Mitcham Road Pty Ltd v Carlovers Carwash Limited [2001] VSC 225

9. The plaintiff, Mitcham Road Pty Ltd ("the plaintiff"), is the owner of land situated at Lot 47 Mitcham Road, Donvale, in this State ("the land"), which it purchased by contract of sale on 26 September 1997. It purchased the land from a company called Welara Pty Ltd.

12. The acquisition of the land was subject to a lease which was made between Welara Pty Ltd and the defendant, Carlovers Carwash Limited ("the defendant").

15. By a written lease dated 27 June 1996, Welara Pty Ltd and the defendant entered into a lease whereby the defendant leased part of the land. The lease was for an initial term of 15 years, commencing on 30 June 1996. It was to expire on 29 June 2001.

18. The defendant is a company which carries on the business, inter alia, of conducting carwash facilities available to the public. Installed on the land was a carwash facility.

21. The initial rental was $111,980.16 per annum and this was increased, in accordance with the provisions of the lease on 29 September 1999, to $115,339.56.

25. After the plaintiff acquired the land, the defendant paid the rent by monthly instalments until 1 August 1999. The defendant failed to pay the rent on 1 August 1999 and failed in the following months, including November.

28. In accordance with the lease, the plaintiff demanded payment of the unpaid rental by letters dated 17 August 1999, 7 September 1999 and 1 October 1999.

31. In addition to failing to pay the rent as it fell due, the defendant, in breach of the lease, failed to pay the water rates and land tax. Demands were made but the defendant failed to pay.

34. On 1 October 1999, the plaintiff demanded payment of the rates and taxes by way of notice pursuant to s.146 of the Property Law Act 1958.

37. The plaintiff terminated the lease by a letter dated 18 November 1999 and re-entered the premises on 25 November 1999, bringing the lease to an end.

40. On 16 December 1999, the plaintiff issued a writ in this Court against the defendant seeking payment of accrued rental, water rates, land tax, costs of re-entry, legal costs, damages for repair and replacement of equipment, and damages for the loss of the bargain.

43. The defendant delivered its defence on 20 March 2000.

46. On 9 May 2001, the plaintiff filed a summons seeking summary judgment against the defendant pursuant to Order 22 of the Rules of Court.

50. After a contested hearing, the Master held that the defendant had not satisfied the court that there was a question to be tried or that for some other reason, there should be a trial of the claims. See Rule 22.06(1)(b).

53. Accordingly, he entered judgment for the plaintiff against the defendant for damages to be assessed, gave directions with respect to filing further affidavit material, and adjourned the matter until 24 September 2001 for the assessment of damages.

57. The parties are in agreement that the plaintiff has established on the material before the Court, that it and the defendant were at all relevant times landlord and tenant, that the lease, dated 27 June 1996, governed their relationship, that the defendant was in breach of covenants of the lease with respect to the payment of rent, land tax and water rates, that the necessary notices had been given prior to termination of the lease, and that the lease was terminated on or about 25 November 1999 when the plaintiff re-entered the premises and took possession.

60. The lease has been terminated as a result of the re-entry.

63. In those circumstances, it was submitted on behalf of the plaintiff, by Mr T.R. Messer of counsel, that it was entitled to damages and that it was entitled to judgment for damages to be assessed.

66. In my opinion, it is clear on the material before the court that the plaintiff has established the contract, breach and termination of the lease and in accordance with normal principles, is entitled to damages. It is entitled to at least nominal damages and, of course, is entitled to substantial damages upon proof.

70. It was submitted on behalf of the defendant, that the plaintiff was not entitled to interlocutory judgment for damages to be assessed because -

(i) there had been an accord and satisfaction which compromised the claims made by the plaintiff;

(ii) the lease provided a code for the recovery of damages and the plaintiff's right to damages had not crystallised;

(iii) the plaintiff's right to damages was lost by the plaintiff electing not to lease the property;

(iv) there were a number of difficult points of law and fact relating to damages and hence there ought to be a trial of the claims.

A. Accord and Satisfaction

76. The writ was issued on 16 December 1999 and was served on the defendant. The relief clause claimed a number of separate amounts, which totalled $41,959.69. The amounts were for accrued rent, water rents, land tax and costs of re-entry.

79. In addition to those specified claims, the relief clause also sought three other claims, namely -

"D. Pursuant to paragraph 22 above, the annual rent (as amended by clause 4(b) of the lease) for the remainder of the term or alternatively, damages in that sum.

F. Pursuant to paragraph 28 above, the plaintiff's legal costs or alternatively, damages in that sum.

H. Pursuant to paragraph 33 above, the cost of repair and/or replacement of carwash equipment at the premises or alternatively damages in that sum."

87. It can be readily seen that in addition to the sums certain, alleged to have been due and owing, there were three claims for general damages for breach of contract.

90. Before filing an appearance, on 1 February 2000 a representative of the defendant sent the following letter to the plaintiff.

93. It was addressed to the plaintiff. The letter provided -

"Dear Sir/Madam, RE: writ #7948/1999 Please find attached a cheque for the amount of $41,955.69 for settlement of the above claim. However, we reserve our rights in relation to the claim for: * Water rates * Land tax * Costs or re-entering and re-possessing the premises to verify and confirm the amount claimed to be outstanding. Regards, Andrew Teh."

97. The amount of the cheque totalled the sums certain claimed, which were specified in the relief clause of the writ, but there was no allowance for any damages.

100. In support of the defendant's case, Robbie Fong swore an affidavit on 1 June 2000, in which he stated that the letter and the cheque were sent, and in another affidavit, deposed to the fact that the cheque was presented on or about 4 February 2000.

103. On 4 February 2000, the defendant filed an appearance in this court through a firm of solicitors.

106. In an affidavit sworn 19 June 2001, which was not before the Master, Constantinos Nottas, a solicitor, deposed to a conversation had with a Mr Andrew Harris, who was the solicitor handling the matter at the relevant time on behalf of the plaintiff. The evidence revealed that Mr Harris had no communication with the defendant up to the receipt of the letter dated 1 February 2000. It follows that Mr Harris, at no time, expressly agreed, on behalf of the plaintiff, to accept the sum in full settlement of the plaintiff's claims, the subject of the proceeding. Mr Nottas also deposes to a conversation with Mr James Hooper, the secretary of the plaintiff, and the evidence is to the same effect, in that he had no contact or discussions with the defendant or its solicitors prior to the receipt of the cheque.

109. It is clear that the amount of the cheque represents the amounts quantified in the original statement of claim, but makes no allowance for general damages.

112. What the defendant did, in this case, is not new and indeed, debtors over the last 150 years have been employing the same device to avoid payments of their debts, by forwarding amounts, always less than the full claim, on the basis of a so-called full settlement, in the hope that the creditor may accept and bank the cheque without demur. Most attempts to block a creditor's claims are unmeritorious.

"Accord and satisfaction is the purchase of a release from an obligation, whether arising under contract or tort, by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative." (Emphasis added).

- per Scrutton LJ in British Russian Gazette v Associated Newspapers Ltd (1933) 2 KB 616 at 643.

117. In the present matter, there were no discussions had between the parties or their respective legal practitioners prior to the receipt of the cheque. The cheque was calculated by reference to specified sums and omitted to make any allowance for the claims for general damages.

120. The claims here were a mixture of liquidated sums and general damages. Clearly, there was a dispute between the parties. Before there can be an accord and satisfaction, it is necessary to establish that the parties agreed on a sum in satisfaction of the claims. There is absolutely no evidence of any negotiations leading to an agreement. What is put by the defendant is that one can infer an agreement by the receipt of the cheque and acceptance of the amount.

123. In Day v Mclea (1889) 22 QBD 610, Lord Esher MR at 613 said -

"The question, therefore, whether there has been an accord and satisfaction is one of fact."

127. Bowen LJ, on the same page, expanded the question for determination by the tribunal of fact when he said -

"If a person sends a sum of money on the terms that it is to be taken, if at all, in satisfaction of a larger claim; and if the money is kept, it is a question of fact as to the terms upon which it is so kept. Accord and satisfaction apply in agreement to take the money in satisfaction of the claim in respect of which it is sent. If accord is a question of agreement, there must be either two minds agreeing or one of the two persons acting in such a way as to induce the other to think that the money is taken in satisfaction of the claim, and to cause him to act upon that view. In either case it is a question of fact." (Emphases added).

131. In my opinion, it is necessary for the party alleging accord and satisfaction, in this case the defendant, to prove that there was an agreement whereby the plaintiff was prepared to accept the sum sent in full satisfaction of all claims in the statement of claim. In my opinion, the evidence does not establish any agreement to that effect. Indeed, the amount of the cheque was calculated on the basis of a number of claims, but not including the balance of the claims.

134. The defendant relies upon the conduct of the parties as evincing an agreement between them that all claims were compromised on the basis of the payment of the cheque. In determining this issue, it is necessary to take into account all the circumstances surrounding the sending of the cheque to determine whether objectively, the parties agreed to such terms. There were no negotiations prior to the letter and cheque being sent, the statement of claim sought payment of the sum certain and damages, the letter itself did not refer to all claims, and by comparing the amount of the cheque to the sum certain, it is clear that the amount was paid with respect to those claims and those claims only.

137. In my opinion, there was no consensus between the parties and accordingly, there was no accord. I also refer to the Full Court decision of F.T. Jeffrey Pty Ltd v Evington Holdings Pty Ltd (Receiver and Manager Appointed) (unreported, delivered 24 November 1977).

140. In my opinion, the defendant has failed to establish that there is any defence based upon accord and satisfaction.

144. The plaintiff submits that it is entitled to damages in accordance with the normal principles of contract concerning damages. It claims that it is entitled to be paid for any accrued liabilities existing at the date of termination of the contract, and is entitled to damages for the loss of the bargain. As against this, the defendant submits that the contract specifically provided for recovery of damages and that since the plaintiff had not re-let the premises, it was not entitled to damages under the contract.

147. Clause 3(m) of the lease prescribed what clauses of the lease were essential terms.

150. Clause 1(a) was an essential term and it required the payment of annual rent (on the days and in the manner referred to above without any deduction). The failure to pay gave a right to terminate the lease.

153. Returning to clause 3(m), the clause went on to provide the procedure that should be followed leading to the right to determine the lease by re-entry.

(i) to damages for loss of the benefits which performance of all the covenants obligations and provisions of this lease would, but for the determination, have conferred upon the lessor between the date the default occasioning the right of re-entry first occurred and the date the premises are re-let;

(ii) to recover from Carlovers any deficiency between the rental paid by the new tenant and the rental covenant to be paid by Carlovers under this lease from the date the premises are re-let until the date that this lease would have terminated provided that the lessor shall do all things reasonable to mitigate the lessor's loss and shall endeavour to re-let the premises at a reasonable rent and on reasonable terms."

163. The fact is, the premises have not been re-let.

166. The evidence revealed that attempts were made to re-let the premises without success. Accordingly, the plaintiff reached an agreement with a company called Baymin Pty Ltd, pursuant to which Baymin agreed to carry on the carwash business from the premises in a form of joint venture, and the gross revenue was to be divided equally. The agreement was for an initial term of 12 months commencing 26 February 2000; it has not been renewed, but Baymin is still carrying on the carwash business.

169. In my opinion, clause 3(m) is not an exclusive code as to the entitlement of the plaintiff to recover damages. It sets out a method by which damages can be recovered, but it is not exhaustive and in my opinion, one could not construe the provision as evincing a common intention that it is the only basis upon which damages could be recovered by the plaintiff.

