Local Court of New South Wales CITATION: Rossi and Rossi v Pel-Air Aviation Pty Ltd [2006] NSWLC 22 JURISDICTION: Civil Antonio Rossi PARTIES: Robert Rossi Pel-Air Aviation Pty Ltd FILE NUMBER: 1357/05 PLACE OF HEARING: Downing Centre Local Court DATE OF DECISION: 04/24/2006 MAGISTRATE: Magistrate H Dillon CATCHWORDS: Contract - Commercial issues - Whether damage done to premises during the course of the lease - Whether defendant liable for outstanding rents and other expenditures - Whether defendant liable for loss of rent during periods of repair LEGISLATION CITED: CASES CITED: Alfred McAlpine Construction Ltd v Panatown Ltd (2001) 1 AC 518 (House of Lords) Browne v Dunn (1893) 6 R 67 C P White & Hetherigton - Solicitors REPRESENTATION: Ms N Obrart - Counsel David Hand - Solicitor Mr M Maxwell - Counsel ORDERS: Verdict for the plaintiff Robert Rossi in the sum of $5,828.53 and judgment accordingly.; Verdict for the plaintiff Antonio Rossi in the sum of $14,271.90 and judgment accordingly.; I reserve the question of interest and costs and grant the parties liberty to apply to the court for appropriate orders. Judgment 1. The plaintiffs, Robert and Anthony Rossi, are the equitable owners of two industrial units in Kent Rd, Rosebery that were occupied for some years by the defendant company, Pel-Air Aviation Pty Limited ("Pel-Air"). Commercial lease agreements in respect of each unit were formed on 8 November 2002. Mr Robert Rossi was the beneficial owner of Unit 3 and Mr Anthony Rossi of Unit 4. 2. When the agreements were formed, Pel-Air was in occupation of both units having previously leased them from the parents of the plaintiffs. Mr Guiseppe Rossi and his wife Filomena bought the units in 1990 and at the time the agreements were entered by the parties to these proceedings Mrs Rossi remained the registered proprietor of both premises. 3. Although the pleadings effectively join what are discrete causes of action and do not separate the proceedings as they probably ought to have been, no issue is taken by the defendant on that score. Background to the proceedings 4. Pel-Air was in possession of unit 3 from 1996. It had originally taken possession of Unit 4 in 1989 following completion of the development. It is well known as a commercial aviation company and occupied the units as its central operational headquarters, offices, workshop, storage and aircraft engineering. 5. The lease agreements were for 12 month terms. Although they provided for options for renewal these were not exercised by Pel-Air which remained in occupation pursuant to the holding-over provisions of the agreements. The holding-over provisions stated that after termination the "lease shall continue as a periodic lease from month to month at the same rent or at a rent which both parties agree to". There was no additional agreement as to rent. 6. The monthly rents were $8341.66 for unit 3 and $8341.67 for unit 4. 7. The commencement date of the agreement in respect of unit 3 was 8 November 2002 with a termination date of 30 November 2003. The Defendant has paid rent up until 1 October 2004 and vacated unit 3 on 12 October 2004. 8. The Plaintiff claims unpaid rent of $3016.71 from 1 October 2004 to 12 October 2004 pursuant to Clause 9 of the Agreement. There is also a claim in respect of loss of rent for a 16-day period during which repairs were carried out to the premises. This entailed an additional claim of $4113.78. 9. It is common ground that under the lease agreement Pel-Air was responsible for strata levies, insurance and water rates. In respect of those items the plaintiff claims unpaid strata levies on unit 3 in the amount of $2183.81 for the period 1 July to 27 October 2004; unpaid insurance premiums for the period 28 August to 27 October 2004 in the sum of $78.54 and unpaid water rates in the sum of $9.47 for the period 1 October to 9 October 2004. The total claim for these items therefore is to a sum of $2271.82. 10. The major claim made by each plaintiff is in respect of rectification of damage to the premises. In relation to unit 3 the plaintiff makes claim to a sum of $10,812.80. 11. The agreement in relation to unit 4 commenced on 1 December 2002. The lease expired on 30 November 2002. Pel-Air remained in occupation of that unit until 9 January 2004. It had given notice on 9 December 2003. 12. The Plaintiff claims unpaid rent of $11,358.41 from 1 December 2004 to 9 January 2005 pursuant to Clause 9 of the Agreement. 13. As was the case in relation to unit 3, Pel-Air was responsible for strata levies, insurance, water rates and land tax. In respect of those items the plaintiff claims a sum of $2329.49 being composed of unpaid strata levies in the sum of $1118.95; water rates of $108.95; council rates of $928.91 and land tax of $172.68. 