Loma Nominees Pty Ltd v Wetaka Pty Ltd - [2013] SADC 44

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
LOMA NOMINEES PTY LTD v WETAKA PTY LTD & ORS
[2013] SADC 44
Judgment of Her Honour Judge Bampton
12 April 2013
LANDLORD AND TENANT - AGREEMENTS FOR LEASE
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSTRUCTION AND EFFECT - EXTENT OF LIABILITY
GUARANTEE
ASSIGNMENT OF LEASE
LIABILITY OF GUARANTORS UPON ASSIGNMENT OF THE LEASE
The 2nd to 5th Defendants guaranteed the obligation of the 1st Defendant under a lease. Per 6R 211 9 DCR the parties seek determination of a preliminary issue, concern for liability of 2nd to 5th Defendants upon assignment of the lease.
HELD: Liability of the second to fifth defendants under the Guarantee continued until 30 June 2012.

LOMA NOMINEES PTY LTD v WETAKA PTY LTD & ORS
[2013] SADC 44

Loma Nominees Pty Ltd (“Loma”) is the registered proprietor of premises at 148 Jetty Road Glenelg (“the Premises”).
Loma’s claim against the defendants is for unpaid rent and other amounts due under a lease.
Pursuant to Rule 211 of the District Court Rules 2006, the parties seek the determination of a preliminary issue. The preliminary issue concerns the liability of the second to fifth defendants to Loma under a guarantee.
Background
The first defendant Wetaka Pty Ltd (“Wetaka”) is a company registered in South Australia.
The second defendant Domenico Labbozzetta, is a director, secretary and shareholder of Wetaka and husband of the third defendant, Theresa Labbozzetta.
The fourth defendant, Francesco Labbozzetta is a director and shareholder of Wetaka, and husband of the fifth defendant, Rosemary Labbozzetta.
The sixth defendant is Daniella Coutouvidis who is a director and shareholder of DAIA Pty Ltd (“DAIA”).
For the sake of simplicity, I shall refer to the second to fifth defendants as the Defendants in these reasons.
In 1995 Koora Pty Ltd (“Koora”) was the registered proprietor of the Premises on Jetty Road, Glenelg. Koora owned the Premises as trustee of the Lois and Jack Hoeper Family Trust (“the Trust”).
Koora at the request of the Defendants, entered into a lease of the land with Wetaka (“the Lease”). The Lease was executed on 6 October 1995.
On 6 October 1995 the Defendants also executed a guarantee whereby in consideration of Koora granting the lease to Wetaka, the Defendants agreed to guarantee the obligations of Wetaka pursuant to the Lease and to indemnify Koora against any default by Wetaka of its obligations under the Lease or any loss suffered by Koora pursuant to the terms set out in the guarantee document (the Guarantee). The Lease was attached to the Guarantee. The Memorandum of Lease and the Guarantee are attachment No. 4 to the Statement of Agreed Facts (FDN 9).
The initial term of the Lease was for a five year period from 1 December 1994 to 30 November 1999. The Lease provided for three five year rights of renewal.
In accordance with the Lease, Wetaka went into occupation of the land and operated a fruit and vegetable business.
Pursuant to the rights of renewal provided for in the Lease, the Lease was extended on 28 July 1999, 28 September 2004 and 25 June 2010.
On 19 February 2010 Loma replaced Koora as the trustee of the Trust.
In mid 2010 Daniella Coutouvidis requested that Loma consent to a transfer and assignment of the Lease from Wetaka to DAIA. Loma agreed to the request.
On 1 July 2010, Wetaka and DAIA executed a Deed of Assignment of Lease. By executing the Deed of Assignment, Wetaka assigned its interest under the Lease to DAIA (“the Assignment”).
Pursuant to the DAIA Assignment, DAIA agreed to be responsible for all the obligations and responsibilities of Wetaka pursuant to the Lease.
On 1 July 2010 Daniella Coutouvidis also executed a guarantee whereby she agreed to guarantee the performance of DAIA’s obligations under the Lease and indemnify Loma against any breaches by DAIA of the Lease (“the DAIA guarantee”). DAIA commenced occupation of the Premises and like Wetaka, operated a fruit and vegetable business.
On 29 September 2010 Loma became the registered proprietor of the Premises and lessor of the Lease. Loma held and holds the Premises on trust for the Trust.
As DAIA defaulted on its obligations, including the obligation to pay rent and outgoings, on 24 November 2011, Loma distrained for rent.
On 30 November 2011, liquidators of DAIA were appointed and DAIA went into liquidation.
