McGlone v Kalgold Pty Ltd & Anor [2011] QCA 215

SUPREME COURT OF QUEENSLAND

CITATION: McGlone v Kalgold Pty Ltd & Anor [2011] QCA 215

PARTIES: JOHN ANDREW McGLONE (appellant) v KALGOLD PTY LTD ACN 026 620 432 (first respondent) MELINDA GAY McGLONE (second respondent) HOMEGATE PTY LTD ACN 118 064 449 (not party to appeal)

FILE NO/S: Appeal No 2036 of 2011 DC No 107 of 2009

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: District Court at Maroochydore

DELIVERED ON: 30 August 2011

DELIVERED AT: Brisbane

HEARING DATE: 28 July 2011

JUDGES: Chief Justice, McMurdo and Dalton JJ Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS: Leave to appeal refused****The appellant pay the costs of the first and second respondents on a standard basis to be assessed or agreed

CATCHWORDS: LANDLORD AND TENANT – TERMINATION OF THE TENANCY – GENERALLY – where the appellant raised factual matters not before the primary judge – where the appellant claimed estoppel – where the appellant claimed unjust enrichment – where the appellant claimed the first respondent failed to mitigate its loss – where the appellant claimed mistake – whether there was an estoppel against the landlord – whether a restitutionary remedy was available to the appellant – whether the landlord’s loss was due to its failure to mitigate – whether the guarantee and indemnity could be set aside for mistake / APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – ADMISSION OF FURTHER EVIDENCE – IN GENERAL – where the appellant sought leave to rely on evidence which was not before the primary judge – where the further evidence was in existence at the original hearing – whether leave should be granted to adduce further evidence on appeal / APPEAL AND NEW TRIAL – APPEAL - PRACTICE AND PROCEDURE – QUEENSLAND – WHEN APPEAL LIES – BY LEAVE OF COURT – GENERALLY – whether the appellant needed leave to appeal having regard to the changes to the Magistrates Courts’ jurisdiction after the proceeding commenced, but before judgment / Civil and Criminal Jurisdiction Reform and Modernisation Amendment Act 2010 (Qld), s 98 / District Court of Queensland Act 1967 (Qld), s 118(2)(a) / Magistrates Courts Act 1921 (Qld), s 60 / Benson-Brown v Smith [1999] VSC 208, followed / Brisbane City Council v Mainsel Investments Pty Ltd [1989] 2 Qd R 204, cited

COUNSEL: The appellant appeared on his own behalf S M Gerber for the first respondent T A Nielsen for the second respondent

SOLICITORS: The appellant appeared on his own behalf Schultz Toomey O'Brien Lawyers for the first respondent Ferguson Cannon Lawyers for the second respondent

1. CHIEF JUSTICE: I have had the advantage of reading the reasons for judgment of Dalton J. I agree with the orders proposed by Her Honour, and with her reasons.

2. McMURDO J: I have had the advantage of reading the judgment of Dalton J. I agree with the orders proposed by her Honour and with her reasons save that I would say this about the ground that the respondent did not mitigate its loss.

3. The evidence for the respondent was that the premises were advertised for reletting through only one agent and for about three to four weeks, before another of Mr Iezzi’s companies began to operate the café. According to that company’s profit and loss statement, there was an expense in the form of rent. But no rent was paid. Nor was there any lease or agreement by which this company was liable to pay any rent. In short, the plaintiff saw fit to allow the premises to be occupied for the balance of what had been Homegate’s term upon a rent free basis.

4. I would not infer that these premises were incapable of being relet at any price. In particular, I would not regard the accounts of Mr Iezzi’s other company as supporting that inference. Nor could that have been inferred from the fact that the premises were offered for reletting through an agent for a few weeks, especially absent evidence of the rental at which they were offered.

