Perpetual Nominees Limited v Victoria Katherine Heaton

[2011] QDC 105

[2011] QDC 105

DISTRICT COURT

CIVIL JURISDICTION

JUDGE R JONES

No 2533 of 2010

PERPETUAL NOMINEES LIMITED	Plaintiff
and
VICTORIA KATHERINE HEATON	Defendant

BRISBANE

..DATE 01/06/2011

JUDGMENT

HIS HONOUR:  The cause of action involved here involves a
claim originally for $168,940.97 as a debt due and owing by
the defendant to the plaintiff pursuant to a lease entered
into between the plaintiff and the defendant.  Other orders were sought concerning interest and costs.

Initially there was also a claim for marketing fees or levies
but that has now been abandoned. 

The action is concerned, as I said, with breaches of a commercial lease entered into between the parties. Relevantly on or about 9 April 2009 the plaintiff, as the landlord, and the defendant, as a tenant, entered into a registered lease number 712419385 over part of the ground floor of a building referred to as the Calamvale Central Shopping Centre.  The subject premises was described as shop number T29.  The term of the lease was for five years commencing 1 April 2009. The expiration date was 31 March 2014.

Relevantly the lease deals specifically with rental payments,
operation costs and what is referred to as the state of repair of the shop.

Rent is dealt with specifically in item 9 of the lease where
it's identified that for year 1, rent was $31,800 per annum,
year 2, $33,390 per annum, year 3, $35,059.50 per annum, year
4, $36,812.48 per annum, and year 5, $38,653.10 per annum.

Rent is also dealt with at page 14 under item 3.1 which
identifies that the lessee is to pay rent in equal monthly
instalments in advance.

Operating costs are dealt with in item 12 and, more
particularly, 12(a) of the lease. And at page 16, item 5.1(a)
identifies under the heading "operating costs" that,
"The lessee must pay the lessee's portion of the operating
cost to the lessor."

In this particular case, the defendant's contribution to the
overall operating costs of the centre was 0.18 per cent.  That
is identified in the lease in item 12(a).

The various types of costs or out-goings which fall under the
head of "Operating Costs" are identified at pages 10 and 11 of
the lease.

I note here that in the event that a tenant does not
contribute to the centre's total operating costs, that cost is
to be borne by the owners.  It cannot be spread among the
other tenants of the centre. As was the case with the
defendant, their contribution to the operating cost is fixed
pursuant to the respective lease agreements.

The issue of state of repairs is dealt with at item 19(1) of
the lease at page 36, and it relevantly provides that when the
lease expires or terminates, the lessee must deliver the
premises back to the lessor in a neat and tidy state and in
good and substantial repair.
Then under item 3A, it's identified that in all cases a number
of matters have to be attended to by the lessee, including
reinstating the floor to a clean level concrete floor with all
floor coverings removed, removal of petitions, cleaning,
repairing internal structural walls, if necessary, et cetera.

Perhaps not surprisingly, the obligation to pay rent and
contribute to operational expenses, are described in clause
18(1) of the lease as an essential term of the agreement, and
under 18(2) under the heading "lessor's rights to terminate",
it is identified that the lessor may terminate the lease after
giving the lessee three business days' notice if the lessee
does not comply with an essential term of the lease. 18(3)
deals with the question of damages and provides that if the
lessor terminates the lease under clause 18, the lessee
indemnifies the lessor against any costs whether arising before or after termination in connection with the lessee's breach of the lease or termination of the lease including the lessor's loss of the benefit of the lessee performing the lessee's obligations under the lease from the date of termination until the terminating date.

Under clause 18(3)(b), it is identified that if the lessor
terminates, it is obliged to take reasonable steps to mitigate
it’s losses.

It is not disputed that in or about May 2010, the defendant
began to fall into arrears in respect of rent and operational
contributions, among other things.
On 7 June 2010, the defendant was issued with a notice to
remedy the breach.  The breaches were not rectified to any material extent and on or about 20 June 2010, the defendant vacated the premises.

On 22 June 2010, the plaintiff's solicitors wrote to the
defendant relevantly identifying that the time to remedy the
breaches in the notice to rectify had passed and that the
defendant was, among other things, required to reinstate the
premises to the extent identified in that letter.

Following that, on 3rd September 2010, a claim and Statement
of Claim was filed by the plaintiff in the Registry of this
Court.

On 25 November 2010, the claim and Statement of Claim was
amended.  No defence was filed on the part of the defendant.

A letter was written to the plaintiff via its solicitors and a
copy of that letter was forwarded to the Registry of this
Court.  That letter raised a number of issues but it did not
contain any express denial of the defendant's obligations
under the lease or that she was otherwise in breach of the
lease.

Upon application by the plaintiff on 2 February 2011, default
judgment was entered against the defendant. Relevantly, the orders of the Court provide "The defendant pay to the plaintiff damages to be assessed upon the plaintiff's Statement of Claim together with costs to be assessed and that the damages be assessed by the Court and that the defendant was to pay the plaintiff's interest on the assessed amount in accordance with clause 8.3 of the lease."

