City X-Ray Pty Ltd v Rigby Hall Pty Ltd

The premises from 2006 to 2014

1. Mr John Dinnell gave evidence in the plaintiff's case. Mr Dinnell was the Radiographic Manager of Vision X-Ray from October 2002 to March 2014.
2. Mr Dinnell visited the premises just before City X-Ray took up occupation in 2006. In his affidavit, Mr Dinnell set out his recollection of the state of the premises: (a) In Suite 1 (ground floor), in or about October 2006, I saw that: (i) there was no flooring or carpet, but instead a bare concrete slab floor; (ii) there were no partitions; (iii) the ceiling was intact with a ceiling grid and ceiling tiles; (iv) internal walls were painted; (v) there was fluorescent tube lighting in the ceiling grid suspensions; (vi) there was air conditioning provided by the building infrastructure; (vii) there were signs installed which included fire signage; (b) In Suite 2 (level 3), in or about October 2006, I saw that: (i) there was carpet; (ii) there were partitions; (iii) the ceiling was intact with a ceiling grid and ceiling tiles; (iv) internal walls were painted; (v) there was fluorescent tube lighting in the ceiling grid suspensions; (vi) there was air conditioning provided by the building infrastructure; (vii) there were signs installed which included fire signage.
3. Mr Dinnell further said, in his affidavit: 6 In 2006, following the commencement of City X-Ray's occupation of the Premises, City X-Ray performed works to the Premises pursuant to a Development Application submitted to the City of Sydney Council. 7 In 2006, following the commencement of City X-Ray's occupation of the Premises, City X-Ray: (a) In Suite 1 (ground floor): (i) installed carpet and vinyl flooring; (ii) installed partitions; (iii) changed the signs and the fire signage to match the partitioning; (iv) installed individual air conditioning to each partitioned room for the purpose of cooling down medical imaging equipment, which were connected independently from the master air conditioning provided by the building infrastructure and could be removed simply by taking them down; (v) made an alteration to the ground floor air conditioning by removing some air conditioning modules from the back wall around an MRI machine we installed, but otherwise did not alter the master air conditioning provided by the building infrastructure; (b) In Suite 2 (level 3), City X-Ray: (i) replaced a section of the carpet with vinyl; (ii) built a dark room; and (iii) installed one internal wall to shield a nuclear medicine machinery (which could simply be knocked down when it needed to be removed).
4. When giving oral evidence, Mr Dinnell confirmed, upon being shown photographs, that further works had been undertaken by City X-Ray subsequent to his departure in 2014. A glass window at the front of the ground floor part of the premises had been frosted to improve patient privacy in the waiting room. City X-Ray signage had been placed upon the windows. The access door from the building foyer into the City X-Ray premises had been moved.
5. Mr Dinnell also recalled that some tiling of the ground floor had been undertaken in City X-Ray's initial fit-out. In addition, a fixed ceiling had been installed over the reception area at the front of the ground floor part of the premises and a suspended ceiling travelled for the length of a corridor which went from the reception area to the treatment room area on the ground floor. New lighting was installed in the reception area and down the corridor. New lighting was also installed in the treatment rooms and exit signs, fire outlets and smoke alarms were installed in all of the rooms on the ground floor. Some or all of these were already installed in the building and were moved by City X-Ray so that each room had the required services. Mr Dinnell could not recall whether new equipment was required as well as the equipment moved. The new lighting was auxiliary to the existing lighting. Mr Dinnell said that it was installed in the treatment rooms so that the lights could be dimmed.
6. Mr Dinnell said that new air conditioning was installed in all of the rooms created by the partitions because air conditioning for an X-ray room is "significantly different to common area space". He said "the air conditioning was designed to balance the heat created by the equipment". Air conditioning units were fixed to the back wall of the ground floor portion of the premises adjacent to Phillip Lane. City X-Ray removed the existing building air conditioning infrastructure behind the MRI machine on the ground floor.
7. Further air conditioning units were fixed to a wall of the basement carpark, requiring the drilling of holes in the wall. Air conditioning condenser units and glycol cooling units for the MRI machine were also installed in the basement carpark. Mr Dinnell confirmed that City X-Ray equipment in the basement was installed in the location on a wall where a series of holes in the wall were photographed in October 2021.
8. Mr Dinnell confirmed that City X-Ray installed carpet in some of the rooms on the ground floor in the premises and vinyl in other rooms on the ground floor. City X-Ray frosted the windows to Phillip Lane to preserve patient privacy. Speakers were installed in the reception area fixed ceiling. Mr Dinnell said that carbon fibre bands were added to the underside of the ground floor slab in the carpark to take it from a rating of 2.2 tonnes to 6.8 tonnes of weight load. Magnetic shielding was also installed to protect people from "the gauss bubble of the MRI". The shielding was suspended from the ceiling and was fixed to the ceiling over the MRI machine.
9. Mr Dinnell said that, in 2006, all of the ceiling tiles were the same colour. He did not see any exposed wires in the premises in 2006. He did not see any pipes hanging down either. He agreed that the photographs from October 2021 showed missing ceiling tiles on the ground floor, and that had not been the case in 2006.
10. The MRI machine sat on raised flooring and there was a ramp up to that flooring. Mr Dinnell said that the raised flooring and ramp had been installed by City X-Ray.
11. Mr Dinnell was shown a photograph of the air conditioning units along the wall adjacent to Phillip Lane. He said they looked different from 2006 because they had been, but were no longer, painted.
12. By reference to photographs taken in October 2021, Mr Dinnell indicated that some of the skirting which had been present on the ground floor in 2006 was missing in October 2021.
13. Mr Dinnell said that in 2006, before City X-Ray moved into the premises, there were partition walls in Suite 2. City X-Ray removed one of these walls and replaced it with a new gyprock wall which contained lead shielding. The wall in question was one of the walls of the room where City X-Ray removed the carpet and replaced it with vinyl.
14. Mr Dinnell said that in 2006, when City X-Ray moved in, there were about 5 ceiling tiles on the third floor which were hanging down.
15. I accept Mr Dinnell's evidence.

The premises from 2016 to 2021

1. The use of the premises to provide medical X-Ray and scanning services to patients continued throughout the period of the use of the premises by City X-Ray.
2. By the end of the final lease, the monthly rent was $43,627.97.

The bank guarantee

1. The lease provided, in clause 14.1(b), for the provision of a bank guarantee by City X-Ray to Rigby Hall.
2. A bank guarantee was provided to Rigby Hall by City X-Ray on 5 August 2020. This replaced two previous bank guarantees which had been provided.
3. The lease terminated on 15 October 2021, and City X-Ray chose not to exercise its option to renew the lease for a further term. City X-Ray ceased to operate its business in Suite 1 and Suite 2 and left the keys and security passes in the premises.
4. On 11 August 2022, Rigby Hall called upon the bank guarantee for the full amount of $274,856.11, and that sum was paid to Rigby Hall under the guarantee.

The Statement of Claim

1. It is alleged by City X-Ray, in its amended Statement of Claim, that Rigby Hall was not entitled to call on the bank guarantee other than for the sum of $30,530.50 which was spent by Rigby Hall on the removal of the MRI machine which City X-Ray had left on the ground floor of the building, in Suite 1.
2. City X-Ray alleges that, by calling on the bank guarantee for its full amount, Rigby Hall breached the lease.
3. In its amended Statement of Claim, City X-Ray claims the sum of $244,325.61, being the amount of the bank guarantee less $30,530.50. The amount of $30,530.50 is the sum of $27,010.50 paid to COPE by Rigby Hall for the removal of the MRI machine from Suite 1, and $3,530 for a structural inspection report paid to ARUP by Rigby Hall. At the trial, City X-Ray conceded that Rigby Hall was also entitled to call upon the bank guarantee for a payment of rent for the time it took to remove the MRI machine from the building. City X-Ray asserts that the period of time for the removal of the MRI machine was 16 days. Rent at the time of termination was $43,627.97 per month, so pro rata rent for 16 days is $23,268.32. As a result, City X-Ray now claims repayment of $221,057.29 which it says was wrongly obtained by Rigby Hall under the bank guarantee in breach of the lease.