5. However, the appellant had to plead and prove a failure to mitigate and he did neither. In particular, he failed to prove any amount for which the premises could have been relet. Had he tendered evidence as to that amount, it would have been necessary to consider the countervailing circumstances of the respondent’s interest as a landlord of other parts of the building. Therefore upon the way in which the case was conducted, there was no basis for reducing the loss which the respondent proved it had suffered, which was the loss of rental over what had been the balance of the term.

6. DALTON J: In the District Court, the first respondent landlord sued its erstwhile corporate tenant, Homegate Pty Ltd, and the McGlones, who each provided a guarantee and indemnity in respect of the tenant’s obligations. The proceeding against Homegate was adjourned at the beginning of the trial on the basis that it had been deregistered. The trial proceeded against the two guarantors. The McGlones were married at the time they guaranteed the debts of Homegate, but had parted by the time of the trial. Ms McGlone, who had been the sole director of Homegate, was represented by counsel at the trial, Mr McGlone appeared for himself. The trial was over by the luncheon adjournment on the first day. The primary judge delivered an ex tempore judgment against the McGlones, based on their guarantee of Homegate’s liabilities. The amount was fixed by reference to monies owing under the lease, as well as damages for loss of rent after repudiation by Homegate.

Adjournment of Proceeding against Homegate

8. The appellant says that the proceeding against Homegate ought not to have been adjourned because this had the effect of exposing him to liability under the guarantee and indemnity. This matter was not raised below. It was somewhat unusual for the trial judge to have adjourned the claim against the corporate tenant, rather than to have dismissed it. The company had been deregistered and there was no material before him which might cause him to suspect that it would be re-registered, and have access to funds, in the future. The claim against Homegate might have been dismissed in these circumstances in the interests of finality. However, whether the claim against Homegate was adjourned or dismissed did not affect the liability of the appellant pursuant to the guarantee and indemnity.

Rejection of Offer to Settle

9. The appellant received a letter from his wife’s solicitors before the trial informing him that they were instructed to negotiate a settlement of the proceeding on the basis that the landlord discontinue its claims against Homegate and Mr and Ms McGlone. The appellant complains that, notwithstanding there are some indications that the landlord was prepared to settle, at a price, Ms McGlone did not achieve a settlement and the matter proceeded to trial. Perhaps these matters might have been ventilated at the hearing below as relevant to costs. They were not. I can not see that they had any other potential relevance. They do not amount to any reason to interfere with the decision below.

Dealings between Second Respondent and Landlord prior to Termination of Lease

10. The appellant raises four points,¹ all of which depend upon similar factual circumstances, namely, the attempts made by Ms McGlone to negotiate an acceptable outcome with the landlord when she realised that Homegate would likely default on its obligations under the lease. For the following reasons, none of these points can succeed as a matter of law.

11. The evidence at trial was that as Homegate’s financial position worsened, its director, Ms McGlone, attempted to keep the respondent landlord informed of the tenant’s financial situation, and negotiate some acceptable solution. It emerged in cross-examination of Ms McGlone that at some stage she informed the landlord that Homegate would be unable to trade beyond 30 March 2009. At another point in her cross-examination it emerged that, although she tried repeatedly to negotiate an outcome where the landlord purchased the tenant’s fittings and fixtures, agreement could not be reached as to a price. The landlord withdrew from these negotiations and served a notice to remedy breach upon the tenant. Ms McGlone said that she was surprised by this, but her evidence went no further. There was nothing in evidence at the trial to show that the landlord was estopped from taking the position it adopted. Further, there was no evidence that the negotiation reached a point where Homegate and its landlord agreed to surrender the lease.

12. The appellant criticises the lawyers acting for Ms McGlone at trial for not better proving written evidence of the negotiations between Ms McGlone and the landlord. It must be said that the appellant did not himself attempt to undertake this task at trial. In any event, the written material which the appellant says ought to have been put before the primary judge was put before this Court by the appellant. It does not show either a concluded agreement between Ms McGlone and the landlord, or factual material which could amount to an estoppel against the landlord.

