PAPCORP Pty Ltd v Corbo & Pilla
[2011] SADC 66
•19 May 2011
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PAPCORP PTY LTD v CORBO & PILLA
[2011] SADC 66
Judgment of His Honour Judge Tilmouth
19 May 2011
LANDLORD AND TENANT - COVENANTS - OTHER COVENANTS
Held: The plaintiff is entitled to enforce guarantees entered into by the defendants in 2003, by which they agreed to indemnify the plaintiff for losses occasioned upon default of a lease between it and the defendants' company as lessee. Various heads of loss, including rent allowed. So called "make good" costs disallowed as inappropriate in principle, unproved and unreasonable in any event.
Retail and Commercial Leases Act 1995 (SA) s 13 & 40; Buchanan v Byrnes (1906) 3 CLR 704; Livingstone v Rawyards Coal Co (1879-80) LR 5 AppCas 25; McRae v Commonwealth Disposals Commission (1951) 84 CLR 337; Bellgrove v Eldridge (1954) 90 CLR 613; Ruxley Electronics & Construction Ltd v Forsyth [1996] 1 AC 344; Graham v Markets Hotel Pty Ltd (1943) 67 CLR 567; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (2008) 166 FCR 494; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR; Retail and Commercial Leases Act 1995 (SA) s 13; Cachia v Hanes (1994) 179 CLR 403, referred to.
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; Tito v Waddell (No 2) [1977] Ch 106; James v Hutton & J Cook & Sons Ltd [1950] 1 KB 9, applied.
De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28; Joyner v Weeks [1891] 2 QB 31, distinguished.
PAPCORP PTY LTD v CORBO & PILLA
[2011] SADC 66Introduction
The plaintiff was at all material times the owner of real estate situated at 16 Jetty Road Glenelg, out of which a Fasta Pasta restaurant traded. The defendants were directors of the company owning the business as lessee of the premises. Both executed guarantees underpinning the enforcement of the Lease with the plaintiff. Although to outward appearances the restaurant traded successfully for a number of years, it eventually went into voluntary administration. It fell in default of rent over some nine months short of the lease term. These proceedings seek the enforcement of the personal guarantees with respect to the unpaid rent and associated consequential losses.
Background Facts
The plaintiff’s sole director at relevant times was the solicitor, Dimitrious Georgiadis. The subject property was purchased by the plaintiff in 1992, when it was, as Mr Georgiadis expressed it, “developed specifically as a Fasta Pasta restaurant at the request of the head office, franchisor …”.[1] The franchise was operated by two different owners, the second a company Ladian Pty Ltd. In late 1998 Ladian sold the business to FP Glenelg Pty Ltd, of which the defendants were directors. On 17 February 1999 the plaintiff granted a Lease then comprising two stories in favour of Ladian for a term of 10 years expiring on 2 February 2009.
