North Terrace Properties Pty Ltd v Lawbitax Pty Ltd - [2005] SADC 69

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
NORTH TERRACE PROPERTIES PTY LTD v LAWBITAX PTY LTD & ORS
Judgment of His Honour Judge Herriman
28 June 2005
LANDLORD AND TENANT
Several assignments of lease - claim by lessor against intermediate assignee based on breaches of lease by ultimate assignee - consideration of liability of intermediate assignee under Deed of Assignment. Claim against guarantors named in that Deed - interpretation of Deed of Assignment and Guarantee. Whether original lease terminated by subsequent extension or by re-entry. Consideration of alleged breaches. Damages - whether default interest rate in lease constituted a penalty.
Real Property Act 1886 (SA) 69, 126, referred to.
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1986-87) 162 CLR 549; Tessari v Bais Pty Ltd (1990) 54 SASR 274; Tessari v Bais Pty Ltd (1992) 60 SASR 59; Mercantile Credits Ltd v Shell Co. of Australia Ltd (1976) 136 CLR 326; Seon Developments Ltd & Ors v Roger & Anor [1994] ANZ Conv. R 311; Acron Pacific Ltd & Ors v Offshore Oil (NL) & Ors (1985) 61 ALR 245 ; Metway Leasing Ltd v Arnoya Holdings Pty Ltd & Ors (unreported, NSW Supreme Court, 26/4/95, BC9504483); Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Consolidated Trust Co. Ltd v Naylor (1936) 55 CLR 423; Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd [1987] AC 99; Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, applied.
Chan v Cresdon Pty Ltd (1989) 168 CLR 242; Tayleur v Wildin (1868) LR (Ex) Vol 3 at 303; Price & Anor v Mayman & Ors [1948] SASR 241; NGL Properties Pty Ltd v Harlington Pty Ltd [1979] VR 92, distinguished.
Lang v Asemo Pty Ltd [1989] VR 773; Rider v Ford [1923] 1 Ch 541; Yulin Pty Ltd v Japan Building Products (Australia) Pty Ltd (unreported, NSW Supreme Court, Young J, 28/3/91); Lang's Commercial Leasing in Australia (A Lang, 1996 CCH Australia Ltd); Nigel Ward "It's Just Not Cricket! The Efficacy of Guarantees of Lease upon Assignment" (1999) 7 Australian Property Law Journal 1; James O'Donovan "Guarantees of Leases: The Problem of Assignments" (1923) 23 WA Law Rev 143, considered.

NORTH TERRACE PROPERTIES PTY LTD v LAWBITAX PTY LTD & ORS
[2005] SADC 69
INTRODUCTION

This action concerns the rights and liabilities of parties involved, directly or otherwise, in the operation of licensed premises situated on the corner of North Terrace and Bank Street, Adelaide and known as the Festival Lodge Motel (“the motel”) over the period between 1984 and 2000.
The plaintiff, as owner of the motel premises, sues the first defendant, as a former lessee and assignor of the leasehold, for breaches of the terms of the lease by the assignee. It sues the remaining defendants as parties purportedly liable as guarantors of the first defendant’s liability.
All defendants deny liability, disputing certain of the alleged breaches, anyway, and asserting that each of the lease and the assignment, pursuant to which the first defendant allegedly assumed such liabilities, was terminated by the plaintiff, or otherwise ended, by effluxion of time, prior to the time of the alleged breaches. They contend that the guarantors cannot be liable for these reasons and, further, because no such liability can arise under the terms of the guarantee. In any event, they say, there were later material changes to the obligations purportedly guaranteed, which brought the guarantees to an end.
HISTORY
The motel is contained within a building owned by the plaintiff, North Terrace Properties Pty Ltd (“North Terrace”), which is disposed as follows:
(1)The first floor comprises a number of retail tenancies, including, in particular, a restaurant, which at relevant times was known as “Parlamento”. On that floor, too, is an entrance foyer and reception area for the motel.
(2)The second floor contains a restaurant, which for relevant purposes will be referred to as “Vivaldi’s”. It is contained within a floor area identified on the building plan (Exhibit P4) as “Area C”. At most relevant times, that restaurant appears to have been open to members of the public, but it has, in addition, served as a facility for guests of the motel.
(3)The balance of the second, and as well, the third and fourth floors then contain the motel premises proper and comprise 44 or 45 accommodation suites.
The building was acquired in about 1980 by North Terrace, a company which was, at all relevant times, owned and controlled by the Di Stasio family and, in particular, by Giuseppe Di Stasio (“Mr Di Stasio”), who, for all relevant purposes in the subject dealings and the litigation, represented it.
On 1 August 1984, North Terrace entered into a lease (“the original lease”) (Exhibit P13) in favour of Festival Lodge Pty Ltd (“the original lessee”) of that section of the building comprising the motel and Vivaldi’s restaurant. That lease attracted registration number 5288893. It was for a six‑year term and provided, inter alia, that:
(1)the expression “the Lessee” would include all “permitted assigns” of the lessee (clause 1A);
(2)in addition to the amount of rental fixed under it, the lessee would pay all rates and taxes levied upon the leased areas and (clause 2(a) (iii)):
a proportionate part of any such rates and taxes, charges assessments licence and other fees and all duties impositions and outgoings of every kind shall be charged upon or in respect of the whole of the said land and building.
The proportion of State Land Tax charged in respect of the said land payable by the Lessee shall be the like proportion as the area of the premises occupied by the Lessee bears to the total lettable area of the said land.
The proportion of the other rates and taxes, charges assessments licence and other fees and all duties impositions and outgoings of every kind payable by the Lessee shall be the like proportion as the rental payable by the Lessee for the premises bears to the total rental which would be received by the Lessor in respect of the said land and building if the total lettable area of the said land and building were full let.
The proper meaning and implementation of that provision later became a serious issue;
(3)the lessee would not assign or sublet the premises or any part of them “without the prior consent in writing of the Lessor first had and obtained” provided that such consent would not be unreasonably withheld (clause 2(b));
(4)the lessee would:
maintain replace repair and keep the whole of the premises and all the Lessor’s partitions fixtures and fittings plant and equipment in good and substantial repair order and condition … fair wear and tear inevitable accident Act of God and War damage only excepted …
but would not have any obligation for structural maintenance. That condition further obliged the lessee to ensure that there was no deterioration in the condition of the premises and to make good breakages, defects or damage “occasioned by want of care misuse or abuse” (clauses 2(d) and (e));
(5)the Lessee shall at the expiration or sooner determination of the said term and any extension thereof and at the expiration of each five (5) yearly period of the said term and any extension thereof paint or cause to be painted in a proper and workmanlike manner those parts of the interior … with at least two coats of best quality oil paint … (clause 2(t));
(6)the lessee would “comply with all rules and regulations applicable to any sprinkler or fire alarm systems installed by the Lessor in the premises and the Building” (clause 2(y));
(7)if the rent was unpaid for 14 days or there was a breach of any other covenant, then:
the Lessor at any time or times thereafter shall have the right to re‑enter into and upon the premises or any part thereof in the name of the whole and have again repossess and enjoy the same as of its former estate anything herein contained to the contrary notwithstanding but without prejudice to any right of action or other remedy which the Lessor has … (clause 4(a)).
(8)the lessee would pay interest at the rate of 20% per annum “on any moneys due but unpaid fourteen days (14) after the same fell due” (clause 4(c));
(9)the lessee would reimburse the lessor:
the reasonable costs of and incidental to the recovery of rent due and unpaid interest thereon and the Lessor’s costs and expenses incurred by remedying or attempting to remedy any breach … (clause 4(e));
(10)upon giving proper notice, the lessee might extend the lease for a term of six years and after that, and upon certain conditions, for a further term of three years (clause 8).
The original lessee then occupied the premises and conducted the motel business there for five years.
On 1 March 1989, it sold the business to Zaniols Hotels Pty Ltd. (“Zaniols”). On that same day, and with the consent of North Terrace, it transferred its interest in the original lease to Zaniols (Exhibit P14).
Several months later, on 1 February 1990, North Terrace and Zaniols agreed to an extension of the term of the original lease for a period of nine years from 1 August 1990 (Exhibit P15), but on the condition that the provisions of the original lease relating to extensions of lease would thereafter no longer apply (“the first extension”). That extension was thus agreed upon, other than by way of clause 8 of the original lease. It was duly registered.
On 2 November 1990, those same parties agreed that Vivaldi’s restaurant, or Part C of the original lease, as extended, would be surrendered to the lessor. That partial surrender was subsequently registered (Exhibit P16).
On 6 November 1990, an agreement was executed between Zaniols and another entity owned and controlled by Mr Di Stasio, namely, G & M S Di Stasio (“Di Stasio Pty Ltd”), whereby Di Stasio Pty Ltd agreed to supply food to Zaniols’ patrons, through Vivaldi’s, and on particular terms and conditions (see Exhibit P102).
Although the matter was never formally proved at trial, I infer from this that Di Stasio Pty Ltd had, by that time, taken from North Terrace a lease, whether legal or equitable, of the restaurant premises.
The agreement P102 provided, inter alia (clause 4.1), that Di Stasio Pty Ltd would:
duly and punctually pay to Zaniols one‑tenth of all rates, taxes, duties, impositions, outgoings and charges of all kinds (including State Lands Tax levied on the basis that the land comprised in Certificates of Title Register Book Volume 4343 Folios 575 and 576 constitutes a single holding) which shall be charged upon Zaniols pursuant to the lease under which Zaniols occupies the premises.
These arrangements appear to have occurred in conjunction with other arrangements then to be put in place by the parties because, by a deed some few weeks later, dated 29 November 1990 (Exhibit P17), North Terrace agreed to vary the terms of the lease as extended to 1999 by further extending its term for a period of five years to 1 August 2004 (“the second extension”).
It should be noted here that, whilst the prior extension and variation had been duly registered, the second extension was never registered on the land title.
At that same time there was a dispute between the parties as to the adequacy of the rent and, in consequence, the deed dealing with the second extension contained special terms relating to payment of a lump sum on extension and with respect to future rent reviews. Further, it contained these provisions:
11.(a) Notwithstanding the Surrender by the Lessee to the Lessor of that portion of the land comprised in the said lease marked “C” in the said plan No. 303 of 1984 the Lessee will continue to pay to the Lessor the proportion of such rates and taxes as are assessed on the whole of the land comprised in Certificates of Title Register Book Volume 4343 Folio 575 and 576 determined in accordance with the provisions contained in the above memorandum of lease as if the said portion of the land marked “C” in the said plan had not been surrendered.
(b)The Lessee shall enter into an agreement with the lessee of the said portion of the land marked “C” in the said plan for such lessee to pay to the Lessee one tenth of all rates, taxes, duties, impositions, outgoings and charges of all kinds (including State Land Tax) charged upon the Lessee pursuant to the above memorandum of lease.
