J and S Chan Pty Limited v Victor Geoffrey Mckenzie and Lynette Anne Mckenzie [1994] ACTSC 1 (12 January 1994)

SUPREME COURT OF THE ACT

J AND S CHAN PTY LIMITED v. VICTOR GEOFFREY McKENZIE and LYNETTE ANNE
McKENZIE
No. SCA65 of 1993
Number of pages - 18
Appeal - Debts - Lease - Mitigation of Damages

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
HIGGINS J

CATCHWORDS

Appeal - to Supreme Court from decision of Magistrate - whether Magistrate wrong in deciding that duty to mitigate loss arose.

Debts - quantification of amount due - arising out of lease - repudiation by tenant not accepted by landlord.

Lease - sublease - repudiation by abandonment of premises - whether landlord accepted tenants' repudiation - qualifications to the landlord's right to affirm and perform lease discussed - whether specific performance available - whether tenants have shown that landlord has no legitimate interest in performing contract rather than claiming damages - whether sublease required landlord to mitigate loss.

Mitigation Of Damages - repudiation of lease - whether ordinary contractual principles apply - landlord affirming and performing lease and suing for debt - whether any obligation to mitigate loss arises.

Magistrates Court (Civil Jurisdiction) Act 1982 (ACT), ss.6, 277B(2)

Redfern and Cassidy Australian Tenancy Practice and Precedents (Bulletin No. 16, p.19)

White and Carter Councils Ltd v McGregor [1961] UKHL 5; (1962) AC 413

The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17

Maridakis v Kouvaris (1975) 5 ALR 197

Goldhar v Universal Sections and Mouldings Ltd (1963) 36 DLR (2d) 450

Prus-Grzybowski v Everingham and Others (1986) 87 FLR 182

Duncan, W D Commercial Leases (2nd ed), 1993, Law Book Co

Tall-Bennett and Co Pty Ltd v Sadot Holdings Pty Ltd (1988) NSW Conv R 57,881

Waltons Stores (Interstate) Ltd v Maher and Anor [1988] HCA 7; (1988) 164 CLR 387

Vickers and Vickers v Stichtenoth Investments Pty Ltd (1989) 52 SASR 90

Torminster Properties Ltd v Green and another (1983) 2 All ER 457

Church of England Property Trust, Diocese of Sydney v Metropolitan Mutual Permanent Building and Investment Association Limited [1932] HCA 35; (1932) 47 CLR 369

Elrington v Judd (1964-5) NSWR 493

HEARING

CANBERRA, 1 and 2 November 1993
12:1:1994

Counsel for the Appellant: Mr B. Meagher

Instructing solicitors: Gary Robb and Associates

Counsel for the Respondents: Mr R. Arthur

Instructing solicitors: Worth and Co

ORDER

The Court Orders that:
1. The appeal be upheld.
2. In lieu of the orders made by the learned Magistrate, there be substituted judgment for the plaintiff against the defendants in the sum of $15,754.75 plus interest pursuant to s.277B(2) of the Magistrates Court (Civil Jurisdiction) Act 1982 (ACT).

DECISION

HIGGINS J This is an appeal against a decision of Magistrate Ward delivered on 8 June 1993.

2. In the proceedings before Magistrate Ward the appellant was plaintiff and the respondents were defendants. I will refer to them as "plaintiff" and "defendants" respectively.

The Claim
3. The plaintiff was the lessor of premises known as Area 2 in Sublease Plan 1593, being part of Block 8 Section 31 Dickson in the Australian Capital Territory ("the premises"). By sublease dated 20 May 1988 it let those premises to the defendants for a term of four years commencing 1 April 1987. It alleged that, at the expiration of the sublease, the defendants owed the plaintiff $3,297.13 for their share of increases in outgoings and $14,027.62 for unpaid rent.

4. In the alternative the plaintiff claimed that the defendants, in breach of the sublease, abandoned the premises on 4 August 1990. As the evidence unfolded, that date probably should have been 6 August 1990. Nothing turned on that. The plaintiff alleged that as a result it suffered damage by way of loss of rent in the sum of $14,027.62.

5. The defendants not only denied this claim but made a cross-claim. They alleged a breach of the covenant for quiet enjoyment. They further alleged that the lease had terminated as from 4 August 1990 either by agreement, or by reason of the conduct of, or conduct attributable to, the plaintiff. In any event, they asserted that the plaintiff, insofar as it might have been entitled to damages, had failed to mitigate its loss by re-letting the premises at a reasonable rent.

