Push Button Pty Ltd v Khabbaz - [2007] SADC 66

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PUSH BUTTON PTY LTD v KHABBAZ
[2007] SADC 66
Judgment of His Honour Judge Clayton
12 June 2007
LANDLORD AND TENANT - TERMINATION OF THE TENANCY - SURRENDER - BY OPERATION OF LAW
Lessor claimed rent and damages from the guarantee of lessee's obligations under a lease. Defendant claimed surrender of lease by operation of law, that plaintiff was estopped from relying on the lease and plaintiff had not mitigated its loss.
HELD:
(1) Conduct of the plaintiff demonstrated an unequivocal intention to treat the lease as terminated and there was a surrender by operation of law.
(2) The plaintiff had not mitigated its loss.
(3) Defendant held liable to pay $1,613.93 for outgoings incurred prior to the surrender.
Foster v Robinson [1951] 1 KB 149 at 155; Tasita Pty Ltd v Papua New Guinea (1991) NSWLR 691, considered.

ESTOPPEL
The plaintiff was estopped from enforcing the terms of the lease.
Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130; Waltons Stores (Interstate) Ltd v Maher & Anor [1988] 164 CLR 387; Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101, considered.

PUSH BUTTON PTY LTD v KHABBAZ
[2007] SADC 66

The defendant is the guarantor of the obligations of Finishline Pty Ltd pursuant to a lease of commercial premises at Salisbury. He has been sued by the owner and lessor of those premises for outstanding rent, outgoings and damages alleged to have been suffered as a consequence of breaches of the lease by Finishline.
There is no dispute as to the validity of the lease or the guarantee. The principal dispute relates to whether the obligations of Finishline had been terminated in July 2003 following the surrender of the lease by operation of law or alternatively whether the plaintiff is estopped from relying upon the lease and guarantee. There is also the question of whether the plaintiff has mitigated its loss and there are other subsidiary issues to which I refer below.
Whether the lease was surrendered and whether there is an estoppel will depend upon the interpretation of discussions and events which occurred during the months of June to November 2003 inclusive. Evidence of those discussions and events was given by Mr Mocatta, a shareholder and director of the plaintiff, and by the defendant who is a director of Finishline. In addition to his involvement with the plaintiff, Mr Mocatta's principal occupation is real estate consultant. While the evidence of Mr Mocatta and Mr Khabbaz covers the same events, there are important differences in their evidence and it is necessary to resolve issues of credibility.
The plaintiff is the owner of commercial premises at Salisbury. There are three separate buildings on the premises which are subject to separate leases. The separate buildings were sometimes referred to in evidence as units A, B and C. At all material times unit A was occupied by a business called Torque Tyres. For a time in 2002 Finishline was the lessee of unit B, but that building was not large enough to satisfy the requirements of Finishline and by agreement the plaintiff constructed unit C specifically for Finishline. On 27 February 2003, after unit C had been completed, the plaintiff and Finishline entered into the lease which is the subject of these proceedings.
The lease, which was registered by the Registrar General, was for a term of four years commencing on 25 September 2002 and expiring on 24 September 2006. The rent payable for the first twelve months until September 2003 was $25,000 per annum plus GST. There was a provision for an annual review of the rent and there was a provision that Finishline should pay a proportion of the outgoings on the property.
On 27 February 2003 the defendant signed a Deed of Guarantee and Indemnity by which he guaranteed the performance of Finishline under the lease. The defendant does not challenge the validity of the guarantee.
The business of Finishline included tinting car windows and fitting accessories. The business was carried on at several locations and the decision to open a business at Salisbury was motivated by a desire to service two large motor vehicle retailers in that district which were customers of Finishline. On the completion of unit C, Finishline took possession and continued the business which it had been conducting in unit B.
It is common ground that Mr Mocatta had discussions with a third party which was interested in letting unit C in the first half of 2003 and there were discussions between Mr Mocatta and the defendant about Finishline vacating the premises. The defendant's case is that Finishline vacated the premises as a consequence of those discussions. The plaintiff’s case is that those discussions did not result in any variation to the obligations of Finishline under the lease.
Finishline vacated the premises some time during the latter half of 2003. There is a dispute as to the precise date on which the premises were vacated. I return to that topic later.
The rent was payable monthly in advance. The last payment of rent by Finishline was made on 8 August 2003, being the rent for the month of July 2003. No payments were made thereafter.
On 28 November 2003 a Notice of Default and a Notice of Re-entry were served upon Finishline and on 24 December 2003 the plaintiff purported to re-enter the premises and changed the locks. I say purported to re-enter because there is a dispute as to whether on 24 December 2003 Finishline had already given up possession of the premises and the plaintiff had already re-entered.
The evidence in chief of Mr Mocatta
In his evidence in chief Mr Mocatta said that in the nine months after September 2002 he was in the process of leasing unit B and completing fit-out works and he visited the site at Salisbury every one or two weeks. He said he went there regularly and observed that Finishline "were not as busy and it probably was not going as well as what was originally represented to me by Mr Khabbaz". He did receive rent cheques but Finishline was a slow payer. He said his personal relationship with Mr Khabbaz was "fine" and they communicated well. On one occasion they had a social drink at a hotel and on another Mr Mocatta was the defendant's guest at a country race meeting.
Mr Mocatta said that in mid-2003 Mr Zammit, another real estate agent, contacted him and advised that he had inspected unit B with a prospective tenant but that unit was not large enough. Mr Zammit inquired whether Finishline was operational at unit C and whether Finishline would be prepared to lease unit C.
Subsequently, probably the same day, Mr Mocatta telephoned the defendant and inquired whether he would lease unit C and whether Finishline was still operational. Mr Mocatta said that the defendant responded "No. Still there. If someone wants it they can give me some money and I will lease it back to them". When asked whether, in that first telephone call with the defendant, there was any discussion about the amount of money that might be involved if Finishline was to surrender the lease Mr Mocatta replied that there was an inference that a sum of money, and probably a reasonable sum of money, would be required.
Mr Mocatta learnt from the principal of Torque Tyres that the client of Mr Zammit was a Mr Shipway who was the principal of B L Shipway Pty Limited. Mr Mocatta contacted Mr Shipway himself three or four weeks after his conversation with Mr Zammit and Mr Shipway told him that unit B was too small but unit C was a possibility. Mr Mocatta then contacted the defendant who told him "let them have a look at my unit, my facility". When that second conversation took place is not clear, but it must have been prior to 3 June 2003.
By reference to his diary Mr Mocatta was able to say that Mr Shipway inspected unit C at Salisbury between 4.30pm to 5.30pm on 3 June 2003. He said that Mr Khabbaz arranged for a key to be given to him and he met one of the staff of Finishline at Light Square in Adelaide, or some place like that. I refer to the evidence of the handing over of a key at Light Square later. Mr Mocatta said that at the time of making the arrangements to get the key he told Mr Khabbaz that there was a group that was interested in his unit.
During the inspection by Mr Mocatta and Mr Shipway on 3 June 2003 no work was being carried out in unit C although Mr Mocatta said "it was set up for… ad hoc work". There was a four post hoist, a wash bay and under floor plumbing, a number of window tinting frames and other items. Mr Shipway showed interest in the property but did not say that he would definitely take a lease. Mr Mocatta returned the key to the defendant’s office at Norwood. After returning the key Mr Mocatta reported to Mr Khabbaz on the inspection by Mr Shipway and told him "that there was some interest there". He did not say the interest of Mr Shipway was any higher than that.
On the evidence in chief of Mr Mocatta that was all that he ever said that could be a foundation for the defences of surrender and estoppel. Later evidence establishes that there was much more to the story than Mr Mocatta revealed in his evidence in chief.
Mr Mocatta said that in his discussions with Mr Khabbaz there was no mention of a fixed amount of money that would need to be paid in order for him to surrender the lease, that he never indicated that Mr Khabbaz would be free to stop paying rent after 30 June 2003 and he never asked Mr Khabbaz to deliver up vacant possession in either June or July 2003.
