Schlecht v EPM Operations Pty Ltd
[2025] QDC 105
•19 August 2025
DISTRICT COURT OF QUEENSLAND
CITATION:
Schlecht v EPM Operations Pty Ltd [2025] QDC 105
PARTIES:
JOHN JOSEPH SCHLECHT & LOUELLA JANE SCHLECHT AS TRUSTEES OF THE SCHLECHT SUPER FUND
(Plaintiff)
v
EPM OPERATIONS PTY LTD ACN 638 154 613 AS TRUSTEE FOR THE EPM OPERATIONS TRUST
(First Defendant)
MATTHEW CHADWICK
(Second Defendant)
WENDY JANE CHADWICK
(Third Defendant)FILE NO/S:
BD 3058/2022
DIVISION:
Civil
DELIVERED ON:
19 August 2025
DELIVERED AT:
Brisbane
HEARING DATE:
6-7, 10-14, 24-25 February 2025
JUDGE:
Barlow KC, DCJ
ORDERS:
1 The parties provide written submissions on interest, costs and trust moneys, limited to 10 pages, by a date to be determined upon publication of these reasons.
2 Each party provide any written submissions in response, limited to five pages, by a date to be determined upon publication of these reasons.
3 The proceeding be adjourned for judgment on a date after receipt of the parties’ submissions.
CATCHWORDS:
LANDLORD AND TENANT – COVENANTS – AS TO BUILDING AND ALTERATIONS AND IMPROVEMENTS – the lease provided that the lessors would undertake “Landlord’s Works” but was silent as to who would pay – the plaintiffs contend that the parties agreed to share the costs equally – the defendants contend that the plaintiffs were obliged to pay for the entirety – whether there was an agreement about the cost of the Landlord’s Works – whether the parties agreed to share the costs equally
LANDLORD AND TENANT – COVENANTS – AS TO BUILDING AND ALTERATIONS AND IMPROVEMENTS – WHERE LESSOR’S CONSENT REQUIRED – the plaintiffs contend that the defendants breached the lease by carrying out unauthorised works – whether the defendants sought the landlord’s consent – whether the defendants are in breach of the lease –
whether the defendants are liable to the plaintiffs for the cost of the rectification worksLANDLORD AND TENANT – COVENANTS – GENERALLY – the plaintiffs allege the defendants failed to maintain the premises in good repair and condition and clean and tidy – whether an alleged breach occurred – whether the plaintiffs have suffered any loss – whether the plaintiffs are entitled to recover monies from the defendants
LANDLORD AND TENANT – COVENANTS – ACTION FOR BREACH OF COVENANT – DAMAGES FOR BREACH – the plaintiffs contend damages should be calculated at the date of the respective breaches – the defendants contend that many of the breaches have been rectified by the new tenant and the plaintiffs have suffered no loss – whether the new tenant is obliged to remedy the unauthorised works and to make good the premises at the end of the lease – whether the plaintiffs suffered any loss – whether the proper measure of damages is the loss sustained by the failure of the defendants to perform their obligations
LANDLORD AND TENANT – ASSIGNMENT, SEVERANCE AND SUBLEASE – EFFECT OF ASSIGNMENT – the defendant tenant sold its business and assigned the lease to a new tenant – the new tenant accepted the obligations under the lease to keep the premises in repair and to make good any damage to the premises at the end of the lease – whether the adoption of those obligations by the new tenant reduce the plaintiff’s loss or the defendants’ liabilities
LANDLORD AND TENANT – COVENANTS – ACTIONS FOR BREACH OF COVENANT – DAMAGES FOR BREACH – the defendants contend any liability they have to pay for damages to the plaintiffs cannot exceed the value of the reversion in the premises pursuant to s 112 of the Property Law Act 1974 – the plaintiffs contend that s 112 only applies to those parts of their claim that comprise damages for breach of the obligation to keep or put the premises in repair during the lease – whether any damages payable to the plaintiffs are limited by s 112 of the Property Law Act 1974 – how any diminution in the value of the reversion should be measured
Property Law Act 1974 (Qld), s 112
Haines v Bendall (1991) 172 CLR 60, applied
IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205, applied
LCA Marrickville Pty Ltd v Swiss Re International SE (2022) 290 FCR 435, cited
Swiss Re International SE v LCA Marrickville Pty Ltd (2021) 394 ALR 461, considered
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, considered
Wenham v Ella (1972) 127 CLR 454, appliedCOUNSEL:
A Morris KC & I Erskine for the plaintiffs
L Copley for the defendants
SOLICITORS:
Barclay Beirne for the plaintiffs
JHK Legal for the defendants
Contents
Summary
The lease
The issues
The witnesses
Issues of credit and recollection
Events up to the lease
The defendants’ printing businesses
Meeting on 16 March 2020
Application for lease – 16 March 2020
Meeting on 23 March 2020
Emails on 24 and 25 March 2020
Discussions and email, 30 to 31 March 2020
Draft leases
Mr Beirne’s email, 2 April 2020
Post-lease discussions about costs of Landlord’s Works
Meeting on 27 May 2020
Emails in December 2020 and January 2021
Meeting on 28 October 2021
Meeting on 24 May 2022
Subsequent events
The Landlord’s Works broken down
Was there an agreement about the cost of Landlord’s Works?
What amount is payable for the cost of the Landlord’s Works?
Schedule B items - introduction
The expert witnesses
Schedule B - Alterations to the premises
Installation of signage – item 1
Installation of ventilation equipment – item 8
Removal of sink – item 9
Installation of CCTV cameras – item 12
Installation of chiller system and alteration to staff outdoor seating – item 14
Concreting the slab recess – item 28
Total potential losses for alterations to the premises
Schedule B – Claims for failure to maintain premises
Item 2 – Failure to clean external walls
Item 3 – Failure to maintain vegetation, causing damage to east and west walls
Item 4 – Damaged wheel stops
Item 5 – Hardstand stained
Item 6 – Gardens and vegetation
Item 7 – Truck wash bay damage
Item 10 – Impact damage to internal block wall
Item 11 – Impact damage to bollard
Item 15 – Failure to clean furniture
Item 17 – Office carpet stained
Item 19 – Damage to office walls, light switches
Item 23 – Holes and dirt in amenities
Item 25 – Warehouse floor dirty, stained
Item 31 – Amenities soiled and stained
Item 32 – Damaged west exit door
Item 34 – Damaged mezzanine door
Items 35 and 36 – Dirty and stained mezzanine floor
Item 36d – Inadequate ventilation on mezzanine
Item 40 – Water leaks from flashing on west and east walls
Item 43 – Contaminated hardstand, bio system and ground
Total potential losses for maintenance items
Items 44 and 45 – Preliminaries and staging costs
Legal costs of notices to remedy breach, etc
Determining the plaintiffs’ loss
Parties’ submissions on principles
Discussion and application of principles
The assignment of the lease and its effects
Mr and Mrs Chadwick’s guarantees
Conclusions on defendants’ liability
Does Mr Chadwick’s guarantee extend to liability for the Landlord’s Works?
The value of the reversion – Property Law Act, s 112
Conclusions
Summary
The plaintiffs, Mr and Mrs Schlecht, are spouses and are trustees of the Schlecht Super Fund. Mr Schlecht is a licensed builder and owns a construction company, Flowcrete Constructions Pty Ltd (Flowcrete). That is a company that mostly undertakes large construction projects.
