KFS Financial Services Pty Ltd v Mostamandi

Supreme Court of NSW|2016-11-15|Before: Wilson J

Judgment

This matter concerns the construction of two separate contractual agreements, being a lease agreement and a rental agreement. The defendants leased equipment through the plaintiff, and rented other equipment. The plaintiff complained that the defendants neither discharged all payments due pursuant to the agreements, nor returned the equipment. It sought payment of outstanding monies. The defendants disputed their obligation to pay any monies, and the dispute went before the Local Court.
Commencing on 23 April 2014, and ending with the last of three judgments delivered on 24 May 2016 the Local Court heard and determined that dispute, (broadly) finding in favour of the defendants.
By amended summons filed in this Court on 1 June 2016 the plaintiff appeals and, insofar as is necessary seeks leave to appeal, the decision of the Local Court. Under challenge are three judgments of Magistrate Bradd: 18 May 2015, 4 December 2015, and 24 May 2016.

Factual Background

The plaintiff in this matter is a finance company; the defendants together traded as Crystal Pictures. The parties entered into two contracts; a lease agreement and a rental agreement.

Lease Agreement

On 20 February 2006, the plaintiff and the defendant entered into a lease agreement (contract no. TKD0106359) for 3 items; a Noritsu QSS SM Digital Minilab, and 2 LS Heads Order Station ("the Leased Equipment"). The agreement specified the following relevant terms: - The defendant would lease the Lease Equipment from the plaintiff; - The defendants would pay $2582.80 per month (which was reduced to $2565.21 in January 2007 with the abolition of stamp duty); - The initial term of the lease agreement was for 60 months (due to expire on 19 February 2011); - When the lease agreement ended, the defendants must return the Lease Equipment to the plaintiff and pay for the cost of delivery (cl 4.3); - When the lease agreement ended, the defendants are required to return the Lease Equipment to the "address mentioned above" (cl 4.3); - If the Lease Equipment is not returned to the plaintiff immediately, one-thirtieth of the monthly rental instalment for each day is due until the goods are returned (cl 4.4). (CB 336-337)
The defendants have not returned the Lease Equipment to the plaintiff and remain in possession of it.
Monthly instalments were paid in accordance with the contract until October 2008. In the period of November 2008 until July 2013, $146,234.07 fell due and $71,933.77 was paid by the defendants.

Rental Agreement

On 30 September 2007, the plaintiff and defendants entered into a rental agreement (contract no. SKD0106719). The items the subject of the rental agreement were 2 KPM 64 Digital Stations ("the Rental Equipment"). In that contract it was agreed: - The defendants would rent the Rental Equipment from the plaintiff; - The defendants would make payment of $548.90 per month to the plaintiff for the Rental Equipment; - The initial term of the rental agreement was 36 months; - When the rental agreement ended, the defendants must return the Rental Equipment to the plaintiff and pay for the cost of delivery (cl 4.3); - When the rental agreement ended, the defendants are required to return the Rental Equipment to the "address mentioned above" (cl 4.3); - If the Rental Equipment is not returned to the plaintiff immediately, one-thirtieth of the monthly rental instalment for each day is due until the goods are returned (cl 4.4). (CB 351-355)
The defendants remain in possession of the Rental Equipment.
Monthly instalments of $548.90 were payable. Between September 2007 and July 2013, $38,971.90 fell due. Of this amount, $15,066.60 was paid by the defendants.

Local Court Proceedings

The plaintiff sued the defendant in the Local Court for breach of both the rental agreement and the lease agreement; the breaches being the arrears accrued in each of the separate contracts. The primary issue at hearing was whether moneys were due under the contract.
The Local Court hearing for this matter took place over 5 non-consecutive days; 24 April 2014, 16 June 2014, 29 August 2014, 31 October 2014 and 16 March 2015.
After taking evidence and submissions, three separate judgments were delivered by Magistrate Bradd, similarly separated by intervals of time.
On 18 May 2015, the Magistrate made factual findings in relation to the two agreements: 1. The defendants were not liable for maintenance charges that were charged by the plaintiff in the lease agreement; 2. The lease agreement expired on the expiry of the term of the lease; 3. The rental agreement was terminated on 3 April 2011; 4. The defendants were not liable for maintenance charges charged by the plaintiff in the rental agreement; 5. The defendants have a liability of $3021.60 under the terms of the rental agreement; 6. The defendants overpaid $14,160 under the terms of the lease agreement.
In light of those factual findings, his Honour invited the parties to make submissions in relation to the final accounting, judgment and costs. After receiving those submissions, the Magistrate delivered a further judgment on 4 December 2015. The Orders made by the Court were: 1. The judgment of the Court is for the plaintiff in the sum of $3021.60; 2. The defendant is to pay pre-judgment interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW) from 09/07/2015; 3. The parties may be heard as to costs; 4. The enforcement of the judgment of the plaintiff is stayed pursuant to section 135 of that Act.
On 24 May 2016, the costs judgment was handed down. In that judgment, the plaintiff was ordered to pay the costs of the defendants, in part on the basis of the Magistrate's conclusion that the plaintiff failed to prove its case, and in part because the court concluded that the plaintiff had falsified evidence and, as a consequence, caused the proceedings to be protracted.
Advancing 26 grounds, the plaintiff contends that the proceedings before the Local Court and the decisions of the Magistrate were infected by error such that this Court should set aside the judgments of the Local Court.
The plaintiff submits that each of the grounds, 1 to 25A inclusive, raise a question of law and, as such, the appeal is brought as of right: s 39 of the Local Court Act 2007 (NSW). Insofar as there may be a mixed question of fact and law, leave to appeal is sought: s 40 of the same Act.

