Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd and Others

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Kirby,Heydon,Crennan,Kiefel JJ.
• Judgment Date: 27 March 2008
• Neutral Citation: [2008] HCA 10,2008-0327 HCA B
• Court: High Court
• Docket Number: S395/2007
• Date: 27 March 2008

Gumland Property Holdings Pty Limited

Appellant

and

Duffy Bros Fruit Market (Campbelltown) Pty Limited & Ors

Respondent

[2008] HCA 10

Gleeson CJ, Kirby, Heydon, Crennan and Kiefel JJ

S395/2007

HIGH COURT OF AUSTRALIA

Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited

Contracts — Termination for breach — Damages — Ability to recover substantial damages after termination where termination based on express provision making contractual term essential.

Contracts — Lease — Breach of term by lessee — Whether lessor entitled after terminating lease to recover loss of bargain damages where but for express contractual provisions providing for the consequences of breach the lessor would not have been entitled to terminate.

Real property — Lease — Covenants that touch and concern the land — Whether the right to seek damages for breach of covenant to pay rent touches and concerns the land — Whether the assignee of a leasehold reversion is entitled to terminate a lease and recover loss of bargain damages, notwithstanding the absence of privity of contract between the assignee and lessee.

Real property — Lease — Guarantors — Whether guarantor's covenant to guarantee payment of rent by the lessee touches and concerns the land and passes with the leasehold reversion.

Conveyancing Act 1919 (NSW), s 117.

Representation:

J N West QC with N J Kidd for the appellant (instructed by PricewaterhouseCoopers Legal)

G C Lindsay SC with R G H Keller for the respondents (instructed by MJ Lawyers)

ORDER

1. Appeal allowed.

2. Special leave to cross-appeal granted; cross-appeal treated as instituted and heard instanter and dismissed.

3. Set aside the judgment for the appellant against the first respondent in the amount of $362,232 and, in its place, restore the judgment, given by the trial judge, for the appellant against the first respondent in the amount of $2,096,514, plus interest on that sum from 28 March 2006 calculated in accordance with s 101 of the Civil Procedure Act 2005 (NSW).

4. Set aside the order relating to costs between the appellant and the first respondent and, in its place, order that the first respondent pay the appellant's costs of the proceedings before the trial judge, of the appeal to the Court of Appeal of the Supreme Court of New South Wales and of the appeal and cross-appeal to this Court.

5. Set aside the judgment for the appellant against the second and third respondents for $362,232 and, in its place, give judgment for the appellant against the second and third respondents in the amount of $2,096,514, plus interest on that sum from 28 March 2006 calculated in accordance with s 101 of the Civil Procedure Act 2005 (NSW).

6. The second and third respondents to pay the appellant's costs of the appeal and cross-appeal to this Court.

1 Gleeson CJ, Kirby, Heydon, Crennan And Kiefel JJ. The question in this appeal is whether a commercial lease was validly terminated on the ground of the lessee's failure to pay rent, and, if so, what the monetary consequences were. In the Equity Division of the Supreme Court of New South Wales the trial judge (Macready As J) held that it was 1. The Court of Appeal, in reasons for judgment delivered by Giles JA, with which Santow JA and Tobias JA concurred, held that it was not 2.

The factual background

2 The Lease. Transit Management Pty Ltd (‘the Lessor’) owned premises in a shopping centre (‘the Demised Premises’). The Lessor granted a lease of the Demised Premises (‘the Lease’). The lessee, who is the first respondent in this appeal, was Duffy Bros Fruit Market (Campbelltown) Pty Ltd (‘the Lessee’). In the Lease the expression ‘Lessor’ was defined as meaning ‘the Lessor its successors and assigns’. The term of the Lease was 15 years. The commencing date was 30 March 1993. The Demised Premises were subject to the Real Property Act 1900 (NSW) (‘the Real Property Act’), and the Lease was registered pursuant to that Act. By cll 1.18 and 14.1 of the Lease, the ‘Permitted Use’ of the Demised Premises, which were described as ‘Shop 10’ and comprised 19.65 percent of the shopping centre, was that of a fruit, vegetable and meat market. The base rent was $245,343 per annum. In addition, by cl 4, the Lessee was obliged to pay 19.65 percent of the Lessor's ‘Outgoings’. By cl 5, the rent was subject to increase in the light of the Consumer Price Index. By cll 1.21–1.22 and 6, the rent was also subject to review every five years. By cl 3.1, the Lessee covenanted to pay to the Lessor and the Lessor's ‘assigns’ the base rent, together with any CPI increases pursuant to cl 5 and any review increases pursuant to cl 6 3. Clause 3.2 provided:

‘The Lessee covenants to pay the annual rent by equal monthly instalments in advance and to pay the rent and other monies hereby

secured within seven (7) days of the day on which each monthly instalment of rent falls due or the other monies secured become payable …’

3 The Lease contained several provisions which, it was contended, bore on the essential character of the obligation to pay rent and the entitlement to damages if that obligation were broken. Clause 1.13 provided:

‘It shall be a fundamental obligation of the Lessee to ensure that the Lessor shall receive the rental provided for in the Lease during the full term thereof.’

