Meteorite Property (Bourke Street) Pty Ltd v New Concept Investment Pty Ltd
[2017] VCC 119
•23 February 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-16-01419
| METEORITE PROPERTY (BOURKE STREET) PTY LTD (ACN 165 571 228) | Plaintiff |
| v | |
| NEW CONCEPT INVESTMENT PTY LTD (ACN 138 150 875) and JUN XU and JIN HAO | First Defendant Second Defendant Third Defendant |
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 October 2016 | |
DATE OF JUDGMENT: | 23 February 2017 | |
CASE MAY BE CITED AS: | Meteorite Property (Bourke Street) Pty Ltd v New Concept Investment Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 119 | |
REASONS FOR JUDGMENT
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Subject:LANDLORD AND TENANT
Catchwords: Construction of lease and deed of assignment – Where continuing obligation of former tenant for outgoings where lease assigned – Where ambiguous clause - Where notice of estimated outgoings not given.
Legislation Cited: Retail Leases Act 2003 (Vic); Retail Tenancies Act 1986.
Cases Cited:Helou v Mulligan Pty Limited [2003] NSWCA 92; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; Impact Funds Management Pty Ltd (as Trustee for IIG 401 Collins Trust) v Roy Morgan Research Ltd [2016] VSC 221; Dovastand Pty Ltd v Mardasa Nominees Pty Ltd [1991] 2 VR 285.
Judgment:Judgment for the plaintiff.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Hopper | Maddocks Lawyers |
| For the Defendants | Mr R Hay QC Mr L Virgona | Tisher Liner FC Law Pty Ltd |
HER HONOUR:
Summary
1 Meteorite Property (Bourke Street) Pty Ltd (“Meteorite”) is the lessor of a shopping centre. New Concept Investment Pty Ltd (“New Concept”) was the lessee of a shop in the centre under a lease with Meteorite (“the Lease”) until 11 December 2015 (“the Assignment Date”). That was the operative date when New Concept assigned its right and obligations to a new lessee, AXF Entertainment Pty Ltd (“AXF”) under a deed of assignment (“the Deed”).
2 On 18 January 2016, Meteorite gave New Concept a statement of outgoings relating to the 2014 and 2015 years (part of the period when New Concept was tenant). New Concept refused to pay. The second and third defendants were guarantors of New Concept’s obligations in this proceeding. Meteorite sues New Concept and the guarantors for those outgoings and for interest. Whether or not New Concept and the guarantors are liable depends on the construction of clause 8 of the Lease and clause 5 of the Deed.
3 There are two issues:
(a) Liability for outgoings which were not due as at date of assignment
On the proper construction of clause 5 of the Deed, is New Concept liable for outgoings applicable to the period when it was the tenant under the Lease where, as at the Assignment Date, notice had been given of those outgoings but they were not yet due to be paid and New Concept was not in breach of the Lease in not having paid them?
(b) Liability for outgoings when no annual estimate given
On the proper construction of clauses 8.2 and 8.4 of the Lease, is New Concept liable to pay Meteorite the 2014 outgoings when no annual estimate of the 2014 outgoings was given by Meteorite to New Concept?
4 If the answer to issue (a) is no, then New Concept has no liability in relation to Meteorite’s claims in the proceeding. If the answer to issue (a) is yes, then New Concept agrees it is liable to pay Meteorite the 2015 outgoings but issue (b) needs to be determined in relation to liability for the 2014 outgoings.
5 I find that the answer to each of the issues is yes, and accordingly there will be judgment for Meteorite against New Concept and the guarantors for the full amount claimed.
Background
6 On 2 November 2009, New Concept leased the premises at Level 2 of the shopping centre at 206 Bourke Street in Melbourne from the original landlord, 206 Bourke Street Pty Ltd. The Lease commenced on 9 March 2010 and was varied on 8 October 2010. It was not subject to the Retail Leases Act 2003 (Vic).
7 Jun Xu and Jin Hao guaranteed New Concept’s obligations under the Lease.
8 Meteorite bought the centre from the original landlord on 25 November 2013 and became the landlord under the Lease.
9 By the Deed, New Concept assigned its interest as lessee to AXF as at 11 December 2015.
10 On 19 February 2016, Meteorite’s solicitors provided New Concept’s solicitors with:
(a) Statements of outgoings for the years ending 31 December 2014 and 21 December 2015; and
(b) A tax invoice for $367,089.43 (the total of the 2014 outgoings and the 2015 outgoings).