The Lease Agreement

In relation to the lease agreement, the plaintiff advances the following ten grounds of appeal: "Ground 1: His Honour erred in law in interpreting the lease agreement in finding that the defendants were not liable to the plaintiff for the monthly lease instalments amount/s as agreed in the lease agreement. Ground 2: His Honour erred in law in interpreting the lease agreement in failing to find that the defendants were liable to the plaintiff for the monthly lease instalment amount/s as agreed in the lease agreement. Ground 3: His Honour erred in law in interpreting the lease agreement by going behind the agreed monthly lease instalment amount contrary to the four corners rule/doctrine. Ground 4: His Honour erred in law in interpreting the lease agreement in finding that as maintenance and service was not provided or delivered by the Plaintiff it does not form part of the lease agreement and the defendants are not liable to pay $14,160 for maintenance. Ground 5: His Honour erred in law in interpreting the lease agreement in finding that it expired on the expiration of the lease period. Ground 6: His Honour erred in law in interpreting the lease agreement in finding that the Plaintiff breached the lease agreement by failing to provide a delivery address at the end of the lease agreement. Ground 7: His Honour erred in law in interpreting the lease agreement in finding that the address on the lease agreement was for service of notices and not for the delivery of the equipment. Ground 8: His Honour erred in law in interpreting the lease agreement in finding that the Plaintiff varied the lease agreement by allowing the Defendants to remain in possession of the equipment providing that CP paid the residual value for equipment. Ground 9: His Honour erred in law in interpreting the lease agreement in finding that the Defendants were not liable to the Plaintiff under the lease agreement for any amounts debited after 20 February 2011. Ground 10: His Honour erred in law interpreting the lease agreement in finding that the defendants were not liable to the plaintiff under the lease agreement." (CB 2-3)
Despite the confusing prolixity of the grounds, there are really two issues raised by the ten grounds: did the lease agreement entitle the plaintiff to charge the defendants for costs of maintaining the lease equipment as part of the monthly lease instalment; and when did the agreement expire or otherwise come to an end.
The plaintiff contends that the conclusions reached by the Magistrate with respect to those issues were wrong.

Did the lease agreement entitle the plaintiff to charge the defendants for costs of maintaining the lease equipment as part of the monthly lease instalment?

