Alamdo Holdings Pty Ltd v Australian Window Furnishings [2005] NSWSC 774 | Case summary

JUDGMENT 1 It has already been determined that the defendant, as lessee, committed breaches of covenants contained in the lease dated 28 April 1989 between the plaintiff as lessor and the defendant as lessee: see Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] ANZ ConvR 351. The covenants in question need not be set out. It is sufficient to say that they are covenants obliging the lessee to repair and maintain the leased property. 2 When the matter was last before me, the parties indicated that they expected to be able to agree the amount recoverable by the plaintiff from the defendant in conformity with those determinations, subject to knowing whether a provision of the lease concerning payment of interest applies to moneys recoverable. An order for separate determination of the relevant question was made pursuant to Part 31 rule 1 of the Supreme Court Rules. The separate question is as follows: "Is the plaintiff entitled to recover interest pursuant to the terms of clause 9.4 of the lease dated 28 April 1999 between the plaintiff as lessor, and the first defendant as lessee, on the amounts claimed as damages in these proceedings for breaches of covenants in the said lease by the first defendant?" 3 Clause 9.4 of the lease is as follows: "If the Lessee omits or neglects to pay any money or to do or effect anything which the Lessee has herein covenanted to pay dor or effect then on each and every such occasion it shall be lawful for but not obligatory upon the Lessor and without prejudice to any rights or powers arising from such default to pay such money or to do or effect such thing by itself as if it were the Lessee and for that purpose the Lessor may entered upon the Demised Premises and there remain for the purpose of doing or effecting any such thing and without prejudice to the rights powers and remedies of the Lessor otherwise under this Lease the Lessee will pay to the Lessor interest at the rate of twenty per centum (20%) per annum on any moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this Lease but unpaid for seven (7) days such interest to be computed from the due date for the payment of the moneys in respect of which the interest is chargeable until payment of such moneys in full and be recoverable in like manner as rent in arrears." 4 The plaintiff says that the separate question should be answered in the affirmative. It puts its case in two ways. It says, first, that moneys payable as damages for breach of the lease covenants are "amounts due by the lessee to the lessor … pursuant to this lease". The plaintiff's alternative submission is that, to the extent that the plaintiff as lessor has already outlaid money in paying for work that the defendant, as lessee, should have done in compliance with the lease covenants, there arises from clause 9.4 an obligation of the defendant to reimburse the plaintiff together with interest as provided by that clause. I shall consider these different contentions in turn. 5 According to the first formulation of the plaintiff's case, the lease and its covenants are seen as the source of the obligation to pay damages for breach of those covenants. The defendant says that damages for breach of the lease covenants are not moneys "due by the lessee to the lessor … pursuant to this lease" but, rather, monetary compensation for breach of the lease. The defendant refers to the well known principle that caused me to say in Castlepines (IBM) Pty Ltd v Residential Housing Corporation Pty Ltd [2003] NSWSC 398: "A person who points to a contract as the source of an unsatisfied right to be paid asserts a claim different in nature from that of a person who, relying upon a breach of contract, seeks compensatory relief in the form of monetary damages." 6 I accept the submissions of the defendant on this aspect. Moneys are properly regarded as "moneys due … pursuant to this lease" only if payment of the moneys operates to discharge a payment obligation imposed by the lease. The words "pursuant to" were said by the Full Court of the Supreme Court of Western Australia in Garbin v Wild [1965] WAR 72 to mean "in accordance with" or "consequent and conformably to". Moneys will thus be due "pursuant to" a lease where payment of the moneys is in accordance with and conformable to a provision of the lease - in other words, where that provision imposes a requirement that the moneys be paid. Damages for breach of a provision of the lease stand in a different light. They are paid in accordance with and pursuant to the judgment or order requiring them to be paid. The damages may well be regarded as paid in consequence of or by reason of the liability or legal obligation imposed by the breached lease covenant but that is not the same thing as payment pursuant to the covenant: see the distinction drawn in the reasoning of the Supreme Court of Canada in Ministry of National Revenue v Armstrong [1956] SCR 446. 7 The correctness of the approach for which the defendant contends on this aspect of the case is confirmed, in my view, by the statement in clause 9.4 that interest is payable on moneys due pursuant to the lease but unpaid for seven days. This, to my mind, consolidates the identity of the lease covenants themselves as the direct and immediate source of the payment obligations in question. The lease contains several provisions of relevance, apart from the provisions with respect to rent as such. There are, for example, a covenant by the lessee to pay or reimburse the lessor for the lessor's legal costs and expenses of and incidental to the preparation, execution, stamping and registration of the lease (clause 11.5). There is provision in clause 13.2 for the payment by the lessee to the lessor of sums for outgoings and the like. Clause 9.4 concerning interest has these types of payments obligations in contemplation and looks to the possibility that a relevant sum will not be paid within seven days after the lease itself requires it to be paid. 8 In short, a sum payable as damages for breach by the lessee of a repair or similar covenant, although a sum due by reference to or by reason of a liability sourced in the covenant, is due "pursuant to" a judgment or order awarding damages, not "pursuant to" the covenant itself. The relevant distinction is that recognised by the High Court in Young v Queensland Trustees Ltd (1956) 99 CLR 560 between a sum that a contract requires to be paid and a sum that a court requires to be paid to compensate a breach of contract. 