Supreme Court New South Wales Medium Neutral Citation: Doltone House Group Pty Ltd v Premium Services Australia (PSA) Pty Ltd [2023] NSWSC 516 Hearing dates: 8 May 2023 Date of orders: 18 May 2023 Decision date: 18 May 2023 Jurisdiction: Equity Before: Robb J Decision: See [28] Catchwords: LEASES AND TENANCIES — rent and outgoings — failure to pay — where lease terminated for breach of essential term and plaintiff entitled to recover damages from lessee LEASES AND TENANCIES — repairs, maintenance and alterations — damage to premises — where defendant undertook unauthorised works — no issue of principle Legislation Cited: Corporations Act 2001 (Cth), s 471B Category: Principal judgment Parties: Doltone House Group Pty Ltd (First Plaintiff) Signorelli Investments Pty Ltd (Second Plaintiff) Premium Services Australia (PSA) Pty Ltd (First Defendant) Mohamed Ahmed Hammoud (Second Defendant) Representation: Counsel: C D Freeman (Plaintiffs) G Caramanlis (Solicitor, Defendants) Solicitors: Braddon Marx Lawyers (Plaintiffs) Comino Daniels Lawyers (Defendants) File Number(s): 2022/00036922 Publication restriction: Nil JUDGMENT 1. The first plaintiff, Doltone House Group Pty Ltd, is the owner of a property located at Belgrave Esplanade, Sylvania Waters (the Property). 2. It is not necessary to refer to the second plaintiff in these reasons, as the Court was informed by its counsel at the beginning of the hearing that the second plaintiff would not prosecute its claim. 3. The first defendant is named Premium Services Australia (PSA) Pty Ltd. The first plaintiff learned for the first time shortly before the hearing in this matter that a winding up order had been made against the first defendant and a liquidator appointed to it. The liquidator has given his approval to the first plaintiff's claim proceeding against the first defendant. 4. Accordingly, at the hearing on 8 May 2023, I made an order granting leave to the first plaintiff under s 471B of the Corporations Act 2001 (Cth) to proceed with its claim against the first defendant. The leave was given on terms that the first plaintiff not be permitted to enforce any judgment against the first defendant without having first obtained the leave of the Court. 5. The second defendant is Mohamed Ahmed Hammoud. He is the sole director and secretary of the first defendant. The first plaintiff also learned shortly before the hearing that proceedings had been commenced in the Federal Court of Australia by a party claiming to be a creditor of the second defendant for an order for the sequestration of his estate in bankruptcy. There was evidence that the application was listed to be heard on 9 May 2023, the day after the hearing. 6. On 5 May 2023, my Associate received advice from a solicitor that he had received instructions from both defendants to appear at the hearing on 8 May 2023, solely for the purpose of applying for an order that the hearing be vacated. The solicitor announced his appearance when the matter was called at the beginning of the hearing. I informed the solicitor that he had no valid instructions to appear for the first defendant because an order had been made for it to be wound up. The solicitor accepted that information and restricted his application to an application that the proceedings against the second defendant be vacated. 7. The application to vacate the hearing was made on the ground that the second defendant suffered from serious psychological and medical conditions that had the effect that he was incapable of appearing to conduct the defence of the first plaintiff's claim against him. The solicitor informed the Court that he only had instructions to make the application for the vacation of the hearing, and that he did not have instructions and was not in a position to represent the second defendant if the Court ruled that the hearing should proceed. 8. The solicitor relied upon evidence that was capable of proving that the second defendant was in fact suffering from serious psychological and medical conditions. However, the proceedings had been fixed for hearing before Peden J on 4 November 2022, when the hearing was vacated because the second defendant appeared in person and informed the Court that the defendants were not represented. It is not necessary to record in detail what happened thereafter. It is sufficient to note that the second defendant informed her Honour that the defendants were in a position where a solicitor would shortly file a notice of appearance on their behalf, and would shortly be in a position to file a defence and the evidence upon which the defendants would rely in defence of the first plaintiff's claim. Notwithstanding extensions of the timetable made by her Honour, neither defendant complied with the representations that they made concerning their ability to defend the claims against them. At the time of the hearing on 8 May 2023, the defendants had not filed a defence to the plaintiffs' further amended statement of claim (SOC), and had not filed any evidence. Furthermore, the second defendant had not given proper notice of his application for the vacation of the hearing. 