White v Cariste Pty Ltd

NEW SOUTH WALES COURT OF APPEAL

CITATION: White & Ors. v. Cariste Pty. Ltd. [2004] NSWCA 460

FILE NUMBER(S):
40871/03

HEARING DATE(S): 16 August 2004

JUDGMENT DATE: 15/12/2004

PARTIES:
Robert M.S. White - 1st appellant
Reginald James Court - 2nd appellant
Merrilyn Brookes Court - 3rd appellant

JUDGMENT OF: Hodgson JA Ipp JA Bryson JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 9704/00

LOWER COURT JUDICIAL OFFICER: Twigg DCJ

COUNSEL:
Mr. G. Sirtes for 1st appellant
Mr. J. Miller for 2nd & 3rd appellants
Mr. A.S. Martin SC with Mr. G. Colman for respondent

SOLICITORS:
Stuart & Mills, Sydney for 1st appellant
Walls & Rodriguez, Castle Hill for 2nd & 3rd appellants
Hunt & Hunt, Eastwood for respondent

CATCHWORDS:
LEASE
GUARANTEE - Clause in lease whereby directors of lessee company guarantee performance of "all the terms and conditions hereof" - Whether applicable to tenancy arising in holding over - Whether applicable after change to rent payable following about 18 months of holding over.

LEGISLATION CITED:

DECISION:
1. Appeal by Mr. White allowed. 2. Appeal by Mr. and Mrs. Court allowed. 3. Cariste to pay Mr. White and Mr. and Mrs. Court's costs of the appeal, and to have a Suitors' Fund certificate if otherwise eligible. 4. Judgments against Mr. White and Mr. and Mrs. Court below set aside, and in lieu thereof judgments for Mr. White and Mr. and Mrs. Court, and order that Cariste pay Mr. White's and Mr. and Mrs. Court's costs of the proceedings.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES
COURT OF APPEAL