Otherwise, that deed provided that the terms of the original lease as extended and partially surrendered would remain in full force and effect.
Disputes later arose as to the true meaning of, and the manner in which the parties dealt with, those clauses, 11(a) and (b), and as to whether their terms bound subsequent lessees. I will deal with those issues in due course.
It is, however, readily apparent that there is an ambiguity or a typographical error in clause 11(b) where there is a reference to the “lessee” entering into an agreement with “the lessee”. On all the evidence, having particular regard to the arrangements then in place for the use of the restaurant (see P102) and keeping in mind my duty to strive to give some legal effect to that provision, I am satisfied that first “lessee”, so identified, was intended to be Zaniols and the second one to be Di Stasio Pty Ltd. The plain intention of the parties was that Di Stasio Pty Ltd would pay Zaniols one‑tenth of the amount of rates and taxes otherwise payable by Zaniols to North Terrace under clause 11(a). Mr Di Stasio treated North Terrace and Di Stasio Pty Ltd as the same pocket and, effectively, the clause was designed to relieve Zaniols of the obligation to pay rates and taxes for that part of the lease (Area C) which had previously been surrendered.
Thereafter, until 1 October 1997, Di Stasio Pty Ltd conducted Vivaldi’s, albeit it would seem that in the latter part of that period, it subcontracted that task to the proprietor of another building tenancy, the Parlamento restaurant.
At trial, Mr Di Stasio said that during the balance of the period during which Zaniols remained the lessee and motel proprietor, effect was given to provisions 11(a) and (b) of P17, by North Terrace rendering accounts to Zaniols for 65% of rates and taxes. In short, the parties ignored the difference in identity between North Terrace and Di Stasio Pty Ltd and shortcut their arrangements by reducing the total proportion of rates and taxes previously paid by the lessee (of 75%) by 10%. Upon a proper interpretation of clauses 11(a) and (b) (and assuming for the moment that 75% is otherwise the proper proportion payable under the original lease – a matter which was later disputed), I would have thought the appropriate reduction should have been 7.5%, but that issue did not arise at trial.
In March 1991, Zaniols sold the motel business to Lawbitax Pty Ltd (“Lawbitax”). Whilst the actual sale document was not tendered at trial, Transfer of Lease Registered No. 7101162 and dated 6 May 1991 was produced (Exhibit P18).
Lawbitax was at relevant times a private company, having as its directors the second, fourth and sixth defendants. Those same directors were also shareholders, along with the fifth defendant (the fourth defendant’s spouse) and the seventh defendant (the sixth defendant’s spouse). The third defendant, the spouse of the second defendant, was neither a director nor shareholder.
In the context of that sale and transfer of lease, all the defendants became parties, along with North Terrace and Zaniols, to the Deed of Assignment of Lease and Guarantee dated 10 May 1991 (Exhibit P19).
By that document, inter alia, Zaniols assigned to Lawbitax its interest in:
(1)the original lease as extended and partially surrendered - by registered instruments; and
(2)the deed between the lessor and Zaniols dated 29 November 1990 (P17) whereby the extended lease was further extended to 1 August 2004 (the unregistered extension).
For its part, Lawbitax covenanted with Zaniols and North Terrace that it would comply with the terms of the original lease and the deed P17.
There was much attention directed at trial to the terms of the Guarantee which formed part of that document and to which the second to seventh defendants were parties. I will now discuss them.
Primarily, the Guarantee provides that, subject to certain terms and conditions, and in consideration of North Terrace consenting to the terms of the attached Deed of Assignment, the second to seventh defendants, jointly and severally identified as “the Guarantor”:
HEREBY GUARANTEES to the Lessor the due and punctual performance and observance by LAWBITAX PTY LTD … of the covenants and conditions contained in Memorandum of Lease No. 5288893 as extended by Extension of Lease No. 6877483 and as varied by a Surrender of Lease between the Lessor and the Assignor dated the day of 1990 (all of which documents in this Guarantee are called “the said Lease”) from the date of this Guarantee upon the following terms and conditions …
The blanks in that extract are not completed in the document itself but there can be no doubt that they purport to identify the surrender document P16.
The terms and conditions of the Guarantee relevantly include the following:
1 …
(d)this Guarantee shall be a continuing guarantee and shall be irrevocable and shall remain in full force and effect until the due and proper and complete performance of all the obligations the subject of this Guarantee.
(e)the liability of the Guarantor shall not be affected by:-
…
(iii)the granting of any time, credit or other indulgence or concession to the Lessee
(iv)any act, matter or thing in favour of the Lessee in the nature of any compounding or compromise or release, abandonment, waiver, variation or relinquishment of any rights of that person
(v)any laches, acts or omissions in favour of the Lessee
(vi)any amendment, alteration, modification or addition to the provisions of the said Lease
(vii)any act, matter or thing or default, failure or omission which may be done by the Lessor, or by any other person or persons or any other act, matter or thing, default, failure or omission which might operate to affect or have the effect of exonerating, terminating, removing, suspending or cancelling the liability of the Guarantor in accordance with the provisions of this Guarantee.
(viii)any replacement of the said Lease in accordance with the terms and conditions thereof
…
(l)notwithstanding that as between the Guarantor and the Lessee, the Guarantor is the guarantor of the Lessee, the obligations of the Guarantor pursuant to the provisions of this clause, and so far as is necessary for the enforcement of the provisions of this clause and so far as concerns the Lessor, shall, without limiting, reducing or prejudicing any other rights contained herein in any way whatsoever, be deemed to be obligations of a primary and principal character.
…
(n)the terms of this Guarantee shall extend to all losses occasioned to the Lessor as a result of any breach of the obligations the subject of the Guarantee including losses occasioned as a result of any determination of the interests created by the said Lease in accordance with a power to so determine contained in the said Lease.
…
3.Notwithstanding anything else contained in this Guarantee to the contrary should the grant of rights contained in the said Lease the said Deed of Assignment or this Guarantee and the obligations in the said Lease the said Deed of Assignment or this Guarantee arising therefrom be terminated or be or become or be rendered, void, voidable, unenforceable or in any way inoperative in whole or in part, the liability of the Guarantor shall remain as if the said grant and obligations remained in force to the extent required to cover the performance of any obligations pursuant to the provisions of this Guarantee.
…
6.This 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.
7.In this Guarantee unless the context shall otherwise require:-
(a)the expression “the Lessor” shall at all times include the person or persons entitled to the reversion immediately expectant upon the determination of the said Lease.
(b)the expression “the Lessee” shall at all times include the person or company whose obligations under the said Lease are the subject of this Guarantee.

When the terms of the Guarantee are compared with those of the Assignment to which it is attached, it is readily apparent that whilst the assignment purports to be of:
(1)the original lease as extended and partially surrendered by registered instruments; and
(2)the unregistered extension of lease secured by the Deed P17,
the Guarantee itself appears to assure the performance of covenants contained in the registered instruments only. It is silent as to the obligations of Lawbitax under the Deed P17. On this basis, inter alia, the second to seventh defendants say that they are not liable under the Guarantee for any defaults occurring after the expiration of the registered period of the lease, that is to say, after 2 August 1999.
On the same day that the Deed of Assignment and Guarantee was executed, 10 May 1991, there was registered an extension of lease 5288893 for a period of one day from 1 August 1999 (Exhibit P20). This was a formal device to achieve registration of certain covenants varying the original lease terms. Those covenants are of no particular relevance here.
On that day, too, Di Stasio Pty Ltd entered into an agreement with Lawbitax (Exhibit P103) similar in terms to its agreement with Zaniols (P102) for the provision of restaurant services and the refund of 10% of rates and taxes.
After 1991, Lawbitax operated the motel but, by early 1995, it had fallen into arrears with respect to rent and other outgoings.
In response, North Terrace forwarded to it on 20 April 1995 a notice in the following terms (Exhibit P20A):
TAKE NOTICE that North Terrace Properties Pty Ltd hereby terminates your estate and interest as Lessee pursuant to Memorandum of Lease No. 5288893 and hereby gives you notice that it is re‑entering the premises the subject of the said Lease without prejudice to any right of action or other remedy which North Terrace Properties Pty Ltd has or might otherwise have under or by virtue of the said Lease whether at law equity or otherwise.
According to Mr Di Stasio, consequent upon service of that notice, he, his son, his lawyer and a sheriff’s officer went to the motel premises to re‑enter. They there met the fourth defendant (“Dixon”), who is a lawyer and who purported to represent Lawbitax. A discussion took place, during the course of which Dixon sought the opportunity to remedy the lessee’s defaults. Mr Di Stasio agreed to consider this, but informed Dixon that he should thenceforth deal directly with the plaintiff’s lawyers. In consequence, Dixon prepared and forwarded to the plaintiff’s solicitors, Cowell Clarke, the document Exhibit P20B. Relevantly, it stated that:
(1)Dixon was representing Lawbitax and the guarantors; and
(2)in consideration of the plaintiff allowing the lease “to be reinstated”, Lawbitax or the guarantors would pay at least $30,000 towards arrears by 1 May and the balance of any arrears by 1 June.
The document conceded that if those amounts were not paid as promised, then the plaintiff would be “entitled to forthwith re‑enter the premises and determine the Lease”.
Paragraph 4 of that document was in these terms:
If so required by you, the Lessee will execute a new lease on the same terms and conditions as the said Lease expiring on the current expiry date of the said Lease (as heretofore extended) or, at your option, a deed ratifying and acknowledging the continuing existence and validity of the said Lease and the Guarantors will execute a new deed of guarantee and indemnity in the same form as the existing Deed of Guarantee and Indemnity dated the 10^th day of May 1991 … (my emphasis)
Upon receiving that letter, the plaintiff made it clear that whilst no new lease document was required, it wanted a formal document prepared confirming the agreed position. In consequence, a deed, being Exhibit P20C, was prepared and executed by Lawbitax and the guarantors. It was in these terms:
1.Memorandum of Lease No. 5288893 as extended pursuant to Memoranda of Extension No.s 6877483 and 7101163, as transferred pursuant to Memoranda of Transfer No.s 6697192 and 7101162 and as partially surrendered purusant (sic) to instrument number 7101161 (hereinafter called “the Lease”) is of full force and effect and we acknowledge its continuing existence and validity and Lawbitax Pty Ltd hereby ratifies the Lease in all respects.
