93 GSP Pty Ltd v Advent 8 Pty Limited

District Court of NSW|2013-05-09|Before: McLelland J

Introduction 193 GSP Pty Limited (the landlord), Advent 8 Pty Limited (the tenant) and David Soo as guarantor entered a written lease for seven years commencing 1 April 2010 with an option to renew for five years in 2017. 2The tenant also entered a car parking licence with the landlord. 3The tenant was having difficulties with the rent by about July 2011, and as at 16 January 2012 the December and January rent remained unpaid. The landlord purported to terminate the lease by re-entry early in the morning on 17 January 2012 and sued for lost rent from the tenant and the guarantor, Mr Soo. 4The tenant cross-claimed for trespass and conversion of the tenant's goods. 5The tenant was placed in liquidation. A written notice from the liquidator advising that the cross-claim would not be pursued was tendered. 6Thus, it is appropriate that the cross-claim be dismissed. 7Further, in view of the liquidation, the proceedings against the tenant cannot be proceeded with by reason of s 471B of the Corporations Act 2001 (Cth) without leave of the Supreme Court. No leave has been obtained. 8In those circumstances, the only issues before me are:

Was the termination of the lease by the re-entry by the landlord lawful?
If so, what is the quantum of damages?
What costs orders should be made?

Termination 12As indicated, rent payments by the tenant during the second half of 2011 were not made strictly in accordance with the lease. One cheque paid by the tenant in September was dishonoured. The landlord gave to the tenant and the guarantor written notices headed "Notice of breach of Lease" in July and August 2011, although in each case the notices went no further than threatening action for recovery of the unpaid amounts. 13In November 2011 the landlord called upon the bank guarantee to recover most of the unpaid rent accrued at that date. Again a written notice was provided, threatening recovery action. The notice also required the tenant to provide a replacement bank guarantee within 14 days and noted that a failure to do so would constitute a breach of the lease which would entitle the landlord to terminate the lease. 14The tenant, on 5 December 2011, paid the residual amount outstanding prior to December. However, the rent due on 1 December 2011 was not paid, nor was the bank guarantee provided. 15On 20 December 2011, a meeting was held involving Mr Bullen, the property fund manager of the corporation managing the plaintiff's properties, Mr Quinn, a director of the plaintiff, and Mr Soo. Although there were some differences in the accounts of this conversation given by Mr Bullen and Mr Soo, Mr Bullen sent an email to Mr Soo on the following day, 21 December 2011, confirming the content of the conversation, and in cross-examination, Mr Soo accepted that email as an accurate record. 16The email stated: "David - thank you for meeting with Shane and I yesterday. I wanted to confirm the basis of our discussions. 1. The Landlord requires payment of all outstanding amounts due under the lease for the months of December 2011 and January 2012 by no later than 9 January 2012. 2. The bank guarantee required under the lease must be replenished by no later than 29 February 2012. Notwithstanding our flexible approach in the past, going forward we will not be able to tolerate late payments and the Landlord reserves all of its rights under the lease. We wish you the best for the business and hope you have a good Christmas and New Year. Regards, Russell Bullen..." 17By 10 January 2012, no payment had been made. Mr Heck, the property manager of Jones Lang La Salle, the real estate firm managing the property, sent an email that day to Mr Soo in the following terms: "David I understand that there was a payment schedule put in place with regard to when we could expect the outstanding December 2011 and January 2012 payments. The charges for these months were to be paid in full no later than 9 January 2012. Can you please confirm that payment has been made and send through the relevant remittance advice. Regards, Chris Heck..." 18No response was received. Mr Heck visited Mr Soo at the tenant's premises the next day. Mr Soo gave Mr Heck a cheque for the December rent and charges. Mr Heck sent an email to Mr Bullen in the following terms: "Russell