Strzelecki Holdings Pty Ltd v Beach Cafe Investments Pty Ltd
[2018] WADC 132
•16 OCTOBER 2018
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: STRZELECKI HOLDINGS PTY LTD -v- BEACH CAFE INVESTMENTS PTY LTD [2018] WADC 132
CORAM: TROY DCJ
HEARD: 7 SEPTEMBER 2018
DELIVERED : 16 OCTOBER 2018
FILE NO/S: CIV 315 of 2017
BETWEEN: STRZELECKI HOLDINGS PTY LTD
Plaintiff
AND
BEACH CAFE INVESTMENTS PTY LTD
First Defendant
J A WICKENS PTY LTD as trustee for J A WICKENS TRUST
Second Defendant
JEFFREY ALLAN WICKENS
Third Defendant
Catchwords:
Practice and procedure - Setting aside default judgment - Payment of outgoings - Leases - Lack of registration - Whether guarantee included obligations in an unregistered lease
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985, (WA) s 12, s 12B
Result:
Appeal of first and second defendants to set aside default judgment dismissed
Representation:
Counsel:
| Plaintiff | : | Mr G J Douglas |
| First Defendant | : | Mr T W Kennedy |
| Second Defendant | : | Mr T W Kennedy |
| Third Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Douglas Cheveralls Lawyers |
| First Defendant | : | Kott Gunning |
| Second Defendant | : | Kott Gunning |
| Third Defendant | : | Not applicable |
Case(s) referred to in decision(s):
Agar v Hyde (2000) 201 CLR 552
Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256
Capital Bay Investments Pty Ltd v Richard Szklarz Architects Pty Ltd (Unreported, WASC, Library No 980503, 8 September 1998)
Chan v Cresdon Pty Ltd (1989) 168 CLR 242
Concut Pty Ltd v Worrell (2000) 176 ALR 693
Crayden v Ottaviano [2003] WASCA 20
Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 172 ALR 346
Hall v Hall [2007] WASC 198
John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716
Parker v Transfield Pty Ltd [2000] WASCA 382
Pyrmont Point Pty Ltd v Westacott [2016] NSWCA 33
Rollond v Bank of Western Australia Ltd (Unreported, WASCA, Library No 980498, 3 September 1998)
Starrs v Retravision (WA) Ltd [2012] WASCA 67
Terranova v Secure Funding Pty Ltd [2015] WASCA 229
The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd (2007) 35 WAR 412
Vautier Holdings Pty Ltd v Kagioulis [2014] WASC 209
Wildflower Electrical Refrigeration Service (WA) v Refrigid Pty Ltd [2014] WASC 382
TROY DCJ:
Introduction
In June 2013 the plaintiff leased commercial premises to the first defendant. The document setting out the agreement to lease the premises is described on its cover page as 'lease.' The following page commences with the words, 'this deed is made on the 19th day of June 2013.' I will refer to the document as a lease but will return to discuss its nature in more detail later in these reasons.
The third defendant was a party to the lease as a guarantor. Over the next three years arrears of rent built up. The lease was varied in September 2016. According to the variation of lease the second defendant became a guarantor. The first defendant continued to fail to pay rent. On 20 January 2017 the plaintiff terminated the lease and took possession of the premises.
The plaintiff commenced its action against the first and second defendants by writ dated 3 February 2017 in the sum of $489,625.03, being overdue rent, outgoings, and interest due under the 2013 lease agreement.
The first and second defendants were served with the writ on 6 February 2017. The third defendant, Jeffrey Alan Wickens is the sole director of the first defendant and the sole director and secretary of the second defendant.
Neither the first or second defendants entered appearances. Accordingly the plaintiff was entitled to enter judgment against the defendants in accordance with Rules of Supreme Court 1971 (RSC) O 13.1(2).
On 23 May 2017 Deputy Registrar Hewitt entered default judgment against the first and second defendants for $511,183.52 plus costs.
The third defendant entered an appearance on 14 June 2017.
