The Plaintiff's claim is for $59,610.12. In turn, the Defendant, by cross-claim, seeks approximately $110,000. The background to and a summary of the respective claims is as follows.
On 12 November 2021, the Plaintiff, trading as Safe Removalists ("Safe Removalists") entered a lease for premises at Arndell Park New South Wales with the Defendant ("MVI") for a term of three years commencing 8 November 2021 ('the Lease"). Pursuant to Clause 26.01 of the Lease, on 27 October 2021, a bank guarantee was procured by Safe Removalists for the benefit of MVI. That bank guarantee was replaced by a second bank guarantee on 19 December 2022, in the sum of $59,610.12.
Clause 26.02 of the Lease is in the following terms:
"If the Tenant fails to perform or observe any of its obligations under this Lease the Landlord may without notice to the Tenant make demand on the bank guarantee for such amount necessary (or where the amount is not known for the amount reasonably estimated by the Landlord as necessary) to compensate the Landlord for any loss, damage, costs or expenses incurred or likely to be incurred as a result of the non-performance or non-observance by the Tenant of its obligations under the Lease. Any payment pursuant to the bank guarantee will not waive the non-performance or non-observance by the Tenant or prejudice any other right of the Landlord arising from such non-observance or non-performance."
By May 2023, the parties' relationship had deteriorated. It was agreed between them that the Lease would be surrendered on terms recorded in a Deed of Surrender and Release, dated 11 May 2023 ("the Settlement Deed"). It was an express term of the Settlement Deed that the Lease would terminate on 9 June 2023.
Clause 2.4 of the Settlement Deed provided that [my emphasis]:
1. "On or before the surrendered date [Safe Removalists] must make good the premises in accordance with the lease; and
2. Subject to [Safe Removalists] making good the premises in accordance with the Lease, [MVI] would release the bank guarantee in accordance with the Lease (see Clause 2.4(a) and (d))."
On 9 June 2023, Safe Removalists vacated the premises.
On 15 June 2023, MVI called on the bank guarantee for the full amount of $59,610.21 and that sum was paid to MVI by the bank. The asserted basis of MVI's entitlement to that sum was what it alleged to be a failure by Safe Removalists to make good the premises in accordance with the Lease, causing MVI "loss, damages, costs, or expenses", thus triggering its right to call on the bank guarantee created by Clause 26.02.
[2]
The claim
The fundamental issue between the parties is whether Safe Removalists performed its make good obligations in accordance with the Lease.
Safe Removalists seeks various orders, including the delivery up or cancellation of the bank guarantee, damages for conversion, and repayment of monies as unjust enrichment and damages for breach of contract.
It seems to me that, as the essential claim by Safe Removalists is that it had complied with its make good obligations prior to 15 June 2023 and consequently, as at that date, no money was due by it to MVI pursuant to the Lease or the Settlement Deed, that the calling on the bank guarantee by MVI in those circumstances would be a breach of an implied term of the Lease that the bank guarantee only be called upon in circumstances where there was at least a reasonable basis to believe that monies were due, or likely to be due. Or perhaps, alternatively, an implied term that any monies paid pursuant to a call on the bank guarantee would be subject to an ultimate determination of the state of accounts between the parties after the event. If it be demonstrated that some or all of the monies paid under the bank guarantee were not payable by Safe Removalists to MVI, such monies can be recovered either as damages for breach of an implied term of the Lease, or perhaps just on an accounting between them.
What that means is that whatever the precise legal route one chooses, if Safe Removalists makes good the factual premise of that claim, it is entitled to be reimbursed the money paid under the bank guarantee. There is no point in the bank guarantee being returned as it is spent. The claim for conversion would be a claim about the piece of paper only. It also has no utility. Nor is there any room for a restitution claim because the situation is covered by an implied term of the Lease.
[3]
The issues for determination
The fundamental issue, which perhaps masks some complexity in the resolution of the case, is the question of whether Safe Removalists performed its obligations to make good. To answer this question it is necessary to identify the content of the make good obligation, to find the facts, and then test those facts against the contractual requirement.
The answer to that question will not necessarily be yes or no. MVI relies on a litany of alleged failures. If the answer to that question is 'no', the next question is to what extent and what was the quantum of any costs incurred or damages suffered by MVI as a consequence of that failure.
[4]
The claim
Safe Removalist's claim can be determined by answering the following questions:
1. As a matter of construction of the Lease, what is the precise content the make good obligation created?
2. As at 15 June 2023, had Safe Removalists complied with its make good obligations?
3. If the answer to that question is no, to what extent had it not complied?
4. What was the actual or reasonable costs to MVI as a consequence of that non-performance?
[5]
The Cross-Claim
The cross-claim is against both Safe Removalists for breach of the Lease and Mr Gorb as guarantor.
Although, early on in the litigation, the position of MVI was that the cost of rectifying the alleged failure by Safe Removalists to make good was in an amount almost co-extensive with the quantum of the bank guarantee, it now says and claims by way of cross-claim that, in fact, the total cost as at April 2024 was approximately $110,300 (after deduction of the money it received pursuant to the bank guarantee). Thus, it claims by way of damages for breach of the Lease the difference between what it says it is entitled to by way of damages and the amount paid pursuant to the bank guarantee.
To this Safe Removalists responds by contending, as a matter of fact, that none of those claimed damages are a consequence of any conduct of it and/or that the quantum of any loss occasioned has not been proved. In this regard, in stark contrast to MVI's answer to Safe Removalist's claim, where all claimed items have been the subject of work done, invoiced, and paid for, none of the matters the subject of the cross-claim have been rectified, let alone paid for. Safe Removalists also prays in aid s 133A of the Conveyancing Act 1919 (NSW) ("Conveyancing Act"), which effectively caps the amount of damages a party is entitled to for breach of a covenant to make good premises at the termination of a lease, so as not to exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement as aforesaid.
The parties are at issue as to who bears the onus of proving such reduced value. Safe Removal's case is that the onus is on MVI, because it is bringing the claim to prove that that cap does not apply, and as there is no evidence as to any reduced value of the reversion, the cross claim must fail. On the other hand, MVI, whilst accepting there is no evidence as to the reduction in value of the reversion, contends that the onus of proving that value rests on Safe Removalists, and therefore it is entitled to the damages it seeks without any reduction.
[6]
The proper construction of the Settlement Deed and Lease
Before turning to the factual allegations made to the parties, it is necessary to identify and determine the proper construction of the make good obligations created by the Lease and/or the Settlement Deed.
Clause 2.4 of the Settlement Deed relevantly provides that:
"(a) On or before the Surrender Date, the Tenant must:
(i) Make Good the Premises in accordance with the Lease;
(ii) remove the Tenant's Property from the Premises including all personal property, stock and signage;
(iii) make good any damage caused by the Tenant removing the Tenant's Property from the Premises; and
(iv) leave the Premises in a clean and tidy condition.
…
(d) Subject to the Tenant's compliance with clause 2.4(a) of this Deed, the Landlord will release the Bank Guarantee, to the Tenant, in accordance with the Lease."
The terms "Make Good" and "Make Good the Premises" are not defined in the Settlement Deed. However, the Settlement Deed must be read and understood in the context of the Lease. The term "Make Good Obligation" is defined in the Lease to mean "the Tenant's make good obligation under Clauses 1.27, 11.03, and 22.01." It is obvious that the reference to "Make Good the Premises" in Clause 2.4(a) is a reference to "Safe Removal's compliance with its Make Good Obligation".
Clause 1.27 of the Lease is in the following terms:
"The Tenant's obligation to make good the premises is referable to the condition of the premises on commencement of the lease. Nothing in this Lease shall require the Tenant to carry out structural improvements or repairs to the premises (unless to repair damaged caused by the Tenant)."
Clause 11.03 of the Lease provided:
"The Tenant shall prior to the end of the term or sooner determination of the Lease or on vacating the premises or the determination of any holding over or monthly tenancy arising after this Lease and prior to any transfer and assignment and when reasonably required by the Landlord redecorate the demised premises in a proper and tradesmanlike manner throughout inside in the same colour and finish as at the commencement date of the Lease…."
Clause 22.01 of the Lease provided:
"The Tenant shall upon termination of the Lease yield up to the demised premises in the order and condition they were in prior to the Commencing Date…"
[7]
The proper construction of the Make Good Obligation
It will immediately be observed that, somewhat unusually in this type of obligation, there is no "subject to fair wear and tear" exception to the obligation.
In terms, the obligation is to make good the premises by reference to the condition of the premises at the commencement of the Lease, albeit there is no obligation to carry out structural improvements or repairs to the premises, unless such damage is caused by the tenant (Clause 1.27). There is a separate and overlapping obligation to redecorate the demised premises in a proper and tradesman like manner in the same colour and finish as at the commencement date of the Lease (Clause 11.03), and critically, an obligation to yield up the premises in the order and condition they were in prior to the commencing date (Clause 22.01).
There is a large amount of overlap between the three provisions that deal with the tenant's "make good" and redecoration obligations. MVI submits that each obligation ought be given its full force and effect, even if the consequence of that is it renders parts of other very similar obligations otiose. For example, MVI contends that the obligation created under Clause 11.03, to replace the carpet on vacation of the premises, which is in the same terms as Clause 22.01, overrides the general make good obligation contained in Clause 1.27 because the latter provisions are specific to carpet, whereas the former is in general terms.
That is a fair point, however, the ultimate question must be resolved by reading the entire Lease, including all of the various obligations that arise on termination of the Lease, and seek to glean, from those obligations and the known surrounding circumstances, the parties' mutual intention. Where there is tension between various provisions covering the same circumstance, I should strive to try and construe the various provisions harmoniously.
There is a question as to whether the make good obligation was created by the Settlement Deed or the Lease. For reasons I will explain, in my opinion, the Settlement Deed does no more than confirm the ongoing obligation on the tenant to make good as at termination, the obligation that was created by the Lease itself. I do not accept the submission by MVI to the effect that the make good obligation is not an obligation created by the Lease but is a new and different obligation created by the Settlement Deed. Although, I should say that I do not think this matters because of what I consider to be the width of the operation of s 133A.
[8]
The proper construction of s 133A
The asserted relevance of the argument concerning whether the make good obligation arises under the Lease or the Settlement Deed is that, if the covenant is created by the Settlement Deed and not the Lease, MVI contends that s 133A of the Conveyancing Act does not apply. It is submitted on behalf of MVI, that the effect of the Settlement Deed is that it brought to an end the obligations of the tenant to make good under the Lease and created obligations in the same terms again. The argument then goes that s 133A applies only to covenants or promises contained in leases or other instruments that actually create an interest in land. This submission is based largely on the use of the word "covenant" in s 133A. There does not appear to be any authority on this point. I will decide it by reference to principles of statutory construction, by reference to the text, context, and purpose of the provision. As a matter of construction, for reasons I will shortly explain, I do not think the submission is correct. Section 133A is not limited to obligations created by Leases, it is drafted in expansive language and relates to any "covenant or agreement" "no matter how created". If it be right that the Settlement Deed operated so as to bring to an end the make good obligation contract in the Lease and create a new obligation in the same terms, s 133A would, in my judgement, apply to the new obligation.
Returning then to the question of the source of the make good obligation, in my opinion, the Settlement Deed does not bring to an end the obligations contained the make good obligations in the Lease. Rather, it makes it a condition of the operation of some provisions of the Settlement Deed that those provisions are complied with. It should not be overlooked that the actual releases, and indeed the surrender of the premises, in terms under the Settlement Deed was only intended to take place in the event that the make good provisions were complied with. It seems to me self-evident that if they were not complied with, then the obligations created by the Lease would subsist. Indeed, under the Settlement Deed it is only MVI that releases Safe Removalists from its obligation under the Lease, and it only does that upon Safe Removalists complying with, amongst other things, its make good obligations. To this, MVI responds by saying it may well be that the obligations under the Lease continue, but those same obligations are also created by the Settlement Deed and that it is only under the Settlement Deed that it is suing, thus outflanking the operation of s 133A. I do not think that outcome is consistent with the obvious purpose of the legislation and would allow the operation of the section to be sidestepped easily by the inclusion of make good obligations in agreements separate and distinct from leases. That would be a highly artificial and unexpected outcome which does not fit with the words of the statute itself, and would be contrary to the obvious purpose of the provision.