CA 40871/03
DC 9704/00
HODGSON JA
IPP JA
BRYSON JA
Wednesday 15 December 2004

WHITE & ORS. V. CARISTE PTY. LIMITED

Judgment

HODGSON JA: On 12 September 2003, Twigg DCJ gave reasons for judgment in proceeding in which Cariste Pty. Ltd. (Cariste) sued Surtec Geosurveys Pty. Ltd. (Surtec), Robert White, Reginald Court and Merrilyn Court for amounts claimed to be due pursuant to a lease and guarantee, and in which Mr. White had put on a cross-claim against Mr. and Mrs. Court and Mr. and Mrs. Court had put on a cross-claim against Mr. White, each such cross-claim seeking contribution. Pursuant to those reasons, the primary judge gave a verdict for Cariste against all defendants in the sum of $181,052.58, and ordered the defendants to pay Cariste’s costs; and dismissed both cross-claims, making no order as to the costs of the cross-claims.
Mr. White and Mr. and Mrs. Court have appealed from that decision.
CIRCUMSTANCES
On 27 April 1988, a lease was executed by Cariste as owner and Surtec as lessee, and by Mr. and Mrs. Court and Mr. White (all of whom were then directors of Surtec) as guarantors. The lease was for a period of three years from 1 September 1987 to 31 August 1990, with an option for a further three years (which was not exercised).
The leased premises were described as “part of the premises known as No.859 Pacific Highway, Pymble and being Suites 8 and 9 of the first floor of said premises”. The lease incorporated Memorandum V414768 filed in the Registrar-General’s office, with certain insertions and amendments.
That memorandum included the following provisions:
ARTICLE 2: RENT
2.01YEARLY RENT: The lessee will during the term pay to the lessor free from all deductions in each year the rent and other payments (if any) specified calculated and payable in the manner provided in Schedule 3 hereto.
ARTICLE 3: OUTGOINGS
3.01REIMBURSEMENT OF INCREASED OUTGOINGS: In addition to the annual rent payable as aforesaid the lessee will reimburse the lessor within 30 days of receipt of notice in writing of the Lessee's proportion of such increase in outgoings, from the lessor for a percentage of each of the annual outgoings as specified in sub-paragraph (i) to (v) inclusive of this Article 3.01 payable by the lessor in relation to the building to the extent that the amounts so payable are in excess of the amounts paid or assessed in respect of the year ending 19(a) (such excess being hereinafter described as “the increased outgoings”).
(i)rates, taxes, charges and assessments at any time or from time payable to the Government, Local Government semi-Government or other competent Authority in respect of the building or the land on which it is erected, including Land Tax but calculated on the basis that the land is the only land owned by the lessor.
(ii)insurance on or in respect of the building or any equipment or appliances in the nature of fixtures therein against fire explosion storm and tempest damage by aircraft and by impact and against such other risks as the lessor may from time to time require.
(iii)the costs of maintenance contracts and of managing the building (including charges for garbage removal and security services) and operating or providing any of the services therein for the time being operated or provided including but without limiting the generality of the foregoing any lift services and any air conditioning plant or equipment.
(iv)costs of caretaking, cleaning, repairing and maintaining (but not including repairs of a structural nature) the building (including the demised premises) and all the services therein in first class order and repair, and
(v)charges for lighting power and heat incurred in connection with any forecourts entrances halls passages stairways landings lifts lobbies and other common areas and in connection with the services of the building.
The percentage applicable to the demised premises is (b).
3.02       DETERMINATION OF OUTGOINGS:
(a)The lessor shall compute and determine the aggregate of the outgoings of the building and relating specifically to the demised premises for the period twelve (12) months immediately preceding and expiring on the 31st December in each year of the term hereof (hereinafter called the review of outgoings). As soon as practicable after each review of outgoings the lessor will furnish particulars thereof by way of statement to the lessee and except in the case of manifest error notified by either the lessor or the lessee the one to the other with thirty (30) days of the service of such statement on the lessee such statement shall be prima facie evidence as to the matters stated therein.
(b)The first such review of outgoings shall be made by the lessor as at the (c).
3.03       PAYMENT BY LESSEE OF PERCENTAGE OF INCREASED OUTGOINGS:
The lessee covenants and agrees with the lessor that the lessee shall pay to the lessor without demand from the lessor free of exchange and without any deduction whatsoever the amount equivalent to     percentum ( %) of the increased outgoings (hereinafter called “the percentage of increased outgoings”) not later than thirty (30) days after service upon the lessee of the statement referred to in Clause 3.02(a) of this Article PROVIDED ALWAYS in the event that the net lettable (sic) area of the building is either increased or decreased by the lessor at any time during the term hereof the percentage of increased outgoings shall be in proportion that the area of the demised premises bears or then bears to the net lettable (sic) area of the building as increased or decreased as the case may be.
3.04       PAYMENT BY LESSEE ON ACCOUNT OF INCREASED OUTGOINGS:
Notwithstanding the provisions of Article 3.03 hereof the lessor will from time to time notify the lessee of the lessor’s reasonable estimate of the lessee’s proportion of the increased outgoings for any period not exceeding one (1) year in advance of the estimate whereupon the lessee will pay to the lessor during such period such estimated proportion by equal monthly instalments in advance on the first day of each month PROVIDED ALWAYS that upon the review of outgoings as at the 31st December of the then current year any necessary adjustments between the estimated and actual percentage of increased outgoings payable by the lessee shall be made and any refund to or further payment by the lessee shall be allowed or made by the lessor or the lessee accordingly.
ARTICLE 13: LESSOR’S COVENANTS
The lessor covenants with the lessee that:-
13.01     QUIET ENJOYMENT: The lessee paying the rent hereby reserves and duly and punctually observing and performing the covenants obligations and provisions in this lease on the part of the lessee to be observed and performed shall and may peaceably possess and enjoy the demised premises for the term hereby granted without any interruption or disturbance from the lessor or any other person or persons lawfully claiming by from or under the lessor.
13.02     HOLDING OVER: In the event of the lessee holding over after the expiration or sooner determination of the term granted by this demise with the consent of the lessor the lessee shall become a monthly tenant only of the lessor at a monthly rental equivalent to a monthly proportion of the total yearly rent including contribution to outgoings payable by the lessee hereunder at the expiration or sooner determination of such term and otherwise on the said terms and conditions mutatis mutandis as those herein contained so far as applicable which monthly tenancy shall be determinable by a month’s notice in writing from either party hereto to the other expiring on any day.
ARTICLE 17: GUARANTEE
17.01      This lease has been granted to the lessee at and in consideration of the request and by the direction of (e) and in consideration of the lessor so granting the said (e) as evidenced by their execution hereof guarantees the due performance by the lessee of all the terms and conditions hereof and covenants that they will upon demand pay to the lessor all moneys which may become due to the lessor herein and remain unpaid for a period of seven (7) days and will be responsible for the due compliance by the lessee with all the terms and conditions hereof in the same manner and to the same extent as if they were parties hereto and covenanted jointly and severally as lessee without the necessity of the lessor giving any prior notice to them requiring the payment of any such moneys or to remedy any default by the lessee and any concession or waiver of any condition or requirement given by the lessor to the lessee shall not relieve or release the said (e) from their liability under the covenant.
The building referred to in Article 3 was defined in Article 1.08 as meaning the building of which the demised premises formed part, with some elaborations. Schedule 3 of the memorandum provided for payment of rent at a rate to be specified for the first year of the lease and for a CPI increase for the later years.
