Cardno ITC Pty Ltd v 33 York Street Pty Ltd

(1) INTRODUCTION 1Cardno ITC Pty Limited ("Cardno") was the lessee of premises owned by 33 York Street Pty Limited ("York"). After the leasing arrangement concluded, York called on a bank guarantee that Cardno had provided as security for the lease. Cardno disputed York's entitlement to do so and sued for return of the bank guarantee funds. York cross-claimed for unpaid rent and make good costs.

(2) THE FIRST LEASE 2Cardno, as tenant, and York, as landlord, entered a two-year lease in February 2008 commencing 1 April 2008. The lease provided for a two-month rent-free period. However, the previous outgoing tenant whose lease expired on 31 March 2008 failed to complete its make good obligations by that date. In the result, occupation for Cardno was not available on 1 April 2008 and works on the premises continued until at least 17 May 2008 for the purpose of allowing occupation to be given by York to Cardno in accordance with the lease. 3The Building Facilities Manager and Director of York, John Preston, in his affidavit stated that he "provided the Premises to the plaintiff about two months after their lease commencement date in June 2008." As the commencement date of the lease was 1 April 2008, I read this quoted statement with a comma after the word "date" so the plaintiff gained possession on 1 June 2008. Jason Varker-Miles, the Managing Director of Cardno, gave evidence to the same effect, and this is consistent with the pleadings where Cardno alleged, in paragraph 4 of the statement of claim, "However the tenancy was not available for occupation on 1 April 2008 and the Plaintiff was not able to take possession until 1 June 2008". This paragraph was admitted in the defence. 4There can be little doubt that the failure to provide exclusive occupation in April and May 2008 was a breach by York, the landlord, of cl 11.1 of the lease, which obliged the lessor (during the period of the lease) to "allow the lessee to possess and use the property...without interference from the lessor." Mr Varker-Miles says that he raised with Mr Preston the circumstances that Cardno had not "had access to the premises for two months into the lease" and deposed that Mr Preston said, "Well, strictly the lease doesn't make any provision for that, but I will abate a further two months and amortise it over the remaining lease term." 5Mr Preston admitted that Mr Varker-Miles did contact him and expressed his dissatisfaction but did not otherwise concede an arrangement being reached in terms of a further reduction of the rent. Generally, I found Mr Varker-Miles' evidence to be more satisfactory than Mr Preston's where there was a conflict but, in most cases, the difference between the parties could be resolved by the documentary evidence or the inferences to be drawn from it. 6Mr Preston suggested that Cardno received a rent-free period already under the lease as compensation for the lack of occupation on 1 April 2008. When it was pointed out that the lease was signed in February 2008, well before the failure of the outgoing tenant to make good by 31 March 2008, Mr Preston explained that he had long suspected that the outgoing tenants would not complete the make good in accordance with their obligation, as if to indicate that that suspicion was a reason for the two-month rent-free period under the lease. 7None of these matters appear in Mr Preston's affidavit. Rather, he asserts that he said in March 2008 (after the lease was signed), when this matter was raised, that, "The lease will commence but we won't charge you rent during this time of course." This apparent concession by Mr Preston is suggested to be no concession at all, referring only to the already-agreed rent-free period. Mr Varker-Miles sent an email to Mr Preston on 23 June 2008, some three weeks after the premises were "provided" by York and shortly after the conversation about the late provision of occupation. The email calculates a rental reduction based on the lost period of occupation in April and May 2008. Its terms - "if you agree with what I have worked out" - indicate an earlier in principle agreement. 8Mr Preston does not recall this email. Mr Varker-Miles said that, following the email, Mr Preston adjusted the calculation, which had the result of varying the rental calculated by Mr Varker-Miles upwards by a small amount. Invoices were received and paid in accordance with this new amount. These payments, confirmed by bank records, were not at any stage disputed by York to be the appropriate amount of rent, at least until the filing of a cross-claim in these proceedings on 4 December 2012. A new two-year lease had been agreed upon between the parties in April 2010. 9On the basis of this evidence, I conclude that an agreement was reached to reduce the rent by an amount of two months' rent amortised over the period of the lease, as Cardno contends. Mr Preston's suggestion that any rent reduction was reflected in the two-month rent-free period recorded in the lease is unconvincing. Even if I accept that the February 2008 lease was negotiated by Mr Preston in the belief that the then outgoing tenant would likely default on the make good, which I do not, there is no reason for it to be reflected in a rent-free period in Cardno's lease. Such a result is of no utility to York since Cardno obtaining a rent-free period under the lease does not absolve York of its failure to provide exclusive occupation to Cardno at commencement of the lease. Rather, if this belief of Mr Preston were to impact on the lease, it would require a postponement of the lease commencement. 10There is one further matter. York sued the former tenant for damages for failure to make good under the lease. In those proceedings, by a statement of claim verified by Mr Preston, York pleaded: "The defendant's failure to make good the premises on or before the termination date resulted in the plaintiff suffering loss and damage, whereby the plaintiff was compelled to abate the rent for the first two months of the new tenant's lease to pay for the general state of disrepair of the premises caused by the defendant. Particulars Pursuant to a lease between the plaintiff and ITC Group Pty Ltd [Cardno] dated 1 February 2008, the premises were lease for a term of three [sic] years commencing 1 April 2008 and terminating on 31 March 2010 to which rent was abated for two months in the total amount of $42,154." 11Again, it is apparent that a "failure to make good the premises on or before the termination date" on 31 March 2008 can only result in loss if that loss has occurred after 31 March 2008. As the Cardno lease was signed in February 2008, Cardno's entitlements under the lease cannot be a loss resulting from the later failure by the outgoing tenant to make good. Rather, in my view, that loss was the two months of rent payable under the lease which was abated over the term of the lease. 12Accordingly, I conclude that the plaintiff has paid the lease payments agreed on and invoiced by York under the first lease. 13York also submits that there was no consideration for this agreement. It concedes that Cardno had a chose in action arising from the breach by York of its obligation to provide exclusive possession on 1 April 2008, which, it concedes, would be good consideration for the reduced rent. However, it says that the chose in action lost its character because Mr Varker-Miles admitted that he did not intend to sue York for the breach. In my view, this intention of Mr Varker-Miles is irrelevant. 14An unwillingness to sue to enforce a right does not preclude the relinquishment of that right being good consideration for a contract. No authority was cited to support the contrary proposition. McDermott v Black (1940) 63 CLR 161 at 183 and 184 was relied upon, but this passage does not support York's submission. Rather, it confirms that the withdrawal of an allegation (in this case of breach) is sufficient consideration for a contract. 15In my view, York's submission misunderstands the nature of consideration, which requires some benefit, right or entitlement flowing from, or detriment incurred by, the promisee. It includes forbearance by the promisee. It does not depend upon the extent to which a promisee would otherwise go to defend a right. 16York also, somewhat faintly, submitted that there was no concluded agreement, referring to Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534, and Felthouse v Bindley (1862) 11 CBNS 869 at 875; (1862) 142 ER 1037 at 1040. But this is not a case like Felthouse where an offer was made purporting to deem silence to be acceptance. The conversation deposed by Mr Varker-Miles, which I have accepted, indicates a concluded agreement: Cardno requesting the need for two months' rent compensation and York accepting that proposal. This agreement is confirmed by York's conduct in invoicing the reduced rental and accepting the reduced payments.