14. Once again, the main claim made by the plaintiff is in respect of rectification of damage to the premises alleged to have been caused by the tenant during the course of the tenancy. It is to a sum of $27,400.00. The issues 15. The only real issue in the case is whether plaintiff has proven liability in the defendants for the unpaid rents, levies, taxes and rates and, more significantly, the costs of rectification of the property. 16. The major factual issue for determination is whether the plaintiffs have proven they suffered the losses claimed in respect of damage to and rectification of the units. The evidence 17. Evidence was given for the plaintiff by Mr David Taylor, the property agent who managed the premises for the plaintiffs. A large quantity of business records and other documents were also adduced in evidence. They included a bundle of photographs taken after the defendant vacated the premises. 18. The only evidence tendered for the defendant was a small bundle of records. 19. Much of the evidence for the plaintiff was, if contentious, not seriously challenged. 20. Clause 12 of the leases required that the tenant "take care of the premises and keep them in clean condition". That clause required the tenant to make no alterations to the property without consent of the owner; not to deface or paint the premises without the consent of the owner; to ensure that rubbish did not accumulate on the premises and that rubbish was removed regularly. It also required the tenant to notify the landlord of any damage done to the property. 21. Pursuant to clause 16 the tenant was required to indemnify or compensate the owner for damage to the premises. It is upon clause 16 that the plaintiff's bases its claims in respect of rectification. 22. It is noteworthy that the lease agreement also made provision in clause 21 for an inspection by the landlord or his agent at the commencement and termination of the lease and for an inspection report to be prepared in each case. In this matter the plaintiff's agent, Mr Taylor, gave evidence of having undertaken an inspection at the conclusion of the leases but no evidence was given by him or any other witness for the plaintiffs concerning an inspection having taken place at the commencement of the lease. That lacuna in the plaintiff's evidence is of considerable significance that will be gauged below. 23. The evidence from Mr Taylor concerning the state of the premises when vacated by Pel-Air was extensive. He carried out what appears to have been a careful inspection. His appraisal of the units was supported by photographs presented in evidence thereby no doubt saving him and the court record 100,000 words. If the general effect of such a large set of pictures can be summarised it is by saying that they depicted large numbers of relatively minor defects such as chipped paintwork, rubbish, grime, abandoned furniture, scuff marks, holes in walls, commercial signs left on windows and picture hooks. More significant repairs were needed in the office, kitchens, bathrooms and toilets. According to the inspection report a mezzanine floor was to be removed. At least some of these defects might reasonably be characterised as ordinary wear-and-tear but the cumulative effect was, according to Mr Taylor, to make the premises untenantable until the units were cleaned up, repainted and repaired. 24. Although questions were asked about some of these matters by counsel for the defendant in cross-examination of Mr Taylor, for the most part no serious challenge was mounted against this aspect of the plaintiff's case. 25. Mr Taylor also gave evidence of the painting and other rectification works undertaken by the landlords after Pel-Air vacated the premises. A number of quotations and tax invoices from contractors were tendered supporting his evidence of repairs having taken place. The works undertaken included repainting of the premises, repair of electric lights, cleaning of bathrooms and warehouse, patching of walls, removal of debris, replacement and repair of plasterboard and various other things. It is unnecessary here to list all them all. 26. While Mr Taylor was questioned closely about these various works and the records from the contractors as I understood the defendant's case there is no suggestion the works were not carried out or that the sums claimed were not paid. 27. Various records were also adduced in support of the claim to various sums for unpaid rates, levies, taxes and rents. Once again, while Mr Taylor's evidence in relation to these matters was closely scrutinised and tested by counsel for Pel-Air, I did not understand the defendant ultimately to contest the reliability of that evidence. 