The defendants at the Local Court pleaded that there was an overpayment for the Leased Equipment, in that they paid too many lease instalments. At some point during the trial, the defendants further pleaded that they were unaware of, and didn't consent to, a maintenance fee being charged to them, a fee evidenced in a Statement of Account (CB 240). The issue of the maintenance fee was not included in the defence as filed and its late inclusion was objected to by the plaintiff in the court below. The Magistrate allowed it.
The Magistrate ultimately concluded that the plaintiff was not entitled pursuant to the agreement to charge a maintenance fee, which it had nevertheless done. His Honour deducted from the amount he concluded the defendants owed the plaintiff all monies paid which were designated as maintenance costs.
The plaintiff contends that that conclusion was wrong.
Relevantly, the terms of the lease agreement are as follows: "Term: 60 months from the date of this contract Rent: $2,582.80 per month (including stamp duty & $234.80 GST) […] 2. Legal effect of this document […] (3) By signing this document, we agree to lease the Goods to you for the Term. (4) You agree to pay the monthly instalments of Rent and to comply with all other obligations. […] 4. General obligations […] (2) Conduct You must keep the Goods in the same good condition as set at the commencing date of this Lease. […] (3) When the Lease ends, you must: - return the Goods to us, in good condition and with any spare parts, and - pay for the cost of delivery, and - do the things stated in clause 5 if we say they are required." (CB 336-337)
There is no specific term of the agreement which refers to, or authorises the plaintiff to charge the defendants for the maintenance of the lease equipment. There was no evidence in the Local Court that the plaintiff incurred any maintenance costs; to the contrary, the evidence was that the defendants separately engaged Kodak Australia to service and maintain the equipment and they separately bore the costs of that service agreement.
The Magistrate concluded: "KFS did not promise to arrange maintenance and service of the lease equipment. The agreement is silent about maintenance and service. KFS has not performed maintenance and service. It has charged $14,160 for maintenance (exhibit 5). The defendants by reading the lease agreement could not know that the monthly rent they agreed to pay included an element for maintenance. A reasonable person in the position of the defendants would not have understood that the monthly rental included an amount for maintenance because the agreement is silent about it. A reasonable person in the position of the defendants would have understood that they were liable to keep the goods in the same condition as they were at the commencement date of the lease, and consequently had an obligation to maintain the equipment." (CB 24:45)
The plaintiff contends that there was a clear and unambiguous term which required the defendants to pay the monthly rental instalment, regardless of what individual costs and charges that monthly instalment might be comprised of. It is submitted that the Magistrate was in error in going behind the clear term for payment of a monthly fee, by subtracting from it a portion attributable to a maintenance charge ($14,160) and, in so doing, the "four corners rule" was breached.
The "four corners rule" has been stated in various ways. A frequently quoted formulation of it is that of Scrutton LJ in Gibaud v Great Eastern Railway Co [1921] 2 KB 426, at 435: "The principle is well known … that if you undertake to do a thing in a certain way, or to keep a thing in a certain place, with certain conditions protecting it, and have broken the contract by not doing the thing contracted for in the way contracted for, or not keeping the article in the place in which you have contracted to keep it, you cannot rely on the conditions which were only intended to protect you if you carried out the contract in the way in which you had contracted to do it."
I am not certain how that rule or doctrine assists the plaintiff.
It is true that the term requiring the payment of a specific sum of $2,582.80 (later adjusted due to stamp duty) by way of a monthly lease instalment payment, or "rent" as the agreement termed it, was clear. What was not clear was that the plaintiff proposed to charge a fee for a particular service by incorporating the fee into the rental payment. Nothing in the lease agreement authorised or permitted the plaintiff to charge a fee for maintenance, which was neither contracted for nor provided, by calling it "rent".
That is particularly so given other terms of the agreement which specifically required the defendants to "keep the Goods in the same good condition as set at the commencing date of this Lease" (cl 4(2)) and to "return the Goods to us, in good condition" (cl 4(3)) (CB 337). Those terms implied an obligation upon the defendants to maintain the equipment, an obligation that ought not to have been imposed if they were also required to pay the plaintiffs to maintain the equipment.
Counsel for the plaintiff conceded that there was nothing in the agreement pertaining to a maintenance fee. However it was submitted that there is no need for an authority to charge a maintenance fee as the total monthly rental amount includes this fee, and the plaintiffs agreed to the total amount.
In support of its submission, the plaintiff referred the Court to Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ, at [40]: "This court, in Pacific Carriers Ltd v BNP Paribas, has recently affirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. 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. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." (Plaintiff's emphasis)
In applying the principle of objectivity, the plaintiffs assert that it is necessary to look to the express terms of the contract. In this case: "[T]hat is, the defendants would pay rent which is described as rent in the lease agreement, at p 336 of the Court Book of $2582.80 per month, and that is it. There's no suggestion in the lease agreement that says the defendants can go back, if they ever find out how we've calculated the component, that rent, and renegotiate or not pay." (T8:22 of 15 November 2016)
The defendants submitted that no reasonable person in the position of the defendants would have been aware that any maintenance charges were included in either of the agreements. Rather, the onus of maintaining the goods was clearly placed on them. Therefore, they were paying "significant sums of money for some benefit they knew nothing about" (T28:6 of 15 November 2016).
Contrary to the plaintiff's submission, the question does not turn on the construction of the term requiring payment of a monthly sum by way of rent; it turns on a construction of the lease agreement as a whole, an agreement which does not provide for the plaintiff to provide or charge for maintenance of equipment.
The plaintiff submitted that it was not open to the Local Court to deconstruct the monthly rental payment into its component parts, and contended that a rental payment legitimately included such elements as a profit margin, which it is not open to a lessor to challenge, subsequent to having agreed to pay a specific figure as rent.
That submission may be accepted insofar as it relates to the sorts of fees and charges which are commonly and properly incorporated into a rental payment. Any lessor of property or goods might reasonably assume that the rental amount to be paid would be calculated by reference to the cost of and depreciation to the goods, administrative charges incurred by the lessee, and profit, for example. Such costs are commonly included in a rental payment. What a lessee might not reasonably expect or anticipate is that a lessor, requiring the lessee to maintain the leased goods by the terms of the contract, would additionally charge a fee to maintain the goods which was disguised as a component of the rent, in circumstances where no maintenance was offered or provided.
The plaintiff additionally argues that, the maintenance fee issue having been only belatedly raised during the Local Court proceedings, the defendants should not have been permitted to rely upon it. Since the plaintiff was given an opportunity to address the issue, I see no unfairness to the plaintiff in the course the matter took in the Local Court.
No doubt, in considering the maintenance fee aspect of the dispute between the parties, the Magistrate was mindful of ensuring a just overall outcome. I find it difficult to see that justice would be served in upholding an argument for the contractual legitimacy of charging a fee not authorised by the contract, via a stratagem of naming it as something that is authorised. The contract provided for the payment of rent; it did not provide for a fee of an altogether different nature to be charged by calling it rent.
I can see no error in the conclusion of the Magistrate with respect to this aspect of the matter.
Accordingly grounds 1, 2 and 3 should be dismissed. Ground 4 involves a question of mixed fact and law, whilst I would grant leave to advance it, that ground too should be dismissed.
The sum of $14,160 stands to the credit of the defendants.

When did the lease agreement expire?

