Reasons
58The question for determination in respect of grounds 1 and 2 of the notice of appeal (and the corresponding paragraphs of the notice of contention) is whether her Honour erred in the determination as to how loss of bargain damages should be calculated in circumstances where the lessor (Gigi) had re-entered the property and had continued operating a business from that property rather than re-leasing the property. Mr Pritchard relies on Buss JA's statement of the test in Luxer Holdings (at [40]), as being the relevant test in the present case.
59Gigi's position, in essence, is that, while it accepts that the starting point, for, or ordinary measure of, loss of bargain damages for repudiation or breach of an essential term of a lease involves consideration of the market value of the lease at the time of its termination (T 10.5), there are special circumstances in the present case which have the result that its losses should be measured by reference to the profits it obtained by re-taking possession and operating the hotel business from the property not by reference to its then rental value. Those special circumstances are, as I understand Gigi's argument, to be found in its need to maintain the hotel licence (by reference to which it may be presumed the value in the hotel lease lay) and the acceptance by the tenant of the "risk" that the landlord would, as it was entitled under the lease to do, choose not to re-lease the premises but to take over the operation of the hotel business itself on an early termination of the lease for breach of an essential term.
60In effect, Gigi's position is that it is not required to take into account the value to it of the early termination of the lease otherwise than by reference to the profits made by it from operating the business, and that it is able to seek damages on the test articulated by Buss JA, with whom Wheeler JA agreed, in Luxer Holdings without adducing any evidence as to what the market rent for the premises was at the time of termination of the lease and without making any attempt to find an alternative tenant (and licensee) for the premises.
61It is submitted by Mr Pritchard that the approach adopted by the primary judge would have the effect of requiring the lessor, in order to be entitled to damages, to do something which was not contemplated by the lease, namely to seek to re-let the hotel to a third party or, if not so minded, to obtain evidence of the market rent even though the lessor in occupation was not obliged and may have had no intention to re-let the premises; and that Gigi's damages would on that approach be limited to any amount that could be shown to be referable to a decrease in the market rent.
62In summary, Mr Pritchard submits that, in circumstances where the hearing took place after what would otherwise have been the expiry of the term of the lease on 3 July 2010; where the lease provided that the ownership of the business conducted from the demised premises was vested in Gigi once it re-took possession of the premises; and where there was evidence from Mr Gerzilis of the lack of an alternate lessee, the appropriate measure of damages was that articulated by Buss JA in Luxer Holdings at [40]. As noted earlier, Mr Pritchard also points to the absence of any allegation by Mr Schmidt that Gigi had failed to mitigate its loss.
63It is certainly the case that the claim for loss of bargain damages in the present case came to be determined after the expiry of what would, but for its earlier termination, have been the initial term of the lease. Hence, the case falls within the second of the scenarios considered by Buss JA in Luxer Holdings. However, the other factual propositions on which Mr Pritchard relies for the adoption of the Luxer Holdings measure of damages are not uncontentious.
64Much weight was placed by Mr Pritchard on the provisions of the lease relating to the hotel licence, gaming entitlements and business name associated with the hotel premises, which I have set out above. As well as the fact that the lease contemplated that on termination of the leasehold interest the lessor would be entitled to carry on the operation of the hotel premises itself, reference was made to the requirements of ss 61 and 141 of the Liquor Act 2007 (NSW). Those statutory provisions made it necessary for the hotel business to continue in operation from the premises, and for a licensee to be appointed under the Act, on the taking of possession of the hotel by Gigi, if the benefit of the hotel licence was to be maintained.
65However, Gigi was not obliged, on the termination of the lease (whether that be by effluxion of time or otherwise), itself to assume the conduct of the hotel business. Clause 13 expressly contemplated that the lessor might appoint another licensee of the hotel premises in those circumstances. The deemed vesting in the lessor on the termination of the lease of the business name associated with the hotel and the provisions that operated to ensure its ability to operate the hotel business (without dispute by the lessee as to any entitlement to the business name or other rights associated with the operation of the hotel business), are consistent with the lessor being placed in a position either to take up the operation of the business itself or to re-lease the premises to another licensee to do so. In either event, what the lease provisions ensured was that on termination of the lease the lessee had no ongoing rights in relation to the hotel licence, business name or associated entitlements and hence the lessor was free to operate (or to license someone else to operate) the hotel business unimpeded.
66Although the provisions of the Liquor Act no doubt cast a commercial imperative on the lessor to ensure continuation of use of the hotel licence by an appropriate licensee, there was no evidence in the present case that Gigi had no option but to do so itself. There is, for example, nothing to suggest that, in order to maintain the benefit of the hotel licence, Gigi needed to do more than to appoint a temporary licensee, or temporarily to operate the business itself, pending a decision as to the appointment of a permanent licensee.
67As to the submission that there was no alternative tenant for the premises, not only was there no more than a statement by Mr Gerzilis that he was unaware of an alternate tenant, Mr Robertson points to the submissions put before her Honour to note that it was not the case put before the primary judge that Gigi had been forced, as a matter of commercial reality, to assume the responsibility for operating the hotel business; rather its case was that it was entitled to do so (as indeed it was).