The Evidence
6. Mrs Chan, a director of the plaintiff, conceded that from time to time access to the premises might be blocked by parked cars over which she or her husband had control. She asserted, however, that keys were readily available to move them on request.

7. Otherwise, she said, the administration of the sublease was left to real estate agents engaged by the plaintiff.

8. Mrs Chan also conceded that a new padlock was installed on the gate to the premises after the apparent abandonment of possession by the defendants. The new lock was made necessary only because the old padlock had gone missing. She agreed that the defendants were not given a key. However, they did not ask her for one.

9. Mr Green was a "leasing negotiator" with Jones Lang Wootton, the agents engaged by the plaintiff. He deposed that he became aware on 6 August 1990 that the defendants had vacated the premises.

10. A notice had been received from the defendants stating their objection to a proposed rent increase to $120.00 per square metre per annum (/m2pa). The agent had then proposed an increase to $110.00/m2pa. This correspondence took place around May 1990. The defendants had not formally responded to the revised proposal.

11. On 8 August 1990, the premises were advertised for lease as "workshop premises suited for automobile or related industries. Available immediately at only $110.00 per square metre per annum".

12. The rental being paid by the defendants up to the time they vacated the premises was $99.45/m2pa.

13. Various advertisements seeking new tenants for the premises failed to elicit a response before the expiration of the term of the sublease (that is, 31 March 1991).

14. The agents had also written to the defendants prior to August 1990 seeking to arrange an arbitration of the rental increase. They had proposed one of their own staff members as the nominated arbitrator.

15. Mr Green agreed that on 17 October 1990, the first defendant had complained that the new lock on the gates had prevented his access to the premises. On 18 October 1990, Mr Green tendered a key to an employee of the defendants. That person refused to accept it. There was no subsequent request by the defendants for a key.

16. Mr Green said that the rent was paid for the months of August and September, but not thereafter. The rent was, at that time, $2,076.27 per month.

17. The first defendant gave details of incidents of blockage of access to the premises by reason of vehicles parked by representatives of the plaintiff. He said that such obstruction had taken place five times weekly on average. It took 15-20 minutes on each such occasion for the vehicle or vehicles to be moved.

18. After the first defendant received the letter from Jones Lang Wootten dated 22 May 1990, proposing the rent increase to $110.00/m2pa, he spoke to Mr Philbury of that firm. He communicated to Mr Philbury his refusal to accept the proposed rent increase. The response was, he said,
"Well, if you're not going to sign the letter, well, we'll just

have to terminate your lease."

19. A few days later, the first defendant spoke to Mr Greg Lyons of Jones Lang Wootten who, he said, upon being told the first defendant (presumably on behalf of both defendants) would not accept the proposed rent increase, replied,

"Well, I'll send up a chap this afternoon at about 20 past
three to have a look over the premises and we'll get them
advertised."

20. A few days later the first defendant told Mr Lyons that the defendants proposed to vacate the premises. In fact, they did so. They located and occupied new premises on or about 24 July 1990.

21. The first defendant conceded that he did not notify the plaintiff or its agents of the fact that he had left the premises. He assumed that relevant persons would notice that "the doors were shut".

22. Indeed, they did notice that, but not until 6 August 1990.

23. During October, the first defendant sought entry to the premises, to show them to a prospective tenant, but the gates were then locked. This, it seems, was the occasion when he had requested a key.

24. He agreed, in cross-examination, that Mr Lyons did not expressly say that the plaintiff had agreed to release the defendants from the sublease.

25. Mr E L Dunn, a valuer, gave evidence that a fair market rent for the premises as at 1 April 1991 was not more than $90.00/m2pa. He considered $110.00/m2pa to have been excessive. Advertising the premises at $110.00/m2pa, in his view, was so far above market expectations as to deter prospective tenants.

26. The premises were in fact leased to new tenants after the expiry of the sublease at a rental of approximately $93.00/m2pa. However, the new tenants occupied, it seems, only part of the area previously occupied by the defendants. The effective return to the plaintiff was, therefore, reduced to approximately $85.00/m2pa.

27. If the premises had been advertised at a fair market rent, it was Mr Dunn's opinion that a new tenant would have been found within three months from 6 August 1990.

