Plaintiff/ Defendant by Counterclaim v Defendants/ Plaintiffs by Counterclaim

Plaintiff/ Defendant by Counterclaim v Defendants/ Plaintiffs by Counterclaim - [2016] VSC 221 - VSC 2016 case summary — Zoe

[44]

SCHEDULE

Item 1 Landlord:

[1.1]

Elazac Pty Ltd

ACN 006 681 018

Of 401 Collins Street

MELBOURNE VIC 3000

Item 2 Tenant:

[1.1]

Roy Morgan Research Ltd

ABN 91 007 092 944

Of 401 Collins Street

MELBOURNE VIC 3000

Item 3 Guarantors:

[1.1]

Genevieve Joan Morgan of 193 George Street, East Melbourne VIC 3002;

Gary Cordell Morgan of 193 George Street, East Melbourne VIC

3002;

Item 4 (a) Premises:

[1.1]

The building known as 401-403 Collins Street, Melbourne 3000

(b) Land:

Certificate of Title Volume 9996 Folio 499

Item 5 Landlord's installations:

[1.1]

Lifts, air conditioning systems, plumbing, electric light fittings and power fittings, vaults, partitions and fixtures

Item 6 Rent:

[1.1]

Year 1 - $2,500,000.00 per annum plus GST

Year 2 - $2,587,500.00 per annum plus GST

Year 3 - $2,678,062.50 per annum plus GST

Year 4 - $2,771,794.68 per annum plus GST

Year 5 - $2,868,807.50 per annum plus GST

Year 6 - $2,969,215.76 per annum plus GST

Year 7 - $3,073,138.31 per annum plus GST

Year 8 - $3,180,698.15 per annum plus GST

Year 9 - $3,292,022.58 per annum plus GST

Year 10 - $3,407,243.37 per annum plus GST

...

Item 8 Term of the lease:

[1.1]

Ten (10) years starting on 14 April 2014 ("the Commencement Date")

Item 9 How rent is to be paid:

[2.1.1]

Monthly in advance on the first day of each month paid by electronic funds transfer.

...

Item 15 Permitted use:

[2.2.1]

General commercial uses, including but not limited to Offices, Retail and associated activities

...

Item 18 Further term(s):

[12]

Two (2) further terms each of five (5) years.

...

Item 22 Additional provisions:

[20]

The following additional provisions shall be binding upon the parties and if inconsistent with any other provisions of the lease shall override them:

1. TERMINATION FOR NON-PAYMENT OF RENT

Delete clause 7.4 and insert the following in lieu thereof:

"No demand for rent shall be necessary before the landlord may terminate this lease by re-entry under clause 7.1.1 for non payment of rent".

...

7. MAINTENANCE OF PREMISES

7.1 Repair

(a) The tenant:

[79]

[2] A known or express purpose of the [Lease] ... was to give the tenant full control over the Premises, and consistent with that, an entitlement, unfettered by the landlord, to sublease all or any parts of the Premises at its discretion, with the common understanding between the landlord and the tenant that the tenant could, by use of this entitlement in the Lease, derive additional income or commercial benefit by:

(a) subleasing parts of the Premises that were excess to the requirements of the tenant's business at any time; or

(b) [subleasing] parts of the Premises to tenants who could afford to pay rates higher than the tenant was paying; or

(c) [subleasing] parts of the Premises to joint venture or business partners whose sub-tenancy in the Premises provided a commercial or financial benefit, or opportunity for commercial or financial benefit, to the tenant,

and the tenant was entitled to decide for itself, at its complete discretion, with regard only to its own commercial interests, who was an acceptable subtenant, and what terms constituted an acceptable sub-tenancy arrangement to it.

[3] Consistent with the intentions of the landlord and tenant when they entered into the Lease, under the terms of the Lease:

(a) the tenant did not require the landlord's consent to sublease all or any part of the Premises, and the landlord, having leased the entirety of the Premises to the tenant, had no power under the Lease to interfere with the tenant's occupancy or subleasing any part, or plans for subleasing any part, of the Premises in any way;[19] and

(b) The tenant assumed a responsibility to perform and pay for maintenance at the Premises that would customarily be the responsibility of a landlord.[20]

This placed greater importance on the landlord's obligation to consult with the tenant in relation to capital works at the Premises to enable the tenant to plan and manage maintenance in the building.

[4] The roof and basement of the premises comprise 2 out of a total of 13 levels in the Premises and were inherently valuable as sub-lettable areas of the Premises, both in their own right, or in conjunction with other levels in the building.

[5] By reason of the matters set out in [2], [3] and [4] above, the right of the tenant to sublease the [rooftop] ... and the basement of the Premises was a known and/or express purpose of the Lease.

[89]

[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating".[29] It may be necessary in determining the proper construction where there is a constructional choice. ...