David has given me a cheque for $10,464.02 (December charges) to bank tomorrow. He advised a second cheque would be ready for Monday or Tuesday. If I bank the cheque tomorrow we will find out Monday if it has been dishonoured or not. Please give me a call if you wish to discuss in more detail. Thanks Chris Heck..." 19The accounts of the conversation on 11 January between Mr Soo and Mr Heck differed. Mr Heck deposed to the following conversation: "Me: The arrears of rent for December 2011 and January 2012 and other amounts owing under the Lease were meant to have been paid by 9 January 2012. Do you have the money to pay the arrears? Mr Soo: I can give you a cheque for $10,464.02 for payment of amounts owing for December 2011 now. I should be able to provide you with a cheque for the balance outstanding by 16th or 17th January." 20Mr Soo's account accepts this conversation but asserts that two other matters were mentioned. He recounts the concluding words of the conversation as follows: "Can you please wait until tomorrow to present it [the cheque]. I should be able to give the January amount on 16 or 17 January. Could you please check with the landlord if that is okay. Mr Heck: Okay." 21In a reply affidavit, Mr Heck asserted that: "at no stage did I indicate that JLL [Jones Lang La Salle] or the Plaintiff would agree to give the Defendants until 16 or 17 January 2012, or any extension of time, for the payment of arrears of rent owing." 22I note that Mr Soo did not assert to the contrary. 23The issues arising from those differing accounts are whether Mr Soo asked Mr Heck to delay banking the cheque and whether Mr Soo asked and obtained assent from Mr Heck that Mr Heck would ask the landlord if rent for January could be paid on 16 or 17 January. 24In cross-examination, Mr Heck said he could not remember Mr Soo saying these matters. He was not adamant that they were not said. He did not bank the cheque until the next day, although he indicated he only received it late in the day. On the other hand, Mr Soo was adamant that these matters were said. 25I prefer the recollection of Mr Soo. His reference to postponing the banking of the cheque finds support from the conduct of Mr Heck in banking the cheque the next day. Indeed, Mr Heck's email to Mr Bullen noted that the cheque was given "to bank tomorrow", and the email to Mr Bullen was sent at 3.53pm, still some time before banking closed. 26Mr Heck was also inaccurate about the date and time of the subsequent re-entry. 27Mr Soo's account also seems to me to be more likely, although I note that it is not mentioned expressly in the email from Mr Heck to Mr Bullen. 28On 16 January 2012 the cheque was dishonoured. An email from Mr Heck to Mr Bullen and Mr Bullen's assistant was in the following terms: "Russell/Noah The Advent 8 cheque I banked on Thursday has been dishonoured. Can you please give me a call when you have a second to discuss our next step. Thanks CHRIS HECK..." 29Mr Heck also sent an email to Mr Soo at 2.40pm in the following terms: "David The cheque I banked on Thursday has been dishonoured due to insufficient funds in the account. I am awaiting instruction from the landlord with regard to how they wish to proceed. Regards CHRIS HECK..." 30At 8.16pm that evening, Mr Soo responded in these terms: "Chris, I've just checked the account and we've seen the amount go out but not come back in again. I'll check it again in the morning. I've the money has come back in I'll post 2 x rental payments. David Soo Managing Director" 31Meanwhile, a letter in the following terms was sent by express post by the landlord's solicitor: "The Directors Advent 8 Pty Limited 63 Wigram St Harris Park NSW 2150 Dear Sirs Notice of termination of Lease 93 GSP Pty Limited Lease to Advent 8 Pty Ltd Premises: Suite 603, 93 George Street, Parramatta We act for the landlord, 93 GSP Pty Limited (Landlord). We are instructed that Advent 8 Pty Limited (You) are in arrears in the payment of rent and other monies under registered lease number AG23907Q (Lease) and the Licence Agreement between You and the Landlord dated 31 March 2010 (Licence Agreement) for the months of December 2011 and January 2012. We are instructed that the Landlord, pursuant to clause 12.4 of the Lease, drew down against the entire $24,325.15 of the bank guarantee provided under the Lease in November 2011 in