Supreme Court New South Wales

• Medium Neutral Citation: B M & J A Holdings Pty Ltd v Clarence Street Developments Pty Ltd [2012] NSWSC 1236
• Hearing dates: 2 October 2012
• Decision date: 15 October 2012
• Jurisdiction: Equity Division
• Before: Associate Justice Macready

Decision

1Amounts recoverable are:

(i)Areas of rent less abatement: $16,877.48

(ii)Damages: $14,475

(iii)Total: $31,352.48

2Parties to be heard on costs and whether orders should be made by Macready AsJ or the matter referred back to Rein J for making of the orders.

• Catchwords: LANDLORD AND TENANT - rent - abatement - mitigation of loss by lessor - damages - set-offs for lessee
• Cases Cited: Derbury Pty Ltd v ACI Australia Limited (NSWSC, 8 August 1991, Giles J, unreported)
• Category: Principal judgment
• Parties: B M & J A Holdings Pty Ltd (Plaintiff); Clarence Street Developments Pty Ltd (Defendant)
• Representation: N Allan (plaintiff); Ziman and Ziman Solicitors (plaintiff); R McCloughlin (defendant, in person)
• File Number(s): 2012 / 67750

Judgment

1 This is a hearing of a cross claim by the defendants in these proceedings. There has already been judgment given on 4 September 2012 in the following terms:

Pursuant to r 13.1 UCPR give judgment for the cross-claimant against the first cross-defendant (the 'parties') on the following terms:

1.In relation to the claim for unpaid rent of 75 - 77 Clarence Street, Port Macquarie, folio identifier 5/SP85897 (the 'premises'), fix liability on the first cross-defendant for rent for the period it was in possession of the premises, the value of that rent to be determined by an associate Judge.

2.Refer to the associate Judge the question of when possession of the premises by the first cross-defendant (be it lawfully or otherwise) ceased.

3. Refer to the associate Judge the question of what damages and/or rent (if any) the cross-claimant is entitled to under the lease between the parties from the time the first cross-defendant left its possession of the premises.

4. Refer to the associate Judge the question of what set-offs the first cross-defendant may be entitled to for the alleged detention of the first cross-defendant's goods.

5. Refer to the associate Judge the question of the amount, if any, of an abatement in rent in relation to which the cross defendant is entitled due to alleged flooding, pursuant to s 84 of the Conveyancing Act 1919.

2 The references which are referred to in the above order are the subject of the hearing before me.

The background to the litigation

3 The defendant company is the owner of an office building in Port Macquarie and the plaintiff is a Company, which took a lease of the second floor of the building. The lease was for five years commencing on 1 December 2011 and terminating on 30 November 2016. The initial rent for the period in respect of which we are concerned was $10,875 per calendar month plus GST making a sum of $11,962.50. The lease contained provisions for abatement in clause 4.03.

4 On moving into the premises the plaintiff company occupied several rooms and another company Shaw Gidley, an accountancy firm, continued on as a sublessee of the majority of the area that had been leased to the plaintiff Company. Apart from one mistaken payment of rent from 16 March 2012 to 1 April 2012 Shaw Gidley paid rent to the sublessor who is the plaintiff Company of $9550 per month.

5 The plaintiff Company made the first payment of rent, which was due on 2 December 2011 and subsequently did not make any further payments. The defendant company, the lessor, purported to terminate the lease on about 11 February 2012. These proceedings were commenced on 29th February 2012 and the plaintiff sought relief to restrain the lessor from taking possession. Although some initial orders were made in due course they were discharged and the substantive proceedings determined. All that a remains is the cross claim by the defendant head lessor against the former lessee in respect of the matters, which are identified above.

When possession of the premises by the first cross-defendant (be it lawfully or otherwise) ceased.

6 There was a changing of the locks and access arrangements by the lessor, which excluded the lessee. Shaw Gidley has remained in possession of that part of the leased area that they formerly occupied before the lessor excluded the lessee. They now pay their rent direct to the lessor. They are on a month-to-month tenancy.

7 In the hearing before me the only evidence given as to when the plaintiff vacated the premises was paragraph 25 of Mr McLoughlin's affidavit of 18 August 2012. In that paragraph he stated that the number of months from the date the plaintiff vacated the premises to the expiry of the lease was 56 months. On the basis of this evidence and noting that the lease was to expire on 30 November 2016 I determine that the vacation date was 31 March 2012.

Liability on the first cross-defendant for rent for the period it was in possession of the premises

8 The only evidence of the value of the rent during the period when the lessee was in occupation is the rent reserved under the lease. The December rent was paid by the plaintiff and accordingly there are three months due for rent at the rate of $11,962. This sum amounts to $35,886. From that should be deducted the sum of $9550 paid by the defendant to the plaintiff leaving an amount of $26,336.

