Mitigation of loss
27 The principal contest between the parties relates to whether, as the defendants contended, the plaintiff failed to mitigate his loss during the period from 1 December 1998 to 31 October 2001.
28 McGregor on Damages (15th ed (1988) paras 275ff) identifies three rules with respect to mitigation of loss:
(a) the plaintiff must take all reasonable steps to mitigate the loss to him consequent upon the defendant's wrong ( British Westinghouse Co v Underground Railway [1912] AC 673, 689 per Viscount Haldane LC;
(b) where the plaintiff takes reasonable steps to mitigate the loss to him, he can recover for costs incurred in so doing (there appears to be no claim for recovery in this category in the present case); and
(c) where the plaintiff takes steps to mitigate the loss to him, and the steps are successful, the defendant is entitled to the benefit accruing from the plaintiff's actions.
29 Where a tenant fails to pay rent in breach of the lease, and the landlord fails to mitigate his loss by re-letting the premises, damages for loss of rent should be assessed on the basis that the landlord would have been able, if he acted reasonably, to re-let the premises at a realistic monthly rental after a reasonable period for re-letting had expired. That is, damages should be the difference between the rent payable under lease, and the realistic rental that the landlord would have received had he mitigated his loss: Marshall v Mackintosh (1898) 78 LT 750. .
30 What is the standard which the plaintiff must observe when acting to mitigate his loss? In Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313, at paragraph 187, the Court of Appeal of New South Wales said:
"A plaintiff who acts unreasonably in failing to minimise his loss from the defendant's breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which (TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130). Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did (Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452; Pilkington v Wood [1953] Ch 770; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5)."
31 Where the assessment of damages relates to a commercial operation, the question relates to what the plaintiff "would do in the ordinary course of business": Sacher Investments at 9; Wenkart v Pitman (1998) 46 NSWLR 502. At the hearing on assessment of damages there was contention between the parties as to whether evidence of the plaintiff's financial circumstances could be taken into account in determining whether the plaintiff had sufficiently mitigated his loss. Evidence was adduced that the plaintiff had a finance facility which had been negotiated on the assumption that rental would be received from the defendants, and accordingly he was in very difficult financial circumstances after the defendants failed to renew their lease, and it was necessary for him to dispose of several properties to repay the financier. He said that he could not have continued to pay for newspaper advertisements beyond mid-1999, because of his financial circumstances.
32 It is unnecessary for me to decide whether the plaintiff's financial circumstances are relevant to the question of mitigation, since (for reasons I shall give) my view is that the plaintiff in fact did enough to mitigate his loss regardless of his financial circumstances. In my opinion, however, it is relevant to take into account the plaintiff's financial circumstances in deciding whether his loss has been mitigated, at least to the extent that the defendants' breach has produced the plaintiff's financial difficulty, in foreseeable circumstances. On the evidence before me, the defendants' failure to pay rent in breach of contract, in difficult market circumstances, caused the plaintiff's financial difficulty, and financial difficulty of the kind suffered by the plaintiff was reasonably foreseeable.
Evidence as to mitigation
33 The plaintiff engaged Dedrick Real Estate in 1997 to act as his agents with respect to the premises. Mr Furzer was the person with whom the plaintiff principally dealt at Dedrick. He had been involved in real estate for 10 years at the time he gave his evidence, and had done a great deal of the commercial leasing in the Bateman's Bay area, managing around 550 properties.
34 Mr Furzer gave evidence that Dedrick advertised the property for lease in the Sydney Morning Herald on 10 occasions in the period from 21 November 1998 to 20 March 1999, and in the Canberra Times on 11 occasions between 13 February 1999 and 8 May 1999. The property was also advertised in the Southern Star, the last advertisement appearing in that newspaper on 22 March 1999.
35 Two inquiries were made, and one inquiry was made for purchase of the premises, and Mr Furzer approached some parties to see if they would be interested in taking a lease. Although his oral evidence was vague on the point, he said the recalled approaching Knott's Pine and Furniture in the Raw, as the premises were thought to be suitable for, and were in fact used by the defendants as, a furniture showroom.
36 Mr Furzer gave further evidence that advertisements were placed in the Sydney Morning Herald on five separate occasions between 3 April 1999 and 15 May 1999, and he continued to advertise the premises in the Southern Star as part of a general display advertisement of properties available through the agency. In May 1999, he stopped lodging paid advertisements for the lease of the premises at the plaintiff's request, although he maintained a photograph of the premises in the window of Dedrick's office. He stopped paid advertisements, he said, "as I had received no responses or inquiry to any of that advertising … and as I became aware of the increasing financial constraints of the plaintiff".
37 In February 1999 he received instructions from the plaintiff to market the premises for sale at $375,000, subsequently reduced to $290,000. No sale was achieved, although the plaintiff was selling other, smaller units in the building. Attempts to sell the premises are relevant to the question of mitigation, although the requirement to mitigate loss does not require a plaintiff landlord to sacrifice the property itself by selling at a low price: McGregor on Damages para 317ff.
38 The plaintiff gave evidence that he had two real estate agents acting for him (as well as a third to whom he had given oral instructions to find a tenant or buyer), and that one of the agents (Dedrick) advertised in the local newspapers. When asked, in cross-examination at the initial hearing, what he could do to make the property more attractive, the plaintiff had little to offer by way of suggestions. He referred to the nature of the premises and the possible type of tenant that would be interested in them. The plaintiff was also asked how many interested parties had inquired as to the premises and he responded that there were two. He personally took Mr Place, who was interested in purchasing the property, for inspection in June 2001.
39 By the time he gave evidence in June 2000, the plaintiff said he was offering the property for $2,000 per month, which he suggested was "a steal". The evidence indicates that the plaintiff eventually, in March 2000, instructed Mr Furzer to agree to reduce the rent to $1,500 per month on the basis of a monthly tenancy.
40 The plaintiff suggested that the generally depressed commercial environment in the South Coast was one of the factors causing the property to remain untenanted. When asked if there was anything more that either he or his agents could do to attract a tenant for the premises, the plaintiff said he thought there could be more advertising.
41 Mr Furzer said in cross-examination that only about 50% of the commercial properties on his books were tenanted. When asked the reason for this low percentage, he said he thought it was the result of lack of people interested in starting businesses, rather than any difficulty over the amount of rent being asked. He drew attention to the specific economic difficulties experienced in Moruya. Mr Furzer gave evidence that he advised his clients to market their properties properly, to advertise them, and if they were unable to find tenants, then to sell them.
42 He said that a specific difficulty in finding a tenant for the subject premises was the large floor size. He said it would be difficult to subdivide the premises for the purposes of leasing, without incurring substantial cost, because there was only one office and toilet facility. He said that the premises could definitely be leased if the right tenant could be found.
43 The plaintiff gave evidence that he placed two signs on the western wall of the premises, one about 1 m square, and the other a smaller sign, advertising the premises for sale or lease. After some time he decided to take one of the signs from the wall and place it at the northwestern corner of the property, supported by star stakes. That sign fell over and lay in the grass for some time. There was some contested evidence as to how long it was there. The plaintiff said that he regularly inspected the premises and when he found that the sign had fallen from its supports, he restored it. It seems likely, however, that for a period of at least some months the sign was not on proper display, although the other sign on the western wall was still there.
44 The plaintiff gave evidence that, after he moved to Wollongong in mid-2000, he inspected the exterior of the premises about every four to six weeks, but before that time when he was living closer, he inspected them more often. He said that he instructed the managing agents to attend to any repairs that needed to be done. Additionally, he engaged a gardener to cut the lawns and keep the gardens tidy, and the gardener was present for that purpose about once every two weeks in the summer months, and about once every month in the winter months. He said the gardener was instructed to keep the external areas tidy.
45 Mrs Newell inspected the exterior of the property on 13 October 2001, as I have said. She took some photographs. They show a rusted exterior downpipe; a pile of a dozen or so pieces of wood, which could well be fencing, on the lawn; some rather overgrown trees behind a retaining wall and some leaf material and a broken branch just in front of the retaining wall, and two trees adjacent to the wall of the building which were a little overgrown. In my opinion none of the photographs shows anything that would discourage a potential tenant who was otherwise interested in taking a lease of the premises. The lack of maintenance, if it can be described as such at all, is relatively minor, and an intending tenant would presumably insist on these matters being addressed or require a reduction in rent to enable him to do so.