CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH
AND DEFENCES TO ACTION FOR BREACH – where the plaintiff
entered into
contracts with the first defendant for the rental of commercial equipment
Source
Original judgment source is linked above.
Catchwords
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACHAND DEFENCES TO ACTION FOR BREACH – where the plaintiffentered intocontracts with the first defendant for the rental of commercial equipment– where the contracts were executedby the second and third defendants asguarantors of the first defendant – where the first defendant ceased
making rental payments
to the plaintiff – where the plaintiff claims
unpaid rent under the contracts from the second and third defendants as
guarantors
– where the second and third defendants submit that the
contracts had been terminated – where the second and third defendants
submit that they were not guarantors under the contracts – where the
second and third defendants submit that the certain terms
of the contracts were
unfair contract terms under the Australian Consumer Law and void – where
the second and third defendants
submit that their indebtedness is lower than the
quantum claimed by the plaintiff due to the inclusion of GST in the claimed
amount
– whether the second and third defendants are indebted to the
plaintiff as guarantors of the first defendant – whether
the contracts had
been terminated – whether any terms of the contracts are unfair terms
– whether the second and third
defendants are indebted to the plaintiff in
the amount claimed
A New Tax System (Goods and Services Tax) Act 1999
(Cth), referred to
Civil Proceedings Act 2011 (Qld), s. 58,
referred to
Competition and Consumer Act 2010 (Cth), sch. 2, ss. 23,
Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] FCAFC 49
(2005) 218 ALR 1,
cited
Judgment (144 paragraphs)
[1]
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - where the plaintiff entered into contracts with the first defendant for the rental of commercial equipment - where the contracts were executed by the second and third defendants as guarantors of the first defendant - where the first defendant ceased making rental payments to the plaintiff - where the plaintiff claims unpaid rent under the contracts from the second and third defendants as guarantors - where the second and third defendants submit that the contracts had been terminated - where the second and third defendants submit that they were not guarantors under the contracts - where the second and third defendants submit that the certain terms of the contracts were unfair contract terms under the Australian Consumer Law and void - where the second and third defendants submit that their indebtedness is lower than the quantum claimed by the plaintiff due to the inclusion of GST in the claimed amount - whether the second and third defendants are indebted to the plaintiff as guarantors of the first defendant - whether the contracts had been terminated - whether any terms of the contracts are unfair terms - whether the second and third defendants are indebted to the plaintiff in the amount claimed
(a) as executrix of the estate of Peter McFarlane (Mr McFarlane) (second defendant);
(b) in her personal capacity (third defendant),
[20]
damages for breach of contract in relation to an alleged failure to honour guarantees of debts allegedly owing Dun-Movin' Holdings Pty Ltd (DMH / first defendant) under contracts for the rental of earthmoving equipment. Judgment has already been given in relation to the claim by the plaintiff against DMH.[1] DMH is a company that was formerly controlled by the third defendant and her late partner, Mr McFarlane, prior to its liquidation.
[21]
[2] Relevantly to the claim against the second and third defendants, between August 2017 and February 2018, the plaintiff (as the owner) entered into four contracts with DMH (as the hirer) for the rental of earthmoving equipment. The contracts were executed by the second defendant and Mr McFarlane as guarantors. From about 2 May 2019, DMH ceased paying rent to the plaintiff pursuant to the contracts. The plaintiff claims the rent arrears due under the four contracts from the second and third defendants as guarantors.
[3] For the reasons that follow, I am satisfied that the second and third defendants are jointly and severally liable to the plaintiff for $1,543,699.11 under the four contracts. I will enter judgment for the plaintiff against the second and third defendants for the sum of $1,543,699.11 plus interest. I will hear from the parties in relation to costs.
[22]
[4] The plaintiff carried on a business hiring commercial equipment to customers. Its business included buying specific equipment that would then be hired to a particular customer. Relevantly, between August 2017 and February 2018, the plaintiff entered into four contracts with DMH for DMH to rent from the plaintiff certain pieces of earthmoving equipment.
[5] On 3 March 2020, the plaintiff commenced a proceeding in the Supreme Court of Queensland by claim against DMH (as the first defendant), the late Mr McFarlane (as the second defendant) and the third defendant, in respect of rental arrears.
[6] The matter proceeded to an unsuccessful mediation in October 2020[2] but then took a significant amount of time to be listed for trial. At least one reason for that appears to be that on 14 February 2021, the third defendant made a complaint to the Australian Financial Complaints Authority (AFCA) against the plaintiff on behalf of herself and the other defendants in the proceeding. The plaintiff did not continue to pursue the proceeding in the Supreme Court while AFCA was considering the complaint. The complaint was finalised by AFCA on 28 February 2023, allowing the proceeding to then proceed. This would not ordinarily be noteworthy, except it explains what is otherwise a lengthy delay in the proceeding reaching trial.
[7] DMH was placed into voluntary liquidation on 20 February 2023.[3] Mr McFarlane passed away on 1 April 2023.[4]
[8] On 21 July 2023, no steps having been taken in the proceeding for over two years, the plaintiff applied for leave to take a step in the proceeding and to substitute Ms Campbell, in her capacity as executrix of the estate of Mr McFarlane, into the proceeding as the second defendant following Mr McFarlane's passing. Orders granting leave to do same were made by Kelly J on 27 July 2023.[5]
[9] On 16 April 2024, the plaintiff applied for judgment and costs in the proceeding against DMH,[6] who had expressed an intent not to actively participate in the proceeding. Judgment was entered in favour of the plaintiff against DMH on 18 April 2024 pursuant to orders made by Freeburn J.[7]
[10] The trial conducted on 17 October 2024 only concerned the claim against the second and third defendants (collectively, the ). Specifically, the plaintiff seeks damages for breach of contract pursuant to the guarantees given by the defendants equivalent to the rent arrears payable by DMH under the four contracts that the defendants guaranteed but have not paid. The defendants admit the guaranteed contracts with DMH constitute contracts entered into by the plaintiff and the first defendant, and that the details of those contracts are as set out in the table below.
[23]
Weekly rental of $374.42 payable for a minimum term of 12 months
[24]
Weekly rental of $3,431.05 payable for a minimum term of 12 months
[25]
Weekly rental of $1,923.20 payable for a minimum term of 12 months
[26]
Weekly rental of $1,104.04 payable for a minimum term of 12 months
[27]
[11] Each contract (described on the face of the documents as a rental agreement) defined the "Hirer" as being DMH and the "Owner" as being the plaintiff.[9]
[12] Each contract was governed by the same standard terms and conditions (Standard Terms).[10] Relevantly, clause 6.1 of the Standard Terms provided:[11]
[28]
(a) To make payments to the Owner's address stated above or at such other place as the Owner may from time to time direct in writing;
[29]
(b) To pay the Rent stated in Item 6 of the Schedule;
[30]
(e) To pay interest at the Interest Rate calculated on daily balances on any amount which is overdue.
(a) At the expiration of the Term, unless the Hirer has given to the Owner thirty (30) days prior written notice of its intention to terminate this Agreement, this Agreement will continue. All terms of this Agreement shall remain binding upon both parties to the extent that they continue to be applicable.