28. The evidence for the defendant consisted in a copy dated 4 July 1990 of the registered transfer of units 3 and 4 from the previous owner to Giuseppe and Filomena Rossi, a search dated 30 August 2005 showing that Mrs Rossi remained the registered owner of the properties (Mr Rossi having died in 2001), and a notice of death in respect of Mr Rossi. Submissions and findings 29. I now outline and appraise the various submissions made by the parties in relation to separate topics and draw what I consider are the appropriate conclusions: The claim for rectification 30. In relation to the claims for rectification, the primary submission for the defendant is that, because Pel-Air was in occupation before the commencement of the commercial leases entered with Anthony and Robert Rossi for a considerable period of time, and there was no evidence given of the state of the premises at the time the leases commenced, the plaintiff had not proven on the balance of probabilities that the damage ultimately rectified had occurred during the course of the lease. 31. The defendant contended that it was incumbent upon the plaintiffs to prove that the damages it claimed were their damages. Counsel for the defendant argued that the only evidence upon which the court could move showed that prior to the lease commencing the landlords were Giuseppe and Filomena Rossi and that after the lease concluded that the premises were owned by Filomena Rossi alone. 32. His contention was that therefore, if the general rule that damages for breach of contract are compensatory (or, to put it another way, that a claimant can only recover damages for a loss he, she or it has suffered) See, for example, Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 (House of Lords). is applied, the plaintiffs must fail in relation to its claim for rectification of damage to the premises because they cannot prove that they rather than Mrs Rossi suffered the loss. 33. Counsel for the plaintiff argued that the proposition advanced by the defendant had never been raised by the defendant in its cross-examination of Mr Taylor and that therefore it was not entitled to make the submission that the damage occasioned to the premises may have been inflicted outside the lease period. She also contended that this was a positive proposition the burden of proving which lay upon the defendant. She also argued that the defendant had never raised any claim of reasonable wear and tear to the properties. 34. In my view, the rule in Browne v Dunn (1893) 6 R 67. was not breached by the defendant. The rule requires a cross-examiner to put fairly and squarely to the witness being cross-examined those matters in relation to which the cross-examining party proposes to contradict the witness by evidence or where the cross-examining party intends to submit that the facts are contrary to those asserted by the witness. That is, if a party intends to put a positive proposition to the contrary of that asserted by the witness being cross-examined, the cross-examiner must raise those issues with the witness (unless, of course, those matters have previously been raised, for example, in witness statements or affidavits served by the cross-examining party upon the other side). 35. In this case, however, the plaintiff bears the onus of proving the breach of contract by the defendant. The defendant's submission, when distilled, is simply that the plaintiffs have not discharged their onus of proof. The defendant has not positively asserted that the damage done to the premises was done outside the period of the lease; it simply says that the plaintiff has not proved that its assertion that the damage was occasioned during that period. In my view, the onus remains upon the plaintiff to prove its assertion. 36. The plaintiff contends that the court can infer that the damage (or the bulk of it) was done during the lease period from the photographic record, the inspection report completed by Mr Taylor at the conclusion of the leases and the fact that a commercial operation was conducted in the premises. 37. These units were not sealed tombs. They were in use by the defendant who ran a substantial business from them for a considerable period of time. It is therefore reasonable to infer that at least some of the damage done or dirt and rubbish seen in the photographs accumulated during the period of the lease. For example, the photographs show abandoned furniture, bits of rubbish on unswept floors and dirty bathrooms. It is, in my view, a matter of commonsense that the furniture, rubbish and dirt in the bathrooms is likely to have been left there in the usual hurry by vacating tenants to leave and move to their new premises. 