11 New Concept refused to pay on the basis of its construction of the Deed and Lease.
12 The writ in this proceeding was issued in April 2016, and a defence filed on 20 May 2016. At that stage, there were more issues in dispute. By the time the case came on for trial, Counsel had reduced the issues to the two set out above and also agreed on relevant facts. No oral evidence was called. Relevant documents were tendered by agreement.
Liability for outgoings which were not due as at date of assignment
13 Clause 5 of the Deed states:
“The Existing Tenant and the Existing Guarantor remain liable for any rent and outgoings, payable under the Lease, and any other breaches under the Lease, for the period up to the Assignment Date.”
14 New Concept was the “Existing Tenant” in the Lease.
15 The Macquarie Dictionary[1] defines the word ‘payable’ as meaning “owed; to be paid; due”. With some circularity, it defines ‘due’ as “immediately payable….owing, irrespective of whether time for payment has arrived.” In Helou v Mulligan Pty Limited Mason P agreed with the proposition that “[f]or money to be ‘payable’, in a context where that word is used in distinction to ‘due’ or ‘owing’ there must generally be an immediate obligation to pay….In the expression ‘due and payable’, ‘payable’ means required to be immediately or presently paid.”[2] In the context of the Deed, it is not clear that the word ‘payable’ is used in clause 5 in distinction to ‘due’ or ‘owing’.[3]
[1]The Macquarie Dictionary (Macquarie Library Pty Ltd, 3rd ed, 2003).
[2][2003] NSWCA 92 [26], with whom Sheller JA and Davies AJA agreed.
[3]Clause 6.2 states, “Each of the New Tenant and the New Guarantor acknowledges and agrees that the New Tenant must pay when due all amounts that may be owing under the Lease, even if the amounts relate to periods which precede the Assignment Date.” Clause 12.1.2 states, “The New Tenant must pay … any stamp duty on this Deed and any stamp duty that may be payable on the Lease.” Clause 14.3 states, “If GST is payable in respect of any supply made by a supplier under this Deed (GST Amount), the recipient must pay to the supplier an amount equal to the GST payable on the supply. Subject to clause 14.4, the recipient must pay the GST Amount at the same time and in the same manner as the consideration for the supply is to be provided [sic] under this Deed ...” Clause 14.4 states, “The supplier must provide a tax invoice to the recipient before the supplier will be entitled to payment of the GST payable under clause 14.3.” There are no other relevant references to ‘payable’, ‘due’ or ‘owing’ in the Deed.
16 It was common ground that the 2014 and 2015 outgoings were not “required to be immediately or presently paid” by New Concept as at the Assignment Date. Notice was given of them to New Concept the day before the Assignment Date, but they were not payable until either 14 days or 30 days after notice was given[4] (and so after the Assignment Date).
[4]Different clauses of the Lease provide for these differing payment times. Determination of which is the correct time in this instance is not necessary as it is not relevant to the issues in this proceeding.
17 Meteorite says that clause 5 of the Deed has the effect that that New Concept remains liable after the Assignment Date for outgoings under the Lease relating to the period up to the Assignment Date, including those not yet required to be paid as at the Assignment Date. It says that New Concept does not need to be in breach of the Lease in relation to payment of outgoings as at the Assignment Date in order to remain liable for payment of the outgoings up to its period of occupation once those outgoings become payable.
18 Meteorite concedes that on its interpretation of the clause, there is no work to be done by the word “other” in the phrase “and any other breaches”. On the construction urged by Meteorite, the clause would have the same effect if it read:
“The Existing Tenant and the Existing Guarantor remain liable for any rent and outgoings, payable under the Lease, and any
otherbreaches under the Lease, for the period up to the Assignment Date.”
19 Meteorite argues that:
(a) Its construction accords with common sense. It allows for both New Concept and AXF to pay for the outgoings that relate to the period of their own occupation. Outgoings in the Lease include consumption costs such as water, electricity, telephone and gas. By contrast, New Concept’s construction requires AXF to pay for the outgoings used by New Concept.
