KKV Pty Ltd v Tebb, Robert; Pty Ltd v Tebb, Robert

[2009] VCC 791

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION

COMMERCIAL LIST – GENERAL DIVISION

Case No. CI-08-02646
and

Case No. CI-08-02647

KKV PTY LTD & CARONVALE NO 4 PTY LTD	Plaintiffs
v
ROBERT TEBB & MICHAEL DUCKWORTH	Defendants
and
FILSEE PTY LTD & GATELL PTY LTD	Plaintiffs
v
ROBERT TEBB & MICHAEL DUCKWORTH	Defendants

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JUDGE:	HIS HONOUR JUDGE ANDERSON
WHERE HELD:	Melbourne
DATE OF HEARING:	22 and 23 June 2009
DATE OF JUDGMENT:	15 July 2009
CASE MAY BE CITED AS:	KKV Pty Ltd v Tebb, Robert; Duckworth, Michael & Filsee Pty Ltd v Tebb, Robert; Duckworth, Michael
MEDIUM NEUTRAL CITATION:	[2009] VCC 0791

REASONS FOR JUDGMENT

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Catchwords:	Guarantee and indemnity – Directors guaranteeing performance of company’s obligations pursuant to substantial commercial leases – Significant default in paying rent by the tenant – Tenant company given
a licence to access the lease premises upon paying most of the rent arrears and giving further undertakings – Whether the grant of the licence affected the enforceability of the guarantee and indemnity against the guarantors.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M.A. Robins	Nathan Kuperholz
For the First Defendant	Mr G.L. Meehan	Somerset Ryckmans
For the Second Defendant	No appearance
HIS HONOUR:

1           In September 2004, the defendants, Robert Tebb and Michael Duckworth, were the directors of Precision Container Services Pty Ltd. On 24 September 2004, the company leased adjoining commercial premises at Brooklyn for use as a container storage facility. The adjoining properties were separately owned by the plaintiffs in each of these proceedings. On 24 September 2004, two commercial leases were executed:

a.	Filsee Pty Ltd and Gatell Pty Ltd were the landlords of the premises at Lot 4, Justin Road. The term of the lease was five years, with an option for a further five-year term, at a starting rental of $232,000 per annum.
b.	KKV Pty Ltd and Caronvale No 4 Pty Ltd were the landlords of the adjoining premises at Lot 1, Justin Road, on similar terms but with a starting rental of $318,000 per annum.

2           Each of the leases was guaranteed by the defendants as the directors of the tenant company. Both Tebb and Duckworth executed a guarantee and indemnity. In relation to each lease the directors guaranteed “the performance and observation of all terms and conditions of the lease by the tenant”, and “as a separate and independent obligation” promised to “keep the landlord indemnified against all losses [arising from] any default by the tenant”.

3           By May 2007, the tenant company owed arrears of rental in excess of $100,000. On the morning of 10 May 2007, the landlords’ agent re-entered both premises and locked the tenant out. Faxed correspondence followed later that day between the agent and the tenant company, resulting in the landlords granting to the company “a licence to access to the premises” subject to certain conditions, including the making of an immediate payment and the promise of a further payment and the provision of security.

4           Two proceedings were commenced by each set of landlords in respect of each guarantee and indemnity relating to the leases. Initially both defendants were represented by the same solicitors. A defence was filed on 29 September 2008. The defences raised in the initial pleading were that the relevant plaintiffs had breached terms of the lease relating to the condition of the premises and its fitness for the tenant’s business. There was a general denial that any breaches of the lease by the tenant had not been remedied, and a denial that the plaintiffs had suffered loss and damage.

5           In March 2009, Mr Tebb consulted other solicitors, and he was subsequently given leave to file and serve an amended defence and counterclaim on 14 May 2009 which was further amended on 17 June 2009.

6 was refused. The defence relied upon by Mr Tebb at the trial was that the effect of
the grant of a licence by the landlords to the company to access the premises meant
that the landlords could no longer enforce each guarantee and indemnity against him,

At trial, an application by Mr Tebb to further amend his defence and counterclaim defences admitted the quantum of the plaintiffs’ claim – in the Filsee proceeding in the sum of $279,131.17, and in the KKV proceeding at $564,805.78.

