Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings... [2007] NSWCA 7 | Case summary | Zoe

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Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd; Gumland Property Holdings Pty Ltd v Pisciuneri & Anor [2007] NSWCA 7

[2007] NSWCA 7

Court of Appeal (NSW)|2007-02-14|Before: Giles JA, Santow JA, Tobias JA, Phillips J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2007-02-14

Before

Giles JA, Santow JA, Tobias JA, Phillips J

Source

Original judgment source is linked above.

Judgment

Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.

Reported Decision: (2007) ANZ Conv R 153

Appeal Outcome: Appeal allowed by the High Court 27 March 2008 - Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited [2008] HCA 10

New South Wales

Court of Appeal

CITATION: Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd; Gumland Property Holdings Pty Ltd v Pisciuneri & Anor [2007] NSWCA 7

This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 5/12/06; 6/12/06; 7/12/06

JUDGMENT DATE:

14 February 2007

JUDGMENT OF: Giles JA at 1; Santow JA at 242; Tobias JA at 243

DECISION: A. In 40210/06 –1.Appeal allowed in part; 2.Set aside the judgment against the first defendant for the plaintiff in the amount of $2,096,574 and in lieu thereof judgment for $362,232 taking effect on 28 March 2006; 3.Set aside the order that the first defendant pay the plaintiff’s costs of the proceedings on a party/party basis and in lieu thereof order that it pay 50% of the plaintiff’s costs of the claim against it; 4.Order that the respondent pay 80% of the appellant’s costs of the appeal; B.In 40224/06 - 1. Appeal allowed; 2. Set aside the judgment in favour of the second and third defendants and in lieu thereof judgment for the plaintiff against the second and third defendants for $362,232 taking effect on 28 March 2006; 3. Set aside the order that the plaintiff pay the costs of the second and third defendants and in lieu thereof order that the second and third defendants pay the plaintiff’s costs of the claim against them; 4. Order that the respondents pay the appellant’s costs of the appeal; 5. Order that the respondents have a certificate under the Suitors Fund Act if otherwise qualified

CATCHWORDS: LANDLORD AND TENANT — Assignment, severance and sublease — Sublease — Whether sub-lessor obliged to pay rent and outgoings payable by the sub-lessee under the Sub-lease but unpaid — Privity of contract and privity of estate — Whether guarantor’s covenant runs with the land — Rent — Breach of covenant to pay — Actions to recover rent or damages — Action to recover rent — Construction and interpretation — Variation by deed — Whether a term in a Deed purporting to vary a lease is an essential term of the lease — Termination of the tenancy — Repudiation — Damages — Loss of bargain damages - GUARANTEE AND INDEMNITY — Discharge of surety — Variation of the principal contract

GILES JA: Gumland Property Holdings Pty Ltd (“Gumland”) became the lessor to Duffy Bros Fruit Market (Campbelltown) Pty Ltd (“Duffy Bros”) of premises in a shopping centre at Campbelltown. Messrs Ferdinando and Natale Pisciuneri gave guarantees with respect to the occupation of the premises. Gumland purported to terminate the lease, and claimed unpaid money and damages from Duffy Bros and recovery from the Messrs Pisciuneri as guarantors. Macready AsJ upheld the claim against Duffy Bros and gave judgment against it, including interest, for $2,096,514. He dismissed the claim against the Messrs Pisciuneri.
Duffy Bros appealed against the judgment, as to liability and in one respect as to quantum. Gumland appealed against the dismissal of its claim against the Messrs Pisciuneri. Many issues were raised by the grounds of appeal and by notices of contention, and the submissions were extensive. Some submissions were said to be unavailable on appeal because they had not been made at the trial.
In my opinion, Duffy Bros’ appeal should be upheld in part and the judgment against it should be reduced to $362,232; and Gumland’s appeal should be upheld and there should be judgment against the Messrs Pisciuneri for the same amount. In coming to these conclusions, it has not been necessary to decide all the issues raised by the parties. A. Facts
The evidence at the trial went in part to matters not raised as issues on appeal. The course of events and the provisions of documents material to the issues on appeal were as follows. The lease from Transit
By a lease under the Real Property Act, 1900, the copy of which in evidence is undated (“the Lease”), Transit Management Pty Ltd (“Transit”) as Lessor leased to Duffy Bros as Lessee Shop 10 in the Marketfair Campbelltown Shopping Centre (“the shopping centre”) for a term of fifteen years commencing on 30 March 1993 and expiring on 29 March 2008, with an option to renew for a further ten years. The Lease was registered U318066 on 2 June 1994.
In the interpretation clause of the Lease the definition of “Lessor” was “the Lessor its successors and assigns and where the context permits its servants or agents”, and the definition of “Lessee”, perhaps with an interpolation, was - “ … the Lessee and the executors administrators successors and permitted assigns of the Lessee and the ‘Lessee’s agents’ shall mean servants agents contractors subcontractors invitees licensees sub-tenants and also any persons claiming through or under the Lessee and sub-tenant.”
The base rent under the Lease was $245,343 per annum payable by monthly instalments in advance. The rent was subject to annual CPI increases and to a five yearly market review. In addition, the Lessee was required to pay 19.65 per cent of the Lessor’s outgoings in respect of the shopping centre, by equal monthly instalments in advance based on an estimate notified by the Lessor to the Lessee for each twelve month period from 1 July, and with adjustment at the end of each period.
By cl 3 the Lessee covenanted to pay the rent and other monies “hereby secured” within seven days of the day on which each monthly instalment of rent fell due or the other monies became payable. Clause 7.1 provided that covenants thereafter specified were “essential terms of this Lease”, and by cl 7.1.1 the covenants included that in cl 3; it is appropriate to set out cl 7.1 in full - “7. ESSENTIAL TERMS OF LEASE

Duffy Bros ceased to conduct its fruit and vegetable market at about this time; precisely when it ceased was not clear, but there is no reason to conclude that it was prior to 16 June 2002. It seems that a meat market conducted by a licensee from Duffy Bros continued trading at Shop 10, but the business was unprofitable and conduct of the meat market also ceased in about December 2002. Duffy Bros’ fixtures and fittings and other equipment (cash registers, cool rooms, shelving, display units et cetera) were left in place, according to Mr Natale Pisciuneri so that Duffy Bros could recommence trading if shopper numbers improved at the shopping centre.
Duffy Bros continued to pay the Higher Rents in respect of Shop 10. There was no evidence that, after the letter of 14 June 2002, Gumland again told Duffy Bros that it was in breach because it was not carrying on business at Shop 10, or complained that it was not trading at Shop 10. Woolworths acts unilaterally
At the end of April 2002 Woolworths asked for a meeting with Gumland “to discuss Woolworths entering into a direct lease with Gumland Holdings over the premises that is currently occupied by our BWS store.”
By a letter dated 9 May 2002 it informed Duffy Bros that it would not be exercising its option to renew the Sub-lease from 1 August 2002. It said in the letter that its preference was to negotiate a direct lease with Gumland “but unfortunately, the owners have advised that they are not in a position at present to consider a direct lease with Woolworths”. It offered to take a new sublease from Duffy Bros on terms which it set out. The terms included rent of $50,000 per annum plus GST, about half the rent under the Sub-lease.
Duffy Bros gave a holding response on 27 May 2002; so far as appears, it gave no further written response.
Woolworths renewed negotiations with Gumland. On 19 June 2002 it wrote to Gumland - “Thank you for your time on Wednesday 12 June 2002 to discuss Woolworths Limited’s future tenure within Campbelltown Marketfair.

Commencing with the rent for August 2002, Woolworths paid rent at the “adjusted” rate. It paid direct to Gumland, see below as to payment arrangements.
That Woolworths could not obtain a direct lease from Gumland provided no justification for unilateral adjustment of the rent payable under the Sub-lease. It was a stark breach by Woolworths of its obligations to the company which it acknowledged as its “legal sub-lessor”.
Woolworths’ short payment nonetheless does not appear to have brought a strong reaction. According to Mr Chan Kwok Cheun, Gumland’s leasing manager, Gumland had “spoken to them that they were not paying the correct rental they are paying half rental unilaterally”, but he was no more specific. According to Mr Kevin Roach, the administration manager for Duffy Bros, in the later part of 2002 he attended a meeting with Gumland representatives and its solicitor at which he said that, on his reading of the 1999 Deed, Duffy Bros was not liable for rent unpaid by Woolworths, and the solicitor said, “We have a different reading of the Deed and we believe Duffy Bros is liable for the full rent”. The evidence did not show greater protest to Woolworths, or greater insistence that Duffy Bros pay to Gumland the amount of rent unpaid by Woolworths; the strong flavour is that this did not occur. Payment arrangements during this period
By letters dated 5 December 2001 to Duffy Bros and Austie, the solicitors for Transit advised that Shop 10 and Shop 10A respectively had been “sold and transferred” to Gumland on that day and “[a]ll rental payments from that date must be made directly to the Purchaser or as directed by them”. This continued the error in the Contract, treating the Sub-lease as a lease from Transit.
It was not clear in the evidence whether Austie had been paying its rent direct to Transit.
From 21 December 2001 to 16 June 2003 Gumland invoiced Duffy Bros with respect to Shop 10, at the rate appropriate to the Higher Rents under the 1999 Deed. As I have indicated, Duffy Bros paid the Higher Rents in accordance with the 1999 Deed.
From 21 December 2001 to 19 March 2002 Gumland invoiced “Liberty Liquor”, Austie’s trading name, with respect to Shop 10A, and from 15 April 2002 to 18 August 2003 it invoiced Duffy Bros. From some rather unclear correspondence, it appears that in early April 2002 it was arranged that Gumland would invoice Duffy Bros and Duffy Bros would invoice Woolworths with a notation authorising and directing it to pay direct to Gumland. At all times after the transfer of the Sub-lease the rent payable thereunder was paid by Woolworths direct to Gumland; no rent was paid by Woolworths to Duffy Bros. Gumland purports to terminate the Lease
On or about 3 July 2003 Gumland served on Duffy Bros a notice headed “Notice to Remedy Breach of Lease – Outstanding Rent”. The notice read - “ Lease to Duffy Bros. Fruit Market (Campbelltown) Pty Limited (‘Lessee’) Registered Lease No. U3180669 (‘Lease’) Premises: Shop 10 in the centre known as Market Place at the corner of Tindall Street, Kellicar Road and Menangle Road, Campbelltown, New South Wales (‘Premises’)

