SAS (Sales) Pty Ltd v SJPJ Pty Ltd

Supreme Court of NSW|2011-07-29|Before: Schmidt J, Mr AM

Judgment 1By summons filed in April 2011, under ss 39 and 40 of the Local Court Act 2007, the plaintiff appeals and to the extent necessary, seeks leave to appeal a judgment given by Day LCM on 28 March 2011. Various errors of law were alleged, including a failure to give reasons; illogicality of reasoning, to the extent that there was any reasoning; findings which were not based on evidence; a failure to deal with matters over which the parties had joined issue; and a failure to give effect to certain provisions of the lease, of the Land Tax Management Act 1956 and s 170 of the Conveyancing Act 1919. 2The defendant did not dispute the inadequacy of the reasons given; that his Honour had overlooked certain issues; or that he had misunderstood certain matters which had been agreed. Nevertheless, it still argued that some matters sought to be raised on appeal involved mixed questions of fact and law, in respect of which leave would not be given, having regard to the small amounts involved. 3The litigation concerns a three year commercial lease, under which the plaintiff sought the return of a security deposit, which it claimed to be entitled to have repaid. By its cross-claim the defendant claimed that it was entitled to deduct certain sums from the security deposit, pursuant to various clauses of the lease. 4On appeal the defendant sought leave to rely on a notice of contention filed out of time in July 2011, arguing that there would be no prejudice from the grant of such leave. There the defendant sought to contend that the decision should be affirmed on grounds other than those relied on, but also sought a variation of the decision. 5The plaintiff opposed the leave sought, not because it was brought out of time, but because it sought relief not available under Rule 50.11 of the Uniform Civil Procedure Rules 2005. That Rule permits a notice of contention only in circumstances where no discharge or variation of any part of the decision is sought. That was not the defendant's position. 6The defendant accepted this and submitted that in the circumstances which had arisen, it would be granted leave to cross appeal the judgment below out of time, on the grounds sought to be raised in the notice of contention. The plaintiff accepted that such leave could be granted, it not being prejudiced by that course. In the circumstances, I granted the leave sought. 7That left the parties in the position where both the plaintiff and the defendant were of the common view that the orders which had been made should be set aside and substituted with a new order, because of various errors made by his Honour. It was also common ground that if the appeal were upheld, it should not be sent for rehearing. The defendant, nevertheless, still pressed the view that his Honour's accepted failures did not amount to an error of law sufficient to uphold the appeal and for the matters lying between the parties to be dealt with by way of rehearing. 8Instead, it pressed its argument that various of the matters raised were either questions of fact, or at best, mixed questions of fact and law. There was no error of law in simply making wrong findings of fact (see Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 340 - 41 per Mason J). Even a perverse finding of fact contrary to the overwhelming weight of the evidence is not an error of law (see Azzopardi v Tasman UE3 Industries Ltd (1985) 4 NSWLR 139), nor is demonstrably unsound or illogical reasoning (see R v District Court: ex parte White [1966] HCA 69; (1966) 116 CLR 644 ). Consideration also had to be given to questions of proportionality, given the provisions of the Civil Procedure Act 2005 ('the Act').

