Big Country Developments Pty Limited v Peter Griffiths

Supreme Court of NSW|2015-04-17|Before: Kunc J, Mr J

Summary

The Plaintiff ("Big Country") sues the Third Defendant ("Mr Fox") and the Fourth Defendant ("Mr Duncan") as guarantors of a lease made on 1 March 2004 (the "Lease") between Big Country as lessor and Chilis (Penrith) Pty Limited ("Chilis") as lessee over premises described as "Chillis Texas Grill" Building "B", XXX Mulgoa Road (Cnr Blaikie Road), Penrith (the "Premises").
Mr J Horowitz of Counsel appeared for Big Country. Although present in Court during the hearing, Mr Fox took no active part in the proceedings. Mr J Baird of Counsel appeared for Mr Duncan.
Claims and cross-claims between Big Country and others were resolved either by settlement or the entry of default judgment prior to the hearing. This meant that the Court only had to determine two issues. Those issues and the Court's answers are: 1. Did Chilis abandon the Premises or otherwise part with possession of them so as to constitute a repudiation of the Lease or did Big Country wrongfully retake possession of the Premises? Chilis abandoned the Premises and thereby repudiated the Lease. Even if that conclusion is wrong, Big Country did not wrongfully retake possession of the Premises. 1. Did Big Country take reasonable steps to mitigate its damages arising from Chilis' repudiation of the Lease? Yes.