The defence and cross-claim

1. Rigby Hall denies that it breached the lease and denies that City X-Ray has any entitlement to the relief sought.
2. Rigby Hall brought a cross-claim against City X-Ray, claiming that City X-Ray was in breach of the lease in that it failed to complete its obligations to make good the premises to the standard required by clause 8.3 or at all. Rigby Hall also alleged that City X-Ray was in breach of clause 7.1(k) of the lease because it failed to remove all signs visible from the outside of the premises and make good any damage to the landlord's satisfaction. Rigby Hall also pleaded that City X-Ray had caused damage to the carpark and had failed to make that damage good, in breach of clause 8.1(c) of the lease.
3. In its cross-claim, Rigby Hall claimed the following: 1. The costs of works to complete City X-Ray's make good of the premises in the amount of $264,903.61, 2. An amount equivalent to four months' rent from 15 October 2021 to 15 February 2022, being portion of the six months taken to complete the make-good works, in the amount of $174,511.88, and 3. Legal costs incurred as a consequence of the breach by City X-Ray in the amount of $14,828, 4. less the amount of $274,856 recovered by way of the bank guarantee.

The defence to the cross-claim

1. In its defence to the cross-claim, City X-Ray resisted the cross-claim and, further, pleaded that Rigby Hall had breached clause 8.1(e) of the lease by failing to carry out its own inspection of the premises and prepare a Condition Report "at the start of the lease". City X-Ray pleaded an equitable set-off and said that it should not have to pay any amount awarded in the cross-claim because any such loss (if any) arose from Rigby Hall's breach of clause 8.1(e) of the lease and the breach caused City X-Ray loss and damage. Particulars of the alleged loss and damage were pleaded, which essentially said that any failure by City X-Ray to make good the premises would not have occurred in the event that Rigby Hall had prepared a Condition Report under clause 8.1(e) of the lease.

The events surrounding the termination of the lease

1. Mr Andrew Zadelis gave evidence in the plaintiff's case. He has been the Chief Executive Officer of the Vision X-Ray Group ('Vision X-Ray') since September 2015. City X-Ray is part of the Vision X-Ray Group. Mr Zadelis said that Dr Bako is the sole director of Vision X-Ray and City X-Ray. Mr Zadelis reports directly to Dr Bako.
2. Mr Zadelis said that, at the time in 2021 when City X-Ray needed to elect whether to renew its lease of the premises, it was involved in litigation with Rigby Hall over a claim for rent relief on account of the Covid-19 pandemic. The litigation concluded in November 2021. Mr Zadelis described the relationship between the parties as "strained" during and after that litigation.
3. In cross-examination, Mr Zadelis said that it was in about July 2021 that City X-Ray decided not to exercise its option to renew the lease of the premises. He turned his mind, at that time, to the make-good works City X-Ray was required to perform under the lease. Ms Sarah Martin, Chief Operating Officer of Vision X-Ray, had the responsibility of co-ordinating the make-good works. Ms Martin was not called to give evidence.
4. City X-Ray engaged a building contractor called Adler Projects to undertake specified make-good works.
5. In cross-examination, Mr Zadelis agreed that he had been present at a meeting prior to 16 October 2021 at which Dr Bako had said the following by way of instructions to Ms Martin in relation to the make-good works at the premises: We only need to patch any damaged or dirty tiles. We don't need to install a new grid. Please advise Adler.
6. In cross-examination, Mr Zadelis was taken to correspondence from 2021 from Ms Martin to Dr Bako, Mr Zadelis and others, which referred to the "quench pipe and exhaust on back lane", with reference to the MRI machine on the ground floor of the premises. Mr Zadelis explained that the purpose of the quench pipe was to direct the fumes into the back lane when the magnet quenches. The correspondence raised the possibility of replacing the pipe with glass as part of the make-good works.
7. The correspondence also discussed the taking of ceiling tiles from premises in Martin Place to fill gaps in the ceilings at the building.
8. In an email to Mr Barbagallo of Colliers dated 11 October 2021, Mr Zadelis said that the MRI Machine, at the time of its installation, weighed about 6 tonnes and was about 2 metres by 2 metres in size. As at 11 October 2021, Mr Zadelis said, the MRI Machine was "far lighter" than 6 tonnes because the helium had been released and other parts had been removed. The large magnet within the MRI machine was still in place.
9. Mr Zadelis was taken to an item in the correspondence which addressed "the Gradient coil and chiller in basement". Mr Zadelis explained that the gradient coil and chiller were in the basement of the building and were "for the MRI". Mr Zadelis confirmed that core holes associated with the gradient coil and chiller needed to be patched after the gradient coil and chiller were removed from the basement. The lease expired at midnight on 15 October 2021.
10. In cross-examination, Mr Zadelis said that the plan was for City X-Ray's practice to continue operating until Friday 1 October 2021. The last bookings for the MRI machine were to be on Wednesday 29 September 2021.
11. Mr Zadelis confirmed that both City of Sydney and Police approval were required for the removal of the MRI machine by road. The removal of the MRI machine required the partial closure of Macquarie Street for a period of time. There was other heavy equipment which needed to be removed from the premises. The use of a crane was necessary for the MRI machine's removal.
12. By letter dated 3 November 2021, City X-Ray's solicitors informed Rigby Hall, by its solicitors, that City X-Ray no longer intended to remove the MRI machine from the premises and dispose of it.
13. Mr Zadelis visited the premises on 15 October 2021 several times. He left the keys, the security passes, a letter and a photograph in a blue folder in the ground floor portion of the premises just before midnight.
14. In cross-examination, Mr Zadelis said that the magnet shell part of the MRI remained on the premises when he left, and the raised flooring and ramp under the MRI machine were still intact. Dr Bako had visited the premises and quenched the magnet of the MRI, which means that he had expelled the helium around the magnet.
15. Mr Zadelis was taken through many photographs of the premises and the building which were taken in the week after City X-Ray left the premises on 15 October 2021. Looking at those photographs, Mr Zadelis said the following (transcript from p 82): 1. City X-Ray's vinyl signage remained on the glass panel at the Macquarie Street frontage of the ground floor portion of the premises. 2. There was a fixed ceiling at the front of the ground floor portion of the premises. 3. The ceiling tiles from the front of the ground floor portion of the premises to the MRI machine that remained in the premises were different colours. Some were much darker than others. 4. The MRI machine was still on raised flooring, with a ramp going up to it. The MRI machine had a "smiley face" drawn on it in red. 5. There was exposed wiring over an electrical box near the junction between the fixed ceiling and the ceiling tiles on the ground floor portion of the premises. 6. The ceiling grid appeared to be bent in parts. 7. There are two areas of patching on a wall in a lighter colour from the wall. 8. Some of the photographs show that some skirting is missing on the ground floor portion of the premises. 9. Some of the photographs of the third floor portion of the premises showed holes and damage to the carpet, but he could not recall seeing that on-site. 10. There was discolouration on the ceiling on the third floor in the premises, but he could not recall seeing the holes in the ceiling grid shown in the photographs. 11. Some of the photographs showed holes in the walls of the third floor portion of the premises. Mr Zadelis could not recall seeing that on-site in 2021. 12. Some of the photographs showed areas where skirting boards had clearly once been but were now missing. Mr Zadelis could not recall seeing that on-site in 2021. 13. Photographs showing multiple holes in the wall of the basement carpark were put to Mr Zadelis. He could not recall going into the basement carpark on 15 October 2021 and could not recall seeing the holes.
16. I accept Mr Zadelis' evidence. When he could not recall seeing defects or damage to the premises on 15 October 2021, but the photographs show those defects or damage, I take his evidence to be a reflection of his memory, rather than constituting evidence that the defect or damage shown by the photograph was not present. I find that the photographs accurately reflect the condition of the premises at the expiration of the lease.