28. Mr Lyons, an employee of Jones Lang Wootton, was also called to give evidence. His evidence concerning the conversations with the first defendant was substantively in accord with that given by the first defendant.

29. His Worship rejected the defendants' submissions that the difficulties they had with access to the premises amounted to a breach of covenant by the plaintiff. He also rejected their submissions that changing the locks was a repudiation of the sublease by the plaintiff. Nor was his Worship persuaded that the demand for an increased rent was a breach of the sublease. As was pointed out by his Worship, the sublease itself provided both for annual increases in rent, and a mechanism for fixing those increases.

30. His Worship found that in walking out of the premises, the defendants had abandoned the sublease. That is, they had displayed a clear intention not to be further bound by it. They had repudiated it. However, his Worship considered that the plaintiff, whether or not it accepted that repudiation, was entitled only to damages for breach of the sublease.

31. His Worship put that view in these terms,

"Did the lessor (plaintiff) accept the lessees' (defendants')
default? Does it really matter? The short answer is that it
doesn't really matter."

32. His Worship held that the plaintiff had a duty to mitigate its loss in any event. He assessed damages as follows,

"I am satisfied that, had (the plaintiff) offered the
(premises) for a fair market rental from the word "go", they
may well have found a tenant before the end of October, 1990. I
am satisfied that a fair market rental would have been $90.00
per square metre.
The damage suffered by the plaintiff is the difference between
the loss of the bargain struck between it and the defendants,
and what it could have got had it properly mitigated its
damages. The loss, then is $9.45 per square metre for the
period 1 November 1990 to 31 March 1991 ($9.45 x 250.53.
151/365). This loss is $979.44 (E and OE)."

33. No order was made for costs.

34. The plaintiff complains that his Worship was in error in assessing the sum due from the defendants. It contends that his Worship was wrong to conclude that the duty to mitigate damage arose. It says it was entitled to treat the sublease as on foot until its expiry. In any event, it says his Worship was wrong to conclude that the plaintiff had acted unreasonably in that it had made inadequate attempts to re-let the premises.

Walking out of leases - the duty to mitigate
35. The general rule is stated in Cassidy and Redfern Australian Tenancy Practice and Precedents (Bulletin No. 16, p.19) to be as follows,

"If the landlord elects to treat the lease as still on foot,
the correct legal position appears to be still, clearly, that
the landlord may sue for rent and other payments as and when
they fall due and is not required to mitigate his loss.
On the other hand, if the landlord elects to treat the lease as
determined, his remedy is damages only and he will be required
to mitigate his loss."

36. That general rule is no more than the application to leases of the general rule relating to contracts referred to in White and Carter Councils Ltd v McGregor [1961] UKHL 5; (1962) AC 413. The general rule is that, faced with repudiation of a contract by one party, the other may accept that repudiation and seek damages or refuse to accept it and insist on performance. The latter option is not available where further performance by the defaulting party cannot be compelled by specific performance and goes beyond the mere payment of money. There is a further possible exception referred to by Lord Reid in that case,

(431) "It may well be that, if it can be shown that a person
has no legitimate interest, financial or otherwise, in
performing the contract rather than claiming damages, he ought
not to be allowed to saddle the other party with an additional
burden with no benefit to himself. If a party has no interest
to enforce a stipulation, he cannot in general enforce it: so
it might be said that, if a party has no interest to insist on
a particular remedy, he ought not to be allowed to insist on
it. And, just as a party is not allowed to enforce a penalty,
so he ought not to be allowed to penalise the other party by
taking one course when another is equally advantageous to him.
If I may revert to the example which I gave of a company
engaging an expert to prepare an elaborate report and then
repudiating before anything was done, it might be that the
company could show that the expert had no substantial or
legitimate interest in carrying out the work rather than
accepting damages: I would think that the de minimis principle
would apply in determining whether his interest was
substantial, and that he might have a legitimate interest other
than an immediate financial interest. But if the expert had no
such interest then that might be regarded as a proper case for
the exercise of the general equitable jurisdiction of the
court. But that is not this case. Here the respondent did not
set out to prove that the appellants had no legitimate interest
in completing the contract and claiming the contract price
rather than claiming damages: there is nothing in the findings
of fact to support such a case, and it seems improbable that
any such case could have been proved. It is, in my judgment,
impossible to say that the appellants should be deprived of
their right to claim the contract price merely because the
benefit to them, as against claiming damages and re-letting
their advertising space, might be small in comparison with the
loss to the respondent: that is the most that could be said in
favour of the respondent. Parliament has on many occasions
relieved parties from certain kinds of improvident or
oppressive contacts, but the common law can only do that in
very limited circumstances."