The assessment of damages was dealt with today.  The defendant
was not represented and did not appear.  It is clear from
paragraph 7 and 8, the affidavit of Ms Smith, Exhibit 1, that
the defendant had notice of today's proceedings.

On 26 May 2011, the plaintiff's lawyers received an email from
the defendant which said, "I would like to inform you that I
am unable to attend the hearing due to illness.  I would also
like to inform you that I am currently mortgagee in possession
and owe the bank over 1.1 mil.  I am currently in severe
hardship."

In response to that email, the plaintiff's solicitors sent an
email on 27 May 2011.  That email relevantly provided, "We
confirm we intend to proceed with the assessment hearing on
Wednesday 1 June 2011.  Given that you are an unrepresented
litigant, we are obliged to inform you that (1) if you do not
appear at the hearing, you will not have the opportunity to
defend the action and the Court may make orders against you
which are adverse to your interest; (2) if an illness is
preventing you from attending the Court hearing and you do
wish to contest the matter, we suggest that you obtain a
medical certificate and contact the Court to make suitable
arrangements."Other financial information was also sought. 
In response to that email, on 30 May 2011, the defendant contacted the plaintiff's solicitors relevantly saying, "Both houses have been repossessed and have notices on the front door.  The one at 111 Hawthorne Court, Stretton was done some months ago.  The one at 85 Palatine Street, Calamvale is as of early last week.  I will complete your form later today and e-mail it back to you.  My car was repossessed in October last year and it was auctioned but I still owe $13,000 on it and I think a judgment has gone into action for that too."

No mention was made of the defendant's illness or of any
intention to seek an adjournment.

In the circumstances, after having the defendant's name called
three times, I considered it appropriate to proceed with the
matter.

I should note here that on the evidence of Mr Fogg and after
the application of the bank guarantee provided by the
defendant the actual amount of rental arrears is only
$553.028.

Turning then to the claim for loss of future rental income and
operational cost, that such damages are recoverable subject to
conditions is well established. Gumland Property Holdings Pty Ltd and Duffy Brothers Fruit Market 234 Commonwealth Law Report at 237.

Of course, in such cases it is necessary to ensure that there
would be no double-dipping on the part of the plaintiff.  In
Gumland at paragraph 56 the Court relevantly said, "To some
extent, the lessee's argument rested on an idea of repugnancy,
that there was a repugnancy between landlords having
possession of property but also being given a monetary
equivalent for the rent they would have got had they not taken
possession of the property and instead continued to allow it
to be leased, but there is no true repugnancy.  There can no
be double recovery by landlords.  If landlords obtain
possession they could only recover loss of bargain damages if
they had tried under unsuccessfully to obtain a new tenant at
the rent stipulated in the terminated lease.  The monetary
equivalent of what they could have got if they had not taken
possession of the property reflects the fact that they cannot
obtain tenants or cannot obtain tenants who promise to pay as
much as the defaulting tenants promised."

Consistent with that approach is Luxa Holdings Pty Ltd and
Glentham Pty Ltd (2007) WA, SCA, 209 a decision of the Full
Court of West Australia.

In the leading judgment of Justice Buss at paragraph 61,
his Honour said, "The standard to be observed by a plaintiff
when acting to mitigate its damage including where it is
alleged the plaintiff should have entered into a new contract
with the defendant was referred to by Golls JA in
Kakakamarsus."  Thereafter his Honour then referred to the
quote, going on to say, "Since the defendant is a wrong-doer,
in determining whether the plaintiff has acted unreasonably, a
high standard of conduct will not be required and the
plaintiff will not be held to have acted unreasonably simply
because the defendant can suggest other more beneficial
conduct if it was reasonable for the plaintiff to do what he
did.  Whether the plaintiff acted unreasonably is a question
of fact.  It is possible that a plaintiff will be held to have
acted unreasonably in failing to enter into a new contract
with the defendant following breach of contract by the
defendant and termination of the contract."

I should note there that I did not refer to any of the cases
cited by his Honour.  His Honour concluded in paragraph 61 by
saying, "Where the assessment of damages relates to a
commercial undertaking and an evaluation of whether the
plaintiff has taken reasonable steps to mitigate its damage
relates to what the plaintiff would do in the ordinary course
of business."

Turning then to the evidence in this case, the evidence of
Mr Fogg establishes the following.  First that there is a sum
of $553.28 outstanding as arrears of rent.  Second, that in
breach of the lease and in particular clause 19(3)(a), "the
defendant did not reinstate the premises.  Third, that the
cost of carrying out those rectification works is $9,630, and
here I refer to Exhibit 11 being the quotes provided.  Fourth,
that from the date of taking possession by the plaintiff on 21
June 2010 to the expiration of the less on 31 March 2014,
including rental reviews, the total value of rental
income was $136,482.36. Next, that over the same period, the defendant's contribution to operational costs would have been $11,331.20.  I refer to the schedule provided by Mr Fogg, Exhibit 12, with respect to those matters. Finally, that despite attempts to re-let the premises it still remains vacant.