The lease agreement commenced on 20 February 2006, and the term was for 60 months, or 5 years. The date of expiry would thus be 19 February 2011. Within the agreement the following terms are of relevance: "2. Legal effect of this document […] (4) You agree to pay the monthly instalments of Rent and to comply with all other obligations. […] 4. General Obligations […] (3) When the lease ends, you must: - return the Goods to us, in good condition and with any spare parts, and - pay for the cost of delivery and - do the things stated in clause 5 if we say they are required. You should return the Goods to our address mentioned above unless we write to you requesting you deliver them somewhere else. (4) If you do not return the Goods to us immediately, you must continue to pay us one-thirtieth of the monthly rental instalment for each day until the Goods are returned to us and the provisions of clause 5(3) will apply." (CB 337) "5. Resale […] (3) Where upon the expiry of the Lease by effluxion of time, we consent to you remaining in possession of the Goods, Clauses 5(1) and (2) will only come into operation upon the termination of such extended possession. Such possession will be on a monthly basis at a monthly rental equal to the average monthly rental payable during the Term subject to termination by one month's written notice by one of us to the other and will be otherwise subject to the provisions of this Lease insofar as they are capable of application. […] 9. Termination of Breach It is a fundamental provision of this Lease that any of the following events does not occur: (a) you default in payment of your monthly instalment of Rent and continue default for 7 days; or (b) you breach any of the terms of the insurance policy in relation to the Goods; or (c) we discover a false statement or omission made by you in this Lease; or (d) an application is made or resolution is passed to wind you up or; (e) a receiver is appointed to you or any part of your assets and income or an administrator is appointed to you; or (f) the insurance policy over the Goods is refused or cancelled; or (g) any act which you cause or permit threatens the safety, condition or safe keeping of the Goods; or (h) you cease to carry on your business or, if you are a partnership or company, there is a material change in your ownership or control - You will repudiate this Lease and we may terminate it by notice to you if any of these events occurs, or if your conduct indicates that you no longer intend to be bound by the Lease, and we may at any time and without notice take possession of the Goods. You will then be liable to pay us the sum calculated as FIGURE B above. Your liability to us does not limit any other legal action we may have against you for breach of this Lease." (CB 338)
In the Local Court the Magistrate found that there was a degree of inconsistency in the terms of the lease agreement relevant to its expiration or termination and that cl 4(4) and cl 5(3) could not stand together.
His Honour concluded that the lease agreement had not been terminated by either party, a conclusion that the plaintiff does not take issue with. What is disputed is his Honour's conclusion that the lease expired at the end of the 60 month term and, thereafter, the plaintiff breached the terms of the agreement by failing to provide an address to the defendants to which they were to deliver the goods by way of return to the plaintiffs.
In reaching that conclusion His Honour accepted evidence from Mr Mostamandi that he had asked Alleasing (for the plaintiff) to collect the equipment and was told that he would be provided with an address to deliver the equipment. Mr Mostamandi said that he was not provided with a delivery address. That evidence, from the defendant's statement (CB 386:51), had however, had been struck out. Accordingly, there was no evidence upon which to found that conclusion and the plaintiff's complaint about this aspect of the matter must be upheld.
Grounds 5, 9, and 10 must be upheld.
It is necessary to resolve the issue of when and how the agreement was terminated, and what monies were owed by the defendants by way of rental payments.
The plaintiff did not, in submission to this Court, suggest when or on what basis the agreement should be determined to have come to an end. In the Local Court, it submitted that "there hasn't been a termination by either camp" (CB 251:33). In written submissions (CB 256ff) the plaintiff argued that the Local Court should order the defendants to pay unpaid rental up to July 2013, the outstanding amount being $70,300.30.
Since, on the plaintiff's argument the lease agreement remains in force and the defendants continue under an obligation to pay a rental fee calculated at one thirtieth of the monthly lease payment, it is not clear why July 2013 has been selected as the end date for the defendant's liability, other than that July 2013 was when the plaintiff commenced Local Court action. The selection of the date is otherwise seemingly arbitrary.
On the plaintiff's submission, the agreement continues because the defendants retain possession of the goods. Reliance is placed upon clause 4(3) of the agreement as set out above at [44].
The "address mentioned above," referred to in clause 4.3 is identified at the preceding page of the agreement which states that the address for notice is 173 Elizabeth Street, Coburg 3058. (It was common ground at the hearing in this Court that, at the material time, the plaintiff was no longer in business at that address or, indeed, in that state.)
The ramifications for not returning the goods at the expiration of the lease are articulated at clause 4(4) and operates to continue the defendants' liability for the monthly rental, calculated at a daily rate until such time as the goods are returned.
The defendants submit that in February 2011 they were notified that the plaintiffs intended to sell the Leased Equipment by public auction, and that they would be further notified of a substitute address of delivery. They assert that this substitute address was never provided.
In the Local Court it was concluded that there was an oral variation of the contract by which the plaintiff allowed the defendant to remain in possession of the equipment.
The plaintiffs assert that the Magistrate erred in finding that the plaintiff varied the lease agreement by allowing the defendants to remain in possession of the equipment, providing that Crystal Pictures paid the residual value for the equipment. They assert that there was no variation pleaded to that effect in the court below and it was not open to his Honour to make that finding.
The plaintiff asserts that they were entitled to assume that the defendants wanted to continue to be contractually engaged with it, as no notice had been provided and the Leased Equipment had not been returned. Additionally, they were entitled to assume that the defendants were consenting to being charged "one-thirtieth of the monthly rental instalment each day" until the Goods were returned, due to the inclusion of clause 4.4 in the contract.
The plaintiff referred the Court to Bond v Hongkong Bank of Australia Ltd & Ors (1991) 25 NSWLR 286 at 290G - 294B to support the proposition that contracts must be interpreted literally such that if an address of delivery is specified, even if it is invalid, delivery must be made to that address. Despite the fact that the Coburg address was not in operation, the plaintiff submitted that for the defendants to bring their continuing liability to an end their obligation was to deliver the leased equipment to Coburg, irrespective of the validity of the Coburg address, in accordance with the contract (T12:1).
That argument offends common sense. Nor do I regard Bond v Hongkong Bank of Australia Ltd & Ors as providing any real support for the plaintiff's position, since the thing to be served on a particular address in that case was a notice, not heavy and valuable machinery to be dispatched across the continent to an uncertain and doubtful future.
Grounds 6 and 7 should be dismissed.
However, there was evidence before the Local Court that the plaintiff had provided the defendants with an address to which equipment the subject of the agreements should be returned. That evidence is discussed more fully below with respect to the rental agreement. Whilst it is of direct application, and greater relevance to the rental agreement, it is clear that the plaintiff did not vary the lease agreement to allow the defendants to simply keep the equipment.
Business records adduced in evidence by the plaintiff make it tolerably clear that the plaintiff sought to have the equipment returned by the defendants (if the residual was not to be discharged by them) and provided information as to an address for its return. What is also tolerably clear from the evidence is that the defendants had no intention of either returning the equipment, or paying out its value and outstanding lease costs.
For example, an entry for 24 March 2011 records the following: "Cld [mobile telephone number] sw abdul said he is not paying for the $13K and he wants another offer, he also adv a technician is going to fix the machine and then he will call us and make an offer, adv $13K still needs to be paid, cust display colourful language and said no not paying and will call sam." [errors and abbreviations in original] (CB 345)
On 6 March 2012 a similar conversation was noted: "RANG ABDUL SAID HE DOES NOT OWE ANY MONEY SAID HE STILL HAS THE EQUIPMENT BUT FEELS IT IS OUR RESPONSIBILITY TO PICK IT UP I SAID TO READ THE TERMS AND CONDITIONS AND HE HUNG UP ON ME." (CB 347)
There are other entries in a similar vein and, whilst it is not always clear which of the two agreements is under discussion, what is clear is that the defendants were unwilling to pay the amount of money the plaintiff claimed was owed to it, and were unwilling to return the equipment or pay for its residual value.
Ground 8 is made out.
Some practical and fair resolution of the matter must be reached.
There does not seem to be any real dispute that the lease agreement expired at the end of the 60 month term. It must be taken to have continued on in the absence of formal action to terminate it, and whilst monies remained unpaid to discharge the monthly rental, and the residual value of the equipment ($13,585.00).
The agreement must be taken to have remained current as at 4 July 2011 when business records adduced by the plaintiff in evidence before the Local Court show the defendants still endeavouring to meet payments due on the agreement. The entry is: "TKDO106359 spoke to customer about this contract which he has missed a payment of $2500.00 for last month. Customer has agreed to pay $2500.00 this week then anoth $2500.00 in the next 14 days which will bering arrears up to date." [errors and abbreviations in original] (CB 362)
On 20 March 2012 an entry relevant to both the lease agreement and the rental agreement was made in the plaintiff's business records, noting: "Have sent an email after speaking to Fahim on [mobile telephone number] advising that the full payments on both contracts need to be paid as well as the return of the equipment on the rental agreement, and have asked him for his position and he has sent back an email with a copy of two letters which his brother has apparently drafted on the 8th March 2012, advising that the equipment was damaged, they did not understand English very well so did not understand the contract they were entering into, and that if we waive all balances as they feel they have overpaid then they will not pursue damages, and have responded with a copy of each of the agreements, advising that it is very clear the agreement being entered into, I require a copy of bank statements outlining why they feel all payments have been made, the RV is not an option but part of the finance lease and require notification of where they wrote to Kodak advising that the equipment was not functional, otherwise we will proceed against them for the full arrears and equipment costs. Have provided to close of business Thursday for the statements to have been provided." (CB 363)
An email was sent to the defendants on the same day relating to both contracts and stating with respect to the lease agreement that an amount of $11,517.00 was owing by way of final payment (CB 397), together with the residual value of the equipment. It would appear from that e-mail that the plaintiffs regarded a payment in that amount as terminating the agreement, without any requirement for the equipment to be returned, since a distinction was drawn between the rental agreement and the lease agreement, the former requiring return: "To date the payment required to resolve this is as follows: SKD0106719 $15,508 - equipment needs to be returned to finalise once payment of the arrears paid [the rental agreement] TKD0106359 $11,517.00 - finance lease, this would be final payment." (CB 397)
It is apparent that the defendants evinced an intention to terminate the agreement in oral communication with the plaintiffs around 20 March 2011, reflected in the plaintiff's business record entry for that date but no notice of termination was ever given. The agreement thus continued until such time as the commencement of proceedings between the parties ended it.