The appeal must be upheld 9In Campbelltown City Council v Vegan [2006] NSWCA 284; (2006) 67 NSWLR 372, the Court of Appeal explained the importance of reasons, in the context of a judicial decision maker by reference to what was discussed in Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 257 per Kirby P, 268-269 per Mahoney JA and 278-279 per McHugh JA. The matter was also discussed again in Workers Compensation (Dust Diseases) Board of NSW v Smith, Munro and Seymour [2010] NSWCA 19 at [136] - [138]; where Basten JA observed: "136 There is an abundance of authority in support of the proposition that a failure of a court to give adequate reasons for its findings constitutes an error of law: see, eg, Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247. However, whether such a failure involves a decision of the court below in point of law is less clear. There may be circumstances in which it does, but those may be restricted to the case where the court or tribunal has expressly or implicitly decided that certain matters should not be dealt with in the reasons: see Pettitt v Dunkley [1971] 1 NSWLR 376 at 383-4, referred to in Pearce at [119]. 137 Further, there is something incongruous in the proposition that to reason illogically, even perversely, does not constitute error of law, but to fail to provide adequate reasons does. Decisions in point of law refer to the substance of the decision-making process and not merely its presentation. 138 The legal obligation on the part of a judge to give reasons for his or her decision derives from the nature of judicial power and the proper means of its exercise: Soulemezis at 278-279 (McHugh JA). Its role in modern jurisprudence has been to provide a mechanism of control where appeals are limited to questions or points of law or on grounds available for supervision by way of judicial review in the nature of prerogative relief. In relation to statutory appeals, limited attention has been given to the statutory context in which the matter has come before the Court. In relation to the supervisory jurisdiction, it is necessary to identify where the failure to comply with a legal obligation to give reasons fits within a scheme which does not permit review for illogicality in the reasoning process. Thus, a missed step in an argument, or the illogical drawing of an inference would not, on the latter approach, demonstrate reviewable error." 10The parties' dispute was initially dealt with in an arbitration, where the plaintiff was awarded its claim in full. Before the Local Court, the defendant brought a cross-claim, alleging an entitlement to certain deductions under the lease. The matter was heard on 14 February 2011. The plaintiff called evidence from Mr Wheeler, who had made a statement about which he was extensively cross-examined. The defendant called Mr Patel, who had also made a statement about which he was cross-examined at length. The lease and numerous other documents, including various business records, were also in evidence. 11At the conclusion of the evidence, his Honour directed the parties to provide written submissions. He also said that he could give them the benefit of some 'preliminary thoughts, if they are of assistance to you'. His Honour then made a number of short observations about abatement, land tax, the date of commencement of the lease, decoration and cleaning. They did not resolve the questions of fact and law over which the parties had joined issue. The parties then provided quite extensive written submissions, which referred in detail to the evidence, the lease and the applicable law. 12His Honour's judgment was given on 28 March 2011. He concluded: "Verdict and judgment for the plaintiff for $5,331.38 Defendant to pay one fifth of the plaintiff's costs as agreed or assessed under the Legal Profession Act." 13After a short account of what had brought the parties to court, his Honour noted that the amount in contest on the cross-claim was $4,871.76 additional outgoings to be paid by the plaintiff. His Honour then gave his reasons. They are so short that they may conveniently be quoted in their entirety: "I find: The Lease commenced 15 October 2006. The premises were not fit for occupation for one month and I find that as a matter of law the rent abated for the first month, irrespective of there being no specific claim. This is based on the non-functioning toilet and the sewer problems, and abatement was not excluded by any express provision. Of the outgoings provided in the lease, I find that lessee is liable for: 55% of Council Rates Painting of the premises Insurance Water sewerage and drainage charges Strata levies. Servicing the fire appliances Real Estate management fees. The lessee had adequately cleaned the premises and is not liable for that expense. There was no land tax liability after the strata sub-division under the operation of the Land Tax Management Act. The managing agent took that into account in its ledger. Having made these findings, I hold that: The total claimed on the Cross Claim was $31,466.76 Less the security deposit of $26,595.00 Subtotal $ 4,871.76 Less The rent should abate (reduce) in the sum of $8,223.14 The defendant's claim for floor cleaning is not proved. $1,980.00 This means that after retention of the security deposit by the defendant, the sum of $5,331.38 should be returned to the plaintiff. The defendant is otherwise entitled to retain the security deposit, but the Cross Claim is otherwise dismissed. There is a verdict for the plaintiff for $5,331.38 and judgment accordingly. On the issue of costs, I find that the plaintiff was partly successful. The extent of the plaintiff's success was one fifth and it should have one fifth of its costs. I order the defendant to pay one fifth of the plaintiff's costs as agreed or assessed." 14His Honour made no reference to the evidence or the parties' submissions, nor did he give reasons for how he had resolved the questions of fact and law which arose to be determined, other than by stating his above quoted conclusions. It was not in issue that this approach is fundamentally inconsistent with the duty to give reasons. In Alchin v Daley [2009] NSWCA 418, Sackville AJA (with whom McColl and Young JJA agreed) observed: "[35] There was no dispute as to the principles to be applied in determining whether a trial Judge has given adequate reasons for making findings of fact. McColl JA stated the principles, supported by detailed citation of authority, in Pollard v RRR Corporation [2009] NSWCA 110. The principles articulated in that case were summarised in Qushair v Raffoul [2009] NSWCA 329, at [52], per Sackville AJA, with whom Campbell JA and Bergin CJ in Eq agreed (the paragraph references are to McColl JA's judgment in Pollard ): (i) The giving of adequate reasons lies at the heart of the judicial process, since a failure to provide sufficient reasons can lead to a real sense of grievance because the losing party cannot understand why he or she lost (at [57]): see Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430, at 442, per Meagher JA. (ii) While lengthy and elaborate reasons are not required, at a minimum the trial judge's reasons should be adequate for the exercise of a facility of appeal, where that facility is available (at [56]): see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, at 260, per Kirby P; at 269, per Mahoney JA. (iii) The extent and content of the reasons will depend on the particular case and the issues under consideration, but it is essential to expose the reasoning on a point critical to the contest between the parties (at [58]): see Soulemezis v Dudley , at 259, per Kirby P; at 280, per McHugh JA. This may require the judge to refer to evidence which is critical to the proper determination of the issue in dispute (at [62]): Beale v GIO , at 443, per Meagher JA. (iv) Where credit issues are involved, it is necessary to explain why one witness is preferred to another. Consequently, bald findings on credit, where substantial factual issues have to be addressed, may not comply with the common law duty to give reasons (at [65]): Palmer v Clarke (1989) 19 NSWLR 158, at 170, per Kirby P (with whom Samuels JA agreed). (v) Where an appellate court concludes that the trial judge has failed to give adequate reasons, the court has a discretion whether or not to direct a new trial. If, despite the inadequate reasons, only one conclusion is available, a new trial may not be necessary (at [67]). [36] In Pollard , McColl JA also cited with approval a passage from the judgment of Ipp JA, with whom Mason P and Tobias JA agreed, in Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187; 66 NSWLR 186, at 191-192 [28]. The passage, including the succeeding paragraph (at [29]) is as follows: It is not appropriate for a trial judge merely to set out the evidence adduced by one side, then the evidence adduced by another, and then assert that having seen and heard the witnesses he or she prefers or believes the evidence of the one and not the other. If that were to be the law, many cases could be resolved at the end of the evidence simply by the judge saying: 'I believe Mr X but not Mr Y and judgment follows accordingly'. That is not the way in which our legal system operates. ... Often important issues of credibility involve sub-issues. Often, objective facts, or facts that are probable, are capable of having significant bearing on the sub-issues. In cases of this kind, it is incumbent upon trial judges to resolve the sub-issues and to explain, by reference to the relevant facts, the conclusions to which they have come. This having been done, they should then turn to the ultimate facts in issue and explain how their decisions on the sub-issues have assisted them in forming a conclusion on the ultimate issue. It is only when adequate reasons of this kind are given that an unsuccessful party will be able to understand why the judge has believed his or her successful opponent". 