The facts

The Court finds the facts to be as follows. Where there was dispute about a fact, there is a cross-reference between the finding and where in this judgment the reasons for that finding are to be found.
Mr Peter Hesky is the sole director of Big Country, which is one of a group of family companies. He is an experienced property developer with substantial property assets held by Big Country.
One of Big Country's assets is a large property on Mulgoa Road, Penrith. Big Country has developed that property to include a hotel and two commercial sites used as restaurants. The Premises was one of those restaurant sites.
The Lease was expressed to commence on 17 February 2004 with a 12 year term expiring on 16 February 2016. There were additional 5 and 8 year options. The initial rent was $220,000 per annum with a minimum annual percentage rent increase of 4%. The permitted use under the Lease was a licensed restaurant and bar. There was no dispute between the parties that the retail tenancies legislation did not apply to the Lease.
The Lease also included the following provisions: Rent 3.1 The Lessee must during the whole of the Term pay to the Lessor without demand set-off (whether arising at law or in equity) counter-claim withholding or deduction whatsoever the rent as specified calculated and payable in the manner provided in the First Schedule. Such rent shall be deemed to accrue from day to day. … No sub-letting, etc 4.1 The Lessee shall not during the continuance of this Lease without the written consent of the Lessor (which consent the Lessor shall not unreasonably withhold) sublet part with or share the possession of or grant any licence franchise or concession affecting or mortgage charge or otherwise deal with or dispose of the Premises or any part thereof or any estate or interest therein or by any act or deed procure the Premises or any part thereof or any estate or interest therein to sublet be shared with or put into possession of any person or persons or to be the subject of any licence or concession or to be mortgaged charged or otherwise deal with or disposed of. … PART 9 - LESSOR'S COVENANTS Quiet Enjoyment 9.1 The Lessee duly paying the rent and other moneys payable hereunder and duly and punctually observing and performing the covenants obligations and provisions of this Lease on the part of the Lessee to be observed and performed shall and may peaceably possess and enjoy the Premises during the Term without any interruption or disturbance from the Lessor or any other person or persons lawfully claiming by from or under the Lessor subject always to the rights powers remedies and reservations of the Lessor. … Default and Re-Entry 10.1 In the event that:- 10.1.1 Failure to Pay Rent or other Monies the rent or any other moneys payable pursuant to this Lease or any part thereof shall be in arrears and unpaid for the space of fourteen (14) days after receipt of written notice from the Lessee; or … THEN and in any one or more of such events the Lessee shall be deemed to have made default and the Lessor may elect to treat any such default as a repudiation of this Lease by the Lessee FURTHER PROVIDED that the Lessor at its option may at any time or times thereafter (but without prejudice to any action or other remedy which the Lessor may have against the Lessee in respect of any breach of the covenant and provisions in this lease on the part of the Lessee to be observed or performed or for damages as a result of any such event) without any prior demand or notice (unless required by law) either re-enter (forcibly if necessary) into and take possession of the Premises or any part thereof in the name of the whole (anything herein contained to the contrary notwithstanding) AND thereupon this lease shall be absolutely determined, or, by notice in writing to the Lessee, determine this Lease and from the date of giving such notice this Lease shall be absolutely determined. … Essential terms and damages 10.6.1 it is expressly agreed between the parties that each of the covenants by the Lessee contained or implied in each of the following clauses are and are deemed to be essential terms of this Lease: - (i) Clause 3.1 (covenant to pay rent), … (iii) Clauses 4.1 and 4.2 (covenants relating to subletting and assignment of the Premises or any other dealing with the Lease or the Premises); … 10.6.2 A breach of an essential term or default in performance thereof shall entitle the Lessor (without limitation to any other right or remedy the Lessor might have hereunder) to terminate the Lease. 10.6.3 The Lessee covenants to compensate the Lessor in respect of any breach of an essential term of this Lease and the Lessor is entitled to recover damages from the Lessee in respect of such breaches. The Lessor's entitlement under this Clause 10.6 is in addition to any other remedy or entitlement to which the Lessor is entitled (including the termination or surrender of this Lease). 10.6.4 In respect of the Lessee's obligations to pay rent or other moneys the acceptance by the Lessor of arrears or of any late payment of rent or other moneys shall not constitute a waiver of the essentiality of the Lessee's obligation to make such payments or of the Lessee's continuing obligation to pay rental during the Lease term. Repudiation and Breach 10.7.1 In the event that the Lessee's conduct (whether acts or omissions) constitutes a repudiation of the Lease (or of the Lessee's obligations under the Lease) or constitutes a breach of any Lease Covenants, the Lessee covenants to compensate the Lessor for the loss or damage suffered by reason of the repudiation or breach. 10.7.2 The Lessor shall be entitled to recover damages against the Lessee in respect of repudiation or breach of covenant for the damage suffered by the Lessor during the entire term of this Lease. Damages for Breach … 10.8.3 In the event of the Lessee vacating the Premises whether with or without the Lessor's consent, the Lessor shall take reasonable steps to mitigate its damages and to endeavour to lease the Premises at a reasonable rent and on reasonable terms. The Lessor's conduct taken in pursuance of the duty to mitigate damages shall not of itself constitute acceptance of the Lessee's breach or repudiation or a surrender by operation of law. 10.8.4 Should the Lessor terminate this Lease following any breach of an essential provision or otherwise then without prejudice to any other right or remedy of the Lessor herein contained or implied the Lessor shall be entitled to recover from the Lessee the difference between the aggregate of the Minimum Rent and other rents and moneys payable by the Lessee hereunder for the unexpired residue of the term less any amount the Lessor is able to obtain or could in the Lessor's opinion reasonably be expected to obtain by observing the provisions of Clause 10.8.3. … Entry by Lessor not to Constitute Forfeiture 13.24 If the lessee shall vacate the Premises during the Term, and the Lessor has not accepted in writing the surrender of the Lease or the Lessor has not lawfully terminated the Lease or re-entered the Premises (whether or not the Lessee ceases to pay the rental or other moneys payable hereunder) - 13.24.1 Acceptance of the keys and/or entry into the Premises by the Lessor or by any person on the Lessor's behalf for the purposes of inspection, cleaning, repairing, refurbishing or altering the Premises or for showing the Premises to prospective tenants and/or the advertising of the Premises for reletting shall not constitute a re-entry or forfeiture or waiver of the Lessor's right to recover in full all rental and other moneys from time to time payable hereunder. 13.24.2 In absence of a written agreement by the Lessor to accept the surrender of the Lessee's interest hereunder or a formal notice of forfeiture or re-entry this Lease shall be deemed to continue in full force and effect until the earlier of the date as from which a new lessee actually commences to occupy the Premises and the Expiry Date. 13.24.3 Any entry by the Lessor into the Premises in the meantime shall be deemed an entry by the leave and licence of the Lessee. … Lessee to Pay Lessor's Legal Costs 13.26 The Lessee will pay the Lessor's reasonable legal costs and all duties, fees, charges and expenses of or incidental to the preparation completion stamping (including penalties and fines other than penalties and fines due to the default of the Lessor) and, if applicable, the registration of this Lease, and of any renewal hereof, the obtaining of any consent or approval required in respect of this Lease or hereunder and of or incidental to any and every breach or default by the Lessee hereunder and in or incidental to the exercise or attempted exercise of any right power privilege authority or remedy of the Lessor under or by virtue of this Lease (on a solicitor and client basis) and all the Lessor's costs charges and expenses of all consultants, architects, valuers, experts and other persons as may be employed by the Lessor in consequence of or in connection with any breach or default by the Lessee hereunder and all the Lessor's reasonable legal and other costs charges and expenses which the Lessor shall suffer or incur in consequence of or in connection with the doing or execution of any act, matter or thing by the Lessee pursuant to or in accordance with or arising out of the provisions of this Lease.
"Chilis Texas Grill" was a franchise restaurant and Chilis constructed the building in that franchise's distinctive style.
Chilis was a wholly owned subsidiary of Chilis Restaurant Developments Pty Ltd ("CRD"), which operated a chain of similar restaurants through other subsidiaries.
In May 2006 Mr Fox and Mr Duncan purchased CRD. From 31 July 2006 until its deregistration, Mr Duncan was the sole director of Chilis.
By a deed made on 28 July 2006 (the "Deed"), Big Country consented to a deemed assignment of the Lease arising out of a change in the composition of Chilis' directors and shareholders consequent upon Messrs Fox's and Duncan's purchase of CRD. By Clause 4 of the Deed Messrs Fox and Duncan (together with others) guaranteed Chilis' obligations under the Lease.
By charges registered in August and September 2006 Chilis charged all of its assets and undertaking including restaurant fit out to the Commonwealth Bank of Australia ("CBA").
Chilis did not itself operate the restaurant on the Premises. This was done on its behalf by Restaurant Services Group Pty Ltd ("RSG"), which was incorporated on 19 September 2006. RSG did not have any shareholding in or common directors with Chilis, nor did Chilis in or with RSG.
On 22 November 2006 RSG signed a management agreement with, among others, CRD and Chilis whereby RSG agreed to provide management and operation services to the various restaurants including the one owned by Chilis. Those services included: 1. Full service restaurant and bar operation and management; 2. The selection, employment, remuneration, training, discipline, transfer and dismissal of staff; 3. The acquisition of goods and services for the operation of the various restaurants; and 4. Repairs to equipment, fixtures and fittings.
Until September 2007 the person with whom Chilis dealt at RSG was the Fifth Defendant, Mr Christopher White (against whom default judgment has been entered). In about September 2007 Mr White left RSG and commenced employment directly with the Chilis group of companies as its Chief Operating Operator, reporting to Mr Duncan.
As at 6 March 2008, Chilis: 1. had paid rent for the Premises for the period up to and including 16 March 2008; 2. was not in default under any covenant of the Lease.
On 6 March 2008 Mr Fox told Mr Duncan that RSG would be placed into voluntary administration the next day.
RSG closed the restaurant on the Premises on 6 March 2008.
On 7 March 2008, RSG was placed into voluntary administration. On the same day, but before the events recorded in the next paragraph, the administrators of RSG changed the locks to the Premises in order to secure them and their contents. As to the findings in this and the preceding paragraph, see paragraph [77] below.
At some time on 7 March 2008, but after the events recorded in the preceding paragraph, Mr White and Ms Maria Edwards (an executive assistant employed by CRD) visited the Premises. Mr White's key to the Premises did not work. The Court infers the purpose of the visit was to establish the condition of the Premises. The Court rejects Chilis' submission that an inference about any other relevant intention can be drawn from the evidence that has been admitted about this visit (see paragraphs [83] to [86] below).
While at the Premises, Mr White, in the presence of Ms Edwards, made a phone call. The admissible evidence does not permit any other inference to be drawn about this phone call, including with whom it was held or its subject matter (see paragraphs [83] to [86] below).
Mr White's and Ms Edwards' visit to the Premises was the first and last attempt made on behalf of Chilis to re-enter the Premises. The fixtures, fittings and equipment remained undisturbed in the Premises at all times thereafter until shortly before Big Country granted a new lease for the Premises to another restaurant chain in 2011 (see paragraph [73] below). The Court cannot be more precise than "shortly before" because the evidence indicates that sometime between November 2010 and March 2011 the new tenant was given access to the Premises to refit them.
At no time after 7 March 2008 did Mr White or anyone else on behalf of Chilis attempt to contact Mr Hesky or anyone else on behalf of Big Country to communicate anything about Chilis' intentions for the Premises and their contents.
The Premises remained vacant from 7 March 2008 to shortly before (see paragraph [24] above) 1 March 2011.