As a result of DAIA’s defaults, Loma alleges it has suffered loss and damage. Loma claims damages including unpaid rent from May 2011 to June 2011 and outgoings from October 2011 to 30 June 2011 from the Defendants as guarantors, or Wetaka as the original lessee, or Daniella Coutouvidis as DAIA’s guarantor.
It is conceded by the Defendants that, absent any express agreement to the contrary, at common law and under the Lease, Wetaka as lessee remained liable for the performance of the obligations of the lessee under the Lease notwithstanding the assignment of its interests to DAIA.
Wetaka therefore remained liable for the obligations under the Lease, to pay rent (clause 2 of the Lease), the obligation to pay outgoings (clause 4 of the Lease) and the obligation to maintain the Premises in good repair (clauses 7.1 and 7.2 of the Lease).
The question for the preliminary determination as set out in the Statement of Agreed Facts FDN 9 is:
Is the liability of the second to fifth defendants under the guarantee dated on 6 October 1995 limited to the time that the First Defendant was in possession of the premises described Memorandum of Lease No. 8042054?
Defendants’ submissions
The Defendants assert that they did not agree to guarantee the obligations of Wetaka under the Deed of Assignment nor did they agree to guarantee the obligations of DAIA, the assignee under the Deed of Assignment.
The Defendants plead in paragraph 2.1 of their defence (FDN 5) that the Guarantee is limited in its operation to the period in which Wetaka remained in occupation of the Premises. In paragraph 2.2 of the defence they plead that they are not liable to Loma by virtue of clause 7 of the Guarantee.
The Defendants argue that:
·Clause 7 of the Guarantee is to be interpreted strictly in their favour as guarantors and that it limits their liability to the period that Wetaka was in occupation of the Premises and that they are therefore not liable for DAIA’s defaults.
·The Guarantee whilst attached to the Lease does not form part of it and is not referred to in the Lease.
·The Guarantee defines the party to be guaranteed by name and contains the whole of the obligations of the guarantors.
·The definition of lessee in the Guarantee is different to the definition in the Lease.
·As guarantors, they gave the Guarantee in respect of a named party under the Lease and not in respect of obligations that might arise in the future as a result of defaults by a third party deriving an interest under the contract.
·It is significant that no guarantee was sought from the Defendants at the time of the Assignment.
·They are entitled to the benefit of the interpretation of clause 7 most favourable to them, provided that interpretation is available on the face of the words.
·They are entitled to read the words ‘for so long as the Lessee may remain in possession of the premises Leased by the said Lease.’ in clause 7 as defining the duration of their liability.
·That once the business was sold to a new proprietor, their obligations ceased and it is reasonable for them to expect that once sold to a new lessee who had separately contracted with the landlord to meet the obligations under the Lease, they would have no further liability.
·Loma’s contention that clause 7 extends their liability to the trespass of a subsequent lease is to be rejected because of the definition of ‘Lessee’ in the Guarantee.
·Clause 7 does not extend to the liabilities of a new tenant nor does it extend the Guarantee to the obligations in the Assignment.
Loma’s submissions
Loma asserts that the Defendants guaranteed the performance of all of Wetaka’s obligations under the Lease and that when properly construed, clause 7 does not alter that position. Loma contends that the Defendants are liable under the Guarantee notwithstanding the Assignment.
Loma submitted that:
·The lessee is defined in the Guarantee when read with the Lease to include Wetaka’s assignees and it therefore follows that the Defendants have guaranteed the performance of DAIA’s obligations under the Lease.
·Clause 1 of the Guarantee states that the Defendants ‘guarantee the due and proper performance and observance of all obligations of the Lessee contained in or implied by the Lease…’
·Clause 15.1 makes clauses 2, 4 and 7 of the Lease fundamental terms of the Lease. Clauses 15.2 and 15.4 make Wetaka liable to pay damages to the lessor for any breach of these clauses.
·The Guarantee provides in Clause 2 (c) that ‘this Guarantee shall not be prejudicially affected by any other security or guarantee given in favour of the Lessor in respect of matters the subject of this Guarantee’. Accordingly, as a further guarantee would only be granted if the lease was assigned, the parties have implicitly recognised in clause 2(c) that the obligations under the Guarantee continue notwithstanding the assignment of the Lease.
·The Defendants’ interpretation of clause 7 should be rejected for two reasons.
Firstly, that such a construction is inconsistent with clauses 1, 2(d) and 2(m) and the words of clause 7 of the Guarantee.
Secondly, the expression of ‘the Lessee’ in Clause 7 means Wetaka and its assignees. Hence by executing the Guarantee the Defendants have agreed to guarantee the obligations of Wetaka and the obligations of DAIA under the Lease.