The state of the premises at the end of the tenancy

1. It is common ground that City X-Ray left an MRI machine in Suite 1. It is no longer in dispute that this was a breach of clause 8.4(a) of the lease.
2. The MRI machine was situated on an elevated floor installed by City X-Ray, with a ramp leading up to it. City X-Ray left these in place and did not restore the air conditioning infrastructure to an open plan layout.
3. A detailed email exchange took place between Rigby Hall and City X-Ray on 30 September 2021 and 1 October 2021 regarding Rigby Hall's requirements regarding the restoration of the premises to an open floor plan layout under clause 8.3(a) of the lease, and other aspects of the requirements of the lease on termination. Whilst City X-Ray removed partitions from both Suite 1 and Suite 2, it did not restore the building air conditioning infrastructure for the open plan layout, or return the services (eg fire and electrical services) and infrastructure (eg air conditioning) to the open plan layout.
4. City X-Ray left ceiling grids with holes and other damage in both Suite 1 and Suite 2. In both locations, there were mismatched, missing and damaged ceiling tiles. It is abundantly clear from the photographs that new ceiling grids and ceiling tiles would be required.
5. City X-Ray did not remove the floor tiles it had installed at the front of Suite 1. Neither did it remove the fixed ceilings and lighting it had installed in Suite 1. City X-Ray left behind the audio speakers and additional air conditioning infrastructure it had installed in Suite 1. In Suite 2, City X-Ray failed to remove the vinyl flooring and the lighting it had installed.
6. It is plain from the photographs in evidence that City X-Ray did not finish the make-good works by the end of the term of the lease. The floors in Suite 1 had topping or glue on them in many areas. The raised floor and ramp under the MRI had not been removed. Throughout the premises, there were holes in ceiling tiles and ceiling grids, and ceiling tiles were dirty and mismatched. In many places, conduits or cables were hanging down from the ceiling. Skirting boards were missing in places, and there were holes in the walls in places. Fixtures belonging to the tenant had been left behind. Vinyl graphics stuck onto windows by City X-Ray were still present. The carpets in Suite 2 were torn and dirty. The premises were very far from being clean. Neither suite of the premises had been painted to an acceptable standard. A wall of the carpark was peppered with holes where air conditioning units belonging to City X-Ray had formerly been mounted.

Mr Balnaves

1. Mr Balnaves, a director of Rigby Hall, gave evidence in the defendant's case.
2. Mr Balnaves became a director of Rigby Hall in August 1997. He managed the building from 2009 until it was sold in 2023.
3. Mr Balnaves said that he had undertaken a search for a condition report dated 2006 in relation to the premises but had been unable to locate one.
4. Mr Balnaves provided information about the development application lodged with the City of Sydney by City X-Ray in 2006 in relation to the premises. It included the installation of an MRI machine weighing approximately 6 tonnes.
5. Under clause 4.4 of the lease, had it wished to renew the lease for a further five years, City X-Ray was required to give notice to Rigby Hall less than three months before the termination date of the lease. Rigby Hall did not receive notice of an intention to take up a further lease for 5 years. Consequently, on 6 September 2021, Mr Balnaves instructed Colliers to begin a marketing campaign for the lease of the premises to new tenants. The premises were advertised for lease shortly after that.
6. The extensive correspondence between Rigby Hall and City X-Ray regarding City X-Ray's make-good obligation leading up to the end of the lease was exhibited to Mr Balnaves' affidavit.
7. An email and letter exchange concerning the issue of which party was to remove the MRI subsequent to the end of the lease was also exhibited to Mr Balnaves' affidavit. The exchange with respect to that issue included a letter dated 3 November 2021 from City X-Ray's solicitors to Rigby Hall's solicitors which said, among other things: …City X-Ray no longer intends to remove the MRI machine as part of its make good obligation under the lease.
8. Also exhibited to Mr Balnaves' affidavit were photographs of the premises and the carpark in the building taken by Mr Balnaves on 15, 18, 25 and 26 October 2021.
9. In about mid-November 2021, Rigby Hall engaged Colliers to prepare an inspection report of the premises and a proposal for project management services, including a tender package in relation to the making good of the premises and the carpark. Colliers' proposal was approved by Rigby Hall on 29 November 2021.
10. In its project management proposal, which is dated 25 November 2021, Colliers provided a very detailed inspection report, setting out an assessment of what the make-good obligation under the lease required (under the heading "Make good obligation description), an assessment of the current condition of the premises after City X-Ray's departure (under the heading "CPL review of current condition against make good obligation") and an assessment and recommendation of actions required to bring the premises and the carpark into the condition required by the lease (under the heading "Actions required to complete make good"). Thirty-four photographs of the premises, taken after the departure of City X-Ray, were included in the project management proposal and are referred to in the inspection observations.
11. Colliers provided the tender package to three building companies, including Growthbuilt. One building company declined to tender "given the time frame and competing priorities".
12. Another of the three building companies submitted a tender in the sum of $243,603.
13. Growthbuilt submitted a tender in the sum of $197,775.40.
14. In a letter received by Mr Balnaves on 19 January 2022, Colliers recommended the engagement of Growthbuilt to undertake the make-good works. In cross-examination concerning the engagement of Growthbuilt, Mr Balnaves said: Colliers is a professional company at doing this, and they deemed them appropriate, and that is why I engaged Colliers, so it could be handled appropriately.
15. On 24 February 2022, Rigby Hall and Growthbuilt entered into an agreement for the performance of the make-good works in the premises and the carpark for the price of $200,037.40.
16. On 17 May 2022, Growthbuilt issued a tax invoice in the amount of $209,040.11. In his affidavit, Mr Balnaves said that the invoice was for "Base Building works" including the following:

• Demolition,
• Ceiling tile rectification,
• Patching walls,
• Painting walls,
• Electrical works,
• Mechanical works,
• Fire isolation and reinstatement works,
• Joinery installation,
• Carpet tile installation,
• Tile installation,
• Glazed door installation,
• Blind installation.

1. A more detailed description of the works the subject of the invoice is set out in an annexure to the contract between Growthbuilt and Rigby Hall (see Mr Balnaves' affidavit Exhibit HB1 p 813 of Volume 3).
2. Mr Balnaves exhibited to his affidavit five tax invoices to Rigby Hall from Watson Mangioni Lawyers Pty Ltd ('Watson Mangioni') in relation to legal work attributed to the make-good works at the premises and the carpark totalling $14,828.
3. Mr Balnaves said that Rigby Hall engaged Better Management Cleaning Services ('Better Management') to remove all stickers and frosting from the glass at the premises. Mr Balnaves exhibited to his affidavit an invoice dated 15 November 2021 from Better Management for the sum of $880.
4. Mr Balnaves also exhibited to his affidavit the tax invoice from IA Design in the sum of $1,353 for the architectural drawings which formed part of the tender package.
5. Mr Balnaves also exhibited to his affidavit the tax invoices received by Rigby Hall from Colliers on account of the project management services provided in relation to the make-good works in the premises and the carpark including scoping, tender and recommendations, in the total sum of $23,100.
6. On about 10 May 2022, Mr Balnaves received a "Handover Package" from Colliers which included a Building Code of Australia Completion Statement in which an officer of NSW Fair Trading certified that the make-good works specified had been satisfactorily completed in accordance with the Building Code of Australia 2019 amendment 1. The Handover Package also included information about the materials used in the premises.
7. Colliers reported to Rigby Hall on 21 June 2022 that the painting in the premises had been completed over the previous weekend. Growthbuilt had returned the keys.
8. By letter from Watson Mangioni on 27 July 2022 to City X-Ray, Rigby Hall notified City X-Ray that it considered that City X-Ray was in breach of clauses 8.3 and 8.4 of the lease. Rigby Hall sought payment of "outstanding moneys owed by City to the landlord" in the sum of $308,531.58 including GST. An itemised list of works making up the sum claimed was provided. Rigby Hall reserved its rights in relation to further amounts expended on account of the breach of the lease by City X-Ray. Rigby Hall also reserved its right to "claim any security held by the Landlord under the lease (clause 14.1(d))".
9. In his affidavit, Mr Balnaves said that the monthly rent payable by City X-Ray to Rigby Hall immediately prior to the termination of the lease on 15 October 2021 was $43,627.97, not including amounts payable under the licence for the carpark or any outgoings under the lease. Mr Balnaves said that, although the make-good works were completed approximately 8 months after the termination of the lease, taking into account the time taken for the tender process, the delay over the Christmas and New Year period, and the lead time for the successful tenderer to complete the works, he instructed Watson Mangioni to claim for only four months equivalent rent.