2. Without limiting the foregoing we hereby ratify and acknowledge the continuing validity, existence and enforceability of the Deed of Assignment of Lease dated the 10^th day of May 1991 between North Terrace Properties Pty Ltd of the one part, Zaniols Hotels Pty Ltd as Assignor of the second part and Lawbitax Pty Ltd as Assignee of the third part and the continuing existence, vailidity (sic) and enforceability of the Deed of Guarantee granted in your favour by Brian James Kotz, Brett Jonathon Dixon, Geoffrey Bryan Nuske, Dorothy Christine Kotz, Sally Dixon and Cherie Ann Nuske and dated the 10^th day of May 1991. (my emphasis)
As with the Guarantee, this new document makes no specific mention of the Deed of Extension dated 29 November 1990 (P17) whereby it was agreed that the original lease be extended for five years from 1 August 1999. It does, however, affirm the validity of the Deed of 10 May 1991 (P19) whereby Zaniols assigned to Lawbitax the benefit of that Deed of Extension (P17).
The next development was that in November 1996, Lawbitax sold the motel to Christopher Kenneth Strange and Jane Ellen Strange (“the Stranges”). Again, I did not sight a copy of the contract of sale, but tendered before me was the Transfer of Lease (Exhibit P21) to the Stranges, which was ultimately registered, and the Deed of Assignment of Lease (Exhibit P22), to which the plaintiff was a party as assignor.
This latter document, dated 26 November 1996, identifies as the subject of the assignment “the Lease”, being “a lease dated the 20^th day of August 1984”. It does not refer to any extensions, surrenders or variations of that lease, whether registered or otherwise. Pointedly, however, it omits, in the area description, any reference to Area C (Vivaldi’s), thus implying some recognition of the partial surrender of that portion. It purports to assign to the Stranges, as of 1 November 1996, the assignor’s interests “as lessee pursuant to the Lease” (my emphasis) and, inter alia, provides as follows:
10.The Assignor hereby covenants and agrees with the Lessor that it will at all times keep the Lessor fully and effectually indemnified against all actions proceedings, costs claims damages expenses and demands whatsoever by reason or on account of any breach non‑observance or non‑performance by the Assignee of any of the terms covenants conditions provisos agreements or restrictions on the part of the lessee to be observed or performed under the Lease on and after the date of assignment.
11.Nothing herein contained shall prejudice or effect the original reservation of rent or the binding effect of the several stipulations contained in the Lease and the Assignor hereby covenants and agrees with the Lessor that the Assignor will be jointly with the Assignee and severally liable to the Lessor for the due and punctual payment of all rent and other monies reserved by the Lease and for the due and punctual performance and observance of all of the terms covenants and conditions of the part of the Lessee (as defined in the Lease) contained in the Lease.
The document makes no mention at all of the “said deed”, that is to say, the deed of extension of the lease of 29 November 1990 (P17).
The document has been the matter of extensive comment by the defendants, who have contended that it must be read strictly and as doing no more than purporting to assign to the Stranges the six‑year lease commencing 1 August 1984, which had already expired. They contend the purported assignment is thus void and of no effect. For reasons which I will later discuss, I reject this argument. It is enough to say, for the moment, that I am satisfied that the effect of the registration of the transfer of the lease (P21) was, at the least, to assign to the Stranges the benefit of the original lease, subject to all subsequent registered variations and extensions.
Of course, this issue would likely have been simply resolved had the contract of sale and purchase of the motel been produced, but it was not.
As I have already noted, at some time prior to October 1997, Di Stasio Pty Ltd came to some arrangement with another building tenant, Parlamento restaurant, whereby the latter agreed to provide restaurant services to the motel. There then came a time when Parlamento was no longer interested in that arrangement and, accordingly, on 20 August 1997, Mrs Strange executed what is described as a “sublease” from Di Stasio Pty Ltd over the Vivaldi restaurant and thereafter operated the restaurant, at least for the benefit of the motel (Exhibit D1).
The relationship between the plaintiff and the Stranges was not a happy one and, at least as early as September 1999, there were overdue council rate notices and threats of default.
On 25 February 2000, the plaintiff sent to the Stranges a Notice to Remedy Default, claiming outstanding council and land tax rates totalling $51,000‑odd and seeking payment of that sum, together with solicitors’ fees (Exhibit P31). The Stranges replied by letter of 14 February 2000 (Exhibit P32), saying they were dealing directly and satisfactorily with the council over those rates and were otherwise conscious of their arrears.
On 10 March 2000, solicitors for the Stranges wrote to the plaintiff’s solicitors (Exhibit D3) denying they were in default with council rates and saying that they had reached a private accommodation with the council. Otherwise, they challenged the quantum of the plaintiff’s claim for land tax. They then referred to the original lease provision dealing with the lessee’s liability for a proportion of that tax, based upon the percentage of the premises occupied, and sought details from the plaintiff of the total lettable area of the motel compared with the total lettable area of the building.
On this and other bases, they disputed the validity of the Notice to Remedy Default, P31.
The plaintiff replied to that correspondence through its solicitors, saying that any private arrangements made between the Stranges and council did not cure their breaches with respect to those rates. Otherwise, it stated its position that the land tax was based on 75% of the entire building rate (Exhibits P35 and P36).
By a further Notice to Remedy Default dated 8 May 2000 (Exhibit P44), the plaintiff alleged the Stranges were liable for council rates and land tax totalling $52,000‑odd and, as with the previous notice of default, copies were also sent to the defendants.
By a solicitors’ letter of 23 May 2000 (Exhibit D4), the Stranges appeared to confirm that they would pay arrears of land tax and that otherwise arrangements were in place for payment of council rates. Their suggestion that the matter be resolved in that way was not accepted by the plaintiff’s solicitors (see Exhibit P54). Further correspondence followed and on 1 June 2000, the Stranges’ solicitors wrote to the plaintiff’s solicitors (Exhibit D5), again seeking particulars of the basis upon which the land tax demand was for 75% of the total account.
I will not seek to detail the correspondence which continued relating to the land tax issue but, essentially, the Stranges were interested in obtaining relevant measurements to verify the proportion of rates and taxes for which they should be liable and the plaintiff appeared to be resting upon the proposition that a proportion of 75% had been agreed upon in the past and had always been paid. The issue was never resolved by their correspondence.
Mr Strange gave evidence at trial and said that his query relating to this particular matter had been prompted by discussions he had had with Brock Partners, real estate agents, who, at one time, had been approached by the plaintiff about selling the building. His account of this was challenged in cross‑examination, it being suggested that his only interest in the matter was prompted by their arrears and the default notices they had received.
I will comment elsewhere on the evidence of Mr Strange, but I should otherwise say that the question of just what events prompted his challenge to that proportion, appeared to me to be one of limited significance.
At all events, on 15 November 2000, a further Notice to Remedy Default (Exhibit P58) was sent to the Stranges, seeking payment of outstanding rental said to be in the sum of $29,698.63 and unpaid rates, taxes and electricity totalling $44,491.14. Copies of that notice were sent to all the defendants.
By way of reply, the Stranges’ solicitors wrote on 28 November (Exhibit D14), saying that the rental claim which related to the month of November and was payable in advance, was being withheld “pending receipt of your client’s undertaking to immediately comply with statutory fire safety requirements” as that non‑compliance was affecting their insurance arrangements. They went on to say that “urgent structural repairs and maintenance” were required and that the premises were “unlettable” in their present state. The letter also referred to overpayment of land tax and associated costs and suggested a meeting of the parties.
Whatever immediately followed that correspondence, on 5 December 2000 the plaintiff served a Notice to Quit on the Stranges (Exhibit P68) seeking payment of rental which by then was alleged to be two months in arrears and, as well, the rates and taxes previously claimed and other sums which need not be precisely identified here.
On that same day, the plaintiff re‑entered the premises and they were vacated by the Stranges. The plaintiff carried a Warrant to Distrain (Exhibit P69) and, indeed, distrained upon tenant’s fixtures and fittings, comprising essentially the contents of the individual motel rooms.
Later, on 8 October 2001, the Stranges were bankrupted.
The plaintiff now claims against the first defendant in respect of the Stranges’ breaches and relies upon the first defendant’s obligations under the original lease as varied and extended or, alternatively, on its covenants under the Deed of Assignment of Lease and Guarantee P19.
Further, the plaintiff claims against the guarantors under the Guarantee contained in the document P19 or, alternatively, under the Deed P20C.
The plaintiff asserts that in addition to outstanding arrears since it re‑entered, it has expended or remains obliged to expend substantial moneys remedying the Stranges’ defaults of their lease obligations to paint and keep the premises in good order and repair. It claims these amounts along with consequential damages for breach.
LEGAL ISSUES
Interpretation of Guarantees
(1)It is accepted law that the terms of a document of guarantee are to be interpreted strictly and, to the extent of any ambiguity, in favour of the surety. In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1986-87) 162 CLR 549 at 561, in the joint majority judgment their Honours observed:
At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. The doctrine of strictissimi juris provides a counterpoise to the law’s preference for a construction that reads a provision otherwise than as a condition. A doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety and so the provision should be interpreted as a condition, or perhaps as an innominate term, instead of a mere warranty. If the surety is to be discharged for breach of a promissory term in the suretyship contract, the justification for the discharge must be that the creditor has failed to comply with the provision that, as a matter of interpretation, requires strict performance as a condition precedent to the surety’s obligation or at least requires substantial performance of the promise such that the surety would not have entered into the contract if it had not been assured that there would not be a breach such as the breach which in fact occurred. If on its true interpretation the term is not intended so to operate, it is not easy to understand why the surety should be discharged by its breach. Of course, in construing the contract the court is entitled to look to the general setting in which the contract has come into existence …
See also Dunlop New Zealand Ltd v Dumbleton [1968] NZLR 1092 and Eastern Counties Building Society v Russell [1947] 2 All ER 734.
(2)In this particular matter, there is the further consideration that the guarantee document was prepared by the plaintiff’s solicitors and, to the extent that it contains any uncertainty or ambiguity, the contra proferentem rule will apply.
(3)The plaintiff here argued for a contextual interpretation of the Guarantee, relying upon observations made by the courts in Tessari v Bais Pty Ltd (1990) 54 SASR 274, Tessari v BaisPty Ltd (1992) 60 SASR 59 and Lang v Asemo Pty Ltd [1989] VR 773.
It contended that those cases support the view that, in interpreting a guarantee, a court might have regard not merely to its terms, but to the totality of the transaction, that is to say, the context in which it was executed.
There is no clear statement of principle to that effect in Lang (supra), but it is plain from the reasoning adopted by Gobbo J that he looked beyond the document itself and at the entire transaction. There, the defendant directors of the lessee company executed a guarantee of the lessee’s obligations under the lease and on the same day, the lessor transferred the subject property to the plaintiff, albeit failing to execute any formal assignment of the benefit of the guarantee.
