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[2025] VSC 544
General information, not legal advice.
Supreme Court of Victoria
2025-09-03
Delany J
Original judgment source is linked above.
CONTRACT - Construction and interpretation of lease - Force majeure provisions - Whether legislative instruments enacted in response to COVID-19 constituted a Force Majeure Event - Whether lessees ability to operate the business materially and adversely affected - Whether lessee determined to suspend operation of the business - Whether compliance with notice provisions in the lease - Lessee not entitled to abate the rent - Calculation of abatement not in accordance with the lease - Whether lessee entitled to terminate lease - Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37; World Touring Melbourne Ltd v Australian Grand Prix Corporation [2024] VSC 521, referred to - International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; , applied.
DAMAGES - Whether lessor suffered loss due to lessees wrongful termination of the Lease - Causation - Property sold with vacant possession - Decision to sell independent intervening act - Counterfactual - Future sale at specific dates with lease in place not proved - Expert evidence of loss - Adopted yields not satisfactorily proved - Chand v Commonwealth Bank of Australia [2015] NSWCA 181; Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64, 597, applied.
1 In 2017 the plaintiff ('West End') entered into an agreement for lease ('AFL') for the redevelopment of an existing building as an apartment hotel to be leased pursuant to a long term lease to the defendant ('Medina') upon completion.
2 The building, specifically 'building 1' (also referred to as 'building A'), was located at 185 Rosslyn Street, West Melbourne ('Rosslyn Street'), a mixed-use development comprising a residential, commercial, retail, dining, entertainment, hotel and short-stay accommodation precinct. The 'Premises' agreed to be leased to Medina, to be operated by it as part of its 'Adina' brand of apartment hotels, included a seven storey complex containing 99 apartments and 24 car parks. The redevelopment of the Premises was a bespoke development required by the AFL to occur in accordance with plans, specifications and finishes acceptable to Medina.
3 In September 2020 construction of building 1 achieved practical completion. On 4 December 2020 West End and Medina executed a lease in the form of the lease annexed to the AFL ('the Lease').
4 Where reference is made in these reasons to capitalised terms, those references reflect defined terms in the Lease.
5 The term of the Lease commenced on 4 December 2020 and Medina took possession on that date. The apartment hotel known as 'Adina West Melbourne' opened to the public on 7 December 2020.
6 The commencement date of the Lease and the opening of Adina West Melbourne occurred in the midst of the COVID-19 pandemic.
7 Various restrictions were in place in Victoria and more broadly across Australia from around March 2020 due to the COVID-19 pandemic.
8 On 11 March 2020 the World Health Organisation ('WHO') Director-General announced the WHO had assessed COVID-19 as a pandemic. Shortly after, the Victorian government declared a state of emergency under s 198 (1) of the Public Health and Well-being Act 2008 (Vic) arising out of the serious risk to public health in Victoria from COVID-19. At about the same time the Commonwealth Government made a declaration under s 475 of the Biosecurity Act 2015 (Cth) that COVID-19 constituted an infectious disease with pandemic potential that was posing a severe and immediate threat to human health on a nationally significant scale. On 20 March 2020 the Commonwealth government closed Australia's borders. On 24 March 2020 the Commonwealth introduced a travel ban on Australian citizens and residents travelling overseas, subject to certain exemptions. Similar restrictions continued or were imposed in the months that followed and during 2021.
9 On 4 December 2020, the day the Lease commenced, Medina sent a letter to West End headed 'Notice of Force Majeure' which referred to the COVID-19 pandemic and gave notice of Medina's intention to reduce or abate rent under the Lease in reliance on the 'force majeure' provisions in the Lease.
10 There were three components to rent payable under the Lease. Base Rent A, Base Rent B and Turnover Rent. At no point prior to February 2022 when Medina vacated the Premises did the turnover of Adina West Melbourne reach the threshold for the payment of Turnover Rent under the Lease.
11 Between March 2021, marking the end of the rent free period under the Lease, and February 2022 (inclusive) when Medina vacated the Premises ('the Period'), West End issued invoices for rent in accordance with the terms of the Lease. Medina reduced the rent it paid monthly throughout the Period by reference to a formula relating to hotels generally, published by an industry organisation called 'STR'. STR compared the monthly occupancy and revenue per bed ('RevPAR') during 2021 with the RevPAR for the corresponding month two years earlier of hotels upon whose statistics STR relied, reflecting trading conditions for those hotels prior to the COVID-19 pandemic.
12 In 2021, across Metropolitan Melbourne there were three periods of lockdown:
(a) from 27 May 2021 to 10 June 2021;
(b) from 15 July 2021 to 27 July 2021; and
(c) from 6 August 2021 to 21 October 2021.
13 In its closing submissions West End accepted that during the three lockdown periods Medina's ability to operate Adina West Melbourne business ('Business') was materially and adversely affected. While that concession was made, West End maintained its position that at no time were the force majeure provisions of the Lease satisfied and that, as a result, Medina was not entitled to reduce or abate the rent. It contended that even if Medina was entitled to rely on the force majeure provisions of the Lease, it was not entitled to reduce the rent in the amount it did.
14 On 10 November 2021 Medina issued a termination notice citing clause 10.9 of the Lease ('Termination Notice'). It asserted that a 'Force Majeure Event' as defined in the Lease had occurred and had continued for a period of at least six months. Medina gave notice it terminated the Lease effective from 12 February 2022, being a date not less than 90 days from the date of the Termination Notice.
15 West End contends that Medina's termination was wrongful and that by giving the Termination Notice, Medina wrongfully repudiated the Lease.
16 West End seeks damages for wrongful repudiation. It contends that if Medina had not repudiated, it would have sold the Premises with the Lease in place.
17 After Medina vacated the Premises in February 2022 , by contract of sale dated 22 April 2022 West End sold building 1, including a rooftop bar area which did not form part of the leased area, for approximately $33 million. The contract of sale attributed $1.8 million of the sale price to the title corresponding to the roof area. The contract provided for a deposit of $2 million with the balance to be paid in two years. It also provided for the entry by a company related to the purchaser into a lease of part of building 1 to operate it as a hotel at a fixed rent until settlement of the contract ('New Lease'). The New Lease commenced on 25 June 2022. It provided for rent to commence on 24 October 2022, 13 weeks after the commencement date.
18 West End claims unpaid rent of $1,059,434.38 relating to the period March 2021 to 12 February 2022. It claims interest on that amount. It claims $5,454,127 representing the after - tax net present value of its forgone cash flows arising from Medina's wrongful repudiation of the Lease, based on an assumed sale of building 1 at the end of FY26.
19 West End relies on the evidence of its director, Mr Robert Dicintio, both as to what West End actually did and as to what it would have done in the counterfactual had Medina not repudiated the Lease. It relies upon expert evidence from a forensic accountant, Mr Greg Meredith, as to the calculation of its loss due to wrongful repudiation.
20 In the alternative to its primary claim based on a sale in FY26, West End advanced various alternative damages claims depending on the end of the financial year in which building 1 is assumed in the counterfactual to have been sold with the Lease in place. Those losses were also calculated by Mr Meredith.
21 In the alternative, if none of the amounts claimed for wrongful repudiation as calculated by Mr Meredith are accepted, West End claims $1,305,651, being forgone Base Rent A and Base Rent B under the Lease for 250 days from the date of termination of the Lease on 17 February 2022 until 25 October 2022 when the tenant commenced paying rent under the New Lease.
22 Medina does not dispute the calculation of the West End rent claim to 12 February 2022 but it disputes West End's entitlement to any amount for rent in respect of that period. Medina contends it was entitled to abate the rent and to terminate the Lease as it did. It contends that if it improperly repudiated the Lease (which it denies), then, to the extent West End suffered any loss (which Medina disputes), Medina's actions were not the cause of that loss, rather, they were the result of West End's decision to sell building 1 as it did with vacant possession. In addition, Medina contends that West End failed to mitigate its loss.
23 The pleadings which frame the issues for determination comprise the statement of claim annexed to the amended writ dated 9 March 2022 ('SOC'), the further amended defence dated 27 May 2025 ('FAD') and the Reply dated 30 May 2025 ('Reply'). Both the FAD and the Reply were filed during the trial.
24 Clauses 10.6-10.9 of the Lease are in the following terms:
Force Majeure
10.6 If during the Term a Force Majeure Event occurs and as a result of the Force Majeure Event:
(a) the continued operation of the Business will not meet the Brand Standards and will adversely affect the reputation of the Business; or
(b) the Lessee's ability to operate the Business is materially and adversely affected,
then the Lessee may determine to suspend the whole or part of the operation of the Business due to the impact of the Force Majeure Event but must re-commence operation as soon as reasonably practicable after the Force Majeure Event ends.
10.7 For the period that the Force Majeure Event continues the Base Rent and other periodic payments (other than Turnover Rent) required under this Lease (Lease Payments) will be abated in proportion to the extent that the Business is reduced or suspended due to the Force Majeure Event.
10.8 The Lessee must notify the Lessor in writing:
(a) the grounds upon which it relies to establish that a Force Majeure Event has occurred;
(b) the reasons the Force Majeure Event will affect the Business as required by this clause; and
(c) the degree to which the Lease Payments should be reduced or abate.
10.9 If a Force Majeure Event occurs and continues for a period of at least 6 months, either the Lessor or the Lessee may terminate this Lease by giving the other party not less than 90 days' written notice.
25 Force Majeure Event is defined in clause 1.1 of the Lease:
Force Majeure Event means any act, event or circumstance outside the control of the parties including an act of God, industry wide labour or industrial relations dispute, a lockout, act of public enemy, acts of government (or agencies, departments, bodies, instrumentalities or representatives thereof), war (declared or undeclared), malicious mischief, sabotage, blockade, revolution, riot, insurrection, civil disturbance, outbreak of infectious disease, epidemic or pandemic disease, hurricane, typhoon, cyclone, tidal wave, landslide, lightning, earthquake, flood, storm, fire, explosion, failure of power supply, embargo or breakage or accident to items of plant or equipment, or act of terrorism.
26 The Lease contains some definitions to which reference should be made:
Business means the business conducted from the Premises by the Lessee in accordance with the Permitted Use of the Premises.
...
Interpretation
1.2 In this Lease, unless the context requires another meaning, a reference:
(a) to the singular includes the plural and vice versa;
...
1.8 Where a word or phrase is defined, its other grammatical forms have a corresponding meaning.
...
1.10 Headings are for convenience only and do not affect interpretation of this Lease.
27 Clause 10.10 of the Lease should be noted. That clause provides that if the parties cannot agree on any matter under clause 10, including on the amount by which Lease Payments are to be abated, the dispute will be referred for resolution by expert determination in accordance with clause 18.2.
28 Reference should be made to certain other provisions of the Lease:
(a) The term of the Lease is 15 years, commencing on 4 December 2020 and terminating on 3 December 2035, with one further term for a period of 10 years, being 4 December 2035 to 3 December 2045.
(b) Clause 7.1 provides the Lessee must only use the Premises for the Permitted Use. Clause 7.5 provides the Lessee 'must operate the Business throughout the Term and in a prudent and competent manner and use the degree of care and skill of an experienced operator of apartment hotels and serviced apartments commensurate with the Industry Standards'.
(c) The 'Permitted Use' of the Premises is specified to be 'serviced apartments and all facilities, amenities, activities and any lawful use associated with the operation of a hotel, apartment hotel or serviced apartments which the Lessee deems to be necessary'.
(d) Base Rent A of $250,000 per annum as per the lease annexed to the AFL. Base Rent B was specified to be $1,194,827 per annum for the first year, pro-rated for that year due to an initial three month rent free period. Turnover Rent remained at 42% subject to determination under clause 5.
(e) The Lease required Medina to provide a revenue forecast by no later than 15 May prior to commencement of each Lease year.
29 At the conclusion of the trial five main issues remain for determination. The first issue involves contested questions as to the proper construction of clauses 10.6-10.9 of the Lease and the definition of 'Force Majeure Event' in clause 1.1 of the Lease. The determination of the construction issues is critical to the determination of the other four issues, each of which involve the inter relationship between the provisions of the Lease and the facts. The second issue concerns whether Medina was entitled to abate the rent. The third issue concerns the calculation by Medina of the abatement rent. The fourth issue concerns whether Medina was entitled to terminate the Lease relying on clause 10.9. The fifth issue concerns West End's claim for damages for wrongful repudiation, including questions of causation and mitigation.
30 In its written closing submissions West End put its case as follows:
(a) Medina had no right to abate rent as it did under clause 10.7 of the lease. On the proper construction of clauses 10.6 to 10.8, Medina could only validly have exercised that right if, on each occasion when it purported to abate rent:
(i) a Force Majeure Event, as defined, had occurred during the term of the lease and was still extant;
(ii) that same Force Majeure Event was resulting in a material and adverse effect on Medina's ability to operate its hotel business;
(iii) Medina had determined to suspend, and had in fact suspended, the whole or part of the operation of the business due to the impact of that Force Majeure Event;
(iv) in respect of that Force Majeure Event, Medina had notified West End in writing of the matters set out in clause 10.8; and
(v) the rent abatement was proportionate to the extent that the business was reduced or suspended due to the Force Majeure Event.
(b) Based on the evidence at trial, having regard to the Force Majeure Events alleged by Medina, and upon a proper construction of the relevant terms of the lease, these preconditions were not satisfied as to any of Medina's purported abatements.
(c) If Medina was not entitled to abate rent as it did, the agreed quantum of underpaid rent that Medina owes West End is $1,059,434.38 (plus interest).
(d) Medina also had no right under clause 10.9 to issue a termination notice on 10 November 2021 as it did and subsequently vacate the premises on 12 February 2022 as it did. The contractual right so to terminate was not available unless both (i) a Force Majeure Event as defined had occurred during the term of the lease and, as at 10 November 2021, had been continuing for at least 6 months; and (ii) in respect of that Force Majeure Event and continuously for at least 6 months as at 10 November 2021, the requirements of clauses 10.6 to 10.8 were satisfied. No Force Majeure Event pleaded by Medina satisfies both (i) and (ii).
(e) Further, the same result would be obtained even if the Court were to hold that, as a matter of construction, the clause 10.9 right could be enlivened without the satisfaction of (ii) above, and only required the satisfaction of (i) above (or satisfaction of (i) together with some further limitation read into the definition of "Force Majeure Event"). That is so because no Force Majeure Event pleaded by Medina satisfies (i).
(f) Upon a conclusion that Medina's purported termination was without contractual basis, and thus repudiatory, West End is entitled to the loss and damage thereby caused to it. That amount is to be determined by reference to Mr Meredith's expert evidence. The most likely scenario, and that for which West End contends, is the FY26 sale scenario at a 6% yield, which means a loss of $5,454,127. If the Court does not adopt that scenario, then the loss figure is that for the scenario which the Court does adopt.
(i) to abate the rent in each month during the Period from March 2021 to February 2022 (clause 10.7), a Force Majeure Event having occurred in each of those months; and
(ii) to terminate the Lease in November 2021 (clause 10.9), a Force Majeure Event having occurred and continued for at least six months.
(b) However clauses 10.6-10.9 are construed, Medina validly abated rent (clause 10.7) and validly terminated the Lease (clause 10.9). None of the steps it undertook in 2021 or 2022 comprised repudiatory conduct. Accordingly, no valid occasion arose for West End to purport to accept such conduct.
(c) West End sold building 1 in August 2022. It had repeatedly and persistently attempted to sell building 1 between 2017 and 2022. The notion that Medina's vacation caused the sale should be rejected. Having freely decided to sell in April 2022 West End's decision to do so severs the causal chain.
(d) If liability is established then the appropriate measure of damages is:
(i) the difference between the value of the Premises as a going concern with a tenant in possession pursuant to the contracted term and one without a tenant in possession, assessed at either the date of breach or date of acceptance by the lessor of that breach; and
(ii) any lost rent calculated up to the point of the Premises' sale and not beyond.
(e) In any case, there are a number of reasons why the Court should not accept Mr Meredith's calculations of loss. Those reasons include that Mr Meredith should have used net rent as the basis of his calculations.
32 Robert Dicintio, one of the three directors of West End, gave evidence and was cross‑examined. Through entities owned or controlled by him or his family Mr Dicintio is a 15% owner of units in the trust of which West End is trustee. West End also relied on the evidence of Lawrence Heasman, the group general manager of Melbourne City Apartments Hotel Pty Ltd ('MCA'), the tenant under the New Lease. Mr Heasman made a witness statement. He was not required for cross-examination.
33 West End relied on expert evidence from Mr Meredith. Mr Meredith prepared a number of reports. He was cross examined.
34 Medina called three witnesses, each of whom were cross-examined:
(a) Ms Lucienne Ockleston, who was the Hotel General Manager of Adina West Melbourne between December 2020 and February 2022.
(b) Mr Christopher Sedgwick, the Chief Operating Officer of the TFE Hotels Group ('TFE Hotels') between April 2017 and early 2022.
(c) Mr Parthiv Merchant, the Global Director Finance Operations at TFE Hotels (since September 2024). Between October 2020 and 31 December 2022 Mr Merchant was the Manager Finance Operations at TFE Hotels and, from early or mid-2023 until 31 August 2024, was the Director Finance Operations at TFE Hotels.
E. Principles relevant to contractual construction
35 The principles of contractual construction are not controversial. The proper construction of the Lease including the force majeure provisions in clauses 10.6-10.9 is to be undertaken by reference to the text, context and purpose of the clauses in question.