15As to illogicality of reasoning, that alone may not be sufficient to establish that there has been an error of law (see R v District Court: ex parte White per Menzies J at 654). In Amaba Pty Ltd v Booth; Amaca Pty Ltd v Booth [2010] NSWCA 344 Basten JA (with whom Beazley and Giles JJA agreed) observed, however: 21 That question aside, it is necessary to address the respondent's argument that, once the medical evidence tendered on behalf of Mr Booth is held to be properly admitted, it will not be open to the appellants to challenge findings based on that evidence because it will be impossible for them to say that there was no evidence capable of supporting the findings of the trial judge. In accordance with statements by Glass JA (Samuels JA agreeing) in this Court in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 and the statement of Mason CJ in Australian Broadcasting Tribunal v Bond [1990] HCA 33; 170 CLR 321 it was submitted that no broader claim is permitted. As explained by Mason CJ at 356: "Thus, at common law, according to the Australian authorities, want of logic is not synonymous with error of law. So long as there is some basis for an inference - in other words, the particular inference is reasonably open - even if that inference appears to have been drawn as a result of illogical reasoning, there is no place for judicial review because no error of law has taken place." 22 However, as I noted recently in Goodwin v Commissioner of Police [2010] NSWCA 239 at [12], some doubt has been cast on the scope and operation of that principle by reference in later judgments to the need for findings or inferences of fact to be supported by "logical grounds": see Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 [2003] HCA 30; 77 ALJR 1165 at [52] (McHugh and Gummow JJ, Callinan J agreeing); Minister for Immigration and Multicultural and Indigenous Affairs v SGLB [2004] HCA 32; 78 ALJR 992 at [38] (Gummow and Hayne JJ); Minister for Immigration and Citizenship v SZMDS [2010] HCA 16; 240 CLR 611 at [40] (Gummow and Kiefel JJ, dissenting); cf [113], [119] and [129]-[130] (Crennan and Bell JJ). 23 Implicit in the statement that there is no evidence to "support" a particular finding, is the characterisation of a relationship between the evidence and the finding. It is the same relationship inherent in the concept of "relevance", on which the laws of evidence depend. That relationship depends on a process of reasoning which must be logical or rational. Thus, evidence is relevant which, if accepted, "could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding": Evidence Act 1995 (NSW), s 55(1). As explained by Gleeson CJ, Heydon and Crennan JJ in Washer v Western Australia [2007] HCA 48; 234 CLR 492 at [5]: "The word 'rationally' is significant in this context. In order to establish relevance, it is necessary to point to a process of reasoning by which the information in question could affect the jury's assessment of the probability of the existence of a fact in issue at the trial." 24 Whether an inference is reasonably open, in the sense of being logically available, involves an evaluative judgment, which is to be assessed by the court exercising appellate or supervisory jurisdiction. 25 Although it appears not to have been addressed in these terms, it seems that the reviewing court should make its assessment, based on findings of primary fact made by the trial judge, as an exercise of its own judgment, rather than by analysing the cogency of the reasons given by the primary judge. This point may be significant, depending upon whether the challenge is directed to inferences drawn from primary facts, or to the findings of primary facts themselves, which are said not to be supported by the evidence. As a practical matter, of course, it is neither appropriate nor necessary to disregard the reasons given by the primary judge for reaching a particular conclusion. 26 These issues were not addressed in the course of the appeal, but it is convenient to assume that illogicality, in the sense noted at [23] above, can be relied upon by the appellants as a basis of challenge to facts found or inferences drawn by the primary judge, as demonstrating error of law." 16A similar approach was recently taken in Tisdall v Webber [2011] FCAFC 76; (2011) 193 FCR 260. 17In this case, in my view, there can be no question that his Honour's approach involved an error of law, with the result that the appeal must be upheld and the matter reheard. The defendant urged that consistently with s 56 of the Act and its emphasis on proportionality, the approach discussed in Kelly v Norris [2004] NSWCA 260 by Bryson JA at [45] would be taken into consideration. There his Honour observed: "The merits of the proposed challenges are relevant to the grant of leave to appeal. In my view the challenge on appeal to each of the orders is reasonably arguable, although not with uniform strength; the judgment of Santow JA shows why this is so. However where leave to appeal against a costs order is sought more has to be shown than that the orders under appeal are reasonably open to reconsideration; see Wentworth v. Rogers (No. 3) (1986) 6 NSWLR 642 at 644 (Kirby P) and 651 (Priestley JA). When the amount involved in a proposed appeal is small, it is not usually regarded as sufficient that the orders under appeal are arguably wrong; see Dunn v. Ross Lamb Motors [1978] 1 NSWLR 26 at 28. That case has been followed several times but does not expound any principle upon which leave may be granted or refused in small appeals. The enunciation of general principles is inherently difficult, and in view of the discretionary nature of the power to grant leave, may not be possible. Among the relevant considerations is the principle of proportionality described in these terms by Lord Hoffmann in Piglowska v. Piglowski [1999] 1 WLR 1360 at 1373: ... there is the principle of proportionality between the amount at stake and the legal resources of the parties and the community which it is appropriate to spend on resolving the dispute. In a case such as the present, the legal system provides for the possibility of three successive appeals from the decision at first instance. The first is as of right and the second and third are subject to screening processes which themselves may involve more than one stage. If one includes applications for leave, the facts of this case, by the time it reached the Court of Appeal, had been considered by five differently constituted tribunals. This cannot be right. To allow successive appeals in the hope of producing an answer which accords with perfect justice is to kill the parties with kindness." 18The various amounts in issue between the parties are certainly not large and the course which the litigation has taken regrettable, but that can not be determinative in a case such as this, where there has been a fundamental failure to come to grips with the matters over which the parties joined issue. 19In a case, which on the defendant's approach, revolved entirely around facts, his Honour made no relevant factual findings. The defendant conceded that there was no identifiable reasoning process in relation to most issues. Indeed, his Honour gave no explanation of any of the conclusions which he reached on disputed facts, interpretation of the lease, or of applicable legislation. He overlooked entirely some matters which were agreed and others which he had to determine. In those circumstances there can be no question that the appeal must be upheld. In so far as any leave is necessary, on the question of costs, for example, it must be granted.