Expert evidence

1. Mr David Madden, a quantity surveyor, gave evidence in City X-Ray's case. Mr Ian Stuart-Robertson, a quantity surveyor, gave evidence in Rigby Hall's case.
2. Much of the difference in opinion between Mr Madden and Mr Stuart-Robertson arose from their widely divergent approach to identifying the scope of works in issue. I will therefore discuss the scope of works before turning to the views of the experts.

The lease and the scope of works

1. The lease between the parties with respect to the premises for the term of five years commencing on 16 October 2016 and terminating on 15 October 2021 provided as follows in clauses 8.3 and 8.1: 8.3 Make good obligations on expiration or earlier determination On the expiration or earlier termination of this Lease the Tenant must, to the satisfaction of the Landlord (acting reasonably): (a) restore the Premises to an open floor plan lay-out to the reasonable satisfaction of the Landlord, unless otherwise advised by the Landlord; (b) relocate or reinstate, in accordance with the requirements of the Landlord and/or any relevant Law or any notice issued by an Authority, any fixtures, fittings or services moved or altered by the Tenant; (c) replace any damaged, marked or dirty ceiling tiles which are the same as the existing tiles, to the Landlord's satisfaction (acting reasonably), and reinstate the grid in which the tiles are located to a condition which is free of holes or damage and, if matching tiles are not available, replace all the ceiling tiles in the Premises with new ceiling tiles of a quality, colour, texture and style selected and decided by Landlord (acting reasonably); (d) replace the existing ceiling grid with a grid approved by the Landlord (acting reasonably), if new ceiling tiles are required under clause 8.3(c), and such new ceiling tiles will not fit within the existing grid to the satisfaction of the Landlord (acting reasonably) or, if the existing ceiling grid contains holes or damage; (e) take all necessary steps (including replacement of the carpet in the Premises, if necessary) to restore any carpet in the Premises to a condition commensurate with its condition at the commencement of the Tenant's occupation (where this Lease is one of a sequence of leases in respect of the Premises) and the Permitted Use (fair wear and tear excepted); (f) remove from the Premises, the Building and the Land all alterations and additions made to the Premises (whether or not existing in the Premises at the Commencement Date and whether or not installed by the Tenant or by the Landlord at the Tenant's request); and (g) yield up the Premises to the Landlord in a cleaned, repaired and maintained condition in accordance with clause 8.1, and any Condition Report. 8.1 Keeping in Repair The Tenant will: (a) will at all times keep and maintain the Premises in good repair and condition including any carpets, floor coverings, ceiling tiles, doors, blinds and curtains in the Premises supplied by the Landlord and in particular must not, without the prior consent of the Landlord and on such conditions as may be imposed by the Landlord in its absolute discretion, cut, alter, deface or remove any carpets, floor coverings, ceiling tiles, blinds or curtains installed or supplied by the Landlord (and if any such item is cut, altered, defaced or removed by the Tenant must replace such item in its entirety with a like item to the reasonable specifications of the Landlord); (b) clean and maintain in good order, repair and condition all fixtures, fittings, furnishings, plant, machinery and Landlord's Equipment in the Premises; (c) make good any damage to the Premises or the Building caused by an act or omission of the Tenant; and (d) At least once every 5 years (calculated from the Commencing Date) and also before the Tenant ceases to occupy the premises, the Tenant will to the Landlord's satisfaction: (i) paint, in colours and to a standard approved by the Landlord, all parts of the interior of the Premises previously painted provided that the Premises are in need of painting (as determined by the Landlord acting reasonably); (ii) paper, varnish and otherwise treat all parts of the interior of the Premises previously so treated provided that the Premises are in need of papering, varnishing or otherwise such treatment (as determined by the Landlord acting reasonably); (iii) replace all broken, damaged or missing lights, light globes, light tubes and glass in the Premises; (iv) replace all damaged or missing ceiling tiles in the Premises; and (v) replace and/or clean to a standard approved by the Landlord any carpets, floor coverings, blinds or curtains in the Premises supplied by the Landlord which are worn out, damaged, cut, torn or defaced (fair wear and tear commensurate with the permitted use excepted). (e) The Landlord and Tenant must jointly carry out an inspection of the Premises to review the condition of the Premises on the date the Tenant takes possession of the Premises. The Landlord and Tenant must ensure that there is a single accurate written record of that inspection, in the form of a condition report (Condition Report), prepared by the Landlord, and provided to the Tenant. If the Tenant does not agree to jointly carry out an inspection of the Premises on the date the Tenant take possession of the Premises, then the Tenant must allow the Landlord access to the Premises at a time agreed by the parties, (acting reasonably) for the Landlord to carry out its own inspection of the Premises, and the Tenant must accept the Landlord's written record of such inspection, as the Condition Report.
2. The lease further provided, in clause 8.4: 8.4 Removal of Tenant's Goods (a) Before the expiry or earlier termination of this Lease, the Tenant will remove the Tenant's Goods from the Premises and make good any damage caused to the Premises. The Tenant will leave the Premises in a clean and tidy condition having regard to the condition of the Premises at the commencement of this Lease, in the Landlord's opinion. (b) If the Tenant does not make good the Premises as required under clause 8.3, and remove the Tenant's Goods as required under clause 8.4(a) the Landlord can: (i) at the Tenant's risk and cost, remove and store the Tenant's Goods; (ii) treat any of the Tenant's Goods as if they were the Landlord's property and deal with them in any way without being liable to account to the Tenant; and (iii) at the Tenant's cost, make good the Premises to the standard required by clause 8.3. (c) The Tenant indemnifies the Landlord in relation to the removal and storage of the Tenant's Goods. The Tenant also indemnifies the Landlord in relation to claims by any Person of any interest in the Tenant's Goods. (d) If the Landlord exercises its rights under this clause 8.4 then, in addition to any other costs recoverable from the Tenant, the Landlord will be entitled to recover from the Tenant an amount equivalent to the Rent payable by the Tenant immediately before the end of the Lease, or any monthly tenancy under clause 4.2, on a prorata basis, for the period of time taken by the Landlord (acting reasonably) to complete any make good of the premises and any removal, storage and disposal of the Tenant's Goods.
3. City X-Ray relies on subclauses 15.3 (a)-(b) of the lease, which provide: 15.3 Landlord's Consents and Costs Unless provided to the contrary to this Lease where: (a) the Landlord is required to exercise a discretion, the Landlord will exercise such discretion reasonably; (b) the Tenant is to pay the Landlord's costs (which includes Outgoings recoverable from the Tenant), the Landlord will act reasonably in incurring; …
4. Prior to preparing his report, Mr Madden was provided with Mr Balnaves' affidavit and the exhibits to that affidavit, including the photographs taken by Mr Balnaves which are before the Court, and the Colliers documents, which included the tender package and photographs of the premises taken shortly after City X-Ray moved out.
5. In his report, Mr Madden said the following: 1. A "plasterboard company or a competent handyman" could have been engaged by either the landlord or the tenant to replace the damaged ceiling and grid. "I do not consider there is a need to engage professional consultants given the simplistic nature of the works to be undertaken". 2. The components for replacing the damaged parts of the ceiling grid could be obtained from Ceilings Warehouse, the website address for which he provided. 3. The cost of the work can be calculated using rates averaged from those contained in Rawlinson's Australian Construction Handbook 2023 ('Rawlinson's'). 4. The cost for the replacement of the damaged parts of the ceiling grid would be $1,844.00 excluding GST. 5. Damaged ceiling tiles can be replaced with tiles purchased from Ceilings Warehouse. Mr Madden calculated that approximately 176m² of ceiling tiles required replacement. 6. Using a similar method of calculation as for the grid, Mr Madden estimated a cost of $9,180.00 to replace the damaged ceiling tiles. 7. The total cost of the remaining work for the make-good was therefore $11,024.
6. Mr Madden said that, in his opinion, the engagement of Colliers had not been necessary. Mr Madden based that opinion on the size of the premises and upon his view of the limited extent of the work required under the lease. He also said, however, that even if the extent of the work required under the lease had been "the removal of all fitout and return to a Base Building warm shell including services, ceiling and carpet on level 3", he considered that "a workplace and specialist makegood construction" company which had the ability to "assess, price and undertake the works with little if any supervision or specification on a job this size ie, under 1000m² could have been engaged".
7. Mr Stuart-Robertson said, in his report: a. The engagement of Colliers to prepare an Inspection Report and Project Management Services, scope of works etc; i. I have been advised by Hamish Balnaves of Rigby Hall during my inspection of 139 Macquarie Street on the 4/9/23 that Colliers were familiar with the building, having been previously involved in a number of other works within the building with good results. I assume that Rigby Hall did not have sufficient in-house capability to manage the make-good process. I am familiar with Collier's building management services. I have been involved with Collier's project management services in a medium sized construction project ($18 million) and aware of their construction expertise. The project was in 2019 and comprised major refurbishment to two medium size resort type buildings in Port Macquarie, the buildings remained occupied, the works were staged with some high quality and different finishes. Colliers were the client's representatives and managed the design and construction process well. ii. The inspection report was essential in developing a scope of work for the make-good required so that the contractor understood the works that were required. iii. It is logical that Rigby Hall selected Colliers to provide project management services as they were familiar with the building, had prepared the defects report and Rigby Hall and had previous good experience with Colliers, which were critical to the make-good process.[sic] iv. In my opinion and experience, efficient project management is essential to the make-good process. The documentation and design for the works needs to be of good quality, the right contractor for the works needs to be selected. The works are carried out in an occupied building with works being done to existing building services, the management of other tenants needs to be considered.
8. Mr Stuart-Robertson said the following in relation to the preparation of architectural drawings and service design drawings for inclusion in the tender package: b) The tender process included the engagement of IA Designs to prepare Architectural Drawings and ADP Consulting Engineering to prepare service design drawings, for inclusion in the Tender package. i. The fit out to ground floor and level 3 was a specialized Tenants fit out for City X-Ray … comprising: a. A number of rooms for different activities; b. Differing floor finishes, tile, vinyl and carpet to suit different activities; c. Differing ceiling finishes, set plaster and lay in tiles to suit different activites; d. Specialised fitments. ii. The building services, based on the photographs, electrical, fire and mechanical services had been altered to suit the specialized fit out, each room would require its own air supply, lighting was a mixture of downlights and conventional lighting to suit the activities of the rooms, fire services would have been altered to accommodate the rooms. The photographs indicate where the rooms were located, photographs of the ceilings indicate the differing services within those rooms. iii. To convert the lease areas back to open plan required design input, was not a matter of patching or matching existing finishes or minor service alterations as discussed in the paragraph above. New floor finishes and ceiling finishes needed to be designed and specified. This is because the ceilings and floor finishes need to be totally replaced. Building services needed to [be] reinstated to suit open plan design as required by clause 8.3 and comply with the current codes for ventilation and fire requirements. The original fit out, as it was approved by council, would have been inspected and approved on completion to suit the service requirements particular to that fit out. Iv. It is my experience both as a quantity surveyor and a building contractor, that a properly designed and documented job is a more efficient, quicker and cheaper project.
9. Mr Madden said that he did not think that there was a requirement to engage design consultants. Again, he believed that a "workplace and specialist makegood construction" company would have been able "to assess, price and undertake the work with very little if any supervision or specification".
10. Mr Stuart-Robertson said the following in his report in relation to the engagement of Growthbuilt as the building contractor: c) The engagement of Growthbuilt pursuant to the Formal Instrument of Engagement and the services provided by Growthbuilt i. It is completely reasonable and desirable that the contractor carrying out the make-good works be engaged formally under a standard construction contract (AS 4902-2000). The value of the works is approximately $209,000, and it is appropriate that the scope of works and obligations be documented. In my experience this contract is used on many projects.
11. Mr Stuart-Robertson prepared an estimate of the cost of the works based upon the tender documents issued to the contractors and a site inspection of the completed works. He used Buildsoft Global Estimating software and applied 2021/2022 rates. His estimate for the price of the works is $236,413 including a 5% contingency and excluding GST. Comparing his own costing of the works with the tender from Growthbuilt of $208,882 excluding GST, and the tender from Grafton Projects of $243,603 excluding GST, Mr Stuart-Robertson concluded that both tenders were reasonable. He further concluded that it was reasonable for Rigby Hall to accept the price from Growthbuilt because it was the lowest price in a competitive tender.
12. Mr Madden, in his report, described Growthbuilt as "a major contractor" and expressed surprise that Growthbuilt would tender for "a small job for premises under 1,000m²". He said that he did not consider the engagement of Growthbuilt to have been appropriate. He thought that a contractor with greater experience performing make-good work would have been more appropriate.
13. Mr Stuart-Robertson, in his report, set out the series of events which formed the process undertaken by Rigby Hall to achieve the make-good works. In summary, the following events occurred:

• Mid-November 2023, Rigby Hall engaged Colliers to prepare an inspection report of the premises and a proposal for Project Management Services,
• Colliers presented its condition report on 19 November 2021,
• A meeting between Colliers and Rigby Hall took place on 24 November 2021,
• Colliers presented a proposal for Project Management Services to Rigby Hall on 25 November 2021,
• Rigby Hall accepted Colliers' project management proposal (including the preparation of tender documents) on 29 November 2021,
• Colliers prepared tender documents (91 pages including 23 pages of consultant design drawings),
• The tender documents were provided to three building contractors during the week before Christmas 2021,
• Growthbuilt submitted its tender on 13 January 2022 and Grafton Projects submitted its tender on 17 January 2022. The third building contractor elected not to tender, indicating that it could not perform the work in the specified time frame,
• Colliers recommended the acceptance of the tender from Growthbuilt by letter to Rigby Hall dated 19 January 2022,
• Negotiations and discussions took place between Rigby Hall and Growthbuilt,
• The building contract was signed on 24 February 2022.

1. The make-good works were finished in June 2021.
2. Mr Madden, in his report, described the works required as "simplistic". He agreed, however, that seeking three or four tenders was appropriate. He said that the tenderers would be provided with "the scope of work and given one week to tender". He did not specify how the scope of work would have been produced. Mr Madden said that "Tender assessment and letting would take one week and then the works would be undertaken which I estimate above would take 2 days." He said that the tenderers "would typically commence on site within one week of engagement". In cross-examination, Mr Madden agreed that sometimes the steps in the process would take slightly longer than his estimate.
3. Mr Madden's opinion that a much smaller amount of work was required of the tenant under the lease arose from his interpretation of the lease.
4. The principles applicable to the approach to the construction of a commercial contract, including a commercial lease, are settled. They were set out in Gujarat NRE India Pty Ltd v Wollongong Coal Limited [2018] NSWSC 1459 by Robb J as follows: 130. It is not in the circumstances necessary to analyse all of the recent authorities that consider the manner in which the Court is required to construe commercial contracts. It will be sufficient to set out the following extract from the judgment of French CJ and Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 (footnotes omitted): [35] … [T]his 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". 131. Later, in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, French CJ, Nettle and Gordon JJ said at [48] (footnotes omitted): Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

The Plaintiff's claim

1. In its amended Statement of Claim, City X-Ray claims from Rigby Hall the repayment of the amount of the bank guarantee, which was $274,856.11, less $30,530.50 spent by Rigby Hall on the removal of the MRI machine. In the alternative, City X-Ray claimed damages. Interest and costs were also claimed.
2. In final submissions, City X-Ray submitted that a further sum of $23,268.32, which is equivalent to 16 days rent in 2021 should also be deducted from the claim as being the rent lost for the 16 days taken to remove the MRI machine from the premises. City X-Ray now claims repayment of $221,057.29.