(b) For New Concept’s construction to work, it needs to establish that the words “any other breaches under the Lease” are words of contraction, restricting the ordinary meaning of the words “any rent and outgoings, payable under the Lease”. Meteorite says:
(i) In their ordinary and natural meaning, those words are words of expansion; they broaden the categories of liability under the clause; and
(ii) If New Concept’s construction were correct, then the words “any rent and outgoings, payable under the Lease” would have no work to do, as rent and outgoings which were already required to be paid by New Tenant as the Assignment Date, but were unpaid, would be captured by the words “any … breaches under the Lease”.
20 New Concept argues that:
(a) The clause means it is only liable for outgoings that were payable and unpaid under the Lease as at the Assignment Date. As the 2014 and 2015 outgoings were not payable as at the Assignment Date, New Concept was not in breach of the Lease in not paying the outgoings at that time and therefore is not liable for those outgoings.
(b) The reference to “other breaches” in the next part of the clause has the effect that the first part of the clause must also be read as referring to a breach. In order for New Concept to remain liable for outgoings payable under the Lease after the Assignment Date, New Concept needs to have been in breach of the obligation to pay them as at the Assignment Date.
Legal principles regarding construction of the Lease
21 The legal principles applicable to the construction of commercial contracts, including leases,[5] are well-established. They were summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited:[6]
[5]Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 29 and 53. See also 27–30, 51–53.
[6](2015) 256 CLR 104. See also Impact Funds Management Pty Ltd (as Trustee for IIG 401 Collins Trust) v Roy Morgan Research Ltd [2016] VSC 221, 25.
“[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”.It may be necessary in determining the proper construction where there is a constructional choice…
[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
[52] These observations are not intended to state any departure from the law as set out in Codelfa Construction and Electricity Generation. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.” (citations omitted).
Pre-contractual negotiations
22 The clause is ambiguous.[7] It is capable of being interpreted by the reasonable business person to mean either the construction urged by Meteorite, or that urged by New Concept.
[7]This was conceded by Counsel for New Concept at the outset, and by Counsel for Meteorite in the course of the hearing.
23 That being so, evidence of the pre-contractual negotiations giving rise to it is relevant. The pre-contractual negotiations are relevant not as a statement of any party’s intention or understanding of the meaning of clause 5 of the Deed, but as the background facts and circumstances to the clause being included in this form in the Deed. The question is what the objective observer would consider the clause to mean in the light of the correspondence between the parties who negotiated it.
24 Interestingly, Counsel for each side in the proceeding submitted that the pre-contractual negotiations supported the interpretation that they were pressing.
25 New Concept also argued that as the clause was ambiguous the contra preferentum rule should be invoked, saying where there is doubt about the meaning of a contract, the words will be construed against the person who put them forward.[8] It said Meteorite had drafted the Lease and put forward the words “and any other breaches” in clause 5. However, contra preferentum is a rule to be applied as a last resort, and only where one party is able to negotiate on a ‘take it or leave it basis’. Here, all parties were involved in the evolution of clause 5, as set out below. The contra preferentum rule is not relevant.
[8]Kim Lewison and David Hughes, The Interpretation of Contracts in Australia (Thomson Reuters, 2012) [7.08].
26 Many emails and various draft versions of the Deed were exchanged before the Deed was agreed. The emails were sent to and from multiple persons connected with the parties to the Deed. I have extracted below relevant parts from the correspondence. For convenience, I refer to the relevant parties on whose behalf the emails were sent and received, without naming the persons it was sent to or received by, or what their role was (for example, solicitor or property manager), save where a description is necessary. The wording in the emails is in italics. Where one email in a trail repeats part of an earlier email with additional comments added by the sender of the later email, those additional comments are in bold italics.
27 On 8 December 2015 at 2.47pm, Meteorite provided New Concept and AXF with a draft Deed of Assignment and Variation of Lease to be entered into between Meteorite, New Concept, the guarantors, AXF and the proposed new guarantor.
28 Clause 5 in that draft Deed provided:
“5. Obligations of Existing Tenant and Existing Guarantor
5.1 Existing Tenant still liable
The Existing Tenant acknowledges that the Existing Tenant remains liable for, and is not released by this Deed from, the Existing Tenant’s obligations under the Lease.