[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result".[30] Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience."[31]

[142]

* Over the last few months we have become increasingly concerned with the operation of the lifts at the entrance of 401 Collins Street. These lifts are used by our employees and the general public. All reasonable efforts have been made to maintain the lifts in good order, but our recent experiences indicate that the lifts are at end of life. Reflecting this, we have received a number of complaints from staff about stressful experiences from using the lifts. These include the significant distress arising lifts dropping suddenly between floor, and employees being locked in the lifts for varying lengths of time. In view of these complaints, and the effect it appears these incidents are having on our employees, we are now concerned about both our and your to occupational health and safety liabilities. Although there appears no immediate risk with the 5 tiered safety system of the lift, complaints based on these personal experiences are presented as being so stressful that some staff are not willing to use the lifts at all any more, and elect to walk up the stairs. This is obviously not sustainable for those working on the upper floors of the building. Further, the smaller south lift at the southern end of the building cannot accommodate the increased workload of moving all staff to their workplaces and between floors.
* You have advised us of the order for new lifts has been made, however the delivery time is estimated to be 6-9 months. Given this lead time to we now have a duty of care to our staff which requires more immediate action. It is our view that the lifts at the front of the building are now significantly damaged and irreparable such that it is not safe to use them to access any floors of this building, and it is unreasonable to expect our employees to use the stairs to access the upper floors of the building. Accordingly, we propose to relocate all staff presently working on the upper floors (being floors 6, 7, 8 and 9) of the building, to the lower floors (ground to 5). Whilst this approach will enable us to manage the operational and safety risks that will remain until the lifts are replaced, this solution will cause significant disruption to our Business, our ability to fully use the premises, and our enjoyment of our tenancy of the building as a whole. We, therefore, intend to suspend our obligation to pay rent in respect of the vacated floors (once they are vacated) until such time as the new lifts are installed, and the building is wholly fit and accessible for our purposes, without unreasonable disruption. Please let us know as a matter of urgency your thoughts on this request.

[173]

These claims do not engage with the terms of [cl] 7.2(d) and are incapable of raising even a tenable claim of breach of that obligation. For Lock to have mistakenly told RMR that the lifts were ordered on 15 May 2015 demonstrates no want of compliance with the terms of that provision. Nor was there any inaccuracy about the other statements about which RMR makes complaint. ...
RMR's case appears to assume that it was entitled to have input (indeed, considerable input almost on a partnership basis) into the choice of the lift contractor. But that implicit claim is flawed for two reasons. [Clause] 7.2(d) cannot commercially operate in that way. That provision calls for "plans, specifications and schedules of finishes, and a program of proposed works showing an estimated date for commencement and completion" to be provided to Impact for comment. Yet those kinds of matters would only be bedded down once a lift contractor was chosen. ...
Even more fundamentally, the time for complying with [cl] 7.2(d) had not come and gone. The replacement works still have not commenced. At every stage, Impact and Johnstaff have provided information to RMR, and Lock's evidence was that this would have continued had the litigation not interceded.[124]
This last point can be illustrated by returning again to the terms of [cl] 7.2(d). ... Impact was required to provide a "plan for the carrying out of the works" to RMR. RMR was provided with the various tender documentation on 11 September 2015[125] and with the letter of intent and the tender invitation on 22 September 2015.[126] Johnstaff was also made available to RMR to discuss matters. There was nothing more to provide to RMR in terms of a "plan". Jepson had no further issues concerning the lift replacement, as opposed to the lift extension.
[Clause] 7.2(d) also calls for "specifications and [a] schedule of finishes" to be provided to RMR. Johnstaff raised the schedule of finishes with Wallace and, after pursuing this information from United Lifts, Johnstaff only received that information in October 2015, after the dispute between RMR and Impact had escalated.
[Clause] 7.2(d) then calls for "a program of proposed works showing an estimated date for commencement and completion". Johnstaff provided this to RMR on 16 July 2015 in the form of a "Capital & Maintenance Program of Works".[127]
What more could have been done? In light of what was provided to RMR, its claim can only be that these documents were not provided in time to RMR. Yet it did not complain at the time about the sufficiency of the information about the lift replacement works (nor has RMR suggested any changes other than extending the lifts). And there is nothing to suggest that the information was provided anything other than within a reasonable time, and well in advance of any work actually commencing.

