Kritikos v Iron Duke Hotel

Judgment (EX TEMPORE - REVISED 29 AUGUST 2012) 1HIS HONOUR: On 25 June 2010, the plaintiff made a Deed of Agreement for Lease with the first defendant (the lessee) as lessee and the second and third defendants (the guarantors) as guarantors. Under that deed, the plaintiff agreed to grant to the lessee a lease of a hotel known as the Iron Duke Hotel. 2On the same date, the same parties entered into a lease of the hotel, between the plaintiff as lessor, the lessee as lessee and the guarantors as guarantors (the lease). 3On 17 September 2010, the same parties made a Deed of Variation whereby they varied certain of the provisions of the Deed of Agreement for Lease. I will refer to that Deed, as varied, as "the Deed". 4The plaintiff's case in these proceedings is that the lessee breached numerous clauses of the Deed and the lease, and that the plaintiff, being entitled so to do, validly terminated the lease and re-entered. The plaintiff seeks a declaration that it has validly terminated the lease and judgment for debt or damages for breach of various provisions of the Deed and the lease itself. 5The defendants did not appear at the hearing today. I am satisfied that they had notice of the hearing. First, they were represented at various directions hearings, including when the matter was set down for hearing today. 6Secondly, on 27 August 2012, the defendants' solicitor wrote to the court advising that his clients would not appear at the hearing, and would not be represented, because they were impecunious. 7The plaintiff's evidence satisfies me that the lessee has breached the Deed in a number of respects. First, by cl 2.2(b) of that deed, it was required to provide a bank guarantee in the sum of $79,200 (representing four months rent plus GST). It has failed to do so. 8Secondly, under the Deed, the lessee was required to pay the plaintiff $197,483.27 by instalments. It has paid in total $100,000 of that amount. The balance of $97,483.27 remains unpaid. 9I will come back to another suggested breach, relating to carrying out certain works of repair. 10Likewise, the plaintiff's evidence satisfies me that the lessee has breached various provisions of the lease. First, it was to pay $22,000 by way of rental on 1 June 2011. That amount has not been paid. The failure to pay it followed upon numerous failures, from December 2010 on, to pay rent on time. 11Secondly, the lessee was required to pay various outgoings, including, I am satisfied on the proper construction of the lease, land tax and management fees. It has been required to pay land tax of $11,335.35 and management fees of $8,921.50. It has failed to do so. 12Thirdly, the lessee was required to comply with laws and other requirements affecting the lease and its occupation and use of the demised premises. In essence, on their proper construction, those provisions required the lessee to comply with notices and other requirements of governmental and local governmental authorities. I am satisfied, on the evidence, that the lessee: (1) has failed to comply with a requirement of Sydney Water to install a back flow prevention containment device; and (2) failed to pay on time gaming machine tax for a particular quarter. 13As to the former: the plaintiff has carried out the work at a cost of $3,181.20. As to the latter: the tax was ultimately paid, but substantially late. 14Thirdly, the lessee was required to indemnify or reimburse the plaintiff for various other expenses including $1,000 for an insurance excess, and $2,467.40 for insurance premium. 15Fourthly, the lessee was required to provide, but has not provided, turnover statements to the plaintiff for the months of January to May 2011. 16Fifthly, under the lease, the lessee was required to pay poker machine use fees as part of the total consideration payable by it to the plaintiff for the occupation and use of the premises. It has failed to do so, in sums totalling $9,447.73. 17I said that I would return to the question of certain building works. 18By cl 3.3 of the Deed, the lessee was required to undertake and complete to the satisfaction of the plaintiff certain works identified in a building inspection report which itself was adequately identified. Time was of the essence of the lessee's obligations. It did not perform them. 19After termination of the lease, the plaintiff engaged tradesmen and contractors to carry out those works. 20If, for some reason that I do not presently perceive, the lessee is not liable for the cost of those works under the Deed, then it is liable for them under the lease because, under the lease, it was required to keep the premises in good repair and condition. By reason of its earlier failure to carry out those works, the premises were not in good repair and condition. Hence, as I have said, if the plaintiff cannot get the cost incurred by it under the Deed, it must get it under the lease. 