36 When construing the provisions of a lease it necessary to consider the language used by the parties, the circumstances addressed by the lease, and the objects that it is intended to secure.[1] The Court should strive to adopt a construction that gives effect to the provisions of the lease and enables those provisions to operate harmoniously together, even if it runs contrary to a literal interpretation.[2] In construing the Lease, it should be presumed that the parties did not intend its terms to operate unreasonably.[3]
37 In World Touring Melbourne v Australian Grand Prix Corporation, Croft J summarised the position concerning force majeure clauses:[4]
At common law, 'force majeure' is not a term of art. The effect of such a clause depends in each case on the words used. The particular content of the concept of force majeure in a given case is determined requiring 'close to the words precede or follow it, with due regard to the nature and general terms of the contract'. It is not to be determined by reference to some generalised a priori concept of what force majeure means. In other words, as with any contractual provision, such a clause falls to be construed by reference to the text of the clause having due regard to the nature and general terms of the agreement.
39 Medina submitted that overall, it might be thought that courts are reluctant to permit a counterparty to use a force majeure clause to avoid the ordinary commercial risk associated with the contract.[7] It submitted this concern should not arise here, as the Force Majeure Events relied on fall within the contractual definition. It submitted the impacts or effects of those events should not be confused with the events themselves.
40 Medina drew attention to a number of cases where it has been observed that a fluctuation in economic circumstances adversely affecting a contract's commerciality may be insufficient to satisfy a force majeure clause.[8] Medina contended, and I agree, whether that is or is not the case depends on the terms of the clause. For example, in Gardiner v Agricultural and Rural Finance Pty Ltd,[9] which concerned a tea tree investment scheme, each of Spigelman CJ, Basten JA and Handley AJA concluded that a vacancy in the scheme's trustee satisfied the force majeure clause.
41 A party relying on a force majeure clause must establish a causal connection between the circumstance relied on and the effect on contract performance.[10] The party must not only bring itself within the clause, it must also show it has taken all reasonable steps to avoid its operation or mitigate its results.[11]
42 West End purchased Rosslyn Street in December 2014, including the Premises later leased to Medina for $40.25 million. The broad business plan of West End at the time Rosslyn Street was purchased was to develop the property to maximise its value and then sell it. Mr Dicintio acted as the development manager for the project.
43 West End is a special purpose vehicle, incorporated to undertake the 'Rosslyn Street Development Project'. The three directors of West End, Mr Dicintio, Mr Peter Kanat and Mr Michael Iacobucci, hold different ownership interests in West End through corporate entities associated with them and their families.
44 On 20 August 2015 West End and Medina executed a term sheet concerning a proposal to lease part of the development at Rosslyn Street and to operate a hotel on that part of the property.
45 On 27 February 2017 West End and Medina entered into the AFL. Annexed to the AFL was the form of the Lease subsequently executed on 4 December 2020, which provided for a term of 15 years with a single option of 10 years.
46 Construction took place between February 2017 and September 2020 in accordance with plans and specifications referred to in the AFL.
47 On 23 March 2017 Medina provided updated revenue and rent projections, including showing turnover rent to Mr Dicintio based on 92 apartments. Updated projections were provided on 3 June 2019.
48 On 18 August 2019 West End signed an 'Exclusive Selling Agency Agreement' in favour of Jones Lang Lasalle ('JLL'). An email sent by Mr Dicintio to JLL on 16 December 2019 relevantly stated:
Our preference is to sell the Hotel as soon as practically possible at maximum sales value.
The ownership group has found it difficult to determine when is the best time to market the sale of the Adina Building based on the advice to date.
As agreed, we probably have one chance at this next year and it seems as though the earliest would be June 2020.
...The income as forecast by Adina is summarised as follows...
49 On 17 June 2020, in advance of the Lease itself, but following the declaration by the WHO of the COVID 19 pandemic Medina sent an email to Mr Dicintio that included the following:
In terms of discussion with your Board, the Force Majeure ('FM') clauses in the lease should be on your agenda.
The definition of FM in the lease is:
...
The application of FM in terms of rent is described in the lease as follows:
Force Majeure
10.6 If during the Term a Force Majeure Event occurs and as a result of the Force Majeure Event...:
10.7 ...
10.8 ....
10.9 ...
I recognise that there is a 3-month rent free period following commencement, but there is a strong possibility that there will still be negative travel impact from January 2021, particularly on the international front. This will be viewed by the industry using occupancy levels and room rate levels in the Melbourne market compared to pre-COVID levels. Any adjustment would be on the basis of what the hotel industry is doing, not just based on our own interpretation and performance.
It is too soon to accurately quantify what this means. We have modelling scenarios, but for now all I want to do is raise the possibility and the need for you to discuss this with your Board.
[Emphasis added]
50 As recorded in the agreed chronology, practical completion of building 1 was achieved in September 2020.
51 On 4 December 2020 the parties executed the Lease. Medina took possession and commenced trading as Adina West Melbourne. The three month rent free period for Base Rent B under the Lease began.
52 On the same day the Lease was executed, 4 December 2020, Medina sent an email to Mr Dicintio which stated:
Whilst we would dearly wish we would not have to send the attached force majeure letter, we are obliged under clause 10.8 of the lease to notify you of a FM event. Given Victoria is only just starting to open up again and there is the initial rent free period, we cannot yet state the degree of impact that COVID-19 will have on the base rent.
The Operator [Medina] hereby notifies the Owner [West End] that the ongoing impact of COVID-19 the tourism industry falls within the definition of Force Majeure under the Lease. The existence of this Force Majeure Event materially adversely affects the Business.
Pursuant to clause 10.7 of the Lease, the Base Rent will be abated in proportion to the extent that the Force Majeure Event can reasonably be said to affect the Business...
54 On 10 March 2021 Mr Dicintio signed an exclusive agency selling agreement in favour of JLL for the prospective sale of building 1, subject to the Lease.
55 On 12 March 2021 there was an exchange of emails internal to Medina and TFE Hotels under the subject line 'lease review'. Those email exchanges included:
• * West End thoughts:
o • FM must be at least 6 months, so can only be notified after when the FM notice was sent, so from 4 June. Considering this, we should agree our analysis internally by mid-April and take it to the IC on 17 May. Agree, we should aim for the May IC.
o * I certainly think there is a fair amount of leverage to get an HMA. Will be good to get your team's view for FY22 and if we can rely on the 23-25 LTF or it needs adjusting. I don't think the developer will go for an HMA, he will look for an alternative lease operator given the holding costs.
o * In terms of the decision to terminate and/ or push for an HMA, let's consider both in terms of how we recover the sunk costs and from Sept 2021 onwards (i.e. June 4 + 90 days). We will still be in FM event and running a very low occupancies, so rent should be significantly abated until we exit or switch the agreement to an HMA. Operational costs will be kept at a minimum.
...
In terms of West Melbourne, do we all agree we will take advantage of clause 10.9 of the lease (detailed below)? If so, the force majeure letter was issued on the 4th December, therefore we would need to provide written notice early June, which gives us some time to investigate alternative no risk options if we want to remain in the property.
...
This will be an onerous lease for us in the long term due to location and little to no constraint forecasted for the Melbourne market for the foreseeable future, therefore this will cause greater pain when the FM event ends and we return to full rent situation.
...
We are meeting the owner next week to discuss the agreed FM abatement mechanism, however at this stage we will not discuss clause 10.9 with him.
56 On 31 March 2021, following the conclusion of the rent free period, West End issued its first tax invoice to Medina for Base Rent B.
57 On 30 April 2021 Medina gave Notice of Force Majeure by letter to Mr Dicintio:
Reference is made to the Lease between Medina Property Services Pty Ltd (Lessee), and West End Landco Pty Ltd (Lessor) commencing on or about 4 December 2020 (Lease) in respect of the hotel "Adina Apartment Hotel West Melbourne". We also refer to our letter to you dated 4 December 2020 within which we notified you that the Force Majeure Event caused by COVID-19 materially and adversely affects the Lessee's ability to operate the Business.
Capitalised terms used but not defined in this document have the same meaning as in the Lease.
Pursuant to clause 10.7 of the Lease, for the period that a Force Majeure Event continues the Base Rent and other periodic payments (other than Turnover Rent) required under the Lease are to be abated in proportion to the extent that the Business is reduced or suspended due to the Force Majeure Event.
To date, a rent-free period has applied under the Lease which has removed the requirement for any such reduction. As the rent-free has now expired, and in accordance with clause 10.8 of the Lease, we hereby notify you;
a) that the outbreak of COVID-19 is contemplated within the Lease definition of Force Majeure Event which includes "outbreak of infectious disease, epidemic or pandemic disease". We also note that the Force Majeure Event is beyond the control of the Lessee;
b) the Force Majeure Event has had a sustained material and adverse effect on the Business, including as a result of:
significant travel restrictions including repeated closure of domestic borders and sustained closure of international borders;
restrictions on non-essential travel within Melbourne;
extended prohibition on international arrivals consistent with the Airport Arrivals Direction and Cruise Ship Docking Direction issued pursuant to the Public Health and Wellbeing Act 2008 (Vic) by the Chief Health Officer;
Workplace Directions issued pursuant to the Public Health and Wellbeing Act 2008 (Vic) by the Chief Health Officer, including density quotient restrictions for shared areas within the hotel reducing the legal permitted capacity within the hotel;
that this impact has seen a material reduction in the Business both as a consequence of, and in an effort to mitigate, the effects of COVID-19, including a reduction in staffing levels at the hotel compared to feasibility, taking floors offline in an effort to reduce density, and materially reduced occupancy, ADR and RevPAR across the Melbourne market; and
d) as the Business commenced during a Force Majeure Event, there is no comparable hotel performance data to assess the specific impact of the Force Majeure Event on the hotel's performance, and therefore the necessary reduction in Base Rent and other payments under the Lease. We therefore propose to assess the impact of COVID-19 on market RevPAR performance for Melbourne CBD, an objective approach which is in line with industry practice. We will therefore compare the market RevPAR against the same trading month in 2019 (being the last full year not impacted by Covid-19) and the Base Rent will adjust proportionately to any confirmed reduction in performance. TFE will perform this calculation monthly and notify you of the corresponding abatement to Base Rent.
...
58 Also on 30 April 2021 Medina notified Mr Dicintio that it was West End's intention to assess the option under clause 10.9 to terminate the Lease should the current Force Majeure Event continue to remain in existence as at 4 June 2021. The letter relevantly stated:
I write in relation to the Lease between Medina Property Services Pty Ltd (Operator) and West End Landco Pty Ltd (Owner) commencing on or around 4 December 2020 (Lease) in respect of the hotel "Adina Apartment Hotel West Melbourne". Capitalised terms used but not defined in this document have the same meaning as in the Lease.
Further to our correspondence issued on 4 December 2020 notifying the Owner of the existence of a Force Majeure Event as a consequence of COVID-19, we wish to refer you to clause 10.9 of the Lease, which entitles either party to terminate the Lease by giving the other party not less than 90 days' written notice if a Force Majeure Event occurs and continues for a period of at least 6 months. Per our previous correspondence, the definition of Force Majeure Event includes "outbreak of infectious disease, epidemic or pandemic disease". A Force Majeure Event therefore continues to remain in existence as at today's date, almost 5 months after the lease commencement.
Having regard to the impact of any termination, particularly in the context of the Owner's ongoing sales campaign, we wish to draw this clause to your attention, and to notify the Owner as a gesture of goodwill that it is the Operator's intention to assess the option to terminate under this clause should the current Force Majeure Event continue to remain in existence as at 4 June 2021.
We would therefore welcome the opportunity to meet with you to discuss this letter, as well as the steps that can be taken to ensure a smooth transition can occur should the need arise.
59 On 10 May 2021 the director of development at TFE Hotels emailed Mr Dicintio in terms which included the following:
We refer to the rental payment for Adina West Melbourne for the month of March in the amount of $32,268.18.
In our longer letter to you on 30 April 2021, we referred to the continuing force majeure event being the outbreak of infectious disease, epidemic or pandemic disease, known as Covid-19. We also indicated that Covid-19 and its consequences have materially and adversely affected our ability to operate the consequence of Covid-19 the continued operation of the hotel business will not meet our brand standards and will adversely affect the reputation of the hotel business.
We indicated in that letter at points (b) and (c) the impact on the hotel business, and the steps we have taken to suspend part of the operation of the hotel business.
We are currently carrying out a numerical calculation of the proportion by which the hotel business has been reduced or suspended, in order to identify the appropriate percentage abatement of rent for the month of March. We will advise you of that calculation shortly. As an interim measure, and so as not to further delay payment of rent to you, we have made a payment of rent which has been reduced by approximately 65%, consistent with the reduction in RevPAR across the Melbourne area in March 2021 compared to March 2019.
60 On 14 May 2021 the regional manager for TFE Hotels Victoria, Mr Stephen Moore, sent an email to Ms Ockleston:
are you able to block 50% of the hotels inventory.. This is a directive from John/Tish to assist with the force majeure claim with the owners...
61 Later that day the Assistant Hotel Manager at Adina Southbank in Victoria responded:
Morning Steve,
How long do you need these to be blocked off for? I will action now, tomorrow night we're at 60% occupancy so I can block the remaining 40%, then 50% onwards from there.
62 Mr Moore responded 'Great. Go with 40% blocked. We are just blocking what we think we will peak out on'.
63 That email exchange was forwarded internally to the Director of Revenue at TFE Hotels with the following message:
Hi Amanda,
FYI - at Adina West Melbourne it was requested to block 50% of inventory/what we are not selling it. On the weekend we are already at 60% so this will be reduced.
64 On 21 May 2021 the solicitors for West End responded to the 30 April 2021 letter to Mr Dicintio. Their response, outlining a number of matters upon which West End later relied in the proceeding relevantly stated:
...
4. The purpose of this letter is to inform you that:
(a) our clients do not agree that it is or may become open to the Lessee to terminate the Lease pursuant to clause 10.9 as contemplated in your letter; and
(b) if the Lessee purports to invoke clause 10.9 as referred to in the letter, the Landlord reserves and will exercise all of its rights against the Lessee arising from what our clients consider would be a repudiation of the Lease, including the right to recover damages from the Lessee for losses suffered by reason of such conduct.
5. We deal with each of these matters below.
No entitlement to terminate pursuant to clause 10.9
As identified above, our clients do not agree that it is or may become open to the Lessee to terminate the Lease pursuant to clause 10.9 on 4 June 2021, or at all. The reasons for this include the following.
First, your letter of 30 April 2021 fails to identify the Force Majeure Event upon which the Lessee asserts it could rely. While your letter quotes an extract from the definition of Force Majeure Event in clause 1.1 of the Lease, namely 'outbreak of infectious disease, epidemic or pandemic disease', it entirely fails to identify how it is said that wording would be satisfied.
The letter's reference to your correspondence of 4 December 2020 does not assist the Lessee. That correspondence states, 'the ongoing impact of COVID-19 [on] the tourism industry falls within the definition of Force Majeure under the Lease'. That is a quite different matter from what your letter of 30 April 2021 refers to, and moreover is plainly not a matter that is within the definition of 'Force Majeure Event' under the Lease.
Second, even assuming that what the Lessee envisages as constituting the relevant Force Majeure Event is an 'outbreak of infectious disease, epidemic or pandemic' and that in this regard the Lessee would seek to rely in some fashion upon the global, national or local situation concerning COVID-19, such reliance would be misplaced. A Force Majeure Event within the quoted language self-evidently transpires when an "outbreak" occurs. Here, on any view, the outbreak of COVID-19, and hence any such Force Majeure Event, occurred before the commencement of the Lease. As such, it is not open to the Lessee to rely on it. Further and in any event, our clients do not accept that, as a matter of fact, there continues, locally or nationally, to be an outbreak of infectious disease, epidemic or pandemic, within the meaning of those words in the definition of 'Force Majeure Event'.
Third, your letter is incorrect in its apparent assumption that, in order to invoke clause 10.9, all that the Lessee needs to establish is that a Force Majeure Event has occurred and continued for six months. Any such construction is plainly erroneous. It would have the result that a termination right would arise to the Lessee whenever any of the events in the definition of Force Majeure Event had occurred, somewhere, and subsisted for six months, without there needing to be any nexus with the subject matter of the Lease. That would be commercially absurd. It is also not at all what the text of clause 10 conveys.
Rather, reading clauses 10.6 to 10.9 in their entirety, and in the context of the Lease as a whole, it is plain that clause 10.9 is referring to a Force Majeure Event as provided for in clause 10.6 (that is, one falling within paragraph (a) or (b) of clause 10.6 and about which the Lessee has made a determination as referred to in that clause) and in respect of which the Lessee has given notice in accordance with clause 10.8.
It is only following six months of subsistence of these matters (ie satisfaction of 10.6 and the giving of a notice in accordance with clause 10.8), that the termination right in clause 10.9 can be exercised upon giving a further 90 days' notice. That is both the natural reading of the text of the instrument and a commercially rational and sensible construction.
Here, as a matter of fact, none of the requirements referred to in the previous paragraph are satisfied. To date, there has been no explanation of how paragraph 10.6(a) might be applicable aside from a vague and unexplained reference to 'brand standards' in your email on 10 May 2021. Nor has there been any explanation of how the alleged Force Majeure Event meets the threshold of having a 'material and adverse' impact on your ability to operate the business within the meaning of paragraph 10.6(b). Nor is it clear that the 'steps' you have taken to suspend part of the operation of the business amount to a determination to suspend within the meaning of cl 10.6.
Further, none of your correspondence to date has given effectual notice in accordance with clause 10.8.
Finally, we note for completeness that, even if clause 10.9 had been available, it would have required the Lessee to give at least 90 days' written notice, measured from the point when the six month period to which it refers had elapsed.