For those reasons, I consider s 133A is applicable regardless of whether its source is the Lease or the Settlement Deed.
[9]
The proper construction of the make good provision
Turning then to the make good obligation itself, as I have sought to emphasise, on a literal reading it requires the tenant to deliver up the premises at the conclusion of any Lease, no matter how long, in precisely the same condition the premises were in at the commencement of the Lease.
As this is a commercial contract, it is necessary for me to seek to attribute to the parties their mutual intention by reference to the words they used in context, but also so as to seek, if possible, (unless the words compel the contrary) a sensible and reasonable commercial result. See for example Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [15]; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290; and Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2013] QCA 183 at [37].
In particular, in relation to make good obligations, the obligation must be construed in the context of the facts and circumstances of the case, including the other terms of the Lease and the premises: Holus Bolus Pty Ltd v Wicko Pty Ltd [2012] NSWSC 497 at [32]-[33].
The relevant context and circumstances, it seems to me, would include the following:
1. the Premises forms part of a strata complex comprising 2/SP64614, there are three lots in total within the complex of which the Premises forms part;
2. MVI Industries as trustee for the Iunius Family Trust owns each of the three strata lots in the Arndell Park complex;
3. the Premises comprise an industrial warehouse with adjacent office space;
4. the Premises is not a new building, it was at least 10 years old at the commencement of the Lease;
5. Safe Removalists occupied the Premises during the period November 2021 to June 2022 - a period of 19 months;
6. the Lease exempts Safe Removalists from the obligation to undertake any structural repairs of the Premises;
7. The redecorating provision (Clause 11.03) is cast in terms of "reasonably required" and to the same colour and finish.
8. the Lease provides that the Tenant's obligation to make good the premises is referable to the condition of the premises on commencement of the lease (cl 1.27) as set out in the initial inspection report.
On behalf of MVI, the submission is that, even though the outcome might appear commercially unlikely and unfortunate for Safe Removalists, the words in the various provisions I have identified ought be given their full literal meaning. For example, the submission is that the carpet would need to be replaced on vacating the premises, even if it was not reasonable to do so because it had suffered no wear and tear at all. That is the result if the literal words are applied, but I do not consider it was the parties' intention.
In my judgement, having regard to the purpose of the Lease, its commercial setting, and notwithstanding the literal words used, it was not the parties' intention that the premises be returned to MVI in precisely the same condition as they were in at the time the Lease commenced. This is because the premises, which were already 10 years old, would have been reasonably expected by the parties, to deteriorate over the term of a Lease (including any extended terms). At some point it would simply not be possible, without potentially rebuilding the entire premises, for a tenant to comply with the provisions literally. Almost every working part of the premises would suffer some minuscule wear and tear just by being used. The Parties did not intend every door, window, switch, tap, plug, etc. to be replaced simply because they had been used. That is, to my mind, neither a sensible nor reasonable construction. Rather, I consider the obligation should be construed so as to create an obligation to take such reasonable steps as are reasonably practicable to return the premises to the condition they were in at the commencement of the Lease. In determining whether this obligation has been complied with, a degree of common sense needs to be deployed.
However, the absence of a fair wear and tear "exception" must be given full effect. In other words, damage (understood as something more than use) to the premises of an expected type, caused by the fair and reasonable use of the premises by a tenant, will be at the cost of the tenant.
[10]
Was that term complied with?
There is a need to compare and contrast the condition of the premises at the commencement of the Lease with the condition of the premises as at termination (or perhaps at the date the bank guarantee was called upon). In doing so, the parties intended some common sense to be applied. It is not a counsel of perfection.
In this regard, Safe Removalists relies on two "condition reports", one created at the commencement of the Lease ("the initial inspection report"), dated 8 November 2021, and the other ("the outgoing inspection report") created at its conclusion on 10 June 2023.
They were both the product of Mr Iunius' observations and are supported by a very large number of photographs taken by Mr Iunius or others involved in the management of the property at the 2 points in time.