13. Lastly, as to these matters, the appellant says Ms McGlone did not, prior to trial, reveal to him that she had repudiated the tenancy on behalf of the tenant by telling the landlord that the tenant would be unable to trade after 30 March 2009. He says her failure to do so was a breach of a fiduciary duty she owed him and as a result he defended the trial and was ordered to pay the costs of the successful landlord.

14. In cross-examination Ms McGlone accepted that she had determined that Homegate would not trade after 30 March 2009, and that in fact she had stopped Homegate trading on 30 March 2009, that is, prior to the expiry of the lease. She further conceded that Homegate could not pay its rent in the period shortly prior to this and could not pay the amount specified in the notice to remedy breach, which she conceded was owing. It is true that Ms McGlone’s defence did not specifically state these matters, but as they were adverse to her interests, and not specifically required to respond to allegations made by the plaintiff, that is hardly surprising. Ms McGlone owed no duty to Mr McGlone to apprise him of the admissions she might make against interest in cross-examination. They were both litigants with separate interests: Mr McGlone in his defence and counterclaim made allegations against Ms McGlone. There could not be any duty of the type alleged in these circumstances.

Abandonment and Unjust Enrichment

15. Associated with the four points dealt with above is a claim by the appellant that the primary judge was wrong to find that the tenant’s fixtures and fittings, which remained in the premises at the time the landlord re-entered, were abandoned by the lessee.

16. The appellant’s argument is based on the dealings between the landlord’s representative and Ms McGlone in the time leading up to the delivery of the notice to remedy breach, and in the week subsequent to that, before the landlord re‑entered. Again, the appellant relies upon the fact that these individuals were in negotiations to find some satisfactory solution to Homegate’s financial problems, in particular, the purchase by the landlord of the tenant’s fixtures and fittings. However, it is clear from the evidence below that the parties did not reach that agreement. It is also clear that at or about the time the notice to remedy breach was delivered, the landlord’s representative broke off negotiations in this regard. At that point, it was incumbent upon Homegate to remove its fittings and fixtures if it did not wish to run the risk that they would be treated as abandoned under the lease. Ms McGlone knew Homegate was unable to remedy the breach and therefore it was incumbent on her to act accordingly. The fact that Ms McGlone, on behalf of Homegate, did not intend to give up ownership of the fittings and fixtures does not bear upon the legal question of whether or not they were abandoned under the terms of the lease.

17. A layperson might see the lease’s providing for property in the tenant’s fittings and fixtures to pass to the landlord in these circumstances, without consideration, as unjustly enriching the landlord. However, the evidence falls short of establishing what must be shown to establish a restitutionary remedy. There is no general right founded on principles of unjust enrichment in Australian law.

Failure to Mitigate by Landlord

18. In the proceeding the landlord claimed as damages the amount of rent and outgoings which would have become due under the lease up until the time when it would have expired by effluxion of time (seven months). Both the McGlones separately pleaded that the landlord had in fact mitigated the loss it suffered because it had taken possession of the premises and operated it after terminating the lease in question. The premises leased was a coffee shop and homeware shop on the ground floor of a 12 storey building. There were other retail and commercial premises on the ground floor, and the higher floors were apartments, some of which were let as holiday units. The respondent landlord was the owner of the entire ground floor of the building and a related company had constructed the entire building in 2005.

19. At trial, the evidence from Mr Iezzi, a director of the landlord, was that he had listed the premises with a real estate agent soon after termination of the lease, but that after a month, a tenant had not been found. He then arranged to have another company controlled by him operate the coffee shop. He swore that the related company did not pay the respondent any rent and put in evidence a profit and loss statement for the coffee shop which showed that it ran at a loss for the entire period April to November 2009. The statement showed a loss each month (except one), and a total loss of about $50,000 over the seven months, even though no rent was paid.