Landlord's reservation of rights
Having regard to the foregoing, our clients categorically reject that the Lessee is or may become entitled under clause 10.9 to terminate the Lease.
If, notwithstanding the matters set out above, the Lessee purports to terminate the Lease under clause 10.9, it will clearly be acting wrongfully and in breach of the Lease, in a manner that constitutes a repudiation of it.
In those circumstances, the Landlord will not hesitate to take all available steps to protect its position and vindicate its rights in respect of the Lease. Without limiting or pre-empting those potential actions, they include the commencement of legal proceedings seeking a prohibitory injunction and the pursuit of a damages claim to recover the Landlord's loss and damage suffered by reason of the Lessee's repudiation. Such loss and damage would necessarily include the total net loss suffered by the Landlord in respect of the entire foregone term of the Lease.
The Lessee's conduct is particularly aggravating in a context of a sales campaign involving the property to which the Lease relates and in a context in which the Landlord is commencing fit out of restaurant leases in premises adjacent the Lessee's occupancy. You letter acknowledges this. Clearly, your letter has the potential to jeopardise that transaction, given the reference to the Lessee potentially (and wrongfully, our client says) seeking to terminate the Lease on 4 June 2021. If that occurs, the damage our client will suffer in that context will be substantial and will form part of any claim our client commences.
Please provide us with written confirmation by 31 May 2021 that the Lessee unconditionally withdraws your letter of 30 April 2021 and will not seek to terminate the Lease under clause 10.9 as contemplated in that letter. As noted above, should that confirmation not be provided, our client will have no hesitation in taking any and all steps necessary to protect its commercial interests,
...
65 On 26 May 2021 Medina gave notice to West End that the Lease payments should be reduced for the calendar months of March and April. The letter relevantly stated:
Pursuant to clause 10.8 of the lease, Medina Property Services Pty Limited (Medina) hereby gives notice that the Lease Payments (as defined in clause 10.7) should be reduced for the calendar months of March and April, as set out below.
The grounds upon which Medina relies to establish that a Force Majeure Event has occurred
On 30 January 2020, the World Health Organization (WHO) declared that the outbreak of Covid-19 was a Public Health Emergency of International Concern. On 11 March 2020, the WHO assessed that Covid-19 can be characterised as a pandemic. Medina relies upon the outbreak and continuing impact of the Covid-19 pandemic.
At all relevant times since the commencement of the lease, there was in force a declaration under s 475 of the Biosecurity Act 2015, that a human biosecurity emergency exists, being Covid-19, a human coronavirus with pandemic potential, and an infectious disease posing a severe and immediate threat to human health on a nationally significant scale.
The existence, nature and impact of the Covid-19 pandemic are well known, and widely reported. If you require further details, please let us know.
The reasons for Force Majeure Event will affect the Business
Relevantly, the impacts of the Covid-19 pandemic include the following:
(a) government restrictions on international travel, and reduced numbers of international travel, especially travellers entering Australia from overseas, including as a result of those restrictions and as a result of health issues associated with Covid-19;
(b) intermittent government restrictions on interstate travel, both into and out of Victoria, and reductions in numbers of interstate travellers for the same reasons as (a) above, or as a result of the risk of further restrictions;
(c) intermittent restrictions on local travel within Victoria, and reduced numbers of travellers to the Melbourne CBD, for the same reasons as (b) above;
(e) conditions imposed by Victorian state government regulations on the operation of hotels, including the requirement to have a Covid-safe plan, conditions in relation to cleaning of physical surfaces, numbers of guests permitted in common areas, and the use of personal protective equipment and related health measures;
The above impacts have affected the Adina West Melbourne apartment hotel business in the following ways:
(i) reduced numbers of guests at the hotel as a result of (a), (b) and (c) above;
(ii) more specifically, monthly international passenger numbers at Melbourne airport decreased by 98.8% from March 2019 to March 2021 (noting that international travellers would normally be expected to comprise 50% of guests at Melbourne hotel businesses), and monthly domestic passenger numbers at Melbourne airport decreased by 55.5% from March 2019 to March 2021, which is in line with significant reductions in flight passengers across Australia, both domestically and internationally, as a result of the pandemic:
(iii) as a result of (a) above, unavailability or reduced availability of international workers to provide services to Medina for the business, especially room-cleaning staff which in turn has affected Medina's ability to prepare used rooms for new guests within normal timeframes;
(iv) more specifically, data published by the National Skills Commission shows labour shortages by reference to the Internet Vacancy Index (IVI) (which is based on a count of online job advertisements newly lodged on SEEK, CareerOne and Australian JobSearch); compared to pre-Covid-19 levels, the IVI has increased by:
a. 148.6% for hospitality workers in Australia; and
b. about 106% for commercial cleaners in Victoria,
meaning that there is a significantly increased demand for these positions;
(v) further, figures released by the Australian Bureau of Statistics show that employment in the hospitality sector, which includes accommodation and food services, has had a weak recovery from the impact of Covid-19, and compared to pre-Covid-19 levels it has recovered by only 60.8% in Victoria; and
(vi) as a result of (d) above, restricted availability of stock for the operation of the hotel, especially bed linen.
Medina has ceased operations of guest rooms on two whole floors of the building, and during March 2021 weekly average numbers of unavailable rooms were between 23 and 48, and during April 2021 weekly average numbers of unavailable rooms were between 17 and 39.
Medina has reduced numbers of staff (excluding cleaning staff) by more than half. The effect of cleaning staff mentioned above is an additional impact.
As the Medina West Melbourne apartment hotel business was not in operation prior to the outbreak of Covid-19, we are unable to offer comparison trading figures, however hotel revenue per available room (RevPAR) rates for hotels across the Melbourne CBD reduced by approximately 64.8% from March 2019 to March 2021, and by approximately 32.9% from April 2019 to April 2021.
The degree to which the Lease Payments should be reduced
The impacts of the Covid-19 pandemic on the Medina West Melbourne apartment hotel business have been very significant, for the reasons outlined above. Those impacts have materially and adversely affected Medina's ability to operate the apartment hotel business.
Those impacts have also meant that the continued operation of the apartment hotel business will not meet its Brand Standards and will adversely affect the reputation of the business because, amongst other things, reduced staffing (for the reasons described above) has limited the hotel business' ability to give its travelling guests the personal attention that is synonymous with an Adina hotel experience; reduced activity in the Melbourne CBD has restricted guests' ability to access local experiences in the normal manner; and no gym and spa has been available for guests during the pandemic.
As mentioned above, we are unable to offer comparison trading figures for prior to the Covid-19 pandemic, as the business was not in operation at that time. Hotel revenue per available room (RevPAR) rates represent an industry-accepted objective measure of hotel operation and revenue. In the circumstances, Medina considers that the reductions in RevPAR outlined above, being 64.8% for March 2021 and 32.9% for April 2021, appropriately reflect the degree to which the Lease Payments should abate.
...
66 Letters in similar terms were sent by Medina to West End dated 21 June 2021, 23 July 2021, 20 August 2021, 8 October 2021 and 3 November 2021.
67 West End does not dispute that the COVID-19 pandemic and at least some associated government restrictions affected the income and expenses, and therefore the returns of the Business. As earlier noted, in its closing submissions, West End accepted there was a 'material and adverse affect' on Medina's ability to operate the Business as a result of government restrictions which imposed three periods of lockdown across Metropolitan Melbourne in 2021.
68 On 10 November 2021 Medina issued the Termination Notice which stated:
(a) a Force Majeure Event, as defined in the Lease, has occurred and has continued for a period of at least six months: and
(b) the Lessee hereby gives notice that it terminates the Lease, as of 12 February 2022, being not less than 90 days of the date hereof.
To the extent that such matters are required to be disclosed under clause 10.9, details of the Force Majeure Event and its impact on the Lessee's Business are set out in correspondence from Lessee during the last year...
69 The agreed chronology records that in early December 2021 Mr Dicintio contacted Jones Real Estate and Colliers International ('Colliers') to enquire about assistance with a possible sale of building 1.
70 On 10 December 2021 Medina gave notice to the owners corporation that it had given notice terminating the Lease and that it intended to terminate the Facility Services Agreement relating to building 1.
71 On 17 December 2021 Mr Dicintio received a document titled 'Sales Advice and Recommendations - building A', from Jones Real Estate.
72 On 12 January 2022 Medina made an offer to West End to operate the property after the Lease expires on 12 February 2022, not as lessee but under a Hotel Management Agreement ('HMA').
73 On 20 January 2022 a recommendation was made by Mr Dicintio to commence a marketing campaign to sell building 1.
74 On 27 January 2022 West End instructed Colliers that $35.1 million 'is the absolute minimum for the serviced apartment component only'.
75 On 12 February 2022 Medina vacated the Premises in building 1.
76 On 14 February 2022 Mr Zed Sanjana, CEO of Veriu Group, the operator of Punthill Apartment Hotels ('Punthill') sent an email to Mr Iacobucci expressing interest in entering into a lease of building 1:
We have been trying to get into the West Melbourne location over the last couple of years, and would be keen to discuss with you if there is any opportunity for us to enter into a long term lease on the site, now that TFE has departed.
Our group has over 20 hotels across Australia under operation or in construction, predominately in Melbourne and Sydney. We enter into long term leases in locations that have strong corporate travel drivers, which is our core business.
77 On 17 February 2022 the solicitors for West End sent a letter to the solicitors for Medina asserting that Medina was not entitled to terminate the Lease, that Medina had repudiated the Lease and that the Lease had come to an end. The letter relevantly stated:
3. Our client considers that your client's conduct in:
(a) issuing the Notice;
(b) refusing to withdraw the Notice;
(c) abandoning the Premises;
(d) issuing purported rent abatement notices pursuant to clause 10.7 of the Lease; and
(e) failing to pay the full amount rent due and payable under the Lease since February 2021,
individually and collectively comprises a fundamental breach of the Lease and evinces an intention on the part of your client no longer to be bound by and comply with it. Such conduct is, therefore, a repudiation of the Lease by your client.
Our client hereby accepts that repudiation and in doing so terminates the Lease, effective immediately.
...
78 On 22 February 2022 Punthill offered to enter into a lease of building 1 for a 'Punthill Apartments' venture which Mr Dicintio reported to his fellow directors was 'on the same terms as Adina'. Mr Dicintio used the language 'same terms' when describing Punthill's proposal to Colliers on the following day, 23 February 2022.
79 On 26 February 2022 Punthill made an offer to expeditiously enter into a lease of building 1 for the same rent, including turnover rent for 10 years with two further terms of 10 years, to commence within four weeks of signing the lease and 'primarily on the basis of the terms set out in the previous lease with Medina...'. Mr Dicintio gave evidence that West End had no concerns about the financial position of Punthill or their ability or reputation as operators.
80 By the end of February 2022 interest in entering into a long term lease or HMA of building 1 had also been expressed by others including Quest and IHG, an international hotelier with various brands including Intercontinental. The individuals involved in West End had an existing commercial arrangement with IHG in relation to the Sorrento Hotel, another of their development projects.
81 On 11 April 2022 the selling agents reported that three parties had expressed interest in purchasing building 1, including All-Goods Property Investments Pty Ltd ('All-Goods'), who offered:
(a) to purchase building for $30.8 million including the rooftop with a deposit of $2 million, with the balance payable in 24 months;
(b) in the meantime to lease the building for $1.2 million per annum plus GST.
82 The rent offered by All-Goods was less than the external interest costs on the loan from an external lender, Qualitas, that had been taken out to fund the redevelopment. In an email to his fellow directors on 12 April 2022, Mr Dicintio recommended against accepting the All-Goods offer for that reason but expressed his view that selling the hotel and rooftop components only would be acceptable.
83 On 12 April 2022 Punthill confirmed that it was keen to enter into a long term lease of building 1. It suggested a good option available to West End would be to do so and, if it wished, to explore selling in a few years' time. At that time Mr Dicintio reported to Mr Sanjana that his assessment of the prospects of a sale being concluded was 50/50.
84 Mr Dicintio gave evidence that as at 12 April 2022 he considered the offers that had been received for building 1 were not substantial enough. The Punthill lease offer was regarded by him and by West End as a 'good fallback option' if West End did not sell the property.
85 On 13 April 2022 All-Goods increased its offer for the purchase of the hotel and rooftop bar and increased its rent offer to $1.5 million per annum plus outgoings for two years.
86 On 22 April 2022 agreement was reached on a sale of building 1 for $33.05 million on terms and a two year lease at a rent of $1.5 million per annum together with outgoings and land tax with a 13 week rent free period. While the price was materially below the $35.1 million that Mr Dicintio had told Colliers on 27 January 2022 was the minimum acceptable price, it was his evidence, that as at 19 April 2022, 'the market had spoken'.
87 When West End made the choice to sell the Premises in April 2022 it was not under financial pressure to sell. It sold because it determined that to do so at that time, and on the terms proposed, which West End considered were most advantageous for its commercial interests. At that time the three families involved in West End had a large development pipeline underway. Approximately $22 million of the funds received from the sale were used to pay off the external debt to Qualitas and the balance was distributed to the unitholders.
88 I accept the West End submission that clauses 10.6-10.9 of the Lease comprise a number of interrelated elements that constitute a contractual regime governing force majeure and its consequences. It is important to strive to adopt a construction of such provisions in a manner that enables them to operate harmoniously and together.[12]
89 Each of the clauses in question are concerned with the occurrence of a Force Majeure Event. The opening words of the definition of 'Force Majeure Event' in clause 1.1, to which multiple references are made in clauses 10.6-10.9, are expressed in very wide terms: 'any act, event or circumstance outside the control of the parties'. Next, on an inclusive basis, a number of acts events or circumstances are specified, relevantly including 'acts of government... outbreak of infectious disease, epidemic or pandemic disease...'.
90 As stated at the beginning of clause 10.6, for the clause to operate a Force Majeure Event must occur 'during the Term'. While not expressly stated or repeated in the subclauses that follow, I accept the submission by West End that for the purposes of each of subclauses 10.6-10.9 the reference to 'a' or 'the' Force Majeure Event is a reference to such an event that occurs during the Term of the Lease.
91 While the 'outbreak' of disease is accurately described by Medina as a continuing state of affairs, I regard the reference to an 'outbreak' in the definition of 'Force Majeure Event' as meaning, consistent with the first definition in the Macquarie Dictionary, 'a breaking out; an outburst; the beginning'; something that occurs after the Term of the Lease and not an ongoing state of affairs. Such an approach to construction is supported by clause 10.6(a), which is concerned with the result of the Force Majeure Event on 'the continued operation of the Business', and the requirement that the Lessee 're-commence operation as soon as reasonably practicable after the Force Majeure Event ends'. It is also supported by the words in clause 10.9 'occurs and continues for a period of at least 6 months'. If the COVID-19 pandemic, which commenced nine months before the Lease itself, were able to be relied on by Medina for the purposes of clause 10.9, the event entitling it to terminate would have occurred, and would have continued for six months before the Lease itself began. That makes no commercial sense.
92 Both clauses 10.6 and 10.7 operate for the benefit of the Lessee.
93 To come within clause 6, the Force Majeure Event as defined must occur and the circumstances specified in either clauses 10.6(a) or (b) must also be present. If otherwise satisfied, clause 10.6 permits the Lessee to 'determine to suspend the whole or part of the operation of the Business'. At a practical level, if the whole of the Business is suspended, there would be no turnover during the period of suspension and, as a result, no Turnover Rent payable during that period by the Lessee.
94 It is accepted by both parties that clause 10.7 does not operate in isolation to clause 10.6. While having scope for operation independent of clause 10.6, clause 10.7 provides in substance that so long as one of the circumstances described in clause 10.6(a) or (b) apply and, provided the requirements of clause 10.6 are otherwise satisfied, the Base Rent (being both Base Rent A and Base Rent B) and other periodic payments (other than Turnover Rent dealt with in clause 10.6) will be abated.
95 Clause 10.8 operates for the benefit of the Lessor, to whom the information provided for in clause 10.8(a)-(c) must be given.
96 Clause 10.9 permits 'either the Lessor or the Lessee' to terminate the Lease on 90 days' notice in writing if clause 10.9 is otherwise satisfied. One requirement of clause 10.9 is that a Force Majeure Event must 'occur' and 'continue... for a period of at least 6 months'. As is obvious, clause 10.9 operates for the potential benefit of both parties to the Lease.
97 Medina submitted, and I agree, that both subclauses 10.6(a) and 10.6(b) are directed to the protection of the Business' economic interests; not simply its physical ability to engage in the 'Permitted Use.' The 'Business' is concerned with 'the business conducted from the Premises by the Lessee in accordance with the Permitted Use of the Premises'. The two, the Business and the 'Permitted Use', are not the same and it is only to the Business that clause 10.6, and also clauses 10.7 and 10.8 refer.
98 I agree with Medina that the reference to 'the Business' in subclauses 10.6(a) and (b) is broader than (and/or different from) the physical ability to engage in the 'Permitted Use', being: 'Serviced apartments and all facilities, amenities, activities and any lawful use associated with the operation of a hotel, apartment hotel or serviced apartments which the Lessee deems to be necessary.'
99 Clause 10.6(a) is the counterpart to the obligation in clause 7.6 that the Lessee must operate the Business in a manner not less than the 'Brand Standard'. Clause 10.6(a) permits a suspension when 'the continued operation of the Business will not meet the Brand Standards and will adversely affect the reputation of the Business'.
100 Clause 10.6(b) is the counterpart to the obligation in clause 7.5 that the Lessee must operate the Business throughout the Term. Clause 10.6(b) may be relied on by the Lessee where its 'ability to operate the Business is materially and adversely affected'.