[1] T52.35-.36
By a Deed of Assignment of the same date, Ladian assigned all its interests in the Lease to FP Glenelg with the consent of the plaintiff. These arrangements came about after Ladian fell into default under the Lease, which the plaintiff terminated. It was on the same day that the defendants together with the first defendant’s wife, executed a Deed of Guarantee in favour of the landlord, by which they assumed joint and several responsibility for the “obligations and liabilities of the Tenant” under the Lease agreement, as so assigned.[2]
[2] Exhibit P1, pp182, Clause 21
FP Glenelg continued to operate the franchise thereafter. By late 2001 and early 2002 it was plainly struggling to make ends meet and a number of unresolved issues with the landlord came to a head. These are referred to in fine detail in the extensive correspondence between the respective solicitors.[3] The upshot of protracted negotiations was the restructuring of the Lease arrangements and the execution of further guarantees by way of a Deed of Release in 2003.[4]
[3] See letters in Exhibit P1, Tab B
[4] Exhibit P1, pp. 164-203, refer T230.22-.26
Judged from the dates appearing in the correspondence and Recitals I, N and O therein, this second guarantee must have been executed sometime after 14 July 2003, most likely soon after a meeting of 1 November 2002. The core changes effected by the new arrangements, were to release Mrs Corbo under the original guarantee, to bring arrears in rent up to date (clause 7.2), to provide for a rebate of $2,500 in rent per month providing the rent was paid by the 14th of each month (clause 8) and the concurrent surrender of the upstairs portion of the tenancy (clause 6). There were also adjustments to the monthly rental to allow for seasonal fluctuations of income (clauses 23-25). By this time the annual rental amounted to $157,500, or $13,125 per month. When the lease was surrendered on 20 June 2008, the monthly rent had increased according to a CPI formula spelt out in Part 4 of the Lease, to $16,083.10.[5]
[5] Exhibit P5
The proceedings
The plaintiff sues on both the Deed of Guarantee and the Deed of Release. Its case crystallises into a claim to indemnity for unpaid rent between 20 June 2008 and 2 February 2009 when the lease ended, the reimbursement of outgoings for which the lessee was primarily responsible, together with the costs of making good the premises upon surrender and other associated costs, accumulating to $178,913, plus interest. Due to certain concessions made by the plaintiff during the course of the trial, the original claim of $193,433 was not fully pursued.
The defendants were unrepresented during the trail, although they were when their joint defence was filed in February 2010. The gist of their case at trial appeared to be that the plaintiff drove a hard bargain, charged an unrealistically high rent, that they did not read and did not appreciate the significance of the 1999 Deed, and that the plaintiff through Mr Georgiadis represented that it would not “rely on the guarantee”. There were a plethora of other complaints, the gravamen of which was that the landlord was unresponsive or dilatory in dealing with various issues over the years of the lease.
The subject agreements in detail
The foundation Lease with Ladian was dated 17 February 1999, to commence from 2 February 1999, at an annual rental of $150,500.[6] The concurrent Deed of Assignment as between Ladian and FP Glenelg facilitated the sale of the business by Ladian to FP Glenelg.[7] In the Deed of Guarantee itself, also dated 17 February 1999, the defendants effectively undertook to be personally responsible for the rent, in addition to outgoings or other amounts of money owed from time to time by FP Glenelg to the plaintiff under the Lease.
[6] Exhibit P1, pp.2-64
[7] Exhibit P1, pp.66-78
The central obligations were those contained in clauses 5 and 6 thereof, as follows:
5. THE GUARANTEE
5.1 The Guarantor guarantees to the Lessor the due payment of the Debt by the Lessee.
5.2 The Guarantor guarantees to the Lessor the due payment by the Lessee of any other or additional amount (including interest accrued on the Debt, whether pursuant to the Lease or otherwise) due from time to time by the Lessee to the Lessor.
5.3 The Guarantor shall indemnify the Lessor from and against any loss, damage, or liability arising from any breach of or default in the due performance and observance of all the terms, express and implied in the Leases on the part of the Lessee to be performed and observed.
5.4 The Guarantor shall indemnify the Lessor from and against any loss, damage, expenses or costs (including legal fees on a solicitor and own client basis) suffered or incurred by the Lessor in relation to the following:
(a) the enforcement by the Lessor of the terms of this Deed;
(b)a disclaimer made by a liquidator (or administrator), whether under Division 7A or Part 5.6 of the Corporations Law or otherwise; and
(c)any action by or on behalf of the Lessor in relation to the recovery of any amount due to be paid either by the Lessee (pursuant to the Leases) or by the Guarantor (pursuant to this Deed).
6. CONTINUING GUARANTEE
To the extent that this Deed constitutes a Guarantee, it shall be a continuing Guarantee and shall not be wholly or partially discharged or affected by the payment at any time after the date of this Deed of any of the money secured by this Deed or by any settlement or compromising any liability of the Lessee or by any other matter or thing.