37. Neither of these qualifications to the general rule gives support to his Worship's conclusion that whether a lessor accepts a lessee's default "doesn't really matter". His Worship concluded that the general rule as previously understood was displaced by The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17. That decision affirmed that the usual contractual rules were applicable to leases. His Worship seems to have assumed that the rule generally giving a landlord the choice to terminate or affirm a lease on default is peculiar to that relationship. It is not. It should be noted that the rule in White and Carter is of general application in the law of contract. It is, accordingly, one of those general contractual principles which applies to leases.

38. An innocent party faced with repudiation by another party to a contract may choose to affirm the agreement or to accept repudiation. The choice of the former course may be precluded for one or other of the reasons referred to by Lord Reid in White and Carter. If the former course is open, the question of mitigation does not arise. The claim is then one for debt not damages.

39. His Worship also declared that Maridakis v Kouvaris (1975) 5 ALR 197, a decision of the Supreme Court of the Northern Territory (Ward J), was wrongly decided. It is true that, as his Worship noted, that decision was criticised in an article written by Mr A J Bradbrook ((1976) 10 MULR 475). However, that criticism was not founded on any suggestion that the case was "wrongly decided" (see (1976) 10 MULR at 475-6). It was the rule itself that Mr Bradbrook thought should be changed. He expressed the view that reform would require High Court or legislative intervention.

40. Maridakis v Kouvaris (supra) was a classic case of a tenant "walking out" of a lease. The defendant tenant had returned the keys and left the premises. The landlord then closed and secured the premises and sought a replacement tenant. The landlord was, however, very particular about a replacement. He could have re-let the premises much earlier than he did.

41. Ward J found that the handing over and acceptance of the key, the securing of the premises and advertisements seeking a replacement for the tenant had not amounted to an acceptance by the landlord of the tenant's repudiation of the terms of the lease (see Goldhar v Universal Sections and Mouldings Ltd (1963) 36 DLR (2d) 450).

42. It was not until a fresh lease was granted to a new tenant that, in his Honour's opinion, surrender of the unexpired portion of the lease occurred.

43. In my view, Ward J's decision, on the facts as he found them to be, was in accord with past authority. There was no submission in that case that either of the qualifications to the general contractual rule, referred to in White and Carter, were applicable. The onus would have been on the tenant to establish that the duty to mitigate loss arose and had been breached (see Prus-Grzybowski v Everingham and Others (1986) 87 FLR 182).

44. Duncan Commercial Leases (2nd ed), does not provide support for his Worship's conclusion, though his Worship does refer to it. The relevant passage is at p.202 of that edition.

"As a lease must be construed like any contract, the principle
that a lessor must act to mitigate loss applies. Thus, where a
lessee abandons the leased premises, the lessor will be under a
duty to take reasonable steps to mitigate the loss by actively
seeking another lessee. Where the premises are re-let, the new
rent, whatever it is, will give some guide to whether or not
there has been a loss, apart from the loss of rent from the
date when the lessee stopped paying rent to the day of the
re-letting. However, there is nothing unconscionable generally in
a lessor sitting by and ultimately suing for accrued rent on a
regular basis as a debt without terminating the lease and suing
for bargain damages. Obviously, the logistics of this course
must be weighed against the final outcome, but it is a benefit
given by the lease and the election to determine is the
lessor's alone."

45. Duncan clearly accepted that, in the absence of circumstances rendering it unconscionable to do so, a lessor is entitled to decline to determine a repudiated lease and to sue for accrued rent.