[33]
(c) Each of the following is an event of default, namely;
[34]
(i) The Hirer allowing any sum of money payable to the Owner pursuant to this Agreement to remain unpaid for a total period of seven (7) clear days following the day upon which the amount became due and payable;
(ii) The Hirer failing to punctually perform or observe any of the conditions and obligations imposed upon it by this Agreement and such failure remaining unremedied for a period of seven (7) clear days after notice in writing is served upon the Hirer by the Owner specifying the default;
(iii) If the Owner ascertains that the Hirer has made any false, inaccurate or misleading statement having a material effect in relation to the making of this Agreement or any related or collateral document;
(iv) If the Hirer is a company, upon the passing of a resolution for its winding up or the making of any order by the court for its winding up, the appointment of a controller, provisional liquidator, receiver, or receiver and manager, or Voluntary Administrator in respect of it or in respect of the whole of any part of its assets;
(v) The levying of execution by any court against the Hirer and such execution not being satisfied with fourteen (14) days;
(vi) The Hirer, or if the Hirer is a company, any Director of the Hirer, being convicted upon indictment of a criminal offence or being sentenced to a term of imprisonment; or
(vii) The Hirer, being a natural person, committing any act of bankruptcy.
(viii) If without the Owner's prior written consent (which consent will not be unreasonably withheld) the Hirer reduces its share capital or attempts to do so;
(ix) If without the Owner's prior written consent effective control of the Hirer is altered to any material extent from that subsisting at the Commencement Date. For the purposes of this clause "effective control" of the Hirer means:
(1) control of the composition of the board of directors of the Hirer;
(2) control of more than half of the voting power of the Hirer; or
(3) control of more than half the issued share capital of the Hirer excluding any part of it which carries no right to participate beyond a specified amount in the distribution of either profit or capital;
(x) If, in the opinion of the Owner there is a material adverse change in the financial condition of the Hirer;
[35]
(d) Upon the occurrence of any one or more of the events described in clause 7(c) the Owner may (at its option) by notice in writing to the Hirer terminate this Agreement and immediately retake possession of the Equipment.
(e) Upon termination of this Agreement, the Owner is entitled to recover as liquidated and ascertained damages, an amount equal to the sum of the following:
(i) any amount due and owing to the Owner pursuant to the Agreement as at the date of termination but unpaid by the Hirer;
(ii) interest on such unpaid monies at the rate specified in clause 6.1;
(iii) subject to clause 7(h), the balance of Rent payable from the date of termination to the expiration of the Term of the Agreement; and
(iv) all costs and expenses incurred by the Owner, including legal fees on a full indemnity (solicitor and own client) basis, in:
[36]
(1) obtaining or attempting to obtain payment of such unpaid moneys;
[37]
(2) otherwise enforcing the terms of this Agreement;
[38]
(3) retaking or attempting to retake possession of the Equipment; and
[39]
(4) arranging for the Equipment to be returned in the state required in clause 6.3 of the Agreement.
[40]
(h) Should the equipment not be returned when instructed, the value of the equipment will be calculated based on the original asset value (GST inclusive), when funded less 1/60 of the asset value for each whole or part month elapsed since the contract date of demand.
[41]
[14] Clause 13 of the Standard Terms provided:[13]
[42]
(a) If any Guarantor is specified in Item 3 of the Schedule, then in consideration of the Owner, at the request of such Guarantor, hiring the Equipment to the Hirer upon the terms and conditions contained in this Agreement, the Guarantor (and if more than one both jointly and severally) guarantees to the Owner:
(i) The due and punctual payment by the Hirer of the Rent in accordance with the terms of this Agreement;
(ii) The due and punctual payment by the Hirer of every other sum payable under this Agreement; and
(iii) The performance and observance by the Hirer of all the terms, conditions and provisions of this Agreement.
[43]
[15] Item 3 of the Schedule - which was contained in each rental agreement - named Peter McFarlane as the guarantor and Kathryn Campbell as the third party guarantor.[14]
[16] On 2 May 2019, DMH, through its lawyers, sent a letter to the plaintiff complaining that payout figures quoted by the plaintiff were higher than what had been represented, and demanded that the plaintiff cease debiting rental payments.
[17] In response, on 20 June 2019, plaintiff sent a letter to DMH, which demanded payment of arrears outstanding and provided a payout quote for each piece of equipment, or, alternatively, demanded payment of the arrears outstanding and the return of the equipment to the plaintiff within 14 days.[15]
[18] On 10 October 2019, the plaintiff wrote to Mr McFarlane outlining a payout quote for the equipment rented under each of the four contracts. Each payout quote included a request for payment of the payout quote along with arrears outstanding under the relevant contract.[16]
[19] In August 2023, the equipment rented under each of the four contracts was returned to the plaintiff.
[20] Evidence was led by the plaintiff that the last payments of rent made by the first defendant to the plaintiff were on 30 April 2019 in respect of contract number 185068, on 1 May 2019 in respect of contract number 184906, and on 2 May 2019 in respect of contract numbers 183709 and 198003.[17] The third defendant led evidence of "all payments" made by DMH to the plaintiff, showing that no payments were made after May 2019.[18] The evidence before me, therefore, shows that no payments for rent - or for any other liabilities - were made from DMH to the plaintiff after May 2019.
[21] For completeness, I note that the following bonds paid by DMH were credited to DMH's outstanding arrears on the dates identified (that is, then treated as payments):
[44]
[22] The plaintiff relies on clause 13(a) of the Standard Terms to claim the unpaid rent owing by DMH from the defendants as guarantors under each of the contracts. The plaintiff contends that, in total, $1,546,731.78 worth of rent remained unpaid under the four contracts as at 1 August 2023 (when the equipment was returned to the plaintiff and rent obligations ceased).
[23] In response, the defendants raise five contentions:
[45]
(a) the contracts are invalid;
(b) the contracts were terminated on 2 May 2019, or, alternatively, 20 June 2019;
(c) the defendants were not in fact guarantors in respect of DMH's liability under any of the contracts;
(d) various clauses of the contracts are unfair contract terms and thus void under the sch 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law (ACL));
(e) in any event, the quantum of the defendants' indebtedness is lower than the amount claimed by the plaintiff because the contract price included an amount for GST, despite the plaintiff having already claimed tax credits for GST upon the purchase of the equipment.
[46]
[24] As a preliminary matter, the plaintiff pressed objections to two parts of the affidavit sworn by Ms Campbell on 25 June 2024: namely paragraphs 27 and 33, and the corresponding exhibits KC-21 and KC-25. The objections were pressed on the basis that the evidence refers to or exhibits without prejudice communications.
[25] Communications between parties in the course of negotiations to settle a matter in dispute are subject to without prejudice privilege and not admissible as evidence.[19] Paragraph 27 of Ms Campbell's affidavit refers to her then lawyers sending a letter to the plaintiff in an attempt to settle the matter. The letter, which is exhibit KC-21, contains a settlement offer and explicitly contains the words "without prejudice save as to costs". These are precisely the kind of communications covered by without prejudice privilege. Accordingly, I rule that exhibit KC-21 and the parts of paragraph 27 of Ms Campbell's affidavit that refer to it (namely, the last three sentences, commencing with the words "Cole Butlery Lawyers outlined") are inadmissible.