What is in issue 20On appeal the plaintiff sought an order for $29,183.24 in its favour and the defendant argued that the amount should be $7,442,17. The security deposit in issue was $26,595.00. 21On appeal, what was in issue between the parties was identified by the parties to be in summary: Description Plaintiff's Credit Defendant's Plaintiff's Defendant's Plaintiff's Defendant's Credit Debit Debit Balance Balance Security Deposit 26,595.00 26,595.00 Contribution to outgoings 28,024.59 24,825.59 Rent Nil 8,223.14 Water Rates 1,188.42 1,750.06 Council Rates 5,160.66 5,996.36 Land Tax 1,918.31 7,175.67 Insurance 7,268.55 7,268.55 Property Management Fees 9,814.61 9,814.61 Fire Hydrants etc 85.80 470.03 Repainting Nil 3,300.00 Floor Cleaning Nil Nil TOTAL $54,619.59 $51,420.59 $25,436.35 $43,998.42 $29,183.24 $7,422.17

Rent 22The defendant's claim for unpaid rent was unsuccessfully defended by the plaintiff, who had argued that a later commencement date had been agreed. On appeal, it was not in dispute that the evidence established that the lease commenced on 15 October 2006 and was due to terminate on 14 October 2009, but that the plaintiff did not vacate until 31 October. The result was that under the lease the defendant was entitled to deduct one month's rent, in an amount of $8,223.14. 23Instead of ordering that sum in the defendant's favour, his Honour allowed an abatement of one month's rent, finding that as a matter of law the rent abated, irrespective of there being no specific claim. What that view rested on, was not revealed by his Honour. His view that abatement was not excluded by any express provision of the lease, took no account of clause 14.1, which excluded operation of s 84 of the Conveyancing Act , which provides for an implied covenant in relation to suspension of rent, in specified circumstances. 24It was common ground between the parties that abatement was not a claim ever pleaded by the plaintiff. In a summary of the case which it had filed before the hearing, it claimed the right to return of the security bond on two bases. Firstly, a delayed commencement date of 1 November and secondly, because certain essential services were claimed not to have been functioning. They were services which the defendant was obliged to maintain under the lease. What was pressed in the summary document was: "If the Court were to find that the rental agreement began on its stated date of 15 October 2006 then the plaintiff ought be able to set off two weeks rent from the period at time when the premises was not habitable (15 October 2006 to 30 October 2006) against any entitlement of the lessor to retain one month's rent. In addition, any other losses incurred directly attributable to the defendant's failure to give the plaintiff quiet enjoyment from the commencement date (such as the plaintiff having to pay for essential works to be done before the premises could be occupied) should be credited to the plaintiff." 25The plaintiff sought to make out this case through the evidence of Mr Wheeler and by reference to various correspondence, even though at the time in question, it was in occupation of the premises. During cross-examination of Mr Patel, as to when instructions were given to repair the toilet which wasn't working, the following exchange occurred with the plaintiff's counsel: "HIS HONOUR: Well the agent hasn't put any evidence on. JOSEPH: May I assist in one regard your Honour, I'm sorry I don't mean to interrupt. HIS HONOUR: You're running a quiet enjoyment case, aren't you? JOSEPH: Well in respect of the claim for the months notice, yes. HIS HONOUR: Yes. You might have been able to - depending on what mood the court was in - you might have been able to mount a discount case right up until the time when the women's toilets were working. Anyway, you're not doing that so its too late now, I'm not going to let you amend." 26To that point the plaintiff had made no application to amend its pleadings, to raise a claim for set off or abatement in relation to the claimed outstanding month's rent. What his Honour said in the above exchange appeared to have precluded such an application being made and it was not. 27Had the application then been made, consistently with his Honour's observations, in the circumstances it clearly ought to have been refused, given the failure to make the necessary application before the hearing. At the least, the defendant would have had to have been given the opportunity to plead a defence and to lead evidence and arguments in relation to all of the matters so raised. 28The overriding purpose of s 56 of the Act is to facilitate the just resolution of the real issues in civil proceedings with minimum delay and expense. While late amendment of pleadings may be permitted, even during the course of a hearing as a matter of discretion, if such an application is to succeed, there has to be an explanation given by the applicant for the delay. Consideration must also be given to any prejudice, as well as to matters of cost and proportionality, as s 60 of the Act emphasises. 29As the High Court discussed i n Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, a case where an application to amend pleadings was made during the course of a hearing, the legislative emphasis in s 56 on the Court determining the 'real issues' in the proceedings, means the issues raised ' in the pleadings' (see discussion at [71] to [83]) . The need to give an explanation for a late application to amend pleadings was there emphasised (at [103]) and it was observed at [94] that: "... Where a party had had a sufficient opportunity to plead his or her case, it may be necessary for the court to make a decision which may produce a sense of injustice in that party, for the sake of doing justice to the opponent and to other litigants ." 30It was also observed that: "[98] Of course, a just resolution of proceedings remains the paramount purpose of r 21; but what is a "just resolution" is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. The Rule's reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs." 31The fact that a new claim is arguable, is not of itself a sufficient basis for granting leave (see at [111] ). If an application had been made in this case by the plaintiff, then his Honour would also have had to give consideration to what was further observed at [112]: "A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate." 32Mr Wheeler was later cross-examined about the impact of the claimed problems at the commencement of the lease, the discussions which occurred and the agreements which were reached. These were matters going to the claimed delay in commencement of the term of the lease. 33The defendant then filed its written submissions, submitting that the issues sought to be raised in respect of any abatement had not been pleaded and that in any event, they went to minor issues with a new building, essentially the result of one toilet not working in respect of which various steps were taken to resolve them. In the circumstances it argued that abatement was not available to be ordered in favour of the plaintiff. In any event, the evidence had not established that the plaintiff was not able to operate its business. The invoice relied on provided no evidentiary basis for the conclusion urged. 34Despite his Honour's earlier observations and the fact that no application had been made to amend the pleadings, a set off was nevertheless pressed for the plaintiff in its written submissions, on the basis that clause 7.1.3 of the lease required the defendant to provide essential services, including phone lines, hot water and toilets. Implied covenants for quiet enjoyment and repair were also relied on. It was argued that the evidence showed these obligations had been breached and that the proper measure of damages was thus not less than the value of one month's rent, notwithstanding that what had been claimed in the summary document, was only two weeks' rent. Sections 56 to 58 of the Act were argued to support the orders sought, notwithstanding the failure to plead the claim, given the obligation falling on the Court to deal with the real issues lying between the parties. There were said to be no problems of surprise or other prejudice. The fact that rent abatement had been raised by his Honour, was also relied on. 35On appeal it was common ground that this was a new building and that the plaintiff was in occupation at the time in question, conducting its business from the premises. It was common ground that one toilet was not initially serviceable. There were problems with hot water, with the result that the plaintiff itself installed a service in November. There were phone lines to the building, but connections to the plaintiff's premises were only installed on 30 October. Who was responsible for that delay was in issue. 36The defendant maintained its position that abatement was not a claim available to the plaintiff. It had not been pleaded, was not made out on the evidence, and was inconsistent with express terms of the lease, which contained no abatement covenant and by clause 14.1 excluded any covenant under s 84 of the Conveyancing Act . All that the evidence established, it was submitted, was teething problems with a new building, dealt with at the time by way, for example, of correspondence where the plaintiff sought reimbursement of a plumber's account of $363 and asked for further assistance from the agent, saying: 'We understand this is a new building & expect some teething problems and whilst we can work around not using one of the toilets, it would be healthier to have the system fixed'. 37The plaintiff accepted that it had not sought to amend its pleadings, in order to press a claim for abatement. It argued, nevertheless, that the abatement ordered was available, because the parties had enlarged the issues to be fought between them (see Gould v Mount Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490 at 517.) The general rule was accepted to be that a case must be determined on the issues raised in the pleadings. This situation was submitted to fall into one of the exceptions discussed in Gould , because the plaintiff had raised the issue in its statement filed two months before the hearing and the parties had then litigated the matter between them. 38The plaintiff also sought to advance a further legal argument, not put below, in order to meet the case advanced by way of reliance on clause 14 of the lease. This, it was submitted, was available because the new arguments sought to be raised on appeal raised a question of law. 39I cannot accept the plaintiff's case. The objection taken by the defendant to the unpleaded point sought to be raised at the hearing, was clear and repeated, notwithstanding the submission later made that on the merits, a basis for the relief claimed had not, in any event, been established by the plaintiff. His Honour clearly indicated that leave to amend would not be granted, if it was sought. It was not and that ought to have been the end of the matter. 40A case along those unpleaded lines was, nevertheless, pressed and without explanation granted by his Honour, on the basis of abatement of one month's rent, when even in its case summary document the plaintiff had only pressed for a set off of two weeks' rent. That conclusion may clearly not be upheld on appeal. 41The course adopted is not an available way to pursue an unpleaded point, given the requirements of the Act, the Rules and the High Court's observations in Aoun . Even if it were, the provisions of the lease itself, excluding as it did a right to abatement and the evidence that despite the teething problems, the plaintiff was in occupation of the premises, operating its business and dealing with the difficulties being encountered in the way it had itself described in correspondence, ought to have led to the conclusion that no basis for the order sought was established. The plaintiff may not now on appeal introduce yet another unpleaded basis upon which to resist the defendant's claim for the outstanding rent. 42It follows that the defendant's cross-appeal must succeed.