The lease document provided the following insertions in the memorandum. As regards Article 3, (a) and (b) in paragraph 3.01 were identified as 1986 and 8% respectively, (c) in Article 3.02 was identified as 31/12/87, and (b) in Article 3.03 was identified as 8%. The rent referred to in Schedule 3 was identified as $19,600.00 per annum, payable in advance by monthly instalments. The guarantors referred to by (e) in Article 17 were identified as Mr. and Mrs. Court and Mr. White, and there was in fact another guarantee clause in identical terms which also set out these names as guarantors.
Also on 27 April 1988, Cariste and Surtec entered into a car parking licence agreement, whereby Cariste granted to Surtec the non-exclusive right and licence to park two cars in spaces 7 and 8 in the car parking area in the building, until the expiry of the lease or sooner determination, for a fee of $60.00 per car space per month, payable monthly in advance.
After expiry of the lease on 31 August 1990, Surtec remained in occupation, and it is common ground that for a time at least cl.13.02 applied to that occupation.
In June 1991, Mr. White sold his shares in Surtec and ceased to be a director and to have any other involvement in Surtec.
On or about 27 February 1992, there was a conversation between Peter Roach, a director of Cariste, and Mr. Court concerning the possibility of a new lease being entered into.
Mr. Court made the following notes of the conversation:
1.Rent reduced to $343.00 per week. This will include 2 U/C car spaces and 1 O/A.
2.Pay same share of outgoings.
3.Roach to carpet office.
4.Sign 2 year lease with 2 year option – rent increases 8% end of one year then by CPI only for following 3 years.
5.Re-wire office to 20 amp.
6.New rate starts 1 March.
7.Will try to put sink in room over stairs.
8.Sign heads of agreement ASAP then lease when work done.
9.Roach will have hallway painted plus exterior of bld.
On 28 February 1992, Mr. Roach sent Mr. Court a letter in the following terms:
We hereby confirm the arrangements made yesterday.
1.Continue to occupy the present area under the lease plus 2 U/C and 1 outside car space (No.9).
2.            Power faults to be rectified.
3.            Part or full new carpet.
4.            Sink in room above entry if possible.
5.            Rental is $343 p.w. nett which is $1,486.33 p.c.m.
6.            2 + 2 lease with 8% increases after 1 year.
7.            During the option increases by C.P.I.
The lease would be subject to items 2, 3 and 4 being completed within 4 weeks of the lease being signed.
Would you please sign a copy and return by fax.
Mr. Court responded with a letter dated 2 March 1992 in the following terms:
This letter is intended to confirm the arrangements made by telephone on the 27th of February 1992 concerning the office space we currently rent from you at Suite 9, level 1, 859 Pacific Highway, Pymble.
Set out below are the [undecipherable] arrangements.
1.            SURTEC will continue to occupy its current office space leased from CARISTE and SURTEC will have 2 undercover and one open car space included in the rental.
2.            SURTEC will pay CARISTE a rental for the office space and 3 car parking spaces of $343/week nett which is $1486.33 per calendar month. This new rental rate, which will be paid one month in advance, will be effective from the first of March, 1992.
3.            CARISTE will have the following work carried out as soon as is practicable:
(a)The office will be entirely re-carpeted, and such carpet should be acceptable to SURTEC.
(b)Power fault to be rectified – 20amp power throughout office.
(c)If at all feasible, a sink with hot and cold water installed in the room above the stairway.
(d)The common area in the stairway will be painted and improved.
4.            Subject to the satisfactory completion (within 4 weeks of today’s date) of work listed in point 3 above, SURTEC and CARISTE will enter into a commercial lease agreement for the office space. Key terms will be:
(a)The period of the lease will be 24 months and SURTEC shall have the option to renew for a further 24 months. Should SURTEC take up such an option, rental rate would be increased by CPI only.
(b)After the first 12 months, the rental rate will be increased by 8% and thereafter by CPI on an annual basis.
(c)The lease will commence on the first of April, 1992.
I trust the points outlined above are as understood by you. If so, would you please sign below and FAX me the signed copy.
Mr. Roach did sign this document as being a true record of their understanding and dated the signature 2 March 1992. He subsequently noted on his own copy after paragraph 4(c) the following: (d) 8% o/goings and (c) personal guarantees.
Mr. Roach gave evidence, accepted by the primary judge, that after about two weeks he had a conversation with Mr. Court in which Mr. Court said he did not want to commit to a further two year lease at this time, and went on to say “We will just stay with the existing arrangements”. The work was not carried out, and no new lease was signed. However, according to agreed facts signed by Counsel for all parties:
From early April 1992, the rent payable by the First Defendant [Surtec]:
(i)was $1,486.33 per month;
(ii)covered Suites 7 and 8, 859 Pacific Highway, Pymble;
(iii)covered car spaces 7, 8 and 9 (which were used by the First Defendant).
Surtec’s payments of rent fell into arrears in 1992. On 9 October 1992, Cariste sent the following letter to Mr. Court:
Re: Tenancy Payments
1991       Outgoings  $1,937.39
1992 Outgoings Jan-July 7 x 190       $1,330.00               $3,267.39
August Rent  $1,486.33
August Outgoings  $    190.00
$1,676.33               $4,943.72
September Rent & Outgoings  $1,676.33               $6,620.02
October Rent & Outgoings  $1,676.33               $8,296.35
Reg, could we please have some money. We will have to charge interest at 15% on outstanding funds as of 1 October 1992.
The copy of the letter in evidence had a handwritten addition at the end of figures “Less 1992 Outgoings already paid – 2 x 190 - $380.00”; and showing a figure owing arrived at by deducting $380.00 from $8,296.35, namely $7,916.35. It is common ground that a sum of $380.00 had been paid by Surtec to Cariste some time prior to 9 October 1992.
Mr. Roach gave evidence, accepted by the primary judge, that on about 18 October 1992 he had a conversation with Mr. Court in which he said “Reg, please acknowledge in writing that you are holding over under the original lease on a reduced rental”. Following that conversation, Mr. Court sent Mr. Roach a letter dated 20 October 1992, in the following terms:
This letter will confirm our earlier verbal advice that we acknowledge your amended statement of our account for rental of office premises at Suite 9, 859 Pacific Highway, Pymble.
A copy of your statement is attached with amendments as agreed. Please note that since your statement of the 9th of October we have paid the amount of $1,676.33 bringing the present total owing to $6,240.02.
We would also like to confirm that we are renting the above named premises from you on a monthly basis for $1,486.33/month plus $190.00/month for outgoings. We further acknowledge that the conditions of our lease are as defined in the original lease documents but at rates as set out above.
Hoping this is to your satisfaction.
Surtec remained in occupation until 30 September 1997, when possession was surrendered and accepted by Cariste. Over the period between March 1992 and 30 September 1997, Surtec made a number of payments amounting to $1,676.33, being the sum of the monthly figure of $1,486.33 and the monthly outgoings figure of $190.00. Such a payment was made in October 1992, March 1993, July 1993 (twice such amount), November 1993 (twice such amount), January 1994, May 1995, June 1995, November 1995 (five times such amount), January 1996, April 1996 (twice such amount), May 1996, December 1996, February 1997 (twice such amount) and April 1997. In addition, payments of $10,000.00 were made in September 1994 and October 1996, each such payment amounting to approximately six times the monthly figure. That means that, for the period of approximately 67 months, payments for about 34 months were made. In addition, as mentioned earlier, a payment of $380.00 in respect of outgoings was made some time between March 1992 and 9 October 1992.
It is common ground that Cariste was entitled to judgment for the sum of $181,052.58 against Surtec for rent, outgoings and interest. The issue contested below and on appeal is whether the guarantors are liable.
DECISION OF PRIMARY JUDGE
The defence of the guarantors was to the effect that the lease was terminated on or about 2 March 1992, because thereafter Surtec was occupying the premise pursuant to a new lease (described in Mr. White’s defence as a periodic tenancy pursuant to s.127 of the Conveyancing Act 1919). Mr. White also relied on a contention that the guarantee did not in any event apply after expiry of the lease on 21 August 1990.
The primary judge held that the guarantee did apply to the obligation of the lessee holding over under Article 13 of the lease.

