shop compared to both Lots being all of Shop 5 and 6.’

28. A copy of the Lessor’s Disclosure Statement signed by the lessee was located in the files of the lessor’s solicitors. It is at page 161 -198 of exhibit B. In fact there are 2 versions of the document in those pages. Both differ in what is marked by an ‘x’ in item 1.4. However what is relevant is that it is clear that item 1.4 has been amended to indicate that the lessor would provide a separate gas, water and electricity utility meter of any type and electrical distribution loads, both 3 phase and single phase.

29. The existence of the Lessor’s Disclosure Statements in the possession of the lessor’s solicitor as signed by the lessee and marked as referred to in the previous paragraph support the guarantor’s evidence that he amended the Disclosure Statement, probably even twice.

30. The guarantor’s evidence is that he had a conversation with Mr Regan prior to the signing of the lease and the Disclosure statement and that the following exchange occurred:

‘There is no mention of separate electricity supply in the disclosure statement or the break clause’

Jonathan replied words to the effect:

‘Just put it in and sign it’.

31. He then stated that after the lessee signed the Disclosure statement he amended it and wrote on the statement words to the effect ‘separate electricity meter’. I find that this evidence is incorrect in that neither the words referred to, nor similar words were written on the Disclosure statement. At the highest the guarantor’s evidence should be take to be that by placing ‘x’ in various boxes in item 1.4, the same effect was achieved.

32. Mr Regan denies that he stated ‘Just put it in and sign it’ in connection with the separate electricity supply or that he saw Mr Li place crosses in the boxes in item 1.4.

33. I prefer Mr Regan’s evidence to the guarantor’s. I find that Mr Regan did not tell the guarantor to put in words about the separate electricity meter into the Disclosure statement before it was signed. He denied all suggestions to the contrary when being cross examined.

34. The evidence does not establish how the amended Lessor’s Disclosure Statements found their way to the lessor’s solicitor’s files. The only inference is that the lessors’ agent, the lessee or the guarantor sent them.

35. Counsel for the guarantor suggests at [18] of his Final Submissions that because he amended the Lessor’s Disclosure Statement the guarantor was operating in the belief that the premises would have a separate electricity supply meter and was misled about that when he signed the guarantee. The fact that the guarantor did amend the Lessor’s Disclosure Statement and the fact that he was not told that the changes he made were not acceptable, may be a representation by silence that the premises would have a separate electricity supply meter. However the guarantor’s affidavit does not state that he signed the guarantee in reliance on the Lessors Disclosure Statement. I find that even if the lessor engaged in misleading and deceptive conduct by not informing the lessee and the guarantor that the changes made by the guarantor to the Lessors Disclosure Statement were not accepted, such conduct would not warrant the relief claimed by the guarantor at [40] of his Amended Points of Claim, namely that the lease be rescinded or declared void. The fact is that the parties corresponded and dealt with one another to reach an outcome where by November 2018 an electricity meter was installed at the premises. I accept Mr Diamond’s evidence to that effect.

36. There is no evidence that the guarantor sustained any damage by reason of not being informed that the changes made by him to the Lessors Disclosure Statement were not accepted.

Notice of Termination

37. On 18 October 2018 the guarantor sent an email to Nicole Nowland. I assume Ms Nowland was employed by the lessor, or its solicitors. The guarantor’s email gave a notice of termination pursuant to s11(2) of the Act. I will proceed on the basis that the email was sent to the lessor by Mr Li in his capacity as the lessee’s solicitor.

38. Section 11(2) of the Act states:

‘If a lessee was not given a disclosure statement as required by subsection (1) or if the disclosure statement that was given to the lessee was incomplete or contained information that at the time it was given was materially false or misleading, the lessee may terminate the lease by notice in writing to the lessor at any time within 6 months after the lease was entered into, unless subsection (3) prevents termination.’

39. I find that there is no basis for finding that the disclosure statement given to the lessee on 24 May 2018 was incomplete or contained information that at the time it was given, was materially false or misleading.