20. In the view of Mr Iezzi, it was important to the respondent landlord to have the coffee shop operating on the ground floor of the building because:

(a)this made the premises more attractive to potential new tenants of the coffee shop;

(b)an empty coffee shop on the ground floor detracted from the overall commerciality of the building and adversely affected the other retail and commercial tenants on the ground floor;

(c)some residents of the apartment building were entitled to free meals from the coffee shop pursuant to the terms of their occupancy. Furthermore, the coffee shop was important to the commercial success of the holiday rental apartments in the building.

21. The rule is that a claimant must take all reasonable steps to mitigate loss consequent on a breach of contract. A claimant is debarred from claiming damage which is due to his neglect to take such steps.² The onus of proof on the issue of mitigation is on the defendant. If that onus is not met, then a normal measure of damages is applicable.³ In this case neither of the McGlones pleaded a general failure to mitigate. They pleaded that the landlord had failed to account for mitigating measures it had undertaken. Cross-examination was directed to this topic by both the appellant and counsel representing Ms McGlone. It was not successful in showing that the actions taken by the landlord to run the coffee shop mitigated its loss.

22. The only cross-examination at trial which ventured beyond the pleaded cases was undertaken by the appellant. He asked a few questions which revealed that the extent of the landlord’s efforts to mitigate its loss consisted solely of listing the vacant shop with one real estate agent for a month at the same rental as Homegate had paid under the terminated lease. The shop was not listed with another real estate agent until November 2009. It was then listed with a third agent in December 2009. There was no cross-examination directed to establishing whether or not listing with additional real estate agents in November and December 2009 produced any new tenant for the coffee shop. There was no evidence that tenants may have been available had a lower rent been asked. There was no evidence as to what occurred after November 2009. It is not known whether the coffee shop was ever relet, and at what rent. There was no cross-examination as to how vigorously the landlord pursued the issue of finding a new tenant between April and November 2009.

23. The evidence was that the tenant previous to Homegate had breached its lease because it did not pay the rent. Homegate breached the lease because it could not pay the rent. The company put into the premises by the landlord made a loss of over $50,000 between April and November 2009 in circumstances where it did not pay any rent. The primary judge took judicial notice of the fact that the global financial crisis had affected the economy shortly before the events in question in this litigation. Having regard to all the evidence, I do not think the primary judge was incorrect in awarding damages for the full seven month period after termination of the lease. There was nothing to show that a different course of action taken by the landlord would have resulted in its reletting the premises between April and November 2009. To the contrary, the evidence was that the coffee shop was not an attractive proposition for a new tenant to take on, at any rent.

24. On the appeal, the appellant sought to introduce evidence that he had tried to locate the agent with whom the premises had been listed from April 2009 without success. The inference was that the agent did not exist. Having regard to the principles in this Court should not receive this further evidence. It was reasonably available at the time of trial, but was not led or put to Mr Iezzi. The appellant also asserted on appeal that the landlord failed to advertise the premises in any way. Once again, this was the type of evidence that should have been led by the appellant at trial if he intended to rely upon it. As noted above, nothing like this was pleaded by either of the McGlones below.

Knowledge of the Appellant of Tenant’s Breach of Contract

26. The appellant feels aggrieved because when Homegate began to experience financial difficulties such that it could not pay its rent, and afterwards, the landlord did not bring these matters to his attention. The landlord was in active negotiation with the sole director of Homegate, Ms McGlone, about these matters. By this stage the McGlones were separated and Ms McGlone apparently did not bring the matters to the attention of the appellant. It seems clear that the appellant was only informed of matters after the lease had been terminated. While one can understand his frustration at this circumstance, he had no legal right to be involved in the matter earlier and late notice to him cannot affect the landlord’s right to recover from him.