The second Deed of 2003 drawn by the defendants’ own solicitors, recited the principal Lease of 1999 with Ladian,[8] the accuracy of which was acknowledged in the body of the Deed itself.[9] It and its several counterparts define the central obligations thereunder, in these terms:[10]
[8] Recital C
[9] Clause 3
[10] Exhibit P1, pp.164-196 at 172-173
SURRENDER OF TENANCY AGREEMENT
6.In consideration of the agreement on the part of the Tenant to surrender, disclaim and renounce all and whatsoever entitlements to the possession, occupation, use and enjoyment of the Upstairs Tenancy pursuant to the Tenancy Agreement or otherwise the Landlord does hereby agree as follows:
6.1 to accept such surrender of the Tenancy Agreement with effect upon the execution of this Deed including the release of the Tenant from all and whatsoever liabilities and obligations pursuant thereto whether presently outstanding or in the future to be performed, discharged and observed;
6.2 to allow to the Tenant the rebate in rental referred to in Clause 8 of this Deed;
6.3 otherwise to covenant and agree in the terms contained in this Deed
PROVIDED HOWEVER the tenant hereby acknowledges notwithstanding the execution of this Deed the Tenant will remain responsible for all outgoings as described in the Lease and that the provisions of the Lease in this regard remain unaltered and furthermore, insofar as the contents of this Deed to not refer to any specific provision of the Lease, such covenants terms and other agreements as are not referred to are deemed to continue to apply without amendment.
The core guarantees in this instance were those contained in clauses 19-21 thereof, which provided:[11]
GUARANTORS TO ENTER INTO COVENANTS OF GUARANTEE AND AGREEMENTS OF INDEMNIFICATION
19.In consideration of the agreements on the part of the Landlord herein contained the Guarantors covenant and agree to execute and deliver in favour of the Landlord covenants of guarantee and agreements of indemnification in substantially similar covenants, terms, conditions and agreements as those contained in the Deed of Guarantee.
20.The Guarantors agree:
20.1to execute and deliver the Deed of Guarantee referred to in Clause 19 within 14 days of receipt of the document from the Landlord’s solicitors for this purpose; and,
20.2notwithstanding the execution of this Deed, until such time as the Deed of Guarantee referred to in clause 19 is delivered to them and returned by them duly executed, that they remain liable to observe, comply with and discharge their obligations and liabilities as set forth pursuant to the Deed of Guarantee notwithstanding that this is not executed by all of the parties therein named, and in particular, one Vincenza Rose Pilla.
21.The Guarantors acknowledge, for the record, that the Deed of Guarantee referred to in Clause 19 shall obligate them jointly and severally liable to the full extent of the obligations and liabilities on the part of the Tenant pursuant to the Lease, the Deed of Assignment and this Deed.
[11] Exhibit P1, pp.181-182
The case for the respective parties
The case for the plaintiff is then, a straight forward one. Simply stated the original Lease, the Deed of Guarantee supporting it and the second Deed of Release, reflect negotiated and agreed positions, were fully understood by the defendants and duly executed, so that they are enforceable on their own terms. Moreover as clause 6.3 of the second Deed provided that “such covenants terms and other agreements as are not referred to are deemed to continue to apply without amendment”, the plaintiff claims that this second guarantee did not replace or subsume the first. As was observed in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd:[12]
[32] It is, and always has been, common ground that each of the respondents executed a written loan agreement on 30 June 1989. The respondents alleged that the "operative agreement" was not contained in that writing. It was said that the relevant agreement was reached earlier and was wholly oral. Yet it was not said that the written agreement should be rectified. It was not said that a defence of non est factum was available. It was not said that the written agreement was executed by mistake, or that its execution was procured by misrepresentation as to its contents or effect. (The misrepresentation alleged was as to what had been said in the conversations, not what the document was or provided.)
[33] The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it: L'Estrange v Graucob Ltd [1934] 2 KB 394.