The Full Court permitted the plaintiff, as the assignee of the reversion, to enforce the guarantee against the directors concerned. The court did not state any broad principle, but at page 777 Gobbo J observed:
There is nothing therefore in this terminology that supports the argument that the guarantee was intended on a proper reading to be limited to the specific lessor and the specific lessee. This is especially evident in the second part of cl. 4 which is set out below. Moreover, the identity of the parties and the essential steps in the related transactions tell against any such argument. The unit was sold by the two companies to Asemo upon the basis that the unit be leased for six years. The lease was executed on the same day as the sale was completed in order to meet this requirement. The lessee was simply one of the two companies that were both lessors and vendors. It was not surprising that Asemo insisted on a guarantee being provided by the directors of the lessee company. Nothing in the content or progress of these related transactions suggests that the guarantee was not to benefit Asemo as assignee of the reversion which purchased the reversion upon the basis of both the lease and the guarantee.
In the Tessari cases, the common background was that the subject lease contained an option for renewal and provided that the lessee’s obligation would continue throughout any period of renewal or extension, or any period of occupation. The guarantors of the lessee company were stakeholders in it and the guarantee provided that their liability was to be continuing and irrevocable until all of the obligations in the lease had been satisfied.
The lessees ultimately exercised their right to renew or extend the lease and the lessor consented to that, but in fact no documentation to put the extension into effect was ever prepared or executed and there was no registration of any extension on the certificate of title.
In the first decision, reported at (1990) 54 SASR 274, Mullighan J determined the matter on a jurisdictional basis, but, at the parties’ invitation, stated his opinion on a number of other matters. In doing so, he rejected the appellant’s argument that the exercise of an option to renew or extend had the effect of creating a new lease and hence terminated the guarantees. Following Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67, he observed at 283:
The intention of the parties to the lease, which must be discerned from their words at the time and from the lease itself, was, in my view, that their relationship of lessor and lessee would continue for a further period two years after the expiration of the lease upon the same terms and conditions as in the lease with the exception of the covenant for renewal.
He did not think there was any significance in the terminology of the lease, which referred both to renewal and extension.

He turned then to the question of whether the guarantee carried over into the extended period and observed, again at 283:
Whilst it is true that nowhere in the guarantee is there a provision that the guarantors have covenanted to guarantee the obligations of Motorhomes beyond the terms of the lease should it be extended or renewed, the guarantee cannot be construed in isolation of the lease. (my emphasis)
In a later decision in the same matter, reported at (1992) 60 SASR 59, the Full Court was obliged to squarely focus on the liability of the guarantors, the appellants arguing that they were not liable on the guarantee because there had been no document of extension of the original term, nor had it been registered, and in consequence, after the expiration of the lease, the lessee was occupying under a yearly tenancy or as an equitable lessee. They relied for this on Chan v Cresdon Pty Ltd (1989) 168 CLR 242.
In his leading judgment, Legoe J cited Mercantile Credits Ltd v Shell Co. of Australia Ltd (1976) 136 CLR 326. The issue in that case concerned the rights of a prior lessee purporting to exercise a right of renewal against a subsequent mortgagee. Barwick CJ noted specific provisions in the Real Property Act (SA) which afforded other means of extending the lease, but held that these were “… concerned with extensions of lease which, though consensual, are not made in the exercise of such a right …” (that is to say, a right of renewal or extension).
The High Court held that notwithstanding the non‑registration of the lease extension, the legislation gave “priority and indefeasibility to the right of renewal contained in the registered memorandum of lease …” (p.340).
Gibbs J commented at 345:
The right of renewal is so intimately connected with the term granted to the lessee, which it qualifies and defines, that it should be regarded as part of the estate or interest which the lessee obtains under the lease, and on registration is entitled to the same priority as the term itself.
Legoe J also rejected the applicability of Rider v Ford [1923] 1 Ch 541 and Yulin Pty Ltd v Japan Building Products (Australia) Pty Ltd (unreported, Supreme Court, NSW, Young J, 28 March 1991), finding that the Mercantile Credits decision (supra) resolved the matter and, in any event, was in accord with the Torrens land registration system, adding at page 75:
The obligations of the lessee contained in the lease, namely, the original registered lease were identical and carried on, or were implied by operation of law after the lessee had exercised the option to renew.
On that footing, too, Chan v Cresdon (supra) was distinguishable because it turned on an agreement to lease which had never been registered at all, whereas in Tessari, the original lease had been registered and the right to renew or extend was held to run with the land. At page 69, Legoe J concluded:
An option to renew runs with the land and with the reversion, and so both the landlord’s and the tenant’s successors in title are bound …
He further observed, at page 75:
Furthermore, the guarantee in the case at bar does not use the word “under” this lease, but refers to obligations of the lessee contained in or implied by the said lease. Those obligations are expressly referred to in covenant no 2 in the lease as obligations which continued throughout any extended or renewed term and throughout any period during which the lessee shall be or remain a tenant or be in occupation of the demised premises. The lessee unquestionably was in occupation of the demised premises and by implication (at least) was a tenant of the premises.
In the same case, Olsson J, whilst joining the majority, commented at page 84:
In my view an absolute answer to the contentions now advanced on behalf of the appellants in the case at the bar is that, having regard to the relevant factual circumstances and the reasoning of the High Court in the Mercantile Credits case, the obligations sought to be enforced by Bais were in fact obligations of the lessee “contained in or implied by the said lease”. It was from the lease itself that Bais derived its rights against Motorhomes. On the authority of the Mercantile Credits case, Motorhomes clearly attained a legal estate and interest in the subject premises by virtue of the unqualified exercise by it of its right of renewal contained in the registered lease.
He then went on to observe that even if the effect of the extension was to merely give rise to an equitable lease or some other form of occupation, the covenants in the lease would attach to any subsequent period. At page 85:
Read in that way, all of the relevant obligations arising from the covenants set out in the lease clearly attached to any period subsequent to the initial term of the lease during which Motorhomes or its assignee remained an equitable lessee of or in occupation of the subject premises. The source of liability in respect of them was not, in any sense, the mere product of either common law or equitable principles, but stemmed directly from the covenants and provisions of the lease itself. This being so the obligations in question manifestly fell within the category of those specifically encompassed by the guarantee. They were, in every sense of the expression, “obligations of the lessee contained in or implied by the said lease”.
His Honour thus read and interpreted the guarantee in the context of the lease document which accompanied it.
The court thus concluded, not merely that an option to renew ran with the land and prevailed over later registered interests, but that whether the exercise of the option created a legal interest, or some other form of tenancy, the guarantors’ obligations were to be determined contextually by examining the guarantee in conjunction with the obligations in the lease which it purported to cover.
The cited passage of Olsson J might be construed as going further than that and inferring that the guarantor would be bound for as long as the subject lessee remained in occupation, however the terms of any later occupation might have been concluded; that is to say, whether by exercise of an option to renew or by a fresh and later extension agreement. I do not read it that way. It appears to me His Honour is simply supporting a contextual approach to the interpretation of a guarantee. In any event, in that case the purported extension had been pursuant to an option to renew (albeit that no documentation perfecting that exercise had subsequently been created), a right which was “intimately connected” with the leases to which the guarantee related.
That is not the situation here, where the relevant extensions (P15 and P17) occurred not by way of exercise of an option to renew, but by way of separate agreement.
Even so, those extensions were in place at the time the Guarantee was executed. It is thus necessary, as I apprehend it, to consider the precise terms of the Guarantee and its context, and I will come to that.
Does an extension or renewal of a lease create a new lease?
That topic is discussed in the authorities mentioned above, namely, Rider and Yulin (supra). They have not been overruled, but were expressly distinguished in Mercantile Credits and the Tessari cases on the footing that a right or option to renew, contained in a lease, ran with the land and was “so intimately connected with the term granted to the lessee … that it should be regarded as part of the estate or interest …” (Mercantile Credits, supra, at page 345).
It appears to me that all of those cases are reconcilable, at least upon the footing that where a lease is extended or renewed pursuant to a right or option contained within it, then the extended period can be properly said to be so intimately connected with the lease as to run with the land and be part of the original estate or interest of the lessee (that is to say, the lease thus continues and is not terminated) (Mercantile Credits and Tessari, supra), whereas if the extension or renewal comes about as a result of some later agreement between the lessor and lessee or if a tenant remains in occupation after the expiration of a lease, then, in either instance, a new lease is created (cf. Rider and Yulin, supra).
Discharge of guarantee by material variation of the principal contract
The clearest expression of the law on this topic appears to be in the majority judgment in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd quoted above, where the court largely followed English authority, in particular Holme v Brunskill [1877] 3 QBD 495.
It follows that not every variation in the nature of the obligations guaranteed will serve to discharge the guarantor. It must be a substantial variation and one of a kind fundamental to what would have been the guarantor’s decision to enter into the contract.
In what circumstances does a notice to quit and/or re‑entry terminate a lease?
In Tayleur v Wildin (1868) LR (Ex) Vol. 3 at 303, the defendant guarantor successfully argued that he was no longer liable on his guarantee of the lessee’s obligations because they had been terminated when the lessor gave notice to quit, albeit such notice was subsequently withdrawn when arrears were paid. The reasons for judgment are brief, but to the effect that consent of the parties to withdraw the notice creates a new tenancy agreement, taking effect from the time notice was given.
The defendants relied on that authority, arguing that the notice of termination and re‑entry to the first defendant on 20 April 1995 (P20A) and prior to the first defendant’s assignment of the lease, had the effect of terminating the lease as of the time of that notice: the guarantors’ obligations were thereupon discharged. The defendants also relied upon Price & Anor v Mayman & Ors [1948] SASR 241, where at 246 Napier CJ observed:
It may be a matter of opinion, and in my view of the case it is the crucial question, but it seems to me that the demise ended with the service of the notice to quit. The proviso for re‑entry gives the lessors the option to determine the lease, and if they elect that it shall end, it is ended. What is required for that purpose is some unequivocal act, indicating the intention of the lessors to avail themselves of the option given to them … Speaking generally, the election is evidenced by the commencement of proceedings to recover possession, and, in the eye of the law, this has precisely the same effect as re‑entry … But it is sufficient if the landlord does what he can to indicate his election to put an end to the lease … and this is so whether possession is recovered or not, subject to relief against forfeiture which restores the lease as though it had never been determined.
Further to that, they referred to NGL Properties Pty Ltd v Harlington Pty Ltd [1979] VR 92 at 98, where the court observed:
It is settled law that the issue of a writ by a lessor claiming possession of demised premises on the ground of the lessee’s breach of a covenant is without more a conclusive action by him to treat the lease as at an end … The respondent’s submission was that, by discontinuing their action, the applicants had revoked their act of re‑entry. Service of a writ claiming possession, however, operates in the same way as the giving of a notice of re‑entry because thereby the lessor puts an end to the lease. His action of determining the lease cannot be revoked.