As regards the argument based on termination of the existing lease and the entry into a new lease, the primary judge noted that the work referred to in the letter of 2 March 1992 was not done, and that a new lease was neither executed nor even prepared. He noted that the letter of 20 October 1992 did not refer to a new lease. Subsequently he said:
As to the submission that the lease came to an end in March 1992, the Plaintiff was expressly authorised under clause 17.01 to give a concession without the guarantor being released from their liability. The Plaintiff is not obliged to sue only for the highest payments due under the lease nor need the Plaintiffs seek specific performance. The Plaintiff seeks to recover for breach of the terms of the lease. If the Plaintiff sues for a lesser sum as the lease permits, that does not amount to an admission that it is bound by a limitation that there is a new rent. Clause 17.01 determines the relevant liabilities of the parties, including any concession or waiver of any condition or requirement. These words are in the widest of terms.
The submission that the holding over period is a fresh demise confuses the period of the operation of the demise with the demise itself. The period of the lease is only one of the terms of the demise, as is clause 13.02. Upon continuing to occupy the premises, the lessee is bound under clause 13.02, until such time as it gives written notice to determine the holding over, or by some other means such as operation of law to bring it to an end. As the guarantors bind themselves under clause 17.01 to perform all the obligations of the lessee, then they are jointly and severally bound with the lessee.
Later on he said this:
The Defendants maintain, as I have outlined in detail, that there was clearly created in 1992, a new demise, so that the right of the parties was not governed by the subject lease, but by a new agreement. They submit that I should construe the terms of the subject lease strictly. The onus is on the Defendants to show that a new demise came into existence.
Having so construed the lease and the evidence, I am of the view that there was no new demise created. The documents and discussions were negotiations for a possible new agreement as to occupancy, but did not amount to a new lease, which could be specifically enforced in equity. The Plaintiff offered a concession regarding rent, and it has elected to sue, claiming a lower interest rate that (sic) the higher amount available in the lease.
The holding over clause validly continued to define the obligations of the parties. Construed strictly, it has terms and conditions that define the obligations of the parties; there is no ambiguity that leads to any other interpretation. Both in the holding over clause and the guarantee clause, there is sufficient definition to make the parties aware of the obligations. I reject the submission of the Defendants that there were no clear terms. The parties intended to be bound by the subject lease, not any other arrangements.
GROUNDS OF APPEAL
Mr. and Mrs. Court rely on the following grounds:
1.The Trial Judge erred in finding that the Appellants were liable to the Respondent, after 31 August 1990 or alternatively after 1 April 1992, pursuant to the guarantee executed by the Appellants under a lease executed on 27 April 1988 between the First Defendant ("the lessee") and Respondent ("the Lease").
2.The Trial Judge erred in law in construing the guarantee as extending to any period after the termination of the three year term of the Lease.
3.The Trial Judge erred in finding that the lessee, after 1 April 1992, was holding over under clause 1302 of the Lease.
4.The Trial Judge erred in finding that the reduction in lease payments after 1 April 1992 constituted a concession by the Respondent pursuant to clause 17.01 of the Lease (and that the Respondent elected to sue for such lesser rent).
5.The Trial Judge erred in holding that a new lease did not come into existence after negotiations between the parties in early March 1992.
6.The Trial Judge failed to give proper reasons by neglecting to consider the nature of the demised premises after 1 April 1992 and the effect of this on whether there was any holding over after that date under clause 13.02 of the Lease.
7.The Trial Judge ought to have found that:
a.as a matter of its proper construction, the terms of the guarantee applied only to the initial three year term of the lease and not thereafter (including any holding over period);
b.in any event, after 1 April 1992, the agreement between the lessee and Respondent as lessor constituted a fresh demise, to which the guarantee did not extend, as it related to a different demised premises for a monthly rental not referable to the terms of the Lease;
c.any holding over by the lessee after the expiration of the initial term of the lease was surrendered by operation of law upon the lessee leasing a different demise for a lesser rental (after 1 April 1992);
d.as a matter of construction, any holding over under the holding over provisions of the Lease (clause 13.02), constituted a fresh demise to which the guarantee did not extend.
e.as a matter of fact and law, the nature of the agreement between the First Defendant and Respondent after 1 April 1992 could not have constituted a holding over under clause 13.02 of the Lease.
Mr. White relies on the same grounds.
OUTGOINGS
During argument on the appeal, particular reference was made, in support of submissions that a new lease was entered into on about 2 March 1992, to the circumstance that from about March 1992 outgoings were claimed by Cariste at $190.00 per month in advance; where previously they had been claimed yearly in arrears, based on a comparison of actual outgoings in a year with outgoings in the base year 1986. It was contended by Mr. Martin SC for Cariste that this point was not relied on below, not having been pleaded or made the subject of cross-examination, and was not raised in the Notice of Appeal or submissions. The only reference to it was in submissions of Mr. and Mrs. Court, relying on it in relation to the effect of an “amendment” made by the letter of 20 October 1992. Mr. Martin submitted that accordingly, it could not be relied on in this appeal, relying on Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418.
