Morabito v Kingston Industries Pty Ltd

Supreme Court of NSW|2023-07-31|Before: Peden J

Solicitors: Construction Legal (Plaintiff) FCW Lawyers (Defendant) File Number(s): 2019/00329625

Judgment

This is a dispute between a landlord and tenant about the permitted use and make good obligations under a lease.
Diana Nella Morabito, the Plaintiff, is the registered proprietor of Units 1 and 2, 2 Avalli Road, Prestons (Premises), an industrial warehouse and carpark.
Kingston Industries Pty Ltd, the Defendant, was the lessee of the Premises pursuant to a registered lease commencing on 16 August 2010. The parties agreed to various extensions of the lease to July 2017. From 15 July 2017, the final registered lease continued on a month-to-month basis to 15 December 2017, when Kingston vacated the leased Premises. Each lease contained relevantly identical terms (Lease).
It is not in dispute that during its occupation of the Premises, and in the course of its business of plant (machinery) hire, Kingston moved and stored plant and equipment at the Premises. This included machinery weighing over 22 tonnes, as well as some with steel tracks, not just pneumatic tyres.
Mrs Morabito claims that by moving steel track machinery onto and around the Premises, Kingston breached the permitted use under the Lease. She also alleges Kingston breached the make good obligation at the end of the final Lease, because it failed to replace 55% of the concrete flooring inside the warehouse and all the concrete carparking, said to have been damaged by the steel track machinery.

Relevant lease terms

The clauses relevant to this dispute include the following.
The "Permitted Use" is identified in item 12 of Annexure A of the Lease as "Plant Hire/Distribution".
Clause 6 concerns the tenant's use of the Premises and relevantly includes in clause 6.1: (a) The Tenant will only use the Premises for the Permitted Use. … (h) The Tenant will not mark or damage the Premises. (i) The Tenant will not allow the floor of the Premises to be broken, strained or damaged by overloading. … (l) The Tenant will promptly notify the Landlord in writing of any defect in or need to repair the Premises… of which the Tenant is aware. (m) The Tenant will promptly notify the Landlord in writing of any circumstance of which the Tenant is aware which is likely to cause a danger or hazard to the Premises or to any Person in the Premises.
Clause 7 concerns repairs and clause 7.1 provides: (a) The Tenant will at all times keep the Premises in good repair and condition having regard to the condition of the Premises at the earlier of the Commencing Date… (b) Unless required because of the Tenant's particular use of the Premises the Tenant's obligations under clause 7.1(a) do not extend to: (i) any repair required because of fair wear and tear or because of the Landlord's negligence; … (iii) anything beyond the control of the Tenant. (c) At the expiry or earlier termination of this Lease, the Tenant will deliver vacant possession of the Premises to the Landlord painted, repaired, cleaned and otherwise kept in the condition required by the Lease, including: … (iv) reinstatement of the warehouse floor to its condition at the commencement of the Lease subject to fair wear and tear, and repainting of the premises.
Clause 7.2 provides: The Tenant will make good any defect in or damage to the Premises caused by lack of care or misuse by the Tenant.
Clause 8.6(b) provides for indemnities from the Tenant: The Tenant indemnifies the Landlord against all loss or damage caused by the Tenant including, but not limited to, the Tenant's use or misuse of the Premises or by the Tenant's failure to notify the Landlord of any major or continuing defect in the Premises.
Clause 9.1 provides the landlord with a right to enter to inspect and carry out works, including repairing damage to the Premises on reasonable notice to the tenant.
Clause 11.2 provides: The Landlord will maintain the structure of the Premises in good repair, having regard to the condition of the structure of the Premises when the Tenant first occupied the Premises and to fair wear and tear.
Clause 12.4(a) provides that the essential terms of the Lease included clause 6.1(a). Further, clause 12.4 includes: (b) The Tenant will compensate the Landlord for any loss or damage suffered by the Landlord because of the Tenants breach of an essential term of this Lease. (c) The Landlord can recover damages from the Tenant for any loss or damage suffered by the Landlord because of the … breach of this Lease… (d) If the Tenant… vacates the Premises, the Landlord will take reasonable steps to mitigate the Landlord's damages and will try to lease the Premises at a rent and on terms satisfactory to the Landlord. The Landlord's entitlement to damages will be assessed on the basis that the Landlord has mitigated its damages.
Clause 15.5 provides: The Landlord gives no warranty and makes no representation to the Tenant that the Premises are or will remain suitable for the Tenant's purposes.

Did Kingston breach the permitted use?

Mrs Morabito alleges that Kingston's movement and storage of heavy machinery with steel tracks was outside the scope of the permitted use of "Plant Hire/Distribution", and that Kingston therefore breached clause 6.1(a) of the Lease.
It is therefore necessary to construe the permitted use "Plant Hire/Distribution", and the compare that to the use Kingston made of the Premises.

Construction principles

The principles concerning the proper construction of a commercial contract, including a lease, are not in dispute. Terms are to be objectively construed from the perspective of a reasonable person in the position of the parties, with a view to giving it a commercial result. Regard must be had to the contract as a whole. Further, regard may be had to the genesis, aim and purpose of the contract: see eg Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52], and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16].
Kingston referred to the principle in Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528 (Westfield), as an exception to the usual construction principles applicable to registered leases. I consider this further below.