The first and second defendants made an application to set aside that default judgment on 25 August 2017. Deputy Registrar Harman dismissed that application on 21 March 2018.
Setting aside a default judgment – applicable principles
The jurisdiction to set aside a default judgment is found in RSC O 13 r 10, which provides that: 'the Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order'.
The guiding principles are conveniently encapsulated by Gething AM in Wildflower Electrical Refrigeration Service (WA) v Refrigid Pty Ltd [2014] WASC 382 [9] ‑ [11] and [29] - [30], an analysis which I gratefully adopt.
The discretion in this rule is not qualified: Starrs v Retravision (WA) Ltd [2012] WASCA 67 [36] (Allanson J, with whom Pullin JA & Murphy JA agreed); Hall v Hall [2007] WASC 198 [63] (Newnes J). It is to be exercised 'so as to do justice between the parties, having regard to the circumstances of the case': Hall [63].
The defendants should only be denied the opportunity to proceed in the ordinary way, and after taking advantage of the usual interlocutory processes, if there is a high degree of certainty about what the outcome would be should this matter go to trial: Starrs [51]; Agar v Hyde (2000) 201 CLR 552 [57] (Gaudron, McHugh, Gummow & Hayne JJ); Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 [46] (Gleeson CJ, Gummow, Hayne & Crennan JJ).
There are, however, limits to the extent of the opportunity to be given to the defendants; they are only entitled to an opportunity sufficient to ensure the just resolution of the case: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 [98], [102] (Gummow, Hayne, Crennan, Kiefel & Bell JJ). In this regard, in exercising the discretion in RSC O 13 r 10 the case management considerations set out in O 1 r 4A and r 4B are relevant.
Different considerations apply depending on whether or not the judgment was regularly entered: Starrs [36] - [43]. Where, as is the present case, the judgment was regularly entered, the 'most cogent' consideration is whether the defendants have a defence on the merits: Crayden v Ottaviano [2003] WASCA 20 [16], [53] (Templeman J, with whom Murray J & Rolfe AJ agreed); Starrs [36].
Merit of defence
The focus in this appeal has been confined to the contended for lack of merit of the defence.
In order for it to be appropriate to set aside a default judgment, it must appear from the affidavit material before the court that the defendants' case is not inherently incredible and that if their evidence were accepted at trial they would have a real prospect of success: Rollond v Bank of Western Australia Ltd (Unreported, WASCA, Library No 980498, 3 September 1998), Malcolm CJ (with whom Kennedy & Owen JJ agreed), 36, 41; Parker v Transfield Pty Ltd [2000] WASCA 382 [3] Malcolm CJ (with Ipp & Wallwork JJ agreeing); Hall [67]; The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd (2007) 35 WAR 412 [55] (Judgment of the Court) [29].
The defendants are required to 'condescend upon particulars' of their defences: Vautier Holdings Pty Ltd v Kagioulis [2014] WASC 209 [10]. This may well require the defendants to provide the same level of detail as would be provided if they were responding to an application for summary judgment by the plaintiff: Vautier [10], [11]. [30].
I move, therefore, to a consideration of the merits of the defence.
I note that when the matter came before the deputy registrar, then counsel for the first and second defendants submitted that the first defendant had a complete defence to the plaintiff's claim. Counsel submitted that the plaintiff was not entitled to terminate the lease and re-enter the premises. Further, that the agreement by the variation to the lease in September 2016 was still on foot and the amount payable under that agreement was not yet due and payable.
That position was not maintained on appeal by Mr Kennedy who now appears for the defendants. There is no dispute that the plaintiff was entitled to outstanding rent together with interest due under the original lease. In her most recent affidavit dated 6 September 2018 the accounts manager for the plaintiff, Janelle Marie Farnham, attests that as of 31 January 2017 the first defendant owed $371,650 in rent. No particular issue was taken with that figure at the hearing before me.