The issue was raised at the trial as a submission that there had been surrender by operation of law of Duffy Bros’ lease in respect of the area of the Sub-lease, with Woolworths becoming a tenant at will of Gumland under a deemed monthly tenancy by virtue of s 127 of the Conveyancing Act 1919. Referring to Konica Business Machines Australia Pty Ltd v Tizine Pty Ltd (1992) 26 NSWLR 687 at 689, the trial judge asked whether there was abandonment by the tenant and an unequivocal indication by the landlord that it no longer regarded the lease as in existence. After describing the correspondence of May-July 2000, he concluded that Gumland had acted “consistently with the existence of that part of its Lease to Duffy Bros as is comprised in the Sub-lease for shop 10A” and that it was “hard to see that there had been any abandonment of the premises by Duffy Bros”, and that there had not been surrender by operation of law (at [40], [41]).
The submissions on appeal focussed on creation of a new tenancy rather than partial destruction of the old, although they must go together.
It will be recalled that cl 10 of the Sub-lease provided for holding over as monthly tenant. Duffy Bros submitted that Woolworths did not hold over pursuant to cl 10, because it was paying a reduced rent and, contrary to the terms of the Sub-lease, was paying it direct to Gumland. It said that Gumland “consented to its remaining in occupation on that basis”, so that the Sub-lease no longer governed Woolworths’ occupation of Shop 10A, and (in effect) that from 1 August 2002 cl 10.2(c) of the 1999 Deed had nothing on which to bite.
While Woolworths was paying the “adjusted” rent, by its letter of 11 July 2002 to Duffy Bros it made clear that what it adjusted was the monthly rental payable to Duffy Bros as Woolworths’ “legal sub-lessor”. It said it would hold over while it negotiated a direct lease with Gumland, the fact of negotiating a direct lease in the context of the course of correspondence negating a then direct tenancy between Gumland and Woolworths even under a tenancy at will.
Gumland did not consent to Woolworths remaining in occupation on the basis of a direct relationship of lessor and lessee. By its letter of 2 July 2002 it declined to enter into a direct relationship until it had resolved the “Head Lease issue”, and it can not be taken to have agreed to a direct relationship of landlord and tenant as to Shop 10A while Duffy Bros remained, as it did, the lessee of Shop 10A under the Lease. Although the evidence was not specific, Gumland did complain to Woolworths that it was not paying the correct rental, meaning the rent under the Sub-lease rather than the “adjusted” rent, and Mr Roach’s evidence shows that Gumland made known to Duffy Bros in the latter part of 2002 that it believed Duffy Bros was liable for the full rent. In due course Gumland formally claimed payment by the notice of 3 July 2003. Although payment was made by Woolworths direct to Gumland, that was under an arrangement continued from well prior to August 2002 and with Gumland invoicing Duffy Bros and Duffy Bros invoicing Woolworths. The invoices were for the Sub-lease rent, not the “adjusted” rent.
For Duffy Bros’ submission to succeed there had to have been a surrender of the Lease in respect of the area of the Sub-lease and creation of a direct relationship of lessor and lessee between Gumland and Woolworths, or a tripartite consensual re-arrangement to the same effect. The evidence did not support either, and in my opinion Duffy Bros’ submission was without substance. There was not a fresh tenancy between Gumland and Woolworths from 1 August 2002, and Woolworths was holding over under the Sub-lease. Entry into the Sub-lease pursuant to cl 4 of the 1999 Deed?
Clause 4.2 of the 1999 Deed required that it be a term of any sub-lease that the sub-lessee should pay all rents and outgoings thereunder direct to Transit (“a direct payment term”). The Sub-lease did not have a direct payment term. The trial judge declined to hold that this meant that the Sub-lease was not “entered into pursuant to clause 4 of this Deed” within the meaning of cl 10.2(c) of the 1999 Deed, so that again cl 10.2(c) had nothing on which to bite.
In the course of noting the submissions of the parties on this issue and the cases to which they referred, the trial judge said that the evident purpose of the term contemplated by cl 4.2 was to minimise the risk to the head lessor that the rent referable to Shop 10A might be paid by the sub-lessee to Duffy Bros and not paid by Duffy Bros to the head lessor. He expressed the view that the departure from the 1999 Deed “is not substantial and is in respect of a term which was for the sole benefit of the head lessor” and that the Sub-lease conformed to the area authorised by the 1999 Deed. He concluded - “54 Having regard to these matters and the evident purpose of clause 10 of the Deed, namely, to ensure that the benefit of the rent under the sub-lease which was to be granted later was to accrue to the lessor, I think that the sub-lease was granted pursuant to clause 4 notwithstanding the omission of the term in 4.2.”
Duffy Bros submitted on appeal that cl 4.2 was an important provision, for the benefit not only of Transit as head lessor but also of Duffy Bros because, in the light of cl 10.2(c), it was a safeguard against exposure of Duffy Bros to an increase in liability under cl 10.2 of the 1999 Deed. Where Transit was by cl 4 of the 1999 Deed and the supplementary power of attorney of 2 March 1999 effectively given control of sub-leasing the hatched area in the plan marked ‘C’, it said, Transit’s powers should be construed strictly, so that a direct payment term as contemplated by cl 4.2 was necessary to the outcome of the exercise of its powers and to the consequent imposition of an obligation by cl 10.2(c).
Gumland submitted that cl 4 of the 1999 Deed did not exclude entry by Duffy Bros into a sub-lease with a sub-lessee which it, rather than Transit, had located, and that it was incorrect to approach cl 4 as giving control to Transit. It said that a direct payment term was indeed only for the benefit of Transit, and that Duffy Bros’ exposure under cl 10.2 was the same whether or not there was the term because it had to pay rent which the sub-lessee did not pay whether the payment should have been direct to Gumland or should have been to Duffy Bros. It referred to Habel v Tiller (1929) SASR 170, to which it had referred the trial judge, in which the Full Court of the Supreme Court of South Australia held that the words “pursuant to” were capable of a wide meaning, including acts done in intended or substituted performance as well as acts done strictly in performance of an agreement. And it said, although it did not make clear the relevance to the meaning of the words, that strictly the failure to include a direct payment term in the Sub-lease was that of Duffy Bros by its attorneys.
The Sub-lease was entered into in performance of the parties’ agreement, in cl 4 of the 1999 Deed, that a sub-lessee would be sought for what became Shop 10A. Transit was not given dominating control, but was certainly given power to enter into a sub-lease through the appointment of its directors as Duffy Bros’ attorneys for that purpose, and the agreement extended to the exercise of the power to enter into a sub-lease. Transit exercised the power in performance of the agreement. Performance was defective to the extent that the Sub-lease did not contain a direct payment term, but as in Habel v Tiller “pursuant to” readily extended to what was there called (at 176) a “substituted mode of performing the written contract”.
I do not think that inclusion in a sub-lease of a direct payment term was essential, so that in its absence there was not performance of the agreement. Clause 4.2 did not state a condition of achieving a valid sub-lease, but an expectation of a term that “will be” in the sub-lease; perhaps only an expectation in the event that Transit’s directors exercised their power. The agency in cl 4.1 and the expectation in cl 4.2 were “for the purpose of putting this agreement into effect”, both for the benefit of Transit, and cl 4.2 was in truth no more than Duffy Bros’ agreement that Transit could put a direct payment term in any sublease it entered into in the exercise of the power given to it. A direct payment term did not give a practical benefit to Duffy Bros, which for the reasons given in relation to the next issue was liable to Transit for rent in relation to Shop 10A once it was sub-leased.
In my opinion, the Sub-lease was entered into pursuant to cl 4.2 of the 1999 Deed.
I add that Gumland submitted that that, even if the Sub-lease did not contain a direct payment term, an equivalent to a direct payment term was put in place by the arrangements whereby Duffy Bros’ invoices to Woolworths authorised and directed it to pay direct to Gumland. This arrangement does not seem to have been put in place until well after the entry into the Sub-lease, and in any event I do not think it could take the place of a term of the Sub-lease if the term was essential to the status of the Sub-lease as entered into pursuant to cl 4. Obligation to pay rent payable under the Sub-lease but unpaid?
The trial judge said, referring to the High Court’s explanation of the phrase “obligation under this lease” in Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 249, that “under any such sub-lease” in cl 10.2(c) meant “created by, in accordance with, pursuant to or under authority of” the Sub-lease.
Turning to the submissions in relation to limiting the words in the circumstances in which the 1999 Deed came about, his Honour said - “58 On the question of the true construction the submissions were as follows: ‘(d) It is submitted that by reason of clauses 4.1 and 4.2 the true construction of clause 10.2(c) is that only rent received by Duffy Bros from the sub-lessees would have to be paid by Duffy Bros to Transit (or its successor).