27. In this context I note that the guarantee upon which the landlord relied at trial was payable on demand, and that the landlord did not prove a demand. The document of guarantee and indemnity which the plaintiff proved at trial did, however, contain an indemnity, and a clause providing that the appellant’s liability under the document was a primary liability. In these circumstances, I cannot see that the lack of demand avails the appellant.⁵

Mistake and Unconscionability

28. The appellant asserted on appeal that he had not understood what he was signing when he signed the guarantee and indemnity along with other papers connected with financing and leasing the premises. The appellant said that he did not read the guarantee before signing it. He conceded that this was not raised in his defence and that he did not raise it at trial.

29. While it may be correct to refer colloquially to the signing of the guarantee in these circumstances as a mistake, the matters raised by the appellant fall short of establishing those necessary to set aside a document pursuant to the legal doctrines of mistake. The matters also fall short of establishing any other reason why, in law, the guarantee and indemnity is not enforceable against him.

30. The appellant advanced the very broad submission that the decision of the primary judge was unconscionable. In support of this submission he relied upon his submissions as to mistake and also as to the four points discussed under the head, “Dealings between Second Respondent and Landlord prior to Termination of Lease” above. Again, the matters raised by the appellant do not amount to unconscionability in the technical sense in which that term is used in equity.

Leave to Appeal

31. The first respondent submitted that the appellant required leave to appeal. Relevantly, s 118(2)(a) of the District Court of Queensland Act 1967 provides:

“…

(2)A party who is dissatisfied with a final or interlocutory judgment of the District Court in its original jurisdiction may appeal to the Court of Appeal if the judgment –

(a)is given for an amount equal to or more than the Magistrates Courts jurisdictional limit; or

…”

Otherwise, leave is necessary to appeal.

32. At the time the proceeding between these parties commenced in the District Court, the jurisdiction of the Magistrates Court was $50,000. On 1 November 2010 that jurisdiction was increased to $150,000.⁶ Judgment below was delivered on 14 February 2011. In my view leave is necessary. For the purpose of s 118(2)(a) of the District Court of Queensland Act, the relevant date to assess whether the judgment given exceeds the jurisdiction of the Magistrates Court is the date of delivery of the judgment which is to be appealed. It is on delivery of the judgment that a dissatisfied party gains the right to appeal. In my view this does not involve any retrospective operation of the Civil and Criminal Jurisdiction Reform and Modernisation Amendment Act 2010 (Qld), and does not offend s 60 of the Magistrates Courts Act 1921 (Qld).

33. The hearing of the appeal proceeded on the basis that the Court would reserve the question of whether or not leave was necessary, but would grant it if necessary to allow the appellant to ventilate a meritorious case. As can be seen from the discussion above, my view is that the appellant does not have a meritorious appeal.

Disposition

34. I would refuse leave to appeal and order that the appellant pay the costs of the first and second respondents on a standard basis to be assessed or agreed. In relation to the costs of the second respondent, my view is that the orders the appellant sought on appeal made it reasonable for her to appear at the hearing.

Footnotes

1. In the appellant’s outline of argument these points are entitled, “Breach of Fiduciary Obligations by Melinda McGlone Director of Homegate Pty Ltd”, “Failure to put All Available Evidence before the Court”, “Negotiations Lead to Estoppel” and “Surrender of the Lease”. ↩

2. British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, 689. ↩

3. McGregor on Damages, 18th ed, 2009 [7-019] cited in Re: Castleplex Pty Ltd (in liq) [2010] QCA 59 [25]-[27], following Tasman Pty Ltd v Sinclair [2008] NSWCA 248; Sequel Drill & Blast P/L v Whitsunday Crushers P/L [2009] QCA 218 [32]; Pialba Commercial Gardens Pty Ltd v Braxco Pty Ltd & Ors [2011] QCA 148 [98]. ↩

4. [1984] 1 Qd R 404, 408, cited in Brisbane City Council v Mainsel Investments Pty Ltd [1989] 2 Qd R 204, 215. ↩

5. Benson-Brown v Smith [1999] VSC 208. ↩

6. Section 98 Civil and Criminal Jurisdiction Reform and Modernisation Amendment Act 2010, and Subordinate Legislation 2010 No 236. ↩