Discussion
The terms of a guarantee document are to be interpreted strictly and to the extent of any ambiguity, in favour of the surety.[1]
[1] Ankar Pty Ltd v National Westminster Finance (Australia) Limited (1987) 162 CLR at 561
It is clear that the guarantee document must be construed in its context and regard must be had to the totality of the transaction. In order to do so the court must have regard to the Lease when inspecting the Guarantee.[2]
[2] Lang v Asemo Pty Ltd [1989] VR 773 at 777 per Gobbo J (with whom Murphy and Phillips JJ agreed); Tessari v Bais Pty Ltd (1990) 54 SASR 274 at 283 per Mullighan J; Tessari v Bais Pty Ltd (1992) 60 SASR 59 at 75 per Legoe J and at 84 – 85 per Olsson J.
Accordingly, the Guarantee cannot be construed in isolation of the Lease. Further, as submitted by counsel for Loma, the language used in the Guarantee and repeated references to the Lease demonstrate that the parties clearly intended the two documents to be read together. It is also significant that the Lease and the Guarantee were executed on the same day and that the Guarantee refers to the Lease being attached. It should also be noted that two of the Guarantors, namely the second and fourth defendants are also directors of the assignor, Wetaka.
The Lease is to be interpreted as at the date it was executed and its meaning is to be interpreted by what a reasonable person would have understood it to mean having regard to its context, the surrounding circumstances known to the parties and the purpose of the transaction.[3]
[3] Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276 at [215] per McColl JA. See also McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22] per Gleeson CJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]; Wilkie v Gordian Runoff (2005) 221 CLR 522 at [15] per Gleeson CJ, McHugh, Gummow and Kirby JJ.
Clause 1.1(c) of the Lease provides that:
The expression “the Lessee” shall include the Lessee’s executors, administrators and permitted assigns where the Lessee is a natural person and where the Lessee is a company shall include its successors and permitted assigns...
The Preamble to the Guarantee (“Preamble”) describes Koora as the Lessor and the defendants as the Guarantor. The only reference to Wetaka by name in the Guarantee is in the following context:
the Lease attached hereto with WETAKA PTY. LTD. … as Lessee…
The Lease is described in the Preamble as the Lease.
Clause 8(b) of the Guarantee makes it is clear that the Lessee for the purpose of the Guarantee is: ‘the person or company whose obligations under the said Lease are the subject of this Guarantee.’
Having regard to clause 8(b) whoever owes obligations under the Lease is the lessee for the purposes of the Guarantee.
The question is whether clause 7 of the Guarantee confines this liability to the period Wetaka was in possession so that the Guarantee is lessee specific.
I was referred to the decision in North Terrace Properties Pty Ltd v Lawbitax Pty Ltd[4] where Judge Herriman found at paragraph 158 that the guarantee under consideration was lessee specific as it did:
not purport to cover the obligations of “the lessee”. It might have been expressed in that way if such was intended, but in fact it specifically guarantees performance by “Lawbitax”.
[4] [2005] SADC 69
The Lessee as described in the Guarantee is not limited to Wetaka. The Guarantee is not lessee specific. The only specific reference to Wetaka in the Guarantee is in describing the Lease which is the subject of the Guarantee. The Defendants guaranteed the obligations of the Lessee under the Lease.
By virtue of clause 1.1(c) of the Lease and clause 8(b) of the Guarantee the expression Lessee includes Wetaka’s assigns. The parties have expressly agreed in clause 8(b) of the Guarantee that regard is to be had to the Lease as to who is the lessee.
DAIA is a permitted assign under the Lease. Accordingly, the words ‘shall include’ in clause 1.1(c) of the Lease make it clear that both the original lessee and the lessee’s permitted assigns are the lessee under the Lease.
In my view, the meaning of clause 7 is clear and unambiguous. It states that the Guarantee:
shall continue during the term granted pursuant to any option to renew, any holding over and without limiting its extent in the absence of this clause for so long as the lessee may remain in possession of the premises Leased by the said Lease.
Clause 7 makes it clear that the liability of the Defendants under the Guarantee continues during certain periods of occupation.
Those periods include:
·Periods of occupation during the term granted pursuant to any option to renew under the Lease.
·Periods of occupation during any holding over, and
·For so long as the lessee may remain in possession of the Premises.
Clause 7 does not specify that it is limited to those periods of occupation.
Wetaka was granted a five year lease with three rights of renewal. The term ‘granted pursuant to any option to renew…’ makes it clear that the liability of the Defendants under the Guarantee continues throughout the periods granted pursuant to those terms.