9 The defendant also includes a claim for interest on the late payment of these amounts in a sum of $1793.14. Clause 13.04 of the lease allows this claim and the calculations of interest are set out in attachment "F" to the affidavit of Mr McLoughlin and appear to be correct.

10 Accordingly the amount due is $28,129.14

Damages and/or rent (if any) the cross-claimant is entitled to under the lease between the parties from the time the first cross-defendant left its possession of the premises.

11 The defendant claims a sum of $135,100 under this heading. It is calculated by applying the difference between the rent under the lease less the amount presently being paid by Shaw Gidley for 56 months. The difference is $2412.50 per month.

12 This claim raises the question of mitigation of the loss by the lessor taking steps to release the premises. In Derbury Pty Ltd v ACI Australia Limited (NSWSC, 8 August 1991, Giles J, unreported) Giles J said the following concerning the lessors claim for damages following upon a repudiation of a lease by the lessee:

"Mitigation The plaintiff conceded that it was under a duty to mitigate its loss. That is the traditional expression of the position of the innocent party to a breach of contract, stated (for example) by Viscount Haldane LC in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (1912) AC 673 at 689 "The fundamental basis is ... compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James LJ in Dunkirk Colliery Co v Lever (1878) 9 Ch D 20 at 25, 'The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business.'"

But the duty is not a duty in the sense that a plaintiff which fails to mitigate its loss commits a wrong against the defendant. In Driver v War Service Homes Commissioner (1923) 44 ALT 130 at 134, in a passage approved by Priestley JA in TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 162, Irvine CJ said -

"...this expression, I think, does not mean that he is under any duty in the ordinary sense, towards the party breaking the contract, but that he cannot be said to have really incurred any loss which might have been avoided by his taking such steps as a reasonably prudent man in his position would have taken to avoid further loss to himself: and the best test is, what would such a man do to avoid such a further loss to himself, supposing that, from insolvency of the other party, or from some other reason, he could not get any damages."

The principle is that the plaintiff cannot recover as damages any loss which it would not have suffered had it acted as a reasonable man would have acted following the breach. Although conceptually distinct from the measure of loss, mitigation is one of the elements in measuring the plaintiffs loss: see Radford v De Froberville (1977) 1 WLR 1262 at 1272; Compania Financiera "Soleada" SA v Hamoor Tanker Coro Inc (The Borag) (1981) 1 WLR 274 at 281. Notwithstanding this, many cases say that the onus lies on the defendant to prove that the plaintiff acted unreasonably. In the joint judgment of Kitto, Windeyer and Owen JJ in TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 37 ALJR 289 it was succinctly said (at 292) that it was for the defence to show that the plaintiff had failed to mitigate damages, and other cases are Roper v Johnson (1873) LR 8 CP 167; Criss v Alexander (No 2) (1928) 28 SR 587; Harding v Harding (1928) 29 SR 96; Bagnall v National Tobacco Corp of Australia Ltd (1934) 34 SR 421; Metal Fabrications (Vic) Pty Ltd v Kelcey (1986) VR 507; and Goldburg v Shell Oil Co of Australia Ltd (1980) 95 ALR 711. The ultimate burden of proving its loss lies upon the plaintiff, but the defendant bears the burden of calling evidence establishing that the plaintiff acted unreasonably: see the two limbs of the statement of Yeldham J in Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5 at 9 -

"Although a plaintiff cannot recover for loss consequent upon a defendant's breach of contract, where he could have avoided such loss by taking reasonable steps, nonetheless a defendant who seeks to rely upon a failure to mitigate must show that the plaintiff ought, as a reasonable man, to have taken certain steps for the purpose of doing so.""

13 The issues which seem to arise in respect of this claim to damages included the following:

(1) The possibility that the lessor may sell the premises;

(2) The possibility that the mortgagee may sell the premises;

(3) The failure of the lessor to advertise the premises the sale;

(4) The likelihood of the lessor re-letting the premises in the near future.

I will deal with these in turn.

14 The evidence indicates that there was an auction of part of the property in August and that the mortgagee paid the expenses of the auctioneer. The auction was not successful. Apart from the fact that the lessor fixed the price, there is no other evidence on the likelihood of sale although there is a for sale sign and the lessor is actively seeking a sale.