By reference to his diary Mr Mocatta said that there was a further inspection of unit C by a larger group of people from B L Shipway at 11.00am on 13 August 2003. Access to unit C was obtained using a key that was with Torque Tyres.
Mr Mocatta said that after that inspection on 13 August 2003 he let Mr Khabbaz know that there was still interest there. When asked to describe the state of discussions with B L Shipway Mr Mocatta said "there was still interest there. Probably frustrated". He said he was frustrated because he had not been able to conclude a deal and he knew they were still interested but were not at the point of making a decision.
Mr Mocatta then had "numerous phone calls" with Ms Ruse, an employee of B L Shipway, who became his point of contact. There was a meeting at the premises of B L Shipway in Richmond and B L Shipway produced a long list of requests with respect to improvements to the property. An architect was involved and Mr Mocatta started pricing modifications and obtained advice from an electrical firm. Mr Mocatta thought there might have been two or three meetings with representatives of B L Shipway on site.
As I have mentioned, the last rent instalment paid was for the month of July 2003. Mr Mocatta said that he had conversations with Mr Khabbaz about the fact that rent was not being paid. He said there were faxes, phone calls and a meeting at the Alma Hotel. No copies of faxes were produced, other than tax invoices for rent and there was no evidence of specific phone calls. Mr Mocatta said that at the meeting at the Alma Hotel Mr Khabbaz said “don’t worry George, I’ll look after you, we’ll sort it out”.
Ultimately in November 2003 Mr Mocatta instructed Mr Stevens, a conveyancer, to serve notices in relation to the default.
Mr Mocatta said the final phone call about the rent that was due “was very slapstick, you know, ‘Yeah, I’ll pay it’, sort of thing. But in that sort of period, you know, when he was in arrears, was the inference of ‘Don’t worry, I’ll look after you’”.
Mr Mocatta was asked whether he ever asked Mr Khabbaz to reduce the debt by an amount and he said he had done that, but he did not give details of the time or circumstances of the conversation(s). He was asked what the conversation was and replied “I think there was an inference that he would pay portion, you know. When he was months in arrears, that he would get it back to - obviously not in full”. That never happened.
That evidence, which is contrary to the evidence of Mr Khabbaz which I refer to below, was so vague that if it was accepted it would have little evidentiary value.
Mr Mocatta said there was another phone call with Mr Khabbaz when Finishline was three or four months, probably four months, in arrears and he asked Mr Khabbaz to deposit $10,000 into his bank account to which Mr Khabbaz replied "George, I’m not going to. Eff off." That was the last conversation between the two men and Mr Mocatta telephoned Mr Stevens.
Mr Mocatta was present when re-entry was affected under the notice on 22 December 2003. He gained entry by collecting the key from Torque Tyres and then had the locks changed. He described the property as being in a mess. When he had last been there two months earlier there was no work taking place, but there were a number of vehicles being stored in the premises and the hoist and a grease extractor unit were still there. If it was two months earlier, that visit must have been at the end of September. At the time of re-entry in December the items had been removed although there was rubbish left on site and the premises were not in a tidy condition. Mr Mocatta engaged a contractor to clean up.
Mr Mocatta said he then set about reletting the premises. A board was erected on the front of the property and a brochure was produced by his real estate firm. Advertisements were placed in the newspaper. At the same time discussions continued with B L Shipway. Mr Mocatta said there was still some interest but it was a "get back to you" sort of thing. Negotiations resulted in a draft lease being prepared for the perusal of B L Shipway’s lawyers, however no agreement was ever reached.
Mr Mocatta continued to advertise the property. He received some inquiries which he followed up but was not successful in obtaining another tenant until September 2004. That tenant, RLM Systems, agreed to pay $36,000 per annum for a one-year lease with an option to renew which was never exercised by RLM. On the expiry of the RLM lease Mr Mocatta resumed advertising but it took about six months before he could find another tenant. The tenancy of RLM terminated at the end of September 2005 and it was not until March 2006 that a further replacement tenant was found.
Mr Mocatta produced copies of tax invoices for the rent payable by Finishline for the months of August, October, December 2003 and January to June 2004. The bundle did not include a tax invoice for the September rent, but the invoice for the October rent shows as overdue the rent for both August and September 2003. Mr Khabbaz denied that Finishline received any of those tax invoices.
For August and September 2003 the amount of monthly rent claimed was $2,083.33 plus GST. The amount claimed in the tax invoice for October 2003 had increased to $2,160.41 plus GST. The invoices indicate that the plaintiff carried out a unilateral rent review as at September 2003 and increased the monthly rent from $2,083.33 to $2,160.41. The lease did provide for a rent review on 25 September 2003, but required that the new rent should be determined by mutual agreement between the lessor and the lessee and then failing agreement be determined by the application of a formula which is set out in clause 4.12.1 of the lease. The defendant argued that the fact the plaintiff did not approach Finishline to discuss a rent review in September 2003 indicated that the plaintiff knew that Finishline had vacated the premises by that time.
Mr Mocatta produced a schedule of the outgoings claimed by the plaintiff. Finishline denies that it was liable to pay any outgoings. I discuss the question of outgoings separately below. However, it should be noted that as well as disputing that Finishline received tax invoices for the rent payable after July 2003, the defendant also disputed that Finishline received any invoices for outgoings.
The following dialogue took place between the plaintiff’s counsel and Mr Mocatta:
QYou are aware, are you not, of an assertion that you in some way communicated to Mr Khabbaz that there would be no obligation for either Finishline or himself to continue paying rental after the end of June of 2003. Firstly, are you aware of that allegation.
AThat has come up in this past few years, yes.
QDid you ever enter into any discussions with Mr Khabbaz, in which you indicated to him that, firstly, you wanted him to give up possession by the end of June of 2003 and to vacate the property.
ANo.
I have set out that portion of Mr Mocatta's evidence in chief because it infers that the defences which are relied upon are a recent invention. That evidence is to be contrasted with the story that emerged as the case progressed.
It is true that there was no express agreement to surrender or terminate the lease. The defendant accepts that. However, the defence raises broader issues which the evidence in chief of Mr Mocatta did not acknowledge.
Mr Mocatta said that the keys to the premises were not returned by the defendant in June or July 2003
Cross-examination of Mr Mocatta
When he was cross-examined Mr Mocatta acknowledged that the plaintiff had received $2,701.78 from the administrators of Finishline in December 2005 which should be credited against the plaintiff’s claim. He said that he did not mention that to the court because he overlooked it.
Mr Mocatta accepted that the rent which was received from RLM was $38,000 per year plus GST, not $36,000 per year as he had stated in examination in chief. He said that the rent paid by the current tenant of unit C at the commencement of the tenancy was $40,000 per year gross. The rent being discussed in the negotiations with B L Shipway was in the range of $34,000 to $38,000 per annum plus GST.
The fact that an amount much higher than $25,000 per annum was sought for rent from B L Shipway and the subsequent tenants is important for two reasons. First, it is relevant to the question of mitigation of damages, because if the plaintiff was attempting to lease the premises for more than $34,000 per annum instead of $25,000 per annum, it might be argued that the plaintiff had not acted reasonably in looking for a new tenant and had not mitigated its damage. Secondly, and more importantly, the prospect of replacing Finishline with another tenant which would pay much more than $25,000 per annum puts the discussions between Mr Mocatta and Mr Khabbaz on the topic of Finishline surrendering its lease into a different perspective. If a new tenant was likely to pay a similar rent to Finishline there would have been little incentive for the plaintiff to pursue B L Shipway or another tenant; but if there was the prospect of a significant increase in the rent there was a real incentive for the plaintiff to terminate the Finishline lease so that it could increase the rent. Up until June 2003, when the possibility of the new tenant was first raised, Finishline was more or less up to date with its rent payments.
Mr Mocatta gave evidence that during the period leading up to June 2003 there had been an increase in rentals generally. He must have been aware that if he could find another tenant to replace Finishline the plaintiff stood to benefit financially.
In cross-examination Mr Mocatta agreed that he never attempted to relet unit C on the same terms as the Finishline lease, that is $25,000 per annum plus GST and outgoings. He said "I guess in my discussions with tenants, I worked out obviously there was a higher asking rental there, like in the case of, say, Shipway". As I have mentioned, Mr Mocatta was a real estate consultant.