No adjustment in respect of those first two items is
necessary.  However, in respect of the last items, adjustment
at two levels is necessary.  First, as damages are to be
assessed as a lump sum in today's dollar terms, it is
necessary to discount those amounts to bring them back to a
present day value.  That is, what is the present value worth
of those future income receipts.  The second adjustment, in my
view, necessary in this case is to bring into account the
prospect that between now and March 2014, the premises will be
re-let on a commercial basis.

The premises are located in the Calamvale Centre Shopping
Centre which is anchored by two major tenants, Woolworths and
Big W and consists of 60 speciality shops.  The Calamvale
Centre has strong commercial competition from the larger
Sunnybank Shopping Centre which, as I understand the evidence,
is in the immediate proximity.  That centre is also anchored
by Woolworths but it has more speciality shops.
It is not only a larger shopping centre in that regard but it
also has the advantage of an Australian Post outlet which on
the evidence of Ms Dunn is a strong drawcard for potential
shoppers.

No doubt at least in part because of the competition provided
by the Sunnybank Shopping Centre, the Calamvale Centre has had
a relatively poor rental history.  It opened in 2008 at the
insistence of Woolworths with only about 10 per cent of the
speciality shops leased.  That number, of course, has been
increased significantly over time but even at today's date, 11
shops remain vacant.

In addition to the poor performance of the Calamvale Centre
generally, the subject premises has more personal commercial
drawbacks.  First, its size.  It is only 30 square metres in
area, smaller than most of the other speciality shops.

The second drawback is its location.  It is located on the
outer edge of the centre facing the carpark.  To use Ms Dunn's
terms it is located in a "quasi retail location".  The
evidence of Ms Dunn and Mr Fogg is that given its size and
location, it would not be easy to re-let.

Of some interest, however, is that it is the only vacancy within the so-called quasi retail precinct which is made up of businesses such as real estate agencies, law firm offices and a dental clinic et cetera.

Ten vacancies exist in what Ms Dunn referred to as the proper
retail precinct.  As Ms Dunn identified, the most likely
tenants for the subject premises include businesses of the
type that already exist, namely law firms and other
professional or quasi professional businesses such as real
estate agencies. Another example given by Ms Dunn was
that of a mortgage broker.

To date, Ms Dunn's attempts to re-let the premises have
included attempts to amalgamate the subject premises with
other shops within the centre.  That included amalgamation
with shop number 28 to attract a larger national jeweller.
Three were approached but none expressed interest.  Another
alternative was to amalgamate shop 29 with shops 26, 27 and 28
to create a space which might attract a larger commercial
enterprise such as a bank.  Ms Dunn's evidence was that no
interest has been expressed by any such institution at this
stage.

The tenants of adjoining shop 29A, the dental clinic,
have expressed no interest in the subject premises.  At one stage it would appear that there might be some interest from the lessee of shop 27 to lease shop 29 but that plan also fell through.

The evidence of Ms Dunn is that to date all attempts have
failed to attract another tenant.

Overall, it was Ms Dunn's opinion that the prospects of
re-letting the premises were not good. But my impression
overall was that Ms Dunn was looking very much at today's
economic climate.

Mr Fogg also gave evidence about this.  He is the portfolio
manager of Colliers who I understand it is the management
agent of the Calamvale Shopping Centre and others.

Looking over the whole of the period through to March 2014, it
was his opinion that the prospects of re-letting in the short
to medium term were not good but it was probable that between
now and 2014 the shop would be able to be re-let but that it would likely require some financial incentives to lure a tenant into the shop.

Mr Fogg, however, did not express an opinion about what the
cost or extent of those incentives might be.

Based on the evidence of Ms Dunn and Mr Fogg, I have reached the conclusion that while the prospects of re-letting the premises in the immediate to short term are not good, it is more likely than not that sometime between now and March 2014, with “quite expensive rent incentives”, the premises will be let before March 2014.

Ms Chapple, counsel for the plaintiff, recognised that the
prospect of re-letting ought be brought into account and did
so by applying what in her words was a conservative discount
rate of 10 per cent in her present value exercise.
In my view, this approach has two difficulties.  First, there
is no probative evidence that a discount rate of 10 per cent
is, in fact, a conservative figure.  Intuitively it might seem
so in this economic climate but, of course, it is not evidence.
More significantly, I do not consider that the calculations of
Miss Chapple give sufficient weight or regard to the more
robust and optimistic view of Mr Fogg.

Doing what I can with the evidence before me, including that about rent incentives, I consider that an across the board discount of 33 and a third per cent is appropriate.
That is the amount claimed for the loss of future rental
income and out-goings should be reduced by 33 and a third per
cent, and the total of those adjusted figures should then be
discounted by 10 per cent to achieve a present value figure.
The claim for rectification or reinstatement costs would not
be subject to any such discount.

I will hear from the plaintiff as to the final form of orders and as to costs and interest.
  -----