Referring then to the admissibility of evidence of surrounding circumstances as discussed in Codelfa Contruction Pty Ltd v State Rail Authority (1982) 149 CLR 337, his Honour said - “62 In the present case I think that the language of the clause is not ambiguous and accordingly there is no call to consider the surrounding circumstances. In any event the surrounding circumstances referred to in the submissions do not support the construction advanced by Duffy Bros.”
Duffy Bros submitted on appeal that, in requiring that it should pay to Transit “all rent and outgoings under” the Sub-lease, cl 10.2(c) was what it called an accounting provision. It said that it was obliged to account for, in the sense of pass on to Transit, rent and outgoings paid by the sub-lessee to it, but had no greater obligation itself to pay rent and outgoings should the sub-lessee fail to pay. It submitted that the introductory words of cl 10.2, requiring that Duffy Bros pay “sums”, were significant; and that, picking up the rent and outgoings in cl 10.2(c) which, by regard to cl 4.2 of the 1999 Deed were to be paid directly to Transit, the cl 10.2(c) amount was any sum by way of rent and outgoings which happened to be paid to Duffy Bros. It said that the absence of any time frame for payment supported this construction, and that where there was a sub-lease it was contrary to fundamental concepts that it as sub-lessor should be liable to pay to the head lessor rent or outgoings payable by its sub-lessee; it put this a different way in submitting that there was nothing in cl 10.2 to make it a surety for the sub-lessee.
In my opinion, there is no substance in these submissions. Clause 10.2(c) ensured that Transit would be paid by Duffy Bros an equivalent amount to the rent and outgoings payable under a sub-lease if, contrary to an expected direct payment term, the sub-lessee did not pay Transit. It was concerned with payment of what was not paid, not with passing on what was paid.
It was not correct that Duffy Bros was liable as sub-lessor to pay its sub-lessee’s rent and outgoings, or to liken it to a surety for the sub-lessee. It was liable as lessee for the cl 10.2(c) amount. Duffy Bros remained the lessee from Transit of the area of the original Shop 10, which included Shop 10A. The 1999 Deed changed the timing and amount of what it had to pay “for rent and outgoings payable by Duffys under the Lease”, but whatever it had to pay was still for rent and outgoings for the whole of what became Shop 10 and Shop 10A. It was recognised in cl 3 of the 1999 Deed that Duffy Bros would occupy only part of the premises, the area which became Shop 10, and that the area which became Shop 10A would if possible be sub-leased. Apart from the arrears the subject of cl 10.2(a), until such time as Shop 10A was sub-leased Duffy Bros was to pay for rent and outgoings the Higher Sums the subject of cl 10.2(b). The purpose of cl 10.2(c) was that, when Shop 10A was sub-leased, there should also be payable by Duffy Bros for rent and outgoings the cl 10.2(c) amount, an amount referable to the rent and outgoings for which the sub-lease provided but payable for rent and outgoings payable under the Lease. In short, if the right to possession of Shop 10A became remunerative because Shop 10A was sub-leased, then what Duffy Bros had to pay was correspondingly increased.
The true accounting provision would have been a direct payment term. If the sub-lessee failed to pay, Duffy Bros as the sub-lessor was the party entitled to sue for the rent and outgoings. Duffy Bros submitted that Transit could sue as third party beneficiary; that is at best doubtful, and it may be observed that, while parties to leases do not always do sensible things, it would not have been sensible for Transit to accept under the 1999 Deed a doubtful ability to sue the sub-lessee as a third party beneficiary in lieu of a clear right of action against Duffy Bros. Yet that was the result of Duffy Bros’ submissions.
In my opinion, Duffy Bros was obliged to pay to Transit rent payable under the Sub-lease but unpaid. Enforcement by Gumland?
Duffy Bros’ submissions on appeal included that there was no privity of contract between Gumland and Duffy Bros, only privity of estate, and that the 1999 Deed was “a side agreement in respect of which rights and obligations under cl 10.2 did not run with the land”. They also included that the operation of s 117 of the Conveyancing Act had been excluded, relying in particular on cl 50 of the Contract, and that its operation in any event did not entitle Gumland to recover loss of bargain damages. It was for a time not clear whether by the submissions Duffy Bros contended also that Gumland could not enforce the 1999 Deed by suing for the cl 10.2(c) amount.
In its contentions filed in answer to the contentions in Gumland’s summons Duffy Bros had asserted that Gumland was bound by the 1999 Deed. At the trial its counsel had said, during the opening by Gumland’s counsel, “We are content to see the case approached on that basis, that this deed [the 1999 Deed] ran with the land and bound both the plaintiff and the defendant”. The trial was conducted on the basis that Duffy Bros was obliged to pay to Gumland, and Gumland was entitled to be paid by Duffy Bros, whatever sums were properly payable pursuant to cl 10.2(c) and 10.2(d) of the 1999 Deed. Gumland submitted that Duffy Bros should not be permitted to depart on appeal from the basis on which the trial had been conducted in this respect.
The issue was resolved in Duffy Bros’ submissions in reply in the appeal. While maintaining its position that s 117 of the Conveyancing Act did not avail Gumland, Duffy Bros said - “Should Duffy Bros be held to have breached the sub-clause [cl 10.2(c)] it accepts that it would have a liability under the sub-clause enforceable by Gumland via Transit (because under the 1999 Deed Duffy Bros agreed with Transit that it would pay clause 10.2 amounts to Transit or its successors in title and, by its letter of attornment, Transit directed Duffy Bros to pay Gumland) and Duffy Bros does not submit that the non-joinder of Transit in the proceedings precludes a judgment on that liability being made in favour of Gumland.”
I doubt that Duffy Bros should have been permitted to depart from the basis on which the trial had been conducted. It is unnecessary to comment on Duffy Bros’ reasons for its acceptance of exposure to liability in the submissions in reply. By concession, Gumland could enforce cl 10.2(c) of the 1999 Deed. Conclusion
It follows from the determination of these issues that Duffy Bros was liable to Gumland for constituent (i) in the judgment, the amount of the shortfall in payment by Woolworths payable under cl 10.2(c) of the 1999 Deed. D. Payment of rent and outgoings under cl 10.2(d) of the 1999 Deed