On the topic of outgoings Mr Mocatta agreed that from the time when Finishline went into possession until July 2003 Finishline never paid any outgoings. He denied that was because there was agreement that Finishline did not have to pay outgoings in return for Mr Khabbaz sponsoring his racing car.
Mr Mocatta said it was an oversight that the plaintiff had not sent accounts for outgoings prior to June 2003. He said "there was a bit happening at the time and the outgoings were not sent out". That answer in cross-examination is to be contrasted with Mr Mocatta's evidence in chief that "when I got the outgoings, I billed them". His attempt to explain the difference in his testimony was unconvincing.
Mr Mocatta agreed that the possibility of Finishline leaving the premises was first raised by him. That was after he had received a call from another agent. He agreed that at the time of his call Mr Khabbaz was not particularly interested in moving, although he indicated that he would move if he received a sum of money.
Mr Mocatta also agreed that the second discussion on the possibility that Finishline might vacate the premises was about two weeks later when Mr Khabbaz called Mr Mocatta. Mr Mocatta said he did not remember Mr Khabbaz telling him that Finishline might be interested in moving out because there was a possibility of alternative premises at 28 Maple Avenue, Forestville which were adjacent to other premises already occupied by one of Mr Khabbaz’s businesses. That may be because the plaintiff’s case is that Finishline vacated unit C because of a downturn in its business. The suggestion that Mr Khabbaz mentioned the possibility of alternative premises is likely to be correct because the objective fact is that Finishline did enter into a lease over premises at Forestville in June 2003 after the discussions between Mr Mocatta and Mr Khabbaz.
It was put to Mr Mocatta that at the time of the second telephone discussion he was enthusiastic about the proposal. He said he did not know and asked what was meant by "enthusiastic". It was suggested that he would be very interested in Mr Khabbaz pursuing the possibility and responded "I don't think I was". As I have already mentioned, there was a very cogent financial reason for the plaintiff to be enthusiastic about replacing Finishline as a tenant. The suggestion that Mr Mocatta would have been disinterested in obtaining a new tenant who would have paid about $10,000 per annum more for the premises than Finishline was paying is difficult to accept.
Mr Mocatta was asked the relatively simple question of whether the third discussion on the topic of Finishline leaving the premises took place during a telephone conversation from Mr Mocatta to Mr Khabbaz. He was keen to avoid any inference that he was interested in pursuing the possibility of a new tenant, saying:
The process after that was there was another agent involved. As we went through this morning, Andrew Zammit was running around with BL Shipway. They called me. I called Mr Khabbaz. Mr Khabbaz returned - changed his mind and after that, I spoke to Andrew Zammit.
That was not an answer to the question which was directed at the third discussion. The cross examiner then put and obtained Mr Mocatta's agreement to the following question:
QI think you agree with me, at least in terms of chronology, it was about two weeks after your first call to Mr Khabbaz, that Mr Khabbaz called you back. What happened after that is the very next day, you telephoned Mr Khabbaz back and you asked him if you could have keys to the premises to have a look through unit C. Do you agree that’s the time line. Very next day, after the second conversation, you telephoned Mr Khabbaz back.
AYes.
It is clear that Mr Mocatta was more interested in the approach from B L Shipway than he had admitted in his evidence in chief.
When it was suggested to Mr Mocatta that he called Mr Khabbaz back the very next day and that he was enthusiastic about the possibility of Mr Khabbaz being able to vacate unit C, Mr Mocatta avoided acknowledging his own interest in obtaining a new tenant, saying:
AI guess I was under pressure from another agent, which I guess we all try to do the right thing by each other, and from that, I was able to get back to Andrew Zammit and I sort of, as a matter of practice, I like to get back to people within a day or so.
QWhat do you mean by you were ‘under pressure’. You had a lease for four years.
AAndrew had a tenant running around and this was a possibility, I guess, that I guess he wanted to explore it.
By the time of the third telephone discussion, Mr Zammit had disappeared from the scene.
Mr Mocatta said that at the time of his inspection with Mr Shipway on 3 June 2003, he did not tell Mr Shipway that there would be no problem with the existing tenant moving out but said the existing tenants “Could move out. I didn't say there wouldn't be any difficulty. I didn't know that. Basically by Les calling me back, I had his blessing that if he wanted to move out, that another tenant could move in. But the terms of any negotiations were very embryonic at that point”.
Mr Mocatta agreed that on 13 August 2003 he had a meeting with representatives of B L Shipway. There would have been no point to such a meeting unless Mr Mocatta believed that he could obtain possession from Finishline. On his evidence, Mr Mocatta had no discussion with Finishline or Mr Khabbaz about Finishline vacating the premises between 3 June and 13 August 2003. It is unlikely that Mr Mocatta would have continued negotiations with B L Shipway up until mid-August if his discussions with Mr Khabbaz had not progressed beyond the preliminary discussions which he referred to in his evidence in chief or if he was not fully informed as to the Finishline tenancy.
When Mr Mocatta was asked why he said in examination in chief that he was "frustrated" in August 2003, he replied that Mr Khabbaz had stopped paying rent and B L Shipway had not made a decision. At that time the defendant was less than a fortnight behind with the rent.
Mr Mocatta agreed that in August 2003 he was still on good terms with Mr Khabbaz. However, he denied that he had told Mr Khabbaz that he could leave unit C with his consent because he had a new tenant to take up the lease.
The defendant’s counsel suggested that the social meeting at the Alma Hotel was early in July 2003 soon after Mr Khabbaz had returned the keys and Finishline had vacated unit C. Mr Mocatta replied that Finishline was still in occupation at the time of the meeting.
In 2003 the Balaclava Cup was held on 27 August. Mr Mocatta agreed that he attended the race meeting as a guest of Mr Khabbaz, but did not raise the topic of overdue rent and outgoings. However, he denied that he had released Finishline from the lease and said that he was still invoicing Finishline.
Mr Mocatta said that Finishline had not actually moved out of the premises at the time of the issue of the notice of re-entry in December 2003. There is a dispute as to that which I discuss below. Mr Mocatta would not agree that by reason of the contents of a letter from the defendant’s solicitors he knew at least from 11 or 12 December 2003 that Mr Khabbaz had vacated the premises.
Negotiations with B L Shipway continued until May 2004. Mr Mocatta was not happy with the rental of $34,000 which was being offered by B L Shipway. He said he required a higher rent to cover capital works that needed to be carried out to the premises.
Evidence of Mr Tierney
Mr Tierney, a real estate agent, was called by the plaintiff to give evidence that he dealt with Mr Khabbaz in connection with the lease of a property at 28 Maple Avenue, Forestville. Months later, at the request of Mr Khabbaz, he inspected unit C at Salisbury. He gained access with a key obtained from Torque Tyres. At the time of his inspection there was a hoist and a skateboard on the property. After the inspection he reported back to Mr Khabbaz but his firm was never appointed as the agent to lease the premises.
The plaintiff argued that the actions of Mr Khabbaz in approaching Mr Tierney implied an admission by Mr Khabbaz that the lease was still on foot at the time he approached Mr Tierney. Mr Khabbaz explained in evidence his reasons for approaching Mr Tierney which I refer to below.
Mr Tierney said that the lease over 28 Maple Avenue was from 1 July 2003 to 30 June 2006. At the time Mr Khabbaz entered into the lease he already had a lease of 26 Maple Avenue. Mr Khabbaz was eager to take up the lease of 28 Maple Avenue for business reasons and made it known to Mr Tierney that business convenience was a factor in his seeking to lease number 28 because it was the adjoining property.
The evidence of Mr Tierney confirms that Finishline vacated unit C at Salisbury and moved to 28 Maple Avenue for business reasons, not because of financial difficulty as suggested by the plaintiff. Additionally, the fact that Mr Tierney had to obtain the keys to the premises from Torque Tyres confirms the evidence of Mr Khabbaz that he was no longer in possession of keys himself at the time of the inspection by Mr Tierney. If Mr Khabbaz had a key himself there would have been no reason to obtain the key from Torque Tyres.