46. That acceptance is not surprising. In Tall-Bennett and Co Pty Ltd v Sadot Holdings Pty Ltd (1988) NSW Conv R 57,881, Young J accepted that a landlord, like any other party to a contract, is entitled to keep the contract on foot if it is repudiated by the other party. His Honour accepted that, following Waltons Stores (Interstate) Ltd v Maher and Anor [1988] HCA 7; (1988) 164 CLR 387, it is possible that a party could be restrained from insisting on contractual rights. However, that would only be if such insistence was not merely unfair but unconscionable. Indeed, his Honour was prepared to accept the possibility of such restraint where such insistence would be "grossly unreasonable". His Honour said,

(57,887) "However, I can see nothing unreasonable about a
landlord insisting that he retain the comfortable legal
position that the granting of the lease has put him in and I
can see nothing unreasonable about the landlord being reluctant
to assume the trouble of expending money in preparing a new
lease and suing the tenant afterwards. I also can see nothing
particularly grotesque about the situation of putting it at the
feet of the tenant who wishes to abandon his lease to go to the
trouble to obtain a new tenant. If the landlord is unreasonable
about consenting to the person who is to take the tenancy, then
normally there can be a sub-letting or assignment without
consent. I think it is too fascile to say that in a tenancy
case the landlord is only interested in money for his rent, and
accordingly it is unreasonable to ask for his rent month by
month and he should only be limited to an action in damages for
breach."

47. There is a contrary view. In Vickers and Vickers v Stichtenoth Investments Pty Ltd (1989) 52 SASR 90, Bollen J considered a case of abandonment of a lease by tenants. Correctly, in my respectful opinion, his Honour rejected a view that the ordinary contractual rule is that acceptance of repudiation is ineffectual to terminate a lease. His Honour, correctly in my view, accepted that the ordinary principles of contract applied to leases. His Honour referred to the injustice perceived by Mr A J Bradbrook in another article ((1977) 8 SLR 15, 17). The author complained that the duty to mitigate loss is avoided where a landlord does not accept, or is not deemed to have accepted, a defaulting tenant's repudiation of a lease. His Honour considered that the duty to mitigate loss was, therefore, an applicable principle. However, in my view, the duty to mitigate damage, whilst being an "ordinary principle" is excluded, not because of any doctrine of privity of estate, but because it is open to a party, on such "ordinary principles" and if that party lawfully can, to keep a contract on foot rather than surrender the advantage it confers.

48. His Honour rightly asks,

(100) "Why should not a landlord faced with abandonment take
steps to try to reduce his loss? Why should a vendor of
tomatoes faced with refusal to take delivery by his purchaser
suffer if he does not sell if he can to another purchaser and
yet a quiescent and immobile landlord not suffer if he fails to
seek another tenant?"

49. However, in my view, the vendor of tomatoes referred to in his Honour's example may, if that person so chooses, complete the delivery and sue for the price. Thus a vendor of goods is not in any different position, faced with refusal by the other party to acknowledge the contract, than a landlord.

50. I can find no other authority which suggests that Progressive Mailing House requires the abandonment of the remedy, where available, of affirmation and performance of a contract with consequent entitlement to sue in debt. Accordingly, if any case was wrongly decided, it was Vickers and Vickers, not Maridakis.

51. Nevertheless, the entitlement to sue for rent rather than to sue for damages for breach in the absence of acceptance by the landlord of the tenant's repudiation of the lease agreement depends not only on the absence of the qualifications referred to by Lord Reid in White and Carter, but also on the absence of a term in the lease agreement imposing a duty to mitigate loss.

52. I will now examine those issues.

Did the sublease require the landlord to mitigate?
53. His Worship also expressed the view that the terms of the sublease required the plaintiff to mitigate its loss in the event of abandonment.

54. Clause 14.05 was relied upon. It provides,

"The Lessor acknowledges its obligation to take all reasonable
steps to mitigate any loss it may suffer consequent upon any
breach by the Lessee of its obligations under this lease and
any steps taken by the Lessor in an endeavour to so mitigate
damage suffered by the Lessor shall not of themselves
constitute acceptance by the Lessor of the Lessee's default."

55. The essential question is whether cl.14.05 effects a change in the contractual relationship otherwise obtaining between the plaintiff and the defendants.

56. The reference to the obligation to mitigate seems to me to suggest that the clause is directed towards affirmation of the common law position on breach rather than a radical alteration thereof. It seems unlikely that the plaintiff intended, by proffering cl.14.05 as a standard clause, to concede a right to the defendants which the law would not otherwise have extended to them.

57. It should be noted that, whilst non-payment of rent is usually a breach of a lease agreement, most leases do not oblige a tenant actually to occupy premises. There are, of course, some shopping centre leases which do impose such an obligation. This sublease imposed no such obligation. Hence leaving the premises vacant does not, of itself, constitute a breach within the meaning of cl.14.05. That fact has two consequences. First, to constitute repudiation, the tenant would, as the defendants here did, need to show that the lease was repudiated. Second, there could be no argument that the landlord needed to do anything to keep the lease on foot which would raise any of the qualifications referred to by Lord Reid in White and Carter (supra).