40. To the extent that the guarantor relies on the amendments made to the Lessor’s Disclosure Statement, I find that that those amendments were made by the guarantor and therefore do not fall within s11(2) of the Act. In addition I find that the lessee waived any reliance on the 18 October 2018 notice of termination as it continued in possession of the property till 12 March 2019.

41. I do not accept the guarantor’s case that the notice of termination referred to above was effective.

Implied covenant

42. The guarantor also alleges that the provision of an active metered gas and electricity connection was an implied covenant by the lessor in the lease. I reject that claim. I find that the implication of that term was neither necessary to give business efficacy to the relationship between the parties and was not so obvious that it went without saying. That the term was not necessary to give business efficacy to the lease agreement is demonstrated by the fact that the lessee itself arranged for the connection of electricity and gas to the premises in November 2018, which was within the rent free period allowed by the lease. Mr Diamond’s evidence makes it clear that such a term was not so obvious that it went without saying. Mr Diamond’s evidence was that:

‘What it meant when I said connected, like every one of our tenants on that strip, every other tenant, they get power, electricity and gas supplier, they have to subscribe, we don’t do it for them, every other tenant on the left and the right of that complex subscribes to an energy supply themselves and they have to get it. That is what was required. It’s a common practice with tenants, that they do it. You know similarly to telephone lines we don’t do those connections to the various tenants. Same situation.’

43. Based on that evidence I find that the covenant contended for was not one that ‘went without saying’, or that the lessor would at the time have agreed as being something that went without saying. In fact such a covenant was in stark contradiction to the lessor’s position as stated in clause 28.1, item 7 of the Lessor’s Disclosure Statement.

44. I reject the guarantor’s misleading and deceptive conduct case as well as his implied utilities covenant case.

45. I would also add that I do not consider the guarantor’s evidence to be completely reliable. I have come to the conclusion that on critical issues the guarantor’s evidence was self-serving and that at some points, albeit in relation to the way in which facts were described, he was prepared to change or add to his evidence if it appeared that to do so would assist his case.

Invalid lease case [41] – [47] Amended Points of Defence

46. The basis of this aspect of the defence is that the lease of the premises constituted a lease of part of an existing lot as referred to in Part 2 Division 3A of the Conveyancing Act 1919 and since the lease was for a period exceeding 5 years, there was a subdivision of land pursuant to s23G(d)(1) of the Conveyancing Act. By reason of these factors and the operation of s7A of the Conveyancing Act, it is contended that the lease required a plan that included:

1. A deposited plan of subdivision’

2. A subdivision certificate; and

3. A survey.

47. The lease did not contain any of the documents referred to in the preceding paragraph. As a result the guarantor contends that he is entitled to avoid the guarantee.

48. The guarantor’s submissions of 2 June 2020 address this aspect of the defence as do the lessor’s outline of submissions dated 3 July 2010 which describe this aspect of the defence as legally incoherent.

49. First I will consider whether there was a subdivision of land pursuant to s23G(d)(1) Conveyancing Act. The effect of that section is that s23 does not apply to:

‘ a transaction that comprises—

1. )  the lease of part of an existing lot for a period that, including the period of any option to renew, does not exceed 5 years,’

   50. Section 23 states:

‘This section applies to the following transactions—

(a)  the conveyance or transfer of part of an existing lot,

(b)  the lease of part of an existing lot,

(c)  the mortgage of part of an existing lot,

(d)  the partition of an existing lot.

(2)  The Registrar-General may refuse to register a transaction to which this section applies unless—

(a)  the land to which the transaction relates is shown on a current plan, and

(b)  the boundaries of each part into which the land is divided as a result of the transaction follow the boundaries of an existing lot.’