As trustees of the fund, Mr and Mrs Schlecht own a commercial property in Kunda Park (a suburb of Buderim), comprising a warehouse (with internal office space) that includes a mezzanine area and an external hardstand. The building was constructed by Flowcrete in about 2010 and, until late 2019, it was let by Mr and Mrs Schlecht to a business known as Roadtek, which is a commercial business operated by the Queensland Department of Transport and Main Roads.
The first defendant, EPM Operations Pty Ltd (EPM), is the trustee of the EPM Operations Trust. Its sole director and secretary was the second defendant (Mr Chadwick) from incorporation to 23 May 2020. Since then his mother, the third defendant (Mrs Chadwick) has had those roles. From April 2020 until August 2022, EPM operated a commercial printing business from the premises in Kunda Park.
On 3 April 2020, Mr and Mrs Schlecht, EPM and Mr Chadwick signed a lease of the premises for just under five years, expiring on 31 March 2025, but with an option to renew for another five years. The lessee was EPM and Mr Chadwick was the guarantor of EPM’s obligations under the lease.
In August 2022, EPM sold its business and, with Mr and Mrs Schlecht’s consent, assigned the lease to a company controlled by two of its former employees. The assignee was still in possession of the premises at the time of the trial, although the lease was due to expire shortly thereafter (subject to whether the assignee had exercised its option to renew or agreed with the landlords to enter into a fresh lease). There is no direct evidence of whether the assignee would remain in the premises after the lease expired, whether under a renewed lease or under a different arrangement. The effect of the assignment and the related documents on any liability the defendants may have to Mr and Mrs Schlecht is one of the issues raised in this proceeding.
The lease provided that the lessors would undertake “Landlord’s Works” upon commencement of the lease. It was silent as to who would pay for those works. The plaintiffs contend that the parties subsequently agreed to share the cost equally, while the defendants contend that the plaintiffs were obliged to pay for them.
Mr and Mrs Schlecht claim that the defendants are liable to them for a total of $276,357.10 plus interest. The principal amount comprises the following:
(a)$79,362.00 as a debt due for the defendants’ contribution to the cost of Landlord’s Works;
(b)$44,504.20 for damages for unauthorised alterations to the premises;
(c)$139,290.90 for damages for breach of a covenant to keep the premises clean and in good repair; and
(d)$13,200.00 for legal costs of the preparation of notices to remedy breaches of covenant.
The defendants deny that they owe anything for the Landlord’s Works, contending that they had reached an agreement with Mr and Mrs Schlecht that those works would be done at the landlords’ expense. They admit that they are liable for the repair of two damaged items, respectively costed at $1,040 and $832. They deny that they are liable to pay for any of the other claimed items. As to those items, they variously contend that there was no damage or failure to clean or keep in good repair, the amount claimed has not been proved, alterations were authorised, and their make-good obligations arise only at the end of the lease (subject to any renewal or replacement of the lease). Finally, they contend that, if any of the plaintiffs’ claims concerning unauthorised works or failure to maintain the premises are correct, the plaintiffs have suffered no loss because the assignee of the lease has taken on the tenant’s obligations under the lease. That company has, in some cases, at its own expense fixed up some of the matters about which the plaintiffs complain, or that company will be liable, at the end of the lease or any renewal of it, to make good any damage or unauthorised alterations to the premises, again at its own expense.
The defendants also contend that any liability for damages for any breach by EPM of an obligation under the lease to keep or put the premises in repair during the lease is limited, by the operation of s 112 of the Property Law Act 1974, to a maximum of the amount by which the value of the reversion in the premises has been reduced by its breach. They contend that any reduction in the value of the reversion does not exceed $50,000 and therefore the plaintiffs’ claims for damages for breach of those obligations (if proved) are limited to that sum. The plaintiffs contend that the reduction in the value of the reversion is $200,000 and therefore they are entitled to the full amount of the damages they claim.
For the reasons that follow, I find that:
(a)EPM (by Mr Chadwick) and Mr Schlecht did agree that they would share the cost of the Landlord’s Works equally and EPM is liable for half that cost, in the amount of $68,647.76;
(b)EPM and Mr Chadwick are liable for certain breaches of EPM’s covenants not to damage or alter the premises, in the total sum of $15,348.16;
(c)EPM and Mr Chadwick are also liable for certain breaches of EPM’s covenants to keep the premises clean and in good repair; although the total damages to rectify those breaches would amount to $23,476.29, their liability for those breaches is limited under s 112 to $20,000 because the diminution in the value of the reversion as a result of those breaches is $20,000;
(d)Mrs Chadwick is not liable to Mr and Mrs Schlecht for any amount;
(e)therefore, Mr and Mrs Schlecht are entitled to judgment against EPM for $103,995.92 and against Mr Chadwick for $35,348.16, together with interest.
I shall hear further from the parties about the calculation of interest and any order for costs of the proceeding.
The lease
The lease was signed by the parties on 3 April 2020 and registered on 6 April 2020.[1] Unfortunately, although one might have expected it to set out the entirety of the parties’ agreement, it did not. Nor did any other document clearly set out the balance of their agreement. These matters have resulted in a substantial part of the dispute.
[1]A copy is in the trial bundle (exhibit 1), commencing at page 3. I shall make further references to documents in the trial bundle as, for example, TB3 (meaning page 3). All quotes in these reasons from any document will include any spelling or other errors contained in the original.
The lease relevantly provides as follows:
SCHEDULE
Item 6Permitted Use
Printing
1.2 Definitions
(14) “Landlords Works” means the building works to be completed by the Landlord for use by the Tenant during the Term and any Further Term of this Lease particularised in Special Condition 21 of this Lease.
(22) “Tenant’s Property” means all fixtures, fittings, equipment, stock and other articles in the Premises owned by the Tenant.
2.1 Payments
The Tenant must pay the Landlord: …
(e) all reasonable costs and expenses incurred by the Landlord in relation to any notice given to the Tenant in accordance with this Lease, lawful determination or attempted determination of this Lease, the surrender of this Lease, the granting of any consents, proceedings lawfully brought by the Landlord to enforces the Tenant’s performance and obligations under this Lease
(f)any reasonable additional or unusual charges and expenses incurred by the Landlord at the request of the Tenant
(g)any other payments arising from the Tenant’s use of the Premises.
4.2 Conduct
The Tenant must not:
(e)damage the Landlord’s property
(f)alter the Premises, install any partitions or equipment or do any building work
(h)display, paint or erect any signs, save standard business signage
(m)make holes, deface or damage floors, walls or ceilings or other parts of the Premises
(o) use or install any product or property in the Premises likely to cause damage
4.3 Consent
The Tenant must seek the Landlord’s written consent to any of the matters in Clause 4.2 which may be granted at the Landlord’s discretion which the Landlord must not unreasonably withhold.
5 MAINTENANCE AND REPAIR
5.1 Repair
The Tenant must:
(a)keep the Premises, including all signage, in good repair and condition, except for fair wear and tear, and structural defects and, or alternatively, repairs
(b)fix any damage caused by the Tenant or its employees use
(c)repair, maintain or replace … the doors locks … in the Premises
(d)during the last year of the Term, and more often if reasonably required by the Landlord having regard to the condition of the Premises, paint the walls, ceilings and other painted surfaces of the interior of the Premises with two (2) coats of first quality paint in a proper and workmanlike manner, in the original colours or in such other colours approved by the Landlord.