partial satisfaction of unpaid rent owed by You at that time. By written notice to You on 24 November 2011 (Notice), in accordance with Your obligation under clause 12.1 of the Lease, the Landlord required You to provide a replacement bank guarantee for the entire $24,325.15 within 14 days of the date of that Notice. You were advised in the Notice that a failure to do so would constitute a breach of the Lease, which would entitle the Landlord to terminate the Lease. We are instructed that, as at the date of this letter, in continued breach of Your obligations under clause 12.1 of the Lease, You have not provided the Landlord with a replacement bank guarantee. The failure by You to pay the rent and other moneys referred to above constitutes a breach of clause 3.1(a), 3.2(d)(i), 3.3(d), 3.3(f) of the Lease, entitling the Landlord to terminate the Lease. The landlord has elected to terminate the Lease and the Licence Agreement affective 5pm, Monday 16 January 2012, and re-enter the Premises on the following grounds:

Pursuant to clause 10.1(a) of the Lease, for rent being more than 14 days overdue,
Pursuant to clause 10.1(b) of the Lease, for You having failed to comply with Your obligations under clause 12.1 of the Lease after having been provided with Notice on 24 November 2011 requiring You to comply with Your obligations;
Pursuant to clause 10.1(c) of the Lease, as You were deregistered by ASIC on 20 November 2011; and
Pursuant to clause 6.1.1 Licence Agreement, for failing to pay the licence fee due under clause 2.1 of the Licence Agreement. The Landlord reserves all its rights to commence legal action against You to recover any and all moneys owed by You to the Landlord under the Lease and the Licence Agreement. The Landlord will also recover from You under clause 3.4(b) of the Lease the Landlord's legal costs in relation to the breach of the Lease and exercise the Landlord's rights against You and interest in accordance with clause 3.5 of the Lease. We also advise that the Landlord reserves its rights under clause 16.9 of the Lease to commence proceedings against the guarantor under the Lease, Mr David Soo, without further notice and without taking any further steps against You. Yours faithfully Thomsons Lawyers..." 32This letter was not received until 18 January 2012. Notwithstanding the terms of the letter, the landlord decided to effect termination of the lease by re-entry. Mr Heck, a locksmith and one Mr Les Goulden attended the premises in the evening of 16 January 2012, but the tenant was still on the premises, so re-entry was effected early the next morning, 17 January 2012, at about 5am. The locks were changed at that time. 33In those circumstances, it seems to me likely that the letter of 16 January by the landlord's solicitors was not intended to come to the notice of the tenant until the re-entry had been effected. It was likely posted later on 16 January 2012, since, although sent by express post, it was not received until 18 January. It was sent to the registered office of the tenant, not to the premises. No email or telephone conversation was directed to the tenant informing them of the proposed re-entry, and contact with the tenant was avoided in the evening of 16 January 2012. 34In these circumstances, the letter of 16 January 2012 was ineffective, and probably intended to be ineffective in terminating the lease by notice. 35Mr Soo says the termination by re-entry was also ineffective because of the doctrine of waiver. He said the waiver consisted of, or is evidenced by: (a) the earlier notices which demanded only payment of the debt but said nothing of termination; (b) the statement by Mr Bullen on 20 December 2011 that December rent and other charges would need to be paid by 9 January 2012; (c) the statement by Mr Bullen on 20 December 2011 that January rent and other charges were required by 9 January 2012; (d) the acceptance of the cheque for December rent and charges on 11 January 2012; and (e) the lack of response to the request as to whether payment of January rent on 16 or 17 January 2012 was acceptable.

(a) The earlier notices 36In my opinion, the conduct in respect of the earlier failures to pay rent is of no assistance to Mr Soo. Clause 10.5(a) of the lease provides in express terms that any waiver by the earlier notices cannot amount to a waiver of later breaches.