[26] Paragraph 33 of Ms Campbell's affidavit refers to and explains a memorandum prepared for the purposes of mediation. This memorandum, along with communications regarding a settlement offer between the parties' lawyers, forms exhibit KC-27. The memorandum and offer email contain the words "without prejudice". I find that paragraph 33 and exhibit KC-27 constitute communications in the course of negotiations and are subject to without prejudice privilege and therefore are inadmissible.
[47]
[27] Whilst not raised in the course of submissions, the defendants, through Ms Campbell's affidavit and her evidence in re-examination,[20] seem to raise an issue that the contracts may not be valid. Ms Campbell's affidavit appears to suggest two bases for this contention: first, that DMH is incorrectly listed as a party to the contracts; and, second, that the contracts were not signed by the owner of the plaintiff. Ms Campbell's affidavit provides:[21]
[48]
I note that the document has Dun-Movin Holdings Pty Ltd ATF Dun-Movin' Trust trading as Dun-Moving. The ABN listed is the Dun-Movin' Trust ABN not Dun-Movin'. The company does not have an ABN and therefore is not a Trading entity. Neither Dun-Movin' Holdings Pty Ltd nor the Dun-Movin' Trust trade as Dun-Moving I question the validity of this contract ... I note that the contract needs to be signed by the owner of GoGetta & it appears to be signed by an employee.
[49]
[28] This issue, if it in fact be an issue, can be dealt with briefly. Whilst it appears to be true that DMH does not have an ABN,[22] I do not consider this to impact the validity of the contracts. A company does not need an ABN to enter into a contract. The inclusion of an incorrect ABN in the contracts does not invalidate the contracts. It is plain enough that it was DMH who was entering into the contracts. In fact, irrespective of who signed the contracts, the defendants have admitted that the rental agreements were contracts entered into between the plaintiff and DMH, and that DMH was an incorporated company.[23]
[29] It further appears that the defendants have misconstrued the meaning of "Owner" in the rental agreements. The signature line of the rental agreements is labelled "Signed by the Owner (GoGetta Equipment Funding Pty Ltd)". Given that the contracts define "Owner" as being the plaintiff, this means that the contracts ought be signed by a representative of the plaintiff, not necessarily specifically the owner of the plaintiff. The word "Owner" carries its defined meaning, not its ordinary meaning. The plaintiff was free to enter into the contracts by the usual means, in accordance with ss. 126‑-127 of the Corporations Act 2001 (Cth).
[50]
Second contention: termination of the contracts
[51]
[30] In the amended defence, the defendants allege that the contracts were terminated on 2 May 2019 or 20 June 2019. By contrast, the plaintiff contended in oral submissions that the contracts were terminated sometime in August 2023, when the rented equipment was repossessed by the plaintiff.[24]
[52]
[31] In contending that the contracts were terminated on 2 May 2019, the defendants appear to rely on a letter dated that same day sent by the lawyers for DMH to the lawyers for the plaintiff as evidencing termination. The plaintiff submits that, on its proper construction, the letter does not constitute "written notice of [the Hirer's] intention to terminate [the contracts]" as required by clause 7(a) of the Standard Terms.
[32] In summary, the letter from DMH complained that the payout figures quoted for the equipment (previously provided by the plaintiff on 26 April 2019) were inconsistent with representations made to the third defendant prior to the contracts being entered into, and were therefore excessive.[25] The representations were allegedly made by Robbie Moore of Leaselink and Daniel Dumble from Arete Finance, both of whom were brokers for the first defendant.[26] There is no indication that any of these entities had any affiliation with the plaintiff. The letter then proposed "correct" payout figures and requested the plaintiff to cease debiting payments in respect of the equipment and confirm its acceptance of the proposed payout figures.
[33] I accept the plaintiff's submission that this letter does not constitute written notice of an intention to terminate the contracts, or an actual termination of the contracts. At its highest, the letter requested the plaintiff to cease debiting rental payments as part of the negotiation of payout sums, and foreshadowed the termination of the contracts sometime in the near future by way of payouts. This construction is supported by earlier communications between the plaintiff and third defendant. DMH had been inquiring about payout figures as early 6 April 2018.[27] On 23 November 2018, DMH expressly wrote "It is our intention to pay out all our contracts shortly" (emphasis added). After both these dates, DMH continued to make rental payments. Similarly, the letter of 2 May 2019 indicates that DMH wished to negotiate a payout sum to be paid in the future and for rental payments to be put on hold until then. It does not indicate that DMH wished for the letter to have the effect of terminating the contracts, and therefore evinced an intention to terminate under clause 7(a) of the Standard Terms.
[53]
Were the contracts terminated on 20 June 2019?
[54]
[34] On 20 June 2019, the plaintiff's lawyers wrote a letter to DMH in response to its letter of 2 May 2019. The defendants appear to rely on this response letter to allege that the contracts had been or were then terminated.
[35] The plaintiff's position on this issue is somewhat unclear. In its amended statement of claim, the plaintiff pleads that the letter of 20 June 2019 was forwarded to DMH "in accordance with clause 7(d) of the standard terms". Clause 7(d) provides that, upon an event of default, the plaintiff may "by notice in writing ... terminate this Agreement and immediately retake possession of the Equipment". In its written submissions, the plaintiff submits that this letter does not constitute a notice to terminate.
[36] In summary, the letter of 20 June 2019 addresses DMH's allegations of misrepresentation, sets out payout figures and outstanding arrears, and demands payment from DMH of same. It also provides an alternative for DMH to "immediately return [the plaintiff's] equipment and pay any outstanding arrears until the date of repossession".
[37] Whatever the plaintiff's actual position, I find that this letter did not terminate the contracts. Rather, it was merely a demand for the payment of arrears owing under the contracts as they continued to accrue, and a quote for payout figures that may result in the contracts being terminated in the future if and when those payout figures were in fact paid. This is made clear by the alternative course of action proposed by the plaintiff in its letter - for DMH to return the equipment - which envisages that rent must be paid until the equipment is returned/repossessed. The letter itself did not convey any immediate intention to terminate the contracts, which therefore remained on foot as at 20 June 2019.
[55]
Were the contracts terminated sometime after 20 June 2019?
[56]
[38] Although I have established that DMH's obligation to pay rent on the equipment continued after 20 June 2019, it is necessary to determine whether and when the contracts were in fact terminated to determine the proper quantum of the claim.
[39] No notice of termination was issued by the plaintiff upon the occurrence of an event of default pursuant to clause 7(d) of the Standard Terms. Rather, there is evidence that, sometime in August 2023, DMH returned the equipment to the plaintiff by delivering the equipment to an agent of the plaintiff as part of a repossession of the equipment.[28] From this, the plaintiff asks for an inference to be drawn that the contracts were terminated about that date.
[40] The plaintiff relies on the authority of Morgan v Bain[29] for the proposition that the conduct of the parties may give rise to an implied agreement to terminate. In that case, the conduct of one party justified an assumption by the other party that the contract had been abandoned.[30] I accept that, by conduct, parties to a contract can evince an intention to treat a contract as no longer being on foot and be taken to have abandoned the contract.[31] I further accept the plaintiff's submission that, through the conduct of DMH returning the equipment to the plaintiff, who accepted and took possession of the equipment, the parties impliedly terminated the contracts.