In my opinion, the point that Cariste’s claim for outgoings of $190.00 per month in 1992 supported the making of a new agreement was within the pleadings, and did not require specific reference in the pleadings since it was a matter of evidence. It is true that the submissions below did not identify an agreement to pay $190.00 per month prior to the mention of that figure in the letter of 20 October 1992; but the submissions below did rely specifically on the fact that Cariste claimed $190.00 per month as of April 1992. In my opinion, this sufficiently raised the point that payment of outgoings at that rate was inconsistent with the original lease and was therefore a factor in support of a new agreement coming into effect in around March 1992. In my opinion also, the point was within the grounds of appeal, and specific reference to it was not required. It was specifically relied on in Mr. White’s written submissions in the Court of Appeal (Orange 11WX) and this was adopted by Mr. and Mrs. Court (Orange 16VW). Accordingly, I do not think reliance on the point is precluded by the Suttor v. Gundowda principle.
Alternatively, Cariste sought after the hearing by Notice of Motion to introduce evidence under s.75A of the Supreme Court Act, on the basis that it was evidence that it would have relied on if it had appreciated the reliance on the outgoing payments of $190.00 per month. The Court indicated a tentative view that it would admit this document, on the basis that it was a copy of a document sent on or about the date it bears to its addressee, and on the basis that the addressee does not now have the document and cannot say whether or not it was received; and on the basis that the handwriting on the document was a later notation by Mr. Roach. The Court also indicated a tentative view that otherwise it was not minded to admit other evidence about the matter tendered by either party. The parties indicated that they accepted those views, without requiring a full hearing of the Notice of Motion.
The letter in question was a letter dated 17 February 1992, addressed to Surtec, and it contained the following material:
OUTGOINGS – 1991  $45,226.27
Base year  $22,711.74
  $22,514.53
  ========
               Tenants 8%  $ 1,801.16
               Garbage  $     136.23
  $ 1,937.39
  ========
OUTGOINGS – 1992  payment on account as per article 3.03
Estimate  $190 p.c.m.
Jan., Feb., Mar., Apr., ’92  $190 x 4   =   $760.00
  $ 2,697.39
  ========
The copy produced by Cariste had on it a handwritten notation as follows:
OUTSTANDING OUTGOINGS 1991  $1,937.39
1992 Jan, Feb, Mar, April, May
  5 x $190                 =             $   950.00
  $2,887.39
I would infer that this document was sent to Surtec on or about the date it bears, and was received by Surtec. As indicated, I accept that that other notation was a notation subsequently made by Mr. Roach on his copy of the document.
DID HOLDING-OVER CONTINUE AFTER MARCH 1992?
Under the holding-over clause in the lease, what was to be paid was a monthly rental equivalent to the monthly proportion of the rent and contributions to outgoings payable on the expiration of the lease. The evidence does not appear to disclose the amount of rent or outgoings payable at 31 August 1990. The relevant rent would appear to be the rent payable in the lease year ended 31 August 1990, that is the original rent amounting to $1,633.33 on a monthly basis, plus two CPI increases, while the relevant outgoings would appear to be one-twelfth of the excess of outgoings in the year 1990 over the outgoings in the year in 1986. It is not clear to me on the evidence what rent was actually being paid prior to March 1992. It appears that, even for the year 1991, outgoings were being claimed on a basis different from that contemplated by the holding-over clause, in that the letter dated 17 February 1992 makes a claim on the basis of the difference between outgoings in the year 1991 and the base year. It was not submitted that this discrepancy alone was such as to indicate that occupation under the holding-over clause was not continuing.
However, the letter of 17 February 1992 shows that, at that time, Cariste was claiming payment of outgoings at the rate of $190.00 per calendar month, which, if the lease itself had still been in force, might possibly have been justified under Article 3.04; but which could not possibly be justified under the terms of the holding-over provision, as stated in the previous paragraph.
Furthermore, following the negotiations of February and March 1992, it is common ground that the rent payable became $1,486.33 per month, and that this covered three car spaces. This was plainly not in accordance with the lease, under which the rent payable was $1,633.33 per month with two CPI increases, and did not include car spaces: previously, Surtec had paid $120.00 per month for two car spaces.
The contention of Cariste before this Court is that, as found by the primary judge, there was no enforceable agreement arising out of the letter of 2 March 1992 and associated negotiations, and no agreement which could operate as a termination or surrender of the lease; so that the holding-over under the lease continued.
I doubt if that finding and contention is even open, having regard to the agreed fact that from April 1992 the rent “payable” was $1,486.33 per month; which could only mean that there was an agreement or at least a binding arrangement under which that amount was payable, which would be inconsistent with the agreement constituted by the original lease and the holding-over provision.
In any event, the situation was that, from about March or April 1992, for over 5½ years Surtec was in occupation of the property pursuant to an arrangement whereby Cariste was claiming rent at the rate of $1,486.33 per month plus outgoings at the rate of $190.00 per month, giving Surtec entitlement to use three car spaces as well as occupy the demised premises, under which arrangement Surtec made and Cariste accepted payments at that rate for 34 of the 67 months.
Cariste’s submission was in effect that this arrangement, in so far as it varied from the terms of the holding-over provisions of the lease, was no more than a concession by Cariste that left fully in place the binding terms of the lease itself. In my opinion, the circumstances are inconsistent with the parties intending that their relationship be such that Cariste could simply withdraw concessions in relation to rent and car spaces; and the agreed fact that the lower rent was “payable” is also inconsistent with this.
In my opinion, the circumstances are such that the occupation of premises on terms as to payment of rent and outgoings stipulated by the lessor and accepted by the lessee, pursuant to which payments were made by the lessee and accepted by the lessor over an extended period, are such as to give rise to a periodic tenancy, subject to the effect of s.127 of the Conveyancing Act: see Moore v. Dimond (1929) 43 CLR 105; Dockrill v. Cavanagh (1944) 45 SR(NSW) 78; Turner v. York Motors Pty. Ltd. (1951) 85 CLR 55; and Cram v. Bellambi Coal Co. Ltd. (1964) 82 WN(Pt.1)(NSW) 18.