(b) The 20 December 2011 conversation regarding the December rent 37Mr Soo referred to a number of authorities in respect of the acceptance of rent after an act of default has occurred. 38In Staehr v Federal Lime Co Ltd [1912] SALR 102, 110 Murray J said: "It is familiar learning that a landlord will lose an accrued right on re-entry for breach of covenant if he with full knowledge accepts rent falling due after the breach has been committed". 39In Owendale Pty Ltd v Anthony (1967) 117 CLR 539 at p 556, Windeyer J said: "A waiver in this sense is more properly understood as an election. The essence of the doctrine, in cases between landlord and tenant, is that where a lease contains provisions for forfeiture and a right of re-entry upon breach of a covenant by the lessee, then, upon a breach occurring, the lessor can either take advantage of his right of forfeiture and re-enter or waive this and treat the lease as still subsisting. If, with knowledge of a breach, giving him a right of re-entry, he does an act inconsistent with his avoiding the lease, he is deemed to have elected not to avoid it." 40In Central Estates (Belgravia) Ltd v Woolgar (No. 2) [1972] 1 WLR 1048, Buckley LJ at p 1054 stated: "If the landlord by word or deed manifests to the tenant by an unequivocal act a concluded decision to elect in a particular manner, he will be bound by such an election. If he chooses to do something such as demanding or receiving rent which can only be done consistently with the existence of a certain state of affairs, viz., the continuance of the lease or tenancy in operation, he cannot thereafter be heard to say that that state of affairs did not then exist. If at the time of the act he had a right to elect whether to forfeit the lease or tenancy or to affirm it, his act will unequivocally demonstrate that he has decided to affirm it. He cannot contradict this by saying that his act was without prejudice to his right of election continuing or anything to that effect. In this respect his act speaks louder than his words, because the act is unequivocal: it can only be explained on the basis that he has exercised his right to elect." 41In Segal Securities Ltd v Thoseby [1963] 1 QB 887 at pp 897-898, the Court stated that a waiver occurs even where the demand or acceptance of rent was made without prejudice or under protest that it was not to be construed as a waiver. 42In Finley v Russell-Jones (1948) 49 SR (NSW) 96 at p 101, the Court stated: "When an event occurs which gives a lessor a legal right to give his tenant a valid notice to quit, the legal effect of the acceptance by the lessor of the rent accruing due after the occurrence depends on the circumstances. At common law, if the event comes to the knowledge of the lessor, and he accepts rent accruing due after he becomes possessed of the knowledge, this operates as an irrevocable waiver of his right to determine the tenancy: by accepting rent he is estopped from enforcing the legal right which he would otherwise possess". 43In Spathis v Hanave Investments Co Pty Ltd [2002] NSWSC 304 at [118], Campbell J said: "It is well enough established that, if a landlord is entitled to terminate a lease for breach of covenant, and he or she knows of that breach but subsequently accepts rent, that is a waiver of the landlord's rights to terminate the lease on the basis of that breach. The principles are succinctly summarised by Windeyer J in Owendale Pty Ltd v Anthony (1967) 117 CLR 539, at 556. '...One act which, by the common law, is always regarded as unequivocal, and therefore necessarily a waiver of a right of re-entry on account of a breach of covenant by the lessee, is the lessor's acceptance, with knowledge of the fact of the breach, of rent accrued due after the breach. Apart from any special term in the lease ... or any statutory modification of the common law, acceptance of rent due in respect of a current period is an obvious recognition of a tenancy then subsisting.'" 44These authorities refer to the act of accepting rent which accrued after the act of default, or refer to some other unequivocal act of affirming the lease such as a demand for rent accruing after the act of default. 45No rent was accepted on 20 December 2011. The issue is whether the willingness to allow payment of December rent by 9 January 2012 was an unequivocal act consistent only with affirming the lease. 46In Rasheed v Burns Philp Trustee Co Ltd (1982) NSW ConvR 55-102 at p 56,603, Wootten J noted in the case before him: "The only payment received after the breach on 15th December and before the giving of the so-called notice to quit on 27th November was the sum of $1,000, accepted on 16th November. This was on account of the rent which was payable on 1st November and non-payment of which by 15th November gave rise to a right of re-entry. To accept it was not therefore to affirm the existence of the lease after 15th November, but merely to accept something which was consistent with the retention of the right to forfeit, because the landlord would have been entitled to recover it notwithstanding the exercise of his right to forfeiture. The distinction is a very old one. In Marsh v Curteys (1596) Cro. Eliz. 528 the majority of the Court said: 'The acceptance of rent due before his title of entry is no bar; for it being then due he might have debt for it; and it doth not show any election in him to continue the lease' (78 E.R. 775 at p. 776)". 47In Price v Worwood (1859) 4 H & N 512 at [516]; (1859) 157 ER 941 at pp 942-943, Martin, B said: "A receipt of rent, to operate as a waiver of a forfeiture, must be a receipt of rent due on a day after the forfeiture was incurred. The mere receipt of the money, the rent having become due previously, is of no consequence, and for the very plain reason that the entry for a condition broken does not at all affect the right to receive payment of a pre-existing debt". 48Wong v St Martins Property (Aust) Pty Ltd (New South Wales Supreme Court, McLelland J, 17 October 1990, unreported) is to the same effect (at 5): "Second, acceptance of rent does not amount to a waiver of a right of re-entry unless the rent accepted accrued due after the event giving rise to the right of re-entry (see Campbell v Payne 53 SR 537 at 539). The $6,847.30 included rent which accrued due on 1 April, 1 May and 1 June 1990. The latest right of re-entry had arisen at midnight on 15 - 16 June 1990 when the rent due on 1 June had been in arrears for two weeks." 49It is clear that the acceptance of rent which was due prior to the act of default creating the right to forfeit is not an unequivocal election to affirm the contract, because the landlord remains entitled to that rent. An indication of willingness by the landlord to accept a payment of that same outstanding rent at a future date can be no different. It is equivocal as to whether the landlord wishes to affirm or forfeit the lease. 50This conclusion is supported by clause 10.5(b) of the lease: delay by the landlord (relevantly, in accepting rent) does not amount to waiver.