58. In any event, cl.14.05 has to be construed in context. It follows cl.14.03 and cl.14.04 which deal with the right to claim damages for breach of an essential term leading to premature termination of the sublease by the lessor.

59. Those clauses provide,

"14.03 If there is any breach by the Lessee of an essential
term or if the Lessor by the exercise of its powers under this
lease shall determine this lease before its expiry date or if
the Lessor re-enters pursuant to clause 13 of this lease then
and in each such case:
(1) the Lessee will compensate the Lessor for any loss (whether
of rent for the balance of the term or otherwise) which the
Lessor shall thereby suffer and the Lessor is entitled to claim
damages against the Lessee to recover that compensation.
(Remaining paragraphs not relevant.)
14.04 The right to compensation given by clause 14.03 is in
addition to and not in substitution for any other rights the
Lessor may have under this lease consequent upon any breach by
the Lessee."

60. It is clear that the context in which cl.14.05 appears supports the view that the duty to mitigate was acknowledged only as an accompaniment to the right to claim damages which the clause confers or recognises as the case may be.

Did the plaintiff accept a surrender of the lease?
61. When the plaintiff became aware that the defendants had vacated the premises, it did conclude, quite rightly, that the defendants had repudiated the sublease. The plaintiff performed two acts which could be construed as acceptance of the surrender by the defendants of the sublease. The plaintiff installed a new lock and offered the premises to the public for occupation at a rental of $110.00/m2pa.

62. The onus was on the defendants to persuade the court that these acts constituted an acceptance of the proffered surrender. There was clearly no express acceptance.

63. It is apparent that the new lock was not installed to exclude the tenants. It was intended merely to secure the premises. Indeed, his Worship so found and I consider that such finding could not be challenged. It was, in any event, not expressly challenged. If the defendants had desired to resume possession or to assign or sub-let pursuant to cl.4 of the lease, a key was available for them.

64. I conclude, therefore, that the plaintiff's conduct could not have been construed as an acceptance of the repudiation of the sublease before its expiry.

65. Advertising the premises as available for occupation, as was done in Maridakis v Kouvaris (supra), was consistent either with an intention to relet on the tenants' behalf, or with an intention to keep the sublease on foot until a new tenant was found. It was not, in the circumstances, an acceptance of the proffered surrender of the sublease.

66. It follows that it has not been shown that the plaintiff accepted a surrender of the sublease. The question then arises as to whether the plaintiff was precluded for any other reason from allowing the sublease to continue until it expired by effluxion of time.

When did the sublease expire?
67. Unless one of the two qualifications referred to by Lord Reid in White and Carter (supra) was applicable, this sublease could only have expired by effluxion of time.

68. There was nothing the defendants were required to do to perform their part of the agreement which could not have been enforced by action for debt. All the plaintiff had to do was to stand ready to permit the defendants to re-occupy or to assign or sub-let as the case may be, although it could, of course, have sub-let the premises on their behalf. It did not need to perform any act which it was contrary to the public interest for it to do in order to be entitled to receive or sue for outstanding rent or other sums due under the terms of the sublease.

69. The second qualification postulated that a court of equity might intervene if it was unconscionable for the plaintiff to decline to accept the proffered surrender of the sublease. This qualification is less well sanctioned or explained by authority.

70. An example of the possible application of such an exception, given by Lord Reid in White and Carter, was the case of an expert commissioned to prepare a report. It would be unreasonable to incur considerable expense to the benefit of no-one, serving only to inflate the claim (see above at p.9).

71. The Magistrates Court does have power, pursuant to s.6 of the Magistrates Court (Civil Jurisdiction) Act 1982 (ACT), to grant equitable relief to the defendants. They have not expressly raised an equitable defence, but I am prepared to assume that paragraph 8(ii) of the defence, in context, implicitly raises an equitable defence. In that paragraph the defendants allege that the plaintiff "waived" its rights by representing that if the defendants refused to accept the proposed rent increase, it would accept a surrender of the balance of the term of the sublease.

72. It is, of course, possible that a landlord could, by such a representation, render it unconscionable then to insist that the lease remain on foot. Indeed, I would accept that such a result would be consistent with the decision of the High Court in Waltons Stores (Interstate) Ltd v. Maher and Anor (supra).