5.2 Cleaning
The Tenant must:
(a)keep the Premises clean and tidy, consistent with the nature of the business conducted on the Premises
(b)keep the Tenant’s Property clean and tidy including the maintenance of lawns, gardens, garden beds, driveways, walkways
6 ASSIGNMENT AND SUBLETTING
6.1 The Tenant may only assign or sublet the Lease or the Premises with the Landlord’s consent which must not be unreasonably withheld.
6.2 The Landlord must give its consent if:
(b)the Tenant and the new tenant sign any agreement and gives any security which the Landlord reasonably requires.
(d)The Tenant is not in breach of the Lease.
(e)The Tenant releases the Landlord from all claims the Tenant has or may have in respect of this Lease.
6.3 If the Tenant is a corporation, any change in the principal shareholding or composition of the board of directors altering the effective control or control of one half or greater of the shares or the board is an assignment of this Lease and must be dealt with in accordance with this Lease.
14.5 Entire Agreement
This Lease:
(a) save for the agreement entered into between the parties as regards completion of and payment for the Landlord’s Works, contains the entire agreement and understanding between the parties on everything connected with the subject matter of this Lease,
(b) to the extent that this Lease and the agreement entered into between the parties as regards Landlord’s Works are inconsistent, the agreement as regards the completion of and payment for the Landlord’s Works shall prevail, and
(c) supersedes any prior agreement or understanding relating to any matter dealt with by the provisions of this Lease.
20 LANDLORDS WORKS
20.1 The Landlord shall complete the following building alteration and additions to the Premises:
(1) Construct a lightweight wall on top of existing 200 series block balustrade mezzanine level. Wall to extend to the underside of roof without ceiling. Wall to have three (3) openings of 2.4m x 2.2m as a loading dock, 0.9m x 2.1m as a standard door opening to top of stair access and a 2.1m x 0.9m opening as a viewing window to the warehouse floor.
(2) Construct further room in south-west corner mezzanine level room at item (1) dimensions 5 m x 3 m with ceiling at 2.4 mts and one (1) door access and viewing window noted above.
(3) Rooms (1) and (2) to be air-conditioned.
(4) The available mains power to Premises to be upgraded to a minimum of 300 AMPS.
(5) The northern access door situated in the wall between the office and the warehouse is to be altered to include a small viewing window.
20.2 The Tenant shall give the Landlord, its contractors, servants and agents exclusive possession of that part of the Premises in which the Landlord’s Works are being carried out provided always that the Landlord shall use its best endeavours to avoid unnecessary disruption to the Tenant’s use and occupation of the Premises.
20.3 The Landlord shall complete Landlord’s Works within a reasonable time of the commencement of the Term.
Under clause 21, Mr Chadwick personally guaranteed to Mr and Mrs Schlecht that he would be liable jointly and severally with EPM for the performance and observance by EPM of all the covenants, terms and conditions of the lease. The terms of the guarantee are extensive and I will not set them out in full here, but instead summarise its relevant effects. Mr Chadwick also indemnified Mr and Mrs Schlecht for all losses, damages, costs and expenses they may suffer in consequence of any breach of the lease by EPM. His liability under the guarantee would not be affected by the expiry or assignment of the lease.
Notwithstanding the definition of “Landlords Works” in clause 1.2, the lease does not contain any special condition 21. The only attempt at defining the Landlord’s Works appears in clause 20.1. Counsel for the plaintiffs submitted that the parties must be taken to have intended that to be a reference to clause 20.1 rather than special condition 21. I did not understand the defendants to dispute this proposition and it is the only logical conclusion. The definition must be read in that way.
The lease is silent about who would pay for the Landlord’s Works. Clearly, any agreement as to payment for part or all of those works was left to be determined by the proposed separate agreement contemplated in clause 14.5(b). The final extent of the Landlord’s Works was also potentially to differ from the description in clause 20.1, if changes were later agreed separately.
The issues
There are five principal issues in this proceeding.
The first concerns the Landlord’s Works. The extent of the works ultimately agreed is not in issue,[2] but whether EPM agreed to bear half of those costs is disputed. The plaintiffs claim $79,362 from EPM, allegedly representing half the costs of the works that the plaintiffs undertook.
[2]The actual works agreed are pleaded in the statement of claim at [8(a)] and in schedule A. Paragraph 8(a) (incorporating schedule A) is admitted in the defence at [3(a)].
The second issue concerns whether EPM made alterations to the premises for which the landlord’s consent was required, but without obtaining that consent. By the end of the trial, the plaintiffs claimed eight items, for which they claim damages for rectification amounting to $44,504.20.
The third issue is whether EPM failed to maintain the premises in good repair and condition and clean and tidy. By the end of the trial, the plaintiffs claimed 21 items in respect of which they allege EPM failed to comply with those obligations. The plaintiffs claim damages comprising the alleged costs of making good those items, totalling $139,290.90.
Related to the second and third issues is the effect of the assignment of the lease to a different company and, in particular, whether it has a consequence that the plaintiffs have not suffered any loss as a result of any breaches of the lease by EPM.
The final issue is the extent of any reduction in the value of the reversion in the premises and any consequent limit on the plaintiffs’ claims for failure to keep or put the premises in good condition during the currency of the lease.
Of course, in each issue there are several sub-issues that I shall consider in the course of my consideration of the respective issues.
The witnesses
The plaintiffs each gave evidence and they also called three other witnesses whose evidence went to the events that occurred. The defendants challenged the credibility and reliability of some of the evidence given by each of the plaintiffs in several respects, as will appear during my consideration of their evidence on the various issues.
Each of Mr Chadwick and Mrs Chadwick gave evidence. They did not call any other witnesses of fact. The plaintiffs challenged the credibility of both those witnesses and the reliability of their evidence. They submit that I should not accept the evidence of either of them on critical events unless it is corroborated by another witness or contemporaneous documents.
In addition, the parties called a number of expert witnesses. Their evidence concerned the following issues:
(a)as to the alleged unauthorised alterations and failures to maintain the premises - Mr David Galbraith (called by the plaintiffs) and Mr Andrew Montgomery Hribar (called by the defendants), each of whom is a builder or building consultant;
(b)as to the cost of repairing each of the alleged unauthorised alterations and failures to maintain the premises – Mr Moises Lopez, a quantity surveyor instructed by all parties and called by the plaintiffs; and
(c)as to any reduction in the value of the reversion – Mr Mathew Duncan (called by the plaintiffs) and Mr Daniel Lewis (called by the defendants), each of whom is a property valuer.
I shall discuss challenged evidence in the course of considering the factual history of the dispute, including (where necessary) determining issues of credit. It is necessary, however, at this stage to make some general observations about the witnesses’ credit and the general reliability of their evidence.
Issues of credit and recollection
The evidence of some of the witnesses unfortunately varied in its quality, as will become apparent.
Mr Copley submitted that each of Mr and Mrs Schlecht had poor memories of events and made up parts of their evidence to suit their case.
Mr Morris KC, appearing with Mr Erskine for the plaintiffs, made a substantial attack on the credit of both Mr Chadwick and Mrs Chadwick, principally on the basis of their business conduct before this lease commenced. It is necessary to consider those challenges because my conclusions as to their veracity and the reliability of their evidence may have a considerable effect on whether or not I accept that evidence.