The defendants do submit that there is a triable issue in relation to the asserted arrears of variable outgoings and the promotion levy, as I will discuss shortly. Ms Farnham provides a figure for outstanding interest to 31 December 2016 of $47,681.31. The plaintiff's entitlement to that interest depends on whether the amount owing by the defendants to the plaintiff is restricted to rent or also includes outgoings and the promotion levy.
Entitlement to outgoings
The first issue to be resolved is whether or not the plaintiff was entitled to claim outgoings ($59,218.35) and/or a promotion levy ($10,145.05), given the assertion that the plaintiff failed to comply with its budget and reconciliation requirements under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA).
Statutory requirements
Section 12 of that Act relevantly provides:
12.Landlord's operating expenses etc., effect of provisions in lease for payment by tenant of
(1)If provision is made in a retail shop lease for payment by the tenant, in addition to rent, of all or any of the operating expenses of the landlord —
…
(d)the retail shop lease shall be taken to provide that —
(i)the tenant is not required to make any payment of, and the landlord is not entitled to recover, any such operating expenses in respect of a year or part of a year until at least one month after the landlord has given to the tenant annual estimates of expenditure under each item of operating expenses in respect of the year; and
(ii)the landlord is required to give to the tenant a written statement in accordance with subsection (1a) (an operating expenses statement) that details all expenditure by the landlord in each accounting period of the landlord during the term of the lease on account of operating expenses to which the tenant is required to contribute.
Section 12B relevantly provides:
12B.Fund for marketing etc. retail shopping centre, effect of lease requiring payment by tenant into etc.
(1)This section applies if provision is made in a retail shop lease in respect of premises in a retail shopping centre for payments to be made by the tenant into a fund (other than a fund referred to in section 12A) or a reserve for marketing or promotion of the retail shopping centre or any similar purpose.
…
(3)The lease shall be taken to provide that —
(c)the landlord is to —
(i)keep full and accurate accounts of all money received or held by the landlord in respect of the fund or reserve; and
(ii)keep the accounts in such manner that they can be conveniently and properly audited; and
(iii)at the end of each accounting year cause the accounts to be audited by an auditor who is a registered company auditor within the meaning of the Corporations Act 2001 of the Commonwealth; and
(iv)within 3 months after the end of each accounting year deliver a copy of that report to the tenant;
…
(6)If a landlord does not comply with the requirement referred to in subsection (3)(c)(iv), the tenant is not obliged to pay, and the landlord is not entitled to recover, payments to the fund or reserve from the date of that noncompliance until the landlord complies with that requirement.
Did the plaintiff provide the reports?
Put shortly, there is a dispute between the parties as to whether the documents required under the provisions of the Act were provided to the first defendant so as to give rise to its liability to pay the outgoings and promotional levy.
In his first affidavit dated 25 August 2017 at [26] Mr Wickens asserted that at no stage during the lease did he receive an estimated outgoings budget for any coming lease year. Nor did he receive an audited outgoings reconciliation or an audited promotional levy reconciliation for any previous lease year. He reiterates that at [7.1] of his second affidavit of 24 January 2018.
On behalf of the plaintiff Mr Thorpe provided what he asserted to be true copies of the variable outgoings budgets for the Oceanic Retreat development, of which the premises formed a part, for the financial years ending June 2014, 2015 and 2016. He also provided true copies of audited outgoings reconciliation and statements of promotional expenditure: Thorpe 1 November 2017 affidavit at [23].
Mr Thorpe attests that Ms Farnham informed him that budgets and reconciliations are sent to all tenants as they are produced. Plainly it is in the interest of a commercial landlord to ensure that reports that are generated, in part at least, to give rise to a commercial tenant's liability to pay outgoings are, in fact, provided to the tenants. If they are not, the liability to pay outgoings does not arise. All the material before me satisfies me that the plaintiff is an experienced commercial landlord.
At [7.2] - [7.4] of his second affidavit, Mr Wickens asserted that the outgoings reconciliations showed that he was to receive a credit on outgoings of respectively $9,660, $5,555.48 and $5,283. Mr Wickens stated that to the best of his knowledge he has never received these credits.