9. By separate reasons given ex tempore on 8 May 2023, I rejected the application made on behalf of the second defendant for the proceedings against him to be vacated. I did so on a basis that acknowledged that it was possible that in fact the second defendant could establish that he had unexpectedly become incapable of conducting his own defence, because of the onset of the psychological and medical conditions referred to in the evidence. Accordingly, I ruled that if I found against the second defendant as a result of the hearing, I would only enter judgment in favour of the first plaintiff on the basis that execution on the judgment would be stayed for 21 days. I would give the second defendant an opportunity within that period to file a formal notice of motion supported by evidence for an order that the judgment be set aside on the same basis as if the judgment had been entered against the second defendant by default. I took that course because the evidence upon which the first plaintiff relied appeared to establish that it had a very strong case against the second defendant. Furthermore, there was a possibility that an order would be made for the sequestration of the second defendant's estate in bankruptcy the following day, or if not then, at some time shortly in the future. The solicitor who appeared for the second defendant did not have instructions that the second defendant would offer to pay the first plaintiff's costs caused by the vacation of the hearing. In any event, given that proceedings were on foot for the bankruptcy of the second defendant, it is possible that the first plaintiff would have had to repay any costs it received to the second defendant's trustee in bankruptcy. The plaintiff would have incurred duplicated costs if it had to run its case separately against the first and second defendants. 10. I will make orders that give effect to the reasons in the ex tempore judgment below when I make the orders necessary to deal with the first plaintiff's claims. 11. Counsel for the first plaintiff then conducted its claims against both defendants on the basis that they did not appear and were not represented. Counsel was therefore required to establish the first plaintiff's case on the basis of the evidence served. 12. On a date not stated in the lease, the first plaintiff and the first defendant entered into a lease of the Property to the first defendant for a period of five years commencing on 9 August 2021. The second defendant executed the lease as the guarantor of the obligations of the first defendant. 13. The first plaintiff by its SOC sought judgment against the first defendant and the second defendant jointly for amounts that the first plaintiff claimed were due to it either under the lease or for damages for breach of the lease. 14. The evidence established that the rent under the lease in the first year was $96,000 per annum plus GST, or $8,000 per calendar month plus GST. There was a term that the rent would escalate by 3% each year. The first defendant only paid rent of $64,000 from 9 August 2021 to 8 April 2022. The lease was ultimately terminated by the first defendant for non-payment of rent by letter of its solicitors dated 22 June 2022. 15. Clause 2.1(a) was a covenant by the first defendant to pay rent, and by clause 10.4(a) compliance with the covenant to pay rent was made an essential term of the lease, such that a failure to pay rent would entitle the first plaintiff to terminate the lease and sue for and recover damages from the first defendant for loss occasioned by the breach. 16. The first plaintiff is entitled under clause 2.7 of the lease to recover from the first defendant all of its reasonable costs in relation to the enforcement of the lease and its termination on a solicitor and own client basis. As that basis for determining costs is no longer available, it is established by authority that the effect of the term is that the first plaintiff is entitled to be compensated for the legal costs that it has incurred on the indemnity basis. 17. By clause 10.2, the first defendant was required to pay interest on all outstanding monies due to the first plaintiff at a rate that was stated in the definitions section of the lease as being 6% per annum. 18. Clause 5.2 of the lease contained a covenant by the first defendant that it would not make any alterations or improvements to the premises or services without the first plaintiff's prior written consent. The clause governed the circumstances in which the first defendant could seek the first plaintiff's consent, including that the first defendant was required to obtain all relevant authority approvals to the works before commencing the works. The first defendant was also required to carry out the works in a proper and workmanlike manner. Clause 5.2(d) required the first defendant to indemnify and keep indemnified the first plaintiff against all damage, injury, loss, claim or expense incurred by the first plaintiff relating directly or indirectly to the construction of the works. 19. The first plaintiff presented overwhelming evidence that the first defendant undertook alterations to the Property that were not in accordance with all relevant authority approvals and were not undertaken with the first plaintiff's consent, whether in writing or otherwise. The first defendant did not seek the first plaintiff's consent, and indeed through the conduct of the second defendant entirely misled the first plaintiff concerning the nature of the works that were being undertaken and the reason why the works were necessary. The second defendant misled the first plaintiff by claiming falsely that the works were only necessary to rectify plumbing deficiencies at the Property. 20. The evidence, including photographic evidence of the effect of the building works carried out by the first defendant, conclusively demonstrates that the works were not completed and were performed in a manner that was so un-workmanlike as to be considered egregious. 