Frankly, I had difficulty accepting all the evidence of any of Mr and Mrs Schlecht and Mr and Mrs Chadwick. Each of them gave evidence that was, in some respects, exaggerated, was not reflected in contemporaneous documents, or was inconsistent with other evidence. I formed the view that Mr and Mrs Schlecht blamed EPM for any defects or damage that became evident in the premises, even when it was (or should have been) clear that it was not caused by EPM or it had been fixed by the new tenant. Obvious examples of this attitude are the claim for overgrown and untidy gardens (which have since been fixed by the new tenant), the claim for damage to the truck wash bay that was clearly done by the previous tenant, Roadtek, and the claim for impact damage to the internal block wall where it is clear that most of the damage was done by the new tenant after EPM vacated the premises.[3]
[3]See, as to the garden beds, the discussion of item 6, as to the truck wash bay the discussion of item 7 and as to the impact damage, the discussion of item 10: [240] to [256] below.
Having said that, on the whole I accept most of the evidence of Mr and Mrs Schlecht, as much of it was supported by contemporaneous documents. But Mr Schlecht in particular had a tendency to take a poor view of any criticism of his building or any failure to keep it spotless. He ignored the facts that it is an industrial building and that he had allowed his tenant to carry on a business that was likely to produce dust, dirt and some staining of the premises. He also exaggerated the alleged effects on the building of some of the alleged breaches by EPM.[4] At times I considered that he was advocating his case rather than giving answers based on his true recollections.
[4]For example, see [251] and [255] below.
On the other hand, Mr and Mrs Chadwick both gave evidence in some respects that was inconsistent with contemporaneous documents or was simply not credible. Mr Chadwick, in particular, was unresponsive or evasive at times in his answers, principally in cross-examination but also sometimes in his evidence in chief.[5] Mrs Chadwick at times had a similar approach to her evidence.[6] He and Mrs Chadwick also appeared at times to be advocating their case rather than responding directly to testing questions. Mr and Mrs Chadwick also seemed to me to have a lackadaisical attitude to the maintenance of the premises, allowing them to become dirty and taking whatever steps they thought appropriate to alter the premises to suit EPM’s business needs. This was particularly reflected in their failure to obtain clear written permission from Mr and Mrs Schlecht before making any changes to the premises and in refusing to take responsibility to fix problems identified or perceived by the landlords. It also seems, from some of the cross-examination of Mr Chadwick in particular, that he and Mrs Chadwick had at least some history of leaving premises in an unsatisfactory state at the end of a lease, which might be seen as consistent with their attitude to these premises.
[5]For example, see [331] below.
[6]For example, see [260] below.
I discuss some clear examples of this attitude later, but for now I note clear damage to the mezzanine door and to the western external door, both clearly caused during EPM’s tenancy, but for both of which Mr and Mrs Chadwick denied any liability.
The plaintiffs also called Michael Howes, who was formerly employed by EPM as a printing machinist. I describe his evidence later. He was not cross-examined and I find no reason not to accept his evidence.
Two witnesses who used to work for EPM and who might be expected to have been called by the defendants were not called. Mr Morris submitted that I should infer that their evidence would not have helped the defendants.
One was Mrs Chadwick’s husband, David Hayden, who was said by other witnesses to be responsible for the general garden maintenance of the premises and to have been present during an alleged conversation about one alteration to the premises that, according to Mr Chadwick, was orally approved by Mr Schlecht. Mr Hayden was in the back of the court during most of the evidence. Despite his involvement in the gardening and his presence during the conversation, the defendants did not call him to support their defence. Given his role as the gardener and his presence during the conversation, I am prepared to infer that his evidence, if he had been called, would not have assisted the defendants’ case.
The other witness was Colin Rawlings, who was the production manager for EPM. His evidence might well have been relevant to many of the issues about the state of the premises and his knowledge of conversations in which Mr Chadwick said Mr Schlecht approved alterations to the premises. He might also have given evidence about matters concerning the earlier operation of businesses by Mr Chadwick about which Mr Chadwick was cross-examined as to his credit. However, Mr Rawlings resigned from the employ of EPM, probably about three years before the trial when, Mr Chadwick said, they had a falling out. Mr Chadwick said he did not know how to contact Mr Rawlings. In the circumstances, I do not make any inference from the defendants’ failure to call him as a witness.
Ultimately, my findings on the evidence reflect which evidence of each witness I accept and which evidence I reject.
Events up to the lease
I propose first to identify chronologically what events occurred, or (where they are disputed) are alleged to have occurred, in order to identify the factual disputes (of which there are many). It will be necessary to descend into some detail, as many of the events – or at least what was said at some of them – are contentious. Where I can, I shall make findings of fact during this section of my reasons. In other cases, it will be necessary to discuss later the evidence about particular factual issues in more detail before making such findings.
The defendants’ printing businesses
Mr Chadwick said that he has been involved in the printing business, through EPM and other family owned companies, since 2012. That business, as he described it, was originally a “quick print copy shop” known as MBE Maroochydore. Since then it expanded into commercial and industrial printing, which was operated from Wises Road, Buderim by a company called Express Print and Mail Pty Ltd. Another company, EPM Central Coast Pty Ltd, operated a wide format signage printing business from premises in Hervey Bay. These companies were effectively controlled by Mr and Mrs Chadwick. Another company in the group, Radwick Investments Pty Ltd, owned the physical assets of the businesses, which were hired back to the operating companies.
EPM was incorporated in December 2019. It appears to have been the intended successor to the printing business of Express Print and Mail Pty Ltd and possibly (although it is not entirely clear from the evidence) that of EPM Central Coast Pty Ltd. At the time of its incorporation, Mr Chadwick was the sole director and shareholder. Mrs Chadwick has been the sole director and shareholder since 23 May 2020. According to Mr Chadwick, EPM bought the business from Express Print and Mail Pty Ltd in early 2020.
In early 2020, Mr and Mrs Chadwick were looking for alternative premises from which the printing business to be acquired by EPM from Express Print and Mail Pty Ltd could be operated. They obtained an information memorandum about the subject premises from the letting agent, David Smith of Ray White Commercial in Noosa.[7] That led them to meet Mr Smith and Mr and Mrs Schlecht in the Wises Road premises on 16 March 2020.
[7]TB333ff.
Meeting on 16 March 2020
Mr Chadwick said that, at that meeting, he and Mrs Chadwick showed Mr and Mrs Schlecht around their premises, pointing out the types of printing machines that they used. He said they discussed their requirements for premises, including an air conditioned room for the digital printers, a second air conditioned room for a piece of offset equipment and some comparatively inconsequential matters. Mr Schlecht told them that the plaintiffs were happy to attempt to facilitate their requirements and that he was a builder, so his preference would be to do any modifications himself.
Mrs Chadwick gave no evidence in chief about this meeting but, in her cross-examination, she said that, while she was showing the plaintiffs around the factory, she raised with Mr Schlecht whether, whatever works were to be undertaken to modify the plaintiffs’ premises for the defendants’ use, the defendants might be responsible to have them done in exchange for a three month rent free period or the plaintiffs might do them at their cost and Mr Schlecht said he would like to do the works as he was in the industry and it was his building. She was not involved in any further negotiations about the works. She said that there was discussion of an office on the factory floor and another room upstairs on the mezzanine floor, but she denied that Mr Schlecht put to her that he would pay for the downstairs office but the cost of the upstairs room would be shared equally between landlord and tenant.