[12] (2004) 218 CLR 471
The defence case is quite another matter. For his part Mr Corbo frankly admitted liability. It emerged, as it did later in the evidence of the second defendant Mr Pilla, that there were continuing problems of communication with the landlord or its agent Taplin Real Estate and that they entertained reservations about the purchase of the business in the first place. In hindsight it also appears as if they now hold the view that they prematurely went into administration when they possibly might have been better off endeavouring to trade out the last months of the Lease to bring it to an end. None of these complaints crystallised into any identifiable defence or counter-claim, still less any basis upon which any supposed consequential loss or damage could be quantified. Mr Corbo frankly acknowledged under cross-examination that he realised the effect of the guarantees of 1999 and 2003.[13] He acknowledged as much with respect to the head Lease as well.[14]
[13] T167.25-.38
[14] T168.1-.4
It became clear the defendants were confused in relation to the time when flooding occurred, believing at first this was shortly before the Lease was surrendered around early May 2008, during which the restaurant was forced to close for about six weeks. Documents subsequently tendered demonstrate this flooding must have occurred during the period between late April and early May 2007, a topic to which it will be necessary to return when the question of damages is considered.
Misrepresentations
Mr Pilla asserted a misrepresentation, to the effect that reliance would not be placed on the first guarantee. This dovetails with the evidence of Mr Corbo who said Mr Pilla told him Mr Georgiadis was “not going to chase us for the rent”.[15] Before dealing with that issue, it is well to mention that a further misrepresentation was alleged in the defence, namely that Mr Georgiadis also represented that it was “standard practice to have the guarantees signed as part of the lease assignment”. No evidence was given in support of that claim. In fact it was Mr Georgiadis’ evidence that this was his standard practice, so it is difficult to see how that statement could amount to a misrepresentation, even if it was made.[16]
[15] T167.8-.9
[16] T74.33-75.10
As to the evidence of Mr Pilla, the critical exchange so far as allegations of misrepresentation go, occurred in the context of attending Taplin Real Estate to sign the 1999 documentation. A witness to the signatures of Mr Corbo and his wife was a Mr Melissougas.[17] Mr Melissougas assisted with the negotiations between Ladian and FP Glenelg over the sale of the Fasta Pasta business, for which he was “offered a share” in FP Glenelg, although he left the business soon after.[18] Mr Pilla said that afterwards, Mr Melissougas advised him “what that means, this guarantee, if you go bad and you can’t pay the rent, you can sell your house”.[19] The evidence of Mr Melissougas was much to the same effect “(Do) you realise you basically offered them everything you’ve got?”[20]
[17] Exhibit P1, p 161
[18] T214.12-.30
[19] T191.26-.28
[20] T213.5-.6
Mr Pilla claims to have then rung Mr Georgiadis to tell him “the deal is off”.[21] His evidence in-chief was that he went to a restaurant in Gouger Street. His evidence about what followed in his discussion with Mr Georgiadis was this:[22]
At that stage I was at the restaurant and he said 'I will come and see you. I will come and have a chat with you'. It was, like, around 6, 6 o'clock at night, something like that, 6.30, something like that. I think he said he was just leaving work, or something like that, so he wasn't far away, so he said 'I will drop in real quick on the way home', and he dropped in and he was trying to calm me down and saying 'It will all work out. Don't worry, it will all be good'. Because Cosi was very, very upset about that personal guarantee and was really concerned about it, and I voiced, like, you know - I said 'This whole thing is too shonky, it's all shonky, you know. The rent is not the right price, and this is not right, and nothing's right' and that's when he said 'Don't you guys worry about it. I won't be chasing you. You gave me that reassurance', and he had only just driven off when Jim had arrived and Jim sat there and we ended up having a bottle of wine. I had dinner, and he had a drink with he and me dropped me off to my brother-in-law's place.