The Rental Agreement

In relation to the rental agreement, the following grounds of appeal are advanced: "Ground 11: His Honour erred in law in interpreting the rental agreement in finding that the Defendants were not liable to the Plaintiff for the monthly rental instalments. Ground 12: His Honour erred in law in interpreting the rental agreement in failing to find that the Defendants were liable to the Plaintiff for the monthly rental instalment amount/s as agreed in the rental amount. Ground 13: His Honour erred in law in interpreting the rental agreement by going behind the agreed monthly rental instalment amount contrary to the four corners rule/doctrine. Ground 14: His Honour erred in law in interpreting the rental agreement in finding that the address on the rental agreement as for service of notices and not for the delivery of the equipment. Ground 15: His Honour erred in law in interpreting the rental agreement in finding that the post office box was not a sufficient address for delivery of the equipment. Ground 16: His Honour erred in law in interpreting the rental agreement in finding that the rental agreement terminated on 3 April 2011. Ground 17: His Honour erred in law in finding that the Plaintiff had not given any evidence that it paid a maintenance or service provider the maintenance fee. Ground 18: His Honour erred in law in interpreting the rental agreement in finding that the Plaintiff breached clause 8 of the rental agreement by not making an arrangement with a maintenance or service provider. Ground 19: His Honour erred in finding that the Defendants were not liable to pay the maintenance fee due to the breach of the rental agreement by the Plaintiff. Ground 20: His Honour erred in finding that the Defendants were not liable to the Plaintiff for amounts debited to its account after 3 April 2011. Ground 21: His Honour erred in law in finding that the Defendants were not liable to the Plaintiff for the maintenance fee of $5652,00. Ground 22: His Honour erred in law in finding that the Defendants were liable to the Plaintiff for about $3021,60. Ground 23: His Honour erred in law in failing to give sufficient reasons why the email of 18 November 2010 was not sent to the Defendants. Ground 24: His Honour erred in law in finding that the email of 18 November 2010 was not sent to the Defendants." (CB 3-4)
There is a considerable degree of overlap in these grounds and they do not greatly assist me in determining the real issues.
Grounds 11 to 13 and 17 to 22 all raise the issue of payment of a maintenance fee by the defendants as part of the rental payments. That is the first issue.
Grounds 14 to 16 relate to the circumstances of the termination of the agreement, including the question of the return by the defendant to the plaintiff of the Rental Equipment. Grounds 23 and 24 are related to that latter aspect of the matter, and relate to his Honour's conclusions in the Local Court about the falsification of evidence. Ground 25 is advanced as an alternative to ground 24 (CB 5). This is the second issue.
Ground 25A relates to orders as to costs (CB 5). This is the final issue (ground 26 being no more than an application for leave, should leave be required).