5.2 Existing Guarantor still liable
The Existing Guarantor acknowledges that the Existing Guarantor remains liable for, and is not released by this Deed from, the Existing Guarantor’s obligations under the Existing Guarantee.
5.3 Performance until Assignment Date
The Existing Tenant and the Existing Guarantor must ensure that the rent and outgoings payable under the Lease are not in arrears, and that the Existing Tenant is not otherwise in breach of the Lease, as at the Assignment Date.
5.4 Reimbursement of the New Tenant
The Existing Tenant and the Existing Guarantor must reimburse to the New Tenant and the New Guarantor any amounts paid by the New Tenant or the New Guarantor under the Lease which relate to a period prior to the Assignment Date.”
29 On 8 December 2015 at 3.15pm, New Concept responded to Meteorite, copying in AXF. Amongst other changes it required to the draft Deed, it said:
“…1. Clause 5.1 and 5.2. Our clients must be released from the assignment date.”
30 On 9 December 2015 at 9.14am, Meteorite responded to New Concept and AXF:
“We are instructed to respond to each of your proposed amendments… as per the below…
1. Clause 5.1 and 5.2. Our clients must be released from the assignment date. Landlord comment: Not agreed. The current context around the bank guarantee (i.e. that our client will not receive the required bank guarantee until sometime after the assignment occurs) means that our client is not prepared to agree to this. Also, we are instructed that this was not part of the commercial agreement.”
31 On 9 December 2015 at 11.02am, New Concept responded to Meteorite and AXF:
“….1. Clause 5.1 and 5.2. Changes as requested is essential. The landlord is seeking continual liability for the rest of the term, for an indulgence of 12 or less days. This is not commercial or acceptable.”
32 On 9 December 2015 at 3.38pm, Meteorite responded to New Concept and copied in AXF:
“We are instructed to response (sic) as per the comments in your email … below.
…
1. Clause 5.1 and 5.2. Changes as requested is essential. The landlord is seeking continual liability for the rest of the term, for an indulgence of 12 or less days. This is not commercial or acceptable. Landlord response – The landlord is prepared to agree to releasing the current tenant and the current guarantors once the new bank guarantee is received in the interests of finalising this matter…”
33 On 9 December 2015 at 4.47pm, AXF responded to Meteorite and copied in New Concept:
“[New Concept’s] lawyer, confirmed yesterday that rent for December has not been paid.
Besides rent payments please also confirm if there are any other arrears under the lease.”
34 On 9 December 2015 at 7.21pm, Meteorite’s property manager sent an email to the solicitors for each of Meteorite, AXF and New Concept:
“You should also be aware that we are about to invoice New Concept $130,395.98 + GST for their portion of outgoings recovery from last year’s outgoings audit. This is the increase over base year outgoings recovery as per the Lease.
There will also be another amount for after hours charges yet to be raised
We will provide invoices and supporting docs in the coming days for both above items.
Note: There will also be an amount for outgoings in future (next year) once the current year is complete. I only mention this due to the assignment and if you need to make both parties aware of this for liability of the payment in future.”
35 On 9 December 2015 at 7.37pm, AXF sent an email to Meteorite and New Concept:
“As the parties are proposing to settle the sale of the businesses tomorrow I suggest that you raise the invoice below by tomorrow morning to facilitate adjustment to be carried out.”
36 On 10 December 2015 at 10.55am, New Concept emailed Meteorite and AXF:
“Our client proposes the following …
4. Any amounts not already invoiced can be invoiced in due course to the purchaser and adjusted as between our client and the purchaser after settlement and paid in accordance with the lease terms.”
37 On 10 December 2015 at 12.05pm, Meteorite emailed New Concept and copied in AXF:
“We will now further revise the deed of assignment and variation to reflect the below.”
38 On 10 December 2015 at 12.10pm, AXF emailed Meteorite and New Concept:
“Given the existing tenant and guarantor are being released at time of settlement we request amendments to clause 6.2 as follows:
6.2 Liability for payments
Each of the New Tenant and the New Guarantor acknowledges and agrees that the New Tenant must pay when due all amounts that may be owing under the Lease, relating to the period after the Assignment Date.”