In her first affidavit sworn on 3 November 2017 however, Ms Farnham attached a report, JMF-2 which revealed that a deduction of $22,548.30 was applied to the amount claimed from the defendants for outgoings. That amount is some $2,052.52 greater than the amount Mr Wickens referred to because one of the refunds was not applied until after the writ was issued.
Further, Mr Thorpe's second affidavit of 2 February 2018 included a full reconciliation, 'ACT 1'. That reconciliation showed that each of the credits have been applied as revealed by the fact that each amount referred to by the first defendant is circled and asterisked.
In her 6 September 2018 affidavit Ms Farnham stated that she was responsible for issuing the annual audit of variable outgoings and promotion levy upon their receipt from the auditors, RSM Bird Cameron Partners. Her practice was to send the reports to the plaintiff's centre manager each year with an instruction to distribute them to tenants.
Does the first defendant have an arguable case?
In essence the issue is whether it is arguable that for a period of three years the plaintiff erroneously failed to send any of these reports to the first defendant.
Ms Farnham stated that the centre manager employed by the plaintiff in 2015 reported that the tenants usually received statements using the particular process.
In Capital Bay Investments Pty Ltd v Richard Szklarz Architects Pty Ltd (Unreported, WASC, Library No 980503, 8 September 1998) Murray J referred to the judgment of Young J in John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716, 718 where his Honour held:
There may be cases, and indeed it may be the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed. It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt.
On the other hand, if proof of a claim was required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court. What more than assertion is required is something that may differ from case to case.
On the issue of whether the reports were sent, as they should have been, there is nothing more than Mr Wickens' assertion that he did not receive them. Similarly, Mr Wickens on behalf of the first defendant merely asserts that it has no record of ever receiving the credits I have referred to. Plainly, the first defendant would not have received such sums as a monetary payment. Rather they would be deducted from the outgoings that the first defendant was required to pay, assuming the reports were received, but did not. There is otherwise no challenge to the documents produced by the plaintiff indicating, as part of a reconciliation, that the credits had been applied.
In Capital Bay Investments Pty Ltd Murray J concurred with the approach of Young J that the court should look for proof that the claim was not fictitious or merely colourable.
Murray J also referred with approval to the holding of Emmett J in Eumina Investments Pty Ltd v Westpac Bank (1998) 16 ACLC 1440, 1442 – 1443:
What is required, in my opinion, is that I discern in the affidavit evidence in support of the application, material of some real substance, more than mere assertion, to show that there is a serious question to be tried as to the existence of a genuine dispute about the debt. If such material is available the application will succeed even though there might in the affidavits filed on behalf of the respondent appear to be a completely contrary view as to the relevant facts. The court will not, indeed may not, and is not required to resolve that kind of factual disputation upon the affidavits.
In my view Mr Wickens simply asserting a failure to receive any of the reports is no more than a bald denial. There is no accompanying particularity. There is no material suggesting that a proper system was not in place. The plaintiff is an experienced commercial landlord using reputable auditors and employing an accounts manager and a centre manager. It is innately implausible that none of the three reports were sent in 2014, or 2015, or 2016.
It plainly would not be in the interests of the plaintiff to fail to send such reports to its tenants, because the consequence of such failure is that the plaintiff would have to bear the cost of outgoings that would otherwise be the tenant's responsibility.
There is no particular reason why it would only be the first defendant that was the beneficial recipient of the plaintiff's error in this regard as opposed to other commercial tenants as well.
The first defendant has pointed to no correspondence raising the question of the missing reports either by him or indeed by other tenants.
I have the required high degree of certainty about the outcome of the case, should it go to trial, that justifies denying the first and second defendants the opportunity to proceed to trial in the ordinary way, so as to defend the claim for outgoings and/or levy on the basis that the first defendant did not receive the reports as required by the Act.