Duffy Bros submitted on appeal that the agreement embodied in cl 10.2 of the 1999 Deed did not operate to vary the Lease, but was by way of a side agreement which suspended the obligation to pay rent and outgoings under cl 3 of the Lease and provided a separate regime of payment “for” rent and outgoings payable under the Lease; it said that “for” meant in lieu of such rent and outgoings. The separate regime could bring the same result if the cl 10.2(d) amount became payable upon breach in accordance with cl 10.1, or if breach as at 29 March 2008 meant that the proviso did not apply, it said, but it was still a separate regime, and that it was separate was underlined by the references in cl 10.1 and the proviso to breach of the 1999 Deed as something separate from breach of the Lease. Hence, according to the submission, while there could be a Scheduled Breach of the Lease within cl 10.1 in a respect other than the payment of rent and outgoings, failure to pay the cl 10.2(c) amount was not a breach of the Lease and therefore not a Scheduled Breach of the Lease.
Duffy Bros further submitted that the operation of the 1999 Deed as a side agreement was explained by its cl 15, providing for confidentiality, indicating that the parties intended that there be a side agreement rather than variation of the Lease in order that third parties (presumably particularly having other tenants in the shopping centre in mind) would not know of the arrangement to which they had come for continuing their commercial relationship. It said that this was underlined by the fact that the only registered variation of lease was that giving effect to cl 11 of the 1999 Deed, which itself was the only provision of the 1999 Deed expressly referring to variation.
Gumland submitted that the trial judge was correct in his view that the cl 10.2(a), (b) and (c) amounts and, subject to cl 10.1, the cl 10.2(d) amount in the 1999 Deed were varied rent and outgoings payable under the Lease. It said that the 1999 Deed was plainly ancillary to, and could not operate independently of, the Lease, and by its cl 2 recorded that subject to its terms the parties ratified and affirmed the terms of the Lease. The amounts payable under cl 10.2 were expressly for rent and outgoings payable by Duffy Bros “under the Lease”, the proviso referred to acceptance of the cl 10.2(a), (b) and (c) amounts in satisfaction of rent and outgoings “payable by Duffys under the Lease”, and these words made clear that the amounts were by variation of what had been payable under the Lease and that “for” was a word of equivalence rather than substitution.
That there was properly a variation of the Lease, Gumland said, was evident from the effect of cll 3 and 4 of the 1999 Deed in varying the user covenant in cl 14 of the Lease and from the express reference in cl 11 to the Lease being “further varied” by the deletion of cl 21 of the Lease. Further, Gumland said, “Scheduled Breach of the Lease” would have no content in relation to either payment of rent and outgoings or user unless the 1999 Deed varied, rather than suspended, the covenants to pay rent and outgoings and the user covenant.
I do not think that this issue is to be resolved by characterisation as variation or something other than variation. As I have said, the 1999 Deed changed the timing and amount of what Duffy Bros had to pay “for rent and outgoings payable by Duffys under the Lease”, and that could aptly be described as a variation of the Lease because Duffy Bros’ obligations changed: at least as to timing and, depending on cl 10.1 and the proviso, also as to overall amount. To say that there was a suspension of the obligations under the Lease did not mean much, because with the change something had to happen to them. Suspension does not seem to me to be correct, because on any view they would not come back to life: if there were acceleration under cl 10.1 or the proviso did not operate, the timing would still have changed. However, the true question is one of the meaning of “Scheduled Breach of the Lease”.
The definition, to repeat, was “a breach of the Lease as defined in paragraph 7 of the Lease as essential terms of the Lease”. That takes one to para 7 of the Lease, which identified particular clauses of the Lease as essential terms of the Lease, relevantly (by cl 7.1.1) - “The covenant to pay rent throughout the lease term at a date not later than seven (7) days after the due date for the payment of each monthly instalment of rent and any other monies payable under the terms of this Lease (clause 3);”
Was failure to pay the cl 10.2(c) amount a breach of the covenant described in cl 7.1.1? In my opinion, the answer is no. It was a breach of the promise in cl 10.2 of the 1999 Deed to pay the cl 10.2(c) amount. The definition of “Scheduled Breach of the Lease” took up numbered clauses of the Lease as found in cl 7.1, not their subject matter independently of the numbered clauses. The source of Duffy Bros’ obligation to pay the cl 10.2(c) amount was cl 10.2. It was not cl 3 of the Lease.
In my opinion, failure to pay the cl 10.2(c) amount was not a Scheduled Breach of the Lease. Failure to pay – notice of breach subsisting for seven days?
To repeat from the trial judge’s [70] set out above - “A breach of the deed does require seven days notice before the acceleration provisions in clause 10.1 apply. Although a notice of breach in respect of non-payment was said to be given on 3 July 2003 it did not purport to be notice of a breach of the deed and therefore would not be sufficient to accelerate the payments.”
Gumland submitted that notice of breach of cl 10.2(c) of the 1999 Deed was given by the notice of 3 July 2003, and that the breach subsisted for seven days and more thereafter, so that there was breach of the 1999 Deed within cl 10.1; and that the trial judge was in error in holding that the notice of 3 July 2003 was not notice of breach of the 1999 Deed because it did not purport to be such a notice.
In my opinion, the submission should be accepted. Clause 10.1 did not require any particular form of notice, and although the notice of 3 July 2003 did refer in its heading to the Lease and did allege “default under the terms of the Lease” the default was, and could only have been understood as, referable to default under cl 10.2(c) of the 1999 Deed. The Total Rental to which the notice referred was the rent payable under the Sub-lease, and the Total Rental Received to which it referred was Woolworths’ “adjusted” payments. Particularly when, at the meeting of which Mr Roach gave evidence, Gumland had asserted and he had disputed that Duffy Bros was obliged to pay the shortfall in Woolworths’ payments of rent under the Sub-lease, the notice was and would have been understood as a demand that Duffy Bros pay, and necessarily notice of breach by failure to pay, the cl 10.2(c) amount.
The purpose of the seven days notice was to give an opportunity to rectify the breach of which notice was given. As can be seen from the holding of the trial judge, it was understandable that failure to pay the cl 10.2(c) amount should be regarded as default under the terms of the Lease, but what mattered for Duffy Bros was notice that it was in default in payment of the shortfall in Woolworths’ payment of rent under the Sub-lease. Attribution by reference to the Lease rather than to the 1999 Deed, which in any event all concerned would have appreciated dealt with the matter in a manner which in a practical sense amounted to a variation of the Lease, did not detract from the notice. That the basis for the asserted default was cl 10.2(c) of the 1999 Deed was plain, and would have been so recognised by Duffy Bros; there was no evidence that it was mislead or in doubt.
A notice requirement such as that found in cl 10.1 is a practical instrument, and whether it is satisfied should be determined in a practical and not technical manner; here it was satisfied. In my opinion, there was notice of breach by the failure to pay subsisting for seven days. Ceasing to carry on business – a Scheduled Breach of the Lease or a breach of the 1999 Deed subsisting for seven days after notice?
It is not necessary to determine these issues, but it is appropriate briefly to explain why I do not think they should be determined favourably to Gumland.
The trial judge held that, in ceasing to carry on business at Shop 10, Duffy Bros was in breach of cl 3 of the 1999 Deed. He said that there was an obligation to carry on business in the area which became Shop 10 - “ … and that is a mandatory obligation the ambit of which would obviously include trading from the premises during ordinary business hours”.
His Honour said, however - “71 Gumland also submitted that the second breach, namely, the ceasing to trade in breach of the 1999 deed was also either a scheduled breach or a breach of the deed. I would not have thought it was a scheduled breach and in order to accelerate the payments the appropriate notice would have to be given if it was to be relied upon as a breach of the 1999 deed. Although a notice was given on 14 June 2002 referring to Duffy Bros’ proposal to cease to trade that would not be an effective notice for the purposes of the 1999 deed. This is because the breach has to subsist for a period of seven days after Transit has given notice to Duffy Bros of such breach. The ordinary construction of these words requires a breach to have occurred before notice can be given. In these circumstances the breach of the user covenant in the deed did not have the effect of accelerating the balance of the rent.”
Duffy Bros submitted on appeal that ceasing to carry on business was not a breach of cl 3 of the 1999 Deed. It said that cl 3 did not impose a mandatory obligation, and did no more than identify the new area to be occupied by Duffy Bros and to confirm that the Permitted Use in the Lease applied to that area. If it had been intended to impose a new mandatory obligation, it said, that would have been noted in the recitals and made more clear. It also submitted that an obligation to carry on business would not be breached when equipment was left in place hoping for a resumption of trade when business conditions improved.
The latter submission need only be stated to be rejected. The former submission has more substance; in my opinion it is correct. However, even if there were a breach of cl 3 of the 1999 Deed the trial judge was correct in his conclusion that it did not bring acceleration of payment of the cl 10.2(d) amount.
Gumland submitted that ceasing to trade was a Scheduled Breach of the Lease because cl 3 of the 1999 Deed amounted to a variation of cl 14 of the Lease and cl 14 of the Lease was stated in cl 7.1.4 to be an essential term. I do not think cl 3 of the 1999 Deed varied cl 14 of the Lease, because cl 14 dealt with permitted user and cl 3 dealt with obligatory user; that they both dealt with user did not mean variation, and they could stand together. In any event, for the reasons earlier given failure to carry on business was not a breach of the covenant described in cl 7.1.4 of the Lease, but of the different promise (as held by the trial judge) in cl 3 of the 1999 Deed.
Gumland further submitted that there had been notice of breach by ceasing to trade by its solicitors’ letter of 14 June 2002 and subsistence of the breach for seven days thereafter, and thus a breach of the 1999 Deed. It submitted that it did not matter that as at 14 June 2002 Duffy Bros had not ceased to conduct its fruit and vegetable market at Shop 10.
The letter of 14 June 2002 asserted breach of cl 1.18 of the Lease. Clause 1.18 of the Lease was the definition of Permitted Use. The covenant not to use for any purpose other than the Permitted Use was in cl 14.1 of the Lease, and the letter did not assert breach of the different promise in cl 3 of the 1999 Deed. In any event, the trial judge was correct in holding that the breach had to subsist at the time notice of it was given. Clause 10.1 referred to a breach, not a possible or future breach. Notice that if a thing is done it will be a breach is not notice of a breach; and even if the recipient of the notice had firmly announced an intention to do the thing, he could always change his mind and never be in breach. Acceleration void as a penalty?
Having noted the parties’ submissions and the cases to which they referred, and in particular what was said by Gibbs CJ in O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 366, the trial judge said - “82 In the present case clause 10 is dealing with either a present or past debt which is payable under the lease. It is true, as pointed out in Gumland’s submissions that there is no acceleration of any future payments because all that is dealt with is the amount up to the time of termination following upon a breach of condition. In the present case Gumland’s claim is only for the amount due under clause 10.2(d) up to the date of termination, namely, 1 August 2003. What has happened as a result of the 1999 deed was that the existing liability to make periodic payments of rent under the lease was to be less provided certain conditions were met.