21Under the lease (and the Deed), interest is payable on moneys outstanding from time to time at a rate which is ascertainable and has been ascertained. Likewise, the basis on which interest is to be calculated is set out in those documents. 22I am satisfied, on the evidence, that by breaching the Deed and the lease in the various ways that I have outlined (and many of the breaches of the lease itself are breaches of conditions agreed by the parties to be essential), the lessee evinced an intention not to be bound by the lease and its obligations under it. The repetition, magnitude and scale of the breaches shows that quite clearly. Thus, in my view, it was open to the plaintiff to treat those breaches, cumulatively, as amounting to a repudiation. This it has done; and it has treated that repudiation as discharging the lease. It did so by re-entering the premises and terminating the lessee's estate. 23In those circumstances, it seems to me, there is no need to go to s 129 of the Conveyancing Act 1919 (NSW). See the judgment of Handley AJA (with whom Tobias and Campbell JJA agreed) in World Best Holdings Ltd v Sarker [2010] NSWCA 24 at [42]. 24Thus, I am satisfied first that the plaintiff has established that it did validly terminate the lease and, secondly, that it is entitled to be paid, by way of debt or damages, the various amounts that it claims (to the extent that it has pressed those claims) together with interest thereon. I shall return to the quantification of those amounts in a moment. 25The claim is pressed also as against the guarantors, pursuant to their separate and express obligations of guarantee and indemnity under the Deed and the lease. There is a minor complication with the former document. The parties are stated to be the plaintiff as landlord, the lessee as tenant and the guarantors as "Guarantor". The deed was executed, as a deed, by the plaintiff, the lessee and each of the guarantors (who signed under the rubric "Guarantor"). The deed of Variation was relevantly identical as to parties and as to the mode of execution. 26Exactly equivalent provisions appeared in the lease which, as I have noted, was made the same day as the agreement for lease. 27Nonetheless, in cl 1.1 of the Deed, which contains definitions, the expression "Guarantor" is defined to mean "Gary Raymond Stewart [the second defendant] and Malcolm Cecil Cochrane". 28I do not know how it was that Mr Cochrane, who is not said to be a party to the agreement for lease or lease, and who did not execute either document, came to be nominated as a "Guarantor". Nonetheless, looking at the agreement as a whole, and construing it in conjunction with the lease made on the same day, I am satisfied that, on its proper construction, the guarantors did intend, regarded objectively, to execute the Deed in the capacity of guarantors, and thereby to give the promises of guarantee and indemnity that are said therein to have been given on the part of the "Guarantor". I do not think that the obvious misnomer to which I have referred affects the proper construction of the Deed. 29Thus, I am satisfied that each of the second and third defendants is liable as a guarantor. 30An affidavit has been sworn which sets out the amount claimed by the plaintiff in respect of each of the monetary breaches to which I have referred, and a calculation of interest, which I am satisfied has been carried out in accordance with the terms of the Deed or lease as the case may be, to the present day. The claims do not go as far as those outlined in the commercial list statement. That is because the plaintiff has accepted, very properly, that it might not be entitled to all the amounts claimed. 31Further, although clearly the plaintiff has an entitlement to interest on the amounts expended by it to carry out the building works which the lessee should have carried out, the plaintiff has not sought to quantify that interest because of the mechanical difficulty of performing a series of calculations on each of the numerous invoices involved. 32Thus, I am satisfied, taking into account both those matters and the clear evidence of breach that I have summarised, that the plaintiff is entitled to judgment in the amount shown in that calculation. Inclusive of interest to today's date, that is $442,336.90. 33I make the following orders: 1.Declare that the plaintiff has validly terminated the lease of the Iron Duke Hotel made between it as lessor and the first defendant as lessee on 25 June 2010. 2. Direct entry of judgment for the plaintiff against each defendant in the sum of $442,336.90. 3. Order the defendants to pay the plaintiff's costs. 4. Direct that the exhibits be handed out.