Mr Schlecht said that Colin Rawlings,[8] who worked for the defendants’ business at Wises Road, was also at the meeting. He said that Mr Chadwick told the plaintiffs that the defendants were interested in taking a lease of the plaintiffs’ premises and wanted to move in as soon as possible. Mr Chadwick told him that he would require the construction of an air conditioned room (using an air conditioner that the defendants would provide) on the warehouse floor to house a printer. Mr Schlecht agreed to construct such a room at the plaintiffs’ cost, which he later estimated would be about $25,000.
[8]Mr Schlecht and others sometimes referred to him as Mr Rowlings, but I shall refer to him as Mr Rawlings, which I believe to be the correct name.
Mrs Schlecht gave no evidence about this meeting.
Mr Smith did not give viva voce evidence, but his witness summary was tendered by consent, to stand as his evidence. He said that, during the meeting, Mr Chadwick requested the construction of an air conditioned room on the ground floor of the premises at the landlords’ expense, to which the landlords agreed.
I am satisfied that, at this meeting, Mr Chadwick made a request that a room be constructed on the ground floor of the building and Mr Schlecht agreed that he would do that at his expense. I am satisfied that Mr Chadwick also said that he would like the construction of another room on the mezzanine floor, as this was raised in an email that afternoon enclosing an application for lease.
Application for lease – 16 March 2020
In the afternoon of 16 March 2020, Mrs Chadwick sent an email to the plaintiffs’ leasing agent, Mr Smith, attaching an application for lease. Mr Smith gave evidence that he would have passed on the application to the plaintiffs.
In her covering email,[9] Mrs Chadwick proposed three alterations to the premises: an opening for forklift access to the mezzanine; the construction of a digital production room on the ground floor; and the construction of an office and separate work space at the rear of the mezzanine floor. She ended saying, “we are also open to completing this ourselves and then have a 3 month rent free period.”
[9]TB38.
The application[10] proposed that EPM be the lessee. On one page, the standard form asked, “Please compete the Asset and Liabilities Statement for each applicant and/or director where applicable.” It was completed in the name of “Express Print & Mail” and showed assets of $3,276,000 (including debtors of $1,100,000 and chattels of $1,800,000) and liabilities of $2,200,000 (including creditors of $550,000, three “hire purchase/lease” liabilities and one “Heidelberg loan” of $1,200,000), resulting in net assets of $1,075,000. Below that statement was the following sentence, below which was Mr Chadwick’s signature: “I certify that the above statement is true and correct and that I own all of the Assets and Liabilities listed above personally.”
[10]TB33-37. A copy with amendments to the proposed terms made and signed by the plaintiffs on 20 March 2020 is at TB47-51.
Mrs Chadwick said that she prepared the application, but Mr Chadwick supplied the assets and liabilities statement to go into it. Both Mr and Mrs Chadwick were cross-examined about the statement of assets and liabilities in an apparent effort to damage their credit. I hope I do not do too much disservice to that cross-examination by saying that it relied particularly on the fact that EPM itself was a company without substantial assets at the time of the statement, as the assets and liabilities referred to in the statement were really those of Express Print and Mail Pty Ltd at the time, because EPM did not buy its business until shortly before the lease was executed. It suffices for me to say, in this respect, that I do not consider these facts in themselves damaging to the credit of Mr or Mrs Chadwick. While they were not EPM’s assets and liabilities at that date, they do appear to have reflected broadly the assets and liabilities of the business then being carried on by Express Print and Mail Pty Ltd (the name of which appeared at the top of the statement), which EPM would acquire before the lease commenced. I do not draw any adverse inference as to Mr or Mrs Chadwick’s credit from the presentation of this statement in the application for lease.
Meeting on 23 March 2020
On 23 March 2020, a meeting took place at the premises. Some witnesses were not clear in their recollection of who was present, but I am satisfied that Mr and Mrs Schlecht, Mr Chadwick and Mr Rawlings were there and Mrs Chadwick was not.[11]
[11]Mr Schlecht remembered himself, Mr Chadwick, Mr Rawlings and possibly Mrs Schlecht: T1-37. Mrs Schlecht remembered herself, Mr Schlecht, Mr Chadwick and Mr Rawlings being there and thought that possibly one other person – perhaps Mr Smith – was also there: T3-60. She also identified notes that she said she made during the meeting: exhibit 6. Mr Chadwick remembered himself, Mr Rawlings and Mr Schlecht: T6-70. Mrs Chadwick gave no evidence about the meeting, nor did Mr Smith.
Mr Chadwick recalled that they discussed a few things about how the factory might be set up, but he did not appear to recall the discussion in any detail.
Mr Schlecht recalled that they discussed where different printers might be installed. Mr Chadwick and Mr Rawlings decided that they needed more room and they discussed having a second office, on the mezzanine floor, for Mr Rawlings. Mr Schlecht was shown a note later proved to have been taken by Mrs Schlecht. By reference to that note, he said that they agreed that he would look into the mezzanine room and then they would discuss the costs. He went on to say, by reference to the note, that they agreed that the tenant would pay for the mezzanine room, as the landlord had agreed to pay for the room on the factory floor. However, I do not accept that he recalled that being said, but rather he was merely attempting to interpret the note written by Mrs Schlecht.
Mrs Schlecht confirmed that the note (exhibit 6) was made by her at that meeting. She recalled that Mr Rawlings wanted an office on the mezzanine floor. He and Mr Chadwick then said they no longer wanted a large room on the ground floor, but they did want such a room on the mezzanine. Mr Schlecht asked for the specifications of the machine they proposed to install in that room, as he was concerned that the floor may not support the weight of the machine. Mrs Schlecht could not recall what was said about who would pay for any such works. She could not explain the note.
I consider that Mrs Schlecht was mistaken in her evidence that, at this meeting, Mr Chadwick said he no longer wanted a large room on the ground floor. That is inconsistent with her note (which records several items under the heading “Warehouse Room”) and also with the subsequent emails to which I refer below.
Under the heading, “Warehouse Room”, Mrs Schlecht relevantly recorded:
Landlord to[12]
Aircon room lightweight ceiling
Self shutting door? 2.4 x 2.4/ Construct door on the nth face off set to right.
…
Definitely lift/ tenant pays
[12]I infer that she meant to write “Landlord to pay”.
There is then the heading “Mezzanine” under which the following relevant matters are recorded.
4m x 4m office
Air con/landlord
[On the right is a drawing of two offices: one 10½m long (width not stated) and one 4m x 4m with a viewing glass apparently over the factory floor]
(9m x 10.4 air con/no ceiling
( tenant pays
( split system
Tenants pay for as we agreed landlord pays for room at initial meeting(Tenant was[13] split system aircon
(to use in mezzanine rooms[13]I infer this word should be “has”.
The last item in the note is, “Signage to be paid by tenant and orgaised (sic). But landlord to authorise placement.”
I am not satisfied that the evidence, including the note, demonstrates that any final agreement was reached at this meeting. In particular, the emails that followed (referred to below) belie any settled agreement having been reached at this meeting. I conclude that, while the possible requirements of the tenant and who might pay for what aspects of those requirements were discussed, they changed during the discussion and no agreement was reached at this meeting, either as to the final works to be done or as to who would pay for which items of work. However, it was clearly raised by Mr and Mrs Schlecht that they were not likely to be prepared to pay for all the Chadwicks’ requested works, given their extent and Mr Chadwick appeared to accept that proposition.