Duffy Bros submitted on appeal that where the cl 10.2(d) amount was not payable until 29 March 2008, and not even then if the proviso operated, but became earlier payable by reason of breach in accordance with cl 10.1, its obligation to make earlier payment was penal and void. It said that cl 10.2 remained otherwise valid, in accordance with cl 20 of the 1999 Deed. The accelerated payment was penal, Duffy Bros submitted, because as a matter of substance - “ … the obligation upon Duffy Bros to pay money (under clause 10.2(d) read with clause 10.1 was an obligation conditioned upon a breach of contract, designed as security for performance of contractual obligations, imposing upon Duffy Bros an obligation to pay a higher amount (calculated in accordance with clause 10.2(d)) than it would otherwise be obliged to pay.”
Duffy Bros submitted that cl 10.2(d) could not be characterised in the manner to which Gibbs CJ had referred in O’Dea v Allstates Leasing System (WA) Pty Ltd at 366, as a “present debt, which, by reason of an indulgence given by the creditor, is payable either in the future, or in a lesser amount, provided that certain conditions are met”, because by cl 10.1 the amount was initially not payable until 29 March 2008 and earlier payment was expressly only by reason of breach; and, it said, the same sanction was imposed for breaches which could be of differing degrees of seriousness and with outcomes disproportionate to the acceleration of payment.
Again, I do not think there is any substance in Duffy Bros’ submissions. They failed to place cl 10.2 in its wider context.
As I have said, the 1999 Deed provided a new regime for the timing and amounts for payment of the rent and outgoings payable under the Lease. But it did so in a manner plainly intended to preserve to Transit recovery of the rent and outgoings payable under the Lease, if there was breach within cl 10.1 or if at the time of termination there was continuing breach contrary to the proviso. That is apparent from the continuance of the Lease with Duffy Bros as lessee of the area of the original Shop 10, and its ratification and affirmation subject to the terms of the 1999 Deed in cl 2 of that Deed; from cl 10.1, the effect of which was to defer payment subject to a condition; from the reference to the amounts in cl 10.2 as sums for rent and outgoings payable by Duffy Bros under the Lease; from the proviso referring to acceptance of the sums payable under cl 10.2(a), (b) and (c) in satisfaction of rent and outgoings payable by Duffy Bros under the Lease; and from the conditionality of the proviso.
The substance was that Duffy Bros remained liable for the rent and outgoings payable under the Lease, but depending on future events might not have to pay. It conditionally did not have to pay the rent and outgoings at the times and in the amounts for which the Lease provided, but was entitled to make payments at the times and in the amounts in cl 10.2(a), (b) and (c); but on one or other of the conditions expressed in cl 10.1 or in the proviso, that relief from its obligation to pay the full amount of the rent and outgoings payable under the Lease was lost. That the 1999 Deed should have that substance is unsurprising when Duffy Bros was liable for rent and outgoings under the Lease but, because trading conditions had become difficult and it was in arrears, obtained an indulgence from Transit.
In O’Dea v Allstates Leasing System (WA) Pty Ltd at 366 Gibbs CJ said - “The cases to which counsel for the first respondent referred in support of his argument that there can be no question of penalty in the present case seem to me to fall into two classes. In the first class of case, if a sum of money is payable by instalments, and it is provided that in the event of one instalment not being punctually paid the whole sum shall immediately become payable, the acceleration of payment is not a penalty: The Protector Loan Co. v. Grice ; Wallingford v. Mutual Society at pp. 696, 702, 705-706, 710. Similarly there is no penalty where it is agreed to charge a certain rate of interest on condition that if payment is made punctually the rate will be reduced ( Astley v. Weldon at p. 353) or where a creditor agrees to accept payment of part of his debt in full discharge if certain conditions are met but stipulates that if the conditions are not met he will be entitled to recover the original debt: Thompson v. Hudson at pp. 15-16, 27-28, 30; Ex parte Burden; in re Neil . In all the cases of this kind there is a present debt, which, by reason of an indulgence given by the creditor, is payable either in the future, or in a lesser amount, provided that certain conditions are met. The failure of the conditions does not mean that the creditor becomes entitled to damages; the consequence is that the sum which was always owed, but which the debtor was allowed to pay by instalments or in a smaller amount, becomes recoverable at once or in full.”
His Honour emphasised at 374 that this principle applied where there was “a present debt, a debt actually due before the breach which accelerated the payment”. See also Wilson J at 380, 380 accepting the principle of an agreement which “provided merely for the acceleration of payment of an existing debt in the event of the lessee’s default”, and Brennan J at 386.
In Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 Mason ACJ and Wilson, Brennan and Dawson JJ accepted, referring to Wallingford v Mutual Society (1890) 5 App Cas 685 at 702 and O’Dea v Allstates Leasing System (WA) Pty Ltd at 366-7, 382 and 386, that there is no penalty “if the provisions of the moratorium deed simply grant an indulgence for the payment of a debt that is due and payable”. The importance of a present debt was emphasised, and determinative, in Zenith Engineering Pty Ltd v Queensland Crane & Machinery Pty Ltd [2000] QCA 221.
In Cameron v UBS AG (2000) 2 VR 108 proceedings to enforce a Swiss judgment debt for the equivalent of $8.4 million were settled by the defendant agreeing to pay the plaintiff $1 million in five instalments, but with a provision that if the defendant defaulted in payment of any one or more of the instalments the plaintiff could apply for reinstatement of the proceedings and the entry of judgment for $8.4 million. The defendant was late in paying the first instalment. The plaintiff applied for the entry of judgment for the $8.4 million. It was held that the provision for entry of judgment was not penal, because by the settlement the defendant had acknowledged that the $8.4 million was payable and it was a case of the kind referred to by Gibbs CJ in O’Dea v Allstates Leasing System (WA) Pty Ltd.
All members of the court said that there was an initial obligation to pay the $8.4 million, and that the deed was not an agreement to pay $1 million but was (in the words of Phillips JA at [20]) ‘a bargain about the enforcement of the Swiss judgment’. There was no question of pre-estimation of damage or a penalty to compel payment of the $1 million, but rather (again in the words of Phillips JA at [20]) ‘the sum payable upon default is already due and owing and the chance to pay a lesser sum or on terms is being afforded as a privilege or indulgence’.
In the present case there was not wholly a present or existing debt as at 2 March 1999, the date of the 1999 Deed. The arrears of rent and outgoings the subject of cl 10.2(a) was a present debt, but the future rent and outgoings under the Lease was not.
However, the future rent and outgoings was in my opinion within the reasoning of the principle of which Gibbs CJ spoke in O’Dea v Allstates Leasing System (WA) Pty Ltd. The distinction between an admitted debt and a disputed debt, as in Cameron v UBS AG, is matched by a distinction between an admitted obligation and a disputed (or un-established) obligation. There can be a privilege or indulgence to pay less or on terms to discharge an admitted obligation. In the present case there was a present and existing obligation to pay the rent and outgoings which would become payable under the Lease, at the least as each rental month arrived. The futurity in cl 10.2(d) was not beyond termination of the Lease, so that the rent and outgoings which could be called up in the cl 10.2(d) amount were in my view in the same position as a present or existing debt.
I do not think it was submitted that cl 10.2(d) was penal because it made immediately payable, if cl 10.1 had operation, all rent and outgoings to the date of termination of the Lease. I do not think it did so. If there were an operative breach prior to 29 March 2008, the rent and outgoings payable under the Lease to 29 March 2008 would not necessarily be known; it could depend on CPI increases or reviews. Clause 10.2 provided for payment of the sums to which it referred “for rent and outgoings”, and the cl 10.2(d) amount was the rent and outgoings payable up to the operative breach and thereafter periodically as necessary to top up the aggregate of the cl 10.2(a), (b) and (c) amounts to the rent and outgoings periodically payable under the Lease.
In my opinion, the acceleration of payment of the cl 10.2(d) amount was not void as a penalty.
Gumland submitted also that, even if cl 10.2(d) was penal, it was entitled to recover from Duffy Bros an equivalent amount as rent and outgoings payable under the Lease. It said that cl 10.1 provided for deferral of payment only of any amount due from Duffy Bros under cl 10.2(d), and that the underlying obligation to pay the rent and outgoings under the Lease remained and Duffy Bros was relieved from it only if the proviso operated, which had not occurred because 29 March 2008 had not yet arrived; so there was no impediment to recovery of the rent and outgoings payable under the Lease. It is sufficient to say that cl 10 impeded recovery of the rent and outgoings payable under the Lease, by making the part thereof the subject of cl 10.2(d) conditionally payable only on 29 March 2008, and it was necessary that recovery be found within the regime of the 1999 Deed. Conclusion
It follows from the determination of these issues that Duffy Bros was liable to Gumland for constituent (ii) in the judgment, the rent and outgoings payable under cl 10.2(d) of the 1999 Deed up to 1 August 2003. D. Damages for loss of bargain
Subject to an over-arching issue, and apart from whether there was breach by failure to pay Gumland the shortfall in payments by Woolworths, the issues raised were - (a) whether breach by the failure to pay was of an essential term of the Lease, entitling Gumland to terminate it; alternatively

The over-arching issue was raised by Duffy Bros’ submissions that Gumland had no privity of contract with it, only privity of estate, and that s 117 of the Conveyancing Act did not bridge the gap to create privity of contract. It submitted that the agreement upon essential terms in cl 7.1 of the Lease was not an agreement to which it was party, so that there could not be contractual essentiality entitling Gumland to terminate the Lease; and it submitted that even if Gumland had validly terminated the Lease, in the absence of privity of contract Gumland could not recover loss of bargain damages. Section 117 of the Conveyancing Act did not bridge the gap, it said, because cl 50 of the Contract amounted to an agreement between Transit and Gumland to exclude its operation, and because in any event s 117 did not give rise to statutory privity of contract as distinct from privity of estate or, if it did, the statutory privity of contract did not survive termination of the Lease.
Gumland submitted that these submissions were not available to Duffy Bros on appeal, because the trial had been conducted on the basis that there was privity of contract between Gumland and Duffy Bros and if it had been an issue at the trial it could possibly have adduced evidence to establish privity from communications between Gumland and Duffy Bros: Coulton v Holcombe (1986) 162 CLR 1. It sought to rely on affidavit evidence from Mr Liam Copley of Gumland’s solicitors to the effect that he did not seek out evidence of that kind because privity of contract was not in issue, and that he would have done so if it had been in issue. Duffy Bros objected to receipt of the affidavit by this Court, ultimately on grounds of relevance.
The submissions, on what privity existed between Gumland and Duffy Bros and its effect on termination and damages for loss of bargain, and also on whether privity of contract had been in issue at the trial or could now be raised, were quite detailed and lengthy. I note the submissions, but for reasons which will appear it is not necessary to decide these matters. The affidavit evidence of Mr Copley should not be received, because it is not relevant to disposal of the appeal.
I also note that Duffy Bros’ submissions included that the Lease came to an end not by termination but when, at or about the time of the purported termination, Gumland and Duffy Bros acquiesced in it being treated as at an end. It was common ground that the Lease came to an end, but I do not accept that it was by surrender found in acquiescence. The stances in the letters in August 2003 were anything but acquiescent. Either Gumland validly terminated the Lease, as it purported to do, or its purported but invalid termination was a repudiation which was accepted by Duffy Bros by its solicitors’ letter of 18 August 2002. (a) Failure to pay – breach of an essential term of the lease?
The trial judge said - “84 Gumland submitted that the ordinary principles of contract law, including those regarding termination for breach of essential terms or for repudiation, apply to leases - see Liristis v Wallville [2001] NSWSC 428 per Barrett J; Shevill v The Builders Licensing Board (1982) 149 CLR 620 at 625-7; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 29-31 per Mason J (with whom Wilson and Deane JJ agreed in general, and Dawson J agreed).