51. Section 7A of the Conveyancing Act states what is meant by the term ‘current plan’ in the Conveyancing Act.

52. I find that there is no basis for finding that the above statutory provisions had the effect that there was a subdivision of land as alleged by the guarantor or that the lease required a plan that included:

1. A deposited plan of subdivision’

2. A subdivision certificate; and

3. A survey.

53. I am unable to find on the basis of the matters pleaded at [41] – [47] Points of Defence that the lease was void, unable and incapable of registration, invalid or void ab initio. The statutory provisions relied upon do not provide or require those results. Then there is the fact that the lease was registered which undermines the guarantor’s submissions on this issue. I prefer the lessor’s submissions on this head of claim and have no hesitation in rejecting the guarantor’s case that the lease was invalid based on the sections of the Conveyancing Act that have been referred to.

Witnessing of the guarantor’s signature

54. This has not been raised in the guarantor’s Amended Points of Defence, but was dealt with in some detail at the hearing and in the guarantor’s Supplementary Submissions dated 29 July 2020 as well as in the guarantor’s final written submissions. The lessor contends that the issue was first raised in a formal way in the Supplementary submissions dated 29 July 2020, some 9 days before the hearing, which I find to be correct.

54. The guarantor’s signature of the lease has been witnessed by Mr Regan. Refer page 181 of the exhibit to Mr Diamond’s affidavit.

55. The guarantor stated in his affidavit that the lease was signed by him as guarantor, but not in the presence of a witness. The guarantor’s case is that his evidence should be accepted and the only inference that should be drawn is that Mr Regan signed the relevant page of the lease and completed the necessary details, some time after he signed the lease.

56. Mr Regan’s evidence is that he was present when the guarantors signed the lease.

57. The consequences of finding that Mr Regan was not present when the guarantor signed the lease, according to Counsel for the guarantor is that the guarantee is unenforceable because due to a combination of various provisions of the Conveyancing Act and the Real Property Act 1900 the lease and the guarantee provisions within it take effect as a deed. Pursuant to s38(1) of the Conveyancing Act the guarantor’s signature was required to be attested by a witness not a party to the transaction. In reliance on Brown v Tavern Operator Pty Ltd [2018] NSWSC 1290 counsel for the guarantor submits that attestation means that the person who attested the signature of the guarantor, Mr Regan, was required to be present at the time when the guarantor signed the lease, which on the guarantor’s case he wasn’t.

58. Putting to the one side the issue of whether the guarantor’s signature was attested by Mr Reagan when the guarantor signed the lease, there is another issue which was raised by me at the hearing, namely whether the guarantee was enforceable against the guarantor as an agreement.

59. There is no submission that a guarantee must only be made by way of a deed and cannot be in the form of an agreement. If a guarantee is made by way of an agreement, then it must be supported by adequate consideration.

60. In Brown v Tavern Operator Pty Ltd Ward CJ in Eq stated at [17]:

‘I find that the September Deed was not validly attested and is not enforceable as a deed; that the agreement recorded in that document is not supported by consideration and not enforceable as an agreement;’

62. The above passage is in my view authority for or supports the view that if a document is not enforceable as a deed, as contended by the guarantor, the agreement recorded in the document, in this case clause 18, may be enforceable as an agreement if it is supported by adequate consideration.

63. The lessor’s counsel makes that submission and refers to various extracts when Mr Diamond, a director of the lessor was giving evidence. Mr Diamond’s evidence was that:

1. The lessor had a level of comfort with the guarantor guaranteeing the lease;

2. The lessor would not have signed the lease if the guarantor had not signed as a guarantor;

3. The 10 year lease was signed because of the guarantor’s professional status; and

4. The lease was signed because of the guarantor signed as a guarantor.

64. Based on the evidence to which I have referred I find that the guarantee signed by the guarantor was supported by valuable consideration namely the fact that the lessor granted a 10 year lease to the lessee because of the guarantee provided by the guarantor.

65. I prefer Mr Regan’s evidence that he was present when the guarantor signed the lease. I have previously stated that I did not find the guarantor to be a reliable witness for the reasons stated. I find that Mr Regan was in fact present when the guarantor signed the lease in his capacity as a guarantor.

66. I reject the guarantor’s contention that the guarantee is not binding on him because of the circumstances in which it was signed.