Further, if at the expiration of the Lease, the Lessee remains in possession of the Premises with the consent of Loma, the words ‘any holding over’ period make it clear that the liability of the Defendants continues during that period.
Or, if the Lease expires or otherwise ends and the lessee remains in possession of the Premises without the consent of the landlord, so that there is an unlawful possession, the words, ‘for so long as the lessee may remain in possession of the premises…’, make it clear that even in those circumstances, the liability of the Defendants under the Guarantee continues.
If clause 7 limited the liability of the Defendants to the period that Wetaka was in possession of the Premises there would be situations where Wetaka would remain liable under the Lease even though it was not in possession of the Premises, but the Defendants would not be liable under the Guarantee for the performance of Wetaka’s obligations. For example if the Lessor exercised its right to re-enter pursuant to clause 12.3 or 15.3 of the Lease, Wetaka would no longer be in possession of the Premises but would remain liable under the Lease. On this construction the Defendants would not be liable as Wetaka is no longer in possession of the Premises.
This interpretation of clause 7 whereby it limits the Defendant’s liability to the time that Wetaka was in physical possession of the Premises is inconsistent with clauses 1, 2(d) and 2(m) of the Guarantee.
Pursuant to clause 1 of the Guarantee the Defendants have guaranteed:
the due and proper performance and observance of all obligations of the Lessee contained in or implied by the Lease…
Clause 2(d) states that the Guarantee is a continuing guarantee and shall remain in full force and effect until the performance of all of the obligations under the Guarantee.
Clause 2(m) provides that:
until the determination of the obligations contained in this Guarantee, no party shall be or be able to be released or discharged from those obligations unless and until the execution of a document in the same form as to execution as this agreement by the parties hereto.
The obligations referred to in Clause 2(d) and 2(m) are the obligations the Defendants have guaranteed referred to in Clause 1. That is, the lessee’s obligations under the Lease.
There is nothing in the Lease that limits the obligations contained in Clauses 2, 4 and 7 of the Lease to the period that Wetaka was in occupation of the Premises. There is also nothing in the Lease that implies that Wetaka’s obligations ended on the Assignment. Having regard to clauses 6.6(a) and 12.3(c) of the Lease the parties intended the obligations under Lease to continue for the term of the Lease irrespective of whether Wetaka assigned its interest under the Lease.
It is clear having regard to the words in clause 7 of the Guarantee ‘without limiting its extent in the absence of this clause’ which immediately precede the words ‘for so long as the Lessee may remain in possession of the premises…’ that the parties did not intend to limit the Guarantee given by the Defendants. It was intended that the Guarantee extends to all of Wetaka’s obligations under the Lease and those obligations continue notwithstanding the Assignment.
As submitted by counsel for Loma, if the parties intended to limit the liability of the Defendants to the period that the Wetaka was in possession of the Premises, the words in clause 7, ‘without limiting its extent in the absence of this clause…’, would have been omitted and words specifically limiting the Guarantee would have been used.
Clause 7 makes it clear that the liability of the Defendants continues during certain periods of occupation. It does not limit the guarantee given by clause 1.
It is clear that the Defendants in agreeing to guarantee the obligations of ‘the Lessee’ under the Lease agreed to guarantee not only Wetaka’s obligations but also DAIA’s obligations as Wetaka’s permitted assign under the Lease
Pursuant to clause 1 of the Guarantee, the Defendants have guaranteed Wetaka’s obligations under the Lease. Those obligations continued despite the Assignment. Clause 7 of the Guarantee does not limit the Defendant’s liability under the Guarantee to the period Wetaka was in possession of the Premises. It provides that their liability continues during any lawful or unlawful possession of the Premises by the lessee.
Further, the expression ‘Lessee’ includes DAIA by virtue of clause 8(b) of the Guarantee and clause 1.1(c) of the Lease. As such, the Defendants have expressly guaranteed the performance of DAIA’s obligations under the Lease, which include the obligation to pay rent and outgoings.
Conclusion

The Defendants guaranteed the performance of all of Wetaka’s obligations under the Lease and clause 7 does not alter that position.
The Lessee is defined in the Guarantee when read with the Lease to include Wetaka’s assigns. It follows that the Defendants have guaranteed the performance of DAIA’s obligations under the Lease.
The Defendants are liable to Loma for DAIA’s defaults under the Lease as they guaranteed the performance of all of Wetaka’s obligations under the Lease and at common law and under the Lease, Wetaka remains liable for the performance of those obligations for the term of the Lease irrespective of the Assignment
Accordingly, the answer to the question for preliminary determination is:
No, the liability of the second to fifth defendants under the Guarantee continued until 30 June 2012.