Evidence of Mr Levi
Mr Levi was formerly an employee of Finishline. He did not leave on good terms and commenced proceedings against Finishline for unfair dismissal. He conceded that his animosity towards Mr Khabbaz continues to the present time.
Mr Levi thought the work of Finishline at Salisbury had slowly dropped off so that he worked less at Salisbury and more at the company's other outlets. He said his last visits to the Salisbury premises were in late August or early September when they finished moving product from Salisbury to Forestville using his friend’s truck. Thereafter there was a hoist, a sump pump which had been used to wash cars and a couple of vehicles left at Salisbury. Mr Levi had nothing further to do with the Salisbury premises apart from meeting a tow truck driver on one occasion to enable him to move a car. On that occasion Mr Khabbaz gave him a set of keys to gain access. He returned the keys to Mr Khabbaz, but was unable to remember where. His employment with Finishline concluded in November 2003.
Mr Levi said there was definitely no work being done by Finishline at Salisbury in August or September 2003 and it could have been earlier in the year that the business at Salisbury had closed down. He may have stopped working there earlier, but there were still product and vehicles on the premises.
Mr Levi could not recall delivering the keys of the Salisbury premises to Mr Mocatta at Light Square in Adelaide. He said that it was four and a half years ago.
Evidence of Ms Spencer
Ms Spencer said she is Mr Mocatta's life partner. Since 23 May 2003 she has looked after the plaintiff’s bookwork. When she started it was in a mess and she set about putting it in order. At the time she started, no tax invoice had ever been sent to Finishline for outgoings and there had also been delays in invoicing Torque Tyres and other lessees for outgoings. On 17 June 2003 Ms Spencer sent an invoice for outgoings to Torque Tyres together with supporting documentation. On the same day she raised an invoice in relation to outgoings to Finishline. She said the invoice was sent to Finishline by fax and she referred to the date on the fax cover sheet. Thereafter she invoiced for outgoings on an approximately three monthly basis. She said she sent another tax invoice for outgoings to Finishline on 27 September 2003.
The invoice for outgoings dated 17 June 2003 throws no light on the issue of whether there had been a surrender of the lease in July or shortly thereafter. The invoice for outgoings dated 27 September 2003 could, when considered in isolation, be consistent with the continuation of the lease, but whether that is the case must depend upon Ms Spencer's knowledge of the discussions between Mr Mocatta and Mr Khabbaz, of which there is no evidence.
Ms Spencer gave evidence that Finishline paid the rent for the month of July on 11 August 2003. She prepared a tax invoice dated 27 September 2003 for the rent for the month of October. There is no evidence about any invoice for the month of September 2003. She faxed further invoices on 31 October 2003 and 27 November 2003. She never had any responses to those faxes. The tax invoices for rent in the months of August, October, November and December 2003 are consistent with the continuation of the lease, but again any inference must be subject to whatever knowledge Ms Spencer had of the dealings between Mr Mocatta and Mr Khabbaz. There is also a challenge by the defendant to the provenance of the post-June invoices. The absence of a tax invoice for the September 2003 rent tends to support the defendant’s case.
At the request of Mr Mocatta, Ms Spencer also prepared tax invoices for the months of January to July 2004, but retained them and did not fax them to Finishline.
Ms Spencer said that during the period from July 2003 to December 2003 she had no communication from Mr Khabbaz or Finishline. On the other hand, apart from faxing invoices at approximately monthly intervals, Ms Spencer did not attempt to communicate with Mr Khabbaz or Finishline either.
Evidence of Mr Shipway
Mr Shipway gave evidence of his company's interest in the premises and said that the reason why they did not go ahead was because the power supply was not sufficient for them to conduct the business, not because of any problem with the rent that was being asked. The interest of B L Shipway in the premises establishes the context in which the discussions between Mr Mocatta and Mr Khabbaz took place.
Evidence in chief of Mr Khabbaz
Mr Khabbaz said that he never paid outgoings for unit C because he had an understanding that if Mr Mocatta required any work done to his racing car, Finishline would attend to such work in lieu of paying outgoings. He was never asked to perform any work on the racing car. He said Finishline never received any invoices for outgoings. He produced a bundle of invoices for rent commencing with the November 2002 invoice and concluding with a July 2003 invoice and said they were all the invoices that he had in his possession.
Mr Khabbaz said that in late April or early May 2003 he received a telephone call from Mr Mocatta. By chance he answered the telephone himself. After some chitchat Mr Mocatta asked "would you be interested in vacating the premises at Salisbury?" Mr Khabbaz replied "how come" to which Mr Mocatta replied "I have a potential tenant who will pay me more rent". Mr Khabbaz remembered the occasion vividly because he laughed at Mr Mocatta and said "for $100,000 I would consider it". It was a light-hearted conversation. Mr Mocatta laughed it off and said "$100,000, no way. I may consider relocating costs", but at the end of the conversation Mr Khabbaz said "no thank you, we won't move".
About two or 2½ weeks later when Mr Khabbaz visited his company's operation at 26 Maple Avenue, Forestville he saw a "for lease" sign on the adjacent building. He saw an opportunity to relocate the Salisbury business and have his facilities side-by-side. He denied that in April and May 2003 his business at Salisbury was running down and said that in 2003 Finishline had more staff than ever. He thought it made good business sense to relocate and rang the land agent.
Mr Khabbaz then telephoned Mr Mocatta and asked if there was still somebody interested in taking up the Salisbury property. He told Mr Mocatta that an ideal opportunity had arisen because a property had come up for lease next door to his Maple Avenue property. He said that in response Mr Mocatta seemed genuinely keen and interested and that Mr Mocatta said he would let Mr Khabbaz know soon.
Not long after that Mr Mocatta telephoned Mr Khabbaz again and said that the third party was very keen, very interested and that Mr Mocatta needed to get access to the property at Salisbury. That telephone call occurred in late May or early June 2003. Mr Mocatta requested Mr Khabbaz to leave a key at Torque Tyres because that business was open for longer hours than Finishline. After the inspection the keys would be returned to Torque Tyres.
A couple of days passed by. Mr Khabbaz then contacted Mr Mocatta to see how the meeting went. Mr Mocatta told him that it was all favourable, that the third party was really interested and that Mr Mocatta was expecting to have further negotiations with them. At that time Mr Mocatta had not told Mr Khabbaz that Finishline could leave. Mr Khabbaz requested Mr Mocatta not to sit on the matter for too long because he did not wish to miss out on the opportunity at 28 Maple Avenue. He requested that if Mr Mocatta "was going to chase this party down that he do it with a bit of urgency". Concurrently, Mr Khabbaz negotiated with the agent to lease the Maple Avenue property.
Next, Mr Khabbaz contacted Mr Mocatta again and asked how he was progressing with his dealings with the prospective client. Mr Mocatta reported that he had various communications and that the third party was "very keen, very interested" and "it looks like this deal will go ahead".
Mr Khabbaz continued with his negotiations with the land agent handling the Maple Avenue property. Mr Khabbaz said that as the time for signing a lease approached "George had indicated that his clients were very keen and he had told me that they were very keen, he was very close to doing a deal, ‘everything should be good as gold’ and took that I should, rather than miss out on the property....". Mr Khabbaz said that Mr Mocatta never said directly that he agreed to relinquish the lease. When he was asked why he left the premises and stopped paying rent Mr Khabbaz said:
For the simple reason, Mr Mocatta and I, or George and I had a very good relationship, we communicated very well, and when he had mentioned to me and told me that he has well and truly in the negotiations with this other party, ‘all was good, it looked - there was to be no problems, it should be okay’, and he knew where I was headed, he didn't waiver from that. I believed him to have said ‘I will have the lease in no time, go ahead and secure yours’.
Mr Khabbaz said Mr Mocatta did not use exactly those words. He said Mr Mocatta told him "it is all going to be okay. I am well and truly in discussions with this client, it should all be okay" and "when he said that I believed him, and he knew the urgency of my matter/situation. I believed him to have agreed that everything was in line, how we had been discussing it on a one-to-one basis, nothing like - yes, one-to-one basis".