[41] A difficulty - which was not raised by the parties, but in my view is necessary to address - arises from clause 1 of the Standard Terms, which provides "this Agreement is not capable of termination except as provided in clause 7". Clause 7 provides two methods by which the contracts could be terminated: by written notice of 30 days from DMH after expiry of the contract term (pursuant to clause 7(a)), or by written notice from the plaintiff upon default by DMH (pursuant to clause 7(d)). Therefore, a question arises as to whether the terms of the contracts precluded implied termination by some other means.
[42] I accept that common law rights of termination may be regulated by the terms of a particular contract.[32] Such terms are considered a subset of exemption clauses and are to be construed "according to [their] natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract", including the "commercial purpose of the contract".
[57]
Third contention: whether the defendants were guarantors of DMH's obligations under the contracts
[58]
[48] The defendants deny that they signed the contracts as guarantors, but only "as a person authorised to sign for [DMH] ... the contract was thus executed solely by [DMH] and the plaintiff".[38]
[49] Evidence has been led of the four contracts. Each agreement is headed "GoGetta Rental Agreement" and in Item 3 of the Schedule names Peter McFarlane and Kathryn Campbell as the "Guarantor" and "3rd Party Guarantor" respectively. Each rental agreement is signed by both Mr McFarlane and Ms Campbell, underneath the words "signed by the Guarantor" and "signed by the 3rd Party Guarantor" respectively. Further, each rental agreement names DMH as the "Hirer" and bears the signature of Mr McFarlane as the "Hirer - Dun-Movin' Holdings Pty Ltd ATF Dun-Movin' Trust", under the words "Signed by the Hirer". Mr McFarlane's signature therefore appears twice on each document, once as an authorised signatory for DMH and once as the guarantor of DMH's obligations under the contracts.
[50] The GoGetta Rental Agreement also states: "Should the Hirer fail to pay for any rent, charges or purchase price (if unreturned), the Guarantor (if applicable), will become personally liable for all debts of the Hirer". [39]
[51] The starting point, of course, is the position advanced by the plaintiff that I accept: "it is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe".[40] The words of the contracts, and the conduct of the defendants in signing them, plainly indicate to a reasonable person that the defendants intended to bind themselves as guarantors.
[52] No evidence has been led of surrounding circumstances indicating any contrary intention of any party before or when the contracts were signed. Any subjective intention expressed by the defendants after contract formation is irrelevant.[41]
[53] The defendants are bound under each of the contracts as the guarantors of DMH's obligations.
[59]
[54] The defendants allege that clauses 3(b), 4, 5(b), 6.1, 6.2, 6.3, 6.4, 6.6, 6.8, 6.11, 7, 8, 9(b), 10, 11(b) and 14 of the Standard Terms are unfair contract terms under the ACL.
[55] The plaintiff points out that it sues the defendants under clause 13 of the Standard Terms, and that clause is not alleged by the defendants to be unfair. Nonetheless, in my view, a claim under clause 13 is contingent on, at least, the operation of clauses 6.1 (that sets out DMH's obligation to pay rent) and 7 (that governs rights of termination). It will therefore be necessary to determine whether those terms are unfair contract terms.
[60]
[56] The unfair terms regime under the ACL is set out in Pt 2-3. At the time of contracting, s. 23 of the ACL provided:
Unfair terms of consumer contracts and small business contracts
[61]
(1) A term of a consumer contract or small business contract is void if:
[62]
(2) The contract continues to bind the parties if it is capable of operating without the unfair term.
[63]
to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.
[64]
(a) the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
(b) at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
(c) either of the following applies:
(i) the upfront price payable under the contract does not exceed $300,000;
(ii) the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
[65]
(5) In counting the persons employed by a business for the purposes of paragraph (4)(b), a casual employee is not to be counted unless he or she is employed by the business on a regular and systematic basis.
[66]
[57] The word "unfair" was defined in s. 24:
Meaning of unfair
[67]
(1) A term of a consumer contract or small business contract is unfair if:
(a) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
(2) In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:
(a) the extent to which the term is transparent;
(b) the contract as a whole.
(3) A term is transparent if the term is:
(a) expressed in reasonably plain language; and
(b) legible; and
(c) presented clearly; and
(d) readily available to any party affected by the term.
(4) For the purposes of subsection (1)(b), a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.
[68]
[58] The term "standard form contract", for the purposes of s. 23(1), is defined in s. 27:
Standard form contracts
[69]
(1) If a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise.
(2) In determining whether a contract is a standard form contract, a court may take into account such matters as it thinks relevant, but must take into account the following:
(a) whether one of the parties has all or most of the bargaining power relating to the transaction;
(b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
(c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than the terms referred to in section 26(1)) in the form in which they were presented;
(d) whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in section 26(1);
(e) whether the terms of the contract (other than the terms referred to in section 26(1)) take into account the specific characteristics of another party or the particular transaction;
(f) any other matter prescribed by the regulations.
[70]
[59] Section 26 deals with terms that are excluded from the application of s. 23:
Terms that define main subject matter of consumer contracts or small business contracts etc. are unaffected
[71]
(1) Section 23 does not apply to a term of a consumer contract or small business contract to the extent, but only to the extent, that the term:
(a) defines the main subject matter of the contract; or
(b) sets the upfront price payable under the contract; or
(c) is a term required, or expressly permitted, by a law of the Commonwealth, a State or a Territory.
(2) The upfront price payable under a contract is the consideration that:
(a) is provided, or is to be provided, for the supply, sale or grant under the contract; and
(b) is disclosed at or before the time the contract is entered into;
[72]
but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event.
[73]
[60] As set out by s. 23, the unfair contract terms provisions in Pt 2-3 only apply if the contracts were - relevantly for this case - small business contracts. A term of a small business contract is void if: (a) the term is unfair, as defined in s. 24; and (b) the contract is a standard form contract, as defined in s. 27.[42] From this, there are four questions to consider:
[74]
(a) whether the contracts were small business contracts;
(b) whether the contracts were standard form contracts;
(c) whether any of the terms were unfair;
(d) whether any of the terms fall within s. 26 such that s. 23 does not apply.
[75]
[61] The term "small business contract" is defined in s. 23(4) and comprises three elements:
[76]
(a) the contract must be for a supply of goods or services, or a sale or grant of an interest in land;
(b) at the time of contracting, at least one party must be a business that employs fewer than 20 persons;
(c) either the upfront price payable under the contract does not exceed $300,000, or, if the duration of the contract exceeds 12 months, the upfront price payable under the contract does not exceed $1,000,000.
[77]
[62] In its reply, the plaintiff admits the first and third elements - that is, that each of the rental agreements were for the supply of goods, and that the duration of the rental agreements did not exceed 12 months and the upfront price for each did not exceed $300,000.[43]
[63] As to the second element, that at least one party must be a business that employs fewer than 20 persons, no evidence has been adduced in this proceeding specifically addressing the number of people employed by DMH. I note that, in her response to AFCA's recommendation that DMH remains liable for the outstanding amounts under each of the contracts, Ms Campbell provided information that "DMH employed fewer than 20 persons at the time contracts were entered into".[44] Ms Campbell also deposed that she "employed 3 full time fitters in [DMH's] workshop.[45] Noting that the plaintiff makes no submissions on the basis that DMH is not a small business, I am prepared to infer from the evidence available before me that at the time of entry into each of the rental agreements that DMH had fewer than 20 employees.