(c) The 20 December 2011 conversation regarding the January rent 51The landlord's agent required the January rent to be paid by 9 January 2011. This cannot be a waiver of a default arising from non-payment of the January rent, since that default had not occurred. 52The landlord also relied on the following passage in Owendale (at pp 557-558): "In the argument for the plaintiff there was a suggestion that, at common law, when a landlord becomes aware of an occurrence giving him a right of re-entry on forfeiture he must at once elect either to avoid the lease or to affirm it. That I think is a mistake. I see no reason why he may not do neither, for a time taking the risk of an inference of waiver or abandonment arising from his failure to assert his right of re-entry. As Bramwell B. said in the often-quoted and always approved passage in his judgment in Croft v. Lumley: 'In strictness, therefore, the question in such cases is, has the lessor, having notice of the breach, elected not to avoid the lease? Or has he elected to avoid it? Or has he made no election?' See too Clough v. London and North Western Railway Co. Of course, a lessor cannot adopt inconsistent attitudes: he cannot say 'I accept rent, but nevertheless deny that the lease continues'. But I can see no reason why he cannot say 'I have now a right to avoid the lease and to re-enter; but, if within a given time the lessee does some specified thing, I shall waive my rights; until then I make no election either way'." [Footnotes and italics omitted]. 53While the landlord need not act immediately on a default, in this case the landlord did act. A meeting was held and payment of the January rent was required. This seems to me to be equivalent to a demand for the January rent. Such a demand asserts that the tenant is liable for the January rent and the tenant is only liable for the January rent if the least is not forfeited. The act is unequivocal and is an election to affirm the lease notwithstanding the default arising from the non-payment of the December rent. 54The agent's assertion on 20 December 2011 that the landlord required the January 2012 rent by 9 January 2012 did not, however, impact on whether the non-payment of January rent was a default. The conversation acknowledged that the January rent would by that date be a component of "outstanding amounts due". 55The reference by the agent to the landlord reserving all of its rights confirms that the due date remained 1 January 2012, and the date of default was 14 days thereafter. This conversation did not impact on the provisions of the lease. When no payment of the January rent was made by 16 January 2012, the landlord became entitled to forfeit the lease.

(d) Acceptance of cheque on 11 January for December rent 56I have already concluded that the default (but not the breach) for non-payment of the December rent has been waived by the demand for the January rent, the landlord having elected on 20 December 2011 to affirm the lease. The acceptance on 11 January 2012 of rent already due is, however, not an election to affirm in respect of future defaults or in respect of past defaults after the date the rent became due. The authorities quoted earlier establish that acceptance of the December rent cannot be an unequivocal act of affirmation in respect of a default in failing to pay the January rent.