There is no merit in the first defendant's appeal against the decision of the deputy registrar refusing to set aside the default judgment.
Second defendant's triable defence
As I have noted, in the hearing before me the first defendant did not rely upon the primary basis for argument before the deputy registrar. Similarly, in respect of the second defendant on appeal it relied upon an argument not to put before the deputy registrar.
Lack of registration of lease
Counsel noted that under the deed of variation of September 2016 item 4(iv) of the schedule purported to add the second defendant as a guarantor to the lease. In his accompanying affidavit counsel noted that certificate of title for the land of which the premises forms a part was cancelled on or around 23 December 2010.
Counsel submitted that the lack of registration of the lease means that it took effect as an equitable lease, not as a legal lease. On behalf of the plaintiff it was not suggested that the lease was a registered legal lease. Rather, it was an equitable deed or agreement.
An equitable lease will have identical terms but is distinct from the legal lease: Pyrmont Point Pty Ltd v Westacott [2016] NSWCA 33 [59] citing Chan v Cresdon Pty Ltd (1989) 168 CLR 242.
In written submissions, at least, counsel appeared to suggest that there was an ambiguity in identifying the relevant premises. The 'premises', according to the lease, being that part of the 'building'. The 'building' in turn specified as being the improvements erected on the 'land'. The 'land' in turn being defined as lot 313 on deposited plan 41764, being the whole of land contained in certificate of title 2586 Folio 350.
Given that the first defendant occupied the premises from May 2011 until the termination of 20 January 2017, in my view it cannot be sensibly contended that there is any ambiguity as to the premises with which this lease is concerned.
Terms of deed variation
The deed of variation is entitled, 'variation of lease'.
This deed records in Recital A that the lessee (first defendant) has a leasehold estate in the premises pursuant to a lease.
Lease is defined by cl 1 as meaning,
The lease and each assignment, renewal, extension or variation specified in item 2 of the schedule.
Item 2 in the schedule refers to a lease dated June 19, 2013 between the lessor (the plaintiff), the lessee (the first defendant) and the first‑named guarantor (the third defendant).
The deed records in Recital B the agreement of the parties, namely the plaintiff and the first, second and third defendants, to vary the terms of the June 2013 lease to enable additional parties to become lessee and guarantor in the manner set out in the deed of variation.
The lease was varied in the manner set out in item 4 of the schedule, although variations 4(i) and (ii) were conditional upon the events set out in 4(iii) occurring. It is now accepted that they did not.
As noted, item 4(iv) added the second defendant as a guarantor to the lease.
Effect of entering into a further contract
I am quite satisfied that the deed of variation refers back to the original lease of 19 June 2013.
As Gleeson CJ, Gaudron, McHugh & Hayne JJ held in Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 172 ALR 346 [23], as cited by Gleeson CJ, Gaudron & Gummow JJ in Concut Pty Ltd v Worrell (2000) 176 ALR 693 [19]:
When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists.
As Gleeson CJ, Gaudron & Gummow JJ explained in Concut [19] an earlier contract might be rescinded altogether, the determining factor being the intention of the parties disclosed by the later agreement. Or, the partial rescission is a variation not the destruction of the contractual relationship between the parties. Or, the earlier contract may be varied by way of (i) partial rescission with or without the substitution of new terms for those rescinded and (ii) the addition of new terms with or without any partial rescission at all.
In the present case there is nothing in the deed of variation itself, or the surrounding circumstances, to indicate that the manifest intention of the parties was that there was a discharge of the prior contractual relationship between the parties. All of the text of the deed of variation points to the contrary. Clause 2 provides that the deed is supplemental to the lease. Item 4(vi) of the schedule provides that all other terms and conditions of the lease remain of full force and effect.
In my view the deed of variation unambiguously contemplates that the lease was to continue but, assuming that the lessee discharged its obligations under item 4(iii), it would enjoy a partial forgiveness of outstanding arrears of rent together with a net reduction of rent. The lessee did not however comply with item 4(iii).