Unconscionable conduct : Undue influence [48] – [52A] of the Amended Points of Defence

67. The guarantor’s case was that the first respondent exercised a special relationship of influence, dominance and ascendancy over the guarantor and that the lessor should have known of this alleged state of affairs. It is also alleged that the guarantor signature of the guarantee was obtained by the undue influence of the first respondent over the guarantor.

68. As a result of the matters referred to in the previous paragraph, the guarantor claims that the lessor engaged in unconscionable conduct in contravention of s62B(1) of the Act which states:

‘A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.’

69. Section 62B(3) of the Act states:

‘Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to—

(a)  the relative strengths of the bargaining positions of the lessor and the lessee, and

(b)  whether, as a result of conduct engaged in by the lessor, the lessee was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor, and

(c)  whether the lessee was able to understand any documents relating to the lease, and

(d)  whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessee or a person acting on behalf of the lessee by the lessor or a person acting on behalf of the lessor in relation to the lease, and

(e)  the amount for which, and the circumstances under which, the lessee could have acquired an identical or equivalent lease from a person other than the lessor, and

(f)  the extent to which the lessor’s conduct towards the lessee was consistent with the lessor’s conduct in similar transactions between the lessor and other like lessees, and

(g)  the requirements of any applicable industry code, and

(h)  the requirements of any other industry code, if the lessee acted on the reasonable belief that the lessor would comply with that code, and

1. )  the extent to which the lessor unreasonably failed to disclose to the lessee—

2. )  any intended conduct of the lessor that might affect the interests of the lessee, and

(ii)  any risks to the lessee arising from the lessor’s intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and

(j)  the extent to which the lessor was willing to negotiate the terms and conditions of any lease with the lessee, and

(k)  the extent to which the lessor and the lessee acted in good faith.’

70. The guarantor alleges that the first respondent had undue influence over him and that the lessor via its agent Mr Regan should have known about that. The lessor’s counsel submits that the guarantor’s evidence, either in his affidavit or in in his evidence before the Tribunal, does not substantiate the matters alleged in the Amended Point of Claim. I accept that submission.

71. Mr Regan was cross examined on the second day of the hearing. His evidence which I accept dispels any notion that the first respondent exercised a special relationship of influence, dominance and ascendancy over the guarantor and that the lessor, via its agent, knew about this alleged state of affairs.

72. It was suggested to Mr Regan that he was party to the representations from the first respondent to the guarantor. Mr Regan replied:

‘I as agent was not privy to financial discussions. I never heard Mr Cho saying it was going to be a success. Mr Li was more aggressive. Li was pushing for opening shops. Li was actively calling me asking for shops and locations Samuel Li was asking me to provide new properties.

I never dealt with Sean Cho about leases. It was Li. Cho never pumped up the tyres. Li was the financial backer who was trying to be a property investor.’

73. There is also the evidence of Mr Lui. At [29] he refers to a conversation at which he says Mr Regan was present when the guarantor expressed misgivings about the lease. I find that the conversation referred to in which the first respondent was confident about the lease speaks more of a conversation by parties engaged in a joint enterprise than Mr Cho exercising a special relationship of influence, dominance and ascendancy over the guarantor.

74. Having regard to the factors to which I may have regard under s62B(3) of the Act, I find as follows in connection with those factors which I consider to be relevant :

1. The parties had equal bargaining strengths, in that the guarantor was an experienced solicitor, for example signing his emails as ‘Managing Partner’ of a Law firm and I find able to understand and analyse the requirements and obligations of the lease documentation;

2. I find that there was no conduct engaged in by the lessor, which resulted in the lessee and guarantor being required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor;

3. I find that both the lessee and the guarantor were perfectly able to understand any documents relating to the lease,

4. I find that there was no undue influence or pressure exerted on, lessee and the guarantor nor were unfair tactics used against, the lessee and the guarantor by the lessor or its agent in relation to the lease; and

5. I find that the lessor acted in good faith in connection with the leasing transaction.

75. I have had regard to the guarantor’s final submissions and to the case of Australian Securities and Investments Commission v Kobelt [2019] HCA 18 there cited. I do not regard the guarantor Mr Li as having been under a special disability as he considers himself to be. I accept Mr Regan’s evidence that the guarantor was aggressive and pushing for the opening of shops. In addition as I have found, the guarantor was an experienced solicitor and perfectly capable of assessing the risk that was associated with entering into the lease for the premises and guaranteeing the obligations of the lessee. Insofar as the guarantor states that he was acting as under a special disability while acting for the first respondent, I regard that evidence as self-serving and to be given no weight.