68Mr Gerzilis' evidence does not in my view support the conclusion that there was no replacement tenant for the premises. Mr Gerzilis gave evidence in general terms as to conversations that had taken place in relation to the potential sale of the leasehold interest to a Mr Brian Bonus and as to his lack of awareness of any other interested purchasers.
69In his affidavit of 25 August 2009 (Blue 218), Mr Gerzilis deposed to a conversation in relation to negotiations that Mr Gerzilis understood had been taking place between Mr Bonus and Mr Schmidt as to the purchase by Mr Bonus of the latter's interest in the lease (Blue 220F). In a subsequent affidavit of 13 August 2011 (at Blue 232), Mr Gerzilis referred to a conversation "[i]n or about start of February 2008", i.e., before the termination of the lease, with a property agent, Mr Parsons, who he said had telephoned him "to try to sell [Mr Schmidt's] interest in the Lease", in which Mr Gerzilis said he had queried Mr Parson's involvement as there was another agent selling it ([47]). Mr Gerzilis went on at [48] to depose to a conversation with another property agent, Mr Gilchrist, "regarding the sale of [Mr Schmidt's] interest in the Lease", in which Mr Gerzilis says he was told that the agent did not know what was happening with a proposed purchaser and it looked like "they don't have the money".
70At [49] of his affidavit, Mr Gerzilis deposed that the "only prospective buyer identified to [him] in respect of [the hotel] was Mr Bonus". At [50], Mr Gerzilis said that, other than Mr Bonus, Mr Gerzilis was not aware of any other party who was interested in buying Mr Schmidt 's interest in the lease of the hotel; entering into a new lease in respect of the hotel; or purchasing the freehold of the hotel.
71The last three of the above-mentioned paragraphs of Mr Gerzilis' affidavit are those to which it is contended her Honour failed to have regard in making her findings on the loss of bargain damages (appeal ground 6). In those paragraphs, Mr Gerzilis says nothing as to any enquiries he or anyone else on behalf of Gigi had made in relation to the re-letting of the premises after the termination of the lease. He gives no evidence as to any attempts made to do so. At its highest, this evidence goes no further than to show that Mr Gerzilis was aware, prior to the termination of the lease, that an agent was seeking a buyer for the leasehold interest; and, after the termination of the lease, that the prospective purchaser that had been identified might not have the money to proceed.
72Mr Gerzilis' evidence does not disclose any attempt by him to ascertain the existence of any alternative lessee: no marketing of the premises; no instructions to agents as to the re-leasing of the premises or the like. This may be contrasted with what had apparently occurred in the Luxer Holdings case and in Buchanan v Byrnes. Nor was there any expert opinion from a real estate agent as to the market value of the lease or the likely time that might be required in order to find an alternative tenant for the premises.
73As to the reliance placed by Mr Pritchard on the lack of any allegation of failure to mitigate, before any question of mitigation can arise the landlord must establish a prima facie loss. Mr Robertson submits, and I agree, that there was no evidence to establish such a loss, there being nothing to suggest that the landlord did not obtain a benefit from the early termination by then being in a position to re-lease the premises at the same or a higher rent.
74Gigi's position in this regard may be tested by reference to what would be the position if there were to be recovery on the Luxer Holdings basis but the market rental value of the premises were in fact shown to be greater than the rent payable under the lease at the time of termination of the lease. In those circumstances it is contended by Mr Pritchard that the onus would be on the tenant to adduce evidence of rental value in order to prove a failure to mitigate, namely to establish that the landlord was unreasonable in not seeking to re-lease the premises and hence that in conducting the hotel business itself the landlord's conduct was unreasonable.
75That, however, appears to be to the contrary of what was contemplated by EM Heenan AJA in Luxer Holdings in the passage cited earlier. His Honour there considered that the inference as to the rental value of the premises was available to be drawn in light of the evidence that was adduced as to attempts to re-let the premises. Here, there was no such evidence. Mr Robertson submitted that in such a scenario the lessor would have failed to demonstrate loss, as was the case here, and hence no issue as to a failure to mitigate would arise.
76Mr Schmidt's position was that it could not be said that the landlord had acted unreasonably in deciding to occupy the property, in lieu of re-letting it, since that was an option which was reasonably open to the landlord after re-entry, but that before any issue of mitigation arose it had to be shown that there was a loss.
77Insofar as Mr Pritchard seeks to rely on Buss JA's formulation in Luxer Holdings, Mr Robertson submits that the reference to "profits" in that formulation should be seen as an adoption of O'Connor J's use of that term in Buchanan v Byrnes, as subsequently repeated by Griffith CJ in Lamson and Brennan J in Progressive Mailing House; in effect as being a reference to the value of the premises as they were "thrown on" the landlord's hands - in effect, the benefit of being able to take early possession (or the remaining rental value). It is submitted by Mr Robertson that it remains necessary to ascertain the value (if any) of the right to possession that a landlord obtains by re-entering the premises and re-taking possession. I agree. In Buchanan v Byrnes the reference by O'Conner J to expense incurred in having "the place on his hands until let to another tenant" does not suggest that it would have been open to the landlord to take no steps to re-lease the premises, but simply to carry on the business and then claim the foregone rent as the expense of "having the place on his hands" for the balance of the term of the lease.