On 10 March 2008 Mr Hesky, who was on holidays at Coffs Harbour at the time, became aware that Chilis was not opening the restaurant on the Premises for business.
For about three days after he had learnt that Chilis were not opening the restaurant on the Premises, Mr Hesky made several unsuccessful attempts to contact Mr White by telephone.
Mr Hesky telephoned Mr Stephen Skipper on 10 March 2008. Mr Hesky told Mr Skipper that Chilis had "abandoned" the Premises and asked him to go out to the Premises to have a look. He also instructed him to start the process of finding a new tenant for the Premises. Mr Skipper was a real estate agent who Mr Hesky had used on previous occasions to find tenants for his other commercial properties including the Mulgoa Rd property. The two men had a longstanding professional relationship. Mr Hesky instructed Mr Skipper that he wanted to lease the Premises on the same terms as the Lease, but would consider offers of lower rental.
On 11 March 2008 Mr Skipper attended the Premises, during what would otherwise have been normal operating hours for the restaurant, to check if the Premises were in fact vacant. Mr Skipper noted that the front door of the Premises, usually open to the public, was locked. He saw that there were no staff present at the Premises but that the fitout, fixtures and equipment remained. He did not attempt to obtain access to the Premises through either of the two side doors. Posted on one of the side doors he saw a notice on Chilis' letterhead saying "This restaurant is now closed". Mr Skipper informed Mr Hesky of these observations within the next 48 hours.
From on or shortly after 11 March 2008 Mr Skipper started to take steps to find a new tenant for the Premises.
At some time between 11 March 2008 and 14 March 2008, Mr Hesky became aware that the Premises were not secure. A side door was open through which equipment and food could be seen. Mr Hesky instructed his builder to get one of his employees, a gentleman called Seamus who was working on another part of Big Country's Mulgoa Rd property which included the Premises, to put a nail in the side door of the Premises "to secure it shut".
Chilis paid no rent to Big Country for the Premises for any period after 16 March 2008. To the extent that it is relevant, an explanation appears in the report to creditors by RSG's administrators dated 8 April 2008 (the "Administrators' Report"). This records: Further, we are aware the Owners [including Chilis] had lease agreements with the landlords of the five (5) restaurant sites. The company [RSG] would in turn pay the Lease payments on behalf of the Owners. As the sites are currently unoccupied and are without a tenant, it is likely that the landlords will make a claim against the Owners for early termination of the Lease and for unpaid rent for the term of the Lease. The Owners in turn, may make a claim against the Company for these charges.
In mid-March Mr Hesky telephoned three Penrith real estate agents (Pulman & Williams, LJ Hooker and Raine & Horne) informing them the Premises were available and telling them to get in touch with Mr Skipper if they had any prospective tenants. He offered to split the commission between whoever found a new tenant and Mr Skipper. At the same time Mr Skipper also contacted Penrith real estate agents offering a success fee if they found a tenant for the Premises.
On 19 March 2008 the first meeting of the creditors of RSG was held.
On 27 March 2008 Mr Skipper showed the first prospective tenant through the Premises. To enter the Premises, he arranged through Mr Hesky for Seamus to meet him (Mr Skipper) at the Premises, remove the nail in the side door, wait while the inspection took place and then re-secure the door with a nail when the inspection was complete. This was the procedure that Mr Skipper followed until mid-2010 whenever he showed prospective tenants through the Premises.
Between 27 March 2008 and 4 April 2008 there were discussions between Mr Duncan on behalf of Chilis and the CBA, the secured chargee of RSG's assets used in the operation of the restaurant on the Premises (see paragraph [16] above). On 27 March 2008 Mr Geoff Evans of the CBA emailed Mr Duncan: Adrian, I confirm that in response to the general marketing of the Chilis sites, offers to purchase Shellharbour and Penrith have been received. The best offers are $50,000 including GST for each site. Please contact me to discuss.
Mr Duncan's reply is not in evidence, but on 28 March 2008 Mr Evans emailed Mr Duncan: Adrian, thanks, but the issue is, as you are the authorised officer of each entity, will you execute a contract for sale. A decision is required.
On 27 March 2008 Mr Skipper received a letter from solicitors acting on behalf of Mr Jihad Aoun and Mr Matthias Larcher setting out the terms of an offer to lease the Premises as a restaurant (the "Aoun Offer"). The letter included an attachment entitled "Proposal for the rebranding of the existing Chilis restaurants" and said: We are instructed that our client is endeavouring to take over all of the Chilis restaurants that are now closed subject and conditional upon our client coming to an agreement with the Liquidator appointed in relation to the fittings and fixtures of each of the restaurants. We are instructed that an agreement in principal (sic) will shortly be reached. Subject to the above, our client in furtherance of the discussions with your client, has instructed us to make the following offer in relation to a new lease for the premises. …
The Court's findings as to what occurred in relation to the Aoun Offer are set out in paragraphs [165] to [169] below.
On 28 March 2008 Mr Skipper contacted the Hooters restaurant chain ("Hooters") about the Premises.
On 31 March 2008 Mr Hesky emailed Mr Skipper to suggest the latter should contact the Outback Jack's Steakhouse chain of restaurants ("OJs"). On 7 April and 25 May 2008 Mr Skipper showed the Premises to representatives of OJs.
The Aoun Offer did not proceed. An email from CBA to Mr Duncan of 4 April 2008 records: Adrian, there has been no interest in any stores. Campbelltown re-entered by new owners, Wollongong to cancel lease 17 April 2008 and sell premises, Wentworthville premises sold and purchaser no interest in fitout. Penrith boarded up by landlord no access, No interest in sale Shellharbour as the prospective purchaser for all 5 outlets now does not want to proceed. Any comments.
The Court infers the "prospective purchaser" is Messrs Aoun and Larcher.
On 10 April 2008 solicitors acting for Brinker International Inc, the ultimate Chilis franchisor, wrote to Mr Hesky "following closure of the various Chilis restaurants in NSW". The letter sought Big Country's consent for tradespeople to go on to the Premises to cover up external signage which was Chilis proprietary branding. Access to the interior of the Premises was not required.
On 17 April 2008 the second meeting of creditors of RSG was held and it was placed into liquidation.
On 11 June 2008 Mr Skipper sent a lease offer to OJs.
On 24 June 2008 OJs responded to Mr Skipper.
Mr Skipper had discussions with OJs concerning the terms of a lease for the Premises during July 2008. At the same time Mr Skipper ascertained through another real estate agent that neither the Nando's nor Oporto's restaurant chains were interested in the Premises.
On 4 July 2008 LJ Hooker Commercial Penrith wrote to Mr Hesky confirming their appointment as leasing agents to market the Premises and informed him of steps they had already taken including "Just Listed" emails and flyers, contacting various possibly interested parties and uploading details and photos of the Premises onto both their own website and the "Real Commercial" website.
On 29 July 2008 Mr Skipper emailed a lease offer to another restaurant proprietor who he subsequently showed through the Premises.
On 31 July 2008 OJs sent a further proposal to Mr Skipper which Mr Skipper immediately forwarded to Mr Hesky.
Between August 2008 and April 2009 Mr Skipper continued to arrange inspections of the Premises for prospective tenants.
On 11 August 2008 OJs' solicitors emailed Mr Skipper regarding the proposed lease terms and requesting an Agreement to Lease. The email included an acknowledgment that in relation to the requisite Council approvals, OJs "will pay such fees and other monies as are required for plans, application and similar". Around this time Mr Skipper informed Mr Hesky that he had agreed terms with OJs provided OJs could obtain consent from the Council for alterations they wanted to make to the Premises.
On 1 September 2008 Mr Skipper emailed further proposed lease terms to OJs.
On 16 October 2008 Mr Skipper wrote to OJs regarding lease documentation and the transfer of the Premises' liquor licence.
On 21 November 2008 the liquor licence for the Premises was transferred from Chilis into Mr Hesky's name.
On 3 December 2008 Mr Skipper prepared a document entitled "Heads of Agreement" recording the terms of the proposed lease with OJs. However, this document was never signed.
On 8 December 2008 Mr Hesky wrote to his solicitors "We have a new tenant for the [Premises]. They wish to have all documentation and a Bank Guarantee signed and sealed prior to Christmas so they can access the property for their fitout and upgrade. Can you please prepare a lease as soon as possible…". The "new tenant" was OJs. In relation to the existing fitout Mr Hesky recorded "Outback Jack's to have rights to negotiate directly with the Receivers of Chilis".
Between December 2008 and January 2009 Mr Skipper liaised with OJs and Mr Hesky to arrange for the lodgement of a development application with Penrith City Council for OJs' proposed alterations to the Premises. This process had required OJs to spend money in connection with the preparation of plans and obtaining planning approvals. Messrs Hesky and Skipper were aware of that expenditure at the time.
On 23 January 2009 Penrith City Council granted consent for OJs' development of the Premises.
On 24 March 2009 Mr Hesky signed a Construction Certificate Application in respect of OJs' development of the Premises.
In April 2009 a problem arose with OJs over the proposed rent, which had apparently been agreed at $215,000 per annum gross plus GST. On 16 April 2009 Mr Skipper emailed OJs: At this stage of the proceedings, it would be ridiculous to risk the money and time spent for the lease negotiations to fail…Big Country Developments originally expected the lease/fit out period to start on the 15th January, then it was proposed to be the 1st April, now it looks as it may be the 20th April, subject to the issuing of the CC, signing of the lease and producing an acceptable Lease Bond document.
In late April OJs informed Mr Skipper that OJs would be taking a lease in a nearby shopping centre in preference to the Premises.
After OJs withdrew Mr Hesky discussed with Mr Slipper whether they should consider looking for a tenant other than a restaurant. Mr Slipper said he would keep looking and proceeded to "rev up" the local real estate agents again. Mr Hesky's suggestion should be understood in the context of the zoning of the Mulgoa Rd property included the Premises. This was "Special Business (Highway Service Area)" which permitted things such as car washes, clubs, convenience stores, drive in restaurants, hotels and motels.
At regular intervals between June 2009 and September 2010, Mr Skipper advertised the Premises in the Sydney Morning Herald both in print and on the internet. Mr Skipper communicated with a number of potential tenants.
At Mr Hesky's suggestion, Mr Skipper sent details of the Premises to a firm of liquor and hospitality industry brokers after the proposed lease to OJs had failed to eventuate.
In May 2010 one of the local agents Mr Skipper had originally contacted informed him that Hooters, whom he had previously approached in March 2008 in respect of the Premises, were now interested in leasing the Premises.
Between May and October 2010 Mr Skipper liaised with Hooters concerning approvals to alter the Premises, transferring the liquor licence and related matters. Hooters also could not proceed to lease the Premises until they had received approval from their American parent company.
From July to August 2010 Mr Skipper also negotiated with Pancakes on the Rocks concerning the Premises. This culminated on 27 August 2010 when Mr Skipper prepared a spreadsheet comparing the offers made by Hooters and Pancakes on the Rocks.
In September and October enquiries were also made on behalf of Big Country with Hogsbreath Café.
After further offers from Hooters on 29 October 2010 and 4 November 2010, Mr Skipper accepted Hooters' terms on behalf of Big Country on 5 November 2010. Thereafter the terms of a lease with Hooters were finalised, Hooters obtained head office approval and, prior to executing the new lease, went on to renovate the Premises and install a new fit out. Until this time Chillis' and RSG's fixtures, fittings and equipment had remained untouched at the Premises.
On 1 March 2011 Big Country entered into a lease of the Premises with Hoot Penrith Pty Limited ("Hoot"). The initial rental after a 3 month rent free period was $175,000 per annum with 4% annual increases.
At no time did Big Country give Chilis a notice under s 129 of the Conveyancing Act, 1919 (NSW) (the "CA") or any other written notice of Big Country's intention to retake possession of the Premises.
A historical company search for Chilis discloses that it never went into liquidation. ASIC began strike off action in November 2009 and Chilis was deregistered on 26 July 2011.
Big Country continued to invoice Chilis for outstanding rent under the Lease for the period between March 2008 and February 2011. That rent remains unpaid and is one of the items claimed by Big Country from Messrs Fox and Duncan.