76. I am further of the view that the guarantor was committed to the relationship that he had created with the first respondent and that he was motivated by commercial considerations aimed at building a substantial business with the first respondent, such business consisting of the operation of multiple food outlets. I do not consider his evidence to be persuasive. As I have said, I find it to be self-serving.

77. During his cross examination the following exchange took place:

‘Q: Did you consider yourself while you were acting as his lawyer, under a special disability?

A: Yes, if you say so. Could you elaborate on special disability for me please ?’

78. So far as undue influence is concerned I do not accept the guarantor’s case that he was unduly influenced by the first respondent. At one point his evidence was:

‘Q: If you were acting as Sean’s lawyer, is it consistent with your professional obligations to continue to act for him?

A. Today, no. At the time, yes

Q: Can you explain how that’s correct ?

A: I was unduly influenced, so influenced, that I didn’t know I was influenced.’

79. I do not accept the above answers by the guarantor as credible evidence. If the guarantor an experienced solicitor didn’t know at the time that he was unduly influenced, I find that it was more likely that his defence of undue influence arises in an attempt to find a basis for avoiding the consequences of the guarantee that he signed. Equally his evidence that he was under a special disability has in my view no basis of fact and is more suited to establishing a necessary basis for matters raised in his Amended Defence.

Mitigation

80. There is no dispute that the lessor was obliged to mitigate its losses which arose after the lease with the lessee was terminated. The lessor states that it did so by entering into a lease with another company on 27 May 2019.

81. The guarantor sought to introduce another potential lessee to the lessor. It is the guarantor’s case that the lessor failed to act reasonably to mitigate its loss, and that if had done so the damage it sustained would have been substantially less than what is now claimed.

82. It is the guarantor’s obligation to establish that the lessor failed to take reasonable steps to avoid ‘avoidable’ loss. The guarantor’s evidence is that on or about 8 March 2019 he introduced a prospective lessee to the lessor. His evidence is that the prospective lessee was willing to take over the lease on the same terms as applied to the lessee. The evidence is that the guarantor followed up this introduction with the lessor and its solicitor on the 12^th and 25^th March 2019. On 4 April 2019 the lessor’s solicitor replied:

‘Furthermore, as our client has not received satisfactory financial information as to the nominated Lessee, our client is continuing in its endeavour to lease the premises in order to mitigate its losses.

If of course your client provides us with details of that prospective Lessee including its financials which meet to our client’s reasonable satisfaction our client will consider granting of a new lease which will obviously minimise the contingent exposure of your client and the directors to our clients claim for damages.’

83. The lessor’s obligation was to do what was reasonable, as submitted by the guarantor’s solicitors.

84. Mr Diamond’s evidence was that usual practice is that the party seeking the assignment or the new lease to a third party prepares a full package of relevant information, or requests the third party to prepare that information, which once prepared is then handed by the party seeking the assignment or the new lease to the lessor. He stated:

‘Because for us to go and investigate every tenant that potentially wants to sign at lease it doesn’t make sense, it’s not the way we operate. So whilst you’re saying that we didn’t make an effort to contact them, that’s not our business, we have no intention to contact anyone that they put forward and do a thorough investigation on them. That’s up to Sydney Korean BBQ to present us and say, here is a great tenant… And that didn’t happen. And that’s the way this business works, retail leasing,’

85. I find that neither the lessor, its solicitors or agent informed the guarantor or the lessee that he or it was required to prepare a full package of relevant information and to provide that information to the lessor if they wanted the lessor to give proper consideration to the person referred to in the guarantor’s email of 8 March 2019 as an assignee or new lessee. I find that such a failure was unreasonable in context of the lessor’s position following its removal of the lessee from the premises on 12 March 2019. However that failure was brought to an end on 4 April 2019 when the lessor’s solicitor informed the guarantor in his capacity as the lessee’s solicitor:

‘If of course your client provides us with details of that prospective Lessee including its financials which meet to our client’s reasonable satisfaction our client will consider granting of a new lease which will obviously minimise the contingent exposure of your client and the directors to our clients claim for damages.’