The Statement of Claim

1. In its amended Statement of Claim, City X-Ray claims to be entitled to repayment or damages on the following basis: 24. On or about 11 August 2022: (a) Rigby Hall called on the Bank Guarantee for its full amount of $274,856.11; and (b) that sum was paid to Rigby Hall under the Bank Guarantee. 25. By reason of the matters pleaded below, Rigby Hall was not entitled to call on the Bank Guarantee other than for $30,530.50 spent by the Defendant on removing the MRI machine. 26. By calling on the Bank Guarantee for its full amount, Rigby Hall breached the Lease. Particulars Clauses 14.1(d) and (f). 27. By reason of that breach by Rigby Hall, the remaining Bank Guarantee Amount of $244,325.61 was not returned to City X-Ray. Rigby Hall incurred unreasonable costs 28. [deleted] 29. City X-Ray contend that the amount of $308,531.58 claimed by Rigby Hall in its letter of demand dated 27 July 2022 and the higher amount claimed in its Statement of Cross-Claim for make good work and pro rata rent (a) is unreasonable; and (b) was incurred by Rigby Hall and/or claimed from City X-Ray, in breach of Rigby Hall's obligations under clauses 15.3(a)-(b) of the Lease. Particulars (i) Letter from Watson Mangioni to Buchanan Rees Dispute Lawyers dated 27 July 2022; (ii) Letter from Buchanan Rees Dispute Lawyers to Watson Mangioni dated 11 August 2022. (iii) Particulars of loss and damage in paragraph 17 of the Statement of Cross-Claim filed 23 February 2023.
2. City X-Ray's claim is based upon the allegation that Rigby Hall is in breach of clause 14.1(d) of the lease because the amounts claimed by Rigby Hall as due to it from City X-Ray on account of the state of the premises and the basement of the building at the termination of the tenancy, and unpaid, were unreasonable, contrary to clause 15.3(a) or (b) of the lease.

Onus of proof

1. City X-Ray bears the onus of proof, on the balance of probabilities, to establish that Rigby Hall has breached the lease (see Evidence Act 1995 s 140).
2. City X-Ray asserted that Rigby Hall bears the onus of proof to establish that it was not in breach of the lease because the expenses incurred in completing the make-good were reasonable. No authority was cited to support that submission.
3. In Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17 (Cessnock), the plurality (Edelman, Steward, Gleeson and Beech Jones JJ) said, at [60]-[61]: 60. It is long-established orthodoxy that damages for consequential loss for a breach of contract are awarded only to place the plaintiff in the same situation as if the contract had been performed. The issue on this appeal is the method of proof for a plaintiff to establish the position that they would have been in if the contract had been performed, where the plaintiff has incurred expenditure in anticipation of, or reliance on, the performance of a defendant's contractual obligation and the defendant's breach of that obligation has the effect that the expenditure is wasted. 61. As will be explained in these reasons, that issue should be addressed as follows. The legal onus to prove loss arising from a breach of contract rests on the plaintiff as the party seeking to recover damages. However, where a breach of contract has resulted in (namely, caused or increased) uncertainty about the position that the plaintiff would have been in if the contract had been performed, then the discharge of the plaintiff's legal burden of proof will be facilitated by assuming (or inferring) in their favour that, had the contract been performed, then the plaintiff would have recovered the expenditure they reasonably incurred in anticipation of, or reliance on, the performance of the contract. The strength of this assumption or inference, and thus the weight of the burden placed on the party in breach to adduce evidence to rebut the inference in whole or in part, will depend on the extent of the uncertainty that results from the breach. Expressed in this way, this facilitation principle is tied to its rationale, namely the uncertainty in proof of loss occasioned to the plaintiff by the defendant's breach.
4. The High Court, in Cessnock, was dealing with the burden of proving loss arising from a breach of contract. Before the question of proving loss falls to be considered, a breach of contract must be proven by the party relying on the existence of the breach. In this case, in relation to the plaintiff's claim, that party is City X-Ray.

Plaintiff's grounds for the allegation of breach of contract

Was the process undertaken by Rigby Hall to complete the works reasonable?

1. City X-Ray argued that the following aspects of the process undertaken by Rigby Hall which resulted in the incurring of Colliers' fees of $23,100, Growthbuilt's charges of $209,040.11 and IA Design's fees of $1,353 for the production of five architectural drawings were unreasonable: 1. The engagement of Colliers to run a formal tender process to select a builder. The evidence relied upon for this allegation was the evidence of Mr Madden, which is set out above at [97]-[98]. I reject Mr Madden's evidence with respect to this issue. When formulating his view about the reasonableness of the process for achieving the make-good works, Mr Madden misinterpreted the lease and grossly underestimated the amount and complexity of work which was required of the tenant under the lease. Even when he considered the work needed to bring the premises to what Mr Madden called "a Base Building warm shell", meaning an area without partitions which has services connected, a ceiling and (in this case) a concrete floor in the case of Suite 1 and carpet in the case of Suite 2, Mr Madden underestimated the amount and complexity of the work required under the lease. Despite being in possession of Mr Balnaves' affidavit and the exhibits to that affidavit, including the Colliers documents, at the time that he wrote his report, Mr Madden overlooked the fact that City X-Ray had moved or added to many of the services to the premises, including signs, fire safety equipment, air conditioning and lighting, so that expert consideration was necessary to ascertain where those services should be relocated to return the premises to a Base Building warm shell. Mr Madden also underestimated the degree to which the project varied from a make-good project for a standard commercial office. The degree of variance arose from the specialised nature of City X-Ray's use of the premises, which caused it to install specialised infrastructure; for example, the MRI machine cooling equipment. Mr Madden ignored the work required in the basement as a result of City X-Ray having used it to site equipment related to the MRI machine, including air conditioning units which were mounted on a basement wall, leaving holes in the wall when the units were removed. He did not consider the limitations which existed for the building contractor on account of the need to consider other tenants of the building. Mr Madden was of the view that a "workplace and specialist make-good contractor" would have been a better choice for Rigby Hall than Colliers. In all of the circumstances, I reject this view. Given the complexity of the work, arising partly from City X-Ray's fit-out, I consider that it was appropriate for Rigby Hall to engage Colliers as it did. Mr Stuart-Robertson set out in his report the reasons why it was prudent to engage Colliers, both to document and supervise the tender process and to supervise the performance of the building contract (see [99] above). I accept Mr Stuart-Robertson's evidence on this issue. There was no obligation upon Rigby Hall to engage the cheapest possible consultant or contractor. The obligation upon Rigby Hall was to behave reasonably, having regard to all of the circumstances, and I am satisfied that it did. 1. The engagement of IA Design to produce architectural drawings for inclusion in the tender documents. The IA Design drawings showed the location of the work to be done in the basement, the location of work on the signage, the damaged wall and the MRI ramp and raised floor on the ground floor, and the finishes to be applied on the ground floor. It was Mr Madden's view that this information did not need to be documented on plans. I reject Mr Madden's view. Documentation of the work on plans was a prudent way of communicating the extent and nature of the work to the builders in a way that they could refer to at any time. It gave clarity to the tenderers and to the builders on site. I accept that it was a reasonable step to take. 1. The engagement of Growthbuilt. It was argued, on the basis of the opinion of Mr Madden, that Growthbuilt was an inappropriate building contractor to select to do the work because Mr Madden believed that Growthbuilt ordinarily worked in much larger projects. Mr Madden was of the view that a "workplace and specialist make-good company" would have been a cheaper option. Growthbuilt was selected in a competitive tender in which three companies were invited to tender. Growthbuilt's price was the lowest price submitted. It was also lower than the price estimated by Mr Stuart-Robinson, a qualified and experienced quantity surveyor who costed the works set out in the tender prepared by Colliers. I do not accept the plaintiff's argument that Growthbuilt was an inappropriate building contractor for Rigby Hall to select. There is no suggestion that the works performed were in any way defective. Again, there was no obligation upon Rigby Hall to seek out the cheapest possible price. The obligation was to make reasonable decisions, and I am satisfied that the decision to engage Growthbuilt was reasonable. I note that the contractor engaged by City X-Ray did not work to an adequate scope of works, was unable to complete the works in the time it was given and left the premises in a shambles and very far from being a Base Building warm shell (see Exhibit D26 Mr Stuart-Robertson's report, p 14). The extent and complexity of the works were underestimated by City X-Ray and Mr Madden. 1. The engagement of Colliers to project manage Growthbuilt's make-good work. It was argued, again on the basis of Mr Madden's opinion, that it was not necessary for Colliers to project manage Growthbuilt's work. Again, Mr Madden based his opinion on his belief that a much smaller scope of works was required under the lease than the scope of works set out in the tender documents. I reject this view. Given the actual scope of the work, I am satisfied that it was reasonable to retain Colliers to project manage the work.
2. I do not consider that City X-Ray has shown that any decision made on behalf of Rigby Hall in the process of arranging the make-good work to be done and supervising the make-good work after the departure of City X-Ray was unreasonable.

The time between the end of the lease and the beginning of the works.

1. City X-Ray vacated the premises at the end of the lease on 15 October 2021. Correspondence ensued between Rigby Hall and City X-Ray concerning, among other things, who was to remove the MRI machine. On 3 November 2021, City X-Ray informed Rigby Hall by letter that it no longer intended to remove the MRI machine from the premises.
2. Rigby Hall set about arranging for the removal of the MRI machine, and this was achieved on 18 December 2021.
3. Rigby Hall engaged Colliers in mid-November 2021 to prepare an inspection report of the premises and a proposal for project management services including the preparation of the tender package. The proposal submitted by Colliers was approved on 29 November 2021. The tender package was provided to three building companies and tenders were received on 11 and 13 January 2022. Growthbuilt was selected as the successful tenderer and a building contract was signed on 24 February 2022. The works aside from the painting were complete by 10 May 2022, and the painting was complete by 21 June 2022.

The time taken to perform the works.

1. In Mr Madden's opinion, the works that he considered to be appropriate could have been arranged and performed in less than three weeks. However, as I have said, Mr Madden underestimated the amount and complexity of the works required under the lease by a considerable extent, even when he was considering the works required to return the premises to a Base Building warm shell. He simply had not informed himself adequately of the extent of the City X-Ray fit-out, how much of it was still in place and the extent to which City X-Ray had changed the landlords' services.
2. City X-Ray has not proven that the time taken to arrange and perform the work was the product of any unreasonable decision by or on behalf of Rigby Hall, or constituted an unreasonable period of time in all of the circumstances.
3. About eight months elapsed between the end of the lease and the completion of the works. In its cross-claim, Rigby Hall has confined its claim to four months' rent in the sum of $174,511.88.

Was the scope of the make-good work unreasonable?

1. The scope of the make-good work performed by Growthbuilt is set out in the tender package prepared by Colliers.
2. It has been properly conceded that the scope of works included the laying of carpet on the ground floor, and that this item was not required of City X-Ray under the terms of the lease. Rigby Hall has suggested that an appropriate allowance for the Suite 1 carpet is $30,000, and has submitted that this amount should be deducted from its cross-claim.
3. It was Mr Madden's evidence that, in his opinion, a much more limited scope of make-good works was required under the lease. I reject that opinion. It was based upon a series of errors as to the meaning of clauses 8.1, 8.3 and 8.4 of the lease, as I have set out above at [111]-[129]. Mr Madden conceded some of those errors under cross-examination. He simply misread or misunderstood the relevant provisions of the lease.
4. Colliers had regard to the applicable terms of the lease when it prepared the scope of works for the tender package. City X-Ray has not challenged any particular item or group of items of the scope of works other than by way of the evidence of Mr Madden, which I reject.
5. City X-Ray has not established that any aspect of the scope of works was unreasonable or was not required to be performed under the applicable terms of the lease. The cost of the provision and laying of the carpet on the ground floor will, however, be excluded.
6. It was argued by City X-Ray that Rigby Hall bears an onus of proof with respect to the scope of the work performed for the purposes of establishing City X-Ray's allegation of breach of contract. I reject that contention. It is contrary to both the common law and to s 140 of the Evidence Act 1995.

Was the price of the make-good work unreasonable?

1. City X-Ray challenged Mr Stuart-Robertson's estimation of the cost of the make-good works. It was argued that the basis for Mr Stuart-Robertson's estimation was not made out, and that, therefore, his opinion should not be accepted.
2. Mr Stuart-Robertson, who was not required for cross-examination, said, in his report, that in calculating the costs of the works, he used the Colliers scope of works in the tender documents, information gleaned on a site inspection and the Buildsoft Global Estimating package, which, he said, is "widely used in the construction industry and is to verify the order of costs of the tenders received". He also said that he had relied on his experience of costs as a contractor and a quantity surveyor.
3. In his report, Mr Stuart-Robertson said that he has been a member of the Australian Institute of Quantity Surveyors for nearly 50 years. He has been a partner of Hollis Partners, Quantity Surveyors, for more than 40 years. He was also a partner of a major construction company for many years and, in that role, reviewed many tenders. He has been involved in many make-good projects and refurbishments in the City of Sydney as a contractor.
4. Mr Madden based his opinion on Rawlinson's which is a reference book which, I accept, is frequently used in construction estimates. I do not consider that there is any relevant difference between Mr Madden's reliance on Rawlinson's and Mr Stuart-Robinson's use of the Buildsoft Global Estimating package. Neither aid to costing is required to be further explained in Court before the figures used by a quantity surveyor based on the aid may be accepted. Both experts have exercised their expertise in choosing the appropriate costs. I reject City X-Ray's challenge to Mr Stuart Robinson's cost estimates.
5. Mr Madden went through the exercise of costing the Colliers scope of works (see Exhibit P15). He was taken through his estimates in cross-examination. It was clear that his estimates had been undertaken with a view to minimising the cost arrived at. He made assumptions, such as that a jackhammer would be available on site. He assumed that the building contractor could formulate the scope of works and make decisions about where services should be placed. He assumed capacity in the landlord for a degree of supervision. He minimised the time that work would take, and he underestimated the extent of much of the work; for example, the painting and the work required to remove glue and uneven topping from the concrete ground floor. Mr Madden's approach was unstructured and uncoordinated, and focussed on the works in a task-by-task manner. It was not a suitable approach in all of the circumstances.
6. Two building contractors submitted a tender for the works (including the carpet for the ground floor) in January 2022. As I have said, one price was $243,603 and one, Growthbuilt's, was $197,775.40. In the event, Growthbuilt charged Rigby Hall $209,040.11 for the performance of the works. Mr Stuart-Robinson estimated the works at a cost of $236,413 at 2021/2022 prices. Mr Madden's estimate, at $103,971.22 was well out of step with the tenders and with Mr Stuart-Robinson's estimate.
7. I reject Mr Madden's evidence as to the costing of the scope of works. It unrealistically minimised the extent and complexity of the works and underestimated the time it would take to perform various tasks and the level of expertise required to perform various tasks.
8. I accept Mr Stuart-Robertson's evidence as to the costing of the scope of the works. It is sufficiently well explained in his report and annexures and much closer to being consistent with the real-life tenders than Mr Madden's costing.
9. City X-Ray has not proven that the decision of Rigby Hall to undertake the make-good works at the cost charged by Growthbuilt was unreasonable. City X-Ray has not proven that the cost charged was unreasonable, and the evidence supports the view that the costs were reasonable. I find that the cost of the works performed by Growthbuilt was reasonable.

Were the costs of Colliers, IA Design and Watson Mangioni Lawyers Pty Ltd reasonable?