39 On 10 December 2015 at 12.15pm, Meteorite emailed AXF and copied in New Concept:
“The Landlord cannot agree to that based on the fact that there are outstanding amounts owing.
Set out below is confirmation from the current tenant’s lawyers that any amounts not already invoiced to the current tenant can be invoiced to the new tenant in due course and adjusted between yourselves after settlement.
Please confirm that you agree with the above.”
40 On 10 December 2015 at 1.52pm, Meteorite’s property manager emailed AXF’s solicitor and copied in New Concept’s solicitor:
“Please find attached invoices … referred to yesterday re … Outgoings Adjustment for 2014 Audit and Estimated Audit Adjustment up to 10 December 2015. The 2015 Estimate has been done using the YTD Actuals up to November and estimated expenses for December. The support documentation for the charges is attached within each invoice.”
41 On 10 December 2015 at 4.56pm, Meteorite emailed New Concept and AXF:
“Further to below, please see attached final version of the Deed. Please confirm it is now agreed. …”
42 On 10 December 2015 at 5.19pm, New Concept’s solicitor emailed Meteorite and AXF:
“Please see attached marked up amended Transfer:
We note the following:
1. Clause 5.1. The wording proposed is more appropriate. Our client will continue to be liable for rent and outgoings to the Assignment Date;
2. Clause 5.2. This is a matter between our client and the Purchaser. We have a separate agreement in this regard”.
Clause 5 as drafted in the marked up amended Transfer reads as follows:
5. Obligations of Existing Tenant and Existing Guarantor
5.1 Performance until Assignment Date
The Existing Tenant and the Existing Guarantor
must ensureremain liable for anythat therent and outgoings payable under the Lease for the period up to the Assignment Dateare not in arrears, and that the Existing Tenant is not otherwise in breach of the Lease, as at the Assignment Date.
5.2 Reimbursement of the New Tenant
The Existing Tenant and the Existing Guarantor must reimburse to the New Tenant and the New Guarantor any amounts paid by the New Tenant or the New Guarantor under the Lease which relate to a period prior to the Assignment Date.”
43 On 10 December 2015 at 5.50pm, AXF emailed New Concept and Meteorite:
“1. Clause 5.1. The wording proposed is more appropriate. Our client will continue to be liable for rent and outgoings to the Assignment Date. I am agreeable with this on the basis that the landlord and the current tenant shall resolve any current outstanding arrears between them before settlement.
2. Clause 5.2. This is a matter between our client and the Purchaser. We have a separate agreement in this regard. This is not agreeable by my client, this clause must be reinstated as this issue is most appropriately dealt with in this deed.”
44 On 11 December 2015 at 10.44am, Meteorite emailed New Concept and AXF:
“Attached is a tracked changes version of the deed setting out our client’s agreed amendments … Assuming the deed is now agreed (and that the tenants are agreed between themselves as to the required amendments), please also find attached a pdf execution version of the document.”
Clause 5 as drafted in this version of the Deed is the final form of the clause. It reads:
“5. Obligations of Existing Tenant and Existing Guarantor
5.1
Performance under Assignment DateThe Existing Tenant and the Existing Guarantor remain liable for any rent and outgoings, payable under the Lease, and any other breaches under the Lease for the period up to the Assignment Date.”
45 On 11 December 2015 at 10.57am, AXF emailed Meteorite and New Concept:
“I am instructed to agree to the deed of assignment and variations as attached to your email below...”
46 This was the end of the pre-contractual negotiations.
47 I find that the background to the negotiation of clause 5 establishes that the construction pressed by Meteorite is the correct construction of clause 5. There is some looseness of language in the emails and versions of the Deed exchanged. However, it is apparent from the parties’ correspondence that the commercial outcome being mooted in that correspondence was that New Concept would pay for rent and outgoings associated with its tenancy, and AXF for those associated with its tenancy. Different ways were considered for achieving the result that each would be liable for outgoings incurred during their respective tenancies: a side agreement between AXF and New Concept regarding reimbursement if AXF paid liabilities associated with New Concept’s time as tenant; a later adjustment between AXF and New Concept if AXF paid the outgoings referrable to New Concept’s tenancy; a draft which released New Concept as at the Date of Assignment but included as a proposed clause 6.2 that AXF agrees to pay when due all amounts that may be owing under the Lease “relating to the period after the Assignment Date”; and a suggestion that New Concept and its guarantors ensure rent and outgoings payable under the Lease were not in arrears at the Assignment Date.