It is not clear whether the periodic lease that would, subject to s.127 of the Conveyancing Act, be implied would be a tenancy from year to year, or from month to month; and as shown by Turner, s.127 would only apply if it would otherwise be a tenancy from year to year. However, this does not matter in this case.
If it be accepted that a periodic tenancy arose from the occupation of premises and payment of rent at this agreed rate, then that tenancy would displace the holding-over under the previous lease: see In Re Savile Settled Estates, Savile v. Savile [1931] 2 Ch. 210 at 216.
Having regard to those conclusions, in my opinion it is not to the point that the lease for a term of years contemplated by the letter of 2 March 1992 was never entered into, nor that in March 1992 Mr. Court said to Mr. Roach words to the effect “We will just stay with the existing arrangements”. The arrangements which were then “stayed with” were the arrangements under which rent and outgoings were paid at the varied rates. It is also not to the point that in October 1992 Mr. Court acknowledged that, apart from the changed rate of rent and outgoings, the conditions of the lease were the same as the original lease: indeed, that letter confirmed that Surtec was then in occupation pursuant to an agreement for different rent and outgoings.
DOES THE GUARANTEE APPLY?
The guarantee was of “the due performance by the lessee of all the terms and conditions hereof”, and it provided that the guarantors “will upon demand pay to the lessor all moneys which may become due to the lessor hereunder and remain unpaid for a period of seven (7) days and will be responsible for the due compliance with the lessee of all the terms and conditions hereof in the same manner and to the same extent as if they were parties hereto and covenanted jointly and severally as lessee”.
In my opinion, the obligation to pay rent at the rate of $1,486.33 per month and outgoings at the rate of $190.00 per month were plainly not terms and conditions of the lease, nor were the moneys in question moneys which became due to Cariste under the lease; and accordingly, in my opinion the guarantee had no application to these obligations. For the reasons I have already given, those obligations were the relevant obligations as between the parties from about March 1992 onwards, and displaced the obligations as to rent and outgoings under the holding-over provisions. In my opinion it is entirely unrealistic to regard the situation as one in which the rights of the parties continued to be as provided by the holding-over clause under the lease, while Cariste as lessor simply made some unilateral and non-binding and immediately revocable concession. As I have said, in my view that is in any event inconsistent with one of the agreed facts.
For those reasons, it is not necessary for me to consider whether the guarantee would in any event apply to the lessee’s obligations while holding over pursuant to Article 13 of the lease.
CONCLUSION
For those reasons, in my opinion the following orders should be made:
1.Appeal by Mr. White allowed.
2.Appeal by Mr. and Mrs. Court allowed.
3.Cariste to pay Mr. White and Mr. and Mrs. Court’s costs of the appeal, and to have a Suitors’ Fund certificate if otherwise eligible.
4.Judgments against Mr. White and Mr. and Mrs. Court below set aside, and in lieu thereof judgments for Mr. White and Mr. and Mrs. Court, and order that Cariste pay Mr. White’s and Mr. and Mrs. Court’s costs of the proceedings.
IPP JA: I agree with Hodgson JA.
BRYSON JA: In my respectful opinion the judgment of Hodgson JA shows correct and sufficient grounds for allowing the appeal of Mr White and also the appeal of Mr and Mrs Court. I agree with the orders which his Honour proposes. There are additional reasons why the appeal should succeed, which I will state.
The appellants appeal from the judgment of His Honour Judge Twigg QC in the District Court at Sydney on 12 September 2003 in an action brought by Cariste Pty Limited, the respondent in the appeals and the lessor in Lease X673153, which created a lease for a term of three years to Surtec Geosurveys Pty Limited (“Surtec“) of office premises at Suites 8 and 9, First Floor, 859 Pacific Highway, Pymble, New South Wales. The first defendant was the said Surtec which is not a party to the appeals. The second defendant was Mr R.M.S. White, who is the first appellant, and the third and fourth defendants were Mr R.J. Court and Mrs M.B. Court, who are the second and third appellants. The first appellant Mr White was a director of Surtec when the lease was granted, and continued to be a director and a principal of the company until June 1991 when Mr White and his wife sold and transferred their shares in Surtec to persons who are not involved in these proceedings; at the same time he resigned as a director of Surtec and ceased to have any involvement in the company’s affairs. In 1992 communications took place with a view to entering into a new lease. The communications were principally conducted by Mr Roach on behalf of the lessor and by Mr Court on behalf of the lessee and (if guarantors were involved in those negotiations, which I leave open for the moment) on behalf of himself and Mrs Court. Mr White had no part in the communications.
The opening words of the lease recite that the property was leased at the request of the appellants, who executed the lease expressedly under seal, and were each described as a guarantor in the execution clause (Combined Book 55). The Trial Judge gave judgment against all four defendants for $181,052.58, which is the amount produced by the account in Exhibit C (Combined Book 218-223) of charges for outgoings, rent and interest; the account in Exhibit C begins with a charge for outgoings for 1991 $1937.39, continues with a charge for outgoings for January to July 1992, a charge for rent for August 1992, and then later charges for rent and outgoings for each calendar month until September 1997. There are also many charges for interest and from September 1997 onwards the only charges are for interest. There are a number of credits for payments and, although there is no calculation establishing this, it is plain that all outgoings, rent and interest claimed for 1991, 1992, 1993 and perhaps for some time after were discharged by payments. In September 1997, when Surtec gave up possession of the premises, the amount outstanding approached the equivalent of four years’ rent and outgoings, although by that time a significant part of the claim was for interest.