101 I agree with Medina that when construing clause 10.6(b) it is important to focus on the material and adverse effect on the Business, and not on the impact or otherwise of the Force Majeure Event on the Permitted Use.
102 While that is the case, what must be 'materially and adversely affected' in order for clause 10.6(b) to be satisfied is 'the Lessee's ability to operate the Business', rather than the Business itself. West End submitted, and I accept, that as a matter of construction it is not a requirement of clause 10.6(b) that the Business itself is materially and adversely affected.
103 Clause 10.6(b) directs attention to the ability of the Lessee to operate the Business rather than focussing on the income of the Business which itself may be affected because of the impact of the Force Majeure Event on the ability of the Lessee to operate the Business 'in a prudent and competent manner [using] the degree of care and skill of an experienced operator of apartment hotels and serviced apartments commensurate with the Industry Standard' as required by clause 7.5.
104 Unless within the Term of the Lease a determination has been made by the Lessee to suspend the whole or part of the operation of the Business, the Lessee will have no entitlement to rely upon clause 10.6. To 'determine', for the purposes of clause 10.6, is, as defined in the Macquarie Dictionary, 'to decide upon'. I agree with West End that the notion of determination connotes a degree of formality by a person with authority. To 'suspend', as defined in the Macquarie Dictionary, is 'to cause to cease, or bring to a stop or stay, usually for a time'.
105 To summarise, there are a number of elements to clause 10.6(b). First, that a Force Majeure Event has occurred. Second, that the Force Majeure Event has occurred during the Term of the Lease. Third, that 'as a result' of the Force Majeure Event, the Lessee's ability to operate the Business has been affected. Fourth, that the Lessee's ability to operate the Business has been 'materially and adversely affected'. Fifth, in order to avail itself of the benefit of clause 10.6, the Lessee the must have 'determined to suspend the whole or part of the operation of the Business' and sixth, that the Lessee's determination is 'due to the impact of the Force Majeure Event'.
106 While clause 10.6(b) permits a suspension upon each of those elements being satisfied, it also provides that the Business 'must re-commence operation as soon as reasonably practicable after the Force Majeure Event ends'.
107 While on its face clause 10.7 might be thought to be capable of operating independently of clause 10.6, neither party contends for an entirely independent approach to construction. I agree that an entirely independent approach is not appropriate.
108 The abatement of the Base Rent provided for in clause 10.7 is in proportion to the extent the Business is suspended (noting that clause 10.6 provides the suspension may be in respect of the whole or part of the operation of the Business) or 'reduced', a concept not referred to in clause 10.6 'due to the Force Majeure Event'.
109 Medina submitted that, like clause 10.6, clause 10.7 pre-supposes the continuation of the Business and in that sense the two clauses are interlinked. It submitted the reference to 'suspended' in clause 10.7 is a reference to the suspension occurring in clause 10.6. It submitted that while clause 10.7 picks up the language of clause 10.6 in the case of 'suspension' of the whole or part of the operation of the Business, in addition, clause 10.7 has an independent scope of operation by reason of the reference in that subclause only to the Business being 'reduced' due to a Force Majeure Event. Medina submitted if that were not the case, the word 'reduced' would have no meaning and no work to do.
110 West End submitted that it is not tenable to analyse clause 10.7 as having two separate triggers; one a suspension as per clause 10.6 and the other, a free standing trigger based on the word 'reduced'. Instead, 'reduced or suspended' must be read as a composite phrase that is referrable to the determination to suspend in clause 10.6. West End submitted the reasons Medina's independent operation construction of 'reduced' must be rejected include:
(a) first, because the word reduced in clause 10.7 has no predicate, once sheared away from clause 10.6, it has no enlivening words;
(b) second, because it makes no commercial sense to say Medina can abate by reference to an asserted 'reduction' in the Business, but not by reference to the qualifying elements in clause 10.6 such as the Force Majeure Event having resulted in the Lessee's ability to operate the Business being 'materially and adversely' affected;
(c) third, because giving the word 'reduced' independent scope of operation is too uncertain. What does 'the Business is reduced' mean? What will the rent be abated in proportion to?;
(d) fourth, if viewed in isolation 'reduced' in clause 10.7 is surplusage, just as it is in clause 10.8(c) where Lease payments are described as being 'reduced or abate'.
111 I prefer West End's approach to construction of clause 10.7. The subclause does not provide for a separate 'trigger' provision, independent of clause 10.6(a) and (b).
112 Subclause 10.7 is directed to measurement, an abatement in proportion. The inclusion of the word 'reduced' does not change the subject matter to which the subclause is directed. The focus of clause 10.7 is upon the consequences for Base Rent and other periodic payments (other than Turnover Rent) of either of clauses 10.6(a) or (b) having been satisfied and upon their having been a determination to suspend the operation of the Business in whole or in part under clause 10.6. It is not a subclause that creates a new set of rights based upon the inclusion of the word 'reduced' as Medina contends is the case.
113 I do not accept that the inclusion of the word 'reduced' carries the consequence that a 'reduction' is a different concept to a suspension, intended to be a different and independent measure of the impact of the Force Majeure Event on the Business that independently operates under clause 10.7 'to the extent the Business is reduced'. I agree with West End that such a contention leads to too much uncertainty. 'Reduced' from what, due to the Force Majeure Event? Will a 1% reduction in the Business entitle the Lessee to abate the rent by 1%? Such an outcome would be commercially absurd.
114 If 'reduction' were an independent basis to abate the rent under clause 10.7, any reduction in the Business due to the Force Majeure Event, no matter how trivial, would entitle the Lessee to abate the rent. That is in contrast to the requirement in clause 10.6(b) that the ability to operate the Business must be shown to be 'materially and adversely affected' in order for that clause to operate. Such an inconsistent outcome would make no commercial sense. To construe the clause in that manner is also contrary to the usually strict approach to the construction of force majeure clauses.[13]
115 While not as clearly or consistently expressed as might be the case, the reference to 'the extent that the Business is reduced or suspended due to the Force Majeure Event' in clause 10.7 is a reference back to 'suspend the whole or part of the operation of the Business due to the impact of the Force Majeure Event' referred to in clause 10.6(a) or (b). I agree with West End that the use of the definite article before 'Force Majeure Event' in clause 10.7 links the 'reduction' to clause 10.6 and to the Force Majeure Event which satisfies either clause 10.6(a) or 10.6(b).
116 West End submitted, and I agree, that it is not open to the Lessee to use a different metric for the purposes of clause 10.7 than the 'material and adverse affect' metric in clause 10.6(b) when clause 10.6(b) is otherwise relied on.
117 West End submitted the criteria in each of clauses 10.6, 10.7 and 10.8 concerned with the abatement rent must be separately satisfied for each and every month. I do not agree.
118 Although rent is payable monthly under the Lease, the ability of the Lessee to abate the rent pursuant to clause 10.7 is not contingent upon the Force Majeure Event having first occurred during that month. So much is clear from the opening words of clause 10.7, '[f]or the period that the Force Majeure Event continues...'. In other words, a Force Majeure Event such as the gazettal of an instrument of government in the month of April 2021, which continues in force in the month of May 2021, entitles the Lessee to abate the rent for both months from the date of gazettal but not for a month after the period specified in the instrument of government ends.
120 Compliance by the Lessor with the notice requirement in clause 10.8 is not optional. The use of the word 'must' conveys that it is imperative that notice be given. The requirement that the Lessee 'must' notify the Lessor of the matters specified makes it clear that the Lessee is not entitled to exercise any of the rights in clauses 10.6, 10.7 and 10.9 unless it has issued a notice under clause 10.8.
121 The requirement in clause 10.8(a) to notify 'the grounds upon which the Lessee relies to establish that a Force Majeure Event has occurred' picks up the reference to Force Majeure Event in each of subclauses 10.6, 10.7 and 10.9.
122 The information required to be provided in the notice by clause 10.8(a)-(c) is designed to put the Lessor in an informed position to evaluate whether the abatement or termination action taken by the Lessor does or does not fall within the contract. If there is a dispute, including as to the amount of the abatement, it also puts the Lessor in an informed position to invoke the expert determination process provided for in clause 18.2 via clause 10.10, should it wish to do so. A further important purpose of clause 10.8 is to ensure that the Lessor is fully informed about the grounds and reasons relied on by the Lessee concerning the Force Majeure Event upon which it relies. As a result, the Lessor is placed in an informed position to enable it to determine whether or not to exercise its right to terminate under clause 10.9, should the Force Majeure Event continue for a period of six months.
123 I agree with West End that it is not open to a Lessee to give notice of 'the grounds upon which it relies to establish that a Force Majeure Event has occurred', whether for the purposes of abatement of rent or for termination, and then to rely on different or other grounds in support of abatement or termination not stated in the relevant notice. If such a course were open to the Lessee, the purpose of clause 10.8(a) as identified by Medina, that is to enable the Lessor to know what the Lessee is doing and why, would be defeated.
124 Clause 10.8(a) requires that the notice identify 'the grounds' relied on by the Lessee to establish that a Force Majeure Event has occurred; the occurrence of such an event being a pre-condition to the permitted reliance by the Lessee on either or both clauses 10.6 and 10.7. Clause 10.8(b) requires a statement of 'the reasons' the Force Majeure Event will affect the Business - a reference back to requirements of clauses 10.6 and 10.7. Clause 10.8(c) requires notice to be given of the 'degree' to which the Lease payments should be reduced or abate, a reference back to clause 10.7 only.
125 The reference to 'as required by this clause' in 10.8(b) is a reference to as required by clause 10 as a whole. If 'this clause' were intended to be a reference to clause 10.6(a)and (b) alone, one would expect the phrase 'the reasons the Force Majeure Event will affect the Business' in clause 10.8 (b) to expressly refer to clause 10.6. It does not do so.
126 Medina accepts that should a Lessee seek to rely on clause 10.7, as Medina did in this case, clause 10.8's notification requirements are engaged.
127 Medina contends clause 10.8 has no application to clause 10.9 which has its own notice requirements.
128 While it is correct as submitted by Medina that clause 10.9 makes no mention of clause 10.8, that does not mean the notice provision in clause 10.8 is irrelevant to clause 10.9. Clause 10.8 also contains no express reference to clauses 10.6 or 10.7. When the text of clause 10.8 is analysed bearing in mind its commercial purpose, it is clear the clause applies across all of the subclauses comprising clause 10.
129 As submitted by West End, the effect of clause 10.8 is to confine the Lessee to the particular Force Majeure Event or Force Majeure Events, as the case may be, stated in the notice in support of abatement or termination. Likewise, if the Lessor wishes to terminate for a Force Majeure Event, the Lessor is confined under clause 10.9 to the Force Majeure Event identified in the Notice. The right of the Lessor to terminate under clause 10.9 is not at large.
130 Medina submitted that, contrary to West End's contended position, clause 10.8 does not operate as a pre-condition to valid termination under clause 10.9. I do not agree. While clause 10.9 contains its own reference to a notice to which Medina directed attention, the notice provision in clause 10.9 is a separate notice provision directed to a different purpose. The clause 10.9 notice is directed to the period of notice to be given by either party wishing to terminate, that is 90 days. It is not directed to the identification of the Force Majeure Event relied on or to the grounds and the reasons that 'must' be specified in the clause 10.8 notice.
131 Medina drew attention to the location of clause 10.8, submitting that it would be a strange result if the clause applied to the exercise of rights both before (clauses 10.6 and 10.7) and after (clause 10.9), given its position. However, I do not consider that the location of the subclause within clause 10 displaces the construction of clause 10.8 to which I have referred.
132 The language of clause 10.9, read in isolation, is quite sparse. It provides that if a Force Majeure Event occurs and continues for a period of at least six months, clause 10.9 gives either party the right to terminate by giving the other party not less than 90 days' notice.
133 Medina accepts, and I agree, that while on its face clause 10.9 does not require that the Force Majeure Event relied on for termination actually bears on or affects the Lease, the Premises or the Business, to justify termination, as a matter of commercial operability such a construction is unlikely, and, I would add, must be rejected.
134 Clause 10.9 makes no mention in its text of any causal connection between the Force Majeure Event relied on to terminate and the impact on the Business. Read on its own, either party could terminate upon a Force Majeure Event as defined in clause 1.1 occurring and continuing for six months. It makes no commercial sense for the parties to the 15 year lease to agree that, if somewhere in the world an event that falls within the very wide language of the definition of 'Force Majeure Event' in clause 1.1 occurs, either party could terminate the Lease.
135 Such an outcome cannot objectively have been intended by the parties to the Lease, the commercial purpose of which was to provide for the conduct of the Business by the Lessee in Premises constructed in accordance with the AFL so as to meet the Lessee's Brand Standards to which clause 10.6(a) specifically refers.
136 While I accept the submission by Medina that clause 10.9 operates for the benefit of both the Lessor and Lessee, I do not agree with Medina that clause 10.9 is a standalone provision to be read without reference to, and uninformed by, clauses 10.6 and 10.8. Medina accepted the Force Majeure Event must be linked to the Business and that such an interpretation is required to make sense of the agreement. That being so, it is necessary to identify where in the Lease that link appears for the purposes of clause 10.9. The logical and appropriate place to look, and where the answer is found, is within the remaining subclauses of clause 10.
137 Clause 10.9 must be read with subclauses 10.6-10.7 inclusive, those subclauses providing both content and context to clause 10.9. Without being read in that way, clause 10.9 lacks sufficient content as a standalone clause, even when taken with the definition of 'Force Majeure Event' to have certainty of operation.
138 The submission by Medina that regard should be had to the definition of 'Force Majeure Event' in clause 1.1 as the basis of imposing a limitation on the operation of the right to terminate in clause 10.9 merely due to the occurrence and continuation of a period of at least six months for a Force Majeure Event must be rejected. Clauses 10.6-10.9 are part of a scheme dealing with Force Majeure Events.
139 Medina accepts that despite the absence of language connecting the Force Majeure Event and the Business in clause 10.9, there must be some 'nexus' between the Force Majeure Event and the Business in order for clause 10.9 to be available to either party to rely upon. In closing submissions Medina referred to the Force Majeure Event having 'some bearing or affect upon the Business for the six months that it continues'. It submitted the requisite 'bearing or affect' is that earlier specified in clauses 10.6 and/or 10.7.
140 Clause 10.9 does not permit either party to terminate the Lease simply because a Force Majeure Event occurs, even if a notice is purportedly given pursuant to clause 10.8, unless the criteria in clause 10.6(a) or (b) are also satisfied.
141 Clause 10.9 permits termination if the impact on the Business of a Force Majeure Event falling within clause 10.6(a) or (b) continues for six months. Only if the Force Majeure Event in clause 10.6(a) or (b) has continued for six months may either party, at that time, give notice to terminate.
142 On the facts of this case Medina's notice to terminate was given on 10 November 2021. Therefore the Force Majeure Event relied upon to found the right to terminate must have occurred on or before 10 May 2021 and continued throughout the six month period. As the event must have 'occurred' within the Term of the Lease, the Force Majeure Event must have 'occurred' between 4 December 2020 and 10 May 2021 in order to found a valid right to terminate.
143 Medina submitted it is not a precondition of the exercise of power in clause 10.9 that there has been a particular exercise of power under clause 10.6 and reference to that Force Majeure Event in a notice under clause 10.8. It submitted the opening words of clause 10.9, which, unlike the opening words of clause 10.6, do not include a reference to 'during the Term', supports a construction of clause 10.9 as a stand-alone provision. The use of the indefinite article is an indication clause 10.9 is not referring to the same Force Majeure Event in clause 10.6.
144 Medina submitted a clause 10.6 suspension or clause 10.7 abatement does not cover the field for the circumstances in which the Lessor may terminate under clause 10.9 and that to construe the clause in that way would unduly restrict the rights of the Lessor. I do not agree. The Force Majeure Event that 'occurs and continues' in clause 10.9 must be the same Force Majeure Event, in this case relied upon to satisfy clause 10.6(b) and has been the subject of the Lessee's notice pursuant to clause 10.8.
145 The reference to a notice in clause 10.9 does not mean that the existence of a notice in compliance with clause 10.8 is not required in order for either party to rely on clause 10.9. Two notices are required in order for clause 10.9 to be relied on. That is the case even though in the absence of a clause 10.8 notice, the Lessor would not be entitled to terminate pursuant to clause 10.9, including if the Lessee had suspended its Business and abated rent for more than six months. In such a case the Lessor would be left with remedies provided elsewhere in the Lease, including the dispute resolution mechanism provided for in clause 10.10.
G.6 Can more than one Force Majeure Event be aggregated and relied on?
146 West End submitted that clauses 10.6-10.9 are directed to a particular event and to the impact of that single event, to the entitlements that arise on account of that event, the determinations made referable to it and notice as to that event. It submitted it is not open to the Lessee to aggregate more than one Force Majeure Event for the purposes of clause 10.6 or 10.9. It submitted if more than one Force Majeure Event were open to be relied on, clause 10 could have said 'if there occurs a Force Majeure Event or Force Majeure Events', but that language was not employed by the draftspersons.
147 I do not agree that the reference to Force Majeure Event in clauses 10.6-10.9 is a reference to a single Force Majeure Event only.
148 The definition of 'Force Majeure Event' in clause 1.1 is expressed to mean any of the acts events or circumstances outside the control of the parties, inclusive of those that are specified. While I accept, as submitted by West End, that the definition begins and is expressed in the singular 'any act, event or circumstance', it would be artificial to say, by way of example, that when considering whether any or all of clauses 10.6-10.9 are satisfied, the inclusive definition requires the separate identification and the correct characterisation by the person seeking to rely upon one or more of those clauses of either a 'riot, insurrection, or civil disturbance'. Similarly, to require the separate and specific identification of an 'outbreak of infectious disease, epidemic or pandemic disease'. Both of these groups of words within the clause 1.1 definition of 'Force Majeure Event' admit of the possibility of overlap. I agree with Medina that the definition, including in the examples referred to, is apt to encompass a multi-faceted event.