It is necessary to work through the various alleged shortcomings on a case-by-case basis, but I should say at the outset, that I heard from both Mr Iunius and Mr Gorb of Safe Removalists. At a high level, Mr Gorb gave evidence that he was comfortably satisfied at the time the premises were vacated and remains so satisfied that the make good obligation as he understood it to be under the Lease had been complied with. Conversely, Mr Iunius takes the contrary view and stands by the claim because, in his view, the premises were not handed back in a condition that complied with the obligation under the Lease.
I found both witnesses to be honest and doing their best, notwithstanding the unrealistic level of detail they were seeking to recall and that they are both invested in the outcome. I have no doubt that they both now believe in their respective positions (at least in relation to compliance with the overall obligation). However, their evidence - and this applies to both witnesses - was couched in extremely vague and unpersuasive terms. This was inevitable and is a consequence of the types of allegations being made. Most of the matters are minor, some perhaps trivial. I think the photographic evidence is the most reliable source of primary material upon which for me to make a decision. Moreover, it is not at all clear to me that either witness had a proper understanding of the proper construction of the Lease, and I take that into account in discounting the weight I give to what is effectively opinion evidence of both.
There is also quite a lot of confusion and debate as to when some photographs attached to the outgoing inspection report were taken. Whilst it is not entirely clear, I generally accept Mr Iunius' evidence that the photographs that are attached to his outgoing inspection report were taken after Safe Removalists had vacated. I reject the submissions made by Safe Removalists to the effect that Mr Iunius in fact took those photos prior to the vacation of the premises by Safe Removalists at a time before the make good obligations had been completed.
The best evidence of the condition of the premises at the commencement of the Lease, and as at the date Safe Removalists vacated, is the photographs. However, even the photographs have real limitations. The photographs are difficult to reconcile because those taken at the commencement of the Lease are non-specific and are usually of entire rooms or areas of the premises, whilst the photographs taken after vacation are focused in on alleged deficiencies in the make good. It is very difficult to tell from the photographs taken originally whether some of the deficiencies, which can be seen in the latter photographs, existed at the earlier time because, obviously enough, those earlier photographs do not seek to emphasise deficiencies.
[11]
The alleged failures to make good
Fundamentally, the claim by Safe Removalists is that it was not indebted to MVI in the sum of $59,610.12 or at all as at the date it vacated because it had complied with its make good obligation, and accordingly, MVI is obliged to reimburse it for that money.
Mr Gorb gave evidence on behalf of Safe Removalists to the effect that, as far as he was concerned, at the time of vacation, the premises were in the same condition as they were at the commencement of the Lease. That opinion evidence depends on Mr Gorb's understanding of the obligations under the Lease itself. I was left with the impression that Mr Gorb's understanding of the obligations was perhaps a little more liberal than I have found it to be, and therefore discount his direct evidence which, after all, is his opinion of whether what was done complied with the Lease. The same can be said in relation to Mr Iunius' opinion evidence. I was left with a very strong impression that he was operating under the assumption that the Lease ought be very strictly given its literal meaning and therefore anything in the premises that was not in precisely the same condition as it was at the time of commencement had to be replaced at the cost of Safe Removalists. The best example of this is seen in the claim for electrical works to which I will shortly come. It seems that MVI took the view that each and every electrical power point had to be replaced. There is no suggestion that they were in a damaged state, although, it can be inferred that, because plugs were being put into the sockets over the period of the Lease, they would in some minuscule way have been worn or deteriorated. I do not think failure to replace all the plugs was a breach of the Lease and I think this overzealous approach by Mr Iunius (which was entirely consistent with the way the case was run before me) means that I cannot give much weight to his evidence.
The final thing that can be said about the evidence is, because so many of the claims are for very small amounts of money, the evidence is, as would be expected, cast from both sides in general terms which makes it difficult for me to come to a conclusion. Nonetheless, doing the best that I can, I will now turn to and deal with each alleged item.
Both counsel have provided useful schedules of identifying where the evidence in relation to each item can be found which were marked for identification and are with the papers.
It is by reference to those documents that I have reviewed the competing evidence and contentions.
