New South Wales Supreme Court CITATION : Singh v Doulakis [2008] NSWSC 987 HEARING DATE(S) : 19 September 2008 JUDGMENT DATE : 23 September 2008 JURISDICTION : Common Law JUDGMENT OF : Harrison J DECISION : Judgment varied but proceedings otherwise dismissed CATCHWORDS : LOCAL COURTS – appeal on question of law pursuant to s 73 of the Local Courts Act 1982 – whether magistrate failed to give adequate reasons for decision to award damages for loss of rent following damage to premises by tenant – whether evidence capable of supporting findings – no error of law – whether award of damages for loss of rent for a small period when landlord entitled to receive rent from another tenant amounted to double counting and an error of law – error of law found – judgment varied pursuant to s 75(a) Local Courts Act 1982. LEGISLATION CITED : Local Courts Act 1982 CATEGORY : Principal judgment Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126 CASES CITED : Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139 US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705 PARTIES : Manpreet Singh and Labh Sing (Plaintiffs) Peter Doulakis and Maria Doulakis (Defendants) FILE NUMBER(S) : SC 10368/2008 COUNSEL : J F Heazlewood (Plaintiffs) D D Knoll (Defendant) SOLICITORS : Hemant Prakash & Associates (Plaintiffs) Konstan Lawyers (Defendants) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 12400/06 LOWER COURT JUDICIAL OFFICER : Bradd LCM LOWER COURT DATE OF DECISION : 9 October 2007 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HARRISON J 23 September 2008 10368/08 Manpreet Singh and Labh Singh v Peter Doulakis and Maria Doulakis JUDGMENT 1 HIS HONOUR: By their further amended summons the plaintiffs appeal to this Court pursuant to s 73 of the Local Courts Act 1982 against the decision of Magistrate Bradd in the Local Court of New South Wales on 9 October 2007. The plaintiffs, being dissatisfied with the judgment, are entitled as of right to appeal against the judgment but only as being erroneous in point of law. The plaintiffs seek an order pursuant to s 75 of that Act varying the terms of the judgment in certain specified respects. Background 2 The plaintiffs conducted an Indian restaurant from premises in King Street, Newtown. The defendants were at all material times the owners of the premises. In 1999 the defendants leased the premises to the plaintiffs for a term commencing on 18 February 1999 and expiring on 17 February 2003. The plaintiffs paid a rental bond of $6,667. The plaintiffs remained in occupation of the premises after the expiration of the original term holding over as tenants from month to month and finally vacated the premises on 31 October 2004. No issue arises with respect to that fact alone. 3 The plaintiffs' sole claim in the Local Court was for the return of their rental bond. It is common ground between the parties that the premises had been left in a damaged and untidy state by the plaintiffs and that the plaintiffs had carried out unauthorised additions to the premises as well. It is unnecessary for present purposes to describe the nature or extent of this work other than to note that the defendants cross-claimed for damages from the plaintiffs in the court below and that the learned Magistrate effectively set off that claim against the rental bond. 4 The defendants did not re-lease the premises until 10 May 2005. On that day the premises were leased to Bedford Catering Pty Ltd for a term of three years at an annual rent of $83,200 per annum plus GST payable by monthly instalments in advance of $6,933.33. The first four months of the lease were rent-free. There is no issue that Bedford Catering Pty Ltd commenced to pay rent to the defendants pursuant to the lease on and from 10 September 2005. 5 The defendants' cross-claim in the Local Court sought damages for loss of rent for the period between 31 October 2004 when the plaintiffs vacated the premises and 10 September 2005 when the new tenants commenced to pay rent. In addition, the defendants claimed for the costs of repairing the damage caused to the premises by the plaintiffs during their occupation. 6 In his judgment delivered 9 October 2007 the learned Magistrate directed the entry of a verdict for the defendants on the plaintiffs' claim and a verdict for the defendants as cross-claimants on their cross-claim against the plaintiffs as cross defendants in the sum of $31,662.81. He ordered the plaintiffs to pay pre-judgment interest from 7 December 2006. Finally, the Magistrate ordered the plaintiffs to pay the costs of the claim and the cross-claim. No sum was awarded to the defendants for the cost of carrying out repair works, the Magistrate apparently taking the view that the security bond effectively equated to the losses sustained by the defendants in that respect. Neither party complains before me that the Magistrate erred in dealing with the rental bond or the defendant's claim for the cost of repairs in that way. 7 The learned Magistrate's judgment contains a number of statements, which the plaintiffs contend are difficult to understand and apparently inconsistent with the final result. Although not identified with any particular specificity, the point of law for which the plaintiffs