Outgoings 43The onus fell on the defendant to establish the claims advanced in the cross-claim. There the defendant claimed that only $24,825.59 outgoings had been paid. Below, the plaintiff claimed it had paid $28,308.91. Mr Wheeler's evidence was supported by relevant bank records, which evidenced that certain payments had been made by the plaintiff. This issue fell to be determined on his evidence and that of Mr Patel. Mr Patel also annexed a schedule and supporting documents to his statement. 44On appeal the plaintiff argued that an amount of $27,507.46 had been conceded by the defendant. The defendant's case was that the concession had been made on terms which were not accepted by the plaintiff and so had been withdrawn. That was in issue. His Honour used the figure of $24,825.59 in coming to his order. No reasons were given for that conclusion. 45For the defendant it was argued on appeal that there had been conflicting evidence below; that it had accepted the plaintiff's figure conditionally, on the basis that the plaintiff conceded other matters. They were not conceded and so its concessions fell away. In those circumstances, it was open to his Honour to prefer Mr Patel's evidence. No error was involved in doing so. 46What happened in respect of this aspect of the parties' contest may shortly be explained. The defendant put its submissions first below, noting: "The defendant will accept the figures provided by the plaintiff in annexure K of his statement for these items and the total outgoings he claims to have paid. If the plaintiff wants to seek to change those figures in any way the defendant reserves the right to withdraw this acceptance. To assist your Honour this schedule is also attached to this submission." 47In that schedule to Mr Wheeler's statement the sum specified was $27,507.46. The sum the plaintiff pressed in its submissions reflected another document annexed to Mr Wheeler's statement, where a figure of $28,308.91 appeared. The difference between the two figures was not explored in the evidence, but the above concession was made. The plaintiff pressed the amount it claimed in the submissions it later advanced. In the defendant's reply submissions, there was no further reference to this issue. 48His Honour's order reflected the figure advanced by the defendant in its cross-claim, $24,825.59. In his judgment his Honour made no reference to the competing evidence, or the concession made in the defendant's submission. That appears to have been overlooked. 49On appeal the difference between the figures which were pressed became apparent. The plaintiff claimed $28,024.59. In a schedule annexed to Mr Patels' evidence, where his calculations appear, totalling $24,825.59, a figure of $375.24 appears. The underlying records on which that figure rests, shows that Mr Patel made a transposition in his calculation. The actual amount shown in the relevant record was $3,574.24. When the correct figure was taken into account, it added up to the amount the plaintiff claimed. The defendant accepted that this explained the difference between the figures pressed on appeal, although it was not a matter which had been dealt with at the hearing below. In the circumstances, it did not concede that this figure should be awarded. 50It follows that on a proper assessment of the evidence, it cannot be concluded that the defendant met the onus falling on it to establish the sum advanced on the cross-claim. Its concession below reflected an acceptance that the evidence established payment of $27,507.46. Even if that concession was made on a conditional basis, not accepted by the plaintiff, still his Honour had to resolve what the evidence did establish. The concession did not establish the amount claimed by the defendant. On appeal it became apparent that Mr Patel's evidence also did not support the amount the defendant claimed. That it was open to his Honour in the circumstances simply to accept the defendant's claim, without coming to grips with what the evidence established, may not be accepted. 51On appeal the parties have now agreed the amount which the defendant's own evidence reveals. That is the figure which the plaintiff claims. In those circumstances the order sought by the plaintiff must follow.