21. The first plaintiff clearly has a right to be paid damages under the lease by the first defendant for the costs that the first plaintiff will incur in rectifying the unauthorised works. The first plaintiff tendered evidence from a building expert concerning the need for and cost of the rectification works. That expert obtained quotations from three independent builders to carry out the works. The lowest tender was $225,930. That is the amount of damages that the first plaintiff claims for contravention by the first defendant of clause 5.2 of the lease. Because of the passage of time since the quotation was obtained, it is clear that the amount claimed for this head of damages will not fully compensate the first plaintiff for its loss. Nonetheless, the first plaintiff has limited its claim to this amount. 22. The quantum of the first plaintiff's claim was set out in a table in par 4 of its counsel's written outline of submissions. Counsel explained to the Court that the first plaintiff would not pursue some of the items in the table, including that the first plaintiff would not ask for the amount of the costs that it has incurred to date to be included in the amount of the judgment entered against the defendants, provided that the Court made a costs order against the defendants on the indemnity basis in enforcement of the first plaintiff's contractual entitlement under clause 2.7 of the lease. 23. The first plaintiff claims: 1. Damages as the cost of making the Property good – $225,930; 2. Unpaid rent to the date of termination – $20,000; 3. Interest on the unpaid rent from the date of termination to the hearing date at 6% per annum – $1,052.50; 4. Damages for unpaid rent from the date of termination to the end of the first year of the lease – $12,000; 5. Damages for unpaid rent for the second year of the lease to 8 August 2023, escalated at the rate of 3% provided for in the lease – $98,880; and 6. Damages for unpaid rent for the third year of the lease to 8 August 2024, escalated at the rate of 3% from the previous year's rent – $101,846.40. 7. Total – $459,708.90. 1. It is necessary to explain the basis upon which the first plaintiff has claimed as damages the amount of rent that would have been paid under the lease for the period 9 August 2022 to 8 August 2024. Even though technically the issue of whether the first plaintiff had failed to mitigate its damages by not re-leasing the Property to a new lessee after the lease was terminated did not arise because the defendants had not appeared to argue that there had been a failure to mitigate, the first plaintiff acknowledged that ordinarily its damages would be quantified by reference to the amount of the rent that it would have been entitled to receive under the lease from the first defendant during its term, less the amount of the rent that the first plaintiff would in fact receive as a result of taking reasonable steps to lease the Property to a new lessee after the lease was terminated. However, there was evidence in this case that there were regulatory difficulties in reinstating the Property to a lettable condition, and notwithstanding that the first plaintiff had acted diligently in the attempt to find a new lessee, that attempt had not been successful by the time of the hearing. In fact, the Property remains untenanted and the first plaintiff is not receiving any rent from the Property. In those circumstances, the first plaintiff has calculated its claim for damages on a basis that acknowledges that the obligation on the first defendant to pay damages should not go on for ever. That caused the first plaintiff to accept that a cut-off date of 8 August 2024 was reasonable, even though in fact the first plaintiff is continuing to suffer loss and will do so into the indefinite future. 2. I am satisfied that this aspect of the manner in which the first plaintiff has quantified its loss is reasonable in all of the circumstances, as it technically understates the amount that the first plaintiff is entitled to claim against the first defendant for damages. 3. I am also satisfied that the calculations of the quantum of the first plaintiff's damages appear to be accurate. 4. For these reasons, the first plaintiff is entitled to judgment against the first defendant for breach of the lease, and against the second defendant on his guarantee, in the sum of $459,708.90. 5. The Court's orders are: 1. Judgment for the first plaintiff against the defendants in the sum of $459,708.90. 2. Order the defendants to pay the legal fees incurred by the first plaintiff in the enforcement of the lease up to the date of its termination on the indemnity basis. 3. Order the defendants to pay interest after judgment on all amounts unpaid at the rate of 6% per annum. 4. Order the defendants to pay the first plaintiff's costs of the proceedings on the indemnity basis. 5. Order that orders 1 to 4 be stayed as against the second defendant for 21 days after the making of these orders. 6. Grant leave to the second defendant within the 21 day period referred to in order 5 to file a notice of motion supported by affidavit returnable before Robb J for directions on a date to be arranged with the Associate to Robb J seeking an order that orders 1 to 4 be vacated as against the second defendant on any basis that would be available to the second defendant if the orders had been made against the second defendant as a default judgment under the rules of court. 7. Order that if the second defendant exercises the leave granted by order 6 within the 21 day period, the stay ordered by order 5 will be extended to the end of the return date for the notice of motion. ********** 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 May 2023