Mr Georgiadis denied under cross-examination that anything like this occurred.[23]
[21] T192.15
[22] T192.25-193.6, the reference to “Cosi” being a reference to the first defendant Cosimo Corbo
[23] T85.36-87.20
In my judgment it is most unlikely that this exchange ever took place. In the first place it does not stand at all well with Mr Georgiadis’ evidence that he would always insist upon guarantees when dealing with a company. This only makes good business sense. As a trained lawyer it is likely he would be wary of making collateral representations, still less one that would negate his standard practices founded on good commercial judgment. It is also inconsistent with the fact that by and large he left negotiations of this kind largely to his agents, so as to devote his professional time to his legal practice.
Mr Pilla’s evidence about this matter has inherent difficulties rendering it unreliable. At first his defence and his evidence was that the execution and the representation occurred on the same evening, whereas in his final address he claimed the relevant exchange took place a week or two later.[24] His evidence was also confusing and unsatisfactory when it came to who was present when he signed it. Initially he claimed the first Deed was executed at Taplin’s office when he, Mr Corbo, Mr Melissougas and Andrew Taplin were present.[25] The Deed itself shows on the face of the execution page that Melissougas witnessed the signatures of both Mr and Mrs Corbo,[26] but on all accounts she was never present at Taplins’ office on this occasion.[27] Moreover, Mr Pilla acknowledged having his own independent legal advice at the time.[28] It was the evidence of Mr Melissougas himself that they realised that the Deeds were required if they wanted to take over the restaurant.[29]
[24] T254.23-255.18
[25] T198.11-.27
[26] Exhibit P1, p 161
[27] T199.3-200.5, T202.2-.14
[28] T203.31-204.7
[29] T213.8-.11
More tellingly perhaps, over the entire course of quite extensive correspondence between the respective solicitors when matters were renegotiated leading up to the second Deed (between approximately 20 March 2002 and July 2004), not one mention is made of any such misrepresentation at all.[30] Those allegations first surfaced in the defence filed in February 2010. It is inconceivable if such a representation was made and it led the defendant to enter into the first guarantee, that it would not have arisen much earlier in this context, had it been made.
[30] Exhibit P1, Tab B
In an endeavour to overcome this pregnant omission, Mr Pilla gave an explanation which is simply as incomprehensive as it is inconsistent with the defence filed by his solicitors:[31]
QYou say that you had a conversation with Mr Georgiadis on the day before the 1999 guarantee, or the day of the guarantee being signed. I would suggest to you that there is not one single piece of paper where that conversation you allege as being recorded was ever referred to, and that is true of all of the time from when the 1999 guarantee was signed, through all of the disputes in 2002, and for all of the period up to when the 2003 deed was signed, and for all of the period between when that deed was signed in 2003, and your defence came in, in this action, in February 2010, do you disagree with any of that.
AWhen you instruct a lawyer you asked them. When you tell them they say 'If it is not in black and white doesn't mean anything', right? ‘Have you got any proof that it was said?' 'No'. That is why there is no reference to it.
[31] T205.37-206.18
Taken together these multiple considerations lead to the conclusion that the alleged misrepresentation has not been proven on the balance of probabilities and it must therefore fail.
There is a further independent consideration fatal to the defendants’ case. Even if the misrepresentation had been made in 1999 as alleged, there is no evidence of reliance or causation. In point of fact the evidence of Mr Melissougas dispels reliance:[32]
QGoing back to the signing, do you remember - was it me asking you what the guarantee thing was all about.
AI believe we discussed it later and I explained the guarantee to you after you and Cosi had signed. I said 'Do you realise you basically offered them everything you've got?', and you said 'Well, no, I don't -' yeah, it's a big vague. I remember thinking that you weren't that sure of what you had done. You just felt you had to do it. Otherwise, you weren't going to get the restaurant. And, yeah, that's - I don't recall the exact conversation.
[32] T213.1-.10
Furthermore, there is simply no evidence that any such representation either endured or influenced the defendants to sign the 2003 guarantee. The evidence of both acknowledges that fact. It must follow that irrespective of any issues which might have compromised the enforcement of the 1999 Deed, there is no such consideration which calls the 2003 Deed into question. The plaintiff is therefore entitled to judgment enforcing the obligations entered into on that occasion.
