Remedial Building Services Australia Pty Limited v Pony

EX TEMPORE Judgment 1Remedial Building Services Australia Pty Limited ("Remedial") as landlord entered a lease of the first floor at 100 Blaxland Road, Ryde, New South Wales, being lot 1 of DP776548, with Pony (NSW) Pty Ltd ("Pony") as tenant commencing 24 November 2010 for five years. David Sakker, as guarantor, guaranteed the due and punctual performance of the lease by Pony. Rent on the premises was $50,827.68 per annum plus GST. Rent was paid by Pony at the beginning of each month from November 2010 until March 2012 inclusive. 2On 5 April 2012 at 4.47 pm Tony Monte, an employee of Pony who managed the leased premises, sent a message in the following terms to the managing agent of the premises as well as to the defendants' lawyers and others: "We have vacated the premises at Everything Adult 1/100 Blaxland Road Ryde. We can not afford to continue trading. We have done our best over the years but it has become financially impossible to continue. A great deal of money has been lost and we have to cease trading. We will drop in the keys to the premises after the Easter break to your office to allow you to lease the premises to a new tenant. Many thanks". 3On or about that same day Mr Ranko Jakovljevic, a director of Remedial, attended the premises and discovered that the premises had been abandoned and all shop fittings and chattels within the premises had been removed. 4Within the next week Mr Jakovljevic instructed the agent to advertise the premises for lease. 5The premises remain vacant. The premises have been advertised on four commercial real estate websites for the period from about 12 April 2012 to date, at the same rent as was payable under the lease. 6On 20 November 2012 Remedial commenced proceedings against Tony Monte and Mr Sakker. No defences were filed. The evidence indicates that Pony went into liquidation on 24 October 2012 and Remedial determined to proceed against Mr Sakker only. Remedial filed an application for default judgment together with evidence of service and the matter was listed before me for assessment of unliquidated damages. There was no appearance for Mr Sakker and the matter proceeded ex parte. 7Remedial submitted that: "The plaintiff says that the first defendant evinced a clear intention to no longer be bound by the lease when, on 5 April 2012, the first defendant, through its employee, gave written notice to the plaintiff's property manager that the first defendant had abandoned the premises due to its inability to pay rent. In these circumstances, the abandonment was permanent in nature and amounted to a repudiation of the lease." Remedial also asserted that from "1 April 2012, the first defendant ceased payment of rent". 8I am not persuaded that the letter amounted to a repudiation of the lease in the manner submitted by Remedial, at least in relation to the non-payment of rent. The message conveyed by the first defendant's employee did not at all refer to the payment of rent, neither to Pony's inability to pay nor its unwillingness to pay. That Pony indicated an inability to continue to trade is not sufficient to establish an inability or unwillingness to pay rent. 9Remedial submitted that the message must be read in the context of the failure to pay rent in April 2012. I do not think this failure assists the landlord, Remedial. Rent had previously been paid on, variously, the second through to the sixth day of the month in the period November 2010 to March 2012. That does not suggest that the failure to pay by the fifth of the month amounted to a repudiation. 10Further, cl 28(a)(i) of the lease provided that: "(a) Any one or more of the following constitutes a default by the Lessee ('Defaults'): (i) any rent or other monies payable by the Lessee to the Lessor under this Lease is in arrears for a period of more than fourteen (14) days (even though no formal demand for the money was made)". 11Accordingly, no default could occur until the sixteenth day of the month (i.e. more than fourteen days after the first of the month) when rent was due in accordance with cl 1(b) of the lease. 12One other matter is significant. Clause 1(b) provides as follows under the heading "PAYMENT OF RENT": "The Yearly Rent will be paid in equal monthly instalments, being 1/12th of the Yearly Rent, in advance on the first day of each and every month during the Term (except the first and last payments which, if necessary, will be proportionate determined on a daily basis), the first payment to be paid on or before the Commencement Date." 13Thus, in November 2010 the only rent payable was for seven days from 24 through to 30 November 2010, an amount less than $1,100. But the tenant's trust ledger in evidence showed that a full month's rent of $4,659.20 was paid on 3 November 2010 and, as I said, in all the months thereafter. It follows that Pony had already paid rent for most of the month of April 2012 because it was in credit for some $3,600 approximately since early November 2010. 14In these circumstances, the failure to pay rent by 5 April 2012 does not assist Remedial. 