Mr Khabbaz said words to the effect that it should all be okay was the strongest indication Mr Mocatta gave him. That was just prior to him signing the lease for 28 Maple Avenue in late or middle June. There was nothing in writing because Mr Khabbaz had a very amicable relationship with Mr Mocatta and believed what Mr Mocatta had told him to be in good faith.
The term of the lease for 28 Maple Avenue commenced on 1 July 2003 and Finishline moved into possession. Mr Khabbaz said that Finishline moved from Salisbury in early July after they had complete access to the property at 28 Maple Avenue. After Finishline moved the only item left at Salisbury was a four-post hoist which Mr Khabbaz gave to another company on the basis that they would remove it from the Salisbury premises as soon as they could. There was no reason for the hoist to remain there and Mr Khabbaz had no requirement for the hoist. He did not know anything about a skateboard being left in the premises.
Mr Khabbaz said that the only vehicles ever left on the premises were a company vehicle which an employee was allowed to take home and customers’ vehicles if they were required overnight. He gave no explanation for the vehicles seen by Mr Tierney in November 2003.

The evidence of Mr Khabbaz was that after vacating the Salisbury premises, he arranged for the keys to be returned to Mr Mocatta by having Mr Levi hand the keys to Mr Mocatta at a rendezvous in a laneway close to Mr Mocatta's place of work. Mr Khabbaz never received them back again. If he did need access he could have obtained the key held by Torque Tyres.
Mr Khabbaz said that his next contact with Mr Mocatta was when he telephoned to make sure everything was going smoothly and invited Mr Mocatta for a drink at the Alma Hotel which is close to his place of business at Norwood. That was in late July or early August. Business was discussed. Mr Khabbaz asked Mr Mocatta how he was going with his potential client and Mr Mocatta said "it was all great, he was having some architectural drawings, plans. He just have to do a little bit of work for him". Nothing was said about overdue rent. Mr Mocatta did not raise any complaints. Mr Khabbaz described the meeting as a very good, pleasant occasion. Other evidence shows that Mr Mocatta did have plans prepared.
Midway through August, Mr Khabbaz telephoned Mr Mocatta and invited him to be his guest at the Balaclava Cup. They arranged to meet at Mr Khabbaz’s premises. A group of seven travelled to Balaclava in a limousine. Mr Khabbaz said that no business was discussed, but there was a lot of laughing, fun and it was a good day.
Some time later, precisely when Mr Khabbaz could not remember, Mr Mocatta telephoned him and requested money for unpaid rent. He said "Les, you own me 10 grand. Can you put it in my (credit card account)". Mr Khabbaz said that he was stunned and asked "what for?", to which Mr Mocatta replied "unpaid rent". Mr Khabbaz asked "how come? We had an agreement" and Mr Mocatta replied that he had never given Mr Khabbaz an agreement in writing. The telephone conversation ended unpleasantly with Mr Khabbaz telling Mr Mocatta to "f... off".
Mr Khabbaz said that after that telephone call he panicked because he did not have anything in writing. He said he had not bothered to put anything in writing because he and Mr Mocatta had a good relationship and he did not think an agreement in writing was required. The next day he telephoned Mr Tierney because he was trying to evaluate his options in case he had to "mitigate the circumstances of my lease". He said he sought Mr Tierney’s help:
For the simple fact that I did have an agreement in my own mind and I had nothing in writing because I didn't believe I needed it. It was an amicable, favourable agreement by both of us, so I sought Mr Tierney’s help just in case anything ever got to a stage that I may have to relet the property myself, if it was to be doubted along the way, because I had nothing in writing.
Mr Khabbaz said he never engaged Mr Tierney because after evaluating all the options he concluded he actually had an agreement with Mr Mocatta that had released him from his lease and because of all the conversations he thought it was not up to him to relet the property and there was no way that he was liable for the outstanding rent.
The next thing that happened was that Mr Khabbaz received the Notice of Demand.
Mr Khabbaz said that if he had received an invoice dated 17 June 2003 for outgoings at Salisbury he would have contacted Mr Mocatta because of the verbal agreement about sponsoring the racecar and he would have worked out the amount owing and worked out a deal against the racecar.
Mr Khabbaz gave evidence that he never saw the tax invoices included in Exhibit D4, which were the invoices relating to the rent for the months of August, October, November and December 2003. He believes they were never sent.
Cross-examination of Mr Khabbaz
In cross-examination Mr Khabbaz admitted that there was discussion about relocation costs in the first conversation he had with Mr Mocatta, but thereafter he never sought to be compensated for any of the costs of relocating. Mr Khabbaz denied that was because he was hoping that Mr Mocatta would get another tenant to take over his liability. He said the amount, which would have been involved was neither here nor there and was of no consequence.
Mr Khabbaz denied that he shut down the Salisbury business because it was struggling and he did not want to continue with it.
Mr Khabbaz denied that he was prepared to take the risk of leaving Salisbury because he saw 28 Maple Avenue as a good opportunity and simply hoped that Mr Mocatta would secure another tenant some time in the future. He said he was a business person and if he were to vacate unit C he would have taken proper steps if the steps were not already in place. He said he did not ask Mr Tierney to do the paperwork for the surrender of a lease at the time that he entered into the lease of 28 Maple Avenue because he had no reason to do that. He agreed he never asked Mr Mocatta to send a letter confirming the arrangement, did not write a short notice confirming the arrangement himself and did not ask his secretary to send a fax to Mr Mocatta confirming the deal. He said "no, I'm sorry that's because we had an arrangement, face to face, man to man, person to person, and I believed we were friends and what he said I believed and I believe what I said he took as truth as well".
It was suggested that the most that Mr Mocatta had said through the middle of 2003 up until at least August or September was that parties were interested, that he was still pursuing negotiations and that he had not reached any agreement. Mr Khabbaz responded that up until the conversation early in November, even at the time of the drinks at the Alma Hotel, Mr Mocatta said "the deal was done, the deal was as good as done", that Mr Mocatta knew that Mr Khabbaz had vacated the Salisbury premises and there were "no issues, no problems". When it was suggested that Mr Mocatta never said that the deal was done Mr Khabbaz replied "Yes, he did. He said ‘The deal is done, all I have to do is just change a few bits and pieces in the showroom. They are seeing my architect’".
Mr Khabbaz agreed that Mr Mocatta made it plain to him that he was pursuing the inquiries with the third parties frequently, that he made it plain that he was not just sitting on his hands doing nothing, that he made it plain that he was working hard to try and get a tenant, that Mr Mocatta told him it was “all but done” and “he was so close”. He said “everything he told me was leading to the fact that he had almost but the ink hadn't dried”. He did not use that expression but that is what Mr Khabbaz took it to be. He took it that everything should be okay and that he could safely go ahead and lease the premises at Maple Avenue.
He agreed that Mr Mocatta never expressly said to him "go ahead, Les. Go ahead. Go and lease the place at Maple Avenue".
When it was suggested that Mr Mocatta never told him that he had actually had a person ready to come in and pay rent, Mr Khabbaz said "well, he told me that he was in very fruitful negotiation with people wanting to lease Salisbury, pay more rent and everything was going fantastic".
When it was suggested that Mr Khabbaz’s interpretation of the conversations was that he believed Mr Khabbaz was close to getting a tenant for the property Mr Khabbaz said "I believed he had the tenant for the property. There was just the final negotiations, dot the Is, cross the Ts, that's it, yes".
He believed that there was some understanding that it would be okay for him to vacate and take up the lease at 28 Maple Avenue. The strongest indication Mr Mocatta gave him was the statement "yes all should be okay".
As to the final telephone conversation between him and Mr Mocatta in November Mr Khabbaz said “at that point I wondered why the phone call, I told him he knew I had vacated. He had sorted everything out. We had previously sorted out where’s this coming from and then told him to fuck off” and “he said 10,000 for rent and I said ‘But I'm not there. You know I'm not there’ and we sorted everything out”.