Duffy Bros repeated on appeal its submission that the 1999 Deed was a side agreement which suspended the obligation to pay rent and outgoings under the Lease, and said that the trial judge was in error in describing cl 7 of the Lease as including payment of the amounts described in cl 10.2 of the 1999 Deed. According to the submission, there was no breach of the covenant to pay rent in cl 3 of the Lease, but at most a different breach of cl 10.2 of the 1999 Deed, and so no breach of a term relating to payment of rent declared essential by cl 7.1 of the Lease; and it followed that there was no entitlement to terminate the Lease for breach of an essential term.
By cl 7.1.1 of the Lease, the covenant in cl 3 was an essential term of the Lease. Agreement that it was an essential term entitled the lessor to terminate for its breach, see Shevill v The Builders Licensing Board (1982) 149 CLR 620 at 627 per Gibbs CJ - “It is clear that a covenant to pay rent in advance at specified times would not, without more, be a fundamental or essential term having the effect that any failure, however slight, to make payment at the specified times would entitle the lessor to terminate the lease. However, the parties to a contract may stipulate that a term will be treated as having a fundamental character although in itself it may seem of little importance, and effect must be given to any such agreement: see Wickman Tools v. Schuler A.G. at p. 251. In other words, a right to forfeit a lease might arise ‘in the case of any breach of covenant however trifling, if the parties had agreed that a breach of that covenant should create a forfeiture’: Campbell v. Payne and Fitzgerald at p. 539.”
See also Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 7 at 29-30, 54 and Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [123]-[128].
Was failure to pay the cl 10.2(c) amount breach of a term which the parties had agreed was essential? The issue is related to whether there was a Scheduled Breach of the Lease within cl 10.1 of the 1999 Deed. For the reasons given in relation to whether there was a Scheduled Breach of the Lease, I do not think there was a breach of the covenant described in cl 7.1.1 of the Lease, being the covenant in cl 3 of the Lease. It was a breach of the promise in cl 10.2 of the 1999 Deed to pay the cl 10.2(c) amount. The promise to pay the cl 10.2(c) amount was a promise to pay different amounts at different times from those payable under cl 3 of the Lease. The breach was not breach of a term which the parties had agreed was essential.
Gumland gains no assistance from cl 14 of the 1999 Deed. Even if time were of the essence for payment of the cl 10.2 amounts, failure in timely payment did not make out breach of an essential term of the Lease. It is not necessary to consider whether, on privity grounds, Duffy Bros had not agreed with Gumland upon essentiality.
In my opinion, Gumland was not entitled to terminate the Lease for breach by the failure to pay. (b) Ceasing to carry on business – breach of an essential term of the Lease?
The trial judge said - “87 The second breach, relating to ceasing to trade, was a breach of clause 3 of the 1999 deed. In terms the deed did not make that an essential term of the deed and in the deed the specific provision in clause 14 that time is of the essence for payments by Duffy Bros is a strong indicator that the parties did not regard clause 3 as an essential term.

As earlier indicated, I do not think that cl 3 of the 1999 Deed imposed a mandatory obligation; for that reason alone, there was no breach of an essential term of the Lease.
That is also the position even if cl 3 imposed a mandatory obligation.
Gumland again submitted that cl 3 of the 1999 Deed amounted to a variation of cl 14 of the Lease, and that, since cl 14 was stated in cl 7.1.4 to be an essential term of the Lease, cl 3 of the 1999 Deed should similarly be regarded as an essential term. For the reasons given in relation to a Scheduled Breach of the Lease, there was not a variation of cl 14, and in any event failing to carry on business was breach not of the covenant described in cl 7.1.4 of the Lease but of the different promise (as held by the trial judge) in cl 3 of the 1999 Deed.
Gumland further submitted that cl 3 of the 1999 Deed should be held to be an essential term even if not so agreed through cl 7.1.4 of the Lease. It submitted that in commercial contracts substantial and important provisions were prima facie treated as essential terms unless the contrary intention was manifest, referring to Bowes v Chaleyer (1923) 32 CLR 159 at 196 and Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [125]-[126].
In Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR NSW 632 Jordan CJ said at 641-2 - “The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v Booth ; Bettini v Gye ; Bentsen v Taylor Sons & Co (No 2) ; Fullers’ Theatres Ltd v Musgrove ; Bowes v Chaleyer ; Clifton v Coffey . If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge. In some cases it is expressly provided that a particular promise is essential to the contract, eg, by a stipulation that it is the basis or of the essence of the contract: Bettini v Gye ; but in the absence of express provision the question is one of construction for the Court, when once the terms of contract have been ascertained: Bentsen v Taylor Sons & Co (No 2) ; Clifton v Coffey .” (citations omitted)
This test for whether a term is essential or non-essential has been adopted by the High Court in, for example, Associated Newspapers Ltd v Bancks (1951) 83 CLR 322; DTR Nominees Pty Ltd v Mona Homes Ltd (1978) 138 CLR 423; Shevill v The Builders Licensing Board and Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549.
The contracts in Bowes v Chaleyer and Burger King Corporation v Hungry Jack’s Pty Ltd were very different from the Lease and its associated agreements. The passage in Burger King Corporation v Hungry Jack’s Pty Ltd refers only to time stipulation in contracts; it also emphasises that it depends on the proper construction of the contract. I do not think these cases support Gumland’s submission; the test in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd should be applied.
In my opinion, cl 3 of the 1999 Deed was not an essential term. Gumland did not explain in its submission why it was an essential term. From the submission recorded by the trial judge, a suggested reason was that it would be difficult to prove damages in the event of breach, presumably having in mind that in 2002 Gumland asserted that Duffy Bros was “the anchor tenant of the Centre”, see its solicitors’ letter of 31 May 2002 (although Duffy Bros denied that assertion in its solicitors’ reply of 12 June 2002). It is difficult to see cl 3 as a promise of such importance to Transit that it would not have entered into the 1999 Deed without it, when it had entered into the Lease without it. The new regimes involved Duffy Bros occupying a reduced area, but that did not give a promise to carry on business additional importance. I do not think that, on the assumption that it was promissory as found by the trial judge, cl 3 was an essential promise in the 1999 Deed; or, if it was a variation of the Lease by addition of obligatory user to permitted user, of the Lease as varied.
It is not necessary to consider whether there was variation or whether, on privity grounds, Gumland was not entitled to terminate the lease for breach by ceasing to carry on business. (c) Entitlement to recover loss of bargain damages upon termination for breach of an agreed essential term?
Duffy Bros submitted that the application of “ordinary contractual principles” to leases in accordance with Progressive Mailing House Pty Ltd v Tabali Pty Ltd did not extend to authorisation of loss of bargain damages upon termination for breach of an agreed essential term, as distinct from repudiation or breach of a term which was truly essential apart from the parties’ agreement. It said that, to the extent that Karacominakis v Big Country Developments Pty Ltd decided to the contrary, it was wrongly decided. I do not describe the development of the submission, or the submissions in answer to it; the issue need not be decided, since there was not a valid termination for breach of an agreed essential term. (d) Termination for repudiation?
The nub of the trial judge’s holding, after reference to the conventional principles upon which repudiation of a contract is to be ascertained, was - “98 If the situation had been one where Duffy Bros had ceased to pay all rent and also ceased to trade it would seem to be clear that this would constitute a repudiation of the terms of the lease. The question involved, however, is whether the additional factor in this case, namely, that the substantial part of the rent payable under the lease and deed was paid to the lessor, Gumland, leads to a view that the conduct of Duffy Bros was not a repudiation.