15The evidence also indicated that Pony failed to provide a bank guarantee to secure performance of the lease as required by cl 5(a) of the lease. Clause 5(a) provides under the heading "bank guarantee": "(a) The Lessee must on or before the Commencement Date give to the Lessor an unconditional, non-expiring and irrevocable Bank Guarantee in a form acceptable to the Lessor and in favour of the Lessor, for the amount stated in the Definitions, as security for the performance of the Lessee of its obligations, express or implied, under this Lease. The amount of the Bank Guarantee will be increased with the review of Yearly Rent as from each Review Date." 16The annexure to the lease provided that the guarantee was to be for the amount of three months' rent. 17However, it was not established that the failure to provide the bank guarantee constituted default under the lease. Clause 28(a) of the lease set out the events which constituted default. Two of the relevant paragraphs in clause 28(a) were as follows: "Any one or more of the following constitutes a default by the Lessee ("Default"): ... (ii) subject to subclause (vii), the Lessee fails to perform or observe any of the terms and conditions in this Lease, express or implied, or in the Lessor's reasonable opinion, fails to do so properly, including a failure to do work required under a notice from the Lessor, and such failure continues for a period of more than fourteen (14) days after the Lessor gives to the Lessee written notice requiring the Lessee to remedy the failure and which failure has not been expressly waived by the Lessor in writing; ... (vii) the Lessee breaches an essential term of this Lease being each of the covenants by the Lessee in the following clauses: clause 1 (payment of rent), clause 8 (use), clause 10 (maintenance) and Clause 22 (assignment and subletting)." 18As cl 5, the bank guarantee clause, is not listed in cl 28(a)(vii) it follows that a mere breach of cl 5 is not a default. Default would only occur if the requirements of cl 28(a)(ii) are satisfied, namely where the landlord has given fourteen days written notice of the breach and required it to be remedied. 19In the present case the relevant evidence is as follows: "Despite demand, the defendants never provided the plaintiff with a bank guarantee in respect of the lease." 20I do not think this is sufficient to satisfy cl 28(a)(ii) of the lease so as to constitute a default from the failure to provide a bank guarantee. There is no evidence of a written demand or of the required fourteen-day period. 21In any event counsel for Remedial did not rely upon Pony's failure to provide a bank guarantee as a relevant act of default. 22I raised the question of whether Pony had any obligation to occupy the premises or conduct business there, as had occurred in Buchanan v Byrnes (1906) 3 CLR 704, but I was twice told that no obligation existed. However, cl 8(b)(i) of the lease provides: "(b) The Lessee must, at its own cost: (i) open and trade in the Lessee's business at times as are usual for a business of that kind and carry on its business in a proper, businesslike and efficient manner". 23The lease also provided in cl 28(a)(vii), quoted above, that cl 8 was an essential term, breach of which constituted a default by Pony. In these circumstances Remedial relinquished its reluctance before me to rely upon the obligation on Pony to appropriately use and occupy the premises. 24It seems to me that the assertion by the manager of Pony on 5 April 2012 in the electronic message that: (a) it has vacated the premises; (b) it could not afford to continue trading; (c) (which is to the same effect as (b)) it was financially impossible to continue trading; (d) Pony has to cease trading; and (e) the keys would be returned on 10 April 2012 to enable a lease to a new tenant, together indicate a repudiation of the obligation in cl 8(b)(i) of the lease which requires the continuation of trading. That constituted an immediate act of default under cl 28(a)(vii) and repudiation of the lease. A lessor can recover damages for loss of bargain where he re-enters under a provision for re-entry in consequence of the lessee's repudiation or fundamental breach; see Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17. This was not a mere breach of a term relating to trading, but an assertion that the tenant would never adhere to the obligation; compare Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd (1992) 111 FLR 81; see also Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105, where the Court of Appeal held that a surrender by operation of law will not deprive a landlord of a claim for damages based on accepted repudiatory conduct for breach of a fundamental term occurring before surrender. 25It is not altogether clear from the evidence whether this repudiation was accepted by Remedial. Apart from the attendance at the premises on 5 April 2012 and the further advertising, there is no evidence of what Remedial did in response to the 5 April notice. Certainly no formal notice in response appears in the evidence. 26However, cl 28(b) provides as follows: "(b) In the event of a Default, the Lessor may immediately or at any time after the Default, and without notice or demand, in addition to any other rights available at law, do any one or more of the following, without releasing the Lessee from liability in respect of any prior breach of this Lease: (i) (forcibly if necessary) re-enter the Leased Premises or any part of them in the name of the whole, and thereby terminate the Lessee's interest in and right to the Lease Premises; ... (iv) claim damages for losses over the entire term of the Lease and any extension, even if the Lessor has exercised any of its other rights, or if the Lessor accepts the Lessee's repudiation of this Lease, or if a surrender of the lease occurs or if the Lessee abandons possession of the Leased Premises". 