Application

When asked in submissions, Mr Stapleton, counsel for the plaintiff, submitted that the Court ought to construe "Plant Hire / Distribution" the following way: [Kingston was] permitted to move machinery, including heavy machinery up to 25 tonnes, to and from the property by truck, and around the property by truck, but not move that equipment directly on the concrete without using the protective measures of matting, steel plates or timbers.
Mr Stapleton expressly disavowed any reliance upon any implied term or industry meaning of "plant" and accepted Kingston's machinery fell within the meaning of "plant". However, it was said that it was appropriate to have regard to specific surrounding circumstances in construing the permitted use: The surrounding circumstances, in giving commercial effect to this agreement, are - you'd have a standard in the market that is referable to the Australian Standard and you'd have an organisation, albeit that it might not have any knowledge of that particular document - does have knowledge of its own … … as at June 2010, the defendant would have known the effect of the use of its equipment. That is entirely consistent with the standard that refers to the fact that trafficking would not occur without protective measures. So we say that the permitted use would be limited to having machinery delivered and removed by low loader and having that machinery moved around on the site, with the benefit only of either timber, rubber or steel protection.
Mr Stapleton's submission included: [The standard is] an objective point of reference and what I say is that a reasonable business person would understand the term plant hire and distribution to mean the use of trucks to move materials and heavy earthmoving machinery within and to and from the property. But, a reasonable business person would not understand the permitted use to include the unprotected trafficking of heavy earthmoving machinery contrary to the way that the industry opines that it should occur and contrary to the way that the defendant would know the effect that this machinery could have on the concrete. That, in my submission, would be the proper conclusion of the use definition.
The "Australian Standard" or the "standard" referred to in those submissions was not building standard AS36000, but the "Guide to industrial floors and pavements - design, construction and specification" or CCAA T48 published by the not-for-profit organisation, Cement Concrete & Aggregates Australia.
Mr Stapleton did concede that the part of the guide, upon which Mrs Morabito relied, "is a guideline as opposed to a, shall we say, a mandate". He continued: Or an opinion, as I previously put it. But, in my submission, that wouldn't dilute its effect. It's still a concept proposed by a major concrete industry body proposing a guideline for how and your Honour would still take that into account as an external point of reference, in my respectful submission.
Kingston submits that either the permitted use can be construed on the terms of the Lease alone, and Kingston's machinery with steel tracks was "plant" and therefore permitted. Alternatively, Kingston says the principle in Westfield has the effect that CCAA T48 was inadmissible on the question of the construction of the permitted use.
In Westfield at [39], the High Court explained that, despite general principles of contractual construction, the use of extrinsic material ought be limited when construing the terms of a registered easement: The third party who inspects the Register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing and placing the third party (or any court later seized of a dispute) in the situation of the grantee.
However, at [44] the High Court acknowledged that some extrinsic evidence may be used to construe the grant: … [in order] to make sense of that which the Register identifies by the terms or expressions found therein. An example would be the surveying terms and abbreviations which appear on the plan found in this case on the DP.
The High Court in Westfield did not state that the principle of construction applied to other registered instruments, such as leases.
In Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 at [157]-[158] (Phoenix Commercial), Campbell JA explained with reference to Westfield: 157 … Sometimes an indefeasible right might be granted in terms not fully understandable as a matter of general knowledge, eg an easement for rock anchors (Pennant Hills Golf Club Limited v Roads and Traffic Authority of NSW [1999] NSWCA 110), and in such a case it may be necessary to resort to extrinsic evidence to understand the meaning of the words that identify the legal right to which indefeasibility attaches. Such extrinsic evidence is, however, of the meaning of an engineering or building technical term, and is in principle available to anyone. 158 It is important that what their Honours state is that it is rules of evidence assisting the construction of contracts inter partes, of the type referred to in Codelfa at 350-352, that do not apply to construction of the easement. They do not deny the applicability of the principle whereby a document will be construed as having the meaning that a reasonable reader, with such knowledge of the surrounding circumstances as is available to him or her, would attribute to it. If surrounding circumstances cannot be established by evidence to construe an easement, that does not mean that one is thrown back onto the discredited exercise of seeking to construe a document simply by reference to a supposed "natural and ordinary meaning" of the words. Rather, it means that the sort of surrounding circumstances to which one can look are limited to those that one can know without evidence from outside the terms of the document itself.
A reason why the Westfield principle may apply is because anyone reviewing the register ought be able to understand the nature of the registered interest. However, in Phoenix Commercial, at [159] and [161], Campbell JA recognised that, in contrast with an easement, "a lease…is a consensual document, and creates both contractual rights and property rights" and, as such, "there can be some provisions of a registered lease to which indefeasibility does not attach (citations omitted)". Despite this, his Honour concluded that the principle in Westfield is "not dependent upon any considerations of the extent of indefeasibility, but rather on the inherent probabilities concerning the inquiries that a purchaser of Torrens title land will make" (at [162]).
Further, in Alliance Engineering Pty Ltd v Yarraburn Nominees Pty Ltd [2011] NSWCA 301 at [54], Sackville AJA (Macfarlan and Whealy JJA agreeing) stated: Westfield involved the construction of a registered easement. The principle stated by the High Court does not necessarily apply to all provisions in registered instruments such as leases or mortgages. The reason is that "indefeasibility" attaches only to those covenants or provisions that are so intimately connected with the estate or interest created by the registered instrument that they are to be regarded as part of that estate or interest: Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; 136 CLR 326, at 343, per Gibbs J; Pt Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643, at 679, per Giles J; Perpetual Trustees Victoria Ltd v English [2010] NSWCA 32, at [68], [92]-[98], per Sackville AJA (with whom Allsop P and Campbell JA agreed). Extrinsic circumstances might therefore play a part in the construction of provisions in a registered instrument that cannot be regarded as part of the estate or interest in land created by the instrument.
That case also concerned the construction of a permitted use clause under a lease. However, because the point was not argued, the Court did not consider whether the principle in Westfield applies to permitted use clauses.
Mr Stapleton did not provide any submissions about whether the Westfield principle ought be applied in this case. As above, Mr Stapleton did concede that CCAT 48 was, at most, a guideline or an opinion, to which I should have regard when construing the permitted use. However, Mr Stapleton eschewed any industry meaning or incorporation by reference, and advanced no evidence that the parties were aware of the document at the time the Lease was formed.
It has been said that covenants concerning permitted use "are strictly construed against a lessor": WD Duncan and Sharon Christensen, Commercial Leases in Australia, 9th ed, 2020, [100.600], citing Ex parte Bungey [1979] Qd R 23. Mr Stapleton accepted that was an accurate statement of principle. However, it does not appear to have been cited by any intermediate appellate courts, including since more recent High Court decisions concerning the construction of leases. Despite this, Mr Stapleton appeared to consider that I ought to construe the permitted use against his client. For the reasons below, it has not been necessary to have recourse to any type of contra proferentum constructional tool here.
I do not accept that there is any ambiguity in the word "plant". Kingston's equipment was "plant" and was therefore permitted to be moved and placed at the Premises. Other parts of the Lease also lead to the conclusion that "plant" included machinery of the type hired by Kingston. Schedule 1 identifies "Landlord's Works" including: The construction of a wash bay with dimensions of 5m x 8m… … The Landlord will provide the Lessee … with such plans, documents or information and provide consents and execute such applications as may be reasonably required by the Lessee to obtain a Development Consent… for the use proposed by the Lessee.
This agreement by Mrs Morabito to construct a large wash bay for equipment and provide consents "for the use proposed by the Lessee" suggests that Mrs Morabito was likely aware of exactly the types of "plant" Kingston intended to store and distribute from the Premises.
Even if that is not the case, I do not accept Mrs Morabito's construction of the permitted use, or that any breach has been proved. There is nothing in the meaning of "plant" that limits the type of equipment Kingston was permitted to store and hire from the Premises. There is no basis upon which to incorporate a limitation on the word "plant" as suggested by Mrs Morabito. The business Kingston carried on at the Premises was plant hire and distribution.
I consider that there was no need to resort to extrinsic material to construe the meaning of "plant". Even if that is wrong, I do not accept that the CCAA T48 "Guide" should inform the construction of the permitted use, where that document concerned construction of pavements and there was no evidence that the parties had regard to that document at the time of formation, nor as to the general availability of that document.
I note Mrs Morabito's submission that during lease negotiations Kingston did not disclose that its intended use of the Premises included the movement and storage of heavy earth moving construction equipment with steel tracks. I do not consider that it was necessary for Kingston to do so in circumstances where Mrs Morabito engaged an experienced real estate agent to negotiate the terms of the lease and offered a permitted use of "Plant hire/Distribution" without limitation.
At the time the Lease was negotiated, neither party was aware that the concrete had inconsistencies in its strength and there had been a failure to comply in all aspects with the concrete's design. I reject the submission that there was an onus on Kingston to specifically seek information as to the composition of the concrete flooring.
For the reasons above, Mrs Morabito has not demonstrated any breach of the permitted use clause.
Even if that conclusion is incorrect, Mrs Morabito does not suggest that damages for breach of the permitted use would be assessed differently to a breach of the make good obligation, which is considered below. I note for completeness, Mrs Morabito did not seek to exercise a contractual right to terminate for a breach of the permitted use, despite Kingston having used the Premises consistently for seven years, and being aware of that use either by driving past the Premises herself or by her agent attending the Premises.