[64] I consider that the contracts were "small business contracts" for the purposes of s. 23 of the ACL.
[78]
[65] The defendants having alleged such, it is presumed that the contracts were standard form contracts for the purposes of s. 23(1)(a) unless the plaintiff proves otherwise.[46]
[66] Section 27(2) of the ACL sets out mandatory considerations I must take into account in determining whether a contract is a standard form contract. I will address each of those considerations in turn.
[67] Each contract provided:
[79]
This Contract consists of the document titled Rental Contract, Tax Invoice; and the Standard Terms and Conditions.
[80]
The Hirer and each and every Guarantor (where applicable) acknowledges that they have, prior to signing this Contract, read the Rental Contract and the Standard Terms and Conditions (Version 5.1). The Hirer and every Guarantor (where applicable) further acknowledges the following:
[81]
they have had the opportunity to obtain independent legal advice in respect of Rental Contract and Standard Terms and Conditions; and
that they understand and agree to be bound by them.
[82]
[68] The same set of Standard Terms applied to all four of the contracts. The Standard Terms were contained in a separate document to the contracts. It is plain that these Standard Terms were drafted by the plaintiff for use in all of its contracts, thereby not taking into account the specific characteristics of DMH or the defendants or any of the particular transactions: s. 27(2)(e).
[69] Ms Campbell gave further evidence - which was unchallenged, and which I accept - that, when the contracts were sent to DMH to be signed, the Standard Terms were not always attached,[47] and that the plaintiff did not give DMH an opportunity to negotiate or change the contract terms.[48]
[70] The Standard Terms are dated 25 August 2016.[49] They were clearly prepared unilaterally by the plaintiff before any discussion relating to any of the transactions occurred between the parties: s. 27(2)(b).
[71] From this, I consider that neither DMH nor the defendants were given an effective opportunity to negotiate any of the Standard Terms: s. 27(2)(d). Although the contracts prompted the hirer of the equipment to read the Standard Terms and obtain independent legal advice, these terms appear to have been provided towards the conclusion of negotiations - when the contracts for the specific equipment had been prepared by the plaintiff and were presented to DMH and the defendants for signature. There is no indication that the plaintiff foreshadowed the inclusion of standard terms in advance or invited negotiation in respect of them. It is apparent that DMH and the defendants were expected to simply sign and return the contracts, particularly in circumstances where the Standard Terms were not always made available. As such, I also consider that, in order to execute the contract in a timely way and be able to use the equipment that was being hired, DMH and the defendants were effectively required to accept the Standard Terms, and that the plaintiff had most of the bargaining power relating to the transaction: ss. 27(2)(a), 27(2)(c).
[72] No further mandatory considerations are prescribed by the regulations.
[73] I find that the contracts are standard form contracts within the meaning of s. 23(1)(b) of the ACL.
[83]
[74] It is useful to provide a brief summary of the terms alleged to be unfair.
[75] Clause 3(b) provides that the plaintiff will not have any obligation to hire the equipment if the condition precedents set out in the preceding paragraph - including the acquisition of the equipment, the security bond, a written acceptance of the equipment by DMH, receipt of insurance policies - are not satisfied.
[76] Clause 4 requires DMH to provide a written acceptance of the equipment to DMH that constitutes full and unconditional acceptance of the equipment by DMH.
[77] Clause 5(b) provides that DMH must not attach, affix or secure the equipment to land unless its use so requires and the prior written consent of the plaintiff is obtained. It further permits the plaintiff to enter upon any land owned by DMH for the purpose of removing the equipment.
[78] Clause 6.1 obliges DMH to pay rent and other sums.
[79] Clause 6.2 sets out DMH's obligations as to the custody, maintenance and repair of the equipment.
[80] Clause 6.3 provides that DMH must return the equipment in a certain condition, and for DMH to pay any expenses involved in the restoration of the equipment to the acceptable return condition if necessary.
[81] Clause 6.4 provides that DMH assumes and bears the risk of loss or damage to the equipment and obliges DMH to take out an insurance policy covering the equipment.
[82] Clause 6.6 indemnifies the plaintiff from any loss or damage suffered by DMH from use of the equipment, and from any liabilities or expenses incurred by the plaintiff in relation to the equipment.
[83] Clause 6.8 creates a charge over the property of DMH and the second and third defendants (as guarantors) and obliges them, if requested, to execute a consent to caveat, mortgage, charge, or other like instrument.
[84] Clause 6.11 contemplates that, prior to signing, DMH has read and understood the terms of the agreement and had the opportunity to seek independent legal advice.
[85] Clause 7 governs termination of the contract.
[86] Clause 8 sets out a number of miscellaneous provisions, namely that:
[84]
(a) DMH's obligations, including to pay rent, continue notwithstanding any defect, breakdown or seizure of the equipment (clause 8(a));
(b) the agreement contains all the terms of the agreement;
(c) the agreement is governed by the law of Queensland and the parties consent to the jurisdiction of Queensland courts;
(d) if a term of the agreement is found to be void, that clause will be of no force or effect and will be severed without affecting the validity and enforceability of any of the remaining terms;
(e) a statement signed by a credit officer of the plaintiff will be conclusive proof of the amount owing from DMH to the plaintiff unless DMH or the defendants prove otherwise;
(f) time is of the essence in respect of all of DMH's obligations;
(g) a waiver or indulgence by DMH will not amount to a waiver of its rights with respect to any breach or recurring breach, and any variations to the agreement can only be effective with DMH's consent in writing;[50]
(h) DMH warrants that it is a duly incorporated company with the power and capacity to contract, is bound by the terms of the agreement, and has not misstated any material facts to the plaintiff;
(i) DMH warrants in its capacity as trustee of a trust fund that the trust is valid and subsisting;
(j) the representations and warranties set out in clauses 8(h) and 8(i) survive the execution of the agreement and are deemed to be repeated on each rent payment date; and
(k) if the plaintiff reasonably believes there to be a potential default event, it may appoint an entity to investigate the potential default event, with whom DMH must cooperate; DMH must also pay the costs associated with the investigation.
[85]
[87] Clause 9(b) provides that no person dealing with the plaintiff or any attorney appointed under the contract shall be bound to make inquires as to the termination of the agreement or the exercise of any power under the agreement.
[88] Clause 10 operates so that insofar as legislation imposes certain rights that cannot be excluded by contract, the plaintiff's liability is limited in particular ways.
[89] Clause 11(b) excludes all conditions and warranties expressed by the plaintiff as to the condition or quality of the equipment to the extent permitted by law.
[90] Clause 14 provides that the equipment remains the property of the plaintiff for the duration of the contract term, and permits the plaintiff to make a reasonable offer to DMH after the expiry of the minimum contract term for DMH to purchase the equipment. I note that clause 14 refers to the term "Goods" rather than the term "Equipment". The term "Goods" does not appear to be defined anywhere in the contract. Given the nature of the contract as being one for the hiring of goods, and that clause 15 of the Standard Terms refers to the payment of a security bond "prior to the installation and delivery of the Goods", I consider that the term "Goods" has been used interchangeably with the term "Equipment" to refer to the equipment the subject of each contract.