Effect of a failure to register a lease upon a guarantee
Chan v Cresdon is the leading case which considered the effect of a failure to register a lease upon a guarantee. Martin CJ considered it in Terranova v Secure Funding Pty Ltd [2015] WASCA 229 (Newnes & Murphy JJA agreeing).
As Martin CJ explained in Terranova [48]:
[Chan] concerned a claim by a lessor against guarantors who had guaranteed the performance by the lessee of its obligations 'under this lease'. The lease was for a term of five years, but it was not registered under the Real Property Act 1861 (Qld) with the result that it was not 'effectual to pass any estate or interest in the land'. However, the lessee's entry into possession and payment of rent created a tenancy at common law. The question for determination was whether the obligations of the lessee under the tenancy at common law were obligations 'under this lease' and therefore within the scope of the guarantee. The High Court held that the lessee's obligation to pay rent did not arise 'under this lease' and was not therefore the subject of the guarantee.
At [49] Martin CJ noted the following passage from the judgment of the majority:
[T]he obligation to pay rent under that covenant in the common law tenancy at will was not, in our opinion, an obligation 'under this lease'… The implied or imputed common law tenancy at will was distinct from the unregistered lease which, as will be seen, s 43 rendered ineffectual as a tenancy at common law. The word 'under', in the context in which it appears, refers to an obligation created by, in accordance with, pursuant to or under the authority of, the lease. The obligation which arose under the common law tenancy at will does not answer this description.
Martin CJ went on to note in Terranova [50]:
In Chan v Cresdon Pty Ltd the court identified two distinct potential sources of the lessee's obligation to pay rent. One potential source was the obligation created by the execution of the lease document. The other potential source was the obligation created by the lessee entering into possession and paying rent. The guarantor had guaranteed performance of the former obligation by guaranteeing the performance of all obligations owed under this lease but had not guaranteed the performance of the obligation arising under the common law tenancy. Because the lease document was ineffective to pass any estate or impose any obligation until registered, the lessee's obligation to pay rent under the tenancy at common law was not an obligation falling within the scope of the guarantee.
As was case in Terranova the circumstances of the present case, as Mr Douglas points out, are quite different. It was the use of the phrase 'this lease' as an undefined term that created the difficulty for the landlord in Chan v Cresdon, because it required identification of a lease that did not yet exist. The document had not yet been completed or registered in order to make it a lease. It was still just an agreement or a deed.
In Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 Edelman J, then sitting as a Justice of the Supreme Court of Western Australia, also distinguished Chan v Cresdon noting at [111]:
Clause 24.3 (one of the clauses under consideration in Alonso) is markedly different from the clause which the High Court of Australia considered in Chan and which the New South Wales Court of Appeal considered in Barecall. Clause 24.3 applies the 'force and effect' of the guarantee not merely to the situation in which the Lessee 'occupies or is entitled to occupy the Premises under this Lease' but also to 'any form of tenancy or right of occupation' including where the Lessee 'holds an equitable interest in the Premises under an agreement for lease'.
His Honour also observed [112]:
A further difference between the guarantee in the Lease and the guarantees in Chan and Barecall is that the guarantee in the Lease was not expressed to be given in consideration of the entry into the lease, or in consideration of the grant of the 'within lease'.
The guarantee under cl 8 of the Lease
So, it is necessary to look at the guarantee in the present case. Clause 8 of the Lease is entitled 'Guarantee and Indemnity' and reads:
8.1guarantor and indemnity
in consideration of the lessor at the request of the guarantor entering into this deed, the guarantor:
(a)guarantees the due and punctual:
(i)payment to the lessor of the rents without deduction; and
(ii)the observance and performance of the lessee's covenants.
I note that the reference to payment of rent without deduction is a reference to item 5 of the schedule which provides for monthly rent of $12,086.25 plus GST on the first day of each month.