1. I have found that it was reasonable to retain Colliers to undertake project management services, including the preparation of the tender documents and the supervision of the contractor. I have found that it was reasonable to engage IA Design to prepare architectural drawings for the tender documents. No challenge has been made to the amounts charged.
2. It was clear from the weeks before 15 October 2021 that Rigby Hall and City X-Ray would be in dispute about liability under the lease for the cost of removal of the MRI machine from the premises. After 15 October 2021, it was clear that the ambit of the dispute would also include other make-good works required under the lease which had been left unfinished or undone. In those circumstances, it was reasonable for Rigby Hall to retain Watson Mangioni for legal advice and representation in relation to the dispute. Again, no challenge has been made to the amount charged, which was $14,825.
3. I find that Rigby Hall incurred the following costs arising from City X-Ray's failure to comply with its obligations to remove its property from the premises and make good the premises in accordance with the lease: 1. $3520 charged by Arup Australia Pty Ltd for a structural inspection report and certification of the ground floor slap of the building in preparation for the removal of the MRI machine. 2. $27,010.50 charged by COPE transport to remove the MRI machine from the premises. 3. $23,100 charged by Colliers for project management of the make-good process. 4. $1353 charged by IA Design for the architectural drawings for the make-good tender documents. 5. $880 charged by Better Management to remove all of City X-Ray's stickers and frosting and to clean the glass at the premises. 6. $209,040.11 charged by Growthbuilt to perform the make-good works.
4. The total of the amounts charged set out in [164] is $264,903.61 inclusive of GST.
5. In addition, I find that Rigby Hall lost rent for a period of eight months. In its cross-claim, Rigby Hall seeks to recover four months rent in the sum of $174,511.88. City X-Ray has not established that Rigby Hall made any unreasonable decision which prolonged the period of time taken to arrange and perform the make-good works, and neither has City X-Ray proven that the length of time taken was unreasonable.
6. The sum of the amount charged to Rigby Hall on account of the make-good works plus four months lost rent is $439,415.49. I subtract from that figure the amount of $30,000 on account of the inclusion in the Colliers scope of works of carpet for the ground floor, taking the figure to $409,415.49. The amount of $14,828 paid to Watson Mangioni takes Rigby Hall's total loss to $424,243.49.
7. Rigby Hall has claimed the whole of the bank guarantee, in the sum of $274,856.11. I find that it did so reasonably, and in accordance with the lease.
8. The plaintiff has failed to establish any breach of contract on the part of Rigby Hall. The plaintiff's claim will be dismissed.

Rigby Hall's cross-claim

1. I have found that the loss incurred by Rigby Hall arising from the failure by City X-Ray to fulfill its obligations under clauses 8.3, 8.4 and 8.1 of the lease at termination amounts to $424,243.49.
2. In its cross-claim, Rigby Hall alleges that City X-Ray breached clause 8.3 of the lease.
3. It is common ground that City X-Ray breached clause 8.4 of the lease by failing to remove the MRI machine. It also left air conditioner components, a speaker system, lights, false ceilings, a false floor and a ramp in the premises.
4. In its defence to the cross-claim, City X-Ray pleaded that Rigby Hall had breached clause 8.1(e) of the lease by failing to provide City X-Ray with a Condition Report in 2006 when City X-Ray moved into the premises. It is pleaded that City X-Ray should not have to pay any amount sought in the cross-claim because any loss or damage on the part of Rigby Hall resulted wholly or partly from a breach of clause 8.1(e) of the lease by Rigby Hall and/or (to summarise) Rigby Hall's loss, and therefore City X-Ray's loss was caused or contributed to by a "lack of clarity" arising from the failure to prepare a condition report in 2006.
5. Clause 8.1(e) of the lease says: The Landlord and the Tenant must jointly carry out an inspection of the Premises to review the condition of the Premises on the date the Tenant take possession of the Premises. The Landlord and Tenant must ensure that there is a single accurate record of that inspection, in the form of a condition report (Condition Report), prepared by the Landlord, and provided to the Tenant. If the Tenant does not agree to jointly carry out an inspection of the Premises on the date the Tenant take possession of the Premises, then the Tenant must allow the Landlord access to the Premises at a time agreed by the parties, (acting reasonably) for the Landlord to carry out its own inspection of the Premises, and the Tenant must accept the Landlord's written record of such inspection, as the Condition Report.
6. Clause 8.1(e) of the lease imposes obligations upon both the landlord and the tenant.
7. Mr Madden speculated on several occasions that there may have been uncertainty arising from the failure to prepare a condition report on 2006. He did not specify, however, who was uncertain and in what respect. He was not involved in the project prior to the expiration of the lease.
8. Colliers apparently experienced no difficulty in formulating a scope of works in reliance on the lease and an inspection of the premises.
9. Mr Dinnell, who was called in City X-Ray's case, and is a former employee of City X-Ray, was able to give a clear description of the premises as they were in 2006, and a clear description of the major works undertaken by City X-Ray pursuant to a Development Approval obtained from the City of Sydney.
10. Dr Barnabus Bako is the sole director and secretary of City X-Ray, and he has been a director of City X-Ray since 23 March 2005.
11. Dr Bako visited the premises prior to City X-Ray occupying the premises in 2006 and after City X-Ray performed the works pursuant to the Development Approval in 2006 (see transcript p 44).
12. Dr Bako had direct knowledge of the state of the premises in 2006 before City X-Ray took possession and after the works were performed after the commencement of the lease. He was not called to give evidence.
13. If there had been any confusion about what works were required by clause 8.3 of the lease, then Dr Bako had knowledge of the state of the premises at the relevant times in 2006. City X-Ray also presumably had records of the works undertaken by it in the premises after the commencement of the first lease.
14. Ms Martin, an employee of City X-Ray, supervised the departure of City X-Ray from the premises at the expiration of the lease (transcript p 51-53). However, Ms Martin was not called to give evidence.
15. In his statement, Mr Zadelis said, in relation to 15 October 2021 (p 102): At the time of handing back the Premises, I believed that City X-Ray had performed all of its make-good requirements under the Lease with the only exception being, the removal of the MRI Machine and the associated make good required behind that machine and in the line of travel of that machine out of the Premises.
16. No evidence was provided from anyone who was involved in the process undertaken by City X-Ray in moving out to the effect that the absence of a condition report from 2006 caused any confusion or had any impact on the decisions made with respect to the removal of equipment or the arrangements or performance of the make-good works performed by City X-Ray's contractor.
17. Much of the make-good work required by the lease to have been completed upon the expiration of the lease in 2021 involved removing the fit-out work done by City X-Ray to Suite 1 after it took possession of the premises. In those circumstances, it is not clear what relevant additional information could have been gleaned from a condition report from 2006. The nature and extent of the 2006 fit-out was within City X-Ray's knowledge.
18. City X-Ray has not proven that the absence of a condition report from the beginning of the first lease in 2006 caused or contributed to its failure to make good the premises in 2021 in any way.
19. I find that, at the expiration of the lease, City X-Ray was in breach of clause 8.3 of the lease (which, in clause 8.3(g) brought in the obligations in clause 8.1 of the lease) by failing to do the work required upon the expiration of the lease, including rectifying the damage caused to the premises by the removal of partitions, carpets, air conditioners, equipment and other infrastructure and damage caused to the basement by the removal of the wall mounted air conditioning units.
20. Rigby Hall has made out its cross-claim.
21. I reject City X-Ray's claim of an equitable set-off on account of the absence of a condition report of 2006.
22. Rigby Hall's loss amounts to $424,243.49. The amount of the bank guarantee has offset portion of that loss in the sum of $274,856.11.
23. There will be an order that City X-Ray pay damages for breach of contract to Rigby Hall in the sum of $149,387.38.

Orders:

1. The following orders will issue: 1. Judgment for the defendant against the plaintiff on the plaintiff's claim and the claim is dismissed. 2. Judgment for the defendant/cross-claimant against the plaintiff/cross-defendant on the cross-claim in the sum of $149,387.38 plus interest.
2. I will hear the parties as to costs.

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