Emails on 24 and 25 March 2020
On 24 March 2020, Mr Schlecht sent an email to Mr Chadwick and Mr Smith,[14] setting out five items under the heading “Lessors works” and seven items under the heading “Additional items discussed by both parties during meetings on the 19/3/20 and 23/3/20.”[15] Mr Chadwick responded on 25 March by two emails to Mr Schlecht and Mr Smith. It is unnecessary to set out the entirety of this exchange. Instead, I shall set out the most material parts of Mr Chadwick’s second email,[16] in which he responded to Mr Schlecht’s email by amending some items and highlighting the amendments.
[14]TB52-53.
[15]In their evidence, nobody could specifically recall a meeting on 19 March 2020. I infer that the date was incorrectly recorded by Mr Schlecht and he intended to refer to the meeting on 16 March.
[16]TB55-57. In the parts set out, the numbered items are from Mr Schlecht’s email. The highlighted parts are the comments made by Mr Chadwick on Mr Schlecht’s listed items.
Please see the amendments below following our discussions.
I’m happy for this to be progressed to the stage of drawing up the lease whilst we finalise the pricing of the two items below.
Lessors works
1/ Construction of a 11mts by 8mts room located in the south western corner of the warehouse, fully enclosed and air-conditioned with 1 only 2.4mt by 2.4mt double door. This structures to encompass the existing amenities. The ceiling height is to be determined by the lessor and the existing wash tub is to remain in place.
2/ Construction of a 4mts by 4mts office located on the mezzanine level south western corner, including air-conditioning and an observation window to view the warehouse floor, to suit the production manager.
3/ Construction of a 2nd room 9mts by 10.4mts located on the mezzanine level south eastern side encompassing the hot water system and terminating aprox. 10.4mts along the eastern wall. This structure has only 1 door opening of 2.4mts by 2.1mts. The ceiling height in this area is to be determined by the lessor as well. Cost of this structure to be shared 50/50. All construction dimensions have been discussed and agreed upon by both the lessor and lessee – agreed subject to final quote.
4/ Research, acquire and installation of a materials hoist suitable for the lessee’s requirements at the lessee’s cost – to be discussed further subject to final quote.[17]
5/ Organise to have the available power upgraded to 300 amps minimum. Installation cost by the lessee – changed to installation cost by lessor.
Additional items …
3/ Signage and installation of, is to be at the lessees cost and approved by lessor - agreed.
[17]In Mr Chadwick’s earlier email that afternoon (TB54), he had said, “The power and hoist at lessors cost.”
Discussions and email, 30 to 31 March 2020
On 31 March 2020, Mr Chadwick sent an email to Mr Schlecht,[18] in which he referred to their discussions the day before and set out his understanding of the final fitout. The email was broadly consistent (although not totally) with the description in the lease. Mr Chadwick made no mention in the email of who would pay for those works.
[18]TB112.
Mr Schlecht could not recall any particular discussions on 30 March 2020.[19] Mr Chadwick said that he recalled the discussion and that Mr Schlecht had agreed to pay for all these works, saying that:[20]
He explained that, because we previously had been looking at quite a large structure on the factory floor that would require engineering, additional steel, etcetera, etcetera, un, that this - this was quite simple in comparison, and he - he had no – no qualms with – with paying for the works in their entirety.
[19]T1-50.
[20]T6-78.
In cross-examination Mr Chadwick said that, by 30 March, they had moved on from the plan discussed in the earlier emails, moving to the proposal described in his email of 31 March. He said that, in the discussions on 30 March, Mr Schlecht had expressed the view that the new plan was far simpler and less costly than the earlier proposal and the cost was well within the amount he was prepared to cover, so he would pay for the works.[21]
[21]T8-38.
No detail of this discussion was put to Mr Schlecht in his cross-examination, nor had it been referred to in any other document, apparently including Mr Chadwick’s witness summary. While the description of the works in the email is, as I said, broadly consistent with the description of the Landlord’s Works in the lease, Mr Chadwick’s assertion that Mr Schlecht agreed to pay for all those works is inconsistent with clause 14.5(a) reserving the question of who would pay for the works to a separate agreement. However, it is consistent with Mr Schlecht’s instructions to his solicitor, Michael Beirne, on 2 April 2020, to which I refer below[22] and in which he instructed Mr Beirne that “any further works” (that is, further to those set out in the instructions) were to be paid by the tenant. The clear inference from that instruction was that, at that stage at least, Mr Schlecht was prepared to pay for the cost of the works as then described. That was then reflected in the next draft lease sent by Mr Beirne to Mr Schlecht.[23] However, even if Mr Chadwick’s evidence of this conversation were correct, it was superseded by the final terms of the lease, as I discuss below.
[22]At [71].
[23]See [72] below.
Draft leases
On 25 March 2020, Mr Beirne sent an email to the defendants’ solicitor, Rhonda King.[24] Relevantly to the issues in dispute, he said:
I am instructed that the parties have entered into an agreement to lease on the following terms and conditions incorporating the attached interim Agreement to Lease as varied by by oral agreement as follows:- …
13. Landlord’s Works – I am instructed that the parties are presently negotiating plans and specifications and agreement for completion of towards obtaining particulars of the Landlord’s Works and a plan. I am instructed that the works are payable in part by the Tenant and in part by the Landlord. I am instructed to revert to you with a copy of that exchange of emails as soon as practicable.
14. Costs of Landlord’s Works – I am instructed that it may not be possible to obtain detailed costings for all works prior to execution of the Lease. Please obtain your client’s instructions to proceed on the basis that the cost of Landlord’s Works (to be completed by John Schlecht of our client, a registered builder) will be ‘a reasonable sum’. I am further instructed that the Landlord proposes to commence completion of the Landlord’s Works upon execution of the lease.
15. Make good obligations – in addition to usual commercial provisions, the tenant to remove the Landlord’s Works on the tenant vacating the premises save where the landlord directs otherwise, or the parties agree otherwise.
[24]TB58-76. The “interim agreement to lease” is the lessee application form as altered and signed by Mr and Mrs Schlecht: TB61-65.
Thereafter, Mr Beirne sent a number of drafts of the lease to Mr Schlecht, having regard to changing instructions, particularly about the Landlord’s Works. Early versions included a term that the costs of the Landlord’s Works would be paid by the landlord, but later drafts removed that clause.
In sending one draft lease to Mr Schlecht, on 1 April 2020,[25] Mr Beirne said:
I confirm that the lease cannot be signed until the Landlords Works have been agreed. As discussed, I have prepared the lease on the basis that the agreement respect of Landlords Works would be an exchange of emails between you and Matthew Chadwick. We can’t proceed where something is ‘to be agreed’ as that is an agreement to agree and is too uncertain. I confirm that your current estimate is that the tenant specifications for the Landlords Works will involve expenditure in the order of $80,000.00.
…
When you believe you have a final agreement on Landlords Works, reply to Matthew having the last word with an email along the following lines:
‘I confirm that this exchange of emails is the agreement which I am instructing my solicitor to refer to in the Lease to be signed by the landlord and tenant. … Further, because of the significant change in specifications for the Landlords Works required by you and normal industry delays, I cannot provide you with an accurate costing for the Landlords Works which are presently being worked up by me. Any amounts that I have discussed are estimates only and are subject to detailed costings from other trades and, in any case the cost of all Landlords Works are to be in a reasonable sum.
Matthew, I ask that any variations to the Landlord’s Works be agreed in writing by a further exchange of emails between us.’
[25]TB114.