The clause does not refer to monies that are, for example, 'payable pursuant to a registered lease'. Rather, it is a specified amount of money that the guarantor has guaranteed the punctual payment of, together with his guarantee of the observance and performance of the lessee's covenants. 'Lessee's covenants' are defined under clause 1.1 as being,
The covenants, agreements and obligations contained or implied in this deed or imposed by law to be observed and performed by any person other than the lessor.
Clause 8 continues:
(b)indemnifies the less or against
(i)any loss, damage, cost or expense suffered or incurred by the lessor by reason of any breach of the lessee's covenants;
(ii)any action, claim, or demand, instituted or made against the lessor in relation to this deed; and
(iii)the costs referred to in clause 3.6
(c)covenants with the less or on demand to pay to the lessor:
(i)the rent or each part of the rent demanded;
(ii)interest at the rate on each part of the rent from the date on which that part becomes payable until payment.
Clause 8.3 is entitled 'Continuing guarantee and indemnity' and reads:
notwithstanding anything contained in this deed the obligations of the guarantor under this deed are an irrevocable and continuing guarantee and the guarantor will not be wholly or partially released from the obligations under this deed by any matter or thing including, but not limited to … and then 13 eventualities are set out as particularised at (a) to (m).
Conclusion on defence of second defendant
None of the guarantor's extensive obligations under this clause are referrable to the guarantor or the lessee's obligations 'under this lease.' The difficulty that arose in Chan does not arise here.
I accept, as noted by Edelman J in Alonso at [121] that the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety.
I also note his Honour's observations at [118] that:
The reference to 'covenants, agreements and duties contained or implied in this Lease' is not materially different from the phrases 'obligations … to be performed under this lease' or duties in 'the within lease' which were considered in Chan and Barecall respectively. As I have explained, in those cases it was held that liability only arose if the lease were registered. The words 'in this lease' attract the same response.
In the document that I am considering however, as I have noted clause 8.1 commences with, in consideration of the lessor at the request of the guarantor entering into this deed. Although the document is described on its cover page as 'Lease' the body of the document commences with the words 'this Deed is made on the 19th day of June 2013.'
The document does not go on to read, 'guarantees under the lease or under this lease' the 'due and punctual …' Rather, it reads 'guarantees that due and punctual ... payment of rent.'
The deed also requires the guarantor to guarantee performance of the lessee's covenants. I have noted the definition under cl 1.1. In defining covenants no reference is made to 'under this lease.'
The obligations of the first defendant and the third defendant under the lease, joined by the second defendant as a consequence of item 4(iv) of the schedule to the deed of variation, are in this case quite unambiguous.
They encompass an obligation to guarantee the payment of the rent without deduction to the lessor and to indemnify against any loss or damage suffered or incurred by the lessor, as a result of any breach of the lessee's covenants which, of course, includes a requirement to pay the rent within seven days after the due date.
There is no merit in the second defendant's submission that the guarantee under the deed of variation is unenforceable against the second defendant.
Belief of third defendant
I accept that the third defendant is the 'controlling mind and will' of the second defendant. I accept that under item 4(v) the lessee and the guarantor charge all real property as security for the performance of their obligations under the lease, and would arrange a deed of priority to enable the registration of a second mortgage for the sum of $120,000.
The third defendant's contended for belief that the second defendant was only standing as a guarantor limited to $120,000 under item 4 of the schedule is nonetheless quite irrelevant. If it was a belief that was actually held by the third defendant it was plainly wrong and is not borne out by any clause of the deed of variation.
Conclusion
I have the required high degree of certainty about the outcome of the case, in terms of the enforceability of the guarantee as against the second defendant should it go to trial, that justifies denying the second defendant the opportunity to proceed to trial in the ordinary way on this basis also.
There is no merit in the second defendant's appeal against the decision of the deputy registrar refusing to set aside the default judgment.
Order
The application by the first and second defendants to appeal against the decision refusing to set aside the default judgment is dismissed. I will hear the parties as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
MW
ASSOCIATE TO JUDGE TROY16 OCTOBER 2018
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