(e) The lack of response to the request for late payment of the January rent 57A failure by the landlord to grant a further extension is not an election to grant it nor is it an election to affirm the contract. The request by the tenant acknowledges that the moneys remained outstanding. As no further time was granted, the lack of response to the tenant's request is of no contractual significance. As is provided by clause 10.5(b): "Delay on the landlord's part does not amount to waiver". 58Accordingly, in my view, the landlord has not waived its right to terminate the lease arising from the tenant's default in failing to pay the January rent. The landlord terminated the lease by re-entry in accordance with clause 10.1. 59The tenant relied on the absence of a notice under s 129 of the Conveyancing Act 1919, but only in respect of failures other than the failure to pay rent, consistent with s 129(8). I accept this submission. Section 129 requires a landlord to give notice of the breach, require the breach be remedied and allow a reasonable time for the tenant to do so before a right of re-entry or forfeiture under the lease is enforceable. As no notice was given of deregistration by the Australian Securities and Investments Commission, a matter referred to in the letter of termination dated 16 January 2012, that matter cannot found a termination. 60In the letter of termination dated 16 January 2012 the landlord relied also upon the failure to provide a bank guarantee and a breach of the licence agreement. 61The landlord gave the notice on 24 November 2011 requiring the tenant to remedy the breach in respect of the bank guarantee within 14 days, and in respect of the unpaid licence monies within seven days. Either demand might satisfy s 129 of the Conveyancing Act 1919 but, in respect of the unpaid licence monies, the breach was remedied on 5 December 2011. The landlord did not assert that that payment of unpaid licence monies was outside a reasonable period, and no notice was issued in respect of the licence monies due in December and January. In any event, the 14 November 2011 relies upon the failure to pay licence monies due as a reason for terminating the licence agreement rather than the lease, there being no reference to clause 10.1(g) of the lease. 62As to the bank guarantee, the conduct of the landlord on 21 December 2011 has clearly waived any delay by the tenant in remedying the breach in respect of the bank guarantee, allowing the tenant until 29 February 2012 to "replenish" the guarantee. 63In those circumstances, the failure by the tenant to have the bank guarantee in place as at 17 January 2012 and the failure by the tenant to have paid the outstanding licence charges do not justify the termination of the lease. 64However, the failure to pay the January rent is unaffected by s 129, as the tenant conceded, and remains a basis for termination.

Damages 65The landlord claims an amount of damages equating to the present value of the diminished rent achieved during the lease period. A new lease has been obtained, but with a lower rental amount. 66The tenant argues that the landlord has failed to mitigate the loss. It relies upon the decision of the Full Court of the South Australian Supreme Court in Murray-Oates v Jjadd Pty Ltd (1999) 76 SASR 38; [1999] SASC 537 at [59] where the Court stated: "In assessing damages for breach of contract, the plaintiff carries the onus of establishing that it had taken reasonable steps to mitigate its loss. Where reasonable steps have been proved, the onus lies with the defendant to prove that the plaintiff might have taken a course of action which would have reduced the loss or eliminated it altogether..." 67On the other hand, the landlord asserts that the defendant bears the onus of proving a failure to mitigate. In TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57 at [9] it was said that it "was for the defence to show that the plaintiff had failed to mitigate damages". 68The same principle appears in TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, 158 and in Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187]. 69I am of course bound to follow these decisions of the High Court and the Court of Appeal in this State, the correctness of which I do not doubt. 70Furthermore, I note that the Full Court in the Murray-Oates decision relies on Roper v Johnson (1873) LR8CP 167 as supporting authority. However, that decision does not support the principle stated by the Full Court. Brett J at pp 181-2 indicated that "the plaintiff must prove damages: leaving it to the defendant to show circumstances which would entitle him to a mitigation". Similarly, Grove J at p 184 states: "The expression 'mitigation' used in the judgment of Cockburn, C.J., in Frost v. Knight, rather shews that the onus of proof lies on the defendant. The plaintiffs having made out a prima facie case of damages, actual and prospective, to a given amount, the defendant should have given evidence to shew how and to what extent that claim ought to be mitigated. No such evidence was attempted to be given. It is entirely upon the absence of that evidence that I rest my judgment". 71Keating J at p 178 is to the same effect. 72In my view, Roper is further authority for the proposition that the onus of proof in respect of mitigation lies on the defendant, and the Full Court in Murray-Oates has erred if it has indicated a contrary doctrine. 