[12]
Air-conditioning
The allegation is that one of the air-conditioning units was leaking and its "louvre" was not operational. Mr Gorb gave evidence that, as far as he was aware, the air-conditioning was not in anything other than good working order. However, there is a photograph, which I accept was taken on the 10th of June, after vacation, which shows a "dribble" of liquid from the air-conditioning unit running down the wall and Mr Iunius gave direct evidence that the louvre was not working.
Contemporaneously, MVI retained an air-conditioning repair person to fix the air-conditioning, who did work shortly thereafter and invoiced MVI in an amount of $1000.
I am satisfied that the make good obligation was not complied with by Safe Removalists in respect of this air-conditioning unit, and that the costs to MVI in undertaking the work itself should be assessed at $1000.
[13]
Alarm
The evidence of Mr Iunius is that the alarm had been "overridden" and that various wires were cut and sensors not working. Mr Gorb denied this and said that he was not aware of any problem with the alarm system. Again, MVI went to the trouble of having a tradesperson attend and fix the alarm who invoiced an amount of $1800.
Notwithstanding that there is no direct evidence one way or the other as to whether the alarm system worked at the time the Lease commenced, I infer it was working because it is not mentioned in the initial inspection report. I am satisfied that the make good obligation of Safe Removalists was not complied with in relation to the alarm and that the proper measure of damages at a reasonable cost to MVI in doing that work itself was $1800.
[14]
Electrical
Apart from management fees, the claim for electrical work is the largest single claim. It is quantified at $21,656.80 and there was an invoice in that amount issued on 14 July 2023 to MVI.
The evidence in support of this aspect of the claim was, in my opinion, quite unsatisfactory. It consists of no more than a series of comments in the outgoing inspection report, an invoice from the electrician which itemises electrical work at the highest possible level in a way that makes it impossible to really understand the work that was carried out, let alone link it to a failure by Safe Removalists to make good. The affidavit of Mr Iunius does no more than reproduce verbatim the description in that invoice.
As I have already alluded to, I am not satisfied that all of the work done by the electrician was as a consequence of Safe Removalists' failure to make good. I have already mentioned the replacement of power points and there is also a claim for the supply and installation of weatherproof power points - there is no evidence that weatherproof power points were ever in the premises beforehand. There is a claim for replacement of LED lights, apparently because they were seen to be "yellowed" and other matters. I do not think the cost of those items can be sheeted home to Safe Removalists. On the other hand, I am satisfied that the replacement and installation of a three-phase outlet which was not working was as a consequence of the failure by Safe Removalists to make good, and I also think on balance it is likely that there were some electrical cables left in the premises by Safe Removalists.
It is impossible for me to be definitive as to how much of the electrical cost is attributable to any failure by Safe Removalists. Doing the best I can, I allow an amount of $12,000 for the failure of Safe Removalists to rectify some of the electrical problems identified.
[15]
Locksmith
The amount in issue here is $1334. The issue concerns the failure of Safe Removalists to deliver up four keys to the premises, rather than the three keys it did deliver up. I am satisfied that there were four keys originally, but that at the time of vacation one of those keys had been lost. However, I do not think it was reasonable for MVI to replace the entire lock as a consequence and do not allow any amount for this.
[16]
Plumbing
The claim is for discoloured toilet seats, a non-working tap in the ladies bathroom, and other such items. There was an invoice issued for $726. On balance, I am prepared to allow this item.
[17]
Roller door
The total claim is $2,922.81. It includes a component for a general service check. That is not something Safe Removalists is liable to pay.
There are two other components to this aspect of the claim. The first is an allegation that the electric motor that operated the roller door was not in working order as at the date of vacation. Mr Gorb denies this. Mr Iunius says it did not work. In that regard, I accept Mr Gorb's evidence. It is possible that the motor failed shortly after Safe Removalists vacated, thus requiring the work to be done.
The second aspect of this is that the roller door had been hit by a vehicle and was damaged. There is no issue that this damage existed and had not been fixed by Safe Removalists. I think MVI is entitled to some compensation for that failure. Again, it is impossible to work out with precision how much because the invoice is not broken down. I allow an amount of $1500 for fixing the damage to the roller door.
[18]
Cleaning
The amount claimed is $946, which was invoiced by a professional cleaning company. Both witnesses were emphatic that the premises were appropriately cleaned (Mr Gorb), or not appropriately claimed at least in relation to some windows and the like (Mr Iunius).