Did Kingston breach the make good obligation?

Kingston accepts that it was obliged to "make good" at the conclusion of its occupation of the Premises. However, it does not agree with Mrs Morabito's construction of what was required by that obligation.
I accept Kingston's submission as to the proper construction of the make good clause, being clause 7 of the Lease. Taken in the context of the Lease as a whole, clause 7 requires Kingston to keep the Premises and deliver them up at the time of vacation in "good repair and condition", except to the extent that any damage is: 1. Fair wear and tear: clause 7.1(b)(i); 2. Caused by the landlord's negligence: see clause 7.1(b)(i); or 3. "Anything beyond the control" of Kingston: see clause 7.1(c).
While Kingston was required to reinstate the "warehouse floor to its condition at the commencement of the Lease subject to wear and tear" (clause 7.1(c)(iv)), that obligation must be understood as subject to the other clauses in the Lease. Therefore, if damage to the floor occurred because of something beyond the control of Kingston, then Kingston would not be obliged to reinstate the warehouse floor to its original condition.
I accept that the proper construction of clause 6 requires it to be read subject to clause 7, such that the promises not to: 1. "Mark or damage" the Premises (clause 6(h)); or 2. Allow the "floor to be broken or damaged by overloading" (clause 6(i)), 3. must be read as excluding situations where marks, or damage are caused by Kingston using the Premises for the permitted use, and where those issues are caused by fair wear and tear or by a matter beyond the control of Kingston.
Mrs Morabito did not make any submission contrary to that construction. Therefore, the issues to be determined are factual and concern whether the damage to the concrete on balance was caused by Kingston's "lack of care or misuse" of the Premises, rather than occurring in a different way that would not amount to a breach of the Lease.
Mrs Morabito alleges that Kingston damaged the concrete by misuse of the Premises by moving steel track machinery across the concrete. Kingston resists liability on the bases that: 1. The use of steel track machinery was permitted; 2. Any damage was fair wear and tear, because appropriately constructed concrete would not have suffered the damage alleged by Mrs Morabito; and/or 3. It is not liable for damage, where the most likely cause is the defective construction of the concrete, which was either caused by Mrs Morabito's negligence or was a matter beyond Kingston's control.
In essence, Kingston asserts the evidence demonstrates that, had the concrete been properly laid, then it would not have been damaged by its machinery.

What was damaged?

The concrete has been replaced and therefore can no longer be inspected. It was not inspected by the parties' experts, who gave evidence. Therefore, the type of damage to the concrete must be discerned from correspondence and the evidence of those who observed the damaged concrete before it was replaced.
Mrs Morabito first raised the issue of damage to the concrete in 2017.
On 15 July 2017, Kingston's final lease was due to expire. On 4 May 2017, Mrs Morabito and her managing agent carried out a pre-vacation inspection of the Premises. Damage to parts of the internal and external concrete were identified by Mrs Morabito's agent, who emailed her including: Car Park It has been noted that heavy machinery has damaged the concrete in the carpark see photos 7 to 20. The concrete will need to be fixed or redone. We also note the carpark stops have been removed in each car space, plus the concrete curbs are damaged and in some areas they have been removed. Internal factory The Factory floor has been damaged in both units form heavy machinery it needs to be repaired or replaced. See photo 1 & 6.
The referenced photos show damage to the kerbs and some joints in the external concrete and joints in the internal concrete and some marks on the internal concrete.
On 30 June 2017, Mrs Morabito's real estate agent emailed "John at JD Concrete" requesting a quote on the costs of repairing the concrete. It appears that over the next 15 months various quotes were obtained.
From 15 July 2017, Kingston began holding over its tenancy under the Lease on a month-by-month basis. On 2 August 2017, Kingston indicated that "we would prefer to stay month to month but it is our intention to be out by the end of the year".
On 21 August 2017, Mrs Morabito's agent informed Kingston that she would agree to a month to month tenancy "if you agree to the following": 1. Provide a firm date that the property will be handed over or commit to providing 3 months notice to vacate…. 2. provide a formal undertaking that you commit to the following repairs before vacating Repair or replace concrete driveways, car park and kerbs … Repair or replace internal factory floors…
On 6 October 2017, Kingston responded: Please be formally advised of our intention to vacate [the Premises] … on the 1st of December 2017. Prior to vacating we will be completing the following repairs: Repair concrete driveways, car park and kerbs … Repair internal factory floors…
Despite Kingston's apparent agreement to repair the concrete, Mrs Morabito does not allege that Kingston has breached any agreement to repair the concrete outside of the make good obligations under the Lease.
By the end of October 2017, the parties had divergent positions as to what concrete repair work was necessary. Mrs Morabito wanted the concrete to be replaced. Kingston wanted to repair the concrete using an epoxy resin inside and by using a penetrating sealer in the carpark.
Mrs Morabito retained an engineer, Mr Fernando Algorry, who originally designed and certified the concrete at the Premises. On 30 October 2017, Mr Algorry provided Mrs Morabito with an inspection report, which included: External pavement ..the pavement surface had substantial abrasion damage caused by the movement and dragging of excavation equipment on the slab. The slab surface displayed the exposed aggregate with the removal of the binding mortar. The damage is regarded severe and beyond of the normal wear and tear of pavements of that age. The contract joints were also damaged with the severe breaking of the concrete edges. Internal Slabs The slab of unit 1 and unit 2 displayed similar damage than the external pavement with unit 2 been more severely affected. … The areas of distress are documented in the enclosed photographs.
He recommended complete removal and replacement of the concrete. The photos attached to his report were close ups of damaged joints at unknown locations.
On 27 November 2017, Kingston wrote to Mrs Morabito stating: Following receipt of your condition report and subsequent quotation for make good we have sort [sic] a second independent opinion on the integrity of the concrete slab. The expert advice we have received identifies that any structural issues with the concrete are not a result of our operation or any overloading rather a product of the original design and laying of the slab. Furthermore these issues with the design, preparation and laying have contributed to the excessive abrasion on the surface of concrete and also contributed to the damaged [sic] caused to the joints. While we do not deny that our operations had an adverse affect on the surface of the concrete we don't accept liability for damage to the structural integrity of the concrete slabs therefore we feel it only sensible that a compromise be made between the two parties.
Thereafter, Kingston continued to deny liability, even though it sought to resolve the issue commercially.
Kingston engaged Mr James Griffiths from Griffiths Engineers Pty Ltd to provide advice about the concrete. His informal summary included: …the external concrete has not been cured after pouring which has considerably contributed to the abrasion issue. The concrete may have been laid too wet which increases shrinkage and resistance to abrasion. … cracking observed externally is shrinkage cracking and has NOT been caused by overloading … Internally the concrete appears to be standard 32 MPa mix rather than 40MPa or equivalent…which would be appropriate for modern warehouse floors. The standard of finish appears to have been a marginal grade steel trowel with apparently inadequate curing. …The slab can be repaired with correctly applied epoxy… The joints can be satisfactorily repaired with epoxy or equal nosing…
In early December 2017, Mr Griffiths carried out various tests on the concrete and prepared a report dated 12 December 2017. It relevantly provided an analysis of the internal and external concrete, particularly in relation to strength. Two tests were carried out to measure strength: a core hole test of two samples, one internally and one externally, and a rebound hammer in 47 locations internally and externally. All the experts agreed that a core hole test is more accurate than the rebound hammer test. They agreed that the hammer test may require a 20% margin either way, with the results commonly underestimating the strength of the concrete.
Mr Griffiths' core hole tests revealed the strength of the internal sample was 22.5MPa and the external sample was 19.5MPa. The hammer testing revealed a variety of results over the 47 locations, ranging from 24.5 to 56.5MPa.
On 20 December 2017, Mr Griffiths produced a "structural report" on the concrete slabs. The report included: The surface has been trafficked internally and externally by the tracks of earthmoving equipment which has caused damage. The internal slab was specified on original engineers drawing as being 175mm thick using standard grade N32 concrete (32MPa minimum at 28 days). Control joints in the internal slab have incurred damages… The external slab has incurred greater abrasion and more damage at control joints… The external pavement was specified on the original engineers drawing as being 150mm thick using standard N32 concrete (32MPa minimum at 28 days) plus thickening to 200mm deep x 800mm wide at dowelled expansion joints. During my inspection I was not able to verify that the thickening had actually been constructed. …the two core samples tested were 22.5MPa internally and 19.5MPA externally, rather than about 34 to 38 MPa that would be expected in aged 32MPa concrete. The measured internal thickness was 180mm but was only 140mm externally, rather than the 150mm specified. The external slab was cast on a thick layer of filling sand or rock dust directly on clay subgrade... The use of the apparently low grade concrete with very poor or zero curing after pouring greatly contributes to slab wear, this together with poor ground support conditions contributes to control joint damage, particularly at dowel joints. The slabs can be successfully resurfaced using … epoxy… The control joints can be reinstated using … epoxy nosings … External expansion joints which have a capacity at failure of about 2.1 tonnes per dowel are working at "failure" without any factor of safety under 9.6tonne standard axle load. This overload condition has contributed to the damage. A more extensive repair at these locations may be necessary.
On 15 March 2018, Mr Algorry produced a second report. He had been provided with Mr Griffiths' report. Mr Algorry also considered: 1. A report concerning three core samples "of the external pavement" prepared by Coffey Services Australia (Coffey Report); 2. A report carrying out hammer testing in three locations prepared by the company that delivered the concrete to the site (Hanson Report); and 3. A slab scan report which undertook ground penetrating radar testing of two cored samples of the concrete (Slab Scan Report).
Notably, and in distinction to Mr Griffiths' report, there is no evidence about where in the Premises the Coffey Report additional core samples were taken, nor where the hammer testing in the Hanson Report was carried out. It is also not known who took the core samples, or when they were taken.
Mr Algorry noted that the Coffey Report core testing revealed results of 37MPa, 50.5MPa and 43MPa. The Hanson Report hammer testing results were 39MPa, 42MPa and 42MPa. Mr Algorry provided an analysis and conclusions including: There is a significant difference in the average concrete strengths of the two sets of [core tests] with [Mr Griffiths'] Slab Scan test averaging 21Mpa and the Coffey tests averaging 43.5… It is our opinion that the results in the Coffey Report are more credible, since they are consistent with the designed concrete strength (32Mpa) and confirmed with the results of the [hammer test]. … We disagree with the conclusion of the Griffiths report that [the thickness of the external slab] may have contributed to the damage on the slab, since the distress of the slab is the abrasion of the concrete surface and not related to any vertical displacement. Similarly, the damage to the joints edges were caused by the constant traffic of heavy vehicles with steel tracks through the joints and not by the settlement of the slab at the joints.
Kingston submits that from the "significant difference" in the core sample strength test results, and the highly variable results across the hammer testing, it can be inferred that the concrete was not laid properly and in accordance with its design.
It is not in dispute that there were construction deficiencies as detailed below.