Mr Schlecht also emailed Mr Beirne with instructions from time to time. One such email was on 2 April 2020 at 2.34pm, to which he attached a document setting out the Landlord’s Works for inclusion in the lease.[26] They described (although in slightly different words) the works ultimately described in the lease. Mr Schlecht also gave this instruction (which did not find its way into the lease):
All further works excluding the above, required by the tenant for new fit out, are to be payable by the tenant and approved by the landlord.
[26]TB143-144.
At 3.15pm that day, Mr Beirne sent a revised draft lease to Mr Schlecht, which inserted a clause that set out a description of the Landlord’s Works that accorded with Mr Schlecht’s list.[27] That draft also included a proposed clause 20.3 stating:
20.3 The Landlord shall bear the cost of completion of the Landlord’s Works.
[27]TB145-172, particularly at 167-168.
However, that clause was not included in the draft lease that Mr Beirne sent to the defendants’ solicitors later that afternoon.
Mr Beirne sent two drafts to Ms King and Ms Jodie Bruce of the defendants’ solicitors, including different iterations of the clauses concerning Landlord’s Works.[28] Neither draft provided for who would bear the costs of the works, but they each included an entire agreement clause (14.5) in the same terms as the executed lease. In his first email, among other things Mr Beirne said, under the heading “Landlord’s Works”:
I am instructed that might client, Mr John Schlecht, licensed builder is presently working with Matthew Chadwick of your client to determine the scope of work and responsibility for payment of the Landlords Works. … I am instructed that neither the cost of completion nor the time of completion of the Landlord’s Works are known to the parties because of the scope of work has not yet been agreed …
I am further instructed that the Landlord’s Works will be payable by the Tenant or the Landlord or shared in an agreed proportion by the parties.
I am instructed that a detailed scope of the Landlord’s Works and the division of the costs of the completion of that work between the parties will be particularised in an exchange of emails which I understand will be obtained either today or tomorrow as between John Schlecht of my client and Matthew Chadwick of your client. That exchange of emails is the agreement referred to in the definition of Landlords Words in clause 1.1(14) and Special Condition Clause 20.
[28]On 26 March (TB77-107) and 2 April 2020 (TB173-200).
Mr Beirne’s email, 2 April 2020
It is unnecessary to refer in detail to Mr Beirne’s email of 2 April 2020 enclosing a further draft of the lease, except to record that he itemised changes to the draft lease enclosed with the email, including to clause 20.1, which he said was “amended to include detailed particulars of work to be completed by the landlord.” He made no reference to who would pay for the cost of those works and the draft clause 20.3 set out in the draft lease that he had sent to Mr Schlecht earlier that afternoon was not in the draft sent to Ms Bruce. I infer that, in the meantime, Mr Schlecht had instructed Mr Beirne to remove that clause, no doubt because, without more, it was inconsistent with Mr Schlecht’s instruction about the cost of “further works”.
In response to that email, Ms Bruce sent an email to Mr Beirne on 2 April 2020,[29] in which she said that she had provided the amended draft to her client. She asked Mr Beirne to confirm that his professional fees payable by her client for preparation of the lease would be no more than $1,500 plus GST plus outlays.
[29]TB206.
Mr Beirne replied by email later that afternoon,[30] in which he said that his costs exceeded $5,000, particularly having regard to the negotiations over the Landlord’s Works that had required him to draw novel special conditions. He went on to say:
I note also that the whole of the costs of the Landlords Works are to be paid by my client and that Mr John Schlecht of my client has attended on Mr Matthew Chadwick and otherwise attending to working up specifications and costs of landlord works for approximately 5 days.
[30]TB207.
At trial, the defendants sought to rely on that paragraph as evidence that they and the plaintiffs had agreed that the Landlord’s Works would be undertaken at the plaintiffs’ cost.[31] Mr Schlecht said that he did not instruct Mr Beirne to send that email and did not know about it at the time.[32] In cross-examination, he denied that what Mr Beirne said there was consistent with the instructions he had given Mr Beirne about the costs of the works. He insisted that he had had an agreement with the defendants that they would share the costs equally, although it was not in writing.[33] He accepted that he had never discussed with Mr Chadwick that Flowcrete, which undertook the works, would charge a builder’s margin (which was included in an invoice that the plaintiffs sent to EPM in 2022 for 50% of the costs of the works), but said “that’s what most builders do.”[34]
[31]Although they did not rely on it, in their defence, as constituting any part of an agreement about who was to bear the costs of the works, nor as giving rise to any form of estoppel or other relief. Rather, they pleaded that the agreement they alleged, that the landlord would bear the costs of the works, was “evidenced by” Mr Beirne’s email: defence [3(f)].
[32]T1-51.
[33]T2-71 – 72.
[34]T2-73; TB267.
Mr Beirne gave evidence at the trial. He said that he did not have instructions to make any representation that the whole of the costs of the Landlord’s Works were to be paid by Mr and Mrs Schlecht. He said that it was a typographical error by which the email omitted a number of words, apparently caused because he uses voice to text software to dictate and write his emails and he did not check this email before sending it. He said the email should have said that his client was bearing the whole of the costs of “working up the plans and specifications for” the Landlord’s Works.[35]
[35]T3-74 – 75.
In answer to questions in cross-examination, Mr Beirne said that his instructions at the time were that the parties had discussed the costs of the Landlord’s Works, but they had not been definitively determined. That is, there was no definitive agreement: there was a proposal that the tenant pay half of the costs but there were a number of items in the scope of works and he was to await instructions. He was instructed that the agreement would be the subject of an exchange of emails. He was not instructed that an agreement had been reached before the lease was signed.[36]
[36]T3-75 – 76.
Notwithstanding that evidence, he then said that, in the week leading up to the execution of the lease, he had received oral instructions “in broad terms” that the parties would share the costs 50:50. He was then taken to his email exchanges with Mr Schlecht about the lease and the Landlord’s Works and he agreed that, between 2.34pm and 4.00pm on 2 April 2020, he had been instructed to remove the proposed clause 20.3. He said Mr Schlecht had instructed him orally that there was no agreement reached that the landlord pay the cost of those works particularised in paragraph 20.1 of the lease, that they were to be shared and he was to await further instructions as to the proportions in which each of those items would be shared. That led Mr Beirne to insert clause 14.5(a). At that stage, he was instructed, there were continuing discussions about the costs of the Landlord’s Works and he understood that there was no definitive agreement about how the costs were to be shared. He understood his instructions to be that there was an agreement that items 1 and 4 were to be shared equally, and he was awaiting instructions in respect of further items to go into the scope of works and in what proportions those costs were to be paid.
I accept Mr Beirne’s explanation for how that wording appeared in his email. It is obvious from a number of other emails that the dictation system he used sometimes resulted in obviously incorrect words or phrases appearing in the typed emails, which Mr Beirne did not correct before sending the emails. It is entirely feasible that he might inadvertently release the dictation button during his dictation, or might forget exactly where he was up to upon resuming dictation in the middle of a sentence. Furthermore, the emails that he was exchanging with Ms Bruce at the time did not concern the division of the cost of the Landlord’s Works, but how much EPM should pay for his firm’s fees for drawing the lease.[37] Indeed, in a later email within that exchange, Mr Beirne gave a similar explanation, saying:[38]
My point regarding the landlord works is that the specification agreed between the parties was changed several times and, the impost of costs, where not paid by your client will no doubt be borne by my client.
[37]The entire chain of emails on this subject is at TB201-206.
[38]TB204, in an email sent at 8.53am on 3 April 2020.