Mr Khabbaz explained his strong language as being a consequence of the fact that the call came out of the blue and Mr Mocatta was demanding money that was not owed to him.
Correspondence between solicitors
After the Notice of Default had been served on 28 November 2003, Mr Groom, the solicitor for the defendant, wrote on 9 December 2003 to Mr Stevens, the conveyancer who had prepared the notice, asserting that Finishline vacated the premises by agreement to enable the plaintiff to grant a lease to another party and that in reliance on the agreement Finishline relocated its business. Mr Groom also asserted that if the plaintiff had not requested Finishline to vacate it would have continued at the premises or alternatively advertised for a tenant itself.
Mr Stevens replied to Mr Groom on 11 December 2003 denying that there was any agreement either verbal or in writing. He wrote:
My client did not request nor consent to your client vacating the premises. My client did not enter any agreement or discussion in relation to non-payment of rent or outgoings. We are now into December and a further month rent and outgoings are payable.
My client denies that he requested your client to vacate the premises. My client presumes that your client has vacated the premises as the location may not suit his business venture. This is not a reason for defaulting under the lease.
The statement by Mr Stevens that his client did not request Finishline to vacate the premises does not acknowledge that the topic had ever been discussed. Similarly, the statement that the plaintiff presumed that Finishline had vacated the premises because the location may not have suited the business venture is not consistent with the plaintiff’s present assertion that Finishline vacated the premises because its business was in decline.
Conflicts on the evidence
While there are a number of conflicts between the evidence of Mr Mocatta and Mr Khabbaz on peripheral matters, there are two conflicts which are critical to the outcome of this case. First, Mr Mocatta denies that he had indicated to Finishline that it was in order to vacate the premises at the end of June 2003. Secondly, he does not acknowledge that Finishline had actually vacated the premises prior to the issue of the Notices at the end of November. Mr Khabbaz, on the other hand, claims that Mr Mocatta indicated that he should enter into the lease of 28 Maple Avenue, that Finishline vacated the Salisbury premises in July or August 2003, and that Mr Mocatta knew that Finishline had vacated but did nothing until November 2003.
Mr Mocatta was not a good witness. He was evasive in answer to many questions and his evidence in chief was not frank. For example in a detailed calculation of the plaintiff’s claim he did not disclose that the plaintiff had received a dividend from the Administrator of Finishline which should be credited against the claim. Also, he said in evidence in chief that when he received the outgoings on the property he billed them, but later evidence established that no account for outgoings was sent until at least June 2003.
On the other hand, the defendant presented as an honest witness. He did not shy away from difficult questions and attempted to answer all questions directly.
The evidence of both Mr Mocatta and Mr Khabbaz should be considered in light of the fact that they each have a personal interest in the outcome of the proceedings and they were naturally eager to present their respective cases in the best light.
On the plaintiff's case there was simply no basis for Finishline or the defendant treating the lease as having been surrendered or not paying the rent due under the lease. If there was no basis for Finishline vacating the premises, Finishline, which was bound by the terms of the lease, simply abandoned the premises without justification leaving the plaintiff to enforce the default provisions in the lease. In that event Finishline and Mr Khabbaz would have exposed themselves to a considerable liability. I think it is unlikely that they would have exposed themselves to such a liability under the lease for no reason. If there was no basis for vacating the premises, but Finishline wished to leave the premises for business reasons, then Mr Khabbaz might have sublet unit C himself or he might have discussed the matter further with Mr Mocatta. At least up until the time of the Balaclava Cup at the end of August, Mr Mocatta and Mr Khabbaz were on good terms.
In his closing submission counsel for the plaintiff submitted that the defendant had taken a gamble on Mr Mocatta finding another tenant. The same comment could be made about Mr Mocatta. It could be said that the reason why he was prepared to let Finishline go was because of his expectation that he would quickly find another tenant at a higher rental. The gamble did not come off and it took Mr Mocatta longer than he had expected to find another tenant. Hence his frustration.
If, as counsel for the plaintiff submitted, the defendant was gambling upon Mr Mocatta finding another tenant in order to be released it is strange that Mr Khabbaz was not involved in or kept informed as to the negotiations with B L Shipway. The evidence does not establish that the defendant had any role whatsoever in those negotiations or that he received any proper report from Mr Mocatta as to their progress. If his release from a significant liability was dependent upon an agreement being reached with B L Shipway one would have expected Mr Khabbaz to have been keenly interested and personally involved in the negotiations.
The plaintiff's dealings with B L Shipway proceeded into 2004 on the assumption that the plaintiff would be able to give B L Shipway possession of the premises. Mr Mocatta obviously had an expectation that there would be no difficulty in being able to give B L Shipway possession of unit C. If there was no arrangement with Finishline one would have expected that from time to time Mr Mocatta would have confirmed that the plaintiff would be able to give B L Shipway vacant possession. However, on his evidence, until December 2003 Mr Mocatta did not even know that Finishline had vacated the premises.
The effect of the position now taken by the plaintiff is that it would have been able to put B L Shipway or some other tenant into the premises at a higher rent whenever the tenant was ready, but until that happened the rental would be guaranteed by Finishline and the defendant. The very fact that the plaintiff continued to negotiate with B L Shipway after June 2003 establishes that the discussions with Finishline must have progressed further than Mr Mocatta now acknowledges.
The defendant challenged the provenance of the tax invoices for the months from July 2003 onwards. If I accepted the evidence of Ms Spencer without question the provenance of the tax invoices would have been established. However, the evidence of Ms Spencer is inconsistent with the evidence of Mr Khabbaz that he never saw the tax invoices and her explanation as to why the Finishline invoices were stamped "overdue" whereas the invoices to Torque Tyres were treated differently because the proprietor of Torque Tyres was "incredibly honest" and the plaintiff had no reason to be alarmed in the case of Torque Tyres does not have any basis. In August 2003 there was no reason to be alarmed by any suggestion that Finishline would not to pay its rent either.
The copy tax invoices in question are self-serving documents. Their receipt was never acknowledged by Mr Khabbaz and they do little to confirm or reject the consequences of the conversations between the parties. If there had been some acknowledgement of the tax invoices by Mr Khabbaz or some objective evidence as to the existence of the tax invoices, the position may have been different. I accept the arguments put by counsel for the defendant and have formed the opinion that I cannot confidently rely upon the tax invoices. Whether one or more of the defences has been made out depends upon the conversations between Mr Mocatta and Mr Khabbaz in the context of the events which occurred. At most, the forwarding of tax invoices may corroborate the plaintiff’s case, but ultimately the determination of the case depends on the conversations and events that occurred. Also, if Ms Spencer was unaware of the discussions which had taken place, or the legal effect of those conversations, her preparation of tax invoices could not by itself throw any light on the real issues in the case.
The reality of the situation is that if Finishline wanted to vacate the Salisbury premises for reasons of its own but the plaintiff would not allow Finishline to surrender the lease, Finishline could itself have sublet the Salisbury premises to B L Shipway, or somebody else, and made a profit of the order of $10,000 per annum on the sublease. Given the potential life of the lease including renewals one can understand why the plaintiff would wish to enjoy the higher rent itself.
In his evidence Mr Mocatta never acknowledged any real awareness of what happened at the Salisbury premises between June and December 2003. He did not acknowledge that Finishline vacated the premises prior to December 2003. Mr Mocatta gave evidence that prior to June he attended at the premises quite frequently. It is difficult to accept that Mr Mocatta did not know that Finishline had ceased business in unit C in July or August 2003. Mr Khabbaz said that he told Mr Mocatta that they were moving out of the premises at around the time he signed the lease for 28 Maple Avenue, which was late June. The evidence of Mr Khabbaz establishes that Finishline did move out.
Mr Khabbaz said that the premises were handed back to Mr Mocatta when Mr Levi dropped the keys off in the middle of July. After that Mr Khabbaz saw Mr Mocatta at the Alma Hotel and the Balaclava race meeting. Mr Mocatta inspected the premises with the representatives of B L Shipway on 13 August 2003. His evidence was that he last visited the premises about two months prior to the end of November. Even though a hoist and some rubbish may have been left behind Mr Mocatta must have known that Finishline was no longer carrying on business or occupying the premises, but he did not acknowledge the reality of the situation.