73In any event, in this case the plaintiff established that it retained two well-known commercial real estate companies to find a new tenant and that a new tenant was obtained. The rental was not substantially different from that payable by the tenant, the first defendant in these proceedings, apart from an initial rent-free period. I note that the tenant also received a significant incentive at the start of its lease. 74The tenant here tendered no evidence to suggest that the terms of the new lease were unreasonable. 75In these circumstances, I accept that the plaintiff has mitigated its loss and is entitled to the difference in rental and outgoings between that payable by the new tenant and that payable by the first defendant under the old lease. 76I note that in the Murray-Oates decision, where an onus appears wrongly to have been placed upon the plaintiff, the court nevertheless found that the plaintiff had taken reasonable steps to mitigate its loss because (at 48) "the lease was negotiated at arm's length and although the rent was less than the defendant had been paying, it is nevertheless a substantial sum". 77This passage supports a similar finding for the landlord in this case. 78I was provided with a calculation of the present day value of the difference between the rental and other returns under the new lease and under the old lease, which amounted to $130,655. That amount is not otherwise disputed, subject to the one matter. 79The one argument advanced against that amount is that the lease with the new tenant is unclear as to the rental adjustment. It contains a rent review clause which provides: "1. Adjustment of rent 1.1. Adjustment If, in relation to Rent Adjustment Date: (a) a fixed percentage increase is specified, the rent is increased on that date by the percentage specified; (b) a fixed amount increase or an increased rent is specified, the rent is increased on that date by the specified increase amount or to the increased amount, as the case may be; ..." 80The Rent Adjustment Date is the annual anniversary of the commencement date and the Adjustment Method was "Fixed - 3.5%". This suggests that on each anniversary of the commencement date the rent would be increased by 3.5 per cent. However, the reference schedule contains a definition of Rent which is not a specific certain figure. Rather, it is specified as follows: "Item 5 Rent: Initial Term 1.5.2012 - 30.4.2017 (clause 3.1) Year 1 - $87,990.00 per annum (plus GST) Year 2 - $91,069.65 per annum (plus GST) Year 3 - $94,257.09 per annum (plus GST) Year 4 - $97,556.09 per annum (plus GST) Year 5 - $100,970.54 per annum (plus GST)"

81The tenant submitted that the rent in the rental adjustment clause is the amount specified for that year in the definition of Rent. This interpretation would result in the increased level of rent being increased (again) on the first anniversary of the commencement date. In other words, the rent would be increased once in accordance with the higher figure in the definition of Rent and again in accordance with the rental adjustment clause. This would result in an increase of a little more than 7 per cent on the first anniversary and 3.5 per cent thereafter. 82To meet this argument the landlord sought to tender further documents evidencing the amount actually charged to the new tenant. No objection was taken to the tender and the material was admitted. However, in accordance with authority, I do not think the documents were of any assistance. 83In Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [10], the Court of Appeal stated: "In Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; 83 ALJR 196, Gummow J, Hayne J and Kiefel J formed a majority of the Court and at 205 [35] clearly and unequivocally stated 'the general principle [is] that "it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made'", citing James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603; and Administration of Papua and New Guinea v Daera Guba [1973] HCA 59; 130 CLR 353 at 446. Heydon J at 232 [163] was to the same effect as a matter of principle..." 84However, I do not think the construction urged by the tenant is the proper interpretation. The document is a commercial lease and should be construed against that background and not so as to produce an uncommercial result. It seems unlikely that the parties would intend to have a 7 per cent increase after one year and a 3.5 per cent increase thereafter, especially when the Adjustment Method is for each year specified as "Fixed - 3.5%". Even more unlikely is that the 7 per cent increase would be achieved by two simultaneous increases of 3.5 per cent on that date. 85In my view, the figures listed as "Rent" in the reference schedule are intended to represent the adjusted rent. They manifest an annual increase of 3.5 per cent. Further, the word "rent" in clause 1 of schedule 2 dealing with adjustment and review of rent need not mean "Rent", but rather the rent being paid immediately prior to the adjustment. This is a construction of the provision which is both open and reasonable in the context of the whole lease and it is the construction that is to be preferred (see Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 11 ALR 305 at p 315). 86Accordingly, the plaintiff has suffered damages in the sum of $130,655. In accordance with Gagner Pty Ltd (t/as Indochine Café) v Canturi Corporation Pty Ltd (2009) 262 ALR 691 at [147]-[159] (see also The Barrington Services Group Pty Ltd v Bossy [2012] NSWDC 82 at [108]-[115]), there is no Goods and Services Tax in or on the judgment sum. 87Amounts were received by the landlord equivalent to rent up to the end of February 2012. Accordingly, interest should be calculated on the damages sum from 1 March 2012 to today. This produces an amount of $11,900.34 at the statutory pre-judgment interest rates. 