Mr Duncan went on to value the property, resulting in a value before adjustments of $4,960,000, following which he summarised his opinion on the reduction in the value of the reversion. His summary relevantly included the following:[196]
Under the assumption the ‘make good’ works and repair works associated with the alleged breaches have not been completed, the value assessed requires adjustment, as would be expected from the market.
It is my opinion that the cost of works would be considered by a purchaser as costs they would be likely to incur in returning the property to an appropriate condition to achieve a market rent, or to put the property in a condition suitable for owner occupation.
… I believe the Market would look to seek further clarification on the precise costs, seek multiple formal quotes and then make a below the line adjustment as applied to the capitalised (value assuming the works were complete), with an appropriate allowance for preliminaries, builders margin and contingency in line with the market.
I have adopted a sum of $200,000 in this instance exclusive of GST. I qualify that this allowance is subject to confirmation of actual costs in the form of a building contract or a formal quote.
[196]Exhibit 8, paragraphs 230 – 232, 234 and 235.
In Mr Lewis’ report,[197] he set out the individual items in schedule B that he was instructed to take into account. He then identified those that in his opinion would or would not be material to a purchaser in determining the value of the premises. The items that he considered would be material were items 5, 9, 17, 23, 31, 34, 36b, 36c and 43. He opined that the other items would be considered negligible.[198] (Of those, the plaintiffs are no longer pursuing damages for items 36b and 36c.) Somewhat inconsistently, in a subsequent paragraph he excluded items 36b and 36c and included items 32 and 33 as material to a purchaser.[199] He went on to adopt a current fair market value (before a reduction for those items) of $3,670,000 and then, without further explanation, concluded:[200]
Taking into account the building’s current age and condition, the valuer has adopted an adjustment of $50,000 to reflect the impact on reversion.
[197]Exhibit 20.
[198]Exhibit 20, table at pp 15 – 18.
[199]Exhibit 20, paragraph 9.1. Item 33 was also abandoned by the plaintiffs.
[200]Exhibit 20, paragraph 9.6.
Of the items that Mr Lewis considered material, the plaintiffs claimed a total cost of repair (before builder’s margin and preliminaries) of $14,370, while I have assessed those costs at $4,955. Even adding a builder’s margin of 30% and preliminaries of 51%, the plaintiff’s claims for those items would amount to $26,009.70 and the items I have allowed would amount to $8,968.55. Mr Lewis did not explain, either in his report or in his oral evidence, how he came to the figure of $50,000.
In their joint report, the valuers set out in a spreadsheet, item by item, the amount that each of them allowed for the items claimed by the plaintiffs. In that schedule, Mr Lewis appears to have accepted that a number of items that he had not considered, either at all (on instructions) or otherwise as material to a purchaser, were material items. If I read the schedule correctly, Mr Lewis reviewed all the items that he had been instructed to take into account and, in most cases, where he had originally considered them to be negligible, after discussion with Mr Duncan, he said, he:
considers this to have a material impact on the value of the value of [sic] the reversionary interest on the basis that a prudent purchaser is the willing buyer despite the broader market potentially giving less consideration to this item.
The items that he newly considered to be material to the value of the reversion were items 2, 4, 10, 11, 32, 35, 36 and 40. The total cost that he accepted for the items that he then considered material was $51,936 (before builder’s margin and preliminaries).
In that schedule, Mr Lewis also accepted that, if he had been instructed to take into account all the items in schedule B to the statement of claim (consistently with Mr Duncan’s instructions) additional items would have been material. The total of those items was $96,512 (before builder’s margin and preliminaries).
Thus the total (before builder’s margin and preliminaries) of the items that Mr Lewis, in the joint report, accepted were material to a purchaser was $148,448. In comparison, Mr Duncan’s total was $137,576.
In a letter produced by Mr Lewis during the trial in response to updated instructions,[201] with the qualification that he had not had much time to consider the new instructions, he responded to an amended list of items about which he was asked to consider whether they had an effect on the value of the reversion. Listing those matters by reference to his conclusions in the schedule to the joint report, he identified their total cost at $44,836 and concluded that the value of the reversion was reduced by the same amount.
[201]Exhibit 21.
I accept that a willing but not overly anxious purchaser and vendor are likely to take into account an estimate of costs to rectify items that would be considered to have a material impact on value, in determining what price to offer or to accept for the premises. It seems unrealistic to assume that the ultimate price would necessarily reflect either party’s estimate of the costs of repair. I accept the effect of both valuers’ evidence that only some items would be taken into account in determining value. I also accept that, to some extent, the costs of necessary repairs are a guide to or a reasonable proxy for the reduction in the value of the reversion.
Mr Duncan’s evidence was based on the estimates of Mr Lopez for the costs of each item claimed by the plaintiffs. Notwithstanding the plaintiffs’ acceptance that s 112 applies only to the covenants (effectively) in clauses 5.1 and 5.2 of the lease, Mr Duncan took into account all items in the plaintiffs’ claim. Arguably, he was wrong to do so, but that may have been due to his instructions. Mr Copley noted that the plaintiffs do not allege that clause 5.1 or 5.2 was breached in respect of items 1, 6, 8, 12, 14, 15, 19, 28 and 36d. Therefore, he submitted, those items should not be taken into account in determining the diminution in the value of the reversion. On the other hand, each of the alterations to the premises, if not repaired at the end of the lease, might constitute damage to the premises that, under clause 5.1, EPM had covenanted to repair.
Having regard to their individual and joint reports and their oral evidence, I have far more confidence in Mr Duncan’s methodology than in that of Mr Lewis. While even Mr Duncan’s opinions and the figures from them, particularly in the schedule to the joint report, are somewhat confusing, in the light of all his evidence, contrasted with that of Mr Lewis, I find that the reduction in the value of the reversion would be likely to reflect broadly the cost of the more substantial items (in works or cost) that I have allowed, including a builder’s margin and preliminaries. I find that the value of the reversion would not be reduced by less important or less costly items, except perhaps by an additional global amount.
The items that I have allowed for breaches of clause 5 that, in my opinion, would be considered material to the value of the reversion, are 4, 11, 17, 23, 32 and 34. The cost of fixing those items is $9,240. Adding a builder’s margin ($2,772) and preliminaries ($4,712.40) brings the cost of repairing those items to $16,724.40. Allowing an additional global sum for other minor items, I consider that the value of the reversion would be reduced by the clause 5 breaches by about $20,000.
Section 112, therefore, limits the recoverable amounts for breach of the covenants in clause 5[202] to $20,000. The section does not affect the recovery of damages for the breaches of clause 4 in the sum that I have found ($15,348.16). Therefore, Mr and Mrs Schlecht’s recoverable damages are $35,348.16.
[202]Which I have determined to be $23,476.29: see [412] above.
Conclusions
Mr and Mrs Schlecht are therefore entitled to judgment in the following sums:
(a)against EPM only, $103,995.92; and.
(b)against Mr Chadwick, $35,348.16.
Mr and Mrs Schlecht’s claim against Mrs Chadwick should be dismissed.
Mr and Mrs Schlecht seek interest on damages. Neither party identified any basis for the calculation of interest, whether the rate or rates or the period or periods for which it should be allowed (or, indeed, whether it should be allowed at all). I shall give them an opportunity to make submissions on interest, on costs and (if they wish) on how money held in trust under the deed of undertaking should be dealt with.
I shall not formally give judgment until I have received and considered submissions on those subjects.
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