149 I do not accept the submission by West End that the definition of 'Force Majeure Event' requires that the event to which clauses 10.6-10.9 refer is constituted only by a singular or isolated event or, for that matter, a single multifaceted event. Nor do I accept that it is not permissible to aggregate a number of different Force Majeure Events and to rely upon such events collectively under clauses 10.6(b), 10.8 and 10.9.
150 Clause 1.2 of the Lease provides that a reference to the singular includes the plural and vice versa unless the context 'requires another meaning'. I do not consider that the context of clauses 10.6-10.9 'requires another meaning'.
151 West End submitted the fact that rent is payable monthly and the need for certainty in identifying the Force Majeure Event relied upon pursuant to clause 10.6(b) supports its approach to construction. I do not agree. I accept that the need for certainty requires the identification of the Force Majeure Event or Force Majeure Events relied upon in the clause 10.8 notice, but that does not mean there can only be one Force Majeure Event.
152 While it is true that clause 10.6 refers to 'a Force Majeure Event' and 'as a result of the Force Majeure Event' and that those references are repeated in clause 10.7 and elsewhere, to read substantive force majeure provisions in that way would be to artificially cut down the breadth of the definition in clause 1.1, it would also be inconsistent with a 'businesslike interpretation' of those provisions of the Lease.[14] Contrary to the submissions of West End, I consider it is permissible to aggregate such events and to consider the combined impact of them upon the Business when applying clauses 10.6(a) and/or 10.6(b).
153 It is inconsistent with a business-like approach to the construction of clause 10.6(b) to construe that clause in a manner requiring the impact of a single Force Majeure Event upon the ability of the Lessee to operate the Business, to be assessed in order to determine whether their ability to operate that Business has been 'materially and adversely affected' if it is the case that more than one Force Majeure Event has occurred and is having or has had such an impact. To adopt such an approach would be artificial and would cut across and undermine the very broad definition of 'Force Majeure Event' in clause 1.1.
H. Applying the construction of the Lease to the facts
154 The SOC alleges and the FAD admits that West End issued monthly invoices for rent in accordance with the Lease commencing on 31 March 2021 up to and including 28 February 2022 ('the Period'). The SOC alleges and the FAD admits that instead of paying the full amount of the invoices for rent by the due date, Medina issued a notice each month stating that it had abated a portion of the rent under clause 10.7 of the Lease and part paid rent on that basis.
155 The FAD alleges that, on a proper construction of clause 10.7 of the Lease, in the premises of paragraphs 9-9K of the FAD, the Lease payments abated pursuant to clause 10.7 of the Lease.
156 What is pleaded at paragraph 9-9K of the FAD exposes the issues that are critical to the determination of Medina's alleged entitlement to abate the rent and therefore to West End's claim for unpaid rent. The same paragraphs are also critical to whether Medina was entitled to terminate the Lease.
157 Paragraph 9 of the FAD alleges the following acts events or circumstances occurred outside the control of the parties:
(a) from March 2021 to February 2022 inclusive, a contagious respiratory disease, Coronavirus disease COVID-19 (COVID‑19), caused by the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), was prevalent throughout:
(i) the World;
(ii) Australia; and/or
(iii) Victoria;
(b) by reason of paragraph 9(a) above, from March 2021 to February 2022 inclusive, there was:
(i) a pandemic disease; and/or
(ii) an epidemic disease:
(A) within Australia; and/or
(B) within Victoria;
(iii) an outbreak of infectious disease:
(A) within Australia; and/or
(B) within Victoria;
(iv) an act of God;
and thereby a Force Majeure Event (within the meaning of Clause 1.1 of the Lease) had occurred and, further, continued for the stated this period.
Further and alternatively, ... from March 2021 to February 2022 inclusive, the Victorian Government:
(a) restricted the entry of persons into Victoria from other States and Territories;
Particulars
The instruments providing for these restrictions, and their period of operation from March 2021 to February 2022 inclusive, are set out in item 1 of Appendix A.
(b) restricted the entry of persons into Victoria from overseas;
...
such matters being acts, events and/or circumstances (including acts of government) outside the control of the parties, and thereby a Force Majeure Event (within the meaning of Clause 1.1 of the Lease) occurred and, further, continued for the stated period.
159 Paragraph 9A is supported by particulars which refer to specific government instruments providing for the restrictions alleged.
160 Paragraph 9B of the FAD pleads in the alternative that during the Period the Commonwealth Government permitted only Australian citizens and Australian residents to enter Australia and prohibited Australian citizens and permanent residents from leaving Australia. Instruments of the Commonwealth Government are detailed in the particulars in support of that allegation. The restrictions referred to are alleged to constitute acts events and/or circumstances (including acts of government) outside the control of the parties and thereby a Force Majeure Event that occurred and continued for that Period.
161 Paragraph 9C makes similar allegations but by reference to restrictions imposed by other State and Territory governments, particularised by reference to instruments of those governments.
162 Paragraph 9D alleges that, further and in the alternative, at various times throughout the Period, the Victorian government imposed restrictions prohibiting the attendance of guests at the Business, the acceptance of bookings at the Business and the service of rooms at the Business. Once again, such matters are alleged to constitute acts, events and/or circumstances falling within the definition of 'Force Majeure Event' in clause 1.1 of the Lease. The particulars to this paragraph refer to the lockdown periods earlier mentioned.
163 Paragraph 9E alleges that, as a result of the Force Majeure Events, fewer people entered Victoria, visited Melbourne and used the Business during the Period.
164 Paragraph 9F alleges that, further and in the alternative, as a result of the Force Majeure Event referred to in paragraph 9 of the FAD, at various times throughout the Period:
(a) the Business adopted, implemented and complied with various policies in its operations, causing staff to comply with additional requirements in the conduct of the Business;
(b) the Business suffered from delays in cleaning, shortages of cleaning staff; and
(c) the Business took protective measures in response to guests and staff suffering from, or potentially suffering from, COVID-19; and
(d) facilities adjacent to the Business did not open, derogating from the Business' amenity (although this allegation was not pressed in closing submissions).
165 Paragraph 9G alleges that, further and in the alternative, at various times during the Period, the Business did not accept new guests, accept new bookings or clean or service rooms.
166 Paragraph 9H alleges that in the premises of any or all of paragraphs 9B-9G described above, Medina's ability to operate the Business was, for the purposes of clause 10.6 of the Lease, materially and adversely affected as a result of the Force Majeure Events.
167 Paragraph 9I alleges that, further and in the alternative, at various times during the Period, for the purposes of clause 10.6 of the Lease, Medina determined to suspend part of the operation of the Business and/or suspended part of the operation of the Business due to the impact of the Force Majeure Events, or one or more of them. It further alleges in paragraph 9J that during the Period, due to one or more of the Force Majeure Events, the Business was reduced for the purposes of clause 10.7 of the Lease.
168 Paragraph 9K alleges that, further and in the alternative, Medina notified West End in writing of the grounds on which it relied to establish that a Force Majeure Event had occurred, the reason the Force Majeure Event will affect the Business and the degree to which the Lease payments should be reduced or abated for the purposes of clause 10.8. The particulars to this paragraph refer to correspondence from Medina to West End, of which the letter dated 26 May 2021 is an example.
169 Paragraph 9L alleges that in the premises of paragraphs 9-9K described above, on a proper construction of clause 10.9 of the Lease, Medina was entitled to terminate the Lease by giving the Termination Notice.
170 In its Reply, West End joined issue with Medina on its FAD. The Reply admits that by no later than March 2020, outside the control of the parties, an outbreak of COVID−19, being a pandemic disease and an infectious disease, had occurred in Victoria, Australia and the world. It admits that while the Lease was on foot, but not at all times, there was COVID-19 in Victoria. It admits that during the Period a number of restrictions were from time to time imposed, varied or removed by the governments of Victoria, other States and Territories and the Commonwealth in respect of COVID-19. It pleads that the imposition of each of those government restrictions was outside the control of the parties and that some had an impact on the income and/or expenses of Medina's business and its day-to-day operations at certain times during the Period.
171 The allegation in paragraph 9 of the FAD that throughout the Period, a contagious respiratory disease, COVID-19, was prevalent and therefore a pandemic disease and/or an epidemic disease, cannot be relied upon to support a finding of fact that a Force Majeure Event occurred 'during the Term of the Lease'.
172 That is because COVID-19 was declared a pandemic in March 2020, many months prior to the commencement of the contractual relationship governed by the Lease. The pandemic could not itself constitute a Force Majeure Event during the Term of the Lease. The 'outbreak of infectious disease' referred to in the pleading, one of the events mentioned in the definition of 'Force Majeure Event' in clause 1.1, occurred well before the Lease commenced.
173 Medina separately pleads and relies on various 'acts of government'. The acts of government relied upon fall into two categories. The first, those which cover the entirety of the Period such as those imposing restrictions upon international and interstate movements preventing travellers from going to Adina West Melbourne. The second, those relating to Victorian lockdowns which occurred in specified periods.
174 Medina submitted that restrictions on international and interstate movement significantly lessened entry into and exit from Victoria throughout March 2021 to February 2022. It submitted those restrictions meant a lack of patronage for Victorian hotels including Adina West Melbourne.
175 Without going into the detail of the specific instruments of government particularised in Appendix A to the FAD in support of paragraphs 9A-9D of the FAD, those instruments of government, including those of the State of Victoria which imposed lockdown periods after 4 December 2020, constitute 'acts of government' falling within the definition of 'Force Majeure Event' in clause 1.1.
176 Medina was entitled to rely on each such instrument as constituting a Force Majeure Event that occurred during the Term of the Lease. As an example, 'Restricted Activity Directions (Victoria) (No 17)'[15]applicable from 27 May 2021 - 10 June 2021 relied on in support of paragraph 9D of the FAD.
177 For the reasons discussed in section G.6, Medina was entitled to aggregate and rely upon more than one such Force Majeure Event constituted by an 'act of government' if such Force Majeure Events occurred and overlapped during the Period. At a practical level, for the reasons discussed in section G.3:
(a) if an instrument of government was gazetted on 27 May 2021 and expired on 10 June 2021; and
(b) if another instrument of government such as Direction and Detention Notice (No 3),[16] Victorian Border Crossing Permit Directions (No. 36 - No. 44);[17] Pandemic (Victorian Border Crossing) Orders (No 1-No. 5)[18] were gazetted on 1 March 2021 and continued beyond the dates of the 27 May 2021 gazettal,
both instruments of government can be relied on together by Medina during the period they overlap to satisfy the requirement that a Force Majeure Event that has occurred and continues, permitting an abatement of rent pursuant to clause 10.7 if the requirements of the Lease are otherwise satisfied.
H.2.2 Was the Lessee's ability to operate the Business 'materially affected' as a result?
178 Whether the Lessee's ability to operate the Business was 'materially affected' as a result of the instruments of government is a matter that turns on the evidence relied on by Medina in support of its defence. That is so with the exception of the instruments of the Victorian government which imposed three periods of lockdown which West End concedes to have had such an effect.
179 As noted by Medina in its closing submissions, Mr Meredith expressed his opinion that the COVID-19 pandemic 'had significant effects on the serviced apartments industry in Australia'. However, that does not mean that Medina's 'ability to operate the Business was materially and adversely affected'.
180 Mr Sedgwick gave evidence in his witness statement that:
...
The reduction in the numbers of guests visiting the hotels operated by TFE Hotel of course resulted in a reduction to hotel revenue.
...
- ... the negative impact of the Covid-19 pandemic on revenue was difficult for TFE Hotels to counteract. However, TFE Hotels was able to reduce its operating costs, to mitigate the financial impact of the pandemic. TFE Hotels put in place a number of costs saving measures.
181 Forecasts for Adina West Melbourne prepared by Medina prior to the onset of COVID-19 generally projected an occupancy rate of 68% in the first year, and an occupancy rate of between 78 - 83% in the second year. The evidence establishes that actual occupancy rates were nowhere near this level.
182 Between December 2020 and the January 2022, the average occupancy rates of Adina West Melbourne included rates of 30.17% in September 2021, 34.08% in October 2021 (the month before Medina issued the Termination Notice) and 40.21% in December 2021. The occupancy rate exceeded 50% at times in mid-May 2021 and December 2021. Ms Ockleston referred in cross examination to an occasion outside lockdown periods when Adina West Melbourne was at 100% occupancy. However, the average occupancy in the first year was only 16.21%. As submitted on behalf Medina, even in the months of better performance during the Period, the results were significantly below those which had been projected.
183 Consistent with those low levels of occupancy, revenue per available room, RevPAR, was significantly below that which had been forecast by Medina prior to the COVID−19 pandemic. Medina's losses from operating the Adina West Melbourne during the Lease totalled $769,895.141. Those losses were in addition to its pre‑opening expenses such as contributions to the fit out.
184 Ms Ockleston gave evidence about the process of closing off rooms. Something she had been directed to do well before coming to Adina West Melbourne and well before the Lease commenced:
185 Ms Ockleston gave evidence in relation to the practice of Adina West Melbourne being 'stop sold' where the hotel would not take new bookings for a relevant period. However existing bookings would be kept. She gave evidence that the hotel had never been 'stop sold' outside the lockdown periods and that generally outside the lockdown periods the hotel was able to get the staff they needed to run the hotel given the number of guests who were present.
186 The evidence demonstrates that while Adina West Melbourne remained open to guests from 4 December 2020 until Medina vacated the premises in February 2022, from at least May 2021, not long after the rent free period under the Lease had ended, whatever the impact on the ability to operate the Business of those government instruments, Medina made a deliberate decision to close off rooms with a view to ensuring its occupancy rates were and remained low. That decision reflected a business decision to seek to save costs.
187 While the impact of a Force Majeure Event on the Lessee's ability to operate the Business may result in a reduction in the turnover and profitability of the Business, as earlier discussed, what clause 10.6(b) requires to be established is that the Lessee's ability 'to operate the Business' is materially and adversely affected. It was to that topic that the evidence of Ms Ockleston was directed. In its closing submissions Medina discussed Ms Ockleston's evidence about 'various operational disturbances within the hotel' under the general heading 'day-to-day impact'.
188 As might be expected, as a result of the COVID-19 pandemic, Medina introduced various 'clean touch' policies which caused extra work and effort. However, whatever the impact of those policies and the need to deal with health and safety concerns including 'protective measures' in response to guests and staff suffering or potentially suffering from COVID-19, the evidence does not establish that those additional requirements or otherwise the impact on staff from government restrictions or COVID-19 more generally, 'materially and adversely affected Medina's ability to operate the Business'.
189 Having regard to the evidence given by Ms Ockleston, I do not accept that Medina's ability to operate the Business was 'materially affected' outside the lockdown periods, as a result of a Force Majeure Event, whether that Force Majeure Event be an instrument or instruments of government or as a result of the COVID-19 pandemic more generally.
190 In cross examination Ms Ockleston accepted that during lockdown periods the apartment hotel had never closed and that her witness statement overstated the extent to which the hotel was prevented from carrying on its business in those periods. Her evidence was that during a period of lockdown in June 2021 three floors of the hotel were 'closed off' and unavailable.
191 When put to her directly in cross examination, Ms Ockleston, accepted that outside lockdown periods, Medina's ability to operate the Business was only affected to a limited degree. Her evidence included the following passages extracted in West End's closing submissions:
Q: [T]he ability to operate the hotel outside the lockdown periods was only affected to a limited degree, wasn't it?
A: Yes.
...
Q: What I really wanted to suggest to you is that, in contrast to the lockdown periods in for example mid to late June, the hotel was well able to operate albeit that there were some particular requirements in place?
A: Yes.
...
Q: [I]f we think of the period, of say, 10-15 November [2021], by then COVID was not having any effect on your ability to run the hotel, was it?
A: No ... Not anything in addition to what we've already discussed.
Q: And so that being the case, I'm right, aren't I, to suggest to you that by that point COVID was not having any real effect on your ability to run the hotel?
A: No.
Q: It was having only a very limited effect, wasn't it?
A: Yes.
192 Although there was some evidence that Medina encountered difficulties with its linen supplier and its housekeeping services contractor, Ms Ockleston accepted that those difficulties arose due to increasing occupancy levels at times of high demand. There were only three days in mid-December 2021 that it was necessary to restrict the availability of rooms on account of housekeeping shortages.
193 The email exchange of 14 May 2021, reproduced in section F above, shows that a deliberate decision was taken by Medina to block rooms with a view to supporting its Force Majeure Event case. At the time that decision was made the occupancy rates were higher than TFE Hotels management wanted to be the case. The directive was to block 50% of the hotel rooms. As reported to the Director of Revenue at TFE Hotels, 'on the weekend we are already at 60%, so this will be reduced'.
194 The 14 May 2021 email to Ms Ockleston is consistent with the earlier internal email exchange on 12 March 2021, also reproduced in section F, in which senior executives of TFE Hotels exchanged emails directed towards terminating the Lease on force majeure grounds as soon as possible, noting that it would be 'an onerous lease for us in the long term due to location and little to no constraint forecasted for the Melbourne market for the foreseeable future'. In the 12 March 2021 email exchange, two of the executives discussed issuing a notice of termination six months after Medina's Notice of Force Majeure (which was issued on 4 December 2020) and using the force majeure provisions as leverage to present a HMA to West End, as was ultimately proposed by Medina to West End on 12 January 2022.