88Accordingly, the judgment sum should be $142,555.34 inclusive of interest. 89That leaves the question of costs. Mr Soo was not a party to the cross-claim. However, the landlord says he should be ordered to pay those costs because, in the first place, he guaranteed the payment of "costs...in the future owing...by the Tenant...in relation to or arising from this Lease, its subject matter or any relationship referable to them" (clause 16.2). 90I accept this submission. The costs of the cross-claim are related to the lease in the manner contemplated by clause 16.2 where words of wide import are used. It follows that if the tenant is liable for the costs of the cross-claim, so also is the guarantor. 91The landlord also argued that the cross-claim's costs should be on an indemnity basis because of clause 16.3 which obliges the guarantor to indemnify the landlord. I do not accept this submission. The guarantor is only obliged to indemnify the landlord if the costs "are not recoverable from the tenant". 92In this context, the costs can only be those costs that the tenant will owe, i.e. those costs that the tenant is ordered to pay. If the tenant is only ordered to pay costs on the usual basis, party/party costs, then the indemnity promised by the guarantor is to indemnify the landlord in respect of the party/party costs. This is the proper meaning of clause 16.3 in my opinion. 93The landlord does not assert that in respect of the costs of the cross-claim the tenant would be subject to any order other than the standard adverse costs order, namely that the tenant pay the landlord's costs (on a party/party basis). 94However, the tenant is not presently subject to any costs order in respect of the cross-claim. Further, it is not the tenant which has declined to continue the cross-claim, but the liquidator. Moreover, the landlord does not seek any orders against the tenant. Even if it did, it would have difficulty in obtaining an order because of s 471B of the Corporations Act 2001, which prevents a person from proceeding with "a proceeding in a court against the company or in relation to the property of the company...except with leave of the [Supreme] Court." In my view, seeking a costs order is an action precluded by s 471B. 95Accordingly, as the tenant is not subject to an adverse costs order in respect of the cross-claim, and as the guarantor is not a party to that claim, there is no obligation to which the guarantee can attach, and there should be no order in respect of the costs of the cross-claim. 96As for the costs of the proceedings, the costs should follow the event in accordance with the usual order. The guarantor should be liable for the plaintiff's costs on the primary claim as the plaintiff has succeeded in the contest on the guarantee. 97The landlord seeks an order that these costs be paid on an indemnity basis. It relies on clause 16.2 of the lease. However, under that clause the guarantor is obliged only to indemnify the landlord for the tenant's obligations. 98The proceedings against the tenant have been stayed by operation of s 471B of the Corporations Act 2001 (Cth). I am not entitled to make a costs order against the tenant, nor is one sought. That the costs are not "recoverable from the tenant" under clause 16.3 is not to the point. The costs must first be within the term "guaranteed obligations" to be indemnified by the guarantor. Costs are not within that term if they are not owing or to be owed by the tenant and if the tenant is under no obligation to pay them. 99The landlord also relies on clause 16.12, which requires the guarantor to meet the landlord's costs of enforcing the guarantee on a "solicitor-own client full indemnity basis". This provision does not require proof of an obligation on the tenant. The court should ordinarily give effect to the contractual entitlement of a party to indemnity costs: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139 at [39]. 100On the other hand, the landlord's notice of termination dated 16 January 2012 has been adjudged ineffective and misguided. In addition, the tenant succeeded on the issue of whether forfeiture in reliance upon the non-payment of the December rent had been waived and on other issues. The landlord also abandoned some aspects of its damages claim in the course of the proceedings, in particular its claim for damages to include part of the incentive provided to the tenant defendant. 101In all of these circumstances, I think that the appropriate order is that the guarantor pay the plaintiff's costs of its claim on the usual basis, apart from the costs of preparing and sending the Notice of termination of Lease dated 16 January 2012. 102As the plaintiff landlord foreshadowed an intention to rely upon an offer of compromise, I will give leave for further submissions on the question of costs. 103Accordingly, the orders of the Court are:

Judgment for the plaintiff against the second defendant in the sum of $142,555.34 inclusive of interest.
Order the second defendant pay the plaintiff's costs of its claim, those costs not to include the costs of the preparation and sending of the Notice of Termination of Lease dated 16 January 2012.
Cross-claim be dismissed with no order as to costs.
Direct that any written submission by the plaintiff regarding costs be provided by 5pm on 17 May 2013 and that any written submission in reply by the second defendant be provided by 5pm on 21 May 2013. Such written submissions to be limited to two pages.
Order the exhibits be returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 August 2013

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