[187]

Lift disruption: The proposed Lobby Lift refurbishment had the capacity to cause significant disruption to the tenant's business and quiet enjoyment of the Premises. The successful lift tenderer's documentation confirmed that it required "storage space totalling 30 square metres adjacent to each lift shaft area, located at the lowest floor served by each lift, with an uninterrupted access way for delivery". In the absence of any lift extension, the lowest floor served by the Lobby Lifts is the ground floor, in the lobby of the Premises, at its Collins Street entrance. The area of the lobby of the Premises is approximately 30 square metres, and that space provides two lift access to upper floors, the entrance to the tenant's reception and conference facilities, entrance to the tenant's restaurant, the public entrance to the Premises from Collins Street, and access to the tenant's forward fire escape stairs. The threat of that obstruction in the lobby of the Premises preventing full access to the Premises is derogation of grant.
In view of the significant disruption to its business that storage of the Lobby Lift parts and components would have, the tenant made repeated requests of the landlord to provide details of its plans to minimise such disruption. No such information was ever forthcoming, with the landlord acknowledging that it did not, in fact, have any plans to minimise potential disruption.
The tenant asserted that the considerable disruption to the lobby from lift parts taking up 30 square metres for 6 months could have been reduced by placing the parts in the basement. In pleadings the landlord asserted no decision had actually been made. In evidence Mr Lock said he "hadn't explored the idea.". Ms Vocale said Mr van der Krann of United Lifts said the parts could be stored in the basement,[138] however the practicality of such an approach was never assessed or tested. The tenant submits it is not sufficient to simply assert that storage in the basement is a viable alternative without identifying how the lift parts and components will get to the ground floor, from where the works would be conducted (the options being via stairs, the goods lift 22 metres away, or walked around one city block). Mr van der Krann's alleged suggestion that the lift parts could be stored in the basement was never communicated to the tenant, though both Ms Vocale and Mr Banek knew of it.[139]

[332]

I would accept without hesitation the statement of Lord Denning MR in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc[299] that a party who breaks a contract cannot excuse himself by saying that he did it on the advice of his lawyers, or that he was under an honest misapprehension. If in the present case the time for performance had passed while the appellants were still maintaining their position based on the erroneous interpretation of special condition E (a) (iii), they would have been in breach of contract and liable in damages accordingly. Lord Denning goes on to say: "Nor can he excuse himself on those grounds from the consequences of a repudiation." That may be so, but it is first necessary to determine whether or not there has been a repudiation.

The doctrine of repudiatory breach is largely founded upon considerations of convenience and the opportunities which it affords for mitigating loss, as observed by Cockburn CJ in Frost v Knight.[300] It enables one party to a contract, when faced with a clear indication by the other that he does not intend to perform his obligations under it when the time for performance arrives, to treat the contract, if he so chooses, as there and then at an end and to claim damages as for actual breach. Where one party, honestly but erroneously intimates to the other reliance upon a term of the contract which, if properly applicable, would entitle him lawfully to rescind the contract, in circumstances which do not and are not reasonably understood to infer that he will refuse to perform his obligations even if it should be established that he is not so entitled, legal proceedings to decide that issue being in contemplation, I do not consider it in accordance with ordinary concepts of justice that the other party should be allowed to treat such conduct as a repudiation. Nor, in my opinion, are there any considerations of convenience which favour that course.

I would add that in my view the lodging by the appellants of their defence and counterclaim in answer to the respondents' first writ did not constitute further conduct on their part which can itself be regarded as having a repudiatory character. They thereby demonstrated nothing more than an adherence to their position as they had earlier expressed it. Further, the action taken by the appellants in relation to the guarantee arrangements with the National Westminster Bank appear to me to have been no more than a natural consequence of the view taken by the appellants as to their right to terminate the contract.

[379]

Repudiation or fundamental breach of a lease involves considerations which are not present in the case of an ordinary contract. First, the lease vests an estate or interest in land in the lessee and a complex relationship between the parties centres upon that interest in property. Secondly, this relationship has been shaped historically in very large measure by the law of property, though in recent times the relationship has been refined and developed by means of contractual arrangements. Thus, traditionally at common law a breach of a covenant by a lessee, even breach of the covenant to pay rent, conferred no right on the lessor to re-enter unless the lease reserved a right of re-entry. And in equity the proviso for re-entry was treated as a security for the payment of the rent, so that on payment of the rent equity would relieve against the forfeiture. The object and effect of s 129 of the Conveyancing Act 1919 (NSW) was to give further protection to the lessee and to preclude forfeiture of his interest in property within the sphere of the section's operation, except in accordance with its terms.

These incidents of the law of landlord and tenant indicate that mere breaches of covenant on the part of the lessee do not amount to a repudiation or fundamental breach. Indeed, it is of some significance that the instances in which courts have held that a lessee has repudiated his lease are cases in which the lessee has abandoned possession of the leased property. But too much should not be made of this as very few cases of repudiation by lessees have come before the courts. I would therefore specifically reject the appellant's submission that abandonment of possession is necessary to constitute a case of repudiation by a lessee. On the other hand, it should be acknowledged that it would be rare indeed that facts which fell short of abandonment would properly be seen as constituting repudiation by the lessee in the case of a long lease at a rental which was either nominal or but a fraction of the amount which could be obtained in the market place.

At a glance

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Judgment (671 paragraphs)

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Legislation Cited (2)

Cases Cited (33)