Payment of a Maintenance Fee

The rental agreement was an agreement between the plaintiff and the defendants dated 30 September 2007 for the rent of a KPM G4 Digital Station, identified by serial number. The term of the agreement was for 36 months from 30 September 2007 and the monthly rental was in an amount of $548.90. The 36 month term expired on 29 September 2010. (CB 351)
The plaintiff claimed unpaid rents in the Local Court. The defendant disputed the amount claimed, again raising an issue as to the legitimacy of a charge for maintenance of equipment payable as part of the monthly rental.
The Magistrate concluded that the defendants were not obliged to pay a maintenance fee, being an amount of $5652.00 over the life of the contract. His Honour said: "A statement dated 07/01/10 shows a debit for a maintenance fee in the amount of $5652.00. The transaction date is 30/09/07, being the date of the rental agreement. Abdul Mostamandi says that the maintenance fee was not disclosed to CP, and they arranged their own maintenance with Kodak. KFS has not given evidence that it paid a maintenance or service provider the maintenance fee. Apparently, KFS has breached clause 8, by not making an arrangement with a maintenance or service provider. KFS has charged a maintenance fee, but has not arranged maintenance, and consequently has not informed CP of arrangements for maintenance. CP is not liable to pay the maintenance fee due to the breach by KFS." (CB 31-32)
The plaintiff contends that his Honour was in error, and advances a similar argument to that submitted in relation to the lease agreement. It is said that the defendants agreed to pay the amount specified as rent for the equipment, the term of the agreement concerning payment of rent was clear, and there was no basis for the Magistrate to go behind that term.
The defendants submit that there was no contractual basis for the plaintiff to levy a maintenance charge, and no liability in the defendants for its payment arose.
As with the corresponding issue relevant to the lease agreement this issue falls for determination not by interpretation of the meaning of the clause of the agreement as to payment of rent, but by construction of the agreement as a whole.
The relevant terms are as follows (at CB 351-355): "Term: 36 months from the date of this Agreement Rent: $548.90 per month including stamp duty and $49.90 GST […] 2. Legal effect of this document […] (4) You agree to pay the monthly instalments of Rent and to comply with all other obligations. […] 4. General obligations […] (2) You must keep the Goods in the same good condition as at the commencing date of this contract. (3) When the contract ends, you must: - Return the Goods to us, in good condition and with any spare parts, […] […] 8. Maintenance & Services Charges If any charges for equipment maintenance or other services are included in the Rent instalments, you acknowledge that: (a) you have given us a direction to pay the maintenance or service provider and to include such charges in the Rent instalments; (b) we are not responsible for those maintenance or services; and (c) any failure or breach on the part of the maintenance or service provider will not in any way release you from the requirement for you to pay the rental component of the Rent instalments."
The evidence before the Local Court was that the plaintiff did not offer or provide maintenance services with respect to the rental equipment. The defendants separately arranged for maintenance of the equipment with a third party.
My conclusions in relation to the decision of the Magistrate as to this aspect of the matter is the same as the issue relevant to the lease agreement.
The legitimate inclusion of a maintenance fee in the monthly rental was dependent upon there being some clear agreement between the plaintiff and defendants for maintenance to be charged by the plaintiff. There was not.
Clause 8 of the agreement provides for "Maintenance and Service Charges", but it is prefaced by the word "if" (CB 355). That suggests that the authority to include a maintenance fee in the rent instalments was dependent upon the lessor providing maintenance services. It did not. There could be no authority to levy a charge in the rent instalments for a service never contemplated or provided.
I see no error in the conclusions in this regard of the Magistrate. Accordingly, grounds 11 - 13 and 17 - 22 should be dismissed.