Land Tax 52The issue turns on a consideration of provisions of the Land Tax Act 1956, the Land Tax Management Act and provisions in the lease. The defendant claimed the amount of $17,489,60. Mr Patel gave evidence as to how this figure was calculated. 53On appeal the defendant accepted that it had conceded below that no land tax was payable in 2008 and 2009, reflective of clause 5.3 of the lease and the fact that the property had been converted to strata title in 2007. Its case was that the result was an amount of $7,175.67 still owing. The plaintiff claimed that an amount of $1,918.31 was owed. 54It was explained for the plaintiff that the remaining difference between the parties turned on the question of recoverability of land tax under an annexure to the lease and the provisions of s 62 of the Land Tax Act , where the threshold for land tax in the relevant year was specified. Section 3AJ and schedule 11 of that Act specified the manner in which the land tax was to be assessed. 55The calculation advanced for the plaintiff in written submissions below, was claimed to have adopted the method of calculation used by Mr Patel in his evidence, resulting in the figure of $1,918.31. The sum of $7,175.67 which he had calculated was explained to rest on two errors. Firstly, a calculation of land tax payable to December 2007, which did not take account of the rate applicable to a special trust, as dealt with in the lease and secondly, on the basis of the value of the whole of the property, rather than the leased part, reflective of the strata which took place in mid-2007. 56Without any explanation, his Honour allowed the whole of the claim made in the cross-claim in relation to land tax, even though he had noted the consequence of the strata in 2007 in his judgment. On appeal it was accepted by the defendant that his Honour had erred, in awarding the original amount claimed for land tax, rather than the amount conceded; that the judgment had to be adjusted accordingly; and that his Honour failed to determine what remained in issue. 57Even so, the defendant opposed leave to appeal on this point, for the reasons I have earlier explained and rejected. It accepted, however, that if its position as to leave was not accepted, that the figure of $1,918.31, reflected the amount due under the lease, on the evidence. 58It follows that this is the amount which must be ordered.

Water and Council Rates 59The plaintiff accepted that under the lease it was obliged to pay council rates and water rates, amongst other outgoings. Mr Wheeler's evidence outlined various payments which the plaintiff had made during the term of the lease. In issue was further amounts claimed by the defendant, including in relation to water and council rates. 60The defendant's claim rested on Mr Patel's evidence. In his statement he claimed that the defendant had paid a total of $42,319.18, comprising payments summarised in various schedules, supported by records of accounts it had received. He was cross-examined about the sums claimed, describing difficulties with the agent and the plaintiff in meeting various payments. 61The plaintiff accepted that it had to make payments that were supported by the records Mr Patel relied on, but argued that the outgoings claimed by the defendant in relation to council rates and water rates had not been established on the evidence. It was common ground on appeal that Mr Patel's evidence that the sums in issue had been paid, were not supported by any of the documentary evidence. 62There was no dispute as to the contractual obligation. The matter turned on a consideration of evidence, which it was argued for the defendant was sufficient for his Honour's unexplained finding. Mr Patel had provided the documentary material which he could find and had insisted in cross-examination, that the payments claimed in relation to council rates and water rates had been made, even though he had no supporting documentation which established the claimed payments. In the circumstances the defendant argued that the conclusion reached by his Honour would not be disturbed on appeal, particularly given the amounts involved. 63I am not able to accept the case advanced for the defendant. The onus lay on it to prove its claim. That onus was not met. Mr Patel's unsupported claim that the payments in question were made by the defendant, is not a basis on which that onus can be met. The claim that these payments had been made by the defendant could have easily been proven, for example by provision of its own business records, by bank records or by other business records of other entities, establishing the payments claimed had been received. The inference from the failure to produce any such records, is that the claimed payments were not made. 64It follows that the order cannot reflect the amount which the defendant claimed.