On balance I think the premises were adequately cleaned by Safe Removalists, and I do not allow any amount for this claim.
[19]
Management fees
This is the other significant item.
There is a claim by Luce Property Group for property management fees in the sum of $37,274.83. This amount has been invoiced and paid by MVI.
On 8 December 2020, MVI appointed Luce Property Group as managing agent of the property. Clauses 8 and 9 of the agreement between them is in the following terms:
Services, Charges and Expenses
8. The Agent shall perform the following services and be entitled to the following fees (GST inclusive):
It is to be observed that Safe Removalists was not a party to this agreement.
Luce Property Group is a company owned, controlled, and operated by Mr Iunius.
MVI is owned and controlled by Mr Iunius' parents. Thus the relationship is not an arm's length business relationship. For that reason, I do not think much, if any, weight should be given to the fact that the invoice was paid.
MVI's submission is that it is entitled to all costs relating to a manager supervising the make good obligations, but also in being involved in managing this litigation, to be recovered. Let that be accepted for the moment. This is an example of where I think a reasonableness component must be implied into the contract. It cannot be that no matter how unreasonably incurred, such fees are automatically charged to Safe Removalists. That was not the intention of the parties.
The difficulty here is that Mr Iunius, although there has been tendered many invoices to MVI by his company, has provided absolutely no particulars at any level of detail at all to justify the amount.
Whilst I accept that some amount of management fees would have been chargeable, in circumstances where it was entirely open to MVI to call much better and detailed evidence to justify the claim, I am not satisfied that it has been proved. However, accepting that some work has been necessitated, and doing the best I can, I consider that an amount of $10,000 can, by inference, be justified.
[20]
Invoiced items
The above is the totality of the alleged failures to make good where work was done and invoiced by contractors to rectify the problem and paid. I consider that, of those claims, an amount of $27,026 has been made good.
If one was to stop there, it would follow that, rather than having an entitlement to $56,610.12, MVI would have been entitled to draw down on the bank guarantee in an amount of $27,026.
Prima facie, Safe Removalists is entitled to the difference, being $29,584.12.
[21]
Non-invoiced items
There are then about 13 alleged examples of failures to make good, which MVI has not had attended to, and therefore cannot prove a cost by reference to a paid invoice. Rather, MVI relies on its description of the alleged deficiencies and a report by Mr Tucker to the effect as to how much he thinks it would cost to rectify those matters. The items include some alleged damage to doors, walls and skirting boards, the common driveway, a parking area, some windows and frames, the ceiling, some further lighting, stairwell, cupboards, fencing, floors, and then some contract administration costs and consultants fees on top of that.
I am not satisfied as to any of those items. The very fact that MVI has not gone to the trouble of rectifying them very strongly points in the direction that the complaints are overzealous and unreasonable, and that no loss has been sustained because the work does not need to be done. Moreover, for reasons I will shortly explain, I think that s 133A means that the items are not recoverable in any event. They came much later in the piece as this litigation was unfolding. They largely relate to the cross-claim propounded by MVI, which involves a large amount of double counting, in that it includes the amounts charged by drawing down the bank guarantee.
The subtotal of the non-invoiced amounts of $67,627.44, about which I am not satisfied.
[22]
MVI's claim
Leaving the cross-claim to one side, I am satisfied that, at the time the bank guarantee was drawn down, MVI had a proper claim against Safe Removalists for failure to comply with the make good obligations, which claim amounted to $27,026.
Accordingly, Safe Removalists is entitled to a judgment for the return of the difference, being $29,584.12.
[23]
The cross-claim
None of the work, the subject of the cross-claim, is the subject of any invoice, let alone a paid invoice. This is because no rectification work has been carried out by MVI.
Safe Removalists relies upon the provision of s 133A of the Conveyancing Act.
In this case, other than the invoiced rectification items which I have identified, there is no evidence as to any diminution in the value of the demised premises.
Both counsel submitted that lack of evidence was to their advantage because they each submitted that the onus of proving the value of any diminution fell on the other.