The Termination of the Agreement

In his judgment of 18 May 2015 the Magistrate concluded that the rental agreement was terminated on 3 April 2011, despite the failure of the defendants to return the goods. It would appear that his Honour based that conclusion on evidence of correspondence to the defendants from the lessor stating "the rental agreement is now terminated" (CB 29:68).
The defendants relied upon this date as the date of termination of the agreement, if it was not the earlier date of expiry of the 36 month term, 29 September 2010. The plaintiff submitted that the agreement only came to an end after the service of a written notice and upon return of the rental equipment, neither of which had occurred.
The agreement provides as follows relevant to the termination of the agreement: "4. General obligations […] (3) When the contract ends, you must - return the Goods to us, in good condition and with any spare parts, and - pay for the cost of delivery. You should return the Goods to our address mentioned above unless we write to you requesting you to delivery them somewhere else. (4) Unless you - (a) serve on us not less than 90 days prior to the expiration of the Term a notice that you do not wish to extend this contract, and (b) deliver the Goods to us the day after expiration of the Term - this contract will be extended for consecutive 3 month periods, which will continue until one party gives the other 90 days' notice of termination." (CB 354-355)
The Magistrate said: "In accordance with clauses 4(3) and 4(4), the contract terminated 90 days after the lessor received a notice that the lessee did not wish to extend the contract, and deliver the goods to lessor. The inquiry sheet lists communications between KFS and CP for the rental agreement. On 30/06/10, KFS received an email from CP requesting a payment figure. The same day, CP was given a payout figure of $9331.30 and told to return the equipment to the Melbourne warehouse. On 07/07/10, CP sent an email stating that they would pay $2,000 at the beginning of each month. On 10/09/10 a remark is made that "customer is paying as arranged". In 11/11/10, as mentioned above, Andrew Robins informed CP that he would obtain a payout figure and an address for return of equipment." (CB 29:70)
Although it is not entirely clear, it would appear that the Magistrate accepted the "communications" of 30 June 2010 recorded in the plaintiff's inquiry sheet records as sufficient to constitute "notice" as required by cl 4(4) of the rental agreement. The plaintiff complains that there was no evidence of compliance with the requirement of notice, and his Honour erred in this regard.
That submission must be accepted. There was a clear and unambiguous obligation imposed upon the defendants to terminate the agreement by serving on the plaintiff a notice, and returning the goods.
The first of those things required more than an inquiry about terminating the contract. The defendants rely upon the plaintiff's record of an email communication from the defendants to the plaintiff of 30 June 2010 as service of a notice upon the plaintiff. That record (CB 359) is as follows: "30/06/10 ** email received from cust: wanting a payout figure ** email andrew jane for a payout figure so I can forward to cust *** waiting on andrew jane to email me back ** 30/06/10 Client has requested a payout and confirmed same is $9331.30 (inc GST) and payout is $2255.00 (inc GST) if the client wants to return the asset needs to be returned to Melbourne warehouse 30/06/10 ** email cust Please advise that the payout figure for the contract is $9331.30 (inc GST) and the assets is to be returned." [errors and abbreviations in original]
The defendants did not adduce evidence in the Local Court of the e-mail referred to at the start of that entry in which a payout figure was requested.
What is contained in the business record of 30 June 2010 cannot prove service of a notice, as required by cl 4(4), to terminate the agreement. It establishes no more than that, as at 30 June 2010, the defendants were contemplating paying out the contract. It does not establish that they in fact gave notice of termination, a conclusion supported by a later entry of 7 July 2010 from the same record, which records an email from the defendants noting that payment would be made at a rate of $2000 per month to discharge the debt against the contract, without reference to the return of the goods.
It is further supported by an entry in the same record (CB 359) of 11 October 2010 which suggests that the agreement is still in force, with the defendants again contemplating ending it: "Rng mbl#, spke to client, i adv of the missing Oct instalment. At first client adv wll pay 2day & then asked when contract finishes, I adv that given is a rental & onus upon him to adv intentions at ene of term, accnt has rolld into inertia & explained what inertia is. Client requested accnt be stopped & payout figure to return asset, I adv wll obtain both payout figure & an address for asset to be returned to & wll email both to him at [address]@hotmail.com." [errors and abbreviations in original]
Serving a notice, by the language used, implies the conveyance of a written notice to the relevant party. The plaintiff refers to Wilson v Nightingale 8 QB 1163 in support of that proposition.
A record of an inquiry as to a payout figure cannot constitute evidence of the service of a notice by the defendants upon the plaintiff. To that extent the Magistrate was in error, there being no, or no satisfactory, evidence for his conclusion that notice had been served.
Having concluded that notice had been given his Honour went on to consider whether the plaintiff had provided an address for the return of the Rental Equipment, since the "address mentioned above" in cl 4(3) of the agreement was a post office box in Coburg Victoria. He concluded that it had not. His Honour reached this conclusion by rejecting as false evidence tendered by the plaintiff of email correspondence directing the defendants to return the equipment to an auction house in Western Australia (that being the state in which the goods were situate).
That evidence was before the Local Court as Exhibit 4 (CB 369), an e-mail of 18 November 2010 directed to the defendants' business email address. It is as follows: "Good afternoon Abdul With reference to our conversation on 11 November 2010, we advise the payment to finalise this rental agreement is $6,478.00 and is conditional upon funds being received in our office on or before 25 November 2010 and the asset is delivered to our auctioneer. Out EFT details for payment to be made is as follows: Bank: [xxx] Account Name: [xxx] Account Number: [xxx] BSB Number: [xxx] Our Ref: [xxx] When making payment, please quote the above reference number. Our auctioneers address is: Grays Remarketing Att: Paul Sadler C/- AWA Unit 15/ 49 Great Eastern Highway Riverdale WA 6103 Should you have any queries, please contact me on [xxx] quoting reference number SKD0106710."
If accepted, that evidence clearly established that, as at 18 November 2010, the plaintiff, in compliance with cl 4(3) of the rental agreement, had provided an address to which the defendants should return the Rental Equipment. His Honour did not, however accept the evidence. He said: "The defendants assert that the email (exhibit 4) was not sent to CP, and is a recent invention. I find that the email was not sent to CP. I make the finding based on the formatting of the subject email compared to other emails, such as exhibits 9 and 12. The subject email differs from the others in that it does not contain a reference to the contract by its number; i.e. SKD1066719. The date format is different in that the subject email does not state the day of the week. The "From" format is different in that in the subject email the email address of the sender is not stated. In the subject email the font in the body of the email is different from the font the address section. The email is not contained in the statement of Mr McMillan." (CB 29)
The plaintiff complains that, firstly, a post office box is a sufficient address for the return of equipment, and secondly, it was not open to the Magistrate to conclude that the plaintiff's evidence was a fabrication.
It is convenient to deal firstly with his Honour's conclusion as to the falsification of the email since, in light of the conclusion I have reached, the question of the sufficiency of a post office box for return of bulky equipment (grounds 14 and 15) fall away.
The question of the falsity of the e-mail was not raised before the Local Court until address, when the defendants submitted that stylistic variations between the format of Exhibit 4 and other emails from the plaintiff in evidence was such that the court should reject it. The defendants submitted: "[…] the different style, without explanation, would be a cause of concern for you in deciding whether exhibit 4 did, in fact, come from the archives, those being the plaintiff's computer or email system as at November 2010." (CB 240; T19:38 of 23 April 2014)
Whilst the defendants sought to cast doubt upon the legitimacy of the email, it was not suggested that the court should conclude that the e-mail had been fabricated by the plaintiff and, significantly, neither had any such proposition been raised with or put to the relevant witness, Mr McMillan (Mr Robbins not having been called).
Mr McMillan was asked in cross-examination: "Q: Do you know if that email was sent? A: All the communications here I don't know apart from one email that we assumed a position on of the 8th - I don't know if it has been sent or received. We have taken into consideration and a lot of your questions have been based on believing certain actions have been taken, but I haven't got a copy of the email in front of me and I haven't been requested at any stage to pull a copy of that and it has never been refuted." (CB124; T19:38 of 23 April 2014)
He was never given an opportunity to respond to a suggestion (which amounted to an allegation of serious criminality) that the firm he represented had deliberately fabricated a document to be tendered as evidence in court proceedings.
The suggestion was a serious one and it was procedurally very unfair to the plaintiff for the court to make a finding of that nature against it in circumstances where there had been no opportunity for it to answer the allegation or even comment upon it.
Even setting that aside, the basis upon which the Magistrate concluded that the email was a fabrication seems speculative at best. Formatting differences in a printed version of an email may perhaps be enough to raise suspicion, but ordinary experience would suggest that the printed format of an email might vary depending upon the settings of the computer from which it was printed.
There may be many innocent explanations for the variation in the appearance of the printed document, none of which the plaintiff had an opportunity to develop.
Additionally, to conclude that the e-mail was a fabrication overlooked the evidence of the plaintiff's business records which recorded internal inquiries made by staff of the plaintiff as to a payout figure and an address for delivery by the plaintiff of the goods (CB 359), and which noted the dispatch of the email on 18 November 2011 giving the defendants that information (CB 360). Given the chronological nature of those records, and in the absence of any evidence to suggest that the plaintiff's chronological log had been falsified, the entries of 11 October 2010, 15 November 2010, and 18 November 2010 provide strong corroborative evidence of the legitimacy of the email of 18 November 2010.
Accordingly, I have concluded that his Honour was in error in concluding that the defendants had served notice on the plaintiff as to the termination of the rental agreement, and in error in holding that Exhibit 4 had been fabricated. Ground 16 must be upheld. Those conclusions mean that grounds 14 and 15 need not be considered and should be dismissed.
Grounds 23 and 24 must be upheld. Since ground 25 is advanced in the alternative to ground 24 it need not be further considered.
It is necessary to endeavour to resolve the dispute between the parties in a way which is both realistic and fair.
The objective evidence is that the defendants were under an obligation to both serve notice of termination of the contract, and deliver the rental equipment to the plaintiff to effect the termination.
The relevant terms are clear and unambiguous: the rental agreement would continue after its expiration at the end of the 36 months in three month periods unless the defendants served notice of their wish not to extend it, such service being 90 days prior to expiration, and returned the equipment.
The evidence seems to be clear that, upon the defendants making email inquiry as the finalisation of the agreement, the plaintiff provided both a figure by which the financial obligation imposed upon the defendants would be discharged, and an address for the delivery of the equipment.
The defendants subsequently failed to either pay outstanding monies, or return the equipment. There is no issue that the defendants retain possession of the equipment, although I note that the plaintiff neither seeks the return of the equipment nor payment of its value. What is sought is an amount of $23,905.00, that being the amount the plaintiff claims in satisfaction of the contract.
I have concluded that the plaintiff was not entitled under the terms of the rental agreement to charge the defendants for maintenance which was neither offered nor provided. Any monies paid by the defendants as part of rental payments which was a maintenance charge should stand to the credit of the defendants.
Any monies exceeding that figure up to the claimed amount of $23,905.00 should stand to the credit of the plaintiff.
Overall, it is appropriate for the defendants to pay the plaintiff the claimed amount of $98,205.60, less the maintenance fees charged relevant to both agreements ($14, 160.00 + $5652.00).