It should be noted that in each of these two later cases, it appeared that the subject lease had never been registered and common law principles applied. That point of distinction was relied upon by the plaintiff, who also referred to the fact that Tayleur was not followed in Holme v Brunskill (supra). I am not persuaded as to that latter submission, because it appears to me that Tayleur was there distinguished, although, by way of obiter, the court did appear to conclude that the relevant tenancy continued anyway, despite the notice to quit.
No authority was cited to me as to the impact on a registered lease of an unequivocal termination by one party, followed by an agreement between the parties to revive it, but it appears to me that the ordinary principles of indefeasibility, inherent in the Real Property Act 1886, should apply, namely, that the title of every registered proprietor “shall, subject to such encumbrances, liens, estates, or interests as maybe notified on the original certificate of such land, be absolute and indefeasible” (s.69), subject to qualifications which have no relevance in this matter.
The Act contains special provisions in Part 11 relating to leases and surrenders. It would appear that, subject to any process of surrender, transfer or court order, the legal interest of the lessee will remain, notwithstanding notice of re‑entry, until such time as the title is altered. That does not inhibit a lessor from exercising appropriate rights of notice and re‑entry and, indeed, s.126 of the Act recognises that and pertinently says:
126.The Registrar-General, upon proof to his satisfaction of re‑entry by the lessor, in manner prescribed by the lease, or under the power in the third subsection of the last preceding section provided for, or of recovery of possession by a lessor, by any proceeding in law, shall note the same by entry in the Register Book, and the estate of the lessee in such land shall thereupon determine, but without releasing him from his liability in respect of the breach of any covenant in such lease expressed or implied, and the Registrar‑General shall cancel such lease if delivered up to him for that purpose. (my emphasis)
It appears to me to follow that a registered lease is not determined by notice to quit or even re‑entry. It will only be determined in one or other of the ways provided for in the Act.
Do the assignees’ obligations to the lessor continue after further assignment?
The general principle is that there is no privity of contract between the lessor and an assignee and that the assignee is only liable under the covenants in the original lease for so long as it remains the lessee in occupation. It ceases to be liable should it, as assignee and with the consent of the landlord, further assign the lease to a third party.
That position is, however, always to be qualified by having regard to the terms upon which the assignment is taken or given and, in particular, those terms upon which the lessor might give its consent to any assignment. Such a factual situation arose in Seon Developments Ltd & Ors v Roger & Anor [1994] ANZ Conv. R 311 and it is dealt with, as well, in Lang’s Commercial Leasing in Australia (A Lang, 1996, CCH Australia Ltd) at paragraph 12‑100.
The position is, of course, different for the original lessee, which remains liable to the lessor for the agreed term of the lease as extended or renewed by it and irrespective of any intervening assignment of the leasehold.
Thus, in the present case, whilst the original lessee remained liable to the plaintiff for the agreed term of the lease as extended, neither Zaniols nor Lawbitax remained obliged, under the lease itself, once they assigned their leasehold interest to others.
The question remains, however, whether here (relevantly) Lawbitax continued to be liable to the plaintiff by virtue of the specific terms of the Deed of Assignment (P19).
Penalties
There was no real dispute as to the law applicable to this matter. Acron Pacific Ltd & Ors v Offshore Oil (NL) & Ors (1985) 61 ALR 245 at 249 per Deane J expresses it thus:
The question whether the provisions of an agreement impose a penalty must, however, be determined as a matter of substance rather than of mere form … If, as a matter of substance, the provisions of an agreement operate, in the case of breach or non‑performance, to impose some additional or different financial obligations in the nature of a punishment (as distinct from a genuine pre‑estimate of damage or withdrawal of a mere incentive), they will prima facie impose a penalty.
Further, in Metway Leasing Ltd v Arnoya Holdings Pty Ltd & Ors (unreported, Sup. Ct of NSW, 26.4.95, BC9504483) per Barr AJ at 54, His Honour commented:
Rules by which penalties might be discerned were laid down in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86-88. So far as they are relevant to the present case they are: (a) The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre‑estimate of damage, (b) The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach. (c) A stipulated sum will be held to be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (d) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. (e) There is a presumption (but no more) that it is a penalty when a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage. (f) It is no obstacle to the sum stipulated being a genuine pre‑estimate of damage that the consequences of the breach are such as to make precise pre‑estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre‑estimated damage was the true bargain between the parties.
LEGAL/FACTUAL DISPUTES
By and large, the issues in this matter fell to be determined on the documents, but there were some factual matters which arose out of oral evidence and on which I will make findings.
Except to the extent that they may impact on my credibility findings, I will put to one side those disputes going to quantum. For that reason, I will not here refer to the evidence of the witnesses Muller or Coady.
Otherwise, the principal evidence given on either side was by Mr Di Stasio on behalf of the plaintiff and Christopher Strange on behalf of the defendants.
As a general observation, I should say that I did not find either of them to be a particularly reliable witness. For his part, Mr Di Stasio’s memory of detail was particularly poor and he was inclined to supplement it by sweeping statements that, at times, revealed reconstruction and which were on occasions internally conflicting. Mr Strange, too, had a very poor recollection of events; indeed, I gained the impression that most of the relevant dealings were undertaken by his wife, who was not called. His response to a number of matters put to him in cross‑examination also betrayed a level of resentment and non‑cooperation that did not inspire confidence in his reliability.
I will enlarge upon these observations as I discuss the issues.
- did extensions to the original lease result in new leases?
My earlier discussion about the effects of extension or renewal has particular significance here because the original lease, due to expire on 1 August 1990, was, as I have noted, not extended pursuant to the six‑year option contained in clause 8 – instead, there were separate agreements whereby the parties agreed, respectively on 1 February and 29 November 1990, to extend it by nine and five years.
I conclude, on the basis of my earlier findings, that on 1 August 1990 a second lease commenced, to expire on 1 August 1999. This second lease was then assigned by Zaniols to Lawbitax on 10 May 1991 by the deed P19. On 1 August 1999 a third lease commenced, to expire on 1 August 2004, and this third lease was also assigned to Lawbitax by the deed P19.
I have not sought to deal with the one-day extension of 10 May 1991 agreed upon between the plaintiff and Lawbitax to operate from 1 August 1999, for the reasons that:
(a)it must of necessity have been consequent upon the execution by Lawbitax of the Deed P19;
(b)it purported to extend the period of the registered lease into the period of the third lease, that is to say the arranged extension, by one day, but there was no corresponding extension of the unregistered lease.
(c)The situation is thus anomalous – perhaps it created a fresh lease for a one‑day period and then a further and separate lease afterwards; perhaps it merged with the unregistered period – however viewed, it makes no difference to my conclusion that the second and third leases were the subject of the assignment between the plaintiff and Lawbitax (P19).
- did the events of 20 April 1995 terminate any lease?

I have already found that the lease then in existence was the third lease and, further, that a registered lease is not terminated other than pursuant to the Real Property Act. Accordingly, the Notice of 20 April 1995 did not terminate the third lease. The defendants cannot therefore succeed in the contention that the original or intervening lease obligations and the guarantees ceased to apply thereafter.
If I am wrong as to that, I would in any event be satisfied that by the Deed P20C, the parties reinstated the lease or created a new lease in the same terms and that the guarantors bound themselves to it to the same extent they had by the Deed P19.
Had my finding been otherwise, I would have found as a fact that the Notice of Termination of 20 April 1995 (P20A) was duly served and that it constituted an unequivocal demand for immediate possession of the premises (NGL Properties, supra, and Price v Mayman, supra). Mr Di Stasio denied that he entered into possession of the premises, but on all the evidence, I am satisfied he did. Had it been necessary, I would therefore have found that the events described by Mr Di Stasio himself constituted a re‑entry by the lessor.
- what was the effect of the Lawbitax assignment to the Stranges?
As I have noted, in November 1996, Lawbitax sold the motel business to the Stranges and assigned the lease to them. There was tendered in evidence a copy of the registered lease transfer (P21) and the assignment document (P22), but the sale of business document was not produced.
There were disputes as to the effect of this assignment, but I have elsewhere found against the defendants’ contention that the lease which the deed purported to assign had been terminated in April 1995.
I have further rejected the defence argument that, according to that deed, all the Stranges received was an assignment of the original lease, shorn of any registered extensions or variations; that is to say, a lease which had by then already expired.
Otherwise, in considering this matter, I was left with the above two documents, along with a copy of a deed whereby the plaintiff granted an extension of the lease period to the Stranges for five years from the year 2004 (Exhibit P23). I should say, here, that I have not taken any account of the correspondence which preceded the execution of the deed P22. The document must be interpreted on its own terms or, at best, contextually.
The question remains, however, whether the assignment P22 conferred, on the Stranges, the benefit of the third lease, the unregistered extension P17. Registration of the transfer of lease to the Stranges did not achieve that and I am not prepared to infer it simply from the very limited terms of the deed P22.
From the Stranges’ perspective, that question became immaterial because of their subsequent dealings with North Terrace wherein it agreed to extend their lease for five years from 2004 to 2009 (P23). That deed both expressly and impliedly acknowledged the Stranges’ entitlement to the benefit of the already “Extended Term”, that is to say, from 1999 to 2004.
In attempting to construe the meaning of the assignment (P22), I consider I am entitled to have regard to the context of the entire transaction of which it was part (c.f. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337). In that respect, I note the following:
(a)as I have found, and having regard to what was conveyed by the registered transfer (P21), the document must be read more widely than its literal terms and so as to assign, at the very least, the original lease as varied and extended by registered instruments;
(b)even so, it cannot, on its own terms or having regard to P21, be read as widely as to contain an assignment of the unregistered extension (P17);
(c)by the Deed of Extension of Lease (P23), to which Lawbitax was not a party, the plaintiff expressly acknowledged that “the Lease” to be extended already included the five-year unregistered extension granted by the “Deed of Variation of Lease dated 29^th November 1990” (P17) and went on to grant the Stranges a further five‑year extension to 2009;
(d)I keep in mind, too, that North Terrace was itself a party to the Deed of Assignment;
(e)I am alert to the fact that both the assignment (P22) and the Deed of Extension (P23) were prepared by the same solicitors and executed on the same day. This begs the question as to why it was, that the definitions of “the Lease” in each of them were different.
Whilst the above considerations support the view that as of 26 November 1996, both the plaintiff and the Stranges were agreed that the Stranges had the benefit of the 1999 to 2004 extension, they do not necessarily imply that Lawbitax, as assignor, was itself intending to convey that extension. Further, it is unnecessary, in attempting to give some legal effect to the assignment document (P22), to conclude that on the basis of its contents and the registered transfer of lease which followed it, Lawbitax also intended to assign to the Stranges the benefit of the unregistered extension (1999-2004). It is enough, to give some legal and commercial purpose to the transaction, to infer that Lawbitax assigned to the Stranges, the benefit of the original lease as affected by all subsequent registered instruments: the Stranges thereby received the benefit of a lease that was to endure for three years. Further, by virtue of a separate but contemporaneous agreement between the plaintiff and the Stranges, North Terrace impliedly allowed they should have the benefit of the five‑year extension to 2004 and expressly agreed to thus extend it further to 2009.
It is, of course, tempting to conclude that in executing the assignment, Lawbitax also intended to assign the unregistered extension, to 2004, to the Stranges, but such a conclusion has much wider implications. If they intended to so assign it, did they also assign the burden of the deed P17, in particular, clauses 11(a) and 11(b)? The plaintiff has here sought to argue that that is in fact what occurred, but I do not accept that. In the absence of any provision at all referring to P17, to so hold would be to go well beyond what is necessary to make some commercial and legal sense of the assignment (P22). In any event, not even the Deed of Extension P23 purports to bind the Stranges to those provisions.
I thus conclude that as of the date of entry of the Stranges into possession of the motel premises, they became entitled to the benefit of the five‑year lease period, between 1999 and 2004, not by virtue of the assignment P22, but by virtue of the Deed of Extension P23 and, further, that neither deed bound them to the provisions of clauses 11(a) and (b) of P17. It follows that the Stranges’ obligations to the plaintiff with respect to payment of rates and taxes fell to be determined according to the provisions of the original lease, in particular, clause 2(iii).
The conclusion that Lawbitax did not, by the deed P22, assign to the Stranges the benefit of the unregistered lease extension from 1999 to 2004, does not, of itself, relieve Lawbitax of its obligations to the plaintiff under the lease as so extended. Pursuant to the deed P19, Lawbitax covenanted with the plaintiff to perform the third lease until 2004. I will now discuss the implications of this.
- is Lawbitax liable to the plaintiff for the Stranges’ defaults?
The terms of the Deed of Assignment P19 from Zaniols to Lawbitax bound the latter to the lessor to pay the rent and observe the terms and conditions of the lease as extended by registered instrument (clause 5) or otherwise by “the said deed” (clause 11). That same deed provided (clause 14(b)) that the assignee “shall include the Assignee and the executors, administrators and assigns (where permitted) of the Assignee”.
Thus, says the plaintiff, the first defendant continued to be bound for the period of the registered lease as extended by the deed P17, even after it assigned the lease (albeit, as I have found, only the registered lease and registered extensions) to the Stranges (P22).
I have concluded that the plaintiff both expressly and impliedly agreed that the Stranges might continue to occupy the motel premises from 1 August 1999 until 31 July 2009, but that that right (critically between 1999 and 2004) was conferred on the Stranges not by the Deed of Assignment from Lawbitax (P22), but by the Deed of Extension (P23).
It follows that the terms of clauses 10 and 11 of the deed P22 cannot be construed as covenants by Lawbitax to indemnify the plaintiff against breaches by the Stranges occurring outside the registered period of the lease, that is to say, beyond 1999.
Does Lawbitax otherwise remain liable to the plaintiff under the original lease or under clauses 5 or 11 of the Deed of Assignment (P19)? As an assignee which further assigned to another and ceased to be in occupation after November 1996, Lawbitax owed no obligations to the plaintiff under the terms of the original lease (Seon Developments Ltd, supra), but the terms of clauses 5 and 11 of the deed P19 are otherwise quite explicit and are not to be written down simply because Lawbitax did not itself effectively assign, to the Stranges, the benefit of the unregistered extension (P17). No provision in P19 purports to limit the liability of Lawbitax to the period of its own occupation of the motel.
I thus conclude that by virtue of the terms of the Deed of Assignment (P19), Lawbitax remained liable to the plaintiff for the performance of the terms of the original lease as varied and extended, by registration or otherwise, until 1 August 2004.
- what are the liabilities of the guarantors under the Deed of Assignment and
Guarantee (P19)?
I have already briefly discussed the terms of the Deed of Assignment of Lease and Guarantee dated 10 May 1991 (P19).
It is, of course, the plaintiff’s case that the first defendant remains liable, pursuant to the third lease and the deed, for the Stranges’ breaches of lease and that the guarantors are further bound to indemnify for those breaches.
The defence case is that any liability of Lawbitax (hence the guarantors) ceased, at the earliest, when (they say) the lease was terminated in April 1995; if not then, when the lease was assigned to the Stranges in 1996; and, if not then, when the period of the registered lease expired in 1999, all being times occurring before the alleged defaults by the Stranges. Further, the guarantor defendants rely upon the terms of the Guarantee which, they say, do not, in any event, bind them beyond 1999.
The terms of P19 require careful examination.
I have already found against the defence contention that the lease as extended was terminated in 1996.
I will first consider the liability of Lawbitax under P19.
Recital A identifies “the Lease” as the original lease as extended and varied by registered documents, but it is important, as well, to read into that definition the terms of clause 14(f):
(f) The expression “the Lease’ shall mean the agreement or agreements more particularly described in Recital A hereof and may constitute any unexpired Lease, lease agreement, tenancy agreement, licence or other instrument granting a tenancy licence or leasehold estate or interest in the said premises and any assignment or assignments thereof
Recital B identifies the unregistered Deed of Variation of Lease (P17) as “the said deed”.
In the operative terms of P19, the assignor (Zaniols), with the consent of the lessor (the plaintiff), assigns “the Lease” to the assignee (Lawbitax) (clause 1) and, as well, “all the right title estate and interest of the Assignor in and under the said deed” (clause 9) (my emphasis).
It provides that the assignee (Lawbitax) will pay the rent, perform and observe the assignor’s covenants under the lease and the said deed and will indemnify the assignor (Zaniols) in respect of any future liabilities.
The assignee further covenants directly with the lessor to henceforth perform the terms of the lease (clause 5) and the said deed (clause 11).
Clause 14(b) provides that:
The expression “the Assignee” shall include the Assignee and the executors, administrators and assigns (where permitted) of the Assignee …
I conclude that, by virtue of that document, Zaniols assigned to Lawbitax, which accepted from Zaniols, both the benefit and the burden of “the Lease” and “the said deed”. Lawbitax further covenanted with Zaniols and, more relevantly, the plaintiff to observe all of the conditions and covenants in the Lease and the said deed.
To the extent that clause 14(f) might purport to expand the definition of “the Lease”, I am not persuaded that it can be taken to have incorporated anything more than the instruments then in existence and whether registered or not.
The question remains as to the continuing liability of Lawbitax under that assignment or otherwise under the third lease, following the further assignment of lease to the Stranges (P22) and arising out of any default by the Stranges. I will return to that.
I turn then to the Guarantee which is attached to and forms part of that assignment document. I am satisfied that it should be read in conjunction with it, save and except to the extent that there is any conflict or ambiguity in or between their terms.
As I have already noted, the operative provision of the Guarantee (page 10 of P19) provides that the second to seventh defendants guarantee to the plaintiff “the due and punctual performance and observance by LAWBITAX PTY LTD” of “the said Lease”. That provision contains its own definition of “the said Lease”, albeit in the same terms as in the assignment part of the document, but it contains no reference whatsoever to “the said deed”.
There are then a number of conditions then attached to the Guarantee, and I have earlier set them out.
Clause 3 is the only place in the guarantee document where there is a reference to a deed, but there what is identified is “the said Deed of Assignment” and I am satisfied that what is there identified, is the attached Deed of Assignment, that is to say, the first part of the document P19. Were the reference otherwise intended to relate to the deed of 29 November 1990 (P17), it would have referred to it simply as “the said deed” (the terminology used in the first part of the document to identify it) or “the Deed of Variation”, as it describes itself. The “said deed” is in no sense a Deed of Assignment.
On its face, therefore, the Guarantee does not contain any covenant by the guarantors to assure the performance or observance by Lawbitax of all or any of the provisions of “the said deed” (P17). It guarantees no more than the performance of “the Lease” as defined, that is to say, the original lease as extended by registered instruments.
Even so, the plaintiff argued that I should consider the context in which the Guarantee was executed, namely, that it was attached to and executed with the assignment of “the Lease” and “the said deed” and, further, that the guarantors were persons directly or indirectly connected with the assignee. On that basis, it said I should find that, impliedly and contextually, it was intended to guarantee the performance by Lawbitax and its assigns of the covenants in” the said deed”. Even allowing for those matters, I still find no justification for reading the Guarantee as widely as that. The assignment part of P17 is careful to separately mention and distinguish between “the Lease” and “the said deed” and when the assignment and the guarantee are read together, the specific mention and definition of “the Lease” in the Guarantee (defined in the same terms as in the assignment) and the absence, in it, of any reference to “the said deed”, leave no room for any argument as to contextual inclusion of “the said deed” nor, for that matter, as to ambiguity. Even were there such an ambiguity, it would plainly be resolved in favour of the guarantors and in terms excluding their guarantee of the performance of “the said deed”. The Guarantee still has work to do; indeed, a significant legal and commercial purpose: it provides a security or assurance for the lengthy period between 1991 and the date of expiry of the registered lease in August 1999.
But the contextual issue may go further than that. The circumstances here are not dissimilar to those which arose in Lang’s case (supra): the Guarantee here makes no reference to the third lease and nor did that extension come about as a result of the exercise of any renewal option, so it cannot be said to have been an extension which ran with the land. On the basis of Lang, should the guarantee thus apply to it, incorporating as it does, by implication, most of the provisions of the first two leases? Adopting the reasoning of Lang, it could be argued that the contemporaneity of the guarantee, the assignment and the one‑day extension and variation, coupled with the relationships between the parties, suggest a conclusion that the Guarantee was intended to apply to the third lease.
But there was considerable force in the arguments then advanced by the defendants that Lang’s case was contrary to accepted authority. I was referred to an article by Professor James O’Donovan (“Guarantees of Leases: The Problem of Assignments” (1993) 23 WA Law Rev 143), where the learned author discussed it and observed that the decision, in so far as it found the guarantee was enforceable as a covenant concerning land, was contrary to authority, that it appeared to ignore Consolidated Trust Co. Ltd v Naylor (1936) 55 CLR 423 and made no reference to Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd [1987] AC 99. I was also referred to an article, “It’s Just Not Cricket! The Efficacy of Guarantees of Lease upon Assignment” per Nigel Ward, (1999) 7 Australian Property Law Journal at page 1, where the learned author trenchantly argued that a guarantee does not touch and run with the land.
I have considered those articles and cases at length. In the end, I consider I am bound to hold that a surety’s obligation “is personal and, except as a result of subrogation, does not directly or indirectly affect the land …” (Consolidated Trust Co. Ltd v Naylor, supra). Whilst Lang (supra) can still stand for the proposition (supported by Tessari, supra) that in the proper interpretation of a guarantee, a court is entitled to have regard to contextual matters such that it may find, in a particular case, that a guarantee continues, even where there is an extension of a lease resulting in a new lease, it is not good authority for the proposition that a guarantor’s covenant will run with the land simply by virtue of an extension of the lease term.
Approached in this way, the position is that a guarantor of a lease does not, merely by virtue of an agreed extension of lease concluded other than by way of an option to renew, continue to be bound: the question of whether such liability remains is to be determined according to the terms of the guarantee and its contextual circumstances.
The plaintiff then referred to particular provisions in the Guarantee which I have already quoted.
Clause 1(e)(vi) is in very broad terms and does not assist the plaintiff’s argument. In any event, it would not likely prevail against any amendment etc. effecting a fundamental change in the nature of the obligation undertaken.
Clause 1(e)(vii) is in the same general and vague terms and it is easy to envisage how it might on those grounds be successfully challenged. In any event, the clause does not appear to me to assist the plaintiff’s argument.
Clause 1(l) provides that the obligations undertaken will be of a “primary and principal character”. That wording may be important in the context of a subsequent assignment of the lease, but it does not assist the plaintiff’s interpretation argument.
Clause 1(n) refers to “the obligations the subject of the Guarantee” and I have already found that they do not include any obligations under “the said deed”.

I return then to the accuracy of the 75% and 10% proportions. It must, of course, be that, once the restaurant ceased to be leased by the lessees for the time being of the motel, the proportion of the building occupied by them (that is to say, the motel proper) was less than originally contracted for. But just what that proportional reduction was, I cannot, on all the evidence, say. Inferentially, the plaintiff has conceded that the proportion would reduce by no less than 10% and, of course, the defendants say the amount of the reduction was considerably more than that and that the 75% figure was an incorrect starting point, anyway. But the defendants led no acceptable evidence as to what either rate should have been.
In the face of Mr Di Stasio’s evidence that the occupancy calculations he had had done justified his 75% claim, that the 10% reduction had been agreed with the original lessees and that those figures had been levied and paid by all lessees between 1984 and 2000 (as to the 75%) and 1990 and 2000 (as to the 10%), I can do no more than conclude that those figures were accepted by each lessee. It has not been shown, as the defendants contended, that they represented any overcharge or unconscionable charge or that levying them amounted to deceptive or misleading conduct or resulted in any unjust enrichment.
SUMMARY
I have thus concluded that in May 1991, Lawbitax became lessee under what I have termed the third lease, that is to say, the motel lease comprising the balance of the extended and registered term expiring on 1 August 1999, as extended by unregistered instrument to 1 August 2004 and as otherwise varied. The prevailing terms and conditions of the third lease were as provided in the original lease and as then varied by subsequent registered and unregistered instruments.
I find that, notwithstanding the subsequent assignment of only part of, namely the registered period of, that third lease to the Stranges by virtue of the terms of the Deed of Assignment (P19), Lawbitax remained liable for any breaches of its terms and conditions until 1 August 2004.
I am further satisfied it has been shown that the Stranges did breach those terms and conditions, at the very least by non‑payment of rent, and that Lawbitax is thus liable for the Stranges’ breaches. I will then proceed to assess the damages for which Lawbitax is liable.
I further find that whilst the second to seventh defendants guaranteed Lawbitax’ performance of certain lease terms and conditions, that guarantee was limited to the performance by Lawbitax of the covenants contained in the registered instruments – thus it did not extend beyond 1 August 1999. On all the evidence, the defaults by the Stranges for which Lawbitax is liable occurred after 1 August 1999. Accordingly, I find the second to seventh defendants are not liable with respect to them and the claims against them should be dismissed.
I turn then to the plaintiff’s damages against Lawbitax.
DAMAGES
Claims for repair and replacement
When Mr Di Stasio entered the premises on 5 December 2000, he was accompanied by a bailiff, a Mr Peters, who, on his account, prepared a list “Of furniture and things” (T/S 131). On further closer questioning, it emerged that Peters did not actually prepare a list but relied upon a booklet provided by the plaintiff and which separately identified the property belonging to the plaintiff, Lawbitax and Di Stasio Pty Ltd. On Mr Di Stasio’s account, Peters said to him about the contents, “They are all here, they are all broken but they’re here” (T/S 131.30).
Even so, it emerged that Mr Di Stasio was never provided with a copy of that “list”. He was able to identify another copy of that same booklet (being the exhibit P106). Referring to it, he said that, broadly speaking, the assets belonging to Lawbitax were those which might be removed from the room and that the fixtures and fittings otherwise belonged to the plaintiff. On his account, he had a later conversation with the defendant Dixon, in the course of which he invited Dixon to remove his belongings, but neither Dixon nor the first defendant did. In consequence, he said, he put all of those fittings in the back room and left them there. Otherwise, from that time onwards, he himself operated the motel business.
He said that at a later time, he told his lawyer to write a letter about the assets, but he could not say whether such a letter was written. Ultimately, some two years later, he decided to sell those goods so he advertised them and sold them for $3,000, moneys which he retained. I should say, at this point, that I cannot set off that sum against the plaintiff’s claim. In the lack of any evidence as to title to the goods and whether, in particular, they were subject to the Lawbitax Bill of Sale, I can do no more than conclude their proceeds are an asset which properly belongs to the Stranges’ insolvency trustee.
As a general observation, I should say that the plaintiff’s evidence as to these claims was quite unsatisfactory. He had little or no personal recollection of detail and none of the tradespeople were called to provide it. Further, as many of the items were tenant’s property, he cannot recover for the cost of repairing or replacing them, nor, indeed, has he accounted for the plaintiff’s continued use and possession of others of them, referred to in later evidence.
The plaintiff called a Ms Muller. She was a person with lengthy experience in tourism and some experience in motel management and standards. She was engaged by Mr Di Stasio to take over the management of the motel after the plaintiff resumed possession in December 2000.
On first entering, she inspected all rooms and prepared an inspection sheet (Exhibit P113) identifying defects that she observed in each room. These essentially related to room fittings. She said that the bedding in most rooms was unacceptable and she moved much of it downstairs into a storeroom.
In cross‑examination, she said that the defects set out in P113 were her immediate concerns; in particular, she noticed that many of the room air‑conditioners were not working. Separately, she prepared a schedule of defects (Exhibit P114), relating essentially to room contents.
She was a firm and impressive witness and I had little trouble in accepting her assessment of things, but, even so, it went to the question of necessity and not to the issue of who was responsible for the costs of repair and replacement of which items.
It was in her evidence that it emerged that, after the plaintiff resumed occupation, it continued to use fixtures and fittings, many of which were essentially tenant’s property and belonged, directly or indirectly, to Lawbitax. Mr Di Stasio said otherwise, but I do not accept his evidence as to this.
The plaintiff seeks to recover the costs of shower screens, window screens, lighting work, air‑conditioning, plumbing, and painting.
- shower screens
As to the claim with respect to shower screen replacement, and assuming they are lessor’s fixtures, Muller said that her concerns were occupational health and safety ones and she had had many cracked screens replaced. It does not, however, follow that their repair was necessitated by some breach by the Stranges of clause 2(d) or (e) of the original lease. There was no evidence before the court as to whether the breakages were occasioned by “want of care misuse or abuse” by the Stranges or persons for whom they were responsible, or whether such damage was by way of “fair wear and tear”. There was no evidence at all as to how long they had been in place and as to any intervening inspections. I must assume that the motel, and presumably the screens, had been operating for some sixteen years.
Even so, I accept her assessment that the condition of the motel as of December 2000 was poor and I am prepared to infer that some part of those breakages arose as a result of breaches by the Stranges of clause 2(d) or (e). Doing the best I can, I will allow the sum of $1,000 under this head.
- window screens
As to repairs to window screens, the same comments are apposite. I will allow $900 under this head.
- lighting facilities
As to lighting repairs, there was no specific evidence as to the nature or cause of damage to a number of the items in the repair account of RA & AM Scalzi Electrical Services. More particularly, a substantial number of items appear to relate to installation of floodlights and desk lamps within the motel, items which, it seemed to me, are tenant’s fixtures or property. I am not disposed to allow the plaintiff any sum for choosing to replace them.
To the extent that there were faulty exit lights in passages and key switches, the evidence was again unsatisfactory. Whether those replacements were as a result of fair wear and tear or otherwise in consequence of a breach of the terms of the original lease, did not emerge in the evidence and I am not prepared to speculate about it.
I will make no allowance under this head.
- air-conditioning
I turn then to the claim with respect to replacement and repair of air‑conditioning totalling $16,102.77.
It emerged from the evidence that the air‑conditioning plant, with compressor, was situated on the roof of the building and that it serviced individual room units. It had been installed in 1984. It was put to the plaintiff that, by the year 2000, it had become obsolete, but he denied that. He agreed that the particular model could not be replaced but said parts for it could be accessed. In that context, other evidence, from Mr Strange and Mr Coady, disclosed that such parts either had to be specifically manufactured or were otherwise obtained from non‑functioning units kept in a room in the motel for that purpose.
I was satisfied from the evidence of Mr Strange and Coady that the air‑conditioning system was, indeed, antiquated, but that during the early years of occupation by the Stranges, it was, in any event, regularly serviced pursuant to a maintenance agreement with Hardies. In consequence, on Mr Strange’s account, which I accept, Hardies were attending there nearly every month. After that time, the Stranges changed to another company called Freeze Tech, which was likewise obliged to attend with the same regularity. In consequence of that, the Stranges themselves replaced a compressor on the roof, as appears from Exhibits D20 and D21.It seems to me that that was most likely the plaintiff’s responsibility.
That background is not inconsistent with the evidence of Muller, whose observations in P114 appear to relate to matters of maintenance or correct operation.
I have then had regard to the numerous accounts of Haden Engineering, a firm engaged by the plaintiff to inspect and carry out works on the air‑conditioning system in the motel after December 2000. I will not deal with those accounts individually but, essentially, the work comprised in them relates to installation or cleaning of heater elements, control valves and fan coils and, as well, the purchase of new units.
Overall, it appears to me that the Haden accounts relate to either maintenance arising from fair wear and tear or replacement of units arising from the same cause. Many of those accounts post‑date re‑entry by a considerable time, anyway.
The plaintiff’s evidence as to this whole matter was completely lacking in detail and unconvincing.
On all the evidence, I am simply not satisfied it has proved an entitlement to recover any part of this head of claim and it is disallowed.
- plumbing
I turn then to plumbing.