73. However, although there was a vague threat from the plaintiff's agents to terminate the sublease if the rental increase was not accepted, there was no offer to accept a surrender. The agents did offer to "advertise" the premises as being available to a new tenant. However, that was consistent with a reservation by the plaintiff of its rights under the sublease to consent to an assignment or sub-letting or to re-let on the tenant's behalf. It did not amount to a representation that a proffered surrender would be accepted. The unilateral offer of surrender made by the defendants followed by vacation of the premises is not capable of altering the characterisation of the previous dealings between the defendants and the plaintiff's agents. The making of a demand for an excessive rent increase was not itself "unconscionable" given there was an agreed means for reducing or rejecting that claim. Indeed, the plaintiff's agents did purport to activate the arbitration clause in the sublease. The defendants were entitled, had they wished to do so, to reject the suggested arbitrator.

74. The onus is on the defendants to persuade the court that it would be unconscionable to permit the plaintiff to enforce its legal rights. It is not, per se, unconscionable for the plaintiff to fail to mitigate damages when the plaintiff has chosen to keep the sublease on foot. It did not by any act unreasonably increase the defendants' liability over and above the rent and outgoings otherwise payable. It did not hinder or prevent or unreasonably refuse to entertain a proposal for the assignment or sub-letting of the premises by the defendants.

75. In my view the lease expired by effluxion of time on 31 March 1991 and not before.

What is the sum due to the plaintiff?
76. The defendants paid rent for the period up to and including September 1990.

77. The initially agreed rental was $1,700.00 per month. The sublease provided for an annual rent review. The "review date" was "on the anniversary from (sic) the commencement date and thereafter yearly". The "commencement date" was 1 April 1987. Clause 2.02 of the sublease entitles the lessor "... not earlier than three months prior to ..." the relevant review date to notify the lessee of the amount alleged by the lessor "... to be the annual market rental appropriate to the premises as from that particular review date".

78. The figure so nominated is to become the new rental unless the lessee notifies the lessor within one month after receipt of such a notice that the rent should be fixed according to cl.2.03.

79. If cl.2.03 is invoked, the parties then are obliged to nominate an "expert valuer" to make a determination of the market rent as at the date of the relevant anniversary. In default of agreement on the identity of the valuer, each party is entitled to nominate a valuer. If those valuers disagree, the new rental is to be determined by an umpire upon whom those valuers agreed. If the nominated valuers failed to agree upon an umpire, the President of the ACT Division of the Australian Institute of Valuers is empowered to appoint one.

80. The result of that review was to be that,

"2.03 (g) the rent payable for the period until the next
ensuing review date shall be the greater of either the rent
refereed to in paragraph (e) of this clause as determined or
the rent payable immediately prior to such determination; and
(h) any variation in the rent resulting from such determination
shall take effect on and from that particular review date ..."

81. On 1 January 1990, the plaintiff became entitled to nominate a new rental. The existing rate was $99.45/m2pa. It was not until 12 April 1990 that the plaintiff notified its estimate of the new rental as from 1 April 1990. It proposed $120.00/m2pa, that is, $2,505.30 per month instead of $2,076.27 per month. On 9 May 1990, the defendants disputed this claim by an appropriately written notice. A compromise offer of $110.00/m2pa was then put on behalf of the plaintiff. It was also rejected. It was not until 4 July 1990 that the plaintiff's agents acted upon that rejection and proposed one of their employees as the valuer. On 3 August 1990, having received no response from the defendants, the plaintiff's agents purported to confirm the appointment of that employee, Mr Paul Street, as sole valuer.

82. It is doubtful whether, in those circumstances, the plaintiff had validly exercised its right to raise the lease rental for the period 1 April 1990 to the expiry of the sublease. It is unnecessary to decide that question however, as the plaintiff has claimed no more than the existing base rental as at 1 April 1990. The decision in Torminster Properties Ltd v Green and another (1983) 2 All ER 457 supports the view that this concession was correctly made.

83. There was an issue as to whether the defendants were liable for any additional "outgoings" than they had already paid.

84. Cl.2.05 referred to the liability of the defendants to pay outgoings. It was in the following terms,

"The Lessee covenants that if during the continuance of the
said tenancy the total annual amount payable by the Lessor for
land rent (if any), general rates, sewerage rates, basic water
rates and any other charges of a periodical nature imposed or
levied by the Commonwealth of Australia or appropriate
authority in respect of the said Crown Lease is increased
beyond the total amount of such charges at the commencement
date of the term hereof then the Lessee will pay to the Lessor
as and when demanded the percentage of the amount of such
increase set out in Item 8 of the Reference Schedule."