H.2.3 Did the Lessee determine to suspend the whole or part of the operation of the business due to the impact of the Force Majeure Event?
195 The evidence falls short of establishing that at any relevant time during the Term of the Lease, Medina 'determine[d] to suspend the whole or part of the operation of the Business due to the impact of the Force Majeure Event'.
196 Paragraph 9I of the FAD, which alleges that at various times Medina made a determination to suspend, particularises that allegation by reference to specific paragraphs in Ms Ockleston's witness statement. Those paragraphs deal with the closing off of rooms.
197 The paragraphs relied on themselves show that the decision to close rooms to reduce costs during the period of the pandemic was made before the Lease commenced. The decision to do so is therefore not a determination that is able to be relied on by Medina.
198 As noted above, Ms Ockleston gave evidence that when Adina West Melbourne opened on 4 December 2020, she 'continued to follow the procedure [she] had implemented at the Travelodge Newcastle... designating rooms as 'closed off' and unavailable for guests, to save money'. As the general manager of Adina West Melbourne, and as was her evidence in the paragraphs relied on in support of paragraph 9I of the FAD, Ms Ockleston implemented the 14 May 2021 'directive from Tish/Steve' to close off 50% of the rooms_._
199 Ms Ockleston was not the decision-maker for Medina, Mr Moore was the decision‑maker identified in the emails. The 14 May 2021 email chain is an email chain in which Mr Moore was involved. Mr Moore was not called to give evidence.
200 Leaving to one side that the Force Majeure Event relied on was COVID-19 and, for that reason, does not satisfy the requirements of clause 10.6(b), the Force Majeure Event relied on for the decision to close off 50% of rooms was made in circumstances where, at the time it was made, it did not require that 50% of the rooms be closed off. At the time of the directive, at least on the weekend, 60% of rooms were occupied. There was no evidence that staff shortages or problems with linen or anything to do with the 'ability to operate the Business' relating to dealing with COVID-19 required that any rooms be closed off let alone 10% of those which at the time were occupied.
201 To the extent Mr Moore's 14 May 2021 might be treated as a determination to suspend part of the operation of the Business, that determination to make 50% of the rooms unavailable to guests was not because Medina's ability to operate the Business was materially and adversely affected.
202 The decision by Mr Moore to close 50% of the rooms, a specific percentage of the rooms, given in the context of the earlier closure policy determination made in March 2020 when Ms Ockleston was working in Newcastle, was opportunistic so far as the West End business was concerned. It was 'due' to Medina wishing to pursue its commercial objective of bringing about a situation where it could put itself in a position to terminate the Lease.
H.2.4 Did the Lessee give notice as required by clause 10.8?
203 Medina submitted that, by its various letters to West End, Medina provided notice pursuant to clause 10.8 as required. It submitted that by the SOC, West End did not take issue with the content or form of Medina's notices.
204 It matters not whether West End alleged a defect in the clause 10.8 notices in the SOC. It is Medina who asserts it was entitled to rely on Force Majeure Events for abatement and termination. Paragraph 9K of the FAD asserts the giving of notices for the purposes of clause 10.8. The Reply takes issue with the FAD. To the extent it might be necessary for West End to join issue in relation to compliance with notices given pursuant to clause 10.8 in the pleadings, and I do not consider that it is, that occurred as a result of the Reply.
205 As appears by way of example from the notice dated 26 May 2021 which was given pursuant to clause 10.8 of the Lease, the 'grounds' upon which Medina relied to establish that a Force Majeure Event had occurred were the outbreak of COVID-19 and the declaration by the Commonwealth under the Biosecurity Act 2015 (Cth). The 'grounds' relied on concerned matters and events that occurred before the commencement of the Term of the Lease.
206 In each of its notices pursuant to clause 10.8, Medina relied on the presence of COVID−19 and the pandemic generally, rather than any specific 'act of government' such as the publication of an instrument in the Victorian Government Gazette imposing a new round of restrictions due to the presence of COVID-19 in support of its abatement of rent.
207 Paragraphs 9A-9F of the FAD put the case for Medina differently to the manner in which was put by Medina in notices and correspondence prior to the termination of the Lease.
208 Medina submitted the proposition relied on by West End that the terms of clause 10.8 prevent Medina from now relying on pleaded instances of force majeure that were not the subject of requisite notice at the time:
(a) concerns a point that is academic. Medina's clause 10.8 abatement notices rely on, among other things, the same matters as those propounded in the proceeding. Although the notices go further in referring to things that Medina has not sought to prove in this litigation (including worker shortages), West End did not articulate what flows from this; and
(b) even if clause 10.8 is a precondition to the exercise of rights under clauses 10.7 (which Medina accepts) or 10.9 (which Medina disputes), it does not follow that Medina is precluded from relying on any valid ground it can now establish to justify its termination of the Lease.[19]
209 I do not agree with Medina. At no time when Medina purported to abate rent relying on notices pursuant to clause 10.8 were the preconditions for a valid notice, including the requirement to specify a Force Majeure Event that occurred during the Term of the Lease, satisfied. In any event, even if the preconditions had been satisfied, on no view were Medina's abatements calculated in accordance with, nor authorised and effective under, clause 10.7.
210 For the reasons discussed in sections H.2.1-H.2.4, Medina was not entitled to abate the rent. In summary:
(a) while more than one Force Majeure Event occurred during the Term of the Lease, Medina has not established that 'as a result' of one or more of those Force Majeure Events, its ability to operate the Business was materially affected so as to bring itself within the language of clause 10.6(b), see section H.2.2;
(b) Medina did not determine to suspend the whole or part of the operation of the Business due to the impact of any such Force Majeure Event, see section H.2.3; and
(c) Medina did not give notice of any such Force Majeure Event as required by clause 10.8, see section H.2.4.
H.3 Was Medina entitled to calculate the abatement as it did?
211 If I am incorrect in my earlier findings, and Medina was entitled to abate the rent, it was not entitled to calculate the abatement in the manner which it did.
212 The abatement calculated and applied by Medina was not in accordance with clause 10.7 of the Lease.
213 During the Term of the Lease, West End issued rent invoices in respect of Base Rent A and Base Rent B to Medina. Medina paid the Base Rent A amounts in full. For each month Base Rent B was payable under the Lease, Medina issued rent abatement notices to West End pursuant to clause 10.8. The notices referred to industry RevPAR data and Melbourne Airport passenger data sourced from STR. STR provides international hospitality data to hotel operators. Medina has a paid subscription to STR's data services.
214 The basis on which Medina calculated the abatement of rent was unrelated to the Business, whether to its actual performance or to its projected performance. The calculation was by reference to the reduction in RevPAR for each month compared to the corresponding month two years earlier, prior to the outbreak of the COVID-19 pandemic, based on STR industry data.
215 Clause 10.7 envisaged and permitted abatement 'in proportion to the extent that the Business is reduced or suspended due to the Force Majeure Event'. Medina's calculations of abatement did not align in any way with this approach. The calculation by Medina had no regard to the extent to which the Adina West Melbourne business was reduced or suspended.
216 Mr Merchant's calculations were not based on projections for Adina West Melbourne that had been prepared and provided to West End on 3 June 2019, prior to the commencement of the Lease and prior to the impact of COVID-19. As Mr Merchant conceded in cross-examination, his calculation was not based on any real, measurable loss of Medina.
217 Abatement was calculated by Mr Merchant and his team relying on RevPAR and Melbourne Airport passenger data sourced from STR, relating, it seems, to a variety of unidentified hotel businesses in the Melbourne CBD where Medina West Melbourne was not located. I say, 'it seems', because no attempt was made by Medina to prove the STR data which underpinned its calculations. No witness from STR was called. The underlying data source relied on by Medina for its calculations was not satisfactorily identified or proved.
218 Medina submitted its method of abatement fell within clause 10.7's terms because:
(a) given the Adina West Melbourne had only been operating for approximately three months, no pre-existing data permitted the abatement's calculation;
(b) accordingly, it sought to use a rational and fair method. Comparative RevPAR data was sourced from a subscription service providing international hospitality data to hotel operators; and
(c) using that data, Medina's method sought to:
(i) calculate the percentage reduction of RevPAR in Melbourne CBD hotels due to COVID-19; and
(ii) apply that percentage reduction to that month's rent.
219 Medina submitted that although the cross-examination of Mr Merchant sought to expose potential shortfalls in the calculation method by reference to STR data, the result of those calculations is nevertheless an approximation of the 'reduction' in the Adina West Melbourne business. Given the lack of data pre-dating December 2020, an approximation is the best that can be achieved.
220 Medina's submissions must be rejected. The absence of a trading history of the Business is not a reason for disregarding what is required by the terms of the Lease. As well as the method adopted not having regard to projections relating to the Business, it was also no part of the calculation to bring into account the actual performance of the Business.
221 In closing submissions Medina submitted that, in the alternative, if it is incorrect about its abatement calculation method falling within clause 10.7, the appropriate course is to calculate, insofar as may be possible, what a contractually permissible abatement would have been. Medina submitted this is the appropriate course lest, in circumstances where Medina was entitled to abate, that entitlement is not accounted for; the result being West End obtaining a windfall via the Court's judgment for debt or award of damages. It was submitted, no one having invoked the dispute resolution mechanism via clause 10.10, that an appropriate method may have been to abate rental by reference to a measure of the hotel's actual revenue expressed as a percentage of its projected revenue.
222 Medina submitted that by adopting that alternative method of calculation:
(a) Medina overpaid rent in the months of March 2021 to August 2021, November 2021, January 2022 and February 2022 in the total sum of $206,544.62 plus GST;
(b) Medina underpaid rent in the months of September 2021, October 2021 and December 2021 in the total sum of $36,092.67 plus GST; and
(c) the net result is that Medina overpaid rent in the sum of $170.451.95.
223 Medina submitted it follows that if the Court considers it appropriate to determine what Medina was entitled to abate under clause 10.7, the necessary course is to dismiss this aspect of West End's case.
224 The late breaking alternative abatement case for Medina, first mooted in closing submissions must be rejected. It is not appropriate for the Court to embark on an alternative calculation, a calculation not advanced by Medina during the Term of the Lease, not the subject of clause 10.8 notices as required by the Lease and not supported by the evidence of any witness called to give evidence at the trial.
225 Medina submitted that , '[i]f a Force Majeure Event occurs and continues for a period of at least 6 months...' the Lessee may terminate the Lease on 90 days' written notice under clause 10.9. Medina submitted this is what it was entitled to do and this is what it did by its Termination Notice.
227 A Force Majeure Event that 'occurs and continues' for the purposes of clause 10.9 must:
(a) be a Force Majeure Event (or series of events) that occurs and continues for a period of at least six months within the Term of the Lease;
(b) satisfy the criteria in clause 10.6(b); and
(c) be the same Force Majeure Event the subject of the Lessee's notice pursuant to clause 10.8.
228 Because I have found the criteria in clause 10.6(b) are not satisfied, and for the separate reason that there was no compliance with clause 10.8 (as the asserted Force Majeure Event relied on was not a Force Majeure Event that occurred within the Term of the Lease), clause 10.9 did not permit Medina to terminate as it purported to do on 10 November 2021.
229 As a separate matter, West End submitted that to give rise to the right to terminate pursuant to clause 10.9, the Force Majeure Event relied on in the Termination Notice given by Media on 10 November 2021 must have been continuing from at least as early as 10 May 2021.
230 West End submitted none of the instruments of government pleaded by Medina that resulted in lockdowns were gazetted before 10 May 2021 and none of the lockdowns subsisted for more than six months. That submission is important in light of the concession made by West End that the instruments which imposed periods of lockdown did have a 'material and adverse effect' on Medina's business.
231 I agree that because those instruments were not gazetted prior to 10 May 2021, on their own, they could not be relied on to justify termination. I also agree that because the term of the restrictions the subject of those instruments was less than six months, on their own, no such instrument was open to be relied on by Medina to satisfy clause 10.9.
232 While that is the case, if the criteria in clause 10.6(b) were otherwise satisfied, the lockdown periods might have been relied on in combination with notices published prior to 10 May 2021 to establish a continuous six-month period. However, any such reliance would only be sufficient for Medina to bring itself within the six month period provided for in clause 10.9 if the lockdown periods overlapped with the periods of the earlier notices. In addition, Media would have had to establish that as a result of those earlier notices, clause 10.6(b) had been satisfied and the relevant instruments were referred to in the clause 10.8 notices. Those things did not happen.
233 In its closing submissions West End noted the only government restrictions pleaded by Medina that came into force during the period 1 March 2021 to 10 May 2021 were some emergency border control measures in Western Australia and South Australia and an extension of the Declaration of a State of Emergency in Victoria in effect from 16 March 2021 to 9 April 2021. The instruments of the Victorian government extended the duration of the State of Emergency. None of the instruments referred to could seriously be contended to have, on their own, or in combination, caused Medina's ability to operate the Business to be materially and adversely affected.
234 For the reasons discussed, I am not satisfied that Medina was entitled to terminate the Lease pursuant to clause 10.9. Its actions purporting to do so were wrongful.
235 While Medina's actions in purporting to terminate the Lease were wrongful, that is a different question to whether West End suffered any loss due to the wrongful termination by Medina.
236 The key to West End's primary damages claim is the sale of building 1.
237 West End sold building 1, the apartments and associated areas the subject of the Lease, and the rooftop bar, because it suited its commercial interests to do so. The termination of the Lease by Medina did not cause West End to sell. From the outset, from 2017, right through to the actual sale in April 2022, West End intended to sell.
238 I do not accept the evidence of Mr Dicintio in his witness statement that:
... West End would not have taken this course if Medina had not been leaving as it was, and rather would have held Building 1 with the Lease in place, unless and until a sufficiently good price had been offered.
...
It is not a price I would have accepted if the Lease had been in place.
239 I reject Mr Dicintio's oral evidence that West End sold building 1 at the price it received because Medina had left, and that it would not have sold at the price it achieved with the Lease in place.
240 West End explored the prospect of selling building 1 with and without a lease, including while the Lease was in place and when it was not, from 2017 until April 2022:
(a) On 10 May 2017, only months after entering into the AFL, West End signed an authority for JLL to sell building 1, with vacant possession or subject to a lease.
(b) In early 2019 West End started to explore the possibility of selling building 1, with a lease in place, signing an agency agreement, again in favour of JLL, in August 2019.
(c) On 16 December 2019 Mr Dicintio expressed West End's preference to sell the hotel as soon as practically possible, considering West End would probably 'have one chance at this next year... the earliest would be June 2020', after West End Melbourne has opened, with later dates, November 2020 and July 2021 considered as additional possibilities.
(d) Although the Lease was in place and Medina was trading, in August 2020 West End signed a sale authority for a vacant possession sale, and in July and August 2020, West End sought to sell to 'build to rent' investors, with Cushman & Wakefield Agency Pty Ltd, the marketing agents who were engaged, describing the sale as one with 'Vacant Possession'.
(e) On 25 September 2020 West End made a counter-offer of $40.15 million to Scape's offer to purchase building 1 and additional parts of the site for $43 million plus GST on the basis of vacant possession, noting that if the sale was on a vacant possession basis, it would not attribute GST.
(f) In February and March 2021 West End engaged once again with JLL about the potential sale of building 1, signing an exclusive agent authority on 10 March 2021.
(g) On 12 August 2021 West End received an offer for $29 million on a GST free basis for the hotel, retail space, rooftop bar and car parking subject to:
(i) West End underwriting Base Rent B in the Lease; and
(ii) Medina waving its right to terminate for force majeure under clause 10.9.
(h) In mid-September to mid-November 2021 West End negotiated with Marquette Properties who Mr Dicintio understood had a mandate to acquire serviced apartment hotels on a vacant possession basis or subject to a short term lease.
(i) In December 2021 West End determined to enter into a formal sales process rather than seek a new tenant.
241 Having determined to sell in December 2021, consistent with its intention as far back as 2017, West End did not deviate from that course. It did not try to re‑lease the Premises. West End did not accept the unsolicited offer from Punthill in February 2022 to enter into a long term lease, 10x10x10, with the same 42% turnover rent. It did not act on the recommendation made by Mr Sanjana on 12 April 2022 to enter into a new lease expeditiously (including a 4 week rental holiday) with a reputable apartment hotel operator about whom West End had no financial concerns.
242 West End did not enter into a new lease with Punthill, a proposal initiated by Punthill, due to the differences between that proposed lease and the lease to which Mr Dicintio referred for the first time in re-examination.
243 As submitted by Medina, it first pleaded mitigation of damages in its amended defence filed on 8 August 2023. That plea specifically referred to the Punthill opportunity. West End was on notice of this issue, yet Mr Dicintio said nothing about any concerns with the Punthill term sheet until re‑examination - Medina had no opportunity to cross‑examine on that evidence.
244 If Mr Dicintio had concerns the Punthill proposal, as detailed in the 26 February 2022 term sheet, was materially different to the Lease and if West End was truly interested in securing a new lease, Mr Dicintio could have sought to negotiate terms with Punthill which were more closely aligned with those in the Lease. He did not do so because, as he said in his witness statement, 'at the time we received the Punthill term sheet achieving a sale was our primary objective'.
245 The term sheet was provided by Punthill on 26 February 2022. As at 12 April 2022, when Mr Sanjana was again in contact with Mr Dicintio, Punthill remained keen to enter into a new lease. There is no evidence that West End sought to conclude a lease with Punthill. The evidence is to the contrary.
246 The real reason West End did not pursue negotiations with Punthill and enter into a new lease with it was because, as was Mr Dicintio's evidence in cross-examination, West End made a commercial choice to pursue a sale. West End wanted to keep the Punthill offer as a fallback option, but more importantly, to use the offer as part of its sale strategy to appeal to a particular class of buyers and investors.