Provisions relating to the obligations of the appellants appear in the lease at two different places, in terms which are not significantly different. The Trial Judge referred to Article 17 in the Incorporated Memorandum V414768 (Combined Book 84) which when read with Schedule Two (Combined Book 52) is to the following effect:
ARTICLE 17: GUARANTEE
17.01 This lease has been granted to the lessee at and in consideration of the request and by the direction of [the appellants] and in consideration of the lessor so granting the said [appellants] as evidenced by their execution hereof guarantee the due performance by the lessee of all the terms and conditions hereof and covenants that they will upon demand pay to the lessor all moneys which may become due to the lessor all moneys which may become due to the lessor hereunder and remain unpaid for a period of seven (7) days and will be responsible for the due compliance by the lessee with all the terms and conditions hereof in the same manner and to the same extent as if they were parties hereto and covenanted jointly and severally as lessee without the necessity of the lessor giving any prior notice to them requiring the payment of any such moneys or to remedy any default by the lessee and any concession or waiver of any condition or requirement given by the lessor to the lessee shall not relieve or release the said [appellants] from their liability under this covenant.
The respondent’s Senior Counsel contended that Article 17 and the obligations created by it are not a guarantee for the purpose of the settled principle for construction of guarantees stated in Chan v. Cresdon Pty Limited (1989) 168 CLR 242 at 256:
But even if it be assumed that specific performance would be awarded in favour of the respondent, that is not enough, in our opinion, to establish liability on the part of the appellants as guarantors. What they guaranteed was the “obligations [of Sarcourt] under this lease”, that is, the instrument of lease in its character as a lease. In our view, only a lease at law would meet this description for the purposes of the guarantee. In Ankar Pty. Ltd. v. National Westminster Finance (Australia) Ltd.(1987) 162 C.L.R. 549, at p.561, Mason A.C.J., Wilson, Brennan and Dawson JJ. observed:
At law, as in equity, 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.
In the light of this settled principle governing the interpretation of contracts of guarantee, there is no justification for reading cl. 23.01 as extending to obligations which, at best, as between the landlord and the lessee, arise, not under the lease at law but under an equitable lease which is the equivalent of the lease at law.
Counsel referred to Maggbury Pty Ltd v. Hafele Australia Pty Limited (2001) 210 CLR 181 at 198 [43] where Gleeson CJ, Gummow and Hayne JJ said:
[43] Upon the proper construction of the agreements, did the restraints upon use continue to operate after the public disclosure and the collapse of negotiations? I t was said by Lord Diplock that Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201: “if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense”, as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible. Here the difficulty arises not from the need for detailed semantic and syntactical analysis of the language used in the agreements, but from the use therein of simple terms such as “at any time hereafter” and “forever”. Is this a case where “something must have gone wrong with the language” (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913; [1998] 1 All ER 98 at 115, per Lord Hoffmann).
Counsel further contended that the construction of Article 17 should be approached on the basis on which commercial agreements generally are approached, and that this result follows from provisions of Article 17.01 which made the appellants responsible for due compliance “… in the same manner and to the same extent as if they were parties hereto and covenanted jointly and severally as lessee …” The contention was to the effect that these words made the appellants liable as principal parties to the lease.
In my opinion the character of the obligations of the appellants as guarantee obligations is altogether clear from the terms of the lease, including the reference to the lease’s being granted at their request, there being no tenant rights or like rights conferred on them, their having no leasehold or other interest, their being referred to in the execution clause as guarantors, and internal references within Article 17. The expressions imposing obligations on the appellants in the same manner and to the same extent as if they were principal parties should be understood as intended to enhance and make sure their obligations as guarantors, and serve to illustrate that they did not have the character of principal parties, and that Article 17 was drafted with the object of giving them similar obligations to those they would have incurred as principal parties. In my opinion the only correct characterisation of the appellants’ part in the lease is that they were guarantors.
Although the arguments in support of the appeals were presented in another order, the first subject which should receive attention is whether the obligations imposed on the appellants by Article 17 extended to obligations arising after the expiry of the term for which the lease was originally granted. That term ran for three years from 1 September 1987 (earlier than the date of the lease, 27 April 1988) and terminating on 31 August 1990. At about the time of expiry of the term the parties to the lease discussed whether there would be an exercise of option and grant of renewed lease, but did not take any such action. The lease contained an option of renewal but that was not exercised. It also contained a holding-over clause in Article 13 as follows: (Combined Book 77-78)
ARTICLE 13: LESSOR’S COVENANTS
The lessor covenants with the lessee that:-
…
13.02 HOLDING OVER: In the event of the lessee holding over after the expiration or sooner determination of the term granted by this demise with the consent of the lessor the lessee shall become a monthly tenant only of the lessor at a monthly rental equivalent to a monthly proportion of the total yearly rent including contribution to outgoings payable by the lessee hereunder at the expiration or sooner determination of such term and otherwise on the said terms and conditions mutatis mutandis as those herein contained so far as applicable which monthly tenancy shall be determinable by a month’s notice in writing from either party hereto to the other expiring on any day.
The parties to the lease continued to act, at least until 1992, and in the respondent’s case at all times until 1997, as if the holding-over provisions in Article 13 applied.
A claim that the appellants were guarantors under Article 17 of obligations to pay rent, contribution to outgoings and interest incurred by the lessee during a holding-over requires to be stated with a degree of specificity which is not found in the Statement of Claim, or in the judgment of the Trial Judge. A claim that the appellants incurred liability to the respondent under the provisions of Article 17 to the effect that they “[guaranteed] the due performance by the lessee of all the terms and conditions hereof” requires some particular terms and conditions of the lease to be specified as those the due performance of which was allegedly guaranteed. So too, application of the words “[covenant] that they will upon demand pay to the lessor all moneys which may become due to the lessor hereunder” and of the words “and will be responsible for the due compliance by the lessee with all the terms and conditions hereof” requires specification of the provisions of the lease which were said to make moneys become due to the lessor, and for the due compliance by the lessee therewith the guarantors were said to be responsible. The provisions of the lease which primarily deal with the subjects of rent, outgoings and interest plainly cannot be the source of the obligations which the respondent needs to specify.
Provisions requiring payment of rent are found in Article 2 in the Incorporated Memorandum together with Schedule 3 in the lease; these provisions are plainly applicable only to the term of three years initially granted. (The words of demise on the first page of the lease establish that the reference is to a term of three years). The rent provided for by the lease was $19,600 per annum payment in advance by monthly instalments at $1633.34. The effect of Article 13.02 is that in the holding-over there was to be “a monthly rental equivalent to a monthly proportion of the total yearly rent including contribution to outgoings payable by the lessee hereunder at the expiration or sooner determination of such term …”