If there had been repudiation by Duffy Bros, Gumland did not purport to terminate the Lease for that reason. The notice of 1 August 2003 was expressly “as a result of your failure to pay arrears of rent”. However, I do not accept Gumland’s submission that the trial judge was in error in declining to hold that Duffy Bros repudiated the Lease.
In Shevill v The Builders Licensing Board at 625-6 Gibbs CJ said that a contract may be repudiated - “ … if one party renounces his liabilities under it – if he evinces an intention no longer to be bound by the contract … or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way.” (citations omitted)
This passage was taken up in The Progressive Mailing House Pty Ltd v Tabali Pty Ltd at 33, 40 and in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634, 643, 664. In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd there was also taken up at 658, 666 the description of repudiatory conduct by Fullagar J in Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at 351, as conduct such that “a reasonable man could hardly draw any other inference than that the building owner does not intend to take the contract seriously, that he is prepared to carry out his part of the contract only if and when it suits him”.
Whether the conduct is repudiatory is not decided by reference to the party’s subjective intention, but by reference to how it would appear to a reasonable person in the position of the other contracting party: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 643, 647-8, 657-8, 666. But, as was emphasised in Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291, the party’s conduct must be evaluated in all the circumstances, and conduct may not be repudiatory if, for example, the party acted on a misapprehension of his contractual rights and obligations but was “willing to recognise his heresy once the true doctrine is enunciated or … to accept an authoritative exposition of the correct interpretation”: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432 per Stephen, Mason and Jacobs JJ; see also Ross T Smyth & Co Ltd v T D Bailey, Son & Co (1940) 3 All ER 60 at 71-2 and Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462 at 479.
Gumland submitted that as at 1 August 2003 Duffy Bros was not carrying on business from Shop 10, in breach of cl 3 of the 1999 Deed which, as earlier described it said was an essential term. Duffy Bros was in default in payment of rent, the rent unpaid by Woolworths, in a substantial amount, and the cessation of trading had subsisted for many months and the arrears of rent had been accruing since August 2002. An empty shop, it said, would be detrimental to the shopping centre, and over five years remained of the term of the Lease. It said that the area of Shop 10 was about 13 per cent of the total lettable area of the shopping centre, a figure which Duffy Bros did not controvert. It submitted that by its solicitors’ letter of 14 June 2002 Gumland had told Duffy Bros that ceasing to conduct the business of a fruit and vegetable market would be a breach of the permitted use of the premises, which although incorrect conveyed to Duffy Bros that Gumland considered that Duffy Bros was obliged to continue to trade, and that the notice of 3 July 2003 made express that Gumland regarded failure to pay the amount demanded as a breach of the Lease. In those circumstances, Gumland submitted, by continuing not to trade at Shop 10 and by not paying the rent demanded of it Duffy Bros had evinced an intention to fulfil its contract only in a manner substantially inconsistent with its obligations under the Lease and not in any other way.
Repudiation of a contract “is a serious matter, not to be lightly found or inferred”: per Lord Wright in Ross T Smyth & Co Ltd v T D Bailey Son & Co at 71. That an inference of repudiation is not lightly to be inferred was endorsed in The Progressive Mailing House Pty Ltd v Tabali Pty Ltd at 32 and Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 633, 643, 657.
By its solicitors’ letters of 24 April and 12 June 2002 Duffy Bros made plain that it intended to perform the lease, and it left its plant and equipment in place. Repudiation is not obviated by assertions of good intent, but it is relevant that thereafter Gumland does not appear to have complained to Duffy Bros that it was not trading at Shop 10; nor did it rely on that as a ground for determination of the Lease in July-August 2003. Similarly, the meeting with Gumland representatives and its solicitor of which Mr Roach gave evidence communicated a difference of opinion on Duffy Bros’ liability for rent unpaid by Woolworths, but thereafter Gumland does not appear to have pressed the matter until the notice of 3 July 2003.
For the reasons earlier given, I do not think that cl 3 of the 1999 Deed imposed a mandatory obligation, but even if it did and was regarded as a variation of the Lease it was not of an essential character. Duffy Bros was paying the Higher Rents. A reasonable person in the position of Gumland would have appreciated that it was not paying the rent unpaid by Woolworths because of a view of its liability for the cl 10.2(c) amount different from that of Gumland, but until the notice of 3 July 2003 without great complaint from Gumland; for the best part of a year Gumland let that situation exist. In all the circumstances, Duffy Bros’ conduct was not repudiatory. (e) Assessment of loss of bargain damages?
Gumland was not entitled to loss of bargain damages, and this issue need not be decided.
In the course of Gumland’s submissions there was passing mention of cl 16 of the Lease as a basis for recovery of an equivalent to loss of bargain damages. I do not understand Gumland to have relied on cl 16 for that purpose, or on cl 7.3, 7.4 or 7.5, and its notice of contention did not raise reliance on these provisions. Clause 16 required that the Lease was “determined consequent upon default of the Lessee”, which for the foregoing reasons did not occur, and the sub-clauses of cl 7 required breach of an essential term of the Lease, repudiation, or breach of a covenant of the Lease, which also did not occur. It is not necessary to consider Duffy Bros’ anticipatory submissions, additional to the over-arching issue concerning privity of contract, that cll 16 and 7.3, 7.4 and 7.5 so far as they purported to entitle recovery of future rent or loss of bargain damages (which Duffy Bros described as “anti-Shevill clauses”) were void for uncertainty or because they were penal. Conclusion
It follows from the determination of these issues that Duffy Bros was not liable to Gumland for constituent (iii) in the judgment, the damages for loss of bargain. F. The costs of making the premises good and re-leasing them
The trial judge dealt with this briefly - “157 The claim for these costs consist of the costs of preparing the premises for reletting ($43,146), commission payable to agents for locating new tenants ($18,671) and legal fees re new tenants ($1,575), making a total of $63,392.25.

It follows from what I have said that I do not think these costs were recoverable by Gumland as damages. Duffy Bros accepted that the costs would be recoverable under cl 16 of the Lease if the Lease was validly terminated by Gumland for breach by Duffy Bros. For the reasons earlier given, I do not think it was.
In the hearing of the appeal there was raised whether cl 8.8 of the Lease entitled Gumland to recover part of the costs. Duffy Bros pointed out that the trial judge’s acceptance of the costs was relevantly as costs of preparing the premises for re-letting, language found in cl 16 of the Lease, rather than as costs of making good damage from, by or through the lessee’s machines, plant, fixtures or fittings within cl 8.8. Gumland did not seek to support the $42,164.09 as costs of making good damage within the words of cl 8.8, and it is not clear in the light of the letters of 4, 13 and 14 August 2003, and the evidence that a lot of the equipment was still in Shop 10 in 2005, what damage within cl 8.8, if any, was made good.
In my opinion, Duffy Bros was not liable to Gumland for constituent (iv) in the judgment, the costs of making good the premises and re-leasing them.
In the hearing of the appeal there was also raised whether, if the Lease was terminated by Duffy Bros’ acceptance of Gumland’s repudiation by its solicitors’ letter of 18 August 2003, Gumland was entitled to rent and outgoings to 18 August 2003 as part of the cl 10.2(c) and (d) amounts. The amounts awarded by the trial judge were calculated to 31 July 2003. The parties agreed that, if calculated to 18 August 2003, the $57,415 became $60,193.15 and interest became $22,287.24m a total of $82,287.24 in lieu of $78,635; and the $215,724, a total of $82,287.24 became $235,115.13 and interest became $73,865.93, a total of $308,981.06 in lieu of $238,597.
Duffy Bros submitted that the calculations should be to 1 August 2003 because Duffy Bros was thereafter excluded from Shop 10. Gumland submitted that they should be to 18 August 2003 because, if the Lease did not come to an end until that date, the liability to pay rent and outgoings also continued, and according to the written submission it “dispute[d] that Duffy Bros was excluded from the premises on 1 August 2003 and contend[ed] that Duffy Bros had already vacated the premises some 12 months earlier”.
Duffy Bros had ceased to carry on business at Shop 10, but it had not vacated. It left plant and equipment in place, and remained entitled to possession. On the uncontested evidence of Mr Roach, it was denied entry. The letters from Gumland’s solicitors demanding removal of chattels and fittings and fixtures and carrying out work were well short of allowing possession, and were in any event negated by the instructions conveyed by the shopping centre manager to Mr Roach. The calculations should remain as calculations to 1 August 2003. G. Lia b ility of the Messrs Pisciuneri as guarantors
The trial judge accepted, with particular reference to Holme v Brunskill (1878) 3 QBD 495 at 505-6 and Ankar Pty Ltd v National Westminister Finance (Australia) Ltd at 558-9, that any departure from the terms of a guarantee or from the principal transaction by the creditor without the guarantor’s consent discharged the guarantor, unless the departure was obviously and without inquiry unsubstantial (“the discharge principle”). The departure in question was variation of or departure from the principal transaction because the Sub-lease did not contain a direct payment term. The trial judge held that the Messrs Pisciuneri were discharged from their obligations as guarantors because, contrary to cl 4.2 of the 1999 Deed, the Sub-lease did not contain a direct payment term.
The trial judge said - “179 If one looks at the obligations which the guarantors were guaranteeing after the 1999 deed and their confirmatory deeds executed at the same time one sees that the guarantors are guaranteeing to the lessor the payment of ‘all monies now or hereafter to become payable to the lessor or by reason of the use or occupation of the said premises….’.

The trial judge turned to whether cl 10(a) or cl 11(c) or (j) of the 1994 Guarantee excluded the operation of the discharge principle. He considered that cl 10(a) did not, because it addressed inconsistency with provisions of the guarantee and did not extent to variation of the principal contract. As to cl 11(c) and (j), he said - “188 It was suggested that the proviso to sub-clause (c) by its use of the word ‘paragraph’ applied to the whole of paragraph 11 but I do not think this is correct. Clearly the reference should be taken as a reference to the particular sub-clause. So far as sub-clause (j) is concerned the relevant inquiry is whether it waives any variation of the agreement for which the guarantor is liable. In the second part of the clause the words used contemplate the making of any agreement. In the ordinary course an ‘agreement’ would encompass a variation of the terms of the original contract. However in the context of guarantees it is to be borne in mind that a question often arises as to whether a subsequent agreement between the principal and the creditor amounts to the formation of a new contract rather than a variation of the original agreement. If the former applies there is not normally a discharge of the guarantee. In these circumstances it seems to me that the clause under consideration is merely referring to this principle. Having regard to the principles of discharge by variation without the guarantor’s consent, the proper construction of the clause, it being construed strictly and contra preperem [sic: proferentem], I would construe the word ”agreement” in sub-clause (j) as not encompassing a variation of the original contract the subject of the guarantee.”
The trial judge then considered submissions concerned with the term of operation of the 1994 Guarantees, see their cl 4. He resolved that matter adversely to the Messrs Pisciuneri. It was not raised on appeal, and need not be further considered.
The trial judge finally turned to Gumland’s reliance on the indemnities in para 3 of the 1999 Guarantees and para 3 the 1999 Confirmations. He said - “201 The principles applicable to construction of guarantees (which are favourable as a matter of interpretation to the guarantor) apply to indemnities: See Andar Transport v Brambles (2004) 78 ALJR 907 [2004] HCA 28 at para 23.