Evidence concerning construction of concrete

Mrs Morabito had engaged professionals to construct the warehouse and surrounding concrete carpark. At all times, Mrs Morabito had the ability to provide particular instructions to the engineer.
Mr Algorry, the engineer who designed the concrete surface in the car park and inside the warehouse, gave evidence that he was not provided with specific instructions about the type of concrete required. For that reason, he included in his design a standard type of concrete suitable for light to medium industry and machinery with pneumatic tyres.
The design for the concrete was in evidence and it relevantly specified: 1. Standard N32 concrete to produce strength of at least 32MPa. This is the accepted standard suitable for machinery with pneumatic tyres. The parties' experts agreed that the appropriate design for use with steel tracked machinery ought to be concrete with 40MPa. However, concrete does continue to harden over time. 2. Precast concrete grade shall be 40 MPa minimum. Concrete strength at removal from mould shall be 20 MPa minimum. 3. Concrete "slump" of 80mm. Slump was explained by Mr Algorry as the distance between the height of the concrete when it is fresh and the height that the concrete flows once it has settled. It is a measure of water content and shrinkage, which impacts the compressive strength of the concrete. 4. No additives were to be included in the concrete. Mr Algorry's evidence was that additives are chemicals and other products added to concrete which can also impact the compressive strength of the concrete. 5. The concrete was to be cured by an acceptable method for a minimum of 7 days. The experts agreed that curing is important to the development of abrasion resistance in concrete. Abrasion had occurred in the Premises. No explanation was given by experts, nor were submissions made as to the inconsistency between the 7 day minimum curing specification and Mr Griffiths' reference to 28 days of curing.
The only evidence about whether the concrete was laid as designed comes from some delivery dockets created when concrete was brought to the site during construction.
Not all the delivery dockets were discovered by Mrs Morabito. No explanation was provided as to how many were missing, nor why. There was no evidence about the total volume of concrete used in order to determine the proportion of dockets missing. Kingston submits, and I accept, that this lacuna in the evidence about the qualities of the concrete delivered was caused by Mrs Morabito, such that it is not possible to know exactly the nature of the concrete that was laid and where various batches were laid. Therefore, she ought not benefit from the lack of evidence.
Based on the volume of concrete the available dockets demonstrate was delivered: 1. for 13%, water had been added at the site, which was not "good practice", was not approved by Mr Algorry and was contrary to the design. 2. 6% of the concrete did not have the slump designed.
A few dockets revealed that an additive in the form of a drying accelerant was added contrary to the design. This aspect was less significant, as the experts agreed that this would merely speed the setting time of the concrete. The additive would not accelerate the curing process.
Mrs Morabito accepts that the evidence does not reveal where the concrete that did not comply with the design was actually laid at the Premises.
Further, there was no evidence from the company that laid the concrete, JD Concrete, to explain the construction process, including the time allowed for curing, the volume of concrete used and where various batches were laid. Kingston submits, and I accept, that a Jones v Dunkel inference can be drawn from Mrs Morabito's failure to bring forward that evidence, in circumstances where her evidence was that JD Concrete is run by family friends, whom she trusts: Jones v Dunkel (1959) 101 CLR 298. Further, JD Concrete was consulted in the process of investigating rectification works before the litigation commenced, and in fact carried out the rectification works.
Mr Stapleton's only submission against an inference being drawn is that Mrs Morabito was not asked whether the relevant persons at JD Concrete were available to give evidence, but he did accept that is not an absolute requirement.
I do not accept Kingston was required to elicit an explanation from Mrs Morabito during the course of cross-examination for the absence of JD Concrete. For the Court to draw a Jones v Dunkel inference, the considerations are: 1. Whether a party is required to explain or contradict something; and 2. There is an unexplained failure by that party to call the obvious witness.
Here, Kingston raised a complaint that the concrete was defective as a complete defence, and it would be expected that Mrs Morabito would explain or contradict that allegation. She did not bring forward the contractors who laid the concrete, and then removed and replaced it. She did not explain why she did not do so. I consider it appropriate to infer from the unexplained failure to call evidence from JD Concrete that such evidence would not have assisted Mrs Morabito.
The other significant evidence concerning the concrete comes from Mr Algorry, who not only designed the concrete, but certified it. However, he candidly accepted in cross-examination that he never inspected the concrete after it was laid and before he certified it. It is not apparent on what basis he certified it was correctly constructed. He also had no basis for comparing the original concrete, as laid, to the damaged concrete he later saw.
Further, Mr Algorry conceded that, had he known what was contained in the delivery dockets, he would not have certified the concrete: Q. Now, when you provide a certification, you accept that there can be some minor departures from the design; don't you? A. Yes. Q. But, if there are material departures from the design, you agree you cannot certify that the concrete is installed generally in accordance with the design? A. Yes. Q. Taking the matters above by way of example, if you knew the slump was significantly out of your design recommendation, you would not certify that the concrete is installed generally in accordance with the design? A. Yes, I wouldn't certify that, no. … Q. Again, you see that water was added. Do you see that? A. Yes. Q. Do you see the estimated final slump is 130? A. Mm hmm. Q. That's very significantly outside of your design recommendation, isn't it? A. It is. Q. That's significantly out of the accepted tolerance for such slump, isn't it? A. Yes. It is more than that, yes. Q. I'm not being critical of you, because you didn't have these dockets, but I'm just asking, if you did have these dockets at the time, you accept you could not have certified that the concrete was installed in accordance with the design, could you? A. No, but it doesn't mean that the strength is not there.
Three experts gave evidence. Mrs Morabito relied on reports by Michael van Koeverden and Mr Ion Dumitru. Kingston relied upon Mr Robert Munn's reports.
None of those experts had ever inspected the damaged concrete, because it had been replaced before they were engaged. Instead, they provided their opinions based on Mr Algorry's reports and Mr Griffiths' reports, and photos of the damaged concrete. However, they accepted that photo evidence could present a distorted view, and that it was unclear whether they were each provided with the same set of site photos.