38. It is, however, far more difficult to reach any conclusions as to when the more substantial damage requiring repair was done to the units. If the tenant was in occupation for several years and the lease agreements in question only ran for about one year it might well have been the case that the damage to walls, floors, kitchens and so on had been caused some time before the lease commenced, that is, during the period that Mr and Mrs Rossi, or Mrs Rossi alone, were the landlords of the units. Absent the inspection reports contemplated by clause 21 of the lease agreements, it is impossible to tell. 39. The plaintiff's evidence shows that the units were cleaned by a commercial company. In relation to unit 3, the plaintiff spent a sum of $540 and in relation to unit 4 a sum of $594. Even if some of the general grime and rubbish had accumulated prior to the lease period, it would have been eradicated at the same time as the dirt and refuse generated during the lease period. It therefore seems to me to be reasonable to allow those sums to the plaintiffs. The evidence shows, however, that the managing agents deducted these sums (and more) from the bond. The claim for "down time" 40. The defendant's submission on this topic are closely related to those made concerning the rectification issue. The uncontested evidence was that it took about two weeks to repair and repaint the premises and that during the time the units were under refurbishment they were not able to be placed on the rental market. Whether that is, in itself, a head of damage may be an open question but was not argued. The defendant's contentions were, first, that the plaintiff had not proved that the need to repaint and refurbish had arisen as a result of a breach of the lease agreement and, second, that, in any event, the plaintiff had not proven that any such losses were sustained by the plaintiffs because the registered proprietor of the premises was Mrs Rossi, not the plaintiffs. 41. Certain evidence was led by the plaintiffs in relation to a preliminary point which I decided in their favour last year. However, that evidence was not led in the trial. Counsel for the defendant argued correctly that the evidence from the preliminary hearing could not, therefore, be relied upon by the plaintiff and contended therefore that the only evidence before the court as to the identity of the owner of the properties after the termination of the leases showed that Mrs Rossi was that person. It therefore followed that the plaintiffs' claims in respect of "down time" could not be supported. 42. In relation to that point, I cannot agree with the defendant's argument. Given that the instructions to refurbish the premises followed immediately upon the termination of the leases, and that there is no evidence that the premises were sold out of the Rossi family, I think it is open to the court to infer that they were given by the landlords nominated in the leases. 43. In my opinion, the major evidentiary hurdle faced by the plaintiffs in relation to this point is that raised concerning the rectification: it is impossible to say whether the damage ultimately rectified was substantially occasioned during the course of the leases in question. Leaving aside any issue of fair wear and tear, it cannot seriously be said that the task of merely cleaning the premises caused them to lie vacant for weeks on end: that is not the plaintiffs' case at all. On the available evidence, there must be a strong possibility that the need for rectification arose, or substantially arose, prior to the agreements being entered. The "down time" was solely for the purposes of rectification. In my view, therefore, the plaintiffs have not discharged their burdens of proof in relation to this aspect of their claims. Outgoings: rates, taxes, levies 44. Clause 18 of the lease required the tenant to reimburse the landlord for municipal and water rates, strata levies, land tax and insurance. The defendant argues that the documents it tendered in its case, which shows a continuity of registered ownership of the properties by Giuseppe (until his death in 2001) and Filomena Rossi, place the burden of responsibility for payment of the various charges for which reimbursement is sought by the plaintiffs not upon them but upon the registered owner. 45. The defendant's argument is then the same as that made in relation to the rectification issue, namely, that there is no proof that the plaintiffs have suffered damage or have any entitlement to reimbursement under the agreements. 46. I disagree with that submission. There is no evidence concerning the status of Messrs Anthony and Robert Rossi in relation to the properties but it is trite law that the rights of a legal owner and a beneficial owner can co-exist. An inference is available from the facts that the named landlords bear the same family name as the registered proprietor, and that there is no assertion by the defendant of a defence based on fraud or misrepresentation, that the defendant admits that the plaintiffs have a beneficial interest in the units or that the named plaintiffs have such interests in the units. 47. By executing the agreement the defendant accepted the persons nominated in the agreement – the plaintiffs Anthony and Robert Rossi – as landlords for the purposes of the contract. They accepted certain conditions including those set out in clause 18. By its reference to "the landlord" the contract could only be interpreted to mean the persons nominated in the agreements as "the landlord", Anthony and Robert Rossi. The defendant accepted the benefits it sought under the agreement from the nominated landlords. It seems to me that it must now be estopped by its conduct from denying that it owed obligations under clause 18 to the named landlords. There is positive evidence from Mr Taylor, in any event, that the plaintiffs bore the costs for which reimbursement is now sought. 