The note records that his Lordship held that the rule in Holme v Brunskill applied because the building contract a payment under which was secured by the bond was varied. An appeal from his decision was allowed, reported as Wardens and Commonalty of the Mystery of Mercers of the City of London v New Hampshire Insurance Co (1992) 2 Ll R 365, on the ground that the bond was not a guarantee of performance of the building contract and in any event the variation to the building contract was unsubstantial. The Court of Appeal did not comment on a course of dealing.
Stewart v M’Kean was an early illustration of a guarantee of the kind to which Phillips J referred. In that case the guarantee was of a person’s “intromissions as your agent”. The accounting required of the person as agent was thereafter altered. It was held that the guarantor remained liable. Alderson B said (at 687; 612) that even with the changed accounting the person’s activities remained within meaning of “intromissions” in the guarantee.
In Sanderson v Aston the plaintiff sued on a bond given by the defendant for faithful accounting by a person taken into the plaintiff’s service as “clerk and traveller”. The terms of service were not further stated. A plea that the defendant was discharged because the terms of service had then been varied from termination on one month’s notice to three month’s notice, was held bad, with observations that the terms of service had not been made the basis of the surety’s contract (per Kelly CB at 76) or were not made part of the surety’s agreement (per Piggott B at 78 and Pollock B at 79).
In National Westminster Bank plc v Riley it was held that the breach of the principal contract was unsubstantial, but with reference by May LJ at 276 to discharge where there was departure from a term of the principal contract “which has been ‘embodied’ in the contract of guarantee”.
In Commonwealth Bank of Australia v McArthur [2003] VSC 31 Dodds-Streeton J said of the discharge principle - “194 The special principle has application in cases where a particular liability is guaranteed, but it is altered or varied without consent, or the surety has certain contractual rights which are disregarded.

In Bakarich v Commonwealth Bank of Australia [2004] NSWSC 283 at [282]-[285] Nicholas J adopted these observations and applied them to guarantees and a mortgage containing “all moneys” clauses. His Honour observed at [283] that guarantees and mortgages of that kind “are intended to operate in a highly practical commercial setting and their scope should be determined with reality in mind”.
I respectfully have some difficulty with “embodiment” of the principal contract in the contract of guarantee, but it is a way of directing attention to what has been guaranteed, and that is the point of the paragraph in Halsbury founded on City of London v New Hampshire Insurance Company.
O’Donovan and Phillips, Modern Contract of Guarantee at 7.170 notes the cases to which I have referred without casting doubt on them. The learned authors suggest, however, that once a specific contract is made it may be that “the guarantee obligation is crystallised and a subsequent variation means that the obligation in its altered form is not that which is guaranteed”.
In my opinion, the approach described by Phillips J by reference to a contemplated course of dealing is correct in principle. The reason for discharge of a guarantor is that, with the variation of the principal contract, there has been an alteration without his consent in the guarantor’s obligations; see Ankar Pty Ltd v National Westminster Finance (Australia) Ltd at 558-90. The alteration comes when there is variation of what the guarantor has guaranteed, and it is necessary to determine what was guaranteed before it can be said that there has been variation in what he has guaranteed. If what was guaranteed extended to the varied principal contract, then there is no occasion for the guarantor to be discharged from liability. Indeed, a similar approach underlies provisions commonly found in guarantees to the effect that the guarantor is not discharged by any variation of the principal contract. These provisions preserve the guarantor’s liability. They extend what was guaranteed to the varied principal contract.
The 1994 Guarantees were striking in the scope of what was guaranteed. Clause 2 began with monies payable to the Lessor. The reason for monies being payable did not specify the Lease, indeed was not confined to a lease but extended to monies payable “by reason of the use or occupation of the said premises” and monies payable “by reason of any provisions of any relevant lease”. “Any relevant lease” was any lease relating to the use or occupation of Shop 10. The clause expressly extended to money payable whether by the Lessee or by any other person. “Lessee” had an expanded meaning, referring to Duffy Bros until it assigned its right of occupation of the premises with the consent of the Lessor and thereafter to any occupant of the premises. By cl 3, the term of operation of the 1994 Guarantees was effectively so long as anyone was in possession of the original Shop 10 with the consent of Duffy Bros.
What was guaranteed was clearly, even extravagantly, not described by regard to the Lease, or any particular tenancy arrangement, but by regard to occupation of Shop 10 by or with the consent of Duffy Bros. Assuming that the Lease was varied by the 1999 Deed, even without the 1999 Confirmations the payments required by cl 10.2 of the 1992 Deed were monies payable to the Lessor within cl 2 of the 1994 Guarantees. Assuming also, as was the basis for the trial judge’s decision in this respect, that the 1999 Deed and consequently the Lease was then further varied or there was departure from the Lease when the Sub-lease did not contain a direct payment term, the payments required by cl 10.2 of the 1992 Deed were still monies payable to the Lessor within cl 2 of the 1994 Guarantees. They were monies payable by reason of the use or occupation of Shop 10 and by reason of a relevant lease. Whether the use and occupation was pursuant to the Sub-lease and whether the Sub-lease was with or without a direct payment term was immaterial to what was guaranteed.
Accordingly, what was guaranteed extended to the situation that came about, a Sub-lease without a direct payment term, and the language of cl 2 was such that the suggestion in O’Donovan and Philips earlier mentioned does not apply.
It is not necessary to consider issues (c), (d) or (e). It remains to consider issue (f), whether Gumland was not entitled to enforce the guarantees because it was not in privity of contract with the Messrs Pisciuneri.
The trial judge did not deal with this issue. The Messrs Pisciuneri conceded at the trial that Ryde Joinery Pty Ltd v Zisti (1997) 7 BPR 97 638 was authority that a covenant by way of guarantee could “touch and concern the land” and be enforced by the assignee of the reversion without express assignment, but reserved the right to argue on appeal that the decision was wrong.
In Ryde Joinery Pty Ltd v Zisti at 15,237-8 Cohen AJA, with whose reasons Priestley and Cole JJA agreed, noted cases suggesting that a guarantor’s covenant did not run with the land, and continued - “There have been a number of more recent decisions to the contrary, although they must depend on the wording of the guarantee in each case. In Kumar v Dunning [1989] QB 193 the Court of Appeal held that a successor in title could sue the guarantors of the payment of rent by a lessee. This was approved by the House of Lords in P & A Swift Investments v Combined English Stores Croup Plc [1989] 1 AC 632. In that case, Lord Oliver at 642 set out four matters which, without claiming that they were exhaustive, he considered provided a satisfactory test for whether a covenant touches and concerns the land. These were:
The covenant benefits only the reversioner for the time being, and if separated from the reversion ceases to be of benefit to the covenantee.
The covenant affects the nature, quality, mode of user or value of the land of the reversioner.
The covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations of a specific tenant).
The fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, to or in relation to the land.

The guarantee in the 1994 Guarantees was also clearly intended to run with the land, see recital B and the definition of “Lessor”. The Messrs Pisciuneri submitted on appeal that this was changed with the 1999 Confirmations, because they were expressed to be made with Transit rather than with Transit and its successors, and referred to covenants with and guarantees in favour of Transit rather than with and in favour of Transit and its successors. There is nothing in this. The 1999 Confirmations affirmed the 1994 Guarantees. They referred only to Transit, but that was descriptive rather than substantive and the breadth of the 1994 Guarantees was not cut down.
The Messrs Pisciuneri further submitted on appeal that the decision in Ryde Joinery Pty Ltd v Zisti was incorrect, but did not present any argument in support of error or, apart from the submission in the preceding paragraph, that the decision did not apply in the present case. Following Ryde Joinery Pty Ltd v Zisti, Gumland was entitled to enforce the guarantees.
Although neither Gumland nor the Messrs Pisciuneri made any submissions concerning it, Gumland may in any event have been entitled to succeed against the Messrs Pisciuneri by reason of the Deed of Assignment of the guarantees of 5 May 2005. H. The result
Gumland’s judgment against Duffy Bros should be reduced to constituents (i) and (ii), a judgment for $362,232 in lieu of $2,096,514; the substituted judgment should take effect on 28 March 2006, on which date the trial judge’s orders took effect. The Messrs Pisciuneri are liable to Gumland for that amount, and the judgment against them should also take effect on 28 March 2006.
Duffy Bros has partly succeeded in its appeal, to a significant monetary extent. In my opinion a just disposition of costs on the appeal should reflect the monetary result, and Gumland should be ordered to pay 80% of those costs. As to the costs of the trial, Gumland succeeded in its claim although not for the full amount. However, Duffy Bros resisted the proposition that it was required to make any payment at all. In the circumstances my opinion a just disposition is that Duffy Bros should pay 50% of Gumland’s costs of the trial. The costs may be set off against each other. Gumland has succeeded in its appeal, and Messrs Pisciuneri should be ordered to pay its costs of the claim against them at the trial and Gumland’s costs of the appeal, and they should have a certificate under the Suitors Fund Act. Orders
I propose the orders - A. In 40210/06 – 1. Appeal allowed in part.
Set aside the judgment against the first defendant for the plaintiff in the amount of $2,096,574 and in lieu thereof judgment for $362,232 taking effect on 28 March 2006.
Set aside the order that the first defendant pay the plaintiff’s costs of the proceedings on a party/party basis and in lieu thereof order that it pay 50% of the plaintiff’s costs of the claim against it.
Order that the respondent pay 80% of the appellant’s costs of the appeal.