48 In particular, I note:
(a) On 9 December 2015 the parties were made aware by Meteorite’s property manager that outgoings from 2014 and 2015 were about to be invoiced. The invoices were emailed on 10 December 2015 at 1.52pm by Meteorite’s property manager.
(b) In its email sent 10 December 2015 at 5.19pm New Concept’s solicitor stated “our client will continue to be liable for rent and outgoings to the Assignment Date”. The version of clause 5.1 it sent did not mention “any other breaches”.
(c) AXF’s response emailed 10 December 2015 at 5.50pm proposed a draft of the clause which involved New Concept and Meteorite resolving outstanding arrears between them before settlement. In other words, AXF would not be left with that liability.
(d) The reference to “and any other breaches under the Lease” was added by Meteorite in the version of the Deed sent 11 December 2015 at 10.44am. There was nothing in that email or in response to it, to suggest a fundamental change to the proposed liability which had been inherent in the foregoing negotiations, such that New Concept have no liability after the Assignment Date for rent and outgoings obligations arising from its time as lessee unless it was then in breach of those obligations as at the Assignment Date.
(e) There was no evidence that there was any adjustment to the purchase price paid by AXF on account of the foreshadowed outgoings, or of any side agreement relating to them between AXF and New Concept.
49 In the context of that background, I find that the meaning of clause 5 is that contended for by Meteorite. New Concept remains liable for rent and outgoings relating to its term of tenancy (the period up to the Assignment Date) even where those obligations became payable after the Assignment Date.
Liability for outgoings when no annual estimate given
50 Relevant parts of clause 8 of the Lease are:
“8. OUTGOINGS
8.1 Acknowledgement
The parties acknowledge that the Rent is a gross rent and that all Outgoings in respect of the Premises and Centre shall be paid by the Landlord, subject to clauses 8.2 and 8.3.
8.2Payment of Increased Outgoings
The Tenant must:
8.2.1pay to the Landlord, the Landlord’s annual estimate of the Tenant’s Proportion of any increase in the Outgoings over the Base Outgoings for each year following the Base Year (and pro-rata for any period less than 1 year) by equal calendar monthly instalments in advance at the same time as the Rent is payable; or
8.2.2if the Landlord so requires, pay to the Landlord the Tenant’s Proportion of any increase in the Outgoings over the Base Outgoings for each year following the Base Year within 14 days of the Landlord giving the Tenant the statement of actual Outgoings for that year.
Where the actual increase in Outgoings for any year exceeds the annual estimate of any increase in the Outgoings over the Base Outgoings, the Tenant must pay to the Landlord the Tenant’s Proportion of any such increase within 30 days of the Landlord providing to the Tenant the statement of the actual Outgoings.
…
8.4Landlord’s Estimate and Statement of Actual Outgoings
The Landlord must give the Tenant:
8.4.1a reasonable annual estimate of the Tenant’s Proportion of any increase in the Outgoings over the Base Outgoings prior to the commencement of the period to which the Outgoings relate, if the Tenant is required to pay the Tenant’s Proportion of any increase in the Outgoings in accordance with clause [sic]; and
8.4.2a statement of the actual Outgoings for each year within 3 months of the end of each year.
…
8.6End of Lease
If the Lease ends prior to the Landlord providing a statement of the actual Outgoings to the Tenant, the Landlord’s estimate of Outgoings will deemed [sic] to be the actual Outgoings.”
51 New Concept contends that if it, as tenant, was to be “required” to pay for an increase in outgoings under clause 8.2.2, Meteorite, as landlord, had to give an estimate of outgoings before those outgoings were incurred under clause 8.4.1. It says that the purpose of this clause is to enable the tenant to arrange its affairs to pay the outgoings, and not to get a large bill with only a short time to pay it. It says that if the landlord does not give notice of the estimate, it cannot recover the actual outgoings later. It relies on the fact that clause 8.4 is expressed in mandatory terms.