247 It clearly emerged from Mr Dicintio's evidence that West End sought to maximise the selling price of building 1 in 2022 by presenting the property to the market in a manner designed to capture three classes of purchasers; owner occupiers, build to rent with short and long stay lease and sublease options, and investor purchasers who would prefer a HMA. A lease in place at the time of sale such as that proposed by Punthill would suit an investor class of purchaser with a minimum base rent return, whereas a HMA is without a minimum income stream.
248 I do not accept Mr Dicintio's evidence that the only reason West End did not pursue the entry into a new lease with Punthill was because it had already commenced the marketing campaign for the sale of building 1. It wanted to use the proposed lease as an opportunity for investors, but without committing to it which, if done, would exclude the two other classes of purchasers to whom vacant possession was a precondition. The agents regarded the Punthill lease offer as a positive feature of the marketing campaign, so too the prospect of a HMA with IHG. If the Punthill lease offer had been accepted or if the Lease had remained on foot at the time of sale, that would have removed two classes of possible purchaser.
249 I accept Mr Dicintio's evidence that the best way to target all possible classes of purchaser was to be able to sell with vacant possession and with an expression of interest to lease from Punthill. Add to that the possibility of a HMA from IHG.
250 I do not accept Mr Dicintio's evidence that Medina vacating the Premises depressed the price an investor might have paid in April 2022 or that the most advantageous way to market the property in early 2022 would have been with the Lease in place. That evidence is not consistent with his evidence that he did not consider West End would have been able to obtain a higher price if it accepted the Punthill lease offer. It is also inconsistent with the market's response to the property which did not see the highest price as one involving a sale to an investor purchaser backed by the Punthill lease offer.
251 The April 2022 contract of sale, while on terms, included a lease for two years at $1.5 million plus outgoings. Together with the sale price, the contract of sale represented a package that West End was happy with, including a base market rent that was broadly in line with the rent payable by Medina.
J. Has West End suffered any loss due to repudiation by Medina?
252 Medina submitted, and I agree, that damages for the wrongful termination of a lease are calculated as at the date of termination for the full amount of rent for the whole term less such sum as the Court estimates the lessor is likely to derive during the remainder of the term of the lease.[20] The landlord's prospective loss is unliquidated damages for the loss of its bargain during the balance of the term.[21]
253 Although loss is calculated as at the date of termination, where facts have occurred by the time of assessment which allow the Court to determine more accurately what damage has been or will be suffered, the Court takes those facts into account as part of the assessment.[22] The general rule that damages will be assessed as at the date of breach will yield if 'in the particular circumstances, some other date is necessary to provide adequate compensation'.[23] In awarding damages for prospective loss, the Court takes into account later events that increase or diminish that loss.[24]
254 Medina submitted the actual cause of West End's loss - to the extent constituted by foregone rent and the future sale of the building the subject of Mr Meredith's expert evidence, was West End's sale of building 1 for its commercial purposes in 2022. It submitted the sale severed the causal chain.
Notwithstanding that a defendant's act or omission has a causal connection with the damage of the person aggrieved, no liability arises if an independent intervening act or event in conjunction with the defendant's act or omission has brought about the plaintiff's damage and the intervening act or event can be treated in a practical sense as the sole cause of the damage.
256 In this case, in a practical sense, the sole cause of any damage suffered by West End associated with or calculated by reference to the sale of building 1 was West End's own decision to sell the property. While Medina wrongfully terminated the Lease, West End's decision to sell and pursue the three classes of potential purchasers for the purpose of maximising the sale price constituted an independent intervening act or event which was the cause of any loss sustained by West End as calculated by Mr Meredith.
257 The decision by West End to sell building 1 for the reasons and in the circumstances earlier discussed severed the chain of causation. Any loss that West End sustained, calculated by reference to the sale, occurred due to West End's own decision taken for its own purposes in which the absence of the Lease due to the wrongful termination by Medina was regarded by West End not as causative of loss. Rather, it was regarded by West End as a positive feature to be used in marketing the property for sale in an endeavour to obtain the best price possible across three classes of potential purchasers.
258 In the alternative to calculations by Mr Meredith said to represent the after-tax net present value of cash flows lost to West End, West End claimed foregone Base Rent A and Base Rent B for the 250 days from the termination of the Lease on 17 February 2022 until MCA started paying rent on 25 October 2022, quantified at $1,305,651. This alternative claim was first made in further and better particulars served by letter dated 29 May 2025.
259 Medina submitted that if damages are allowed by reference to this alternative claim, then in lieu of the amount claimed, damages in the order of $650,000-$700,000 should be awarded. It submitted that West End unreasonably failed to avail itself of commercial opportunities that would have reduced the time period of foregone rent.
260 As submitted by Medina, if a lessor fails to mitigate, in that, acting reasonably, it should have but did not re-let the Premises, the lessor's damages for loss of future rent, outgoings and other amounts will be reduced by the amount it would have received if it had re-let.[27]
261 The burden of proving that West End should have taken, but did not take reasonable steps to mitigate its loss lies on the party alleging failure to mitigate, in this case, Medina.[28]
262 The Punthill term sheet proposed a commencement date four weeks after execution of the lease. It proposed rental rebates based on the year 1 and year 2 rental structure as per the Lease.
263 Medina submitted a lease with Punthill could have been concluded within six weeks with rent commencing within ten weeks. It submitted that because West End failed to mitigate damages, any damages suffered by West End should, instead, be calculated as follows:
(a) From 17 February 2022 for the first 10 weeks thereafter (that is, until 28 April 2022), foregone rent should be calculated at the rate that West End contends.
Apportioning $1,305,648 to the first 10 weeks after 17 February 2022, this sum is $367,049 (say $370,000).
(b) From 29 April 2022 onward until 24 October 2022, it should be calculated at a sum of $47,413 (say $50,000) per month. This sum is thus approximately $290,000.
On that basis, if liability is established, a range of $650,000 to $700,000 is appropriate.
264 In response to Medina's submissions, West End submitted that a plaintiff will not be held to have acted unreasonably simply because the defendant can suggest 'other and even more beneficial conduct if it was reasonable for the plaintiff to do what [it] did'.[29] It submitted West End acted reasonably by putting building 1 on the open market and eventually selling it, mitigating its loss by that course of action. It submitted what Medina must establish to make good its mitigation argument is that, by entering into a lease with Punthill, West End would have reduced its loss, compared to the actual course that West End took. Medina would need to satisfy the Court that in April 2022, West End would have been better off entering into a lease with Punthill rather than a contract to sell building 1 with the subsequent lease to MCA and, if Medina was able to make good that proposition, it would also need to demonstrate the extent to which West End would have been better off.
265 West End submitted that, in the absence of any evidence from a witness from Punthill and in the absence of any expert evidence dealing with these matters, Medina's failure to mitigate arguments must be rejected. Further, that there is no basis to suppose a lease with Punthill would have been concluded within six weeks and, by reference to the term sheet, it is unsafe to proceed on the basis that the turnover and rent base was the same or broadly similar across the leases. In addition to rental rebates, the Punthill proposal did not provide for the payment of an annual facility services fee.
266 I do not accept that, as submitted by West End, in the absence of evidence from a witness from Punthill and an expert called by Medina, the mitigation case advanced by Medina must be rejected. The mitigation issues that arise for consideration only arise because West End decided to advance an alternative damages claim after the trial had commenced. In those circumstances it is not realistic to evaluate the mitigation arguments on the basis that Medina failed to call relevant witnesses. The reality is that it had no real opportunity to do so. When considering the alternative claim by West End, I proceed on that basis.
267 Consistent with the position advanced by Medina, there is no evidence that following service of the Termination Notice in November 2021 that West End took any steps to secure a new tenant. Instead, it devoted its energy to selling building 1. It received the first unsolicited approach from Punthill on 14 February 2022, two days after Medina vacated the Premises. It received the term sheet from Punthill on 26 February 2022. West End did not engage in negotiations with Punthill. It took no steps to enter into a lease with Punthill, whether in accordance with the Punthill term sheet or otherwise.
268 Mr Dicintio gave evidence that even if West End had pursued the Punthill opportunity it would have taken six to nine months to finalise those arrangements and to start to receive rent. Given the vigour with which Punthill pursued West End between early February 2022 and April 2022, I do not accept that it would have taken as long as Mr Dicintio said for a new lease with Punthill to be concluded.
269 While that is the case, the evidence does not enable me to find that West End acted unreasonably in deciding to pursue a sale rather than a lease. When it did sell, it sold on the basis of a new lease at a rent sufficient to cover its interest commitments to the external lender. It sold on two year terms after a campaign that was intended to attract interest from three different classes of purchaser. There is no suggestion that West End unduly delayed its marketing campaign.
270 I am not satisfied that by proceeding in the manner that it did, West End failed to mitigate its loss.
271 West End's alternative claim is for rent between February 2022 and October 2022. For the period between February 2022 and April 2022 it cannot be said there was any real prospect that a new tenant would pay rent. The Punthill term sheet proposed the lease commencement within four weeks of signing. A gap between one tenant moving out and another coming in is almost inevitable.
272 If, instead of entering into a contract of sale on 22 April 2022, Medina had entered into a new lease with Punthill, in addition to the four week delay between signing and commencement and a period of time for the lease documentation to be completed, there would in all likelihood have been either a rental rebate of the sort proposed in the Punthill term sheet or an extended rent free period.
273 That means the period during which loss of rent really falls to be evaluated is between around May and October 2022 - a period of about five months. I do not consider that period during which no rent was received nor the period that preceded it from February 2022 to be a period or periods where no rent was received that is consistent with a failure to mitigate.
274 In all of the circumstances I consider the loss of rent for the period to October 2022, represented by West End's alternative claim for $1,305.651, is a loss that flowed from Medina's wrongful repudiation of the lease. I am not persuaded that it is appropriate to make an adjustment to that amount as submitted on behalf Medina.
J.1 Has West End proved loss based on Mr Meredith's evidence?
275 As I have found the sale of building 1 by West End severed the chain of causation, it is unnecessary to deal with the expert evidence directed to loss based on a comparison between the actual sale and the West End primary case, a sale in FY26 and its further alternative sale dates through to 2032, each of which were the subject of expert evidence from Mr Meredith.
276 However, in case my causation finding is incorrect, I will deal relatively briefly with the issues relating to West End's primary and alternative claims based on Mr Meredith's evidence directed to quantifying West End's loss based on an counterfactual assumed sale with the Lease in place.
277 In its closing submissions, West End accepted that the quantification of its loss depends on factual findings made by the Court about when West End would have sold the Premises and for what price.
278 West End's primary position is that a sale of building 1 would likely have occurred at the end of FY26, which, based on Mr Meredith's most recent report, equates to a loss of $5,454,127 (assuming a market yield of 6%).
279 West End submitted its primary position, that the most likely date of sale in the counterfactual is at the end of FY26, is supported by the following:
(a) Of all the counterfactual scenarios Mr Meredith was asked to consider, the end of FY26 is the earliest year for which he concludes that there would have been a buyer.
(b) There is a market for hotel assets similar to those of the Premises. Mr Meredith gave detailed evidence about comparable transactions around the time of the sale of building 1. Further, when West End put building 1 on the market in 2022 (with vacant possession), there was considerable interest from a range of potential buyers.
(c) Mr Dicintio gave evidence that West End was actively seeking to sell the Premises. West End's intention at the outset was to develop the Premises and, once an operator was in place, look to sell the Premises. West End sought to test the market at various times in different scenarios. Mr Dicintio's evidence about West End's attempts to sell the Premises is consistent with Mr Meredith's evidence that a sale of the Premises was most likely to occur after three years of trading by Medina, by which time it would have had a sufficient trading history to allow buyers to assess the viability and profitability of the Premises.
(d) Mr Dicintio's evidence was that West End would not have sold the Premises in 2022 had Medina not abandoned the Premises. Mr Dicintio gave evidence that West End's timing was motivated by maximising the sale price for the Premises. West End was not under external financial pressure to sell the Premises, and was prepared to hold the Premises until it achieved the right price: at that time, the price that West End would have been prepared to sell was not less than $35.1 million (being the valuation West End had received from Charter Keck Cramer ('CKC')).
280 I do not consider that West End has proved the validity of the assumption that if Medina had not terminated the Lease, West End would not have sold the Premises until the end of FY26 with the Lease in place, as is its primary case, or in any event, on some date other than when it actually sold in April 2022.
281 While there are always difficulties about proving a counterfactual, as earlier discussed, West End always planned to sell building 1. It actively sought to do so with or without the Lease from as early as 2017. I do not accept that, on the balance of probabilities, if Medina had not wrongfully terminated the Lease, any sale by West End in the counterfactual would have been on the basis of the Lease. If it had sold with the Lease in place, that would have involved a sale attractive to only one of the three classes of purchasers identified by Medina and the subject of its marketing campaign in 2022. Based on the results of the actual sale in 2022, a sale with the potential Punthill lease in the background, compared to what occurred, a vacant possession sale to a purchaser with a related operator entity, I am not persuaded that it is more likely than not in the counterfactual that West End would have sold with the Lease in place.
282 That being the case, the key counterfactual basis upon which Mr Meredith's analysis proceeded, that is modelling cash flows from an assumed sale with the Lease in place and comparing those cashflows to cashflows modelled from the actual sale, is not made out.
283 As a separate matter, I am also not persuaded that, if Medina had not terminated the Lease, the building 1 would have been sold any later than when it was in fact sold. I am not persuaded there is any proper basis in the evidence to find that a sale would have occurred in the counterfactual, with the Lease in place, as late as the end of FY26 or beyond. That is so, notwithstanding that the end of FY26 sale for which West End contends is based upon Mr Meredith's opinion that FY26 was the earliest year there would have been a buyer of the Premises, because it was not until that time that there would have been three years' trading history under the Lease.
284 Dealing with the separate matters relied upon by West End in favour of an FY26 sale:
(a) Accepting Mr Meredith's evidence concerning a three year trading history, whether or not West End would in fact have waited until FY26 depended entirely on West End. West End had been wanting to sell since 2017. There is no evidence West End had a sale strategy in mind at any time from 2017 that was consistent with Mr Meredith's opinion. When West End gave its initial instructions to Mr Meredith, they instructed him to assume a sale at the end of the Lease in 2035. They did not instruct him to assume a sale after three years of trading.
(b) The fact there is a market for such assets (the 2022 sale process confirmed that to be the case) is not a matter that supports the adoption of FY26, or for that matter, any other particular assumed sale date.
(c) I do not agree that it follows from West End's earlier attempts to sell that a sale after three years of trading was most likely. Mr Meredith is a forensic accountant. He is not a hotel broker, a person who claimed to have particular experience of sales of this type of asset, nor is he a land valuer. West End dealt with JLL, Colliers and other commercial real estate agencies over an extended period of time. There is no evidence that any of the agents ever gave advice consistent with the views expressed by Mr Meredith or that prospective purchasers communicated views to that effect.
(d) Although on 27 January 2022 Mr Dicintio instructed agents that West End would not sell for less than $35.1 million, when West End actually sold building 1 for $31.05 million, it was, as West End submitted, not under external financial pressure to do so. Mr Dicintio's evidence did not include any explanation for the decision to accept a much lower price than $35.1 million. I do not accept that in the counterfactual, West End would not have sold for less than CKC's valuation. What happened in April 2022 is that West End met the market at a much lower price than CKC's valuation. There is no reason to suppose it would have acted differently in relation to any sale with the Lease in place.
285 No issues arose concerning Mr Meredith's expertise as an experienced forensic accountant. There were, however, issues with his instructions and reports, of which there were several.
286 Mr Meredith prepared reports seeking to calculate West End's loss on the basis of discounted cash flows which compared cash flows based on Mr Meredith's understanding for the contract of sale of building 1 with cash flows modelled by reference to assumed sales in later financial years with the Lease in place. Each of the reports, once finalised, were relied on in support of West End's claim for damages for wrongful repudiation.
287 As will be explained, for various reasons, a number of the reports and therefore the claims which they supported fell away. That was particularly the case where updated reports were provided to correct errors. In some instances, earlier reports were superseded by later reports. When that happened, West End's particulars of loss were revised to pick up the latest version of Mr Meredith's report and its supporting calculations.
288 The dates of Mr Meredith's reports and the quantum of the related West End claims in reliance on those reports were as follows:
(a) the first report of Mr Meredith dated 6 December 2024 estimated loss based on an assumed sale in FY35 at $12,368,134 ('first Meredith report');
(b) the second report of Mr Meredith dated 28 April 2025 assessed loss, assuming a 6% yield, at between $16.791 million and $15.79 million ('second Meredith report');
(c) the letter of the Mr Meredith dated 23 May 2025 assessed West End's loss, assuming a 6% yield, at $16.187 million for FY24, and $17.224 million for FY25. For FY23, the loss was separately assessed at $5.68 million ('third Meredith report');
(d) the further report of Mr Meredith dated 3 June 2025 assessed West End's loss, assuming a 6% yield, in a range from $6.679 million in FY23 to $7.209 million in FY32 ('fourth Meredith report); and
(e) the letter from Mr Meredith dated 7 June 2025 contained further updated loss calculations and appendix RF, later amended on 9 June 2025, which included the loss calculations relied on by West End at the end of the trial. The loss calculated ranged from a high of $11.451 million to a low of $1.67 million ('fifth Meredith report').
289 When preparing his first report, Mr Meredith proceeded on the basis of his instructions that West End would have held building 1 until the expiry of the Lease in 2035 and that it would have sold the property at that time for a sale price of $35.1 million. That price corresponds with the CKC valuations dated 4 April 2020 and 21 February 2021.