Resolution of disputed fact

[Paragraph [21] above] Mr Duncan's case, as it was at one point, included the suggestion that Big Country had locked Chilis out of the Premises without cause. Big Country had always denied any knowledge of or responsibility for the changing of the locks on the Premises.
The suggestion that Big Country changed the locks cannot stand in the face of the Administrator's Report, which included: On 6 March 2008, [RSG] closed all restaurants and terminated all its employees. We were subsequently appointed Joint and Several Administrators on 7 March 2008 … Furthermore, as previously noted, the fixtures and fittings of each of the restaurants were subject to a charge held by the CBA. To ensure all assets were secure and to prevent unauthorised access to the restaurants, we instructed a locksmith to change all external locks to the restaurants."
The Administrators' Report does not state exactly when the locks were changed but there is no doubt they had been changed by the time of Mr White's and Ms Edwards' visit to the Premises on 7 March 2008. The administration accounts as at 8 April 2008 record payments to a locksmith of $2,597.27. Nevertheless, Mr Baird sensibly, if I may say so with respect, did not demur from the Court's suggestion that as a matter of practice, especially where there was a cash till and liquor included in the stock, the administrators would almost certainly have moved to secure the restaurants as soon as possible on the day of their appointment.

Interlocutory matters

Mr Duncan's defence underwent some refinement during the course of the hearing. This resulted in the Court granting leave, late in the proceedings, for Mr Duncan to file a Further Amended Commercial List Response so as to conform and articulate his defence in the light of the evidence as it had fallen during the hearing (see paragraph [97] below). This was in part necessitated by the exclusion of certain evidence upon which Mr Duncan wished to rely of a telephone conversation Mr White allegedly had with Mr Hesky on 7 March 2008 while Mr White was at the Premises with Ms Edwards (see paragraph [23] above). Mr Hesky had strenuously denied the alleged conversation.
Mr Duncan's difficulty was that since the relevant events, Mr White moved to the United Kingdom and, so it was said, was precluded from returning to Australia by ill health.
The hearing ran for the week commencing on Monday, 13 April 2015. The original estimate was two to three days. On the morning of the first day Mr Baird applied for Mr White's evidence to be taken by videolink from the UK. That application was refused: Big Country Developments Pty Limited v Griffiths [2015] NSWSC 414 (the "First Judgment").
On the second day of the hearing, the Court rejected two pieces of evidence given by Ms Edwards in the witness box (pursuant to leave) of what she said she had heard Mr White say when he made a telephone call in her presence at the Premises on discovering they were locked up (see paragraph [23] above). Mr Baird first submitted that the evidence should be admitted for a non-hearsay purpose (see s 60 Evidence Act 1995 (NSW) (the "EA")), only to prove those words were said and not as to their truth. The Court accepted Mr Horowitz's submission that, so limited, the evidence was irrelevant.
It was next submitted that the evidence was admissible under s 63 of the EA because Mr White was "not available": 63 Exception: civil proceedings if maker not available (1) This section applies in a civil proceeding if a person who made a previous representation is not available to give evidence about an asserted fact. (2) The hearsay rule does not apply to: (a) evidence of the representation that is given by a person who saw, heard or otherwise perceived the representation being made, or (b) a document so far as it contains the representation, or another representation to which it is reasonably necessary to refer in order to understand the representation.
For the purposes of demonstrating that Mr White was not available, Mr Baird relied upon s 4(1)(f) of the dictionary to the EA: (1) For the purposes of this Act, a person is taken not to be available to give evidence about a fact if: … (f) all reasonable steps have been taken, by the party seeking to prove the person is not available, to find the person or secure his or her attendance, but without success.
Because at that point in time (as had also been the case during the earlier application to take Mr White's evidence by videolink) there was no evidence before the Court that Mr White could not fly to Australia, the Court was not satisfied that all reasonable steps had been taken to secure Mr White's attendance. Ms Edwards' evidence, recorded on the transcript, of what she heard Mr White say on the phone was therefore excluded as hearsay.
Mr Baird did not make any further application during the course of the hearing for the admission of that part of Ms Edwards' evidence that had been excluded. However, at the end of the third day of the hearing, when the evidence was otherwise complete and submissions were about to commence, he renewed his client's application for Mr White's evidence to be taken by videolink. That application was refused: Big Country Developments Pty Limited v Peter Griffiths (No 2) [2015] NSWSC 436 (the "Second Judgment").
On the morning of the fourth day of the hearing, when the proceedings had passed over into submissions, Mr Baird applied (to use his words) for "an adjournment for a period of up to one month in order to explore the possibility, and permit Mr White if well enough to fly to Australia to give oral evidence" (T299.27-29). I refused that application and said I would include my reasons for that outcome in this judgment.
Mr Baird's fundamental submission was that Mr White's evidence, if accepted, would demonstrate no abandonment by Chilis and Mr Hesky's active opposition to Chilis' re-entry into the Premises, irrespective of whoever had locked Chilis out. Mr Baird accepted that, on the evidence, he could not make a submission that Big Country had locked Chilis out of the Premises. The contention was that, as guarantor under the Lease, Mr Duncan was unfairly prejudiced because he could not properly defend Big Country's claim without the evidence of what Mr Hesky had allegedly said to Mr White, particularly as Ms Edwards' evidence had also been excluded.
In opposing the adjournment application Mr Horowitz submitted: 1. Mr Duncan had already been the beneficiary of a number of procedural indulgences during the pre-trial period. 2. The Court could not be satisfied that all reasonable steps had been taken to get Mr White to Australia for the hearing. The medical evidence as it now stood (see the Second Judgment at [4]) went no further than that Mr White had been unable to travel for the previous two days. 3. Mr Horowitz repeated his submissions made the previous day about having made forensic decisions concerning, in particular, not cross-examining Mr Duncan. It was Mr Duncan who, as Chilis' director, had included no evidence in his affidavit about Chilis' intentions after being locked out by the administrators of RSG. Nothing had changed since Mr Baird's earlier application that would cause the Court to alter its earlier conclusion (see Second Judgment paragraph [10]) to the effect that Big Country had legitimately made forensic decisions which meant that the way the case had been conducted could not be unscrambled without causing prejudice and delay to Big Country. 4. Mr White was not a director or officer of Chilis in any event.
In reply, Mr Baird responded: 1. Whatever previous procedural indulgences Mr Duncan may have received, they were irrelevant to the present application. 2. Mr Duncan had not been able to deal with the problem of Mr White's inability to come to Australia any earlier because he (Mr Duncan) had been unrepresented during the first part of 2015. 3. There was no real prejudice to Big Country because under the settlements that had been reached with the other parties, no money would be paid to Big Country until 9 July 2015. If Mr White could come to Australia, his evidence could be dealt with before then and the case concluded. 4. Mr Baird properly accepted that if Mr White was permitted to give his evidence, Mr Horowitz would need to cross-examine Mr Duncan and, quite possibly, Ms Edwards. Mr Horowitz had chosen not to cross-examine her after she had given her evidence in chief in the witness box on the second day of the hearing.
The Court denied the application for an adjournment for the following reasons.
Any decision to adjourn the proceedings had to be made against the background of s 56 of the Civil Procedure Act 2005 (NSW) (the "CPA") that in case management the overriding purpose of the "just, quick and cheap" resolution of the real issues in the proceedings should be maintained. There was no doubt that if the adjournment application was granted: 1. The resolution of the proceedings would be delayed; 2. Witnesses would have to be recalled or called for the first time for cross-examination; 3. There was no certainty that following that course would completely remedy any prejudice to Big Country, which had already run its case in the way it had; and 4. The proceedings, which had already overrun their original estimate by two days, would have to continue for at least another day or two at a later date.
All of those consequences were certain. On the other hand, the evidence did not permit any certain conclusion that the adjournment would be useful because there was no evidence as to whether, in fact, Mr White could or would be able to come to Australia in a month or at all.
In that regard, it should be noted that Mr Baird's first application to take Mr White's evidence by videolink was based upon a submission that Mr White "wasn't well enough to give evidence to these proceedings at any stage" (T30.24-35). The Court now had some evidence which suggested Mr White had musculoskeletal pains for the previous two days caused by various physiological injuries and his underlying, chronic Parkinson's disease. However, there was no medical evidence that would warrant an adjournment as to: 1. Whether or not Mr White could fly to Australia (Mr Baird had submitted he was hoping this could be done with the assistance of medication, but that is not evidence); 2. Even if, medically, Mr White could fly to Australia, he would do so and overcome his understandable fear which had been referred to during the course of the first videolink application (First Judgment at [13]); and 3. How long it would take Mr White to recover from his current ailments to the extent that could happen. On the contrary, in terms of Mr Baird's application for an adjournment of a month, the medical certificate in evidence (Second Judgment at [4]) suggested that it was difficult to say how long Mr White would be unfit but that it was "maybe for a month".
The Court took into account the prejudice suffered by Mr Duncan in not being able to rely on the evidence that it was expected Mr White could give. However, the adjournment would undoubtedly also occasion prejudice to Big Country. The fundamental difficulty in the way of the adjournment application was the complete absence of medical evidence about Mr White's prognosis and future capacity to fly. Even if an adjournment of four weeks was granted, there was no evidence whether Mr White could or would ever be able to come to Australia to give his evidence. Given the absence of such evidence, the late stage of the proceedings at which the application was made (during final submissions) and the requirements of s 56 of the CPA, in the exercise of its discretion the Court refused the adjournment application.