7 the hearing Mr Duckworth’s solicitors wrote to the plaintiffs’ solicitor as follows:

Mr Duckworth did not appear at the trial. A few days before the commencement of shortly be an undischarged bankrupt”. Mr Duckworth’s defences remained as they had been pleaded in the initial defence filed on 29 September 2008.

8           The issues for determination in the proceedings were:

a.	In relation to Duckworth, whether the condition of the premises rendered them unfit for the tenant’s intended use, and, if there had been a valid re-entry, the quantification of each set of landlords’ loss and damage.
b.

In relation to Tebb, whether the grant of a licence to the company on under each guarantee and indemnity.

9           The specific defences raised by Mr Duckworth in relation to the condition of the premises (later abandoned by Mr Tebb in his amended pleading) were not the subject of evidence at the trial. The onus to prove these allegations raised by Duckworth was upon him, and accordingly these defences must fail. There were

arrears of rental in May 2007. The landlords validly re-entered. The quantum of the
landlords’ claim in each action was established by the evidence of Ms Ann Magee,
an employee of the landlords’ managing agent, Mulcahy & Co.

10         In relation to the defence raised by Mr Tebb, it is necessary to examine the correspondence between the company and the agent on 10 May 2007:

a. At about 12.38 pm, a letter was faxed to the agent from the company. It was addressed to “Chris Mulcahy, Mulcahy & Co” and was signed by “Ann-Maree Cantore, PA to Robert Tebb”, and referred to a conversation between them

earlier that day. The letter offered payment of $69,226.36 if the landlords

would “allow immediate access to the premises at Brooklyn”.

b.	An email from Ann Magee to Robert Tebb at 2.25 pm advised that the landlords “agreed to provide access” on condition that the $69,000 was paid “today with bank confirmation”. The balance was to be “resolved within 7 days”, and the bank guarantees “reinstated within 14 days”.
c.	A faxed letter from the company to the agent at 3.15 pm offered to pay $69,226.36 “today”, to pay the “resolved balance”, and to reinstate the bank guarantee. In return, the landlords were to provide “immediate access to the property”. The letter concluded, “Unfortunately Mr Tebb is unable to

personally sign this undertaking until he returns later today. He can call to confirm that he has authorised this undertaking, and we will refax this letter

with his signature later today”.

d. “Without Prejudice”

A letter from the agent headed and addressed to by facsimile. It noted that a rent reconciliation showed that “at least $109,883.68 is owing”. The letter set out the “arrangements” the landlords were prepared to make:

1.	Payment to it of $69,226.36 that day and the provision of bank confirmation.
2.	To seek to resolve the balance owing and to pay it within 7 days and to reinstate the bank guarantees within 28 days.
3.	Once the $69,226.36 was paid, “the landlord will grant you a licence to

access the premises ... provided you comply with all of the tenants’ other

obligations under the leases”.

4.  Upon any failure to comply with the terms of the arrangement or the obligations under the leases, “your licence to access the premises will be revocable”.

5.  If the terms of the arrangement and the obligations under the leases were complied with, “the landlord will allow you to re-enter the premises as the tenant under the leases”.

The letter further stated:
“The landlord requires your undertakings to be signed by

Robert Tebb personally. If a copy of this letter is signed by Robert Tebb and faxed to our office today then this letter will no longer be

‘without prejudice’ but may instead be relied upon by both parties”.

e. A copy of the letter was faxed to the agent at 5.52 pm. It contained the following endorsement:

“Agreement and undertakings

I, Robert Tebb, for and on behalf of Precision Container Services Pty Ltd, agree to the arrangement and give the undertaking set out in this

letter”.

Then followed Mr Tebb’s signature above his name, typed as “Robert Tebb” and the date “10/5/2007”. Faxed with the letter was bank confirmation of payment of the sum of $69,226.36.