Clause 7.1 provided:

‘Each of the covenants by the Lessee which are specified in this clause are essential terms of this Lease.’

The first of the covenants specified in cl 7.1 was cl 3, for cl 7.1.1 provided:

‘The covenant to pay rent throughout the lease term at a date not later than seven (7) days after the due date for the payment of each monthly instalment of rent and any other monies payable under the terms of this Lease (clause 3).’

Clause 7.1.3 specified as another of the covenants which were essential terms ‘[c]lause 12 regarding the right of the Lessor to terminate the Lease’ 4. Clause 7.2 provided:

‘In respect of the Lessee's obligation to pay rent and other monies payable under the terms of the Lease including the Memorandum, the acceptance by the Lessor of arrears or of any late payment of rent or other monies payable shall not constitute a waiver of the essentiality of the Lessee's obligation to pay rent and any other monies in respect of the Lessee's continuing obligation to pay rent and all monies payable hereunder during the Lease term.’

Clause 7.4 provided:

‘In the event that the Lessee's conduct (whether acts or omissions) constitutes a repudiation of the Lease (or of the Lessee's obligations under the Lease) or constitutes a breach of any Lease covenants, the Lessee covenants to compensate the Lessor for the loss or damage suffered by reason of the repudiation or breach.’

Clause 7.5 provided:

‘The Lessor shall be entitled to recover damages against the Lessee in respect of repudiation or breach of covenant for the damage suffered by the Lessor during the entire term of this Lease.’

Clause 7.6 provided:

‘The Lessor's entitlement to recover damages shall not be affected or limited by any of the following:

7.6.1 If the Lessee shall abandon or vacate the Demised Premises;

7.6.2 If the Lessor shall elect to re-enter or to terminate the lease;

7.6.3 If the Lessor shall accept the Lessee's repudiation; or

7.6.4 If the parties' conduct shall constitute a surrender by operation of law.’

Clause 7.7 provided:

‘The Lessor shall be entitled to institute legal proceedings claiming damages against the Lessee in respect of the entire Lease term, including the periods before and after the Lessee has vacated the Demised Premises, and before and after the abandonment, termination, repudiation, acceptance of repudiation or surrender by operation of law referred to in paragraph 7.6, whether the proceedings are instituted either before or after such conduct.’

Clause 7.8 provided, relevantly:

‘In the event of the Lessee vacating the Demised Premises, whether with or without the Lessor's consent, the Lessor shall be obliged to take reasonable steps to mitigate his damages and to endeavour to lease the Demised Premises at a reasonable rent and on reasonable terms …’

Clause 16 provided:

‘The determination of the Lease shall not prejudice or affect any rights or remedies of the Lessor against the Lessee or any person or company jointly liable with the Lessee on account of any antecedent breach by the Lessee of any of the terms, covenants and restrictions on the part of the Lessee. Further the Lessee acknowledges that it is the Lessee's fundamental obligation to ensure that the Lessor shall receive the rental provided for in this Lease during the full term thereof and in the event that the Lease is determined consequent upon default of the Lessee then the Lessee shall be liable to the Lessor for the full loss and/or damages suffered by the Lessor by reason of the non-receipt of such rental for the full term or the non-receipt of any part of it …’

‘The Lessor may re-enter the Demised Premises or any part thereof in the name of the whole and thereby determine the estate of the Lessee therein not only on the happening of the events entitling the Lessor so to do under the terms of the Real Property Act, 1900, and/or the Conveyancing Act, 1919, but also on the happening of any of the following events …’

The first of the events listed was described thus in cl 12.1:

‘Upon the Lessee being in arrears for a period of seven (7) days in the payment of any monthly instalment of rent or any other monies payable under the terms of the Lease and notwithstanding that no formal demand has been made.’

4 Guarantees. On 25 March 1994, Ferdinando Pisciuneri (‘the second respondent’) and Natale Pisciuneri (‘the third respondent’) each entered a guarantee (‘the Guarantees’). Clause 2 provided:

‘The Guarantor guarantees to the Lessor the payment to the Lessor of all monies now...