contend is essentially that the Magistrate's judgment is so confused and confusing as to be incapable of comprehension and amounts in effect to an allegation that there was no or insufficient evidence to support his Honour's conclusions or that he erred by failing to provide proper or adequate reasons in the circumstances. The accuracy of that contention is central to resolution of the present dispute. The defendants seek to uphold his Honour's judgment in this court upon the basis that no error of law has been identified. The judgment 8 His Honour specifically found that the defendants had not allowed the plaintiffs to carry out work on the premises. It followed that the defendants were entitled to recover from the plaintiffs any loss and damage that they could establish flowed from the plaintiffs' breach of the lease in carrying out unauthorised work and leaving the premises otherwise in a state of disrepair. There was evidence before the learned Magistrate that Pantz Pty Ltd carried out repair work for the defendants at a cost of $6,300. In the events that occurred, and in particular in the way in which argument unfolded before me, the cost of that work was less important than the time that it took to carry out or the period during which it was done. 9 The following paragraphs of his Honour's judgment are important to an understanding of the conclusions that he reached: "[38] Peter and Maria Doulakis claim $10,034.50 for repairs. The claim is particularised as "Building rectification works – Pantz Pty Ltd $6,300" and "Joinery – J. Toskas Joinery Pty Ltd $3,734.50". [39] Peter Doulakis says; "In May 2005 I arranged for Pantz Pty Ltd to clear out all the rubbish and do the necessary work. Together with J Toskas' Joinery Pty Ltd the work was done. There is no evidence particularising "the necessary work" of "the work done". [40] Receipts for repairs were sent to Solicitors for the Singhs in the letter dated 6 April 2006. The invoices are $6,300 to Pantz Pty Ltd for removal of rubbish, demolishing a brick walls (sic) and constructing timber walls, and $3,734.50 for joinery work as per quotes. [41] The engineers report has not been tendered to inform the court of what repair work was required. The invoice for joinery refers to quotes that have not been tendered in evidence. [42] In summary, there is a lack of evidence that the damages claimed were caused by Labh Singh's breach of the terms of the lease. [43] Peter and Maria Doulakis did not take reasonable steps to mitigate the loss. They chose to defer repairs until a tenant was found, presumably so that the cost of repairs was an expense incurred in the course of earning the rental income. It is not possible to determine accurately the extent of loss of rent had Peter and Maria Doulakis not deferred repairs. The lease granted to Bedford Catering Pty Ltd contained a free period of four months from 10/05/2005. The tax invoice from Pantz Pty Ltd is dated 25/08/2005, which indicates that the work done by the company was completed no later than 24/08/2005. It is not possible to determine how the work done by J. Toskas Joinery P/L is referrable to damages caused by Labh Singh. The quotes referred to in the tax invoice have not been tendered. The Singhs are not liable for any time taken for works done by Bedford Catering to make the premises suitable for them. Conclusion [44] Manpreet Singh claims $6667 being the security bond not returned when the premises was (sic) vacated. There is credible and consistent evidence that the premises was (sic) in a very dirty condition, the fire stairs had been removed, the upstairs had been partitioned without approval, and there was water damage. I find that Peter and Maria Doulakis were entitled to retain the bond within the terms of clause 4.03 of the lease. [45] I find that Peter and Maria Doulakis are entitled to the cost of repairs required to rectify the building as a consequence of the breach of the lease, however there is insufficient evidence of the relevant costs of repairs for the damages to be ascertained. Peter and Maria Doulakis have retained the security bond to offset the costs of repair. [46] Peter and Maria Doulakis have not made reasonable efforts to mitigate the loss of rent. I allow loss of rent from 10/05/2005 – 25/09/2005, which period includes the time taken by Pantz Pty Ltd, and a nominal period of one month for re-letting. I calculate the period to be 139 days. It is a term of the new lease that rent is to be paid by monthly instalments of $6,933.23. The daily rate is $227.79. The amount allowed for loss of rent is $31,662.81''. Plaintiffs' submissions 10 The plaintiffs submit first that the final result is wholly inconsistent with the words "There is no evidence particularising 'the necessary work' of 'the work done'" in par [39] of the judgment. The plaintiffs argue that these words mean that there was no evidence of the work required to be done by Pantz Pty Ltd and that, accordingly, there can be no evidence of the time that it took for the work to be performed. That submission is said to be supported by par [42] of his Honour's judgment, which also suggests "a lack of evidence that the damages claimed [by the defendants] were caused by [the plaintiffs'] breach of