11         The submissions made by Mr Meehan on behalf of Mr Tebb were as follows:

a.	The leases came to an end with the re-entry by the plaintiffs on 10 May 2007.
b.	Each guarantee and indemnity was limited to the company’s obligations pursuant to the leases.
c.	The company was under no obligation to pay rental pursuant to the leases following termination by the plaintiffs. The obligation only related to any arrears at the time of termination.
d.	The plaintiffs’ losses which Mr Tebb had guaranteed and indemnified were limited by the date and circumstances of the termination of the leases.
e.	The losses under the leases were fully mitigated when the plaintiffs entered into the licence agreement with the company on 10 September 2007.
f.	Any subsequent breach by the company of the obligations under the licence did not revive any obligation under the original leases.
g.	Mr Tebb had not guaranteed any obligations under the licence agreement and could not be liable for any breaches of that agreement by the company.
h.	The plaintiffs’ entry into the licence with the company on 10 September 2007 discharged the guarantees, and they could no longer be enforced by the plaintiffs.

12         Ms Magee gave evidence that:

a.	The sum of $69,226.36 was paid on 10 May 2007 and a bank document evidencing the transfer was faxed to the agent with the copy letter signed by Mr Tebb.
b.	At a later time a further sum was paid, although the amount owing to the landlord was not resolved, as a dispute remained in relation to land tax.
c.	The bank guarantees were not provided.
d.	The company was given access to the premises and remained there for some months, even after an administrator was appointed to the company in June 2007.

13         In the written submissions by the first defendant’s counsel, Mr Meehan, it was asserted that the company “continued to make payments to the plaintiffs under the

licence agreement until late September 2007, after which date it vacated the

premises

”. However, there was no evidence of these facts given at the hearing. and damage claimed included the period up until the date the new tenants commenced paying rent and the shortfall in the rental paid for the unexpired term of the leases. In addition there were certain unpaid outgoings and other expenses.

14         The effect of events leading up to, and after the company and the plaintiffs entering into the licence agreement was that:

a.	The company was in breach of the leases.
b.	The landlords exercised their right to re-enter and bring the leases to an end.
c.	The company, later the same day, subsequently paid a substantial part of the arrears of rental owing to 10 May 2007 and was thereupon given access to the premises.
d.	Subsequently, the company paid further arrears of rental it had undertaken to pay in the 10 May 2007 agreement.
e.	Otherwise the company failed to fulfil its obligations pursuant to that agreement.

15         In determining the obligations of Mr Tebb pursuant to each guarantee and indemnity, it is necessary to consider:

a.	The terms and conditions of each guarantee and indemnity document and whether the documents contemplated the events which occurred.
b.	The nature of the agreement reached on 10 May 2007 and its effect upon the plaintiffs’ claim for damages for breach of the leases and the defendants’ obligations pursuant to the guarantee and indemnity.
c.	The effect of Mr Tebb’s involvement in the entry by the company into the 10 May 2007 agreement.

16         By the terms of each guarantee and indemnity:

a. Mr Tebb irrevocably and unconditionally guaranteed to the landlord “the due

and punctual payment of all moneys which the tenant must pay under the

lease” and “the performance and observance of all terms and conditions of the

lease by the tenant” (Clause 3).

b. “As a separate and independent obligation from Clause 3”, Mr Tebb promised to “keep the landlord indemnified against all losses, damages ... [etc] ... which the landlord may incur or suffer because of any default by the tenant ...”

(Clause 4).

c. not be affected lease or its subsequent termination
by anything which would wholly or partly release or discharge” him (Clause 6).

Mr Tebb’s liability under the guarantee and indemnity would “” by the landlord (Clause 6(b)) or the release or discharge of “all or any of the tenant’s obligations other than by their due performance or observation under the lease” (Clause 6(d)).

d. Mr Tebb’s obligations were to continue, as the guarantee and indemnity was “a continuing guarantee and will remain in force until the landlord

unconditionally releases the guarantor in writing or until the whole of the

guarantor’s obligations ... have been performed and complied with in full”
(Clause 8).

17         The agreement reached on 10 May 2007 granted the company “a licence to access

to the premises from the time of our receipt of the $69,226.36 provided that you

comply with all of the tenant’s other obligations under the leases”. Failure to comply would mean that the company’s “licence to access the premises will be revocable immediately by the landlord”. Compliance would mean that the landlord would allow the company “to re-enter the premises as the tenant under the leases”.
18	(it failed to resolve the discrepancy relating to land tax and failed to reinstate the bank guarantees) and apparently breached the tenant’s obligations under the leases by not continuing to pay rent. The company’s breaches meant that the company’s

The company breached the undertakings given under the 10 May 2007 agreement would not be allowed “to re-enter the premises as the tenant under the leases”.