The claim for damages
It should be mentioned at the onset that no monies were received by the plaintiff from the administrators of FP Glenelg. There are several heads of damage claimed.
The first is for unpaid rent from 20 June 2008 to 2 February 2009. These are calculated at $15,533 for the period June-October 2008 and thereafter at $17,706 to account for a further CPI rise commencing in November 2008, inclusive of GST.[33] They total $137.282.00. There were suggestions throughout the trial that the June 2008 monthly rental was paid, however the evidence confirms that this was not the case. So much is evident from the Trust Account Ledger produced by Taplin Real Estate, Exhibit P5. This proves the final payment of rent was eventually banked on 19 May 2008.
[33] The calculations are set out in the plaintiff’s third amended schedule of loss, 4 May 2011
There is one further consideration as to the rent issue. It emerged during the course of the trial that the premises were closed down between 28 April 2007 and 19 or 21 May 2007, owing to flooding caused by some undisclosed problem with the ceiling or skylight. These dates emerge from documents kept in the files of Taplin Real Estate, Exhibit P6, as counsel frankly conceded.[34] The Lease provided in clause 13.2 for an abatement of rent during any period when the premises were “unfit for occupation”.[35] Section 40 of the Retail and Commercial Leases Act 1995 (SA) has much the same effect. It is clear from Taplin’s ledger that rent continued to be paid over this period. The defendants’ recollected this was a period of six weeks. That imperfect recollection is hardly surprising because it is only to be expected that upon reopening they would need to build up business once again. I propose to disallow rent for the subject period, but as the precise sum was not addressed, the parties should be given an opportunity to make submissions as to that.
[34] T246.21-241.2
[35] Exhibit P1, pp. 121
The defendants’ claim that the plaintiff failed to mitigate its loss. What transpired was that the plaintiff endeavoured to obtain new tenants by engaging Taplins jointly with Knight Frank for that purpose. Mr Taplin himself gave evidence of extensive efforts to relet, locally, nationally and internationally. A proposal was put forward at one stage by Kentucky Fried Chicken which was rejected on the recommendation of Mr Taplin according to his own commercial judgment. Of this proposal Mr Taplin said in his evidence:[36]
It was simply in respect to the offer you can see that the commencing rent was considerably less than we finally achieved and what had been achieved and what is being achieved in the area, but there was also a lot of other requirements in terms of large capital contributions, rent freeze and it just really wasn’t a commercial deal.
[36] T101.34-102.2
Eventually a toy trading franchise, Imagine If, was secured as tenant, commencing from 15 October 2008.[37] It is difficult to see how the plaintiff could have done anymore than engage reputable agents, knowledgeable in the local and wider real estate markets. It is impossible to conclude on the evidence advanced that there was a failure to mitigate damage according to accepted principles: Buchanan v Byrnes.[38]
[37] Actual Lessee was Eastwest Solutions Pty Ltd
[38] (1906) 3 CLR 704 at 719
The next item claimed is an administration fee for the period between 1 June 2008 and 1 October 2008 of $2,171. This was said by counsel in his opening to be “within the entitlement under the lease”,[39] otherwise no evidence was directed to what this related to or how the defendants were liable for it. On the face of things there appears to be a lack of proof, however the plaintiff ought in all fairness be given the opportunity to address this issue once more.
[39] T40.22
The remaining items are essentially in the nature of outgoings, namely water accounts totalling $8,875.74, Council rates of $12,304.63, Emergency Services Levies totalling $998.56 and insurance over the interim period of $2,651.78. The primary documents supporting these payments are to be found in Exhibit P1, Tab G. Since Part 5 of the Lease requires the lessee to pay outgoings, particularly those referred to as “rates and taxes”, the plaintiff is entitled to reimbursement for these. However as the liability for the levy was not specifically addressed, the parties should be heard further in relation to that aspect, in view of the language of Part 5. The primary liability of the lessee to pay insurance is established by Part 12 of the Lease.