172. Mr Corbett of counsel, for the defendant, submitted that the High Court decision of Shevill and Anor v The Builders' Licensing Board [1982] HCA 47; (1982) 149 CLR 620, especially at 628, limited the plaintiff's ability to recover damages now claimed.

51 Shevill's case raised the question whether the lessee had in fact repudiated the agreement, giving the right to the landlord to re-enter.

176. Gibbs CJ at p.625 stated that he was prepared to accept that the ordinary principles of contract law applied to a lease. His Honour said -

"As Lord Wright pointed out in Heyman v Darwins Ltd, repudiation is an ambiguous word and is used in various senses. We are of course concerned only with a case in which it is admitted that there was a valid and binding contract. Such a contract may be repudiated if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way ... In such a case the innocent party is entitled to accept the repudiation, thereby discharging himself from further performance, and sue for damages. It is convenient to say that the injured party in these circumstances rescinds the contract, although there is, of course, no rescission ab initio. The present case was not one of this kind." (Emphasis added).

180. His Honour then went on to consider the basis upon which an innocent party can bring a contract to an end, and referred to the well-known principles that the breach had to go to the root of the contract. He and other members of the High Court held that the lessee had not evinced an intention to be no longer bound by the lease, and that a failure to pay rent did not go to the root of the contract giving the right to rescind. It was held that the covenant to pay rent was not a fundamental or essential term.

183. In the present matter, the covenant to pay rent was agreed by the parties to be an essential or fundamental term. Indeed, Mr Corbett did not argue to the contrary.

186. It is in that context that what Gibbs CJ said at pp.628 and 629 must be considered. What His Honour said was that in the circumstances, the right to recover damages was indeed limited because the landlord did not have the right to terminate the lease.

189. The later decision of the High Court in Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 makes it clear that the ordinary principles of contract, including that of termination for repudiation or fundamental breach, apply to leases. In those circumstances, a lessor can recover damages for loss of a bargain where he re-enters under a proviso for re-entry in consequence of the lessee's repudiation of the contract.

192. Applying those principles, the question comes back to whether clause 3(m) is a code with respect to damages and does not entitle the plaintiff to damages until the premises are re-let.

195. In my opinion, clause 3(m) does not affect the right of the plaintiff to recover damages at law, but merely sets out the means by which the damages should be assessed and hence, would not preclude the plaintiff recovering damages in circumstances where it had been unable to re-let the premises. The sub-clause placed an obligation on the lessor to do all things reasonable to mitigate its loss and required it to endeavour to re-let the premises at a reasonable rent and on reasonable terms, but subject to proof of these matters, it was entitled to recover any deficiency, if there was one. In my opinion, the sub-clause does not preclude the right to recover damages and does not hold that right in suspense until the premises are re-let. The ordinary principles of contract apply, and damages will be assessed in accordance with the principles, but subject to any qualification agreed by the parties. This is made clear by the obligation to use reasonable efforts to re-let the premises. It is only obliged to re-let at a reasonable rental and on reasonable terms. It would be absurd if it was unable, for the balance of the term, to obtain any tenant, that it would thereby be denied its right to damages. That could hardly have been the intention of the parties at the time the contract was executed. Further, the verbiage of the sub-clause does not preclude recovery of damages if the premises are not re-let. The right is qualified by the obligations to use reasonable endeavours and mitigation.

198. It follows that in my opinion, the plaintiff is entitled to claim its damages and have them assessed, even though the premises have not been re-let.

202. In my opinion, the plaintiff has not elected to forego any of its rights. It has attempted to re-lease the property. It has failed to do so. The mere fact that it has entered into another arrangement in order to mitigate its loss, short of a lease, does not mean to say that it has elected not to claim damages for the loss of the bargain. It should be pointed out that it has a continuing obligation to mitigate its loss and a continuing obligation to re-let the premises at a reasonable rent, and they are matters that would have to be taken into account, if relevant, on any assessment of damages.

206. Mr Corbett emphasises that the power to grant summary judgment should be exercised cautiously. He refers to Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507 at 514. In that case, at p.515, Gibbs J referred to authorities which establish the proposition that leave to defend should be given where there are difficult questions of law to be decided, and that cannot be doubted. But as Gibbs J went on to say -

"No doubt the remarks in these cases were not intended to preclude the exercise of some discretion by a judge to whom application for summary judgment is made in deciding whether the question of law raised is so difficult that it ought not to be decided summarily, and no doubt also sometimes some explanation or reference to authorities will be necessary to enable a judge to decide whether a question is really unarguable. However, in the present case the questions were serious and disputable and, ... it was entirely proper for the judge to decline to dispose of them in Chambers."

210. In Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 99, the High Court also emphasised that there may be some cases where the defendant does not positively identify or establish a defence, but because of difficulties of fact or law, may require a trial to be held. Mr Corbett also emphasised what Batt J said in Hills v Sklivas [1995] VicRp 37; (1995) 1 VR 599 at 612, that the burden lies upon the plaintiff to persuade the tribunal that there is no real question to be decided.

213. Mr Corbett said there were a number of difficult questions to be decided. First, that the proper construction of clause 3(m) of the lease and whether that limited the plaintiff's ability to recover the damages now claimed, was a matter that should be left to trial. In my opinion, the construction of clause 3(m) of the lease does not preclude the right of the plaintiff to recover damages, and the only question is whether it has some effect upon the quantification of damages. That is a matter for the next part of the proceeding.

216. The second matter he raised was the right of the plaintiff to recover loss of the value of the demised premises as at the date of re-entry, as opposed to damages for loss of the bargain. It appears that the plaintiff wishes to put forward a claim for loss of value of the demised premises and reference was made to the Western Australian case of Peet & Co Ltd v Rocci (1985) WAR 164 at 178-179. In my opinion, that case and the issue raised are matters to be addressed in the next hearing. The proper principles to apply for measurement of damages and causation are matters well established by the law. The points raised do not go to the question of the right of the plaintiff to recover damages.

219. Thirdly, he raises the question of the plaintiff electing not to re-let. In my opinion, there is no substance in this contention. He also raised questions relating to mitigation of loss and damage, and whether the plaintiff had accounted for income or profits received under the management agreement. He also raised questions as to whether or not the plaintiff was entitled to recover the cost of repairs to chattels, and whether he was entitled to claim financing and re-financing costs. All these matters, in my opinion, are concerned with the quantification of damages and the question of causation. The rules in Hadley v Baxendale apply to the question of causation and remoteness. He also claims issues whether the sums claimed for repairs relate to fair wear and tear, and whether there has been any duplication of amounts claimed.

222. Mr Corbett submitted that all these questions were difficult questions of law and fact and accordingly, the plaintiff should not be entitled to his judgment for damages, but should proceed to trial so that all these matters can be investigated, fully debated and considered.

225. In my opinion, the matters raised by him do not raise a defence, nor do they present such problems that could not be adequately considered and determined by a Master of the Court. The plaintiff emphasised that it has a date for the damages hearing in September 2001, and it is entitled to take advantage of that fact. If sent to trial before a Judge, there would be substantial delay. I agree.

229. In my opinion, the plaintiff has established its right to interlocutory judgment against the defendant for damages to be assessed, and the matters which are outstanding and which the defendant seeks to raise can be raised at the hearing on damages. That hearing will consider quantification of damages, mitigation and causation. The principles concerning all these matters are well established law.

232. It follows that the appeal must be dismissed with costs.

I certify that this and the 13 preceding pages are a true copy of the reasons for Judgment of Gillard J of the Supreme Court of Victoria delivered on 4 July 2001.