[91] In oral submissions, the defendants seemed to suggest that each of the contracts in their entirety are unfair and should be declared void.[51]Pt 2-3 of the ACL, however, concerns terms of contracts, not contracts holistically. The words of the statute refer to a "term" of the contract being void if it is unfair. Therefore, the legislative framework only contemplates the assessment of the fairness (or otherwise) of particular contract terms rather than the contract as a whole. It is of course possible for an entire contract to be void if the contract is not capable of continuing to operate without the unfair term,[52] as is pleaded by the defendants.[53] But that still requires assessing whether a particular term or terms of the contract are unfair, before determining whether those terms are severable from the contract. The words of the ACL do not permit a contract to be declared void solely by assessing the fairness of the contract as a whole without reference to particular terms.
[86]
The exclusion of upfront price means that a term concerning the upfront price cannot be challenged on the basis that it is unfair. Having agreed to provide a particular amount of consideration when the contract was made, which was disclosed at or before the time the contract was entered into, a person cannot then argue that that consideration is unfair at a later time. The upfront price is a matter about which the person has a choice and, in many cases, may negotiate.
[87]
The upfront price covers the cash price payable for a good, service, financial service, financial product or land at the time the contract is made. It also covers a future payment or a series of future payments.
[88]
[96] A term that obliges the lessee under a rental agreement to pay rent is squarely covered by s. 26(1)(b). It requires DMH to pay the rent in the amount specified in the contract. This is the "upfront price" of the contract, in the sense that it is the consideration to be provided for the plaintiff's supply of the equipment, and was disclosed to DMH and the defendants prior to signing the contracts. Therefore, s. 23 does not apply to clause 6.1(b).
[97] In any case, even if s. 23 applied to clause 6.1(b), I do not consider clause 6.1(b) to be unfair. For a term to be unfair, three elements must be satisfied under s. 24 of the ACL:
[89]
(a) the term would cause a significant imbalance in the parties' rights and obligations arising under the contract;
(b) the term is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term;
(c) the term would cause detriment to a party if it were applied or relied upon.
[90]
[98] It is for the party alleging unfairness to prove the first and third elements, but the party who wishes to rely upon the term must prove the second element.[55]
[99] Taking into account the contract as a whole and the extent to which clause 6.1(b) was transparent,[56] I do not consider that clause 6.1(b) is an unfair term. It is the consideration to be paid by DMH in exchange for the plaintiff renting to DMH the equipment the subject of each of the contracts. Although it formed part of a set of standard terms, it was transparent - the term is expressed in plain language, legible, presented clearly, and readily available to the parties in that DMH was at least provided with the contract that set the amount of rent. It would have been abundantly clear to DMH and the defendants that they needed to pay rent under the contracts. The term did not cause a significant imbalance in the parties' rights and obligations and was reasonably necessary to protect the plaintiff's legitimate interests.
[100] The defendants submitted that the rental agreements were unfair because the plaintiff had collected, or was entitled to collect, GST credits (presumedly on the purchase price of the equipment), yet still calculated rent payments with reference to the GST inclusive price of the equipment. I am not, however, persuaded that any entitlement of the plaintiff to collect GST credits on the purchase of the equipment means that clause 6.1(b) is unfair. This type of situation is what was envisaged in the explanatory memorandum as excerpted at [[95]] above. DMH and the defendants were provided with the contract prices before the contracts were executed. They could have chosen not to proceed with the contracts or attempted to negotiate a lower price. Even if it were the case that the plaintiff did not account for certain GST benefits when setting the contract prices, the rental prices do not create a significant imbalance in the rights and obligations of the parties. Proportionate to the original cost price for each piece of equipment paid by the plaintiff, even excluding GST, the weekly rental amounts are reasonable.
[101] I note the plaintiff only claims interest in accordance with the Civil Proceedings Act 2011 (Qld) and does not claim interest under clause 6.1(e). It is therefore not necessary for me to deal with that clause. There is nothing obviously problematic or unfair about the clause in any event.
[91]
[113] The plaintiff claims $1,547,696.05 as unpaid rent from the defendants, being the total amount of rent which fell due under all four contracts between 2 May 2019 and 1 August 2023, less the amount paid by DMH for bonds in respect of each contract (which have been forfeited to the plaintiff). With its written submissions, the plaintiff provided an Excel spreadsheet detailing the calculations undertaken to reach that amount. In that spreadsheet, the calculations appear to be premised on the assumption that rent accrued daily. I do not accept that assumption. Item 6 of the rental agreement describes the rent as being "weekly", and payments from DMH were debited weekly. When calculated on a weekly basis, the arrears as at 1 August 2023 total $1,543,699.11 across the four contracts.
[114] The defendants submit that the quantum should be reduced to account for the plaintiff's double claiming of GST - that is, claiming tax credits for GST but still incorporating that GST into the rental price. I do not consider this to be a valid basis for reducing the quantum claimed. As I have already discussed at [[100]] above, DMH and the defendants were made aware of the rent before the contracts were entered into. The plaintiff is entitled to both claim GST credits under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) on the purchase of equipment and then set the rent to be whatever it considered appropriate. DMH and the defendants were then entitled to reject or negotiate the rent, but there is no evidence that they did so. They accepted the rent under each contract put to them by the plaintiff, hence becoming bound to pay/guarantee that rent. The fact that the plaintiff claimed or was entitled to claim GST credits in respect of the equipment purchased by them and then rented to DMH does not change and is not relevant to DMH's and the defendants' contractual obligations to pay rent in the amounts agreed. Further, the rent of the equipment would have been a taxable supply on which GST was required to be levied.
[115] Therefore, as guarantors under each of the rental agreements pursuant to clause 13(a)(i) of the Standard Terms, the defendants are jointly and severally liable to pay the plaintiff the total amount of rent owing under the contracts.
[92]
[116] That leaves for consideration the defences pleaded at [15]-[18] of the defendants' defences, as well as [4(e)] of same.
[117] [15]-[18] of the defendants' defences provide:
Pursuant to the Standard Terms and Conditions referred in the Statement of Claim, the rent paid by the First Defendant to the Plaintiff reduced the purchase price at the termination of the contracts.
The Second Defendant denies that it is indebted to the Plaintiff for the amount claimed and further states that the amount of any debt owing by the Second Defendant to the Plaintiff is to be determined upon a proper interpretation of the terms of the contracts to be determined by this court.
Pursuant to clause 10(b) of the Standard Terms and Conditions of the contracts, the Plaintiff is liable to the First Defendant for payment of the cost incurred by the First Defendant in effecting repairs to the equipment owned by the Plaintiff
Pursuant to clause 10(b) of the Standard Terms and Conditions of the contracts, the Plaintiff is liable to the First Defendant for payment of the cost incurred by the First Defendant in sourcing alternative equipment.