Grounds as to Costs

Although expressed to be in the alternative to ground 25, ground 25A appears to stand alone.
Having regard to the conclusions I have reached with respect to the other grounds advanced by the plaintiff this ground must be upheld.
Even though I have concluded that the plaintiff's complaints as to the conclusions of the Magistrate concerning maintenance charges are not made out, in other respects the appeal must be upheld. It is appropriate to set aside the orders of the Local Court as to costs. Instead, and having regard to the failure of the grounds relating to maintenance charges, I propose to order the defendants to pay two-thirds of the plaintiff's costs of the Local Court proceedings as agreed or assessed on a party/party basis. I do not propose to award costs in part on an indemnity basis.
Costs of the proceedings in this Court should be awarded in favour of the plaintiff.

orders 1. The appeal is upheld in part. 2. Grounds 5, 8, 9 - 10, 16 and 23 - 24 are upheld. Grounds 1 - 4, 6 - 7, 11 - 13, 14 - 15, 17 - 22, and 25 are dismissed. 3. The judgments of the Local Court of 18 May 2015, 4 December 2015, and 24 May 2016 are set aside. 4. Judgment in favour of the plaintiff in the sum of $78,393.60, together with interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 5. The defendants are to pay two-thirds of the plaintiff's costs of the Local Court proceedings as agreed or assessed on a party/party basis. 6. Costs of these proceedings in favour of the plaintiff.

Amendments 03 March 2017 - Coversheet, Decision (3) 24 May 2016. Body of decision, Order (3) 24 May 2016. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 March 2017

At a glance

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Judgment (14 paragraphs)

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Legislation Cited (2)

Cases Cited (2)

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