48. The evidence concerning the nature of the outgoings, the quantum and the failure by the defendant to meet the plaintiffs' demands for payment is sufficient to prove on the balance of probabilities this aspect of the plaintiffs' claims. Outstanding rent 49. Counsel for the defendant criticised the evidence of Mr Taylor on this point and argued that the agent's records were in such disarray that the court could not be satisfied of the reliability of the rental ledgers. While it was true that under a vigorous and skilful cross-examination Mr Taylor admitted to some minor difficulties concerning the records, my assessment of him was that he seemed to be quite an impressive witness. The difficulties he had appeared to relate to some of the complexities of the various charges not to a general deficiency in the records or his record-keeping systems. He also appeared to be a truthful witness. His evidence in relation to expenditures therefore appeared to be satisfactorily reliable. 50. In my opinion, absent any evidence to the contrary being adduced by the defendant, Mr Taylor's evidence concerning the outstanding rents ought be accepted. Conclusions 51. In summary, therefore, I find that the defendant is liable to the plaintiff Mr Robert Rossi for the sum of $3016.71 in respect of unpaid rent for the period 1-12 October 2004; for unpaid strata levies in the sum of $2183.81 for the period 1 July 2004 to 27 October 2004; for insurance premiums in the sum of $78.54 for the period 28 August to 27 October 2004; for water rates in the sum of $9.47 for the period 1-9 October 2004; and for the cost of cleaning the unit in the sum of $540. This comes to a total of $5828.53. 52. It is common ground, however, that the plaintiff (or his agent) applied the defendant's security deposit in the sum of $18,185.22 to the costs of rectification. It follows that the sum for which the defendant would otherwise be liable to the defendant has been satisfied more than three times over. There is no cross-claim and there may be a degree of natural or poetic justice in the fact that the defendant has largely paid, involuntarily, for the repairs but this plaintiff cannot recover any further amount in my view. Indeed, it would have been open to the defendant to claim a set-off but that was not pleaded in its defence. It remains open, in my view, for the defendant, as it was apparently not consulted about the application of the security deposit to the rectification of the premises, to bring proceedings to reclaim its deposit either in full or in part. That is, however, an issue not before this court. 53. In relation to unit 4, I find that the defendant is liable to the plaintiff Mr Anthony Rossi for the sum of $11,358.41 in unpaid rents for the period 1 December 2004 to 9 January 2005; for unpaid strata levies in the sum of $1118.95 for the period 1 July 2004 to 12 January 2005; for unpaid water rates in the sum of $108.95 for the period 1 October to 31 December 2004; for unpaid council rates in the sum of $928.91; unpaid land tax in the sum of $172.68 and the cost of cleaning in the sum of $594. This comes to a sum of $14,281.90. In his case, it appears that there was no security deposit to apply to the repair of the premises. 54. In the light of these findings, it appears to me to be appropriate to enter separate verdicts in respect of each plaintiff (notwithstanding the curiosity of the pleadings). Verdicts, Judgments and Orders 55. In relation to the action between Mr Robert Rossi and Pel-Air in respect of unit 3, there will be a verdict for the plaintiff in the sum of $5828.53 and judgment accordingly. 56. In relation to the action between Mr Anthony Rossi and Pel-Air in respect of unit 4, there will be a verdict for the plaintiff in the sum of $14,281.90 and judgment accordingly. 57. In relation to unit 3, it appears to me to be questionable whether an order for interest ought be made in favour of the plaintiff. On the other hand, it appears appropriate to make the usual order that interest be calculated in respect of the claim by Mr Anthony Rossi. I would be assisted by submissions from counsel on the topic of interest in respect of the claim of Mr Robert Rossi. 58. In relation to costs, I propose, unless there are submissions to the contrary, that the order in respect of Mr Anthony Rossi's claim be that costs follow the event in a sum agreed or assessed but I would be assisted by counsel as to the appropriate order to be made in respect of the claim of Mr Robert Rossi. 59. I therefore reserve the questions of interest and costs and grant the parties liberty to apply to the court for appropriate orders. Hugh Dillon 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.