[118] Clause 10(b) of the Standard Terms provide:
[93]
All express and implied terms, conditions and warranties on the part of the Hirer, which might otherwise apply to or arise out of the provision of the hired equipment are excluded, except to the extent that any law (including the C & C Act) does not permit them to be excluded, then the Owner's liability is limited to:-
[94]
(i) in the case of the Equipment, any one of the following as determined by the Owner:
(1) replacement of the Equipment or the supply of equivalent Equipment;
(2) repair of the Equipment;
(3) payment to the Hirer of the cost of replacing the Equipment or acquiring equivalent Equipment; or
(4) payment of the cost of having the Equipment repaired; and
(ii) in the case of any services, any one of the following as determined by the Owner:-
[95]
(2) payment of the cost of having the services supplied again.
[96]
[119] [15]-[18] of the defendants' defences misconstrue the contract and the application of the contract to this case, in particular:
[97]
(a) There is no provision of the contract that provides that the rent paid reduces the purchase price at termination of the contract. The possibility of purchase of the equipment at the expiry of the term is governed by clause 14. Regardless, in this case there has been no purchase. Only rent is sought to be recovered;
(b) The debt guaranteed has been calculated by reference to the terms of the contract;
(c) Clause 10(b) does not operate at the defendants contend. It is a limitation of liability clause and no liability of the plaintiff to the defendants has been claimed or established (which would have required a counterclaim to be advanced).
[98]
[120] [4(e)] of the defendants' defences, which is not in terms pleaded as a defence, but which I will treat as same, provide:
[99]
The Second Defendant did not default on each contract, but rather the Plaintiff failed to provide accurate pay-out figures to the Second Defendant pursuant to the contracts.
[100]
[121] DMH did default on the contracts by ceasing to pay rent without giving notice or returning the equipment. The defendants did default on the contracts by not complying with their guarantee obligations. Whether the plaintiff failed to provide accurate pay-out figures has not been established on the evidence and the allegation goes nowhere in any event. No counterclaim has been brought by the defendants.
[101]
[122] In summary, my key findings are as follows:
[102]
(a) the rental agreements were entered into between the plaintiff and DMH, and are valid;
(b) the defendants were the guarantors of DMH's obligations under each of the rental agreements;
(c) the rental agreements were small business contracts and standard form contracts for the purposes of the ACL;
(d) out of the clauses in the Standard Terms alleged to be unfair, only clauses 6.1(b) and 7 (that were challenged as being unfair) directly affect the rights and obligations of the parties the subject of this proceeding;
(e) neither clause 6.1(b) or 7 of the Standard Terms is an unfair term under the ACL;
(f) none of the clauses of the Standard Terms alleged to be unfair terms are unfair terms under the ACL;
(g) the fact that the plaintiff did or was entitled to claim GST credits in respect of the purchase of the equipment does not affect the contract price agreed to be payable under each of the rental agreements;
(h) the rental agreements were terminated on 1 August 2023;
(i) the total amount of rent owing to the plaintiff by DMH and the defendants (as guarantors) under the rental agreements as at 1 August 2023 is $1,543,699.11.
[103]
[123] Accordingly, I order the defendants to pay to the plaintiff $1,543,699.11 plus pre-judgment interest from 1 August 2023 (which to 2 May 2025 from the online court calculator comes to $224,396.76).
[124] I will hear from the parties as to costs, but note that the filed amended claim (paragraph 4) seeks indemnity costs pursuant to clause 7(e) of the Standard Terms. Clauses 7(e)(1) and (2) appear to apply, justifying an award of indemnity costs.
[23] Amended statement of claim, [10]-[13], [15], [18]-[21]; Amended defence of the second defendant, [1]; Amended defence of the third defendant, [1].
[36]Darlington Futures, 510 (the Court), quoting H & E Van Der Sterren v Cibernetics (Holdings Pty Ltd) (1970) ALJR 157, 158 (Walsh J, Kitto J and Barwick CJ agreeing).
[129]
[37] See Concut Pty Ltd v Worrell, 699-700 [23] (Gleeson CJ, Gaudron and Gummow JJ).
[130]
[38] Amended defence of the second defendant, [1(a)]; Amended defence of the third defendant, [1(a)].
[131]
[39] Mackenzie Affidavit, ex DCM-2, pp 44, 53, 64, 77.
[43] Reply to the second defendant's defence, [9(a)], [9(c)], [9(d)]; Reply to the third defendant's defence, [9(a)], [9(c)], [9(d)]. Note that [9(a)] of the reply to the second defendant's defence refers to "contracts referred to in paragraphs 2 to 6 of the Statement of Claim". This appears to be a typo and should read "contracts referred to in paragraphs 8 to 13 of the Statement of Claim".
[49] This can be found in the footer of the Standard Terms: see Mackenzie Affidavit, ex DCM-1.
[139]
[50] I strongly suspect that the reference to "Hirer" in this subclause (8(g)) was intended (by the plaintiff at least) to be a reference to "Owner" (the clause being one of a type that ordinarily is inserted for the benefit of the Owner) but the plain words of the clause are to be applied (and favour the Hirer).
[140]
[52] This is impliedly envisaged by s 23(2) of the ACL.
[141]
[53] Amended defence of the second defendant, [14]; Amended defence of the third defendant, [14].
[57] Clause 2(l) defines "Interest Rate" as meaning "the rate set by Section 47 of the Supreme Court Act 1995, from time to time, plus 4%". The Supreme Court Act 1995 (Qld) was repealed in 2012. The equivalent provision is now found in section 58 of the Civil Proceedings Act 2011 (Qld).
(xi) If the Equipment is abandoned or condemned or is seize or appropriated by any lawful authority and not released within twenty-one (21) days or is attached, sequestrated, impounded or restrained upon and not released within twenty-one (21) days unless such an event constitutes a casualty occurrence; or
(xii) The Hirer breaches any one or more of the terms or conditions of this Agreement.
[43] However, it is a "familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law".[35] Further, exemption clauses must be construed to avoid absurdity: they "must sometimes be read down if they cannot be applied literally without creating an absurdity or defeating the main object of the contract".[36]
[44] On this basis, I am not prepared to construe clause 1 of the Standard Terms strictly such that the contracts could only be terminated by written notice under clause 7. To do so would create the absurd outcome that the contracts would remain on foot simply because no communications were put in writing. Applying clause 1 literally in this case would result in rent continuing to accrue, to DMH's detriment, even when the plaintiff has repossessed the equipment, in circumstances where the plaintiff's provision of equipment for DMH's use was the entire commercial purpose of the contracts. Rather, a more sensible construction of clause 1 - and one that more likely accords with the parties' intentions - is that it allows DMH to terminate at will (after the expiry of the contract term and on giving 30 days' notice) and the plaintiff to terminate upon any of the events of default, rather than only allowing either party to terminate upon the other party's fundamental breach, as is the case at common law. In this sense, the express provision for termination may be regarded as augmenting termination rights at common law rather than removing them.[37]
[45] This construction is consistent with the wording of clause 7. Clause 7(a) is phrased in a way that suggests its primary effect is to keep the contracts on foot following the expiration of the contract term, unless DMH advises otherwise - in other words, to establish that the contracts do not automatically terminate. It suggests that, should DMH wish to terminate the contracts at will, it may do so only after the expiration of the minimum contract term, and only by providing 30 days' notice in writing. It does not expressly restrict DMH's right to terminate for the plaintiff's fundamental breach, either during or after the minimum contract term. Further, clause 7(d) is worded permissively - upon the occurrence of an event of default, the plaintiff "may (at its option) by notice in writing to [DMH] terminate this Agreement". This wording suggests that the plaintiff has the power to terminate for any event of default - not just a fundamental breach - as long as it does so in writing. Again, it does not exclude the plaintiff's right to terminate at common law.