the terms of the lease". Furthermore, the plaintiffs contend that the words in par [45] of his Honour's judgment commencing "there is insufficient evidence of the relevant costs of repairs for the damages to be ascertained" render the previous quoted portions of his judgment effectively contradictory and incomprehensible. In other words, if his Honour has made findings of either no evidence, a lack of evidence, or insufficient evidence, relating to the work, such findings must infect the validity of any conclusion to which his Honour came about the carrying out of the repair work by Pantz Pty Ltd or the period that it took to do it. That, so the plaintiffs argue, leads necessarily to a conclusion that no period has been identified in the judgment during which the defendants were both unable to lease the premises and recover rent by reason of the fact that repair work upon them was being carried out. The plaintiffs also submit that his Honour's conclusion that the defendants had "not made reasonable efforts to mitigate the loss of rent" puts an end to any suggestion by the defendants that his Honour's judgment can continue to stand as an internally consistent whole. Defendants' argument 11 The defendants respond in the following ways. First, the defendants submit that the reference to "the necessary work" in the sentence extracted from par [39] of the judgment was a reference to the evidence of Peter Doulakis in which he used that expression to include all of the work that was required to be performed at the premises and not merely the work to be performed by Pantz Pty Ltd. The defendants contend that the words "there is a lack of evidence that the damages claimed were caused", extracted from par [42] of the judgment, should be read as intending to convey "there is a lack of evidence that all of the damages claimed were caused", by the plaintiffs' breach of the terms of the lease. The sentence refers to "damages", not "damage". The defendants submit that their suggested interpretation follows from the fact that there was evidence that at least some of the damages claimed were caused by the plaintiffs, a fact necessarily following from his Honour's refusal to return the plaintiffs' security bond which he effectively set off against the amount in the Pantz Pty Ltd invoice. The defendants say that it is also to be noted in this regard that their claim for damages was $60,000, and that the learned Magistrate's judgment unambiguously demonstrates that they had been unable to satisfy his Honour that there was evidence to support a claim of that order. 12 Secondly, the defendants submit that the first sentence of par [43] of the judgment, that the defendants "did not take reasonable steps to mitigate the loss" is wholly consistent with his Honour's finding that there was a lack of evidence that the damages that they claimed were caused by the plaintiffs' breach of the terms of the lease. The learned Magistrate awarded damages corresponding to the defendants' loss of rent for the period during which the Pantz Pty Ltd work was being carried out upon the assumption that the premises could not have been leased during that time. Furthermore, his Honour's finding that the defendants did not take reasonable steps to mitigate losses occasioned to them for the whole of the period after the plaintiffs left the premises is itself consistent with his Honour's remark in par [43] that it was "not possible to determine accurately the extent of loss of rent had [the defendants] not deferred repairs". In other words, so the defendants argue, his Honour was concluding that it was only possible to say that the defendants were entitled to damages for loss of rent during the period when the Pantz Pty Ltd works were being performed and that by implication they were, at least for that period, appropriately mitigating their loss by bringing the premises back to a state of tenantable repair. Consideration 13 Paragraph [46] of his Honour's judgment is critical to his determination. Indeed, it is not without significance to observe that the plaintiffs' further amended summons seeks an order varying the terms of the judgment by deleting that paragraph completely! In my opinion, however, par [46] has a clear meaning when read in the overall context of the judgment. When his Honour said that the defendants had "not made reasonable efforts to mitigate the loss of rent", that, in my opinion, must be read as a statement that they had not made reasonable efforts to mitigate the loss of rent that they claimed. That much is apparent from the fact that his Honour rejected by far the greater proportion of the defendants' claim for loss of rent. It is inherent in the terms of par [46] of the judgment that his Honour formed the view, in allowing loss of rent from only 10 May 2005 until 25 September 2005, that the defendants, by performing work during that period until at least 25 August 2005, were necessarily mitigating their loss. His Honour's allowance of a period nominally selected as one month for re-letting appears to explain his choice of the date of 25 September 2005 as one month beyond the date when the Pantz Pty Ltd work ceased on 25 August 2005. His Honour's words in par [45] to which the plaintiffs take exception, as discussed above, are in my opinion unexceptionable if read, as I consider they ought to be read, as "there is insufficient evidence of the relevant costs of repairs for all of the damages claimed to be ascertained". His Honour was clearly satisfied, and in my opinion entitled to be satisfied, that there was evidence of the relevant costs of the Pantz Pty Ltd work at least. 