The final form of the issues

The final form of Mr Duncan's response was: 23. In further answer to the whole of the List Statement the Fourth Defendant says: (a) (i) on or about 7 March 2008, or alternatively (ii) in the period 7 March 2008 to 14 March 2008, or alternatively (iii) in the period 7 March 2008 to 27 March 2008, or alternatively (iv) in the period 7 March 2008 to 17 April 2008. The plaintiff took possession of the Premises at a time when it was not lawfully entitled so to do under the terms of the Lease or at law: Particulars I. On or about 11 March 2008, or alternatively in the period 10 March 2008 to 14 March 2008, the plaintiff arranged for his builder to close the side door to the Premises which was open and nail it shut. II. From the time when the plaintiff caused the side door to the Premises to be nailed shut referred to in I above until approximately mid 2010 any person without key to the front door of the Premises had to follow the following procedure: (i) Contacting Mr Hesky of the plaintiff to request access to the Premises; (ii) Upon that request being granted meeting a representative of the plaintiff's builder, namely Seamus, at the Premises; (iii) Whereupon Seamus would remove the nail from the side door to permit it to be opened: and (iv) On completion of the inspection of the Premises Seamus would be contacted and return to the Premises in order to nail it closed again. III. From the occasion of the plaintiff causing the side door to be nailed shut referred to in I above until approximately mid 2010 no person including to the knowledge of the plaintiff Chilis Penrith Pty Ltd. without keys to the front door of the Premises could obtain access to the Premises without the plaintiff's permission. IV. On 27 March 2008 Mr Skipper, the plaintiff's letting agent, showed a prospective tenant through the Premises, and did so again at least on 7 April 2008, 25 May 2008, in or about September 2008 and subsequently, offering the Premises for reletting with immediate vacant possession and the benefit of the tenant's fixtures, fittings, plant and equipment still on the Premise. V. The plaintiff controlled access to the Premises from the aforesaid time of causing the side door to the Premises to be nailed shut onwards. VI. Commonwealth Bank of Australia, the charge over Chilis Penrith Pty Ltd. had to obtain the plaintiff's consent in order to inspect the Premises in or about April 2008 to examine the plant, fittings, fixtures and equipment the subject of its Charge. VII. The plaintiff knew that Chilis Penrith Pty Ltd did not get access to or obtain possession of, or attempt to get access to or obtain possession of, the Premises from 10 march 2008 until 17 April 2008 or at any time thereafter. b. Further, or in the alternative: (i) on or about 7 March 2008, or alternatively; (ii) in the period 7 March 2008 to 14 March 2008, or alternatively (iii) in the period 7 March 2008 to 27 March 2008, or alternatively (iv) in the period 7 March 2008 to 17 April 2008. the plaintiff interrupted or disturbed the peaceable possession and enjoyment of the Premises by Chilis Penrith Pty Ltd in breach of the plaintiff's obligations under clause 9.1 of the Lease: Particulars The Fourth Defendant repeats the Particulars to paragraph 23(a) above. c. The plaintiff failed to serve on Chilis Penrith Pty Ltd any notice pursuant to s.129 Conveyancing Act, 1919 (NSW) in respect of any breach, which is not admitted, by Chilli's Penrith Pty Ltd of the terms of the Lease. 24. By its conduct in paragraph 23 above the plaintiff repudiated the Lease. 24A. Chilis Penrith Pty Ltd impliedly accepted the plaintiff's aforesaid repudiation of the Lease by its conduct in: a. Not disputing or contesting the plaintiff's retaking of possession as set out in paragraph 23(a) above, and/or b. Not disputing the breach on the plaintiff's part of the provisions of clause 9.1 of the Lease as set out in paragraph 23(b) above, and/or c. Not asserting its right to possession of the Premises after the conduct of the plaintiff referred to in paragraphs 23(a) and/or 23(b) above. 25. Further, or alternatively, the Fourth Defendant says; a. Clause 10.8.3 of the Lease provides that; In the event of the Lessee vacating the Premises whether with or without the Lessor's consent, the Lessor shall take reasonable steps to mitigate its damages and to endeavour to lease the Premises at a reasonable rent and on reasonable terms. The Lessor's conduct taken in pursuance of the duty to mitigate damages shall not of itself constitute acceptance of the Lessee's breach or repudiation or a surrender by operation of law. b. To the extent that the Plaintiff has suffered loss and damage by reason of default on the part of Chilis under the Lease, which is not admitted, the Plaintiff has failed to take reasonable steps to mitigate its damages and to endeavour to lease the Premises at a reasonable rent and on reasonable terms. Particulars of Failure to Mitigate Loss and Damage i. Failure to obtain a new tenant of the premises from March 2008 to March 2011, a period of 3 years ii. Failure to appropriate advertise, to put premises to tender, test the market, appoint appropriately qualified agents to locate and identify prospective new tenants. iii. Entry into a new lease with Hoots at a rental which was below the market rental iv. Imposing onerous terms on the new proposed tenant including increasing the amount required by way of a bank guarantee v. Refusal to accept offers from perspective new tenants who were introduced to the Plaintiff in 2008, namely the IRIS Group and the Ettamogah Pub Group.
This final form of Mr Duncan's response crystallised the issues in the following way.
Big Country's case was: 1. Chilis abandoned the Premises on or shortly after 7 March 2008. 2. Chilis' abandonment was a breach of clause 4.1 of the Lease because it constituted a parting with possession of the Premises. 3. Chilis' failure to pay rent was a breach under clause 10.1 of the Lease. 4. Both of the breaches were breaches of essential terms and constituted a repudiation of the Lease. 5. Big Country accepted Chilis' repudiation by entering into a new lease with Hoot on 1 March 2011. 6. Big Country had not accepted Chilis' repudiation any earlier. In particular, it was irrelevant whether or not Chilis had abandoned the Lease because until Big Country entered into the new lease with Hoot, Big Country had never re-entered the Premises with the intention of forfeiting the Lease. 7. Chilis was entitled to the unpaid rent up to the time it entered into the new lease with Hoot and was thereafter entitled to damages for loss of the bargain constituted by the Lease. 8. Big Country had complied with its obligation to mitigate its damages under clause 10.8.3 of the Lease.
Mr Duncan's case was: 1. In various alternative time periods, Big Country wrongfully took possession of the Premises. 2. Alternatively, in various alternative time periods, Big Country interrupted or disturbed Chilis' quiet enjoyment of the Premises to which Chilis was entitled under Clause 9.1 of the Lease. 3. Insofar as Chilis was in breach of the Lease (which was not admitted), Big Country was not entitled to re-enter or forfeit the Lease as it had purported to do because it had not given Chilis notice under s 129 of the CA. 4. To the extent that Big Country had suffered any loss or damage for which Chilis might be liable, Big Country had failed to comply with clause 10.8.3 of the Lease to take reasonable steps to mitigate its damages.
The presentation of the issues in this way demonstrates that there are two fundamental questions which the Court must determine: 1. Had Chilis abandoned the Premises or did Big Country wrongfully re-enter and purport to forfeit the Lease? 2. If Big Country was entitled to damages, had it failed to comply with its obligation under clause 10.8.3 of the Lease to take reasonable steps to mitigate those damages?
The Court will consider each of those matters in turn.

Abandonment by Chilis?