Make good costs
Finally, there is a claim for what was described as “make good costs”. This aspect of the claim arises from clause 10.4 of the Lease, which reads:[40]
[40] Exhibit P1, pp.115
10.4 Lessee to Make Good
If the Lessee is permitted by the Lessor to attach or detach any part of either the Lessor’s Plant or the Lessee’s Plant then the Lessee shall immediately cause to be made good in a tradesmanlike many any damage to the Premises caused by the attachment or detachment.
The evidence was that these costs were not actually incurred. In the event when the Imagine If franchise was established, it had its own specific requirements so far as fitting out the premises were concerned, the costs of which it bore itself – see the special condition to the “Eastwest Solutions Lease”, Exhibit P1 p 500.
It was maintained by counsel that the plaintiff was nevertheless entitled to recover such costs. They are quantified as amounting to $14,630, based on the estimates of building quantity surveyor, Mr Atkinson.[41] This entitlement was said to arise from the very nature of the damages remedy in contract. The measure of damage for breach of contract was said in Livingstone v Rawyards Coal Co.[42] to be:
… that sum of money which will put the party who has been injured, or who has suffered in the same position as he would have been if he had not sustained the wrong for which he is now getting his compensation or reparation.
[41] Exhibit P1, pp 529-533
[42] (1879-80) LR 5AppCas 25 at 39
The starting point is that expenditure actually incurred in the performance of a broken contract is prima facie recoverable: McRae v Commonwealth Disposals Commission.[43] Counsel for the plaintiff was especially reliant upon the judgment of the High Court in Bellgrove v Eldridge[44] and the House of Lords in Ruxley Electronics & Construction Ltd v Forsyth.[45] In the former the court comprising Dixon CJ, Webb and Taylor JJ wrote:[46]
In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.
...
But the work necessary to remedy defects in a building and so produce conformity with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure. And it is obvious that the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. Indeed — and such was held to be the position in the present case — there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place. In none of these cases is anything more done than that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace only a small part, or a substantial part, or, indeed, the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner's loss.
The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.
and later:[47]
It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another. If she does not, it is said, she will still have a house together with the cost of erecting another one. To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all.
[43] (1951) 84 CLR 337
[44] (1954) 90 CLR 613
[45] [1996] 1 AC 344
[46] At 617-618
[47] At 620
This decision was applied by the Full Court in De Cesare v Deluxe Motors Pty Ltd.[48] That was a case involving incomplete and defective building work for which quotations to complete the work were obtained. The subject building was sold before the majority of work was completed. Only a fraction of the quoted remedial cost was expended. The court held the prima facie remedy was the cost of rectification, subject to question of reasonableness, so that the subsequent sale went only to the question of reasonableness, judged objectively.
[48] (1996) 67 SASR 28
These and the many other cases cited in De Cesare v Deluxe Motors Pty Ltd are no doubt based on the understanding that if unrectified buildings are on-sold, they will fetch at a lesser price than they would achieve if rectified. In other words loss is sustained by the diminution in value, ordinarily measured by the cost of rectification.
In this particular instance reinstatement is not an option and there is clearly no diminished value. Accordingly, the plaintiff has simply “suffered no loss” as Lord Lloyd expressed it in Ruxley Electronics and Construction Ltd v Forsyth.[49] To express this principle in another way, borrowing the remarks of Megarry VC in Tito v Waddell (No 2):[50]
…if the plaintiff has suffered little or no monetary loss in the reduction of value of his land, and he has no intention of applying any damages towards carrying out the work contracted for, or its equivalent, I cannot see why he should recover the cost of doing work which will never be done. It would be a mere pretence to say that this cost was a loss and so should be recoverable as damages.