Painting 65This issue depended on a consideration of clause 7 of the lease and evidence given by Mr Wheeler and Mr Patel. There was an obligation falling upon the plaintiff to repair fair wear and to keep the property in a proper condition. It also had other obligations. Clauses 7.3.3 and 7.5 of the lease provided: "7.3 The lessee must also - ... 7.3.3 decorate the inside of the property in the last 3 months of the lease period (however it ends) - 'decorate' here means restoring the surfaces of the property in a style and to a standard of finish originally used e.g. by repainting; 7.5 If the lessee fails to do any work that the lessee must do the lessor can give the lessee a notice in writing stating what the lessee has failed to do. After the notice is given the lessee must - 7.5.1 do the work immediately if there is an emergency; and 7.5.2 do the work promptly and diligently in any other case. If the lessee does not do the work, the lessor can do it and the lessee must reimburse the lessor for the cost of the work." 66The premises were vacated in October. Mr Patel's evidence was that in January 2010 he had the inside of the leased premises painted, at a cost of $5,280. The premises also had to be cleaned 67The defendant claimed that the plaintiff had failed to 'decorate' the premises as it was obliged to do under clause 7.3.3. The defendant also claimed that it later had the premises cleaned and repainted and that it had paid $3,300 for the painting , which it was entitled to retain out of the bond. The cost of the cleaning was also sought to be recovered from the plaintiff. 68Mr Wheeler's evidence was that the plaintiff left the premises in October 2009 in excellent condition. They had been professionally cleaned and when he met with the defendant's agents, Mr Burns and Mr Faruia, on 30 October they advised him '[t]he premises are fine and we will now request the owner to return your bond'. The plaintiff was never sent any invoice by the defendant for the claimed work and in the circumstances, it denied the defendant's entitlement to retain any part of the deposit for either painting or cleaning. 69In his 'preliminary thoughts' his Honour expressed reservations about the veracity of annexure AB to Mr Patels' statement, the invoice for cleaning ($1,800) and painting 'external and internal office' ($3,000). Still his Honour said that on the evidence he had heard, he would find that the plaintiff was liable for painting, but given that the premises were professionally cleaned, he would not allow that claim. 70These views were expressed without the benefit of the parties' written submissions, and without reference to the requirements of the lease. 71The plaintiff's case in submissions below was that the defendant had not established any entitlement to the payment claimed under the lease. On the evidence the agent had accepted there was no need to repaint and the defendant had not given any notice that it had a different view. Clause 7.3.3 imposed no absolute obligation to repaint. The surfaces had to be left in the same state they were in at the beginning of the lease. In the circumstances, if the defendant required the plaintiff to repaint, it had to give the notice specified by clause 7.5. That had not occurred. 72When he gave his judgment, without explanation, his Honour rejected the defendant's cleaning claim, but accepted the painting claim. It is difficult to see why they were treated differently, given the requirements of clause 7.5. 73On appeal, the defendant argued that there was no dispute as to the meaning of clause 7 of the lease and that its claim depended on the facts established by the evidence, as to whether the painting was necessary and whether it was done. Its failure to give any notice was not determinative and in any event, was only raised by the plaintiff after the evidentiary cases were closed. It followed that the finding that the plaintiff was liable, was not open to revision on appeal. 74I can not accept the case advanced for the defendant. The parties joined issue over the proper construction of the lease, as well as over the facts. The onus fell upon the defendant to establish its entitlement to the claim pressed in relation to painting. That depended on both the proper construction of clause 7 and it establishing that it had complied with the requirements of the clause. On appeal it was conceded that the evidence did not establish that any notice under clause 7.5 had been served. 75The obligation imposed by clause 7.3 was to restore 'the surface of the property in a style and to a standard of finish originally used'. An example given as to how this could be achieved was by 'e.g. by repainting'. There was no absolute obligation to repaint. It follows that if cleaning was, in the particular circumstances, sufficient to meet the obligation to restore the surface, then that would have been sufficient. There was a contest between the parties over that issue. Mr Wheeler's evidence was that the defendant's agent had accepted that it had done what was necessary to meet the obligation. 76The defendant called no evidence from its agents to rebut Mr Wheeler's evidence. The failure to call evidence from its agent, suggests that evidence would not have assisted its case. Nor did it call any evidence from Mr Patel, to establish that it had taken the steps provided for in clause 7.5. That required the defendant to give the plaintiff a notice that it had failed to meet its obligation under clause 7.3, in order to give it an opportunity to rectify its default. Only if there was a failure to do so, did it have the right to require the plaintiff to reimburse it for the work it undertook, to rectify the plaintiff's default. 77Not only did Mr Patel give no evidence that such a notice had been given, it was not put to Mr Wheeler that there had been such a notice served. The absence of any evidence on this point leads to the inference that the notice was not given. 78That was not a matter which the plaintiff was obliged to raise through cross-examination of Mr Patel. It was a matter within his knowledge and one which had to be established by the defendant, if its claim to payment in respect of painting in accordance with clause 7 of the lease was to be established. 79While his Honour did not accept the cleaning claim, he gave no reasons for preferring Mr Patel's evidence over that of Mr Wheeler in relation to the painting claim and did not deal with the parties' contractual entitlements. 80In the event, a contractual entitlement to the painting claim was not established, given the failure to give the notice required under clause 7.5. It follows that the defendant's claim must fail.