In their joint report, the experts narrowed many issues. They agreed for example: 1. The concrete was not designed to take steel wheeled and tracked vehicles across the surface. However, they also agreed that concrete with a design of 32MPa would become harder over time and could withstand wear from steel based machinery, but would not have as long a life. 2. While they consider concrete with 40Mpa is appropriate design for steel based machinery, many people in the industry use a design of 32Mpa irrespective of the use to which the concrete will be put. 3. There were "some deficiencies in the external pavement as constructed." By "deficiencies" they were referring to the incorrect placement of the re-enforcement in the concrete. However, they were "not in a position to confirm" the contribution of those defects "to the pavement performance". 4. The experts were never provided with the concrete delivery dockets, revealing variations in slump to the design and the addition of water at site. They did not know that Mr Algorry would not have certified the concrete, had he known of the delivery dockets. 5. In relation to the strength of the internal concrete, they agreed that it was "adequate for the application". However, they did not explain what "application" they were referring to. 6. They were unable to know whether curing had taken place, but agreed "curing is very important to the development of abrasion resistance in concrete". However, they considered that the documentary material they reviewed indicated that the internal strength was consistent with a cured slab. In the joint report, they did not make any comment on the curing of the external slab.

Did the machinery cause the damage?

Mrs Morabito submits that because the experts were not able to give an opinion as to the extent that the deficiencies in the concrete construction contributed to the damage, it ought be concluded that Kingston's machinery caused the damage.
Kingston submits that the likely cause of the inconsistent damage to parts of the concrete was Mrs Morabito's own negligence in leasing a facility to a plant hire and equipment company which was (unknown to Kingston at the time it entered into the Lease, but known to Mrs Morabito or her agents) not designed for Kingston's plant. Alternatively, Kingston submits that the defectively installed concrete was a matter beyond its control, for which it is expressly not liable under the Lease.
I do not accept Kingston's submission that Mrs Morabito was negligent in the construction of the Premises, and in particular the concrete. I do not accept the submission that the use of the word "negligence" in the Lease is intended to be construed in a general and non-legal way to merely mean "lack of care". Instead, I consider that the commercial parties, represented by lawyers, intended to adopt a legal meaning for the word "negligence". I do not accept that Mrs Morabito owed a duty of care to construct the concrete to 40Mpa before leasing to Kingston. This is particularly so in light of the inclusion of clause 15.5 of the Lease, by which Mrs Morabito expressly disavows any promise to provide premises suitable for Kingston's specific use. The absence of a positive obligation concerning the strength of the concrete on Mrs Morabito's part does not, however, resolve the issue of Kingston's possible liability.
There is more force in Kingston's submission that the defective concrete was a matter beyond its control and for which it ought not be liable. That turns purely on the question of the most likely cause of the damage.
Mrs Morabito bears the onus of proving that Kingston's machinery damaged the concrete beyond fair wear and tear and that concrete damage was not caused by a matter beyond Kingston's control. In my view, Mrs Morabito has failed in discharging that onus for the following reasons.
From November 2017, Kingston raised the issue of defects in the concrete, and prepared reports to support that position. While Mr Algorry prepared reports for Mrs Morabito, no conclusive testing was carried out by either party before Mrs Morabito replaced the concrete.
Of Mr Griffiths and Mr Algorry's reports, I prefer the opinion of Mr Griffiths. Mr Griffiths provided details of the core test and hammer tests and raised queries about the construction of the concrete. Those queries were not answered by Mr Algorry, nor Mrs Morabito at the hearing, because JD Concrete was not brought forward and neither were all the concrete delivery dockets. Therefore, it is simply not possible to know exactly how the concrete was constructed, where there were deficiencies in terms of slump and added water, and the length of the curing of the concrete.
Mr Algorry's opinion that the later three core tests and hammer tests were more "credible", simply because they accorded with his design, cannot be accepted. Mr Griffiths' hammer testing was also preferrable to that relied upon by Mr Algorry, because he gives clear evidence about where the testing was carried out and provided 47 readings, instead of the mere three readings in unidentified locations included in Mr Algorry's report. Further, Hanson carried out those three additional hammer tests, but was also the company that delivered the concrete that failed to comply with Mr Algorry's design. Mrs Morabito had no explanation for the wide variety of testing results across the concrete.
I consider it very significant that Mr Algorry's evidence was that he would not have certified the concrete, had he been provided with the concrete delivery dockets. Had he not certified the concrete, then remediation would have been required before the construction was complete and the current dispute may not have arisen.
The assessment by expert witnesses is of less assistance because: 1. They never accessed the damaged concrete; 2. They accepted that a visual assessment from photos can distort the true position; and 3. They were not provided with the concrete delivery dockets, nor were they aware that Mr Algorry would not have certified the concrete, had he known the way the concrete was delivered to the site.
I do not accept Mrs Morabito's submission that Kingston ought to have used matting and protective plates. While it appears that Kingston has used such protections more recently at a different site, that is not relevant to the Premises. Further, the clear evidence from Kingston's witnesses was that matting is used at sites where there is a difference in heights between surfaces in order to protect the "lip". I accept that Kingston does not use matting generally to protect concrete from the steel tracks.
In the circumstances, for the reasons above based on the evidence before me, I am not persuaded on the balance of probabilities that Kingston's use of the Premises with its machinery caused the damage to the concrete. This is particularly so when compared to the fact that there were inherent deficiencies in the concrete that had not been constructed according to the design. Mr Algorry would not have certified the concrete, had he had full information. Therefore, Mrs Morabito has not proved Kingston breached the Lease.