As to outgoings, Article 3 in the Incorporated Memorandum read with Schedule 2 in the lease created a regime of provisions for reimbursement of increased outgoings in excess of the amounts paid or assessed in respect of the year ending 1986; by Article 3.02 a first review of the outgoings was to be made as at 31 December 1987 and there is machinery in Article 3.02(a) for a determination of the aggregate of the outgoings of the premises and relating specifically to the demised premises for the period of 12 months expiring on 31 December in each year of the term; then by Article 3.03 taken with Schedule 2 the lessee had an obligation to pay 8% of the increased outgoings not later than 30 days after service of a statement of the amount ascertained. These provisions relating to annual calculation of outgoings and payment of a proportion of the increased outgoings are not applicable to a monthly tenancy for which Article 13 provided because of their relation to a series of whole calendar years of the term of the lease; they are plainly not applicable to a lease from month to month. The outgoings payable at the expiration of the term enter into the calculation of the monthly rental for which Article 13.02 provided: but after that had been calculated there is no provision for any more calculations of which outgoings or increased outgoings are elements.
Schedule 3 in the Incorporated Memorandum contains further provisions for escalation of annual rental according to movements in the Consumer Price Index; this too turns on annual calculations and cannot be said to be applicable mutatis mutandis in a holding-over.
In my understanding then the provisions of the lease which the respondent might be entitled to enforce against the guarantors are Article 13.02 dealing with the lessee becoming a monthly tenant at a monthly rental and the provisions of Article 14.03 relating to interest, which are applicable in the holding-over as being “… on the said terms and conditions mutatis mutandis as those herein contained so far as applicable.” There is no further provision for payment of outgoings, and no provision for re-calculation of outgoings during a holding-over. The provisions of the lease creating obligations for payment of rent in Article 2 and interest in Article 14.03 apply according to their terms only to rent and interest for occupation under the initial term of three years, and whatever application they have in the holding-over arises from the provisions of Article 13.
The fact that the parties to the lease were in 1992 discussing and giving effect to other arrangements than those in effect at the time when any holding-over would have begun under the lease, such as other arrangements about the amount of rent, contribution towards outgoings and the area leased is an infallible demonstration that the parties were no longer acting under the lease to which the guarantees related.
The question whether these provisions about payment of rent and interest, derived as they are through Article 13, are within the reach of the references in Article 17 to “due performance by the lessee of all the terms and conditions hereof”, “all moneys which may become due to the lessor hereunder” and “due compliance by the lessee with all the terms and conditions hereof” can yield different answers according to the degree of strictness with which it is required to be answered. A broad construction informed by business common sense could readily lead to the conclusion that obligations attending the relationship of landlord and tenant in the holding-over, if they ever come into existence through the machinery indicated by Article 13, are, in relation to the lease, “terms and conditions hereof” and moneys becoming “due to the lessor hereunder”. On the strict view required by Chan v. Cresdon the conclusion is different.
There is no promise in Article 13 or elsewhere in the lease, either expressly or by implication, that the holding-over rent calculated by reference to rent and outgoings at the end of the original term would be paid; the obligation to pay it will be an implied term of the agreement for holding-over into which the parties would enter if they did in fact hold over. Article 13 is a Charter indicating what the terms of any such agreement were to be if the parties entered into one; of course it was open to the parties if they saw fit to agree that a holding-over should take place on some other basis. When and if the holding-over comes into existence (as it did) the terms of the parties’ obligations have their origin in the agreement to hold over, and no less so because what those terms are is referentially determined by looking at the lease. It is not a term or condition of the lease that the obligations of the parties in the holding-over would be complied with; it will be the parties’ later arrangements which give rise to their obligations. This is no less so because their earlier agreement is a means for ascertaining what the terms of their obligations were to be.
To the question under what terms and conditions of the lease and for what moneys which became due to the lessor under the lease did the respondent sue the appellants, my answer is that in strictness, none of the claims was made under the lease, but they were made under terms of the agreement for holding-over after expiry of the lease, and this is no less so because a determination of what those terms are is to be made by reference to provisions found in the lease itself. The lease created obligations relating to a term of three years only; creation of obligations relating to later period is a product of the parties’ later conduct.
In taking this view I regard myself as following the observations of Mason CJ, Brennan, Deane and McHugh JJ in Chan v. Cresdon at 256 which I earlier set out. Their Honours there referred as a settled principle to the passage quoted from Ankar Pty Limited v. National Westminster Finance (Australia) Limited (1987) 162 CLR 549. The settled principle is not applied only to ambiguous contractual provisions; the decision in Chan v. Cresdon itself exemplifies this, as the difficulty in that case was not one of ambiguity, but simply that the guarantee when read strictly and literally did not refer to the lease at law out of which, in that case, the obligation to pay rent had arisen.
The observations in Chan v. Cresdon show that Article 13 must be given a very strict construction. The observations are in my opinion authoritative and must be followed. The decision in Chan v. Cresdon is a striking exemplification of the application of a strict construction, in contrast to approaches to construction which seek the substance of the parties’ intention or deprecate a narrow or pedantic approach to commercial arrangements. A search for business common sense is not the appropriate approach.
I do not see observations earlier in the same judgment in Chan v. Cresdon of Mason CJ, Brennan, Deane and McHugh JJ at 249 as governing the present position. At 249-250 their Honours there said:
However, the obligation to pay rent under that covenant in the common law tenancy at will was not, in our opinion, an obligation “under this lease” within the meaning of that expression in cl 23.01. 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. Nor, for that matter, would the obligation have been a covenant or condition “contained or implied in the lease”, to use the language of the indemnity in cl 23.01.
Their Honours’ exposition of the word “under” in the context to which their Honours’ attention was directed appears to be contrary to the view which I have adopted. It was however specifically directed to the terms of the guarantee there under consideration, and was not directed to a holding-over clause or to a holding-over; the rest of the paragraph within which the exposition of the word “under” is set exemplifies to my mind the strict approach which is appropriate and which I have followed.
A number of cases referred to in written submissions illustrate the ready availability of means of clear expression establishing definitively whether or not a guarantee in a lease extends beyond the original term; there is no real difficulty in making such expression altogether clear, and reported cases show that from time to time parties to leases do so. I do not see this circumstance, or consideration given to leases expressed in other ways and in other cases, as of any real assistance in the application of a strict construction of the present lease.

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LAST UPDATED: 15/12/2004

[2004] NSWCA 460

15 December 2004

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