86. I find that neither the guarantor nor the lessee responded to the lessor’s solicitor’s 4 April 2019 letter and the information referred to in the paragraph referred to above was not supplied by the guarantor or the lessee to the lessor or its representatives.

87. Based on the findings in the preceding paragraphs, I find that the guarantor has not established that the lessor failed to take reasonable steps to minimise the damage it sustained by reason of the lessees repudiation of the lease and its acceptance of that repudiation.

The lessor’s loss and damage

88. The lessor re-leased the premises to a new lessee commencing on 27 May 2019 for a term of 5 years with an option for a further 5 years. The rent was $100,000.00 per annum. The relevant lease is in evidence.

89. The lessor calculates its loss as:

1. Rent for the balance of the outstanding term of the lease $1,319,569.30;

2. Outstanding rent of $13,750.00;

3. Cost of the make –good of the works, $2,068.00;

4. Other costs of $29,064.35; and

5. Interest of $196,960.32.

90. These amounts total $1,561,411.97. An amount of $41,250.00 must be deducted for this figure representing the Bank Guarantee that was provided pursuant to the lease and which was converted by the lessor. This leads to a total of $1,520,161.97 as claimed by the lessor.

91. The lessor has adduced evidence of the expenditure in [89(c)]. As regards the amount referred to in [89(d)] the lessor has provided evidence of the following costs:

1. Legal fees, $5,536.18;

2. Locksmith on change of locks, $300.00; and

3. Agents commission on re-lease of premises, $23,228.17,

4. which equate to the amount claimed in [89(d)].

92. The lessor claims interest of $196,960.32 pursuant to clause 11.4 of the lease, the basis of the calculation being disclosed in the Amended Points of Claim. The guarantor denies the relevant paragraph of the Amended Points of Claim, but does not state any alternative interest calculations. The lease allows for interest. I accept the lessor’s interest calculations.

93. The amount of $1,319,569.30, purportedly allows a credit for the rental that will be obtained by the lessor pursuant to the lease that was entered into on 27 May 2019. The revenue to be obtained from that lease will be at the least $500,000.00 plus CPI adjustments. This issue is addressed in the Applicant’s Outline of Submissions, although precise calculations are not provided. I am not persuaded that the figure of $1,319,569.30 is correct. In any event the guarantor does not dispute that amount.

94. Even if I were to calculate the rent for the balance of the outstanding term of the lease at $907,638.45, after allowing a credit for the revenue to be obtained from the new lease, I am satisfied that the lessor has sustained damages of at least $750,000.00 and I will make an order in that amount in the lessor’s favour.

Costs

95. In the event that a party wishes to bring a costs application, the costs application must be lodged in the Tribunal and served on the costs respondent within 14 days of the date of the orders in these proceedings either attaching or referring to the documents relied upon in support of the application.

96. The costs respondent will have 14 days after the date he or it receives the application to lodge in the Tribunal and serve on the costs applicant his or its submissions, if any, in response to the costs application, such submissions either attaching or referring to the documents relied upon.

97. The cost applicant will have 14 days after the date it or he receives the cost respondent’s submissions to lodge in the Tribunal and serve on the costs respondent its or his submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon.

98. The parties must state in their submissions whether or not they consent to the costs application being determined on the basis of the parties written submissions and attached documents, if any, without the need for a hearing.

99. Subject to the parties’ submissions, the Tribunal will determine any costs application on the basis of the papers lodged in the Tribunal.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 30 March 2022