52 It contends that if an estimate is not given, then no outgoings are recoverable. It says the estimate may be given late (as it concedes that time is not of the essence in such clauses) but must be given at some stage for liability to arise.
53 Meteorite acknowledged that it could not show any estimate of the 2014 outgoings was provided in advance, and accordingly this issue arose. It said that regardless of whether an estimate was provided in advance, the liability to pay the outgoings once a statement of actual outgoings was sent remained.
54 Payment in accordance with an estimate which has been provided is covered by clause 8.2.1. It is payable by equal monthly instalments in advance at the same time as rent is payable. Any increase in actual outgoings for a year over the amount estimated is then payable within 30 days of Meteorite providing New Concept with a statement of the actual outgoings (as set out in the final paragraph of clause 8.2).
55 Alternatively, clause 8.2.1 and clause 8.2.2 sets out the obligation (if Meteorite requires it) for New Concept to pay the outgoings within 14 days of the statement of actual outgoings being given by Meteorite.
56 Clause 8.4.1 states that Meteorite must give New Concept a reasonable estimate of outgoings prior to the commencement of the period to which the outgoings relate, if New Concept is required to pay its “proportion of any increase in the Outgoings in accordance with clause; [sic]”.[9]
[9]After the phrase “in accordance with clause;” no numbered clause is stated. Patently this is an error in drafting. Read in context, it must have been intended to be a reference to clause 8.2 or one of the subclauses to clause 8.2. Submissions were made as to which of these it ought to have referred. However, I do not need to decide that in order to resolve the issues in this case.
57 Clause 8.2 is not expressed as being subject to compliance with clause 8.4.
58 I agree with Meteorite’s contentions.
59 New Concept contends that an estimate can be given late, but must be given before the actual outgoings can be claimed for liability to arise. The logical consequence of this argument is that the estimate could be given long after the period to which the outgoings relate, so long as it is provided just before or at the same time as the actual outgoings statement was provided. This would not achieve anything other than elevating form over function.
60 Although clause 8.4 is expressed as being mandatory, the Lease does not express any consequences for the estimate of outgoings not being provided in advance. If the effect of not providing an estimate in advance was to prevent Meteorite recovering from New Concept outgoings incurred during New Concept’s tenancy that were otherwise payable, this would be a drastic consequence for Meteorite, and a windfall gain for New Concept. In my view consequences such as that would need to be expressly stated in the lease in order for it to follow that the loss of the right to recover those amounts flowed from the failure to give the estimate in advance.
61 Dovastand Pty Ltd v Mardasa Nominees Pty Ltd[10] dealt with a similar situation in context of a statutory implied term. Section 15(1) of the Retail Tenancies Act 1986 provides that where a retail premises lease provides for the tenant to pay all or part of the expenses of the landlord in operating the building in which the premises are situated, the landlord must give to the tenant estimates of those expenses within certain periods. In that case the landlord did not fail to comply with timeframes set out by the lease, but with timeframes set out by the Act. Marks J said:
“As has been emphasised, the Act is silent as to the consequences of non-compliance. This does not mean that the law does not recognise any. But if Parliament intended that as a result of the non-compliance there were to be the consequences for which the tenant here contends it is to be expected it would have said so in clear and unmistakable language. The reason is that the result may produce a bounteous windfall to the tenant and a devastating loss to the landlord.”[11]
[10][1991] 2 VR 285.
[11]Ibid 291.
62 As contended by Meteorite, New Concept had remedies for the failure to comply with clause 8.4.1. It could have sought an order for specific performance and to have an estimate provided. It could have sued for damages for failure to provide the estimate (if any were suffered). It could have argued it was a repudiation by the landlord to fail to provide that estimate (although it was conceded that this would have been a difficult argument on which to succeed).
63 I find that the failure to give an estimate does not disentitle Meteorite from being paid the increase in outgoings.
64 Accordingly, Meteorite is entitled to the full amount of its claim.
65 Orders:
1. Judgment for the plaintiff.
2. The defendants pay the plaintiff the sum of $367,089.43.
66 I will hear the parties on the question of interest and costs.
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Certificate
I certify that these 19 pages are a true copy of the reasons for decision of Her Honour Judge Marks delivered on 23 February 2017.
Dated: 23 February 2017
Liz Main
Associate to Her Honour Judge Marks
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