There is an inference that it was only after Mr Mocatta came to appreciate that he was not going to negotiate a higher rental with B L Shipway quickly that he then turned his attention back to Mr Khabbaz and Finishline.
I accept the evidence of Mr Khabbaz in preference to Mr Mocatta as to the discussions between then and the events that occurred.
Was there a surrender of a lease?
It is common ground that there was no express surrender of the lease.
The defendant relies upon a principal which was enunciated by Evershed MR in Foster v Robinson[1]:
That there may be a surrender apart from any writing is clear, and that condition is expressly preserved by s. 52 of the Law of Property Act, 1925. What, then, amounts to a surrender by operation of law? We have been referred to many cases, including Lyon v. Reed 13 M. & W. 285, and to the well-known judgment of Parke B. in that case. I think that for present purposes it is sufficient to refer to Foa’s Law of Landlord and Tenant (7^thed.), pp. 617 and 618:
‘It has been laid down that in order to constitute a surrender by operation of law there must be, first, an act of purported surrender invalid per se by reason of non-compliance with statutory or other formalities, and secondly, some change of circumstances supervening on, or arising from, the purported surrender which, by reason of the doctrine of estoppel or part performance, makes it inequitable and fraudulent for any of the parties to rely upon the invalidity of the purported surrender.’
The fact that the doctrine of estoppel really forms the foundation in such a case as this of the alleged surrender by operation of law is, I think, clear from the judgment of Chitty J. in Wallis v. Hands [1893] 2 Ch. 75.
[1] [1951] 1 KB 149 at 155

The same principle was referred to in Tasita Pty Ltd v Papua New Guinea[2] where Young J said at 695:
In the instant case there is no suggestion that there has been any surrender at law by agreement: there has been no deed or registered instrument putting an end to the leasehold estate. What is alleged is that there has been a surrender by operation of law. Surrender by operation of law is a form of estoppel. The question always is ‘Are the acts of the lessor so inconsistent with the continuance of the lease that it is estopped from asserting that the lease has continued all the time:’: Re Marlow Rolls Theatres Ltd; Ex parte Empire Theatres Ltd (1934) 51 WN (NSW) 193; see also Foster v Robinson [1951] 1 KB 149 at 156; 195 Crown Street Pty Ltd v Hoare; Invermee (Third Party) [1969] 1 NSWR 193 at 196 and 199-200 and New Zealand Motor Bodies Ltd v Emslie [1985] 2 NZLR 569 at 603-604. In that last-mentioned case, Barker J said that: ‘surrender is effected once the lessee has vacated the premises with the intention of putting an end to the lease and the landlord has, by some unequivocal act accepted that the lease is determined...’
Although there may be an agreement between the landlord and the tenant to terminate the lease, this agreement must be perfected by, on the tenant’s part, relinquishment of possession and, on the landlord’s part, acceptance of possession. Until the tenant has yielded up possession the agreement is merely a conditional one where the condition has not been fulfilled and so is ineffective: Coupland v Maynard (1810) 12 East 134; 104 ER 53. Until the landlord has accepted the possession he has not shown an unequivocal intention to treat the lease as terminated.
[2] (1991) 34 NSWLR 691
While the precise date on which the defendant vacated the premises and the plaintiff accepted possession is not clear, I find that Finishline did relinquish possession of the property. That probably occurred some time in the month of July 2003, but it was no later than 13 August 2003 when Mr Mocatta inspected the property with Mr Shipway.
I accept the evidence of Mr Khabbaz and find that Finishline returned the keys to Mr Mocatta by having Mr Levi hand the keys back to Mr Mocatta at a rendezvous in the City of Adelaide, probably Light Square. I make that finding notwithstanding the fact that Mr Levi could not recall the event himself. Mr Mocatta did acknowledge that there was an occasion on which keys had been returned to him in that way, but he suggested that was in early June when he needed a key to gain access to show a prospective tenant through the premises. I think Mr Mocatta is likely to be mistaken as to the occasion. I accept the defendant's argument that Mr Mocatta did not need to obtain a key to show a prospective tenant through the premises by meeting an employee of the defendant, because Mr Mocatta could have obtained a key much more easily from Torque Tyres at Salisbury, as he had done on other occasions.
I find that the return of the keys in about July 2003 was a notional taking of possession by the plaintiff.
In my opinion the fact that a hoist and other items had been left on the premises and the premises had not been properly cleaned does not mean that possession had not been given up by Finishline and resumed by the plaintiff. The evidence does not establish how the motor vehicles referred to by some witnesses came to be on the premises. In any event, their presence does not mean that Finishline had not given up possession.
Mr Mocatta's inspection on 13 August 2003 was an overt demonstration that the plaintiff had taken back possession of the premises. The inspection on 13 August 2003, which had not been arranged with Mr Khabbaz, demonstrated that Mr Mocatta believed he was entitled to go into the premises without the permission of the defendant. The same might be said about Mr Mocatta’s visit to unit C at the end of September, although the evidence of that event is less specific. Each of the inspections on 13 August and the end of September 2003 was consistent with the plaintiff having resumed possession.
Additionally, I find that by its conduct between July and November 2003 the plaintiff demonstrated an unequivocal intention to treat the lease as terminated. Mr Mocatta attempted to negotiate a new lease with B L Shipway. The performance of a new lease with B L Shipway would only have been possible if the lease with Finishline was terminated. The negotiations between Mr Mocatta and Mr Shipway commenced no later than June 2003 and continued into 2004. They descended to detail. Those negotiations were meaningless unless the plaintiff would have been able to give B L Shipway vacant possession of the property. On the plaintiff’s case after July 2003 there were no discussions between Mr Mocatta and Mr Khabbaz to confirm that the plaintiff would have been able to give possession to B L Shipway. To negotiate with B L Shipway in the way that he did, Mr Mocatta must have had some reason to believe that the plaintiff would be able to give possession to B L Shipway. His discussions with Mr Khabbaz must have gone further than Mr Mocatta acknowledged in his evidence.
As I have said, I accept the evidence of Mr Khabbaz in preference to the evidence of Mr Mocatta.
Counsel for the plaintiff submitted that the evidence of Mr Khabbaz fell a long way short of establishing that Mr Mocatta said “I have got another tenant and I can safely let you go as a tenant to this particular premise”. Whether there was a surrender of the lease by operation of law must be assessed not only by what was said, but also by the actions of the parties. In my opinion, the combination of what Mr Mocatta said and what he did was sufficient to establish all the ingredients for a surrender by operation of law.
I find that by its conduct in raising the possibility that Finishline might vacate the premises, in engaging in the conversations of which Mr Khabbaz has given evidence, in acquiescing in the vacation of the Salisbury premises by Finishline, in negotiating with B L Shipway between June and November 2003, in designing modifications to the premises to accommodate the needs of B L Shipway, in accepting the keys, in inspecting the premises with B L Shipway on 13 August and in visiting the premises at about the end of September 2003 and not pursuing rent until November 2003, the plaintiff acted in a way which was inconsistent with the continuance of the lease. It is not without significance that the plaintiff initiated the course of events. I find that between July and November 2003 the plaintiff demonstrated an unequivocal intention to treat the lease as terminated. It was not possible for the plaintiff to resile from that position in November 2003.
I find that the lease was surrendered in July or August 2003 by operation of law.
Estoppel
The defendant also claims that the plaintiff is estopped from enforcing the terms of the lease against Finishline. The defence of surrender by operation of law itself is a form of estoppel. See Tasita Pty Ltd.v Papua and New Guinea (supra).
The plea of estoppel was a defence that was subsidiary to the surrender of the lease. It is now well understood that a party to a contract may be prevented from insisting on its legal rights if the dealings between the parties would make it inequitable to do so. Central London Property Trust Ltd v High Trees House Ltd[3]; Waltons Stores (Interstate) Ltd v Maher & Anor[4]; Je Maintiendrai Pty Ltd v Quaglia[5].