The parties accepted that the question of abandonment had to be determined by an objective examination of the relevant parties' conduct. An example of this is provided by the decision of Higgins J in Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd (1992) 111 FLR 81 ("Leda"), where his Honour said (at 93) that "in the present case, the lessee had acted so as to lead the lessor reasonably to conclude it had abandoned the premises." The subjective intention of the lessee is irrelevant.
This objective enquiry accords with the general law of contract, the ordinary principles of which apply to leases: The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 ("Progressive"). As Deane and Dawson JJ observed in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1988-1989) 166 CLR 623 at 657-658 ("Laurinda") (citations omitted): Lord Wright's oft-quoted admonition that "repudiation of a contract is serious matter, not to be lightly founded or inferred" is, no doubt, a wise one. It should not, however, be allowed to cloud the fact that an allegation of repudiation of contract in a civil case does not involve an assertion that the alleged repudiator subjectively intended to repudiate his obligations. Thus, it is of little assistance in the present case to identify reasons the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease. An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor's conduct "would be reasonably calculated to have upon a reasonable person". It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.
In considering the question of abandonment, the objective facts need to be considered in their context. As the cases demonstrate, the same facts (for example, whether or not fixtures and fittings have been left on the premises) may or may not support the conclusion that the premises have been abandoned. It is helpful to have regard to some earlier authorities not as binding statements of principle but rather as illustrations of how particular facts have been treated.
In Leda, Higgins J said (at 87): As I have noted, the conduct of the defendant, even as the defendant concedes it to have been, justified the plaintiff in concluding, as it did, that the defendant had chosen to close its business and not trade during the hours and on the days it had covenanted to trade. A persistence in that closure would, in the absence of explanation, warrant a conclusion that the defendant had vacated or abandoned the demised premises.
In Commonwealth Bank of Australia v Figgins Holdings Pty Ltd [1994] 2 VR 505, Hayne J (as he his Honour then was) concluded (at 516): Finally, although it is clear that Figgins Holdings ceased to carry on business at shops G19 and G20 in February 1991 it has at no time abandoned possession of the premises. It has always left on those premises a considerable quantity of shop-fittings and similar items. From time to time its staff have visited the premises to check on those fittings … I do not consider that anything turns on the fact that there was no physical means of excluding trespassers. By leaving its property on the premises, Figgins Holdings continued to assert its entitlement to be there to the exclusion of all others. No doubt there was a risk that some of that property might be stolen or vandalised but as events have turned out it seems that none has been stolen or damaged. I do not accept that by its conduct Figgins Holdings surrendered or abandoned the Lease.
The decision of the Court of Appeal in Morrison Holdings Ltd v Manders Property (Wolverhampton) Limited [1976] 2 All ER 205 ("Morrison Holdings") has some similarity to the present case because the tenant was absent from the premises through no fault of its own. A devastating fire had taken place, which rendered the premises unfit for occupation. The tenant vacated the premises, having saved as much stock as possible but leaving behind some fixtures and fittings. They kept the keys to the premises and, the day after the fire, wrote to the landlord stating that they wanted to get back into business as soon as possible and asked how long it would be before the premises would be suitable for reoccupation. In those circumstances the Court of Appeal had no difficulty in upholding a finding that the tenant had not abandoned the premises and was relevantly in occupation at all material times.
In Australian Safeway Stores Pty Ltd v Toorak Village Development Pty Ltd [1974] VR 268, Gowans J was faced with a situation where a lessee of supermarket premises had ceased actively to carry on the supermarket business on the leased premises and had opened a supermarket business a short distance away. Nevertheless, the lessee did not carry on any other business on the leased premises, other than including a notice directing customers to the new address and leaving on the premises certain fixtures, fittings, furniture and equipment which it had used in the course of the supermarket business. His Honour concluded (at 274) (citations omitted): Reliance is placed on [a solicitor's letter], and on the writ claiming possession issued on 19 October, as an acceptance by the lessor of a "repudiation, abandonment or disclaimer" of the Lease by the lessee evidenced by the lessee's conduct. It is clear enough that there has been a cessation by the lessee of use of the premises for the carrying on of a supermarket business. But there was no denial of the lessor's title so as to amount to a disclaimer of the Lease. Nor was there any unequivocal repudiation of the Lease and abandonment of possession of the land to the lessor. Nor an acceptance of it by the lessor so as to constitute a surrender. The cessation of the use of the premises for carrying on a supermarket business was not by itself tantamount to cessation of possession, and it could not be so regarded in the face of the lessee's retention of the keys, its exercise of the right of cleaning, the leaving on the premises of the fixtures and fittings and the continued payment of rent and rates, apart altogether of the assertion of the right to occupy made in the lessee's correspondence and in its writ and apart from the requirement in the lessor's notice of 18 September requiring the lessee to remedy the default therein relied on within 30 days of receiving notice, that is, on the assumption that it was received on 18 September on or before 19 October.
Finally, the Court refers to the decision of Macca DCJ in Nicvira Nominees Pty Ltd v Subramaniam (2006) WADC 136; SR (WA) 28 in which his Honour considered an allegation of abandonment of premises used as a café. His Honour said: 49 The question of fact for me to decide is whether the defendant abandoned the premises. In order for there to be an abandonment the lessee's absence from the premises must be permanent and not temporary. The lessee's conduct must evince an intention to no longer be bound by the contract. I acknowledge that in analysing the evidence I should not lightly infer that the defendant has abandoned the premises and that I should do so only where the evidence clearly indicates that an abandonment has occurred. 50 In my view the defendant abandoned the premises on or about 2 July 2001 so as to evince an intention to no longer be bound by the Lease. I have come to this conclusion based on the combination of the following facts drawn from the documents tendered at trial and the testimony of Mr Perrin. 1. The premises were being used as a café in a suburban shopping centre and would ordinarily be open for business doing the centre's trading hours. 2. Although the defendant was not the day to day manager of the café, nevertheless, he was aware of what was going on in the business and he was particularly involved in its financial affairs. In my opinion it is inconceivable that the defendant did not give instructions to his manager to cease trading and leave the premises. 3. The defendant was aware of the importance of keeping the business open and ensuring that if, for some temporary reason, the business closed the plaintiff was informed of this fact. This is exemplified by the letter that the defendant's solicitors sent to Mr Perrin dated 23 March 2001 (exhibit 8). 4. As at 2 July 2001 the defendant was in breach of the Lease for failure to pay rent, outgoings, electricity and Merchants Association fees. 5. On 2 July 2001 the premises were unoccupied and unsecured. Further, the keys had been left in the lock. 6. No explanation has been given by the defendant or anyone representing him either at the time or later. 7. No reply was evidently ever received to Costantino & Co's letter to the defendant's solicitor dated 18 July 2001 which plainly set out what had occurred between 2 and 11 July 2001. 51 One fact which arguably does not evince an intention to no longer be bound by the Lease is that the defendant's plant and equipment were left on the premises. I was provided during the trial with a list of this plant and equipment in the form of exhibit 15. The list is fairly long and contains a considerable amount of equipment which would have some value. At no point has the defendant ever tried to remove this property. In Commonwealth Bank of Australia v Figgins Holdings Pty Ltd [1994] VicRp 72;[1994] 2 VR 505, the fact that the lessee of shop premises left plant and equipment in the shop was found to indicate that the lessee had not abandoned the premises. But in that case, unlike the present case, although the lessee vacated the premises and left plant and equipment behind, it continued to pay a nominal rent and checked up on the equipment from time to time. Of course each case must be decided on its own facts. In the present case the defendant's conduct of leaving behind plant and equipment without explanation in my opinion reinforces the notion that the premises were abandoned. 52 As I observed earlier in these reasons, the defendant has chosen not to give evidence. As a result, in the absence of some reasonable competing inference, the conclusion that the defendant abandoned the premises is strengthened. … 54 To sum up the issue I find that the defendant's vacation of the premises was not temporary and constituted an abandonment of them. As a result, the defendant repudiated the Lease which the plaintiff elected to accept. The plaintiff did not breach the covenant of quiet enjoyment. The plaintiff's acceptance of the repudiation determined the Lease which gives rise to an entitlement on the part of the plaintiff to damages.
Mr Horowitz submitted that the objective facts as far as Big Country was concerned were that from on or about 7 March 2008 the Premises were locked, there was a sign saying that the restaurant was closed, there was no further activity in the restaurant after that date (including at a time when the Premises were not secure by reason of the side door being unlocked) and nobody had contacted Mr Hesky on behalf of Chilis indicating that they wanted to gain access to the premises for any purpose. However, in assessing those submissions the Court has not overlooked that the original lock out and the notice were not the work of Chilis or RSG.
Mr Baird submitted that there was no abandonment because there had been no decision or direction by anyone on behalf of Chilis to vacate or abandon the Premises. Chilis' predicament had been brought about the appointment of the administrators, who had locked RSG, and therefore Chilis, out of the Premises. Mr Baird also submitted that the evidence, such as it was, of efforts by Chilis to sell the assets or the business was inconsistent with a finding of abandonment of the Premises.
In assessing the facts and these submissions, three preliminary observations need to be made.
First, nothing turns on the circumstance that RSG and Chilis were two separate legal entities. To the extent that it is relevant, the Court accepts Mr Hesky's evidence that he was not aware of that point of distinction. Any confusion he may have had is understandable when, for example, the Administrator's Report referred to RSG as "Restaurant Services Group Pty Ltd (trading as Chili's Texas Grill) (Administrators appointed)".
However, any confusion in Mr Hesky's mind is ultimately not to the point. Rather, it is relevant that Chilis chose to exercise its rights under the Lease to operate a licensed restaurant and bar through the medium of RSG doing so on its behalf. The question of abandonment by Chilis needs to be considered in terms of what it did to assert or maintain occupation of the Premises once its occupation through RSG was foreclosed by the appointment of the administrators to RSG.
Second, insofar as the cases referred to in paragraphs [106] to [110] above refer to fixtures, fittings and equipment being left in place by an apparently absconding lessee, the evidence in this case is unclear as to ownership of fixtures, fittings and equipment as between Chilis and RSG. The Court infers from the evidence that the fixtures and fittings are likely to have been the property of Chilis whereas the restaurant equipment and other stock is likely to have been RSG's. This follows from the evidence that it was Chilis that fitted out the Premises but RSG that was in fact responsible for the operation of the restaurant (see paragraphs [10] and [16] above). This bifurcation of ownership makes the fact that the fixtures, fittings and equipment were left on the Premises a more equivocal feature on the question of abandonment than it was perceived to be in the cases referred to in paragraphs [106] to [110] above, not least because Chilis did not have access to its own assets due to the locks having been changed.
Third, the question of retaining rather than returning keys is also not a decisive factor in this case. The uncontradicted evidence was that Big Country never had keys to the Premises. Chilis obviously did, but those keys were rendered useless by the administrators of RSG changing the locks. Whereas in some cases returning or retaining keys may be a useful indicator on the question of abandonment, in this case there was no point in Chilis "returning" to Big Country keys which Big Country had never possessed and which, to Chilis' knowledge, would not help Big Country gain entry into the Premises in any event.
For the following reasons, the Court finds that at the point at which Mr Hesky gave instructions for the Premises to be secured by the side door being nailed shut (being sometime between 11 and 14 March 2008) (see paragraph [32] above) Chilis' conduct would have conveyed to a reasonable person in the position of Big Country that Chilis had abandoned the Premises. This conclusion focuses, as the Court thinks it must, on Chilis' conduct (whether by action or inaction) in the context that on and from 7 March 2008 Chilis knew that RSG (Chilis' chosen medium for operating the restaurant and occupying the Restaurant) was in administration, the restaurant was apparently permanently closed and the Premises were locked and unattended. With that knowledge and against that background: 1. Chilis did not ask for or attempt to take possession or re-enter the Premises after 7 March 2008. No such request was made to Big Country. 2. After Mr White's and Ms Edwards' visit to the Premises on 7 March 2008, there is no evidence that either by itself or through others anyone on behalf of Chilis came back to check the Premises or their contents. Critically for how a reasonable person in the position of Big Country might have viewed the situation, the absence of securing or checking the Premises had led to the point as at somewhere between 11 and 14 March 2008 that the side door was open and no one on behalf of Chilis was doing anything about it. 3. No one on behalf of Chilis sought to explain to anyone at Big Country what had occurred or what Chilis' intentions in relation to the Premises were. 4. Irrespective of whether or not Chilis were aware of the sign on the side door of the Premises (see paragraph [30] above), Chilis took no steps to place any sign of its own on the Premises explaining what had occurred or giving any indication that the Premises might be re-opening soon as a restaurant under new management.
Not only is there no evidence of Chilis doing any of the things referred to in the previous paragraph up to and including the point at which Mr Hesky directed the side door to be nailed shut, but there is no evidence that it did any of those things at any time after that date. Conduct after the date of abandonment is relevant (see the decision of Ipp J set out in paragraph [134] below). The absence of evidence on behalf of Chilis that it did anything along the lines of the matters referred to in the preceding paragraph (or anything else) fortifies the Court in the conclusion that those things were not done and Chilis had abandoned the Premises. The conclusion of abandonment is further confirmed by Chilis not paying any more rent after being locked out of the Premises.
Chilis must always have understood that the case being made against it in these proceedings was that it abandoned the Premises. However, with the exception of annexing three emails (see paragraphs [37], [38] and [43] above), the only positive evidence to meet the case of abandonment was in the affidavit of Mr Duncan, where he said: Chilis Penrith did not voluntarily vacate the Penrith Premises on either 5 or 6 March 2008 or at any other time … I did not give any instruction then or at any other time to abandon the Penrith Premises or to close the Chilis Penrith restaurant business.
That evidence and Chilis' approach generally to the allegation of abandonment has, with respect, missed the point. It is no answer to the allegation of abandonment that Chilis did not cause or procure the closure of the restaurant and the desertion of the Premises. The action of the administrators may be compared to the fire in Morrison Holdings. Where the ejection or putative abandonment is not the fault of the tenant, the focus of the inquiry for abandonment must be what the tenant subsequently did? In Morrison Holdings the tenant made it abundantly clear that it was not abandoning the premises. In this case there is no evidence that Chilis did anything. The absence of such evidence when it could have been provided through the affidavit of Mr Duncan or the tender of emails, had there been any, between Chilis and Mr Hesky allows the Court to draw the inference that, in fact, Chilis did nothing that a reasonable party in the position of Big Country would have recognised as an assertion of ongoing occupation of, or interest in, the Premises.
In the circumstances of this case, what Big Country saw was that the restaurant was closed, the Premises were unattended and - most importantly for the conclusion of abandonment - nothing was done or even being asserted by Chilis to explain how the closure occurred and what Chilis was going to do about it with a view to staying in occupation of the Premises. That inaction culminated in the position being reached where Big Country knew that apparently nothing was being done by or on behalf of Chilis to prevent the Premises being left unsecured with the side door open. In all of those circumstances, a reasonable party in the position of Big Country could only conclude, as it in fact did, that by the time Mr Hesky had to give instructions to have the side door nailed shut, Chilis had abandoned the Premises. The Court finds accordingly.
In reaching this conclusion the Court has not overlooked Mr Baird's submission that such evidence as there was concerning Chilis' efforts to sell the assets or the business was inconsistent with a finding that Chilis had abandoned the Premises. The evidence upon which Mr Baird relied was the emails attached to Mr Duncan's affidavit which are quoted in paragraphs [37] and [38] above. That was the only evidence of what Chilis may or may not have been doing.
The Court does not accept Mr Baird's submission because that evidence is too little and too equivocal to enable the Court to find that Chilis was engaged in a course of action that was inconsistent with an abandonment of the Premises. The Court is again fortified in its conclusion because, other than attaching the emails, Mr Duncan did not give any evidence of what exactly Chilis was doing. The ability of the Court to accept this submission is also significantly impeded by the absence of any communication from Chilis to Big Country at all, let alone informing Big Country about what was being discussed with the CBA. Such communication would be expected at the earliest opportunity if only to inform Big Country that its consent to an assignment of the Lease to a purchaser of the business might be required.

Wrongful re-entry or purported forfeiture by Big Country so as to repudiate the Lease?