Fire Hydrant Services 81The plaintiff argued that his Honour had overlooked an issue argued before him. The full amount of the claim, $470.03, was awarded. What was in issue was whether a requirement under the lease to service and maintain fire hydrants had arisen. 82For the defendant it was argued that all that fell to his Honour to resolve was a factual issue. Mr Patel had not been cross-examined on his evidence. The only point taken was that there had been no notice to the plaintiff to attend to the service or maintenance in question. That point had to be taken earlier, in order to enable the defendant to meet it, but in any event, there was no notice requirement in the clause in issue. It was accordingly open to accept Mr Patel's evidence and hence the appeal had to fail. 83The lease provided in clause 1 of annexure A to the lease that: "The Lessee shall be responsible for the maintenance and servicing of the air conditioning units. Fire Hydrant/Fire extinguisher, emergency and exit lighting and shall be responsible for updating the requisite compliance certificates." 84Mr Patel's evidence was that: "[34] As I had not been advised by SAS that they had attended to the servicing of the fire hydrants and fire extinguishers and there was no current compliance certificate I authorized our agent to arrange of this to be done. I understand it was done on or about at a cost of $470.03. ... " 85He was not cross-examined and in its submissions, the plaintiff accepted the obligation imposed by the lease. It relied, however, on clause 7.5 of the lease as to notice. His Honour did not consider that issue. 86Given the provisions of the lease, in the absence of any evidence that the defendant gave the notice required, under clause 7.5, which would have given the plaintiff the opportunity to either show it had done the work in question or to take steps to do it, it may not be concluded that the defendant established its entitlement under the lease to the amount claimed on this account. This claim too, must then fail.

Property Management fees 87This figure was agreed and it is unnecessary to deal further it, other than to observe that on appeal the defendant also raised the question of GST in relation to this figure. That was not a matter dealt with in the pleadings; it was not argued below; nor was it raised until submissions on appeal. For the reasons earlier discussed in relation to the plaintiff's abatement claim, that is not a circumstance in which an issue such as this may be raised.

Pre-judgment interest 88Interest on the security deposit was claimed. The claim was refused, without reasons being given. The defendant accepted that his Honour failed to deal with the claim for interest and could advance nothing to support the interest claimed being refused. 89The power to award the interest claimed under s100 of the Act is discretionary and is awarded when it is established that a loss has been suffered, (see Screenco Pty Ltd v RL Dew Pty Ltd [2003] NSWCA 319; (2003) 58 NSWLR 720 at 740). In the circumstances, I am satisfied that the discretion must be exercised. There is no question, that even on the defendant's best case, it owed the plaintiff money under the lease. Given what the evidence and submissions on appeal have revealed, it is apparent that it would have been preferable that the parties had resolved what lies between them, given the amounts involved. Nevertheless, in the circumstances the plaintiff has clearly established a basis for the exercise of a discretion in its favour, as to prejudgment interest, if justice is to be done between these parties.

Costs of arbitration 90Rule 42.12(5) requires an application for the costs of the arbitration to be made after judgement. It was common ground that no formal application was made by the plaintiff, for these costs after his Honour's judgement was given. Both parties had advanced written submissions in relation to costs, but the defendant denied that on its part, its submissions were intended to address the question of the costs of the arbitration. 91His Honour did not deal with that issue, correctly, it seems to me, given the requirements of the Rule, which obliged the plaintiff to make an application for such costs after judgment was given. There was no such application and so the question of those costs has not arisen for determination. In the circumstances those costs cannot be dealt with in this appeal, there being no judgement or order made by the Local Court about that matter.

Costs below 92It was common ground that the order that the plaintiff be granted one fifth of the costs of the proceedings below, reflected its success on the hearing, consistently with s 46(1)(a) of the Civil Procedure Act and Rule 42.12(2) of the Rules. The defendant accepted that if the plaintiff achieved a different outcome on appeal, that would have to be reflected in the costs order in relation to the hearing below. 93I accept that approach. In the circumstances, the plaintiff must have 40% of its costs of the hearing below.

Conclusion 94For the reasons given, the money order must comprise the following figures, plus the interest claimed: Description Credit Debit Balance Security Deposit 26,595.00 Contribution to outgoings 28,024.59 Rent 8223.14 Water Rates 1,188.42 Council Rates 5,160.66 Land Tax 1,918.31 Insurance 7,268.55 Property Management Fees 9,814.61 Fire Hydrants etc 85.80 Repainting Nil Floor Cleaning Nil TOTAL $54,619.59 S33,659.49 $20,960.10

Costs of the appeal 95The usual order is that costs should follow the event. The defendant argued that in the circumstances, the costs order should reflect the parties' respective success on appeal, on the various matters in issue. 96The defendant succeeded on its cross-appeal and the plaintiff on the appeal. The defendant was, however, only given leave to cross-appeal at the hearing, having failed on the case it sought to advance by way of notice of contention. In the result the plaintiff should have its costs of the appeal, including the costs of successfully resisting the notice of contention, but the defendant must have its costs of the hearing of the cross-appeal.

Orders 97For the reasons given, I order:

The defendant is to pay the plaintiff the sum of $ 20,960.10 , plus the interest claimed from 1 November 2009 and 40% of its costs of the hearing below, as agreed or assessed
The defendant is to pay the plaintiff's costs of the appeal including in relation to the defendant's notice of contention. The plaintiff is to bear the defendant's costs of the hearing of the cross-appeal.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 August 2011

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