There were numerous accounts tendered from Glenelg Plumbing Services, Brownrigg Plumbing Services and Southcorp Water Heaters for various repairs or replacements.
Nobody from those businesses was called to give evidence, nor was the plaintiff able to give specific or useful evidence about any of the items claimed. Further, the accounts from Glenelg Plumbing include materials and labour relating to the kitchen, which cannot be part of any claim. They also relate to “servicing cisterns”, a task which, by its own description, is a regular maintenance item. There is then a substantial provision for a hot water service and a circulating pump, but there is no clear evidence as to the circumstances in which it had to be installed and, in particular, whether the same was other than as a result of ordinary wear and tear or was some matter for which the Stranges were responsible. The plaintiff also sought to hold the Stranges accountable for the results of a leaking pipe within the building, but there was no good evidence led as to why they should have had that responsibility.
Having said all that, it does appear to me that certain of the items, such as valve replacement and the like, should ordinarily have been undertaken by the Stranges as part of their maintenance and repair obligations. I am prepared to make some allowances for those, but it does not appear to me that such would sound in a substantial sum. On the limited information I have and doing my best with respect to that, I will allow the sum of $750.
- painting
I turn then to the question of painting. The terms of clause 2(t) of the original lease are quite explicit and oblige the lessee “at the expiration or sooner determination” of the term as extended, properly paint the premises.
Evidence was led at the trial of some painting work carried out by the Stranges at a particular time during the tenancy, albeit that that evidence was disputed. In a real sense, it is immaterial. The tenancy having been determined, it seems to me the plaintiff is entitled to recover from the first defendant, through the Stranges, the reasonable cost of painting the premises with “two coats of best quality oil paint or such other paint as may be approved”.
The problem in this matter relates rather more to the manner in which the plaintiff has chosen to present its claim, and I refer to Exhibit P70. Having obtained the quotation P70, the plaintiff then chose to engage persons who were friends to complete the works, or at least some of them, and said he could not remember how much he had paid them.
Plainly, the state of that evidence cannot support a recovery of the amount he seeks ($36,360) and, in any event, the quotation P70 includes painting works in the kitchen and restaurant, areas which are not the subject of the lease. It also includes provision for GST, a sum which the plaintiff would be able to claim as a credit.
No other quotations were tendered and there was simply no evidence before me as to the reasonableness of that claim or, indeed, as to what the plaintiff had had painted or paid.
In the circumstances, I can do no more than make a broad allowance for this expense, which I fix at $15,000.
- Repair and Replacement Summary
Shower screens  $1,000.00
                 Window screens  $900.00
                 Plumbing  $750.00
                 Painting  $15,000.00
  _________
$17,650.00
Rental
As to rental, it is not in dispute that the arrears at the date of re‑entry included rental for the month of November totalling $29,698.63. The plaintiff has also sought rental for the entire month of December, but I am not prepared to allow that. Such a claim might have been maintainable pursuant to the contract, but set off against it would be the benefit earned by the plaintiff in occupying and operating the motel from 5 December onwards. There was no evidence produced as to this.
The appropriate adjustment is to allow the plaintiff to recover rental for four days in December, an adjustment which I calculate at $3,832.08.
I am thus satisfied that the claim for lost rental is to be properly assessed in the sum of $33,530.71.
Land Tax
As to land tax, I have already found against the defendants’ contention that the 75% proportion charged was an overcharge. Even so, I keep in mind that the claim of $14,819 relates to land tax for the entire 2000/2001 financial year, whereas the plaintiff had the benefit of occupying the premises for more than half of that year.
It seems to me that the proper calculation of land tax recoverable by the plaintiff is for the period between 1 July and 5 December 2000. That calculates out at $6,375, so the allowance for unpaid land tax will be $6,375.
Council Rates
As to council rates, once again, both the documentary and oral evidence produced by the plaintiff was unsatisfactory. The claim appeared to rest on a Final Notice, variously dated 23 November 1990 and 29 November 1900, attached to the Notice to Quit of 5 December 2000 (P104).
These things have to be said about that notice:
(1)it is not on any printed form readily identifying itself with Adelaide City Council;
(2)it includes the rates assessment for the restaurant, a sum perhaps payable by Mrs Strange but not by the Stranges themselves and not a claim that can be visited upon the first defendant;
(3)a council rates notice also attached to that Notice to Quit refers to the previous financial year – that is to say, the year ending 30 June 2000. Elsewhere, in the documents (Exhibit P25) are some overdue rates notices relating to the 1999 year and, again, some of them including Vivaldi’s restaurant.
The plaintiff’s oral evidence as to these matters was not particularly enlightening and, as with other rates claims, Mr Di Stasio appeared to base them on the previous year’s rates because he could not produce current ones.
Doing the best I can, I infer, from the documents produced, that the final notice claiming $46,908.15 is in respect of two years’ rates and relates both to the motel and the restaurant. I am unable to discover from the documentation the amount of late payment fines attaching to the overdue rates for each of those entities, but I do note that the rate for the motel in the 1999 year was $18,069.05 and that it had increased, with fines, to $19,825 by 7 December 1999.
I will assume that the rates for those two years ending 1999 and 2000 were approximately the same and I will assume likewise with respect to the restaurant, for which the annual rates appeared to be $2,779.50.
I accept Mr Di Stasio’s evidence that ultimately he paid the arrears of rates for the motel. Doing the best I can, I will allow the sum of $40,000 for that head of claim.
SA Metropolitan Fire Service
There was a claim for activating the South Australian Metropolitan fire alarm, but no invoice was produced and the plaintiff was unable to prove it related to the motel or the appropriateness of that claim. It is disallowed.
Electricity
Next was the claim for electricity usage. The plaintiff’s evidence supporting this was rather more satisfactory. Mr Di Stasio explained how particular areas of the building had electricity meters, but there was only one invoice rendered for the whole building. He said that he would read each meter monthly, and apportion the total bill according to the usage by each tenanted area. He was unable to produce the original accounts, but ultimately produced extracts of his meter readings for the months of October and November 2000, which totalled $4,372.74. I am satisfied this claim was proved and I allow it in that amount.
Water Rates
As to the claim for water rates, the plaintiff produced an invoice dated 3 January 2001 and said it was indicative of the annual water charges current as of the time of default. He asked me to infer that the claim of $1,671 for the last completed quarter was accurate. He also produced an earlier claim dated 29 April 2001 which contained a water rates claim in that same amount.
The appropriate calculation did not readily emerge from the documents but, if anything, the claim appeared to me to be less than a recoverable sum and I thus allow it in the sum of $1,671. I will not allow the claim for GST because it appears to me that the plaintiff was entitled to appropriate credits for that payment.
Emergency Services Levy
As to the Emergency Services Levy claim of $1,575, again the plaintiff could not produce the relevant account but produced an earlier one in support of it. Mr Di Stasio explained his calculation of $1,575 as a 75% proportion of an even earlier account for the year ending 1999, an amount which, he observed, was less than the amount he would otherwise have sought to recover. He was content to rest on a recovery of $1,575 and I am satisfied that it is established and recoverable.
Legal Notice Costs

Under its damages claim, the plaintiff has also sought recovery of costs of the Notice to Remedy Default, as well as other legal costs incurred in and about the events which followed it.
I am not disposed to fix these costs at this time and it seems to me more appropriate that they be dealt with as part of the plaintiff’s costs of action, to be agreed or otherwise taxed.
Interest
I turn then to the plaintiff’s claim for interest.
The plaintiff seeks that it be calculated at the rate of 20%, having regard to the provisions of clause 2(c) of the original lease.
The defendants have opposed that rate, saying that it is effectively a penalty.
I have elsewhere discussed the law relating to penalties. Effectively, an agreed damages provision will constitute a penalty if it is not a genuine pre‑estimate of the likely loss to be suffered in the event of a breach. In order to determine whether it is a penalty, it is appropriate to have regard to the substance of the transaction and the circumstances existing at the time the agreed damages provision was fixed.
The plaintiff provided the court with a table of Reserve Bank Indicator Lending Rates (Exhibit P101), extending from January 1959 to November 2004. It was quite helpful in my consideration of this question. It focussed, in the early years, on standard bank housing loans, it then introduced credit card rates, small business rates and the like. As of the date of the lease in August 1984, those rates varied from the low base of housing loans at 11.5% to credit card rates at 18%. Housing loans increased over the following ten years to monthly figures as high as 17% and ranged downwards to 8.75%. Credit card rates increased to 21.90% before falling to 14.35%.
At the time of the Stranges’ default, that is to say, December 2000, housing rates were 8.05% and credit card rates were 16.7%. As of November 2004, housing rates were 7.05% and credit card rates were 16.45%.
As of May 1991, when Lawbitax became the lessee of the premises and thus potentially liable for breaches, the housing rate was 14% and the credit card rate was 18.65%.
In applying Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (supra), I consider I should have regard to the circumstances existing, not at the time of the original lease, but at the time the third lease was entered into, that is, May 1991.
I note that the home lending rate was then 14% and the credit card rate was 18.65% and ask myself whether a default rate of 20% at that time constituted a genuine pre‑estimate of the loss likely to be suffered by the plaintiff were Lawbitax to breach the lease.
On all the evidence, I am not satisfied it did. From the evidence of Mr Di Stasio at trial, it emerged that his rental income from the building was always designed to be applied towards the discharge of his commitments under the mortgage secured over it, a mortgage which I will treat as one likely to have attracted the small business rate (in May 1991) of 14.6%.
There was no evidence led at trial of any special or other loss that was then likely to have been suffered by the plaintiff upon default, nor that any such was discussed between the parties or was otherwise then in the plaintiff’s contemplation.
The margin between that rate and 20% was thus a substantial one and I am not persuaded that it constituted a genuine pre‑estimate of loss likely to have been suffered by the plaintiff upon breach. I thus consider the 20% constituted a penalty.
Having concluded that, the plaintiff’s entitlement to interest falls to be determined according to ordinary principles. Again, in that I am assisted by P101 and will award interest on the judgment sum from 5 December 2000 to the date of judgment at the rate of 9%, a rate which I consider fairly reflects movements of small business overdraft rates over the intervening period.
I thus summarise the damages as follows:
Repair and replacement  $17,650.00
                 Rental  $33,530.71
                 Land tax  $6,375.00
                 Council rates  $40,000.00
                 Electricity  $4,372.74
                 Water rates  $1,671.00
                 Emergency Services levy  $1,575.00
  _________
Total:  $105,174.45
Plus interest @ 9% from
                 5/12/00 to 28/6/05  $43,205.09
  _________
TOTAL:  $148,379.54
There will be judgment for the plaintiff against the first defendant in the sum of $148,379.54, including interest. The claim against the second to seventh defendants inclusive is dismissed.
I will hear the parties as to consequential orders and costs.