Mr Baird accepted that the critical question at this point was whether, viewed objectively, Big Country's nailing shut of the side door and the arrangements put in place thereafter for access with the assistance of Seamus was evidence only of an intention to secure the premises or whether it was a purported re-entry or forfeiture with the intention of either bringing the Lease to an end or (if wrongful) evincing an intention by Big Country no longer to be bound by the Lease. For the reasons which follow, the Court has concluded that Big Country's intention was to do no more than secure the Premises and, to the extent necessary, facilitate the inspection of the Premises by allowing potential tenants to inspect the Premises. Big Country did not intend by those arrangements to re-enter, forfeit, repudiate or terminate the Lease. Its intention was to keep the Lease on foot.
The parties' submissions recognised the objective factual nature of the inquiry and were quite straightforward.
Mr Baird submitted that the high point of the evidence in support of the conclusion that Big Country had retaken possession of the Premises with the intention of bringing the Lease to an end was the following exchange with Mr Hesky in cross-examination. It occurred after Mr Hesky had given evidence of the arrangements for the nailing shut of the side door and access to the Premises to be done with the assistance of Seamus opening and then re-sealing that door: Q. So if somebody from Chilis (Penrith) wanted to get access to the premises they would have to contact you and get your approval, correct? A. I presume so.
As Mr Horowitz pointed out, the difficulty with that answer for Mr Duncan's case was that by that point in the cross-examination Mr Hesky had called to mind that he had read in the Administrator's Report that it was the administrators who had changed the locks to the Premises. The answer does not establish and was not put against the background that, at the time, Mr Hesky knew that Chilis did not have keys that would open the door to the Premises or that he knew that by putting a nail in the door he would be making any difference at all to Chilis' access to the Premises or their quiet enjoyment of the Premises. The context at the time was Mr Hesky's knowledge that the restaurant had apparently been closed for some days without explanation and that a side door was open through which alcohol and food could be seen.
The reasons in the preceding paragraph are sufficient for the Court not to give Mr Hesky's answer the decisive effect for which Mr Baird contended. However, there is another reason why the Court takes that approach. During the course of argument, the Court raised with Mr Baird that, having obtained that particular answer from Mr Hesky, it was not specifically put to Mr Hesky that if Chilis had approached him to go back into possession (assuming it was not in arrears of rent or otherwise in default) then Mr Hesky would not have let Chilis back in. Mr Baird submitted that it was not necessary for him to have done so and pointed to a number of circumstances which he said, when taken with Mr Hesky's answer, would enable the Court to infer that Mr Hesky would not have allowed Chilis back in. The Court has come to the conclusion that it is not so obvious from all the circumstances that Mr Hesky would not have let Chilis back in. Assuming without deciding in Mr Duncan's favour that the failure to put the specific question to Mr Hesky does not prevent the submission being made, the Court concludes that the force of any submission open to Mr Duncan based on Mr Hesky's answer of "I presume so" is very substantially weakened because the specific question of what Mr Hesky would have done was not asked.
Mr Horowitz submitted that in all of the circumstances it was obvious that all Mr Hesky on behalf of Big Country intended to do was to secure the Premises. It was submitted that so much followed from the very words which Mr Hesky deposed that he used, "Please have him put a nail in that side door to secure it shut" (see paragraph [32] above).
As a point of principle, questions of abandonment by the lessee and the acceptance of an abandonment by the lessor have been considered by the courts in the context of whether or not a surrender of the lease by operation of law has occurred. The point was touched on in another case involving Big Country: Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 (NSWCA; unreported, 17 November 2000). In that case Giles JA (with whom Handley and Stein JJA agreed) said: 154 Abandonment of premises by the lessee and acceptance of the abandonment by the lessor will be a surrender if in the circumstances an agreement between them for termination of the Lease is to be found: Andrews v Hogan (1952) 86 CLR 223; Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687. Usually the question is whether in going into possession the lessor brings about a surrender by operation of law or whether it keeps the lease alive, and the question is one of unilateral termination or consensual termination. …
It is in the judgment of Clarke JA (with whom Priestley and Handley JJA agreed) in Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687 where the statements of principle which the Court considers are applicable to the present case may be found. Clarke JA said (at 693): Whether the landlord has resumed possession of the premises, or, to put it another way, accepted the tenant's abandonment is a question of fact. In deciding that question an important consideration is whether the landlord has acted in such a manner as to show that it regards the Lease as at an end. In NRMA Insurance Ltd v B & B Shipping and Marine Co (1947) 47 SR (NSW) 273 at 281; 64 WN (NSW) 58 at 62, the court said: … It is clear that relinquishment of possession by a tenant, coupled with an acceptance of possession by the landlord, is sufficient to determine the tenancy; but relinquishment by the tenant and resumption of possession by the landlord must take place in such circumstances as to warrant an inference of an agreement that the Lease should be terminated. It has long been accepted that, subject to a qualification to which I will return, if the landlord re-lets the premises to another tenant it will be taken to have accepted the original tenant's abandonment. But a re-letting is not essential to a surrender by operation at law. A landlord might respond to a tenant's abandonment in such a manner as to demonstrate that it regards the Lease as at an end, for example, by setting up its own trading operation in the premises. Such an act is entirely inconsistent with the continued existence of the Lease and would constitute an acceptance of the tenant's abandonment.
His Honour went on to say (at 697): The question whether a surrender by operation of law has occurred is not to be answered by the rigid application of an artificial formula. When the question arises the court is required to pay regard to the substance of the matter and to determine whether the landlord's response to the tenant's abandonment is inconsistent with the continued existence of the Lease. If it is found that the landlord has acted in such a manner as unequivocally to indicate that it no longer regards the Lease as in existence then it will follow that a surrender has taken place. If the landlord's actions are consistent with the Lease remaining in existence, or are equivocal, then it would not be correct to infer that a surrender had occurred.
In addition to the question of acceptance of a lessee's abandonment, it is important to note that the law takes a strict view in relation to questions of forfeiture by re-entry. That law was, with respect, conveniently summarised by Ipp J (as his Honour then was) in McLeod Nominees Pty Ltd v Tony Sadler Pty Ltd (Supreme Court of Western Australia; unreported; 7 August 1995 at 30-33) ("McLeod"): On the strength of this authority I conclude that a breach of the prohibition in the head lease against sub-letting did not entitle McLeod to re-enter the premises. This, in my view, defeats the argument that on 12 August 1988 a forfeiture by re-entry occurred. Did re-entry in fact occur? In order to effect a re-entry the lessor must obtain possession of the Leased premises to the physical exclusion of the lessee or anyone properly claiming under him: Tattersall's Hotel Penrith Pty Ltd v Permanent Trustee Co of New South Wales Ltd (1942) 42 SR (NSW) 104 at 110. Where physical re-entry is involved the landlord "must actually re-enter": Moore v Ullcoats Mining Co Ltd [1907] 1 Ch 575 at 587. In this case there was no re-entry into the premises itself, there was merely an exclusion of access by others. This is to be contrasted with a case such as Billson v Residential Ltd [1992] 1 AC 494 where agents for the landlord in fact re-entered the demised premises and changed the locks on the doors into the premises. There is a difference between entering into the premises and installing new locks: Billson v Residential Ltd at 534 and 536, and merely remaining on the outside and taking steps to prevent access by others. The conduct of Mr Bourne, in my opinion, was precisely the same as that of the lessor in Schmidt v Seeligson [1906] WAR 86 where the lessor secured the outside door of the Leased premises by a padlock. McMillan J (with whom Burnside J agreed) said: "The plaintiff, in my opinion, could not and did not take possession by simply putting a padlock on the outside door of the premises which were at the time occupied under a weekly tenancy, and in which a considerable amount of property had been stored." Mr Gilmour submitted that the ratio of Schmidt v Seeligson was that there was no intention to re-enter, but in my view that was not the question addressed in the judgment of McMillan J. His Honour, in my view, expressly decided the case on the basis that there had been no physical re-entry. This case is binding upon me and in my view requires me to hold that, simply by putting chains across the outside of the premises, Mr Bourne did not take possession thereof. My attention was drawn to Mr Bourne's conduct in placing the following notice outside the premises: "TO WHOM IT MAY CONCERN THE OWNERS HAVE TAKEN POSSESSION OF THESE PREMISES PURSUANT TO THE TERMS OF THE LEASE. ANY PERSON OR PERSONS ENTERING, OR ATTEMPTING TO ENTER THESE PREMISES WILL BE DEALT WITH ACCORDING TO LAW. ALL ENQUIRIES SHOULD BE DIRECTED TO THE PROPERTY MANAGER, IRVIN GARDNER REAL ESTATE AGENTS: 328 3111 DURING NORMAL OFFICE HOURS." However, the mere announcement that a person has taken possession does not constitute the taking of possession: Tattersall's Hotel Penrith Pty Ltd v Permanent Trustee Co of New South Wales Ltd at 110. Accordingly, Mr Bourne's notice does not affect my conclusion that there was no physical re-entry as alleged. I shall nevertheless proceed to consider, assuming there was a taking of possession and re-entry by Mr Bourne on McLeod's behalf, in the manner indicated, whether that occurred with the intention of effecting a forfeiture of the head lease. Did Mr Bourne intend to effect a forfeiture? For forfeiture to occur, the re-entry must be an unequivocal act putting an end to the Lease: NGL Properties Pty Ltd v Harlington Pty Ltd [1979] VR 92 at 97 and must be effected with the intention of determining the tenancy: Relvok Properties Ltd v Dixon and Anor (1973) 25 P and CR 1; see also Fremantle and District Trades Hall Industrial Association of Workers v Victor Motor Co Pty Ltd [1963] WAR 201 at 205, and Serjeant v Nash Field and Co [1903] 2 KB 304. In Relvok Properties Ltd v Dixon and Anor Sachs LJ observed (at 5) that the test was whether the actions of the landlord constituted "an unequivocal act operating as acceptance of a surrender." His Lordship remarked that: "Whether in any individual case the landlord has done more than ... protect his interests is of course a question of fact in each case. The onus lies on the tenant to prove that more has been done and thus the Lease terminated." The issue is therefore whether Mr Bourne acted as he did with the intention of bringing the head lease to an end. Ordinarily intention cannot be directly proved as a fact: it can only be inferred from other facts which are proved: Sinnasamy Selvanayaham v R [1951] AC 83 at 87. It may be proved by acts and events previous or subsequent to the transaction: see Re Grove (1889) 40 Ch D 216 at 242 where Lopes LJ said: "[In] order to determine a person's intention at a given time, you may regard not only conduct and acts before and at the time, but also conduct and acts after the time, assigning to such conduct and acts their relative and proper weight and cogency."
When the foregoing principles are applied to the facts of this case, it is clear that the nailing shut of the side door and the subsequent control of access for the purposes of inspection of the premises does not evidence an intention on the part of Big Country to treat the Lease as at an end. There are three reasons for this conclusion.
First, as in McLeod¸ there was no actual re-entry into the Premises. When he went to the Premises Mr Skinner did not go in. When the side door was nailed shut, no one on behalf of Big Country went into the Premises. The nailing shut of the door was not an act of the taking of possession but rather securing the Premises by restricting the access of others to the Premises.
Second, the conclusion that all that was being done was to secure the Premises is supported by the terms of Mr Hesky's instruction quoted in paragraph [32] above. That instruction, the nailing shut of the door and its opening solely for the purposes of admitting prospective tenants to the Premises for the purpose of inspections, are, to borrow the language of Clarke JA, "consistent with the Lease remaining in existence, or are equivocal [such that] it would not be correct to infer that a surrender had occurred".
The passage quoted above from the judgment of Ipp J in McLeod makes it clear that in determining intention, the Court is also entitled to look at conduct subsequent to the point at which a particular intention is being assessed. In this case there are at least two further matters upon which the Court relies for its conclusion that Big Country did not intend by its conduct to bring the Lease to an end or otherwise regard the Lease as no longer being in existence. Those matters are that it continued to invoice Chilis for the rent of the Premises up until the time at which Big Country entered into the new lease with Hoot. Second, at no time did Big Country enter the Premises to remove any of the existing fixtures, fittings or equipment (irrespective of whether or not that equipment was in fact owned by either Chilis or RSG).
Finally, the Court accepts Mr Horowitz's submission that what Big Country did in nailing the side door shut is entirely consistent with and facilitates the conclusion that Big Country regarded the Lease as being in existence. That submission was as follows.
Clause 13.13 of the Lease provided that "the Rules set forth in the Third Schedule hereto are deemed to form part of this Lease and the Lessee covenants to observe and comply with such Rules as amended from time to time … The failure by the Lessee to keep and observe all such Rules shall constitute a breach of the terms of this Lease in the same manner as if the Rules were contained herein as covenants."
Rule 4 provided: Keep Premises Safe 4. The Lessee will be responsible to protect and keep safe the Premises and any property contained therein from theft or robbery and shall keep all doors windows and other openings closed and securely fastened when the Premises are not in use.
Mr Horowitz then pointed to clause 10.12 of the Lease, which provided: Lessor May Remedy Lessee's default 10.12 The Lessor may, but shall not be obliged to, remedy at any time without notice any default by the Lessee under this Lease without prejudice to any rights powers or remedies of the Lessor arising from such default …
Mr Horowitz submitted, and the Court accepts, that Big Country's actions in nailing the side door shut were entirely consistent with the Lease being on foot. In securing the side door Big Country was, as it was entitled to do, remedying Chilis' breach of Rule 4.
Ultimately, the Court is satisfied that what occurred in this case is an example of what was decided by the English Court of Appeal in Relvok Properties Ltd v Dickson (1973) 25 P.&C.R. 1. In that case, Sachs LJ (with whom Phillimore and Roskil LJJ agreed) said (at 2): In my judgment Judge Irving correctly applied the principles which emerge from Oastler v Henderson (1877) 2 QBD 575 where the Court of Appeal held that attempts by a landlord to let premises which had been abandoned by a tenant did not constitute an unequivocal act operating as acceptance of a surrender. The result of that and other authorities is that as the law stands it is open to a landlord whose tenant has absconded both to protect the security of his premises and the state of their repair and yet maintain his rights for rents against that tenant until a fresh one is found and he then thinks fit to enforce the forfeiture. Whether in any individual case the landlord has done more than thus to protect his interests is of course a question of fact in each case. The onus lies on the tenant to prove that more has been done and thus the Lease terminated. In the instant case the defendants have failed to discharge that burden. The landlords took a course which has rightly been described as "sensible" from their own point of view. …
In this case Mr Duncan has failed to demonstrate that Big Country did any more than protect its interests so as to warrant a conclusion that Big Country had terminated the Lease. The Court's conclusion on this point has three additional consequences: 1. It does not matter for the ultimate result of these proceedings if the Court is wrong in its conclusion (see paragraph [122] above) that Chilis had abandoned the Premises. Even if it had not, by the end of the hearing all parties recognised that, on the evidence, the only available conclusion was that initially Chilis had been put out of possession of the Premises not by Big Country but by the administrators of RSG. In this section the Court has concluded that there was no wrongful retaking of possession or repudiation of the Lease by Big Country in nailing the side door shut and subsequently limiting access to the Premises to prospective tenants for the purposes of inspection. Even if Chilis had not abandoned the Premises, Big Country's subsequent conduct did not affect the continuing existence of the Lease. 2. The conclusion in this section also means that Chilis' submission that Big Country's conduct breached Chilis' entitlement to quiet enjoyment of the Premises must fail. There are at least two reasons for this. First, that right of quiet enjoyment set out in clause 9.1 of the Lease (see paragraph [9] above) was premised upon Chilis "punctually observing and performing the covenants obligations and provisions of this Lease". Insofar as it was in breach of Rule 4, it was in breach of the Lease. Putting this another way, taking steps to remedy Chilis' breach of Rule 4 by nailing the door shut could not constitute a breach of quiet enjoyment because, in its terms, that right was "subject always to the rights, powers and remedies and reservations of the Lessor", in this case being to remedy Chilis' default in relation to securing the side door. Second, the prerequisites of clause 13.24 of the Lease (set out in paragraph [9] above) were satisfied such that entry onto the Premises for the purposes of showing them to prospective tenants did not "constitute a re-entry or forfeiture or waiver of the Lessor's right to recover in full all rental and other moneys from time to time payable" under the Lease. 3. By the time Big Country did forfeit the Lease by reletting the Premises to Hoot, Chilis was well and truly in default for non-payment of rent. In those circumstances that forfeiture was not rendered unenforceable by the failure to give a notice under s 129 of the CA. The failure to pay rent gave Big Country the right to determine the Lease under clause 10.1 of the Lease. Section 129 of the CA expressly does not touch upon such a right: s 129(8) of the CA and World Best Holdings Limited v Sarker [2010] NSWCA 24 at [34] per Handley AJA (Tobias and Campbell JJA agreeing).