Appropriate remedy

On the basis that the above conclusion is incorrect, I consider the issue of the appropriate measure of damages.
The parties agree that if Mrs Morabito can otherwise demonstrate that Kingston is liable for the damaged concrete, then she is entitled to the agreed cost of replacement of the external carpark concrete at a value of $179,700.21.
However, in relation to the 55% of the internal concrete that was allegedly damaged, Kingston submits that an epoxy coating that cost $71,552.00 was adequate to make good, rather than complete replacement, which the parties agree is valued at $116,189.01.
Kingston submits that the "ordinary principles" can be taken from the High Court's decision in Bellgrove v Eldridge (1954) 90 CLR 613 at 617-618; a property owner is entitled to "cost of cure" of defective works as the usual measure of damages, rather than diminution in value of the proprietary interest. In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [15] the High Court described the nature of the loss suffered by a landlord, where a tenant breaches an obligation requiring maintenance of the leased premises: [The] loss is the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached.
Kingston submits that to restore the internal concrete in accordance with the make good requirement only necessitated the application of an epoxy overcoat, rather than complete replacement, and if liable, it should only be required to pay for such remediation.

Is epoxy or replacement concrete inside the appropriate remedy?

Mrs Morabito's experts opine that the appropriate remedy for those parts of the internal concrete that were damaged was replacement because: 1. The life of epoxy is reduced by exposure to ultraviolet light, and because of the large warehouse doors being open during the day, that light would impact some epoxy inside. 2. The manufacturers' warranty for an epoxy product is 10 years, which Mrs Morabito considered insufficient because concrete has an estimated standard design life of between 40 and 60 years.
I accept Kingston's submission in relation to the issue of ultraviolet light, namely, that for those parts of the internal area that could be impacted, some additional concrete could have been laid, but did not require replacement of the whole internal floor. Further, the actual amount of impact is not clear from the evidence, because the photographic evidence shows that there is likely some shading provided by reason of the doors opening outwards and upwards. Mrs Morabito did not provide evidence of the cost of that alternative solution.
However, I do not accept Kingston's submission concerning the warranty. I accept that Mrs Morabito would not obtain at law any statutory warranty for concrete longer than 10 years. However, if Kingston is liable, then it must provide non-defective flooring. The experts agree that concrete has a longer design life than an epoxy. I do not accept that the relevant warranties for each material are the determinative factor. Instead, the appropriate consideration is the design life; epoxy has a design life of about 10 years which is inferior to concrete. I consider that replacement was a reasonable solution and the more appropriate solution in the circumstances.
Therefore, had it been necessary to decide, I would have determined that Mrs Morabito was entitled to replacement of the damaged concrete inside the warehouse, in addition to the carpark outside.

Ought betterment be allowed as a deduction?

Kingston submits that any sum awarded for the replaced concrete ought to be reduced for "betterment", because the effect of such an order would be that Mrs Morabito would obtain new concrete at the end of Kingston's occupation, rather than concrete that was seven years and ten months old. The parties agree that if a reduction for betterment is allowed, it ought to be 14.83%, which assumes the concrete had a life of 50 years (being the midpoint between the life range of 40 and 60 years). In effect, that means the Court must consider whether the extra seven years and ten months above the expected 50 years amounts to betterment. If a reduction for betterment is allowed, the parties agree the appropriate reduced damages sum is $255,540.73.
Kingston relies upon principles concerning betterment from Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [261]-[264], where Hodgson JA characterised the concept of betterment as "the basic principle…that the plaintiff is to be compensated for its loss, and no more…".
In Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [2016] NSWSC 50 (appeal dismissed [2017] NSWCA 27) (Tzaneros Investments), at [133]-[137], Ball J set out the principles concerning a discount for betterment, which can be summarised as follows: 1. A successful plaintiff should not be awarded a windfall amount by reason of obtaining a better outcome, than had the defendant performed its obligations. However, it is relevant to have regard to any inconvenience likely suffered by a plaintiff because of unplanned capital works to rectify the defendant's breach. 2. A discount for betterment will be applied to a damages award if: 1. The plaintiff chooses to acquire a more valuable asset where a satisfactory cheaper option was available; or 2. Where there is no cheaper alternative, but the plaintiff receives a benefit that is not too remote in time, is not speculative, and is quantifiable; or 3. In a commercial setting, the plaintiff has made profit from the greater efficiency or productivity of the repaired property. 1. No discount will be applied where the benefit is not caused by the defendant's conduct and the expenditure incurred as a result. 2. Although the plaintiff has the onus of proving the quantum of damages, an evidentiary burden may be placed on a defendant.
Mr Stapleton's submissions to faintly resist a reduction of damages by reason of betterment were: STAPLETON: Well, the only analysis I can offer your Honour is this that the range of years of life is 20 years difference. It's between 40 years and 60 years. One doesn't know how long it's going to last within that. … STAPLETON: Yes, I rely on the contract and I just want to give your Honour the clause. It's paragraph 7.1(c)(iv), reinstatement to its condition at the commencement of the least subject to fair wear and tear and repainting. HER HONOUR: Yes. But, subject to fair wear and tear would make it eight years older. STAPLETON: That is true. The best the argument can get in defence of the betterment argument is that seven years plus maybe the minimum of 40 still brings you within the original design life of 40 to 60 and I will not put it any higher than.
Mr Stapleton did not make any submissions based on authority, or to the effect that such a benefit was speculative or too remote to be taken into account.
This is not a case like Tzaneros Investments, where the plaintiff claimed a pavement was constructed defectively and had incurred expenses in maintaining the defective pavement until it was replaced. In that case, Ball J concluded that it could not be said there was a simple betterment, because of the detriment to the plaintiff during the time the pavement was maintained. Further, in that case, the defendant accepted that the plaintiff's business needed to be closed while the repair work was carried out. However, here, Mrs Morabito claims lost rent during the period while the concrete remained unrectified and there is no evidence she spent money on the concrete during the Lease. In those circumstances, it is not an equivalent case.
For the reasons above, it is appropriate to reduce damages for the betterment obtained from the new concrete.