9 I turn now to the second and alternative contention of the plaintiff. According to that alternative approach, the plaintiff does not regard the second part of clause 9.4 (beginning "and without prejudice") as merely a provision applying indiscriminately to all "moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this Lease …". Rather, it sees that second part as inextricably linked to the first part of clause 9.4 (that is, so much of it as precedes "and without prejudice") and therefore as playing a part in a scheme created by clause 9.4 as a whole. 10 That scheme is, it is said, one that applies in every case described in the opening words of clause 9.4, that is, "If the lessee omits or neglects to pay any money or to do or effect anything which the Lessee has herein covenanted to pay do or effect …". The clause says that, in such a case, the lessor may (but need not) "pay such money or … do or effect such thing by itself as if it were the Lessee". It is from that point that clause 9.4 goes on to say, in its second part, that the lessee will pay to the lessor interest "on any moneys due by the Lessee to the Lessor pursuant to this Lease …". 11 It is the plaintiff's contention that clause 9.4 carries within it a requirement, in a case where the lessor pays money that the lessee has covenanted to pay but has not paid, that the lessee reimburse the lessor for the money so paid by the lessor. That requirement, the plaintiff says, is necessarily implied by the words used: it would be absurd for the lessor to make to a third party some payment that, as between lessor and lessee, was to be made by the lessee and then to be permanently out of pocket while, at the same time, the lessee had been permanently relieved from the need to make the outlay. An implied requirement that the lessee reimburse the lessor is said to appear (invisibly) between the first and second parts of clause 9.4, so that the reference in the second part to moneys due by the lessee to the lessor pursuant to the lease includes moneys that the lessee is so required to reimburse. 12 The plaintiff's argument next focuses on the alternative contemplated by the first part of clause 9.4, being the situation where the lessor does or effects something (not being the payment of money) that the lessee has covenanted to do or effect but omits or neglects to do or effect. In that case, as in the payment case, the lessor may choose to do or effect the relevant thing. The implied term in that instance, according to the plaintiff, is a term that the lessee will reimburse the lessor for anything actually spent by the lessor in doing or effecting the relevant thing; so that if, for example, the lessor effects some repair that the lessee has failed in breach of covenant to effect and, for that purpose, engages and pays a builder or tradesman, an amount equal to that paid by the lessor to the builder or tradesman is, under the implied term, payable by the lessee to the lessor. Again, it is said that it would be absurd if the lessor was left with such a financial burden and the lessee, being in breach of the repair covenant, was required neither to effect the repair (which had already been done) nor to bear the cost actually incurred by the lessor in making good what the lessee should have made good. 13 It is said on behalf of the plaintiff that, unless the term for which the plaintiff contends is implied, the lessor suffers unwarranted loss (and the lessee enjoys unwarranted escape from that loss) as a result of a breach of covenant by the lessee. Had the lessee performed the contract, neither the lessor's loss nor the lessee's escape from it would have occurred. Accepted and well established principles regarding the implication of terms necessary to give business efficacy to the contract are therefore seen as operating: The Moorcock (1889) PD 64; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. 14 I accept these submissions as to the implied term. It cannot have been contemplated that the economic position of the lessee should be better (and that of the lessor worse) where the lessor pays money that the lessee should have paid or to bring about some result that the lessee should have procured than it would be if the lessee had duly performed the lease covenants. In a case where the lessor pays money as contemplated by the first part of clause 9.4, the implied term requires the lessee to pay to the lessor a sum equivalent to that paid by the lessor. And where the lessor does or causes to be done some other thing as contemplated by the first part of clause 9.4 and, in so doing, pays out money that it is reasonably necessary to outlay in order to do the thing or to cause it to be done, the implied term requires the lessee to pay to the lessor a sum equivalent to that so paid by the lessor. 15 The implied term must, of course, be seen as fixing some time for payment by the lessee. Given the nature of the context (in which the lessor may pay money without the knowledge of the lessee), it must be the case that the lessee's obligation to reimburse does not become due for performance before the lessor gives to the lessee information sufficient to show that the money in question has been paid by the lessor in circumstances attracting the operation of the implied term. Another pre-condition must be that the lessor demands payment by reference to that information and the right of reimbursement arising under the lease. Once both pre-conditions had been satisfied, the law would imply a reasonable time for the lessee to pay, so that the due date for payment (as contemplated by the part of clause 9.4 dealing with interest) would arrive only upon the expiry of that reasonable time after satisfaction of the pre-conditions. 16 Once the implied term is recognised, the two parts of clause 9.4 can be seen to constitute a coherent whole, with the second part providing for the computing and payment of interest upon moneys that include moneys due by the lessee to the lessor under the implied term by reason of the actual outlay of money by the lessor to cause to be effected repairs and maintenance that the lessee failed, in breach of the lease covenants, to effect. 17 The separate question, as it relates to unliquidated damages, must be answered in the negative but with a rider to the effect that there is implied into clause 9.4 the term I have described and that the plaintiff is entitled to recover interest pursuant to the terms of clause 9.4 on liquidated sums that become due by the lessee to the lessor under that implied term. 18 I shall hear from the parties at a time to be fixed on such matters as, in the light of these observations, remain to be dealt with to bring about final disposition of the proceedings. **********

Alamdo Holdings Pty Ltd v Australian Window Furnishings

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Judgment (11 paragraphs)

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