78As to the reliance placed by Mr Schmidt on Gumland Property Holdings, Mr Pritchard submits that it is distinguishable on the basis that the premises in the present case were not, as was the case in Gumland Property Holdings, "multiple use" premises (T 11.10) and because in Gumland Property Holdings the proceedings did not relate to a landlord taking possession of premises and operating a business from the premises. Mr Pritchard submits that in Gumland Property Holdings what was considered was an "orthodox" claim for damages arising out of the re-letting of the premises by the landlord at a lower rent, albeit complicated by the fact that the premises had changed in configuration when re-leased (T 28.35ff), as distinct from the present claim where the lease itself contemplated the re-taking of possession by the landlord.
79Mr Pritchard submits that the High Court cannot, in the passages relied upon by Mr Schmidt, be taken to be saying that the only measure of damages available to a landlord on termination of a lease for repudiation or breach of an essential term is the difference between the rent payable under the lease for the balance of the term less the market rent at time of termination, as this would, by a "side wind", effect a change in the law. He submits that all that was said by the High Court in that regard was that, in the particular factual circumstances there under consideration, the premises having there been re-let, that was all that was recoverable. Pausing there, even if Mr Pritchard's submission is correct, what Gumland Property Holdings nevertheless does is to cast doubt on the proposition (at [40]) in Luxer Holdings that the "normal" measure of damages for breach of an essential term or repudiation is that for which Gigi now contends, at least without any evidence of the market value of the lease or attempts to re-lease the premises from which an inference as to the market value of the lease might be able to be drawn.
80As to whether Gumland Property Holdings should be read as setting out the only basis on which damages may be assessed where a lessor retakes possession on termination of a lease for repudiation or for breach of an essential term, so as to preclude a lessor in any circumstances from obtaining loss of bargain damages by reference to the profits it has made on re-taking possession, I accept the force of Mr Pritchard's submission that what their Honours were there considering were circumstances different from those in the present case and hence the particular issue arising in this case was not that considered in Gumland Property Holdings.
81In Baker v The Queen [1975] 1 AC 774, later applied by the High Court in CSR Limited v Eddy [2005] HCA 64; (2005) 226 CLR 1 at 11 [13], Lord Diplock, delivering the judgment of the majority of the Privy Council, said (at 785):
[I]n its opinions delivered on an appeal the Board may have assumed, without itself deciding, that a proposition of law which was not disputed by the parties in the court from which the appeal is brought is correct. The proposition of law so assumed to be correct may be incorporated, whether expressly or by implication, in the ratio decidendi of the particular appeal; but because it does not bear the authority of an opinion reached by the Board itself it does not create a precedent for use in the decision of other cases.
82See also Chief Executive Officer of Customs v Tony Longo Pty Limited (2001) 52 NSWLR 458 at 474 per Heydon JA, as his Honour then was; Markisic v Commonwealth of Australia [2007] NSWCA 92; (2007) 69 NSWLR 737 at 748 [56] per Campbell JA, with whom Handley AJA and Bell J agreed; and Eleftheriou v Water Board [1991] NSWCA 91 per Clarke and Handley JJA.
83However, whether or not the statements on which Mr Robertson relies in Gumland Property Holdings amounted to seriously considered dicta, in the sense considered in Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89, is an issue that does not here need to be determined because I am not satisfied that Gigi has established that there are special circumstances to depart from what it accepts to be the ordinary basis on which damages for loss of bargain are assessed by reference to the market value of the leasehold interest.
84Mr Pritchard submits that the fact that the lease contemplated that the lessor would (or, in my view more accurately, might) choose to carry on business in its own right following the expiration or sooner determination of the lease amounts to special circumstances warranting a departure from the general rule that loss of bargain damages be assessed by reference to the market value of the premises from a rental perspective. I accept that if the landlord were, for commercial reasons, required to carry on the hotel business itself in order to maintain its hotel licence, pending attempts to re-lease the premises, then it might have a claim for those costs. However, that would depend on whether there was an alternative tenant able to be found within the time required to maintain the licence. Similarly, if the lessor were to be unable to re-lease the premises at the lease rental or an acceptable rental then it might have a claim for the whole or part of the rent foregone, against which it might be required to offset any benefits it obtained by way of trading profits in that period. However, that does not in my opinion mean that the assessment of loss of bargain damages in this case required any departure from what Gigi accepts is the ordinary starting point for the assessment of such damages.
85In the absence of evidence as to any difficulties the landlord may have had in re-leasing the premises to an appropriate licensee, it is simply not known whether the landlord has suffered any loss at all as a result of the tenant's breach of an essential term of the lease, as opposed to loss as a consequence of its own decision to retake possession and carry on the hotel business itself.
86Grounds 1 and 2 of the notice of appeal have not in my opinion been made out. I add that, since preparing these reasons I have had the benefit of reading Sackville AJA's additional observations, with which I agree.