[49] [1966] 1 AC 344 at 368
[50] [1977] Ch 106 at 332
In a further (written) submission filed with the court on May 11, the plaintiff contended again that the authorities supported the proposition contended for. According to the submission the principle has its origin in Joyner v Weeks.[51] It is true enough that Joyner v Weeks was cited with approval in Graham v Markets Hotel Pty Ltd,[52] and in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd,[53] as affirmed in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd,[54] as supporting the principle that the damages payable by a tenant in breach of a covenant to repair at the conclusion of the lease, are the costs of repair irrespective of whether the landlord ever does the repairs.
[51] [1891] 2 QB 31
[52] (1943) 67 CLR 567 at 582 Latham CJ, Starke J at 586 and Williams J at 594
[53] (2008) 166 FCR 494 at [36]
[54] (2009) 236 CLR 272
These cases involved breaches of covenants of repair or allied covenants preventing alteration, and as such are distinguishable on exactly the same basis as De Cesare v Deluxe Motors Pty Ltd and Bellgrove v Eldridge. They reflect the fact that the reasonable cost of rectification is most likely to be the measure of the former building owner’s loss. As Lord Goddard CJ said in James v Hutton & J Cook & Sons Ltd,[55] Joyner v Weeks:
… must be regarded as proceeding on the footing that the plaintiff must have suffered damage by the tenant yielding up the house out of repair.
[55] [1950] 1 KB 9 at 16-17
The position here is precisely as it was in that case, as his Lordship noted earlier in his reasons (at 15-16):
What, then, is the measure of damage applicable to the breach of a covenant to restore on request when the only evidence is that there has been no compliance with that request? In our opinion, the general rule as to damages for breach of contract ought to be applied, namely, to ascertain what is the amount of the damage actually suffered. A covenant is only a special form of contract and the same rules apply to a breach of covenant as apply to a breach of a simple contract so far as damages are concerned.
I am not prepared to find that the plaintiff has proven any measurable loss under this head of damage; first because it has not incurred the costs and second because the events overtook and superseded the lessee’s make good obligations. In any case even if the Bellgrove v Eldridge principle applied, in the circumstances it would be unreasonable to allow those costs: Bellgrove v Eldridge.[56] The claim for $14,630 on that account is therefore disallowed. In light of this conclusion it becomes unnecessary to consider whether the “make good” requirements infringe s 13 of the Retail and Commercial Leases Act 1995 (SA).
[56] Above at 618-619
Conclusion and orders
In the result the plaintiff has succeeded in demonstrating an entitlement to enforce the Deed entered into by the defendants in 2003. The challenge on the basis of misrepresentation fails. In this they agreed to indemnify any losses to the plaintiff by reason of the default of FP Glenelg Pty Ltd in honouring its obligations under the subject Lease. The plaintiff has also proved a concurrent entitlement under the 1999 guarantees, not that there is any difference in consequence. The plaintiff is therefore entitled to judgment for unpaid rent of $137,282, except that a deduction must be made to reflect entitlements on account of the rebate provisions during a flood for the period between 28 April and 19 May 2007 and possibly to 21 May. The parties should be heard further as to the precise dates and sum involved. The claimed administration fee of $2,171 is yet to be made good by the plaintiff, however reimbursement for Council Rates of $12,304.63 and insurance costs of $2,651.78 are allowed. The parties should be further heard in relation to the question of liability for the Emergency Services Levy. For the reasons just mentioned, the claim for “make good” costs of $14,630 is disallowed.
There was some discussion as to the appropriate awards of interest, so the parties will be heard again about those matters as well as costs, in light of the above findings. Since Mr Georgiadis also happens to be a principal of the plaintiff’s solicitors and bearing in mind that costs are confined to money paid or liabilities incurred for professional legal services: Cachia v Hanes,[57] it might become necessary for the plaintiff to establish the precise arrangements as between them, but that too can be addressed on the next occasion.
[57] (1994) 179 CLR 403
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