[3] [1947] 1 KB 130
[4] [1988] 164 CLR 387
[5] (1980) 26 SASR 101
In addition to the matters to which I have already referred in connection with the question of whether there was a surrender of the lease by operation of law, there is the fact that the defendant relied upon the statements made by Mr Mocatta.
Finishline entered into a lease over the premises at 28 Maple Avenue, Forestville at the end of June 2003. It vacated the premises at Salisbury probably in July 2003, but no later than 13 August 2003 and moved its business. In doing those things it acted to its detriment and acted in reliance of statements made by Mr Mocatta to Mr Khabbaz. At the same time, there was a significant benefit to the plaintiff in that it could negotiate with B L Shipway for a higher rental, which would continue for the life of the lease to Finishline including the period of any renewals.
As to the conversations, I accept the evidence of Mr Khabbaz in preference to the evidence of Mr Mocatta. Mr Mocatta may never have told Mr Khabbaz specifically that he agreed to relinquish the lease, but I accept that Mr Khabbaz believed Mr Mocatta to have told him that the plaintiff would have a lease with B L Shipway imminently and that Finishline should go ahead and secure a lease at Forestville. I accept that Mr Mocatta told Mr Khabbaz that he was well and truly in discussions with B L Shipway and it should all be okay. That was just prior to Mr Khabbaz signing the lease for 28 Maple Avenue. Having regard to what Mr Mocatta told Mr Khabbaz it was reasonable for Mr Khabbaz to rely on what Mr Mocatta had told him and assume that the plaintiff would not enforce the Salisbury lease and Finishline should enter a new lease at 28 Maple Avenue.
The conduct of the plaintiff and Mr Mocatta immediately after Finishline had entered into the Maple Avenue lease was consistent with the plaintiff having agreed that it was in order for Finishline to vacate the premises. Their acquiescence in a situation in which Finishline was no longer operating from the premises and was not paying rent continued beyond the time of the meeting at the Balaclava Cup. The situation did change in November when Mr Mocatta telephoned Mr Khabbaz and demanded $10,000. It can be inferred that change in the plaintiff’s position only took place when Mr Mocatta realised the plaintiff was not going to install a more profitable tenant in the premises as quickly as he had expected. However, by the time Mr Mocatta had come to that realisation in November 2003 Finishline had left the Salisbury premises, entered into a lease at 28 Maple Avenue and rearranged its business.
In the circumstances, I find that the plaintiff is estopped from enforcing the terms of the lease against Finishline.
It is telling that the plaintiff did not commence proceedings until the end of November 2003, which was almost five months after Finishline had vacated the premises. If Finishline did not have the approval of the plaintiff to vacate the premises one would have expected the plaintiff to raise the outstanding rent and outgoings with Mr Khabbaz months earlier.
For these reasons, if the lease had not been surrendered by operation of law, I would find that the plaintiff is estopped from enforcing the lease against Finishline.
Mitigation
The defendant has argued that the plaintiff has not mitigated its loss.
The obligation to mitigate is one which exists by reason of the general law. In addition, clause 4.3 of the lease requires the lessor to take reasonable steps to mitigate its damages and to endeavour to lease the premises at a reasonable rent and on reasonable terms.
The rent payable by Finishline was $25,000 per annum. It was liable to review in September 2003, but a review never took place. As I have already said, the increase unilaterally determined by the plaintiff, which is shown in the tax invoices for the months following September 2003, was not in accordance with the provisions of the lease.
Mr Mocatta is an experienced real estate consultant. He had prepared leases himself. The fact that he increased the rent shows an awareness of the rent review provision. Clause 4.12 of the lease states that the new rent "shall be such an amount as shall be determined by mutual agreement between the lessor and the lessee and failing agreement as determined by (the formula)". I think there is merit in the submission of the defendant that the fact that Mr Mocatta did not approach the defendant seeking a rent review in September 2003 is an indication that at that time Mr Mocatta believed that the lease with Finishline was no longer on foot. If Mr Mocatta was aware of clause 4.12, which on the evidence he must have been, and if in September 2003 he believed that the lease was still on foot, one would have expected Mr Mocatta to approach Finishline seeking a rent review by mutual agreement.
I find that in seeking a new tenant who would pay $34,000 or more plus GST and outgoings Mr Mocatta was not acting reasonably and the plaintiff has not complied with the obligation to mitigate its loss. In order to act reasonably the plaintiff should have attempted to relet the premises at a rent similar to that which Finishline was obliged to pay. There was a significant difference between the rent that Finishline was obliged to pay and the rent which the plaintiff sought from other prospective tenants for the months from June 2003 onwards. The greater rent that the plaintiff was seeking would have made it more difficult for the plaintiff to find a new tenant.
It would seem that the only prospective tenant whom Mr Mocatta pursued during the latter half of 2003 was B L Shipway. There was an expectation that B L Shipway would pay a much higher rental. There were no attempts to advertise the property during the latter half of 2003.
Mr Mocatta agreed in evidence that he never attempted to relet the property at a rental of $25,000.
The failure of the plaintiff to mitigate its loss is a further reason why I would find in favour of the defendant.
Outgoings
To the extent that the plaintiff claims outgoings incurred prior to the end of June 2003, the claim is not affected by my earlier findings. The surrender of the lease does not affect the obligation to pay outgoings which were incurred prior to the surrender.
The defendant claims that he was not obliged to pay outgoings at all because of the arrangement pursuant to which he would sponsor Mr Mocatta's racecar. That claim is disputed by Mr Mocatta.
The onus of establishing that the provisions of the lease did not apply in the case of outgoings rests with Mr Khabbaz. Without rejecting his evidence on the topic, I find that his evidence is not sufficient to displace the terms of the lease. In particular, the evidence does not establish when the alleged oral agreement was made. If it was prior to Finishline taking possession of unit C that would have been prior to the execution of the memorandum of lease on 27 February 2003 and as a matter of law if there was an oral agreement that would have been superseded by the specific terms of the later written lease.
Accordingly, I reject the defendant’s suggestion that Finishline did not have to pay outgoings because of an oral agreement to sponsor a racecar.
The obligation to pay outgoings is created by clause 2.3 of the lease. Clause 2.3.2 requires the lessor to give the lessee a statement prior to 31 May in each year setting out an estimate of outgoings for the following financial year, clause 2.3.3 requires the lessee to pay its proportion of the estimate for each month together with the rent and clause 2.3.6 requires the lessor to provide a statement setting out the actual outgoings for the previous financial year. The plaintiff never complied with the provisions of clause 2.3.
The plaintiff claimed that he first requested Finishline to pay outgoings when Ms Spencer faxed a tax invoice dated 17 June 2003. If it was sent (which the defendant disputes) that request was not in accordance with the provisions of clause 2.3.
Although the plaintiff has not complied with the provisions of clause 2.3, the lease does require Finishline to pay outgoings. It would be a meaningless ritual to require the plaintiff now to comply strictly with the formalities of clause 2.3.
I find that Finishline and the defendant are liable to pay the amount of the outgoings for the period from 1 July 2002 to 30 June 2003, namely $1,613.93. In making that finding I do not necessarily accept that the tax invoice dated 17 June, 2003 was forwarded by the plaintiff to Finishline on 17 June 2003.
Credit claimed by defendant in respect of dividend paid by Administrator of Finishline
I have found that the defendant is liable to pay the amount of $1,613.93 for outgoings for the period 1 July 2002 to 30 June 2003.
In cross-examination Mr Mocatta acknowledged that the plaintiff had received $2,701.78 by way of a dividend from the Administrator of Finishline. The minutes of a meeting of creditors of Finishline show that on 18 August 2005, Mr Mocatta represented the plaintiff, which claimed a debt of $62,620.16, at the meeting. There is no evidence which establishes how that debt was made up and there is no evidence of how the dividend was arrived at. Specifically, the evidence does not show that any part of the dividend which the Administrator paid related to a claim for outgoings.
Accordingly, there is no basis for crediting the dividend against the amount due for outgoings.
Conclusion
There will be judgment for the plaintiff for the amount of $1,613.93.