85. The relevant percentage was 19.72%.

86. The evidence disclosed that, on 15 August 1990, the plaintiff's agents wrote to the defendants fixing $1,708.73 as the amount due as at 1 April 1990 pursuant to cl.2.05. On 8 May 1991, by a further letter, they advised that the total then due under cl.2.05 was the sum of $3,297.13. The defendants did not dispute the factual or mathematical basis for these claims. They contended, however, that the plaintiff was not entitled to raise such a claim after they had abandoned the premises.

87. Primarily, of course, that issue has to be decided by reference to the agreement between the parties (see Progressive Mailing House (supra)). His Worship omitted to address this part of the plaintiff's claim.

88. It seems to me that cl.2.05 created a debt payable by the defendants to the plaintiff. It was due when demanded. The base figure was to be ascertained as at 1 April 1987. Increases continued to accrue until the expiry of the sublease. The sublease was still on foot as at 6 August 1990. The sublease continued until it was terminated by effluxion of time on 31 March 1991. Indeed, even on his Worship's findings which imply that the sublease terminated on 6 August 1990 or possibly, at the latest, at the end of September 1990 when the period for which rent had been paid ended, some sum under cl.2.05 had to be payable.

89. The next issue is whether the sum so payable could be demanded after the expiry of the sublease.

90. I was referred to Church of England Property Trust, Diocese of Sydney v Metropolitan Mutual Permanent Building and Investment Association Limited [1932] HCA 35; (1932) 47 CLR 369. In that case there was a covenant in a lease broadly similar to that in the instant sublease. The lease in that case had expired on 1 August 1931. Imposts within the meaning of the covenant were levied by the relevant rating authority in May 1931. They were levied in advance in respect of the whole of the year commencing 1 July 1931. The landlord failed to demand payment of those imposts before the expiration of the lease. The reason for that failure was that no rates notice formally demanding payment of the rates had been delivered by the relevant authority until that event had occurred. The High Court (Gavan Duffy CJ, Rich, Starke, Dixon, Evatt and McTiernan JJ) held,

(374) "No doubt the fact that the covenant was annexed to a
term of years would be enough to restrain its operation to
burdens with which the land became saddled before the
expiration of the lease. ... the covenant obliges the tenant to
pay only those taxes, rates, assessments and impositions which
before 1st August 1931 have been so assessed or imposed that
they may properly be paid before that date even if something
further be necessary before payment can be enforced by legal
process."

91. It was therefore held that the determination fell within the covenant.

92. In Elrington v Judd (1964-5) NSWR 493 a similar covenant was construed so that it continued to apply to a tenant "holding over" after the initial term had expired.

93. In my view, the covenant in this sublease clearly applied to require payment by the defendants of the percentage of the increase in the defined rates and charges up to the expiry of the sublease, whether or not the demand had been made before the sublease expired.

94. It follows that, if the sublease had expired only by reason of effluxion of time, the sum of $3,297.13 was due from the defendants to the plaintiff. If it expired after 1 April 1990 but before 31 March 1991, the evidence does not enable a finding that more than $1,708.73 was due. The reason for that, of course, is that there was no evidence as to when, after 1 April 1990 and before 31 March 1991, the increase recorded at the end of that period occurred.

95. As in my opinion the sublease expired on 31 March 1991, it follows that the sum of $3,297.13 together with arrears of rent from 1 October 1990 to 31 March 1991 was due from the defendants to the plaintiff as at the expiration of the sublease on that date. The rent was $2,076.27 per month. It was unpaid for the final six months of the sublease. His Worship seems to have assumed that rent had been paid for the month of October 1990. The parties are agreed that that assumption was incorrect. The total sum due for rent is, therefore, $12,457.62.

Generally
96. It follows from the above that the decision of the Magistrates Court must be set aside.

97. Accordingly, the appeal is upheld. In lieu of the orders made by the learned Magistrate, there will be substituted judgment for the plaintiff against the defendants in the sum of $15,754.75 plus interest pursuant to s.277B(2) of the Magistrates Court (Civil Jurisdiction) Act 1982 (ACT).

98. I will hear the parties as to costs.