14 I do not consider that the plaintiffs have demonstrated that the judgment contains an error of law. The classic delineation between questions of law and questions of fact was articulated by Sir Frederick Jordan in Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126 at 138, where his Honour said: "A finding of fact by a tribunal of fact cannot be disturbed if the facts inferred by the tribunal upon which the finding is based are capable of supporting its finding, and there is evidence capable of supporting its inferences … such a finding can be disturbed only (a) if there is no evidence to support its inferences or (b) if the facts inferred by it and supported by evidence are incapable of justifying the finding of fact based upon those inferences." 15 In Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139, Kirby P (dissenting) at 151 discussed what type of error constitutes an error of law as follows: "The finding of what have been called primary facts of a case does not, in itself; expose the trial judge to review on a point of law, unless it can be shown that there is no evidence of a primary fact and that, this being crucial to his decision, the judge's fact finding has involved an error of law. If there is evidence, or if there are available inferences which compete for the judge's acceptance, no error of law occurs simply because the judge prefers one version of the evidence to another or one set of inferences to another. This is his function … Where the evidence points only in one direction, and, as in Poricanin the trial judge nonetheless states that he disbelieves it, the onus being that person, the court, on appeal may not intervene." 16 I was referred to the decision of Hall J in US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705. After a careful review of the relevant authorities his Honour concluded, at par [105], that recent decisions of the Court of Appeal establish that a failure to provide adequate reasons is capable of constituting an error of law. His Honour continued at par [106] that "[i]t does not automatically follow that because the reasons for a decision are inadequate, an appellable error has necessarily occurred". 17 In the present case I am not satisfied that the learned Magistrate did fail to provide adequate reasons. However, even if I were wrong in that conclusion, I would also find that no appellable error occurred in any event. His Honour's judgment, understood in the way that I have discussed, indicates that he formed the view that the defendants were entitled to no part of their claim for damages for lost rent beyond a closed period during which work was actually being carried out on the premises to rectify damage which he found, but which the plaintiffs now in any event admit, had been caused by them. The fact that Bedford Catering Pty Ltd was in occupation of the premises also carrying out extensive work of their own is beside the point, because the Pantz Pty Ltd work took place during the rent-free period that applied under their lease. The premises could not have been leased for rent to any party during that period because of the damage that the plaintiffs had caused. 18 In these circumstances I consider that, subject to what follows, the present proceedings should be dismissed. The matter that concerns me is his Honour's order in favour of the defendants for damages for the period described as "a nominal period of one month for re-letting". In the events that occurred, the premises had been re-let and the rent-free period expired 15 days following completion of the Pantz Pty Ltd work on 25 August 2005. In those circumstances the defendants were in fact receiving, or entitled to receive, rent from Bedford Catering Pty Ltd for at least one half of the so called nominal period in respect of which his Honour ordered the plaintiffs to pay damages. To that extent there is a clear double counting which in my opinion ought not be permitted to stand. His Honour's finding that the defendants were entitled to damages for lost rent for any period after Bedford Catering Pty Ltd became obliged to pay rent to the defendants as well is itself an error of law. 19 In those circumstances I invite the parties to bring in short minutes of order reflecting my decision that the proceedings should be dismissed but including an order varying the terms of his Honour's judgment in accordance with s 75(a) of the Local Courts Act 1982 reducing the sum of $31,662.81 by the amount of damages, calculated at the rate of rent payable by Bedford Catering Pty Ltd, that are referable to the period between 9 September 2005, when Bedford began to pay rent, and 25 September 2005, the end of the "nominal period" of one month to which his Honour referred. I shall also hear the parties on the question of costs. ********** 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.