27These provisions clarify that whether or not the lessor, in this case Remedial, formally gives notice accepting the repudiation, the lessor remains entitled to terminate the lease and claim damages for the entire term of the lease. As the plaintiff has submitted that the repudiation has been accepted, and that seems to be consistent with all of the conduct of the plaintiff in evidence, I propose to proceed to assess damages on that basis. 28As to the damages, I am persuaded that the advertising by Remedial's agent on the four commercial real estate websites, and the reference in those advertisements to a rental in the same amount as was agreed to by Pony in the lease, in the absence of any submission or evidence to the contrary, it is sufficient to establish that Remedial has taken reasonable steps to mitigate its loss. 29In that event Remedial is entitled by way of damages to an amount equal to rent not paid under the lease. The rent unpaid amounts to $4,235.64 exclusive of GST for each of the ten months from April 2012 to January 2013 inclusive, or ten months, which totals $42,356.40. To this must be added the nineteen days of February 2013 at a daily rate equal to the annual rent of $50,827.68 divided by 365, which equals $2,645.75 (being 19 x $139.25). 30I have earlier referred to the overpayment in November 2010. The only amount due for that month, in accordance with cl 1(b) of the lease, was for seven days at the daily rate of $139.25 which equals $974.75 plus $97.48 GST. As the sum of $4,659.20 was paid, there was an overpayment of $3,586.97. This amount should be credited to the amount due. Thus, excluding GST the amount lost by reason of the repudiation up to and including 19 February 2013 is the sum of $42,356.40 plus $2,645.75 less $3,586.97 which equals $41,415.18. 31The question of GST raises issues I have previously dealt with in The Barrington Services Group Pty Ltd v Bossy [2012] NSWDC 82. After reviewing the authority of Gagner Pty Ltd (t/as Indochine Cafe) v Canturi Corporation Pty Ltd (2009) 262 ALR 691, I concluded that GST is only payable where there is a taxable supply. It is not payable on any award of damages unless there is a sufficient nexus between an item in the damages and an earlier supply. 32In the present case there was a taxable supply for the ten days of April 2012 until the keys appear to have been returned. The damages I have calculated include a sum equivalent to lost rent for this period. Accordingly, an amount of GST for those ten days of rent should be allowed. The daily rate exclusive of GST is $139.25. The GST on 10 days of rent is likewise $139.25. Accordingly, the damages for past rent, apart from interest, should amount to $41,415.18 plus $139.25 GST. To the amount of these damages must be added some interest. 33The lease provides for a rate of ten per cent on unpaid money. As the judgment is largely an award of damages not unpaid rent, the interest rate provided in the lease is not strictly applicable. However, I propose to take it into account as a pre-estimate of the loss caused by the delay agreed between the parties. I also note that for the period since rent was last paid the statutory interest rate applicable to the pre-judgment period has varied from 8.25 per cent per annum to seven per cent per annum. 34As the plaintiff has not received a return on the premises since late April 2012 (bearing in mind the overpayment for November 2010 to which I have earlier referred) and the amount of damages has increased over the ten month period to the date of this judgment, a period of approximately five months interest on the total sum should be allowed. I propose to allow the sum of $1,300 in interest which, on my calculation, amounts to a little more than is produced by a rate of 7.5 per cent per annum. 35That leaves the question of lost future rent. I note that no other head of damage is claimed in these proceedings, although, for example, the lessee under cl 21 of the lease did have an obligation in respect of insurance. 36There is evidence that there have been a "number of inspections and enquiries in respect of the [premises]". This evidence might indicate that there is some prospect of a new lease. On the other hand, the premises have remained unlet for ten months. However, neither of these items of evidence are particularly persuasive or perhaps even relevant in assessing what is likely to occur in the future, which is a question I must consider. It remains difficult on this evidence to assess how long it will be before a new tenant is secured. 37The onus of proof in respect of the ongoing damage rests upon the plaintiff. It has chosen not to provide any evidence, opinion or otherwise which might indicate whether there is likely to be a lengthy period during which the premises remain unlet. In these circumstances I am not, nor can I be, satisfied that the plaintiff, Remedial, will remain without a tenant for a lengthy period. This is the relevant matter in determining the value of the premises as they currently are compared to the value of the premises with Pony as a tenant (see Peet & Co Ltd v Rocci (1984) 57 LGRA 369). 38Doing the best I can I propose to allow a period of three months from today. Thus, the amount of damages for future loss I assess at the figure for monthly rent exclusive of GST being $4,235.64, times three, or $12,706.92. Damages are thus calculated as the sum of $41,415.18 for past loss plus $139.25 GST plus $1,300 interest plus $12,706.92 in respect of future loss. 39Accordingly, I order: