Tebb v Filsee Pty Ltd; Tebb v KKV Pty Ltd - [2010] VSCA 311

SUPREME COURT OF VICTORIA

COURT OF APPEAL

ROBERT TEBB	S APCI 2009 3818
ROBERT TEBB	Appellant
v
FILSEE PTY LTD (ABN 11 084 496 239) and GATELL PTY LTD (ABN 17 084 496 202)	Respondents
and
S APCI 2009 3819
ROBERT TEBB	Appellant
v
KKV PTY LTD (ACN 075 355 145) and CARONVALE PTY LTD (ACN 074 605 897)	Respondents

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JUDGES	NETTLE, REDLICH and HARPER JJA
WHERE HELD	MELBOURNE
DATE OF HEARING	7 October 2010
DATE OF JUDGMENT	24 November 2010
MEDIUM NEUTRAL CITATION	[2010] VSCA 311
JUDGMENT APPEALED FROM	[2009] VCC 0791 (Judge Anderson)

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GUARANTEES – Securities for obligations of lessee – Default by tenant in payment of rent and land tax – Failure to remedy breach – Repudiation and re-entry by landlord – Licence arrangement to permit tenant’s access to premises in return for immediate payment of a portion of arrears and land tax, resolution of the balance of indebtedness by payment of fees equal to the rent payable under terminated lease and reinstatement of bank guarantees – Failure to comply with all further conditions – Whether guarantees continued to apply or were discharged or extinguished on termination of the leases and grant of the licence – Whether by entry into the licence the landlords fully mitigated their loss such that the landlords’ damages were nil – Progressive Mailing House v Tabali (1984–1985) 157 CLR 17 distinguished – Koch Marine Inc v D’Amica Di Navigazione ARL [1980] 1 Lloyd’s Rep 75 and Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254 considered – Appeal dismissed.

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Appearances:	Counsel	Solicitors
For the Appellant	Mr V R W Gray	Somerset Ryckmans through their Melbourne agents Herman Partners Consulting Lawyers
For the Respondents	Mr M A Robins	Nathan Kuperholz

NETTLE JA:

REDLICH JA:

We have had the advantage of reading in draft the reasons for judgment of Harper JA and we agree that the appeal should be dismissed. We wish to add only some observations as to the principal oral argument advanced by counsel for the appellant.

As is explained in Harper JA’s reasons, the respondents’ claim at first instance was for damages for breach of a lease dated 24 September 2004. By the lease, the respondents leased premises at Lot 1, Justin Road, Brooklyn to Precision Container Services Pty Ltd (‘Precision’) for a term of five years beginning on 6 September 2004. It was not in issue that Precision repudiated the lease or that, as a matter of principle, damages for repudiation of the lease were to be assessed in accordance with contractual principles.[1] What was in issue was whether and to what extent the damages were to be reduced to take account of the fact that, following repudiation and forfeiture of the lease, the respondents entered into a further agreement with Precision to licence the premises to Precision for a period corresponding to the remainder of the term of the forfeited lease.
[1]Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] VSCA 311
Decision Date: 24 November 2010

CaseChat Overview and Summary

In the case of Tebb v Filsee Pty Ltd; Tebb v KKV Pty Ltd, the dispute arose between the landlords, Tebb, and their respective tenants, Filsee Pty Ltd and KKV Pty Ltd. The landlords had provided bank guarantees to secure the tenants' obligations under their leases. Following the tenants' default in payment of rent and land tax, the landlords repudiated the leases and re-entered the premises. An arrangement was subsequently made to permit the tenants' access to the premises in return for immediate payment of a portion of the arrears and land tax, with the balance of the indebtedness to be resolved by the payment of fees and reinstatement of the bank guarantees. The tenants, however, failed to comply with all further conditions of the arrangement. The central issue before the court was whether the guarantees continued to apply or were discharged or extinguished upon the termination of the leases and the grant of the licence, and whether the landlords had fully mitigated their loss such that their damages were nil by entering into the licence arrangement.

The court examined the legal principles surrounding the guarantees and the circumstances of the tenants' default and the landlords' actions. It distinguished the case from Progressive Mailing House v Tabali, where the court held that a landlord was not required to mitigate losses by taking reasonable steps to re-let the premises. The court considered the cases of Koch Marine Inc v D’Amica Di Navigazione ARL and Luxer Holdings Pty Ltd v Glentham Pty Ltd, which dealt with the effect of a licence agreement on the underlying lease and security interests. The court held that the guarantees remained in effect as they were not expressly discharged by the licence and the tenants' failure to comply with the terms of the licence did not affect the enforceability of the guarantees. The landlords' damages were not nil as they had not fully mitigated their loss by entering into the licence arrangement.

The appeal was dismissed, and the landlords were entitled to claim the amounts due under the guarantees. The court held that the landlords were not required to mitigate their losses by entering into the licence arrangement, as the arrangement was not a reasonable step to mitigate the loss. The guarantees remained valid and enforceable, and the landlords were entitled to claim the amounts due under the guarantees from the tenants. The court further held that the landlords had not fully mitigated their loss by entering into the licence arrangement, as the arrangement was not a reasonable step to mitigate the loss.

Orders