In my opinion, the onus of demonstrating what, if any, was the diminution of the value of the demised premises, rests on MVI. This is consistent with a series of decisions and textbooks including Espir v Basil Street Hotel Ltd [1936] 3 All ER 91; James v Hutton [1950] 1 KB 9; [1949] 2 All ER 243; William Duncan's Commercial Leases in Australia (5th ed, 2008, LawBook Co) at 7.160; and Peter Young's Annotated Conveyancing and Real Property Legislation New South Wales (3rd ed, 2003, Butterworths) at 32740.1.
All of those authorities and texts were referred to in the decision of Ward CJ in Eq in Midcoast Petroleum Pty Ltd v Keldros Pty Ltd [2019] NSWSC 970 at [277]-[281].
At [284], her Honour appears to have accepted the veracity of submissions to the effect that those authorities and texts represented the law in New South Wales. That law is, I think, best encapsulated in the following extract from the Butterworths Practice:
"The effect of this section is to provide an upper limit to the amount of damages which may be received by a landlord for breach of a covenant to keep or put premises in repair during the currency of the lease or to leave or put premises in repair at its termination. The section does not provide an altered method for assessing the damages: Hanson v Newman [1934] Ch 298, nor does it apply to other covenants, such as a covenant to restore a building to its original condition at the determination of the lease: James v Hutton and J Cook & Sons Ltd [1950] 1 KB 9; [1949] 2 All ER 243. The purpose of the section is to prevent landlords recovering damages or forcing payments from tenants where strictly speaking, a tenant may be under an obligation to repair an uneconomic building that will be pulled down in any event, though it does not only operate in such an extreme class of case. If the landlord actually does have repairs carried out, that is strong evidence that the cost of the works is the proper amount of damages: Jones v Herxheimer [1950] 2 KB 106; [1950] 1 All ER 463; Smiley v Townshend [1950] 2 KB 311; Haviland v Long [1952] 2 QB 80; [1952] 1 All ER 463. Otherwise it would seem that the landlord should give evidence of the actual diminution in value of the premises if he is to succeed in more than nominal damages: Espir v Basil Street Hotel [1936] 3 All ER 91; James v Hutton and J Cook & Sons Ltd [1950] 1 KB 9; [1949] 2 All ER 243. As an illustration of how the section operates, in Salisbury v Gilmore [1942] 2 KB 38, there was a lease for 14 years expiring in 1939. In 1936 the tenant requested a renewal of the lease but was informed that the landlord intended to pull the premises down at the expiration of the lease. In 1939 the tenant vacated the premises and left them out of repair, but the landlord then changed its mind. The court held that the tenant was entitled to rely on this section to limit the landlord's damages."
I take the law to be as follows:
1. The onus of demonstrating the actual diminution of the value of the property is on the landlord.
2. That onus can, in appropriate cases, be satisfied by proof of actual rectification work invoiced and paid for.
3. Absent such evidence, if there is no evidence of any diminution in the value of the premises, a landlord's claim for damages will fail.
As the only aspects of MVI's claim that are supported by the works having being actually carried out and paid for by MVI are the items which I have already identified, and for which MVI has already been compensated by the drawing down of the bank guarantee, it follows from the lack of any evidence as to the diminution in the value of the premises that the cross-claim must be dismissed because of the operation of s 133A of the Conveyancing Act.
Accordingly, even if I was satisfied that some amount had been proved as to the cost of rectifying any of the items the subject of the cross-claim over and above the ones I have identified, the cross-claim would fail in any event because of the operation of s 133A.
[24]
Conclusion
I am satisfied that Safe Removalists is entitled to reimbursement of $29,584.12, being the amount that MVI was not entitled to be paid at the time the bank guarantee was drawn.
The cross-claim ought be dismissed.
I have calculated pre-judgment interest, pursuant to s 100 of the Civil Procedure Act 2005 (NSW) from 16 June 2023 until 27 September 2024 at $3,123.41.
The orders I propose are:
1. Judgment for the Plaintiff in the sum of $32,671.53, inclusive of interest at the Court rates from 16 June 2023 until the date of entry of judgment.
2. Order the cross-claim be dismissed.
3. I will hear the parties as to interest and an appropriate costs order.
[25]
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Decision last updated: 27 September 2024