19 there had been conversations between Ms Cantore (Mr Tebb’s personal assistant)
and Mr Mulcahy of the landlords’ agent. At 12.38 pm, an “offer” was faxed by Ms
Cantore to Mr Mulcahy. There were counter-proposals culminating in the document
subsequently agreed to. This document was addressed to “Mr Robert Tebb and
Precision Container Services Pty Ltd”, and it was noted in the document that “the

After the landlords had re-entered the premises early in the morning of 10 May 2007, Mr Tebb signed the document and it was returned to the agent.

20         The document was signed by Mr Tebb “for and on behalf of Precision Container Services Pty Ltd”, and he agreed to “the arrangement” and gave “the undertakings set out in the letter” on that basis. It was not suggested by the plaintiffs that Mr Tebb was personally liable pursuant to the 10 May 2007 agreement, but simply that the execution of the agreement could not affect his liability under each guarantee and indemnity.

21         In my view Mr Tebb remained liable, pursuant to the obligations he assumed under the guarantee and indemnity he had executed in respect of each of the leases. The reasons I reach this conclusion are as follows:

a.	The guarantee and indemnity by its terms did not limit the guarantors’ separate liability under the guarantee or the indemnity in the circumstances which arose.
b.	In fact, the guarantee and indemnity contemplated such a situation arising, and expressly provided that such circumstances (a variation of the lease terms or its termination) would not release or discharge the guarantors or otherwise affect the guarantors’ continuing obligations.
c.	The plaintiffs sought in each proceeding to enforce the terms of the guarantee and indemnity and did not rely upon any obligations pursuant to the agreement reached on 10 May 2007.
d.	The leases had been brought to an end by the landlord’s re-entry. The 10 May 2007 agreement granted the company a “licence to access the premises” upon certain conditions being fulfilled, which did occur. The preconditions to the plaintiffs allowing the company “to re-enter the premises as the tenant under the leases” did not occur.
e.	The terms of the 10 May 2007 agreement were not more onerous to the company than the terms of the leases it had breached.
f.	Mr Tebb assented to the 10 May 2007 agreement, and it arose as a result of negotiations initiated by him on behalf of the company.
g.	Whilst the plaintiffs may have sought to mitigate their losses by giving a licence to the company to access the premises, the plaintiffs’ losses resulting from the company’s breaches of the leases did not fully crystallise until the premises were relet.
h.	The plaintiffs’ entry into the 10 May 2007 agreement did not discharge the company from its liability for damages resulting from its breaches of the leases or the obligation of the guarantors pursuant to their separate obligations of guarantee and indemnity.

22         The plaintiffs’ loss is plain on the facts, and arises primarily from the company’s failure to pay the annual rental of at least &232,000 and $318,000 per annum for leases which had been due to expire on 5 September 2009. The quantification of these losses was only apparent when new tenants were found and the premises relet. The grant of a licence to the company “to access the premises” had the potential to affect the quantification of the plaintiffs’ damages, but in the circumstances as they developed, had little relevance and did not “break the chain of causation”.

23         The plaintiffs’ losses were recoverable against the company pursuant to the leases and, if this were not possible, from the guarantors pursuant to their obligations under each guarantee and indemnity. The quantification of these losses is not in issue.

24

Both counsel provided comprehensive and helpful written submissions, supported by I have generally accepted the submissions made on behalf of the plaintiffs.

25         In each proceeding there will be judgment for the plaintiffs against each defendant, in proceeding no. CI-08-02647 for $279,131.17, and in proceeding no. CI-08-02646 for $564,805.78.

26         I will hear further from the parties in relation to issues of interest and costs.

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Certificate

I certify that these 9 pages are a true copy of the reasons for decision of His Honour

Judge Anderson delivered on 15 July 2009.

Dated: 15 July 2009.

Julien Lowy

Associate to His Honour Judge Anderson