290 As accurately described by West End in its closing submissions, Mr Meredith's methodology was to derive a pre-tax discount rate by creating a discounted cash flow model based on what he considered to be entry yields of the purchase of comparable commercial properties. In his first report calculations, Mr Meredith adopted an entry yield of 6%.
291 After completion of his first report, Mr Meredith's instructions changed. West End no longer pursued the counterfactual scenario which assumed a sale at the end of the Lease in 2035.
292 For the purposes of preparing his second report, Mr Meredith was instructed to form his own view about the likely timing of the sale of building 1. In response, he concluded that West End might have sold building 1 at any time from the end of FY26 to the end of FY32. Mr Meredith quantified the cash flows in the counterfactual scenarios from 17 February 2022 to the end of each of those financial years.
293 Mr Meredith determined those points in time based on his opinion that buyers typically require at least three years of financial information to properly evaluate a sale. In his opinion, the property would have accumulated sufficient financial information by FY26 to enable potential investors to understand the Business' financial performance and market position. He considered that it would have been difficult to sell after FY32 without a lease renewal in place, as a buyer would likely want at least three years remaining on a lease to negotiate a renewal with the existing tenant or to find a new tenant.
294 In his second report Mr Meredith modelled yields ranging from an entry yield of 5.5% to an entry yield of 6.5% for each of the seven years between FY26 and FY32.
295 On 19 May 2025 Mr Meredith was asked to calculate West End's loss at the end of each of FY23, FY24, and FY25, assuming the sale of the Premises occurred prior to FY26. He was instructed to assume that a deposit was paid in relation to each of these assumed sales on 1 January and that settlement occurred on 30 June in each of the years modelled for a $35,100,000 sale price (excluding GST).
296 In his third report, in relation to sales in FY24 and FY25, Mr Meredith adopted the same range of yields as those in his earlier report, with a further variation of a 7% entry yield. He reported that he included modelling based on a 7% yield because if the sale occurred before three full years of historic financial information, he considered there may be a greater risk perceived by buyers due to the lack of an extensive financial history. Mr Meredith also reported his assessment of loss assuming a sale at the end of FY23. Based on a sale price of $35.1 million he assessed the loss based on a sale at that time at $6,537,134.
297 Mr Meredith was due to be called as a witness on 30 May 2025. His evidence was delayed because when preparing to give evidence he found there were two errors in the spreadsheet which infected each of the scenarios he had modelled. One error was an error in one cell of his discounted cashflow model which had the result that his total damages calculations were overstated. The other error was that he had overstated the price obtained on the sale of building 1 in April 2022 by $1.8 million, being the amount apportioned in the contract of sale for the rooftop bar.
298 The discovery and then the correction of these two errors led to the fourth Meredith report. The fourth Meredith report provided amended versions of each of Mr Meredith's first, second and third reports together with a revised loss model, containing revised versions of the spreadsheets prepared in support of each of those reports. On 5 June 2025 West End provided updated particulars of loss and damage in lieu of those which had previously been provided on 29 May 2025, picking up the calculations of loss in the fourth Meredith report.
299 Mr Meredith commenced giving evidence on 6 June 2025. In cross-examination he accepted that in calculating the counterfactual rent, certain input figures (proxy rental) had included GST when, in accordance with the terms of the Lease, GST should have been excluded. Following that cross-examination, West End sought an opportunity for Mr Meredith to make any necessary corrections by way of a further letter and revised spreadsheets, with a view to Mr Meredith being further cross‑examined on those materials. Medina did not oppose that course.
300 The fifth Meredith report dated 7 June 2025 came about as a result of those events. It set out his revised summary of loss and was accompanied by updated spreadsheets. Cross examination of Mr Meredith resumed on 10 June 2025.
J.1.3 Contested issues relating to Mr Meredith's fifth report
301 In his fifth report, Mr Meredith quantified West End's loss as falling within a range of $11,451,299 to $1,670,814. Those figures quantified the counterfactual cash flows and offset them (on an annual basis) against the actual cash flows received by West End (the rental income and sale proceeds it received), before discounting them back to the date of breach (being 17 February 2022).
302 The selection of a dollar figure for loss within the range reported in the fifth Meredith report depends on two key variables: the market yield used to determine the likely sale price and the year in which it is assumed West End would have sold the Premises.
303 Medina submitted there are three substantive matters that prevent the Court from accepting Mr Meredith's calculations in his fifth report:
(a) in calculating counterfactual rent, Mr Meredith did not to account for the costs of finance;
(b) a central aspect of Mr Meredith's methodology was the use of a yield; namely, the property's annual income, expressed in percentage terms, of its overall value. Mr Meredith's opinion as to yield was not within his experience and the basis for the adopted yield was not otherwise proved; and
(c) Mr Meredith incorrectly used gross income to calculate the value of building 1 in his second report. In the second Meredith report, Mr Meredith used the income capitalisation method. According to the first Meredith report, net income is the correct input for the income capitalisation method (not gross income). Although not stated (either way) in the second Meredith report, it is self-evident that, in valuing a building based on its income, the costs of obtaining that income must be accounted for. However, as Mr Meredith acknowledged in cross-examination, he used gross income to calculate value in the second Meredith report. This is contrary to the plain terms of the first Meredith report, which he sought in cross-examination to characterise as an error.
304 In relation to the first matter, Medina drew attention to the following:
(a) As at 20 January 2022, Qualitas, West End's financier, was charging interest at 6.5% on a $22,815,000 loan for the hotel component of the development. This totalled $1,482,975 [say $1.5 million] per annum.
(b) The borrower under this loan was principally West End's related company, Devco. The group treated the borrowing costs as Devco's liability. West End was the guarantor of Devco's obligations under the financing agreement.
(c) There was an inter-company loan between Devco and West End with respect to this debt. Qualitas, the lender, had a first mortgage over West End's land with full recourse against West End.
(d) Upon the property's settlement in November 2023, West End paid down that debt: in the sum of $21,760,123.
305 Medina submitted that at various times when preparing the first Meredith report, Mr Meredith evidently considered West End's financing costs were a potentially relevant issue and made further inquiries about it.
306 In cross-examination, Mr Meredith agreed that these financing costs had not been taken into account in any way, but asserted they were irrelevant. When challenged, his explanation focused on entry yield analysis being a pre-tax measure and that the funding for the building was by way of an intercompany loan. He went further, giving evidence that a land owning company would sustain exactly the same loss, whether or not it has in place funding in respect of the property.
307 Medina submitted that with no accounting for debt, the totality of Mr Meredith's opinion is rendered unreliable.
308 As to the first matter, I accept Mr Meredith's evidence that the costs of finance are irrelevant to his adopted discounted cash flow methodology. That is not the case if a capital asset pricing model is used in isolation, but that is not the approach Mr Meredith adopted in this case. It was his evidence, which I accept, that the interest cost is related to the final structure of the group and not to counterfactual revenue.
309 As to the second matter, Mr Meredith gave evidence that 6% is a reasonable yield for the type of property under consideration. In re-examination, he explained that 6% is a reasonable mid-point assumption and that 6.5% was less reasonable than 5.5%. West End submitted that, in the absence of any contrary evidence, the Court should proceed on the basis that a market yield of 6% is a suitable, indeed conservative, and therefore appropriate, figure to adopt.
310 I did not find Mr Meredith's evidence in support of his adopted yield of 6% persuasive. While the selection and use of comparable sales evidence may not be confined to land valuation experts, here the source data relied on was obtained from third party sources. As Mr Meredith conceded in cross examination, reports of the type prepared by Knight Frank, upon whose analysis of sale transactions he relied to estimate an appropriate yield, are not reports of the type that he would ordinarily prepare.
311 I am not satisfied the data upon which Mr Meredith relied was adequately checked or verified by him or by others on his behalf. So much emerged from the confusion in Mr Meredith's evidence about whether the yields in some of the sales relied on were net or gross and, where net, as submitted by Medina, 'net of what?'. When an input to expert opinion is not appropriately proved or verified, even in the absence of any competing expert evidence, opinions based on such a foundation must be approached with caution.
312 The adopted yield is a critical input to Mr Meredith's calculations. I am not persuaded, on the balance of probabilities, that the 6% yield or the other yields referred to in his calculations were appropriate inputs to Mr Meredith's analysis. For that reason, a critical input not being proved, I am not persuaded it is appropriate to proceed on the basis of Mr Meredith's calculations.
313 Finally, regarding the third matter, in his second report, Medina submitted Mr Meredith incorrectly used gross income to calculate the value of building 1, namely:
(a) In the second Meredith report, he used the income capitalisation method. According to the first Meredith report, net income is the correct input for the income capitalisation method (not gross income).
(b) As Mr Meredith acknowledged in cross-examination, he used gross income to calculate value in the second Meredith report. This is contrary to the plain terms of his first Meredith report, which he sought in cross-examination to characterise as an error.
314 Mr Meredith's reason for using gross rental - by reference to the yield on comparable sales - is not supported by the source material upon which he said he relied. I accept the submission that his use of gross rental is not sustainable because, in this instance at least, the property's value should reflect its associated holding costs. Using gross rental does not do this.
315 Medina submitted the real error and explanation, which Mr Meredith valiantly refused to accept, was the unintentional (and Medina submits erroneous) use of gross rental instead of net rental to calculate value. Medina submitted this aspect of Mr Meredith's reasoning infects the loss calculations in all his reports.
316 As Medina's worked calculations demonstrate, if net rent is used, West End's claimed loss is eliminated (for all but FY24, in which case the loss is $912,531). Although Mr Meredith did not accept this methodology, he did accept the accuracy of these numbers if net rent was used. Further, in relation to a sale in FY24 or FY26, Mr Meredith's evidence was that a yield higher than 6.0% would be appropriate, with the effect that his estimated loss is further reduced.
J.1.4 Findings concerning Mr Meredith's calculations of loss
317 West End submitted that none of Mr Meredith's errors cast doubt on the soundness of his model for assessing loss and that he corrected each of the errors in his revised reports. It submitted the Court can be confident in the figures and conclusions in Mr Meredith's final revised materials given Medina's very careful scrutiny of his model and calculations and the fact that Medina did not call any expert witness to dispute Mr Meredith's opinions and conclusions.
318 I do not agree with West End. I am not persuaded that Mr Meredith's yields, a critical input to his modelling, were appropriately proved. I am also not persuaded his use of gross rather than net rent is appropriate. For those reasons, West End's loss based on Mr Meredith's evidence in the fifth Meredith report is not proved.
319 For the reasons earlier discussed, Medina was not entitled to abate the rent. West End is entitled to recover $1,059,434.38 for unpaid rent.
320 While Medina was not entitled to terminate, and its actions in doing so were wrongful, the damages that flowed from that wrongful termination equate to foregone rent for 250 days, $1,305,651.
321 West End is entitled to judgment for those two amounts, together with interest on those amount.
322 I accept that, as submitted by West End, interest at the rate of 10% on underpaid rent is payable from the date payment was due under the Lease until 2 March 2022 pursuant to s 58 of the Supreme Court Act 1958 (Vic). I also accept that West End is entitled to interest from 3 March 2022 on both amounts, unpaid rent and foregone rent, in accordance with s 60 of the Supreme Court Act 1958 (Vic).
323 By 4:00pm on 10 September 2025 the plaintiff, in consultation with the defendant, should prepare a draft order giving effect to these reasons including appropriate amounts in relation to interest.
324 If costs orders are not agreed, by 4:00pm on 11 September 2025 the parties should file and serve submissions by way of exchange of no more than four pages relating to costs, together with details of any offers of compromise or Calderbank offers relied on. Unless otherwise advised, I will determine any disputed questions of costs on the papers.
[1] International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; [2008] HCA 3, 160, [8] (Gleeson CJ).
[2] Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455; [1983] HCA 38, 464 (Mason, Murphy, Brennan, Deane and Dawson JJ).
[3] L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235, 251 (Lord Reid).
[4] [2024] VSC 521, [204] ('World Touring') (citations omitted).
[5] World Touring Melbourne Ltd v Australian Grand Prix Corporation [2024] VSC 521, [206] (Croft J).
[6] K Kariyawasam and R Palliyaarachchi, 'Importance of the Doctrines of Frustration and Force Majeure in light of COVID-19' (2021) 50 Australian Bar Review 370, 381.
[7] Yara Nipro Pty Ltd v Interfert Australia Pty Ltd [2010] QCA 128.
[8] See for example Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235, [91]-[93] (Spigelman CJ).
[10] Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd (2006) 236 ALR 115; [2006] FCA 1324, 130-1, [62] (Kiefel J).
[11] Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd's Rep 323, 327 (Parker LJ, with whom Gibson LJ and Caulfield J agreed), 328 (Gibson LJ).
[12] Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455; [1983] HCA 38, 464 (Mason, Murphy, Brennan, Deane and Dawson JJ).
[13] K Kariyawasam and R Palliyaarachchi, 'Importance of the Doctrines of Frustration and Force Majeure in light of COVID-19' (2021) 50 Australian Bar Review 370, 381.
[14] International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; [2008] HCA 3 [8].
[15] Victoria, 'Restricted Activity Directions (Victoria) (No. 17)', No. S 382, 9 July 2021.
[16] Victoria, 'Direction and Detention Notice' under Public Health and Wellbeing Act 2008 (Vic).
[17] Victoria, 'Victorian Border Crossing Permit Directions (No. 36)', No. S604, 30 October 2021; Victoria, 'Victorian Border Crossing Permit Directions (No. 37)', No. 611, 6 November 2021; Victoria, 'Victorian Border Crossing Permit Directions (No. 38)', No. S627, 12 November 2021; Victoria, 'Victorian Border Crossing Permit Directions (No. 39)', No. S643, 19 November 2021; Victoria, 'Victorian Border Crossing Permit Directions (No. 40)', No. S663, 26 November 2021; Victoria, 'Victorian Border Crossing Permit Directions (No 41)', No. S664 (28 November 2021); Victoria, 'Victorian Border Crossing Permit Directions (No. 42)', No. S678 (1 December 2021); Victoria, 'Victorian Border Crossing Permit Directions (No. 43)', No. S685, 5 December 2021; Victoria, 'Border Crossing Permit Directions (No. 44)', No. S708, 11 December 2021.
[18] Victoria, 'Pandemic (Victorian Border Crossing) Order 2021 (No. 1)' (15 December 2021); Victoria, 'Pandemic (Victorian Border Crossing) Order 2021 (No. 2)' (20 December 2021); Victoria, 'Pandemic (Victorian Border Crossing) Order 2022 (No. 3)' (12 January 2022); Victoria, 'Pandemic (Victorian Border Crossing) Order 2021 (No. 4)' (4 February 2022); Victoria, 'Pandemic (Victorian Border Crossing) Order 2022 (No. 5)'(18 February 2022).
[19] Shepherd v Felt and Textiles of Australia (1931) 45 CLR 359; [1931] HCA 21.
[20] Janos v Chama Motors Pty Ltd [2011] NSWCA 238, [26]-[30] (Handley AJA); Tebb v Filsee Pty Ltd (2010) 30 VR 473; [2010] VSCA 311, [9]-[13] (Nettle and Redlich JJA).
[21] McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25, 477 (Dixon J); Janos v Chama Motors Pty Ltd [2011] NSWCA 238, [26], [28] (Handley AJA).
[22] Tebb v Filsee Pty Ltd (2010) 30 VR 473; [2010] VSCA 311, [9]-[13] (Nettle and Redlich JJA).
[23] Johnson v Perez (1988) 166 CLR 351; (1988) 82 ALR 587; [1988] HCA 64, 597 (Wilson, Toohey and Gaudron JJ); Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8; [13] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ);Vieira v O'Shea [2012] NSWCA 21, [45] (Basten and Meagher JJA).
[24] As referred to in Chand v Commonwealth Bank of Australia [2015] NSWCA 181 ('Chand') [163] see Janos v Chama Motors Pty Ltd [2011] NSWCA 238 'where the landlord became entitled on termination of a lease to unliquidated damages for loss of its bargain during the balance of the term of the lease, Handley AJA noted not only that the principle that damages are to be assessed as at the date of breach is not inflexible (at [35]) (referring to Johnson v Agnew [1980] AC 367, 400-401, The Golden Victory [2007] UKHL 12, [2007] 2 AC 353 at 380-2, 389, 396-398) but also, relevantly, that in awarding damages for prospective loss the court takes into account later events that increase or diminish that loss (at [36]) (citing Willis v The Commonwealth.'
[25] Chand v Commonwealth Bank of Australia [2015] NSWCA 181, [153]-[172].
[26] Chand v Commonwealth Bank of Australia [2015] NSWCA 181, 154 citing Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, 361 (McHugh JA).
[27] Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18, 235; [2000] NSWCA 313, [187]-[188] (Giles JA); referred to in Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254; [2007] WASCA 209, [37], [61] (Buss JA).
[28] TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, 158 (Hope JA, with whom Priestley and Meagher JJA agreed).
[29] Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18, 235; [2000] NSWCA 313, [187] (Giles JA).
West End Landco Pty Ltd
Medina Property Services Pty Ltd [2025] VSC 544
(2015) 256 CLR 104
(2008) 234 CLR 151
(1988) 166 CLR 351
(1983) 153 CLR 455
(2006) 236 ALR 115
(1931) 45 CLR 359
(2010) 30 VR 473
(1933) 48 CLR 457
(1988) 82 ALR 587
(2009) 236 CLR 272
(1987) 9 NSWLR 310
(2007) 35 WAR 254
(1989) 16 NSWLR 130