Mitigation

Although set out in paragraph [9] above, for convenience the Court again reproduces clause 10.8.3 of the Lease: 10.8.3 In the event of the Lessee vacating the Premises whether with or without the Lessor's consent, the Lessor shall take reasonable steps to mitigate its damages and to endeavour to lease the Premises at a reasonable rent and on reasonable terms. The Lessor's conduct taken in pursuance of the duty to mitigate damages shall not of itself constitute acceptance of the Lessee's breach or repudiation or a surrender by operation of law.
The parties accepted that if the Court made the findings which it has in relation to the question of abandonment and the taking of possession, then clause 10.8.3 would be engaged. During the course of the hearing there was some discussion as to the extent to which the general law principles in relation to mitigation might inform Big Country's performance of the obligation in clause 10.8.3 to "take reasonable steps to mitigate its damages and to endeavour to lease the Premises at a reasonable rent and on reasonable terms". With minor qualifications the parties accepted that there was unlikely to be any real difference between an application of the general law principles and clause 10.8.3. However, the Court will proceed solely by reference to that clause, which clearly sets out Big Country's obligation in the circumstances found by the Court in the preceding parts of these reasons.
Taking this approach has two immediate interpretative consequences. First, clause 10.8.3 only required Big Country to "take reasonable steps" rather than all reasonable steps, although the way in which the argument proceeded did not require the Court to determine whether the absence of "all" would have given a different result. Second, during the course of submissions on behalf of Mr Duncan, Mr Baird made some reference to "reasonable endeavours" clauses and their close relative "best endeavours" clauses. With respect, the Court eschews the comparison. While there is probably no difference in practical effect between an obligation to "take reasonable steps" and an obligation to "use reasonable endeavours", that is not what clause 10.8.3 says. Nor is anything to be gained by entering into the jurisprudence about the difference between "reasonable endeavours" and "best endeavours".
The Court means no criticism of the parties in observing that they did not devote a lot of attention to parsing the precise meaning of clause 10.8.3. As is discussed in further detail below, Mr Baird focused his attack on quite specific aspects of Big Country's conduct to make the submission that, in those particular respects, Big Country had failed to take reasonable steps contemplated by clause 10.8.3. However, to assess that submission it is necessary to come to a view on the meaning of the clause.
The interpretation of provisions of a lease must be undertaken in accordance with the ordinary principles of contractual interpretation. These are, with respect, conveniently summarised in the joint judgment of the majority in Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; (2014) 251 CLR 640 (citations omitted): 35. Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
Because of the essential importance of context, the consideration in other cases of the phrase "reasonable steps" will not necessarily be decisive but can nevertheless be instructive. The phrase "takes all reasonable steps to purchase a ticket" as it appeared in certain Victorian legislation was considered by Nettle J sitting in the Supreme Court of Victoria in Mounsey v Lafayette [2002] VSC 0342; (2002) 37 MVR 256 (citations omitted): 28. In Rolfe v Willis, the High Court was concerned with a question of whether a landlord had taken "reasonable steps to prevent drunkenness" on licensed premises. It was held that: "'Reasonable steps to prevent drunkenness' means such steps as ought reasonably to be taken by way of precaution against the occurrence of drunkenness on the premises under any circumstances that may reasonably be anticipated and to prevent its continuance when its existence is discovered." 29. In Young v Paddle Brothers Pty Ltd, Herring CJ was concerned with the question of whether a motorist had exercised "reasonable diligence" in attempting to identify the driver of a vehicle, and his Honour adopted the following test, which had been laid down in The Europe in discerning whether the owners of a damaged vessel had used reasonable diligence to discover her whereabouts: "... the meaning of such expression (ie, `reasonable diligence') is not the doing of everything possible, but the doing of that which, under ordinary circumstances and with regard to expense and difficulty, could be reasonably required...". 30. Similar aphorisms have been employed to explain the meaning of "reasonable steps" and "all reasonable steps" in other statutory contexts: see, for example, Australian Meat Industries Employees Union v G & K O'Connor Pty Ltd; Deputy Commissioner of Taxation v Pejkovic. The essential idea is that reasonable steps are what a reasonable man or woman would regard as being reasonable steps in the circumstances which apply.
Applying Nettle J's conspectus of the authorities as a useful guide, the Court considers that the proper construction of Big Country's obligation to "take reasonable steps" is that Big Country was not required to do everything possible but was required to take those steps that a reasonable person would regard as being steps which ought reasonably be taken in the circumstances which applied to bring about a particular result. In this case that particular result was at least one of two distinct but overlapping outcomes, namely "to mitigate its damages" and "to endeavour to lease the Premises at a reasonable rent and on reasonable terms". While it makes no practical difference to these proceedings, the Court does not think that the use of "and" is intended to bring about a composite result in the nature of an hendiadys. While endeavouring to lease the Premises undoubtedly falls within mitigating damages, the latter could, depending on the facts, require steps to be taken other than those directed towards obtaining a new lease.
Each party called an expert on the issue of mitigation. Mr Duncan adopted a report that had been prepared for other defendants in the proceedings provided by Mr Malcolm Gunning, a well-qualified certified practising valuer and licenced real estate agent. His report was read without objection. Big Country relied on evidence from Mr Skipper that had been prepared to respond to Mr Gunning's report. Mr Skipper was also a well-qualified commercial real estate agent and, at the time of giving his evidence, a non-practising valuer.
Two observations need to be made about this expert evidence.
First, Mr Gunning was asked to provide advice on "the standard procedure in the real estate industry (in or about the period 2008-2011) through which a real estate agent would look for a tenant for a property (in particular, a property such as the Premises)" and to assess what had in fact been done by Mr Skipper and Mr Hesky for reasonableness by reference to the standard procedure of the real estate industry. The evidence was not objected to and no point was taken as to the appropriateness of the questions which had been asked of Mr Skipper for the purposes of considering whether or not what Big Country had done complied with clause 10.8.3 of the Lease. In approaching both the evidence of Mr Gunning and Mr Skipper on this point, the Court has proceeded on the basis that while relevant, assessing Big Country's conduct against standard industry practice was not necessarily a complete answer to the question of compliance with clause 10.8.3 of the Lease. While it did not make a practical difference to the outcome, it is important to note that, depending on the circumstances, it would not always be the case that compliance with "standard industry practice" would necessarily mean that "reasonable steps" had been taken, although it is obviously an important guide which goes a considerable way to answering the question.
Second, while objection was not taken to the expert aspect of Mr Skipper's evidence (who on other matters was a witness of fact), Mr Baird did submit that Mr Skipper was not independent due to his longstanding relationship with Mr Hesky. Furthermore, it was said that Mr Skipper's views on standard practice and whether or not it applied to what he had done was coloured by the fact that Mr Skipper was, of necessity, seeking to justify his own decisions. For these reasons it was submitted that Mr Gunning, who was a "truly independent" expert witness should be preferred over Mr Skipper.
While the matters referred to by Mr Baird are undoubtedly important in assessing Mr Skipper's evidence, the Court does not accept that those circumstances led to an automatic or natural discounting of Mr Skipper's evidence when compared to Mr Gunning's. Insofar as expert matters were concerned, both Mr Gunning and Mr Skipper presented as experienced and reasonable. Both were willing to make concessions where appropriate and, rather than making any a priori discount of Mr Skipper's expert evidence, the Court has proceeded on the basis that both his and Mr Gunning's views are to be assessed by reference to their inherent plausibility, reasonableness and the quality of the process of reasoning disclosed in support of the various opinions they expressed.
Messrs Gunning and Skipper participated in an experts' conclave in which a number of areas of common ground were agreed upon. As a result of the conclave, and some further concessions properly made by Mr Gunning when it was drawn to his attention that he had not been briefed with all of the materials evidencing steps which Big Country took by way of mitigation, the areas of dispute about mitigation were considerably narrowed. For example, there was no dispute that the rental and terms of the lease with Hoot were reasonable.
For the purposes of the argument, the period between when, as the Court has found, Chilis abandoned the Premises and when the Premises were leased to Hoot can be divided into three discrete periods: 1. 11 March 2008 to April 2009, the latter date being when OJs withdrew from taking a lease of the Premises (the "first period"); 2. April 2009 to May 2010, the latter date being when Hoot expressed interest in taking the Premises (the "second period"); and 3. May 2010 to March 2011 when Hoot entered into a lease with Big Country (the "third period").
With commendable forensic efficiency and based upon the concessions and agreements between Mr Skipper and Mr Gunning, Mr Baird focused his client's submissions on Big Country not having taken reasonable steps to mitigate its loss in the following ways: 1. In respect of the first period, it was submitted that Big Country should have accepted the Aoun Offer (see paragraph [39] above). Further, Big Country should have entered into legally binding heads of agreement with OJs to lease the Premises. Mr Baird accepted that if those two submissions failed, then the evidence did not permit complaint to be made about the length of the first period or the steps taken during it. 2. As to the second period, whatever else Big Country may have done, it was submitted that not enough was done during this period and it was too long. Mr Baird submitted that, on any view, Big Country's damages should be reduced by the rental to which it might otherwise have been entitled for the second period. 3. It was accepted that the evidence did not permit complaint to be made about either the length of or the steps taken during the third period leading up to the leasing of the Premises to Hoot.
The Court will deal with each of the alleged deficiencies in Big Country's conduct in turn.
In relation to the Aoun Offer, Mr Baird submitted that by not accepting that offer Big Country failed to take what would otherwise have been a reasonable step to mitigate its loss.
In response, Mr Horowitz submitted that there was no evidence that it was unreasonable for Mr Hesky not to have accepted the Aoun Offer, particularly in circumstances where it was conditional on agreement with the administrators and ultimately disappeared. Mr Horowitz submitted that it was to be noted that the rent offered was $160,000 a year whereas the Chilis rent in 2008 was almost $260,000. If Chilis had accepted the Aoun Offer it would not be seen to have taken reasonable steps to mitigate its losses by accepting an offer of 40% less than what it was currently entitled to only two and a half weeks after finding out that the Premises were vacant.
For the reasons which follow, the Court finds that Big Country did take reasonable steps in relation to the Aoun Offer. What happened, in fact, was that in the course of taking those reasonable steps, in particular awaiting further financial information, the negotiations "fell over" (to use Mr Skipper's words) within a few days because the proposal to take over all of the Chilis' restaurants "fell over" (see paragraph [43] above).
Mr Skipper set out his view of the Aoun Offer in his affidavit of 3 March 2015: 70. In the period 2008 to 2011, my objective was not simply to find a tenant for the Premises, but to find a suitable tenant for the Premises. As set out above, a suitable tenant needed to be generating a turnover of at least $2 million - $2.5 million per annum in order to be able to operate a viable business from the Premises. 71. In this respect, I refer to paragraph 7(d) of my affidavit of 8 August 2012. In or around March 2008, I received an offer from Mr Jihad Aoun and Mr Matthias Larcher to rent the Premises for $160,000 per annum. This amount was well below the market rental for the Premises. 72. Additionally, however, I was of the view that the prospective tenant did not have the financial capacity to pay the market rental for the Premises. A copy of the proposal submitted to me by Messrs Aoun and Larcher is behind Tab 15 of Exhibit SS-2. As set out in the proposal, the prospective tenant was a new business operation and had projected sales income of only $1,573,000 in the year ending June 2009, falling well short of the $2 million - $2.5 million turnover I considered necessary to operate profitably from the Premises. Accordingly, I did not consider that this tenant would be suitable for the Premises.
In the witness box Mr Skipper explained that after receiving the Aoun Offer, he had not rejected the proposal out of hand but that he had spoken to Mr Larcher to indicate that Big Country was not satisfied with the proposal and that the rent was too low. He was then waiting for Messrs Aoun and Larcher to come back to him and for them to supply further details of their proposal. Before that happened, the negotiations "fell over".
Mr Gunning did not take issue with Mr Skipper's approach, although he did suggest that issues of rental for what was essentially to be a "start up" business could be dealt with by structuring a new lease to provide for a ramping up of the rent. However matters never progressed to that point. Significantly, when discussing the outcomes reached between the experts in their conclave, the Court had the following exchange with Mr Gunning during the concurrent expert evidence (T166.13-36): HIS HONOUR: Thank you. Now, have you examined the proposal that was in fact received from ‑ I think it was Mr Aoun? WITNESS SKIPPER: Aoun. HIS HONOUR: Aoun. WITNESS GUNNING: I did. HIS HONOUR: Yes, and do you have a view about that proposal, in terms of whether it was the sort of start-up that you would have recommended to a client landlord that they should have gone in with? WITNESS GUNNING: Look, on the, on the heads of agreement it probably didn't give a true indication. What you would be seeking is a statement of assets and liability, even look at their bank account, so you'd want to examine and see what capital they have behind them. HIS HONOUR: May I take it your view is that on that material that was simply presented under cover of the solicitor's letter that wouldn't have been enough to make a decision one way or the other from the landlord's point of view? WITNESS GUNNING: I wouldn't have suggested the landlord make a decision without a thorough investigation of the, the financial liability.
Taking into account the evidence of both experts the Court is satisfied that Big Country took reasonable steps in relation to the Aoun Offer. Big Country told them that it regarded the rent as too low and was waiting to hear back from them with further financial information about their proposal. To have waited for that further financial information was consistent with the approach Mr Gunning would have taken in relation to that proposal. In any event, the Court is also satisfied that the conditionality of the Aoun Offer meant that Big Country did not fail to take a reasonable step by accepting it immediately upon its receipt without making further inquiries.
It is not ultimately to the point to submit that Big Country failed to take a reasonable step by not accepting the Aoun Offer. The opportunity for it to do so never arose. It was taking reasonable steps in relation to that offer but before it could reasonably reject or accept the offer, negotiations "fell over" through no fault of Big Country's. This attack on Big Country's steps to mitigate fails.
The other criticism made of Big Country in relation to the first period is its alleged failure to enter into legally binding heads of agreement with OJs'. The evidence is unclear as to whether or not Mr Skipper deployed the document which he prepared entitled "Heads of Agreement" in relation to OJs (see paragraph [58] above). There is no evidence that it was ever signed or otherwise acknowledged by OJs. The document does not say one way or the other in terms whether it is intended to be legally binding. Had it been deployed and if a dispute had subsequently arisen as to whether or not OJs' were bound by it, then that dispute would have added to the rich vein of jurisprudence about the circumstances in which documents entitled "Heads of Agreement" may or may not give rise to immediately binding legal obligations.
However, this criticism of Big Country's conduct may be swiftly resolved by reference to Mr Gunning's own evidence. Attached to his report was a form of heads of agreement which his firm had used in relation to a particular letting. That contained what Mr Gunning accepted was a standard provision providing that "This document is not intended to be a binding lease. Either party may withdraw until formal leases have been executed and accepted by the lessor". Mr Gunning accepted that the use of such a heads of agreement was standard practice.
In the light of Mr Gunning's evidence, the Court is confident in reaching the conclusion that Big Country did not fail to take a reasonable step which it ought otherwise have taken by obtaining a legally binding heads of agreement with OJs. A reasonable person looking at the situation would not have concluded that the reasonable steps expected of Big Country would have included entering into legally binding heads of agreement where the evidence shows that industry practice was to use heads of agreement that were expressly not binding on the parties. This criticism of Big Country's conduct also fails.
The third criticism of Big Country's efforts to mitigate was directed to the length of the second period and the efforts to advertise the Premises during that period. Mr Baird submitted that Mr Skinner's efforts on behalf of Big Country during this period "amounted to token at very best. It's not even vaguely close to reasonable endeavours" (T361.21-22). The Court will treat the reference to "endeavours" in that submission as a reference to "steps". It was submitted that invoices from John Fairfax Media disclosed that various print and internet advertisements during the second period involved an expenditure of approximately $7,500, being an average of $580 per month. Relying on Mr Gunning's report, the submission was made that such advertising as there was was "too narrow". It was submitted that the advertising was said to be "paltry" as was evidenced by the fact that during the second period Mr Skipper received only 14 inquiries from 28 advertisements.
One of the difficulties with these submissions is that they do not find support in Mr Gunning's evidence. When, at one point, Mr Gunning was asked by Mr Baird about the advertising during the second period, in response to a question as to whether he would have done things differently he replied that he would have recommended to the lessor "possibly a different marketing campaign but whether the lessor took me up on that is another thing" (T202.7-9). Mr Gunning's evidence fell far short of a suggestion that what was done during the second period did not represent reasonable steps. The fact that Mr Gunning may have recommended something different is not a sufficient basis to conclude that what Big Country did was not the taking of reasonable steps.
There were other significant inroads into Mr Gunning's evidence. When the online and print advertising steps undertaken by LJ Hooker to market the Premises were drawn to Mr Gunning's attention, he properly withdrew his criticism that the marketing campaign was too narrow. Mr Gunning also agreed that, as a matter of industry practice, up until the time the deal with Hoot was done the various forms of internet advertising on the LJ Hooker site would not have been taken down. In those circumstances, Mr Gunning's evidence does not support a conclusion that Big Country's advertising during the second period was inadequate.
Finally, when Mr Gunning was asked by Mr Baird about the reasonableness of spending approximately $7,500 on advertising with John Fairfax Media during the second period his reply was (T198.17-27): BAIRD: Mr Gunning, the question that I put to Mr Skipper was that on the assumption that an amount of $7,511 was spent on advertising with John Fairfax Media in the period 20 June 2009 to 21 August 2010. Would you agree that was a reasonable amount to be spending on advertising in the print media at that period? WITNESS GUNNING: It would seem reasonable, depending on the frequency of the ads and the like, it's a - advertising is difficult to quantify. It's all to do with the effectiveness of it. You could spend $3,000 and be effective, you could spend seven. So, at that stage I would have thought that would have been a reasonable amount.
The evidence discloses that during the second period: 1. Mr Skipper again "revved up" the local agents; 2. The LJ Hooker internet advertising for the Premises remained in place; 3. There was regular online and print advertising with John Fairfax Media.
As it happened, it was ultimately one of the local agents whose introduction of Hoot led to the successful re-leasing of the Premises. The Court is satisfied that the steps identified in the preceding paragraph undertaken by Big Country during the second period were "reasonable steps" to achieve the result contemplated by clause 10.8.3 of the Lease. Chilis has failed to demonstrate that those steps were not reasonable or to identify other reasonable steps which a reasonable person would have concluded Big Country ought reasonably to have taken during the second period. Therefore, this final criticism of Big Country's mitigating conduct fails.
The result of the preceding analysis is that the Court finds that throughout the period in which the Premises were vacant, Big Country complied with its obligations under clause 10.8.3 of the Lease.

Conclusion

The final result is that Big Country has demonstrated that it is entitled to claim arrears of rent for the period from when Chilis abandoned the Premises (or even if it did not abandon them) up to the date at which Big Country accepted Chilis' abandonment (if it be such) and repudiation for non-payment of rent by forfeiting the Lease by giving possession of the Premises to Hoot. On the evidence that date predates the date of formal entry into the lease with Hoot (see paragraph [72] above).
However, the evidence does not disclose when, prior to signing the lease with Hoot, Chilis permitted Hoot to take possession of the Premises to fit them out. The Court therefore finds the date of forfeiture of the lease is 1 March 2011 (the date of the lease with Hoot).
Thereafter, Big Country is entitled to damages for loss of bargain of the Lease representing the difference between what Big Country would have in fact received by way of rent from Chilis under the Lease and the amount it received for that period from Hoot. In addition, Big Country is entitled to recover other expenses incurred in mitigating its damages.
The parties indicated that if the Court reached this conclusion, they were in agreement about the calculation of damages. It was foreshadowed by Mr Baird that one small part of Big Country's expenses claim would be challenged, but that did not eventuate. The Court will give the parties a short time to undertake the necessary calculations and to bring in orders reflecting the financial result which follows from those calculations. Unless it is told otherwise, the Court assumes that the parties are also in agreement as to how any settlement amounts paid by other parties since the conclusion of the hearing are to be treated.

Amendments 19 July 2016 - Numbering of headings taken out of Resolution of disputed fact (after para 76) and Interlocutory matters (now appears after para 79). Numbering changes from para 77 onwards. In para 178 (was para 180) third sentence commencing 'Chilis has failed', 'would have concluded Chilis' is changed to 'would have concluded Big Country'. 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: 19 July 2016

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (10 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (12)

Cited By (1)