Workcare Management v Gajic Holdings [2010] NSWSC 919 (11 June 2010)

Last Updated: 20 August 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Workcare Management v Gajic Holdings [2010] NSWSC 919


JURISDICTION:
Equity Division
Expedition List

FILE NUMBER(S):
2010/95135

HEARING DATE(S):
7-9 June 2010

JUDGMENT DATE:
11 June 2010

PARTIES:
Workcare Management Pty Limited (plainitff)
Gajic Holdings Pty Limited (defendant)

JUDGMENT OF:
Rein J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
R W Washington, R Lahood (plainitff)
A G Rogers (defendant)

SOLICITORS:
Thomas Henry Bray Lawyer (plaintiff)
Mitry Lawyers (defendant)


CATCHWORDS:
LANDLORD AND TENANT - leases and tenancy agreements - construction and interpretation - term of lease or tenancy - scope of "essential services" - whether breach of term that lessor must "maintain essential services" - whether lessee suffered loss or damage - whether lessee's damages could be offset against rent payable to lessor - where multiple causes of breach of lease

LEGISLATION CITED:
Building and Construction Industry Improvement Act 2005 (Cth)
Essential Services Act 1988 (NSW)
Sydney Water Act 1994 (NSW)

CATEGORY:
Principal judgment

CASES CITED:
Astley v Austrust Ltd (1999) 197 CLR 1
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266
British Anzani (Felixtowe) Ltd v International Marine Management UK Ltd [1980] QB 137
Butt v M'Donald (1896) 8 QLJ 68
Chatfield v Elmstone Rest House [1975] 2 NZLR 269
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Commonwealth v Amann Aviation (1991) 174 CLR 64
Luna Park (NSW) Ltd v Tramways Advertising [1938] HCA 66; (1938) 61 CLR 286
MEK Nominees Pty Ltd v Billboard Entertainments Pty Ltd [1994] ANZ ConvR 363
Mirvac Hotels Pty Ltd v 333 Collins Street Pty Ltd (unreported, Supreme Court of Victoria, Byrne J, 24 December 1994)
Rentokil v Channon (1990) 19 NSWLR 417
Robinson v Harman [1843-1860] All ER Rep 383
Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322
UCB Leasing Ltd v Holtom [1987] RTR 362
VACC Insurance Co Ltd v BP Australia Ltd [1999] NSWCA 427; (1999) 47 NSWLR 716

TEXTS CITED:
A J Bradbrook, C R Croft & R S Hay, Commercial Tenancy Law (3rd ed., 2009), LexisNexis Butterworths, Sydney
J W Carter, E Peden and G J Tolhurst, Contract Law in Australia (5th ed., 2007), LexisNexis Butterworths, Sydney

DECISION:
Held that the defendant was in breach of the lease in a number of respects.
Held that the plaintiff is entitled to damages for the failure to complete the building, which damages are equivalent to the amount of the rent payable and can be offset against the rent.
Held that any amount already paid by the plaintiff to the defendant out of the security bond should be returned to form part of the guarantee, and the other amount paid should be treated as a credit against rent that will become payable if and when essential services are completed.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST


Rein J

Date of Hearing: 7-9 June 2010
Date of Judgment: 11 June 2010

2010/95135 Workcare Management Pty Limited v Gajic Holdings Pty Limited

JUDGMENT (EX TEMPORE)

REIN J:

Background
1 These proceedings concern a building at 244 Coward Street, Mascot, New South Wales (“the premises”), which is now owned by Gajic Holdings Pty Ltd (“Gajic”), the defendant. The plaintiff, Workcare Management Pty Limited (“WCM”), entered into a lease with Gajic commencing on 6 November 2009 for a period of 5 years and with two further five year options. Gajic has demanded rent from WCM, WCM has paid one month’s rent, and Gajic has called on a bank guarantee to obtain payment of another month’s rent. WCM disputes Gajic’s entitlement to the rent, as it asserts that the premises are not fit for occupation, Gajic having failed to “maintain essential services” as required by clause 7.1