Additional make good

Originally Mrs Morabito claimed $57,871.35 for additional make good works. This figure was taken from an invoice issued by JD Concrete on 30 January 2019 for works it had completed at the property for Mrs Morabito in about October 2018. This figure excludes GST.
In closing, Mr Stapleton reduced the claim for additional make good to account for Mrs Morabito's acceptance that some items in that invoice had already been included in the claim for replacement of the concrete. The final claim for additional make good was in the amount of $3,320.00 of the invoice for "plumbing works, grates, fire hydrant, and fire rated door".
During cross-examination, Mrs Morabito's daughter stated that during her inspection of the property on 7 June 2018, the remaining repairs to be carried out at the Premises (unrelated to the concrete) concerned plumbing, the fire door and also internal painting works. She also made reference to exposure of the ventilation system and the fact the fire hose nozzle had been cut off. I note that Mrs Morabito abandoned her claim for the $2,629.00, itemised on the invoice for painting works.
Mrs Morabito bears the onus of proving the plumbing, grates, fire hydrant and fire door works were caused by Kingston's breach of the make good obligation, and that those works were not caused by fair wear and tear.
In her affidavit, Mrs Morabito indicated that she had become alerted to damage to the external plumbing and fire safety door after her inspection of the property on or about 4 May 2017. However, on 21 August 2017, Mrs Morabito's agent advised Kingston of the make good works Mrs Morabito required to be carried out prior to vacating the Premises. This list of required works made no mention of damaged pipes, grates, fire hydrant or fire door. In its email on 9 October 2017, Kingston proposed some make good works, but did not refer to those items.
There is no evidence of the likely cause of the damage to the pipes, grates, fire door and fire hydrant. I am not satisfied that Mrs Morabito has demonstrated that this damage was caused by Kingston beyond fair wear and tear, such that Kingston is liable to reimburse her in the amount of $3,320.00.

Lost Rent

Mrs Morabito claims 17 months of lost rent in the sum of $294,416.73. This period commenced on 15 January 2018, when a prospective tenant sought to rent the Premises, but the concrete had not been rectified, to 30 June 2019, when a new tenant took possession of the Premises pursuant to a lease, after the concrete had been replaced.
The sum sought is calculated on the terms of a lease proposal from Petrol Services Australia, which could have commenced on 15 January 2018 with an annual rent of $200,000.00, increasing at 3% annually. That offer was not accepted by Mrs Morabito.
Mrs Morabito also claims $36,367.11 for outgoings incurred for the same period as for the loss of rent.
Kingston denies it is liable for any lost rent or outgoings. It submits Mrs Morabito failed to mitigate her loss by failing to rectify the concrete promptly (a process which appears to have taken no longer than six weeks). Further it submits that Mrs Morabito failed to take up offers from viable tenants for 17 months without good reason and thereby did not mitigate her loss.
Mrs Morabito accepts that clause 12.4(d) of the Lease required her to take reasonable steps to mitigate her damage. When assessing damages at common law, a plaintiff is not entitled to damages which it could reasonably have avoided. The parties did not consider that there was a relevant difference between the operation of clause 12.4(d) and common law damages principles.
Clause 12.4 provided that when mitigating her loss, Mrs Morabito was entitled to obtain a replacement lease on terms acceptable to her. Her evidence in cross-examination was that her main concern was that a new tenant would pay their rent and look after the Premises. She gave no evidence that she was concerned about the length of the lease, the rent-free period, the rental increases or payment of outgoings. It is in that context the question of mitigation must be judged.

Attempts to re-lease the premises

As noted above, in May 2017, Kingston had notified Mrs Morabito that it would be vacating the premises at the end of 2017.
By October 2017 Mrs Morabito was marketing the Premises for lease.
Mrs Morabito's affidavit evidence concerning her attempts to re-lease the Premises after October 2017 is thin. In her affidavit she makes bald assertions without any supporting explanation. For example, her affidavit evidence is: Between… November 2017 to July 2019… Elders began to actively market the Factory for all leasing opportunities. …I recall that Elders were having difficulties securing a new tenant for the Factory due to the following reasons: a. the Defendant's ongoing delays to reinstate the damage as required under the Leases, specifically the internal and external concrete; b. Enquirers that did not propose reasonable rents and terms for leasing that were satisfactory to me.
She provides identical evidence about "Colliers" and "LJ Hooker". She gives no evidence of her instructions to any real estate agent, nor the terms of the agreements with them, nor why the terms proposed by enquirers were not acceptable to her.
The documentary evidence provides more detail.
On 13 November 2017, a potential new tenant, MPower, inspected the Premises, with the damaged concrete still unrepaired. The real estate agent emailed Mrs Morabito's agent, noting that MPower "have some time up their sleeve if they need to wait - they can wait until June 18." Mrs Morabito did not accept that proposal on the basis that the concrete was not repaired.
Other interested parties inspected in November 2017. On 28 November 2017, a potential tenant, Hoppt Australia, expressed an interest in leasing the Premises from mid-January 2018, including with the floor "left as is our suggestion". The terms offered were three-year lease with three -year option, rent of $115 per m2 increasing at 3% per year, outgoings of $18 per m2, and rent-free period of three months. Mrs Morabito did not accept that proposal on the basis that the concrete was not repaired, even though the proposal was that the floor could be left unrepaired.
On 30 November 2017, a potential tenant, Petrol Services Australia, offered to lease the Premises for three years, for $200,000 per annum, with one month rent-free period. Further, Mrs Morabito's agent informed her: The issue is they need to be in by the 15th January 2018 and we do not know what is going to happen with the concrete issue. They have offered to only occupy the office space and pay rent on this space only to begin with however I think this may cause an issue for when the concrete is repaired or replaced.
On 4 December 2017, Mrs Morabito rejected this offer. Her agent wrote to the potential tenant's agent: At this stage [the owners] are unable to commit to any potential tenants due to the make good of the property and would not feel comfortable with having the tenant in occupation while major works are being carried out. So unfortunately due to your client needing to be in by mid January we will not be able to move forward.
However, Mrs Morabito accepted in cross-examination that the terms that had been offered were acceptable to her. There is no evidence that the process of replacing the concrete was ever discussed with Petrol Services Australia.
On 22 January 2018, another potential tenant offered a three-year lease with three-year option for $190,000 per annum plus outgoings with two months' rent-free period. Significantly, the tenant was "willing to take on w/house as is. The concrete condition does not worry us…". Mrs Morabito also rejected that offer.
On 6 September 2018, Mrs Morabito's lawyer sought a quote to repair the concrete.
On 21 September 2018, an agent had further interest from a potential tenant.
Until October 2018, the parties continued to negotiate about a possible resolution of the concrete repair. They obtained various quotes and lawyers sent correspondence outlining legal positions and offers.
On 18 October 2018, JD Concrete completed the concrete removal and replacement at a cost of $403,700.00. As noted above, on 30 January 2019, JD Concrete issued a further invoice for $63,658.49 including GST for extra concrete works, cleaning, landscaping and other works.
On 1 July 2019, a new tenant commenced leasing the Premises for two years with a two-year option at a base rent of $205,000 including outgoings, increasing at 4%, with two months' rent-free period.

Did Mrs Morabito mitigate her loss?