[46] Accordingly, I find that each of the contracts were terminated when the plaintiff took possession of the equipment. It seems to me extremely unlikely that either party intended for the contracts to continue in circumstances where rent was no longer being paid and the equipment the subject of the contracts was no longer being rented and had been repossessed by the plaintiff.
[47] No evidence was led as to the exact date on which the equipment was returned; the plaintiff only provided evidence that the equipment was returned sometime in August 2023. To give the defendant the benefit of the burden of proof that rests with the plaintiff, the equipment is taken to have been returned - and the contracts are taken to have been terminated - on 1 August 2023. Rent under the contracts ceased to accrue on this date.
[92] The relevant claim brought in this proceeding is damages for breach of contract, against the defendants for failing to honour the guarantee provided of DMH's obligations under the contracts (in particular, payment of rent). The plaintiff has not sought an assessment of damages in respect of the judgment obtained against DMH.[54] As such, I consider that the only clauses of the Standard Terms that are directly relevant to determining the rights of the parties in this proceeding are clauses 6.1(b), 7 and 13, unless the contracts can have no operation after any unfair terms are declared void.
[93] I turn first to consider clause 6.1(b). It is necessary to first consider whether s. 23 of the ACL applies to clause 6.1(b) - specifically, whether clause 6.1(b) falls within the ambit of s. 26 such that s. 23 does not apply.
[94] Relevantly, s. 26 excludes the application of the unfair terms regime to terms that set the "upfront price" payable under the contract, namely consideration under the contract for the supply, sale or grant under the contract, which must be disclosed at or before the time of entry into the contract.
[102] I turn to consider clause 7. The defendants have not identified with any precision what aspect of clause 7 is claimed to be unfair. There is no particular aspect of it that appears unfair. The operation of clause 7 of this case has particular relevance in this case in two respects. First, as discussed above, it is relevant to determining when the contracts were terminated which is important to the assessment of the proper quantum of debt owed under the contracts. Second, the plaintiff relies on clause 7(e)(iv) to seek legal costs on an indemnity basis. I have already explained why clause 7 does not operate to preclude the contracts from having been impliedly terminated: the contracts were terminated in August 2023 and rent payable accrued until then only. There is nothing unfair in that. The contracts gave a way for the defendants to stop rent accruing earlier - simply give the required notice (which was for a reasonable period of time) and return the equipment.
[103] There is also nothing unfair in clauses 7(e)(i) to (iii) of the contract.
[104] I will consider specifically whether clause 7(e)(iv) is unfair given it may be relied upon by the plaintiff to influence the Court's discretion on costs.
[105] Clause 7(e)(iv) allows the plaintiff, upon termination of the contract, to recover damages for all costs and expenses incurred by it, including legal fees on a full indemnity basis in the specific circumstances set out in subclauses (1)-(4). I note that the interest rate is defined in clause 2(l) of the Standard Terms as a rate that is 4% higher than the usual Court rate.[57] There is no corresponding right for the lessee to claim higher interest rates or all legal costs on an indemnity basis in the case of particular circumstances existing.
[106] However, I am satisfied that clause 7 is reasonably necessary to protect the plaintiff's interests. It effectively only operates in particular circumstances where the DMH is not cooperating in bringing the contract to an orderly end. It ensures that the plaintiff is held harmless (as much as possible) if DMH is being obstructionist. Clause 7(e)(iv) is not unfair. No part of clause 7 is unfair.
[107] In respect of the balance of the remaining terms alleged to be unfair, even if they were unfair and void, this would not impact the relief sought by the plaintiff under clauses 6.1(b) and 13 of the Standard Terms. Regardless, I consider do not consider any of the remaining terms complained about are unfair. They are completely ordinary terms for contracts of this nature.
[108] For completeness, I note that the defendants rely on the case of Abraham v GoGetta Equipment Funding Pty Ltd[2017] NSWCATCD 22 (Abraham) to support their submission that the rental agreements should be declared void. The current plaintiff was the defendant to that proceeding.
[109] That case involved an applicant (Abraham) who entered into a rental agreement with the current plaintiff for a motor vehicle (2007 Holden Commodore, with a purchase price of $10,990, rented from the plaintiff at a rent of $163.69 per week for a minimum of 12 months). Abraham noticed problems with the vehicle soon after he took possession of it. He sought to return the vehicle to the supplier (a car dealer), and eventually surrendered the vehicle to the plaintiff. The plaintiff sought the payment of the balance of payments due under the rental agreement. Abraham applied to the New South Wales Civil and Administrative Tribunal for refunds of the rent that had been paid to the plaintiff ($1,981.14) and for relief from paying the remaining rental under the contract ($6,905.87). Abraham said the vehicle was barely used and had been surrendered given its unroadworthy state. In that case, an issue arose as to whether the contract was a consumer or small business contract, and whether any of the terms under the rental agreement were unfair under the ACL. The learned Senior Member determined that the contract was a small business contract and confined his analysis regarding unfair contract terms to clause 8(a) of the rental agreement in that case, which is substantively identical to clause 8(a) of the Standard Terms (detailing that DMH's obligations continue notwithstanding any defect, breakdown or seizure of the equipment).
[110] The Member determined that clause 8(a) and the requirement to continue to pay rent despite any defect or breakdown in the equipment did produce a significant imbalance in the parties' rights and obligations under the contract in the case of Abraham. Absent the plaintiff having made any submissions on the issue, the tribunal member concluded that the plaintiff had not satisfied its onus to show that the clause was reasonably necessary to protect the business interests of the plaintiff (which was required for the clause not to be concluded to be unfair). The consequence was that clause 8(a) was found to be unfair and accordingly void. But that did not automatically result in Abraham obtaining the relief sought and in fact it not having been established that vehicle was not of unacceptable quality at the time surrendered, the plaintiff did not need to rely upon clause 8(a) to establish Abraham's liability and so that clause 8(a) was void was of no practical effect in the outcome of the case. Abraham was liable to the plaintiff for the claimed rent.
[111] Therefore, whilst the case of Abraham provides some support for the conclusion that clause 8(a) is unfair, that is obiter dicta only, based on very limited evidence adduced by the plaintiff and is not particularly persuasive. It does not alter the outcome in this case.
[112] Finally, even if the balance of the terms alleged to be unfair by the defendants are in fact unfair, I do not consider that the contracts would be void in their entirety. The contracts, including the guarantee, are capable of operation without those terms. All that is needed for the operation of the contracts and the guarantee is an obligation on the part of the Owner to provide equipment, an obligation on the part of the Hirer to make rental payments in respect of that equipment, and the guarantee obligation. As such, even if the balance of the terms were unfair and void, clauses 6.1(b) and 13 still continue to operate and bind the parties.