15 To use the words of Mr McLoughlin, the mortgagee is talking about taking back the property. This effectively means that they are likely to exercise the power of sale which would lead to a termination of the lessor's interest in the property. There is little evidence about what steps the mortgagee proposes to take and when it might take the steps. Mr McLoughlin made it plain in his evidence that the lessor is in a difficult financial situation and he blamed the lessee's actions for that difficulty.

16 There is evidence from Mr Webb of the lessee that he has not seen for lease signs on the premises. He noted that there were no advertisements for leasing the premises in the local newspaper and monitoring of the websites of major commercial leasing real estate agents showed no advertisement in regard to the premises. He has also searched in the website of the leasing agent who leased the premises to him and can find no listing of the premises for lease. According to the lessor, that agent has been appointed to release the premises.

17 On the question of the advertising of the property there appears to be one small sign on the second floor which refers one to the lessor for leasing enquiries. There is an obvious difficulty with releasing the property and that is that there are three separate offices and a boardroom which are available for lease having regard to the occupation of the residue of the original leased area by Shaw Gidley.

18 There was evidence from Mr McLoughlin of attempts to interest a dentist in taking part of the space and also interesting a firm of solicitors to move to the space. Those have not yet come to fruition. However he said the following:

Q. Isn't it the case, Mr McLoughlin, that level 2 of the building has a very good likelihood of being released in the near future?

A. I hope so.

Q. It has a very good likelihood in the next three months?

A. In the next three months, I would certainly hope so.

19 I have already mentioned that Shaw Gidley are in possession on a monthly tenancy. According to the evidence of Mr McLoughlin they may perhaps only stay until next April. Further determination of what is the likely period that a loss will be suffered by the lessor is complicated by the lack of any real evidence addressing the question by the parties. Given that the bank seems to be considering taking steps to sell the premises, the lessor has been in financial difficulties and the hopeful thought that the vacant area might be relet in next three months, it would seem to me that the likelihood is that the lessor will only have an available place to let for a period of six months. Accordingly, I fix the damages at $14,475. The plaintiff lessor also claims damages represented by its solicitor and client legal costs of the earlier part of these proceedings in the sum of $43,883.90. That is not an appropriate claim and costs should be dealt with in the ordinary way on the outcome of the case.

Set-offs the first cross-defendant may be entitled to for the alleged detention of the first cross-defendant's goods.

20 It is clear on the evidence that the following items remained in the premises after vacation by the lessee.

"a.Glass Coffee Table for reception

b.Two Saturn Leather waiting room chairs

c.Additional Hybrex Phone Key Station

d.Sony 55inch 3D Internet Bravia LCD TV

e.Flat Panel TV Wall Mount

f.New Boardroom Table

g.Desk 1800 x 900

h.Desk Return 900 x 600

i.Bookcase 1800 x 900

j.4 Drawer Filing Cabinet

k.2 Charcoal Client Chairs"

21 There is no evidence before me of what might be the hire costs for such items for the period in question. In these circumstances I determine the amount recoverable as nil.

The amount, if any, of an abatement in rent in relation to which the cross defendant is entitled due to alleged flooding, pursuant to s 84 of the Conveyancing Act 1919.

22 Although the implied covenant for abatement applies there is also clause 4.03 of the lease which is in these terms:

"4.03ABATEMENT:

Upon the happening of any damage or destruction by reason of any of the causes referred to in sub-clause 4.01 of this clause the annual rent hereby reserved and the outgoings payable by the Lessee or a fair and just proportion thereof according to the nature and extent of the damage or destruction sustained shall abate and all or any remedies for the recovery of such rent of such proportionate part thereof shall be suspended until either:-

a) the demised premises shall have been rebuilt or reconstructed or made fit for the occupation and use of the Lessee; or

b) the Lease shall be terminated pursuant to the provisions of sub-clause 4.01 of this clause."

23 There is evidence from Mr Webb that damage from storm and flooding affected parts of the leased areas on multiple occasions. The areas affected were the northwestern offices, the conference or boardroom and car parking spaces included within the lease. He gave evidence that this equates to approximately 40-45% of the occupied area.

24 The lessor sought to read affidavits which addressed this issue but for the reasons which I gave when rejecting the affidavits, which included the fact that they had not been served, they were not read. The upshot is that there is no evidence by the lessor on this aspect. Accordingly I determine that there should be an abatement of 40% of the rent payable up until termination of the lease on vacation of the premises by the lessee.

Conclusion

25 The amounts recoverable are:

(i) Areas of rent less abatement:$16,877.48

(ii) Damages$14,475

(iii) Total$31,352.48

26 I will hear the parties on costs and whether orders should be made by me or the matter referred back to Rein J for making of the orders.

Decision last updated: 15 October 2012