Mrs Morabito's submission is that it was reasonable for her to keep the Premises vacant and to continue negotiations with Kingston from December 2017 until October 2018 in the hope that Kingston would replace all the concrete.
Mrs Morabito relies upon a decision of White J (as his Honour then was) in Vale v Rosychamp [2008] NSWSC 1373 for the proposition that engaging in negotiations for a long period of time, if done in the ordinary course of business, would not amount to a failure to mitigate loss. That was a very different case to the present. There, the protracted negotiations were between the landlord and a potential tenant. That ongoing negotiation demonstrated the landlord was taking reasonable steps to mitigate the loss of the premises being empty when the previous tenant breached the lease. In contrast, here, the protracted negotiations relied upon by Mrs Morabito are those between her and Kingston about rectification works. That case does not assist Mrs Morabito.
Similarly, I do not accept Mr Stapleton's submission that a relevant consideration is that Kingston, as late as June 2018, asked permission to enter the Premises and carry out further testing. The submission was as follows: … your Honour would also take into account elements of the defence and elements of the evidence of the defendant that it was complaining that my client never told them that she was going to replace the concrete, and so they were deprived of the opportunity to take more tests in effect, and I didn't object to the evidence because the witnesses were just saying what they would like to have done if they had - given the opportunity, they would've gone on and done more testing. Now, your Honour has to take that into account, in my respectful submission, up to the point of the date of the commencement of the works of the concrete the commencement of the works replacing concrete because of a couple of factors. They depend very heavily on a lot of the credibility of their evidence and also their defence that we've deprived them of the opportunity…
The submission, in effect, is that a plaintiff need not take reasonable steps to mitigate loss so long as the defendant continues to negotiate a possible outcome to a dispute, including for example, carrying out more investigations. I consider a landlord acting reasonably in the face of damaged premises, where liability for that damage is disputed, ought remedy the premises and claim damages for the loss. In fact, that is exactly what Mrs Morabito did, but she delayed by almost 12 months in carrying out the works.
I do not accept that Mrs Morabito acted reasonably in delaying rectifying the concrete and not accepting one of the leases offered early in 2018, in circumstances where the terms of those leases were acceptable to her. Mrs Morabito could have minimised any lost rent by taking steps to immediately rectify the concrete from November 2017. There is nothing to suggest that the Premises would not have been leased in early 2018.
Even if the rectification work was not complete by mid-January 2018, there is no evidence that the rectification work would have caused such inconvenience to the new tenant that a new lease would either not have eventuated, or if executed, would have been terminated because of the inconvenience.
I do not consider Mrs Morabito took reasonable steps to mitigate her loss, such that she is not entitled to any damages for the lost opportunity to obtain rent.

Calculation of lost rent and outgoings

Should the conclusion above be incorrect, in terms of quantum to be attributed to the lost opportunity to lease the Premises and pay outgoings, I make the following findings.

Lost rent

Lost rent was calculated at $200,000 per annum, plus outgoings, increasing at 3% in accordance with the lease, which was offered by Petrol Services Australia, but refused by Mrs Morabito.
Kingston does not take issue with the terms of that lease proposal forming the basis of a calculation for the lost opportunity claimed by Mrs Morabito and therefore, I will use that agreed approach without deciding whether it is correct.
Kingston does submit that certain deductions ought to be made from the amount claimed by Mrs Morabito: 1. Any claim from the date the concrete was replaced, namely 25 October 2018, because it is not to Kingston's account that Mrs Morabito first leased the Premises in July 2019; 2. The one month rent free period required by that potential tenant in the sum of $16,666.67; 3. The real estate agent's commission of one month's rent, in the amount of $16,666.67; and 4. The managing agent's fee of 3% excluding GST of rental income, which was said to be $10,457.81.
I do not accept Kingston's submission that the end date for the calculation of lost rent ought be the date the concrete works were finished. Instead, Mrs Morabito is entitled to loss caused by the breach, only limited by a failure to prove loss or a failure to have acted reasonably to avoid that loss.
To the extent that it ought to be concluded that Mrs Morabito proved that she took reasonable steps to market the Premises after the concrete was rectified, she is still entitled to damages, until a new tenant was found. Therefore, it is necessary to determine that issue.
The documentary evidence from real estate agents relied upon by Mrs Morabito only suggests sporadic marketing activity every second month or so. However, the evidence upon which she relies is three enquires made between November 2018 and when the new lease was formed in July 2019. Those enquiries were as follows: 1. On 19 November 2018, which was an online enquiry and response. There is no evidence that the agent ever followed upon the enquiry. 2. On 29 January 2019, a prospective tenant decided against the site because of the roller door, after a heads of agreement was issued on 13 December 2018. 3. On 25 March 2019, a prospective tenant had obtained better premises at a better price.
There is no evidence of the marketing campaign during any of the period, nor the state of the market or market rent.
Had Mrs Morabito taken reasonable steps, it would be expected that there would be more evidence of the market, marketing and engagement with potential tenants. While the Lease entitled her to consider terms of any future lease acceptable to her, that also required her to consider those matters in good faith.
Had it been necessary to decide, I do not accept that Mrs Morabito took reasonable steps to re-lease the Premises after the concrete was rectified.
Mr Stapleton did not make any submission against the other reductions sought by Kingston, other than in relation to the rent-free period. His submission was that Mrs Morabito had to give the 2019 incoming tenant two months' rent-free, and therefore it is not appropriate to reduce her claim for rent by the one month rent-free period that was proposed in January 2018. I do not accept that submission. Mrs Morabito is claiming 100% of the rental according to the January 2018 proposed lease. Therefore, the actual amount that would have been payable under that lease must be assessed on its terms, which includes a rent-free period. The 2019 tenant's terms are not relevant.
I also accept that the agent's commission and management fee must be deducted from the total sum. Mr Stapleton did not suggest the calculation was incorrect.
Therefore, from the lost rent claim of $294,416.73 would need to be deducted: 1. $16,666.67; 2. $16,666.67; and 3. $10,457.81.

Outgoings

The lease proposal submitted by Petrol Services Australia indicated that "outgoings" would be payable by the lessee. It is not clear from the proposal what would be included in the outgoings, had it been accepted by Mrs Morabito. Despite this, Mrs Morabito claimed $36,367.11 from Kingston by way of outgoings.
Of the outgoings amount claimed, $16,028.00 was said to represent land tax. However, Mrs Morabito has no direct evidence of the amount of land tax payable for the Premises, because she owns multiple properties and the land tax assessment notice in evidence did not provide a breakdown of the tax payable for each individual property. I do not accept that it is appropriate to adopt the methodology suggested by Mr Stapleton and apportion the land tax invoiced according the relative proportion of land value assessed in relation to the Premises. It was open to Mrs Morabito to provide an explanation from the Australian Tax Office or a professional qualified to give an opinion about how land tax is assessed, but she did not do so. I would not allow any sum for land tax as the quantum has not been proved to provide certainty to a determination.
In relation to the other outgoings claimed, $8,858.49 is claimed for insurance. Mrs Morabito gave no evidence of the type of insurance claimed and whether she kept such insurance irrespective of whether the Premises were leased or not. I do not consider she has demonstrated that she is entitled to that sum for insurance.
Mrs Morabito claims $1,116.46 for water rates and $6,262.21 for council rates. Kingston made no submission in relation to those specific sums. However, I do not accept it can be assumed that the Petrol Services Australia lease would require the tenant to pay statutory outgoings such as rates. I therefore do not accept it can be concluded on the evidence that Kingston is liable for these sums.
Therefore, Mrs Morabito is not entitled to any sum for lost outgoings.

Orders

For the reasons above, the appropriate orders are: 1. Plaintiff's statement of claim dismissed; 2. Plaintiff to pay defendant's costs as agreed or assessed.

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: 05 September 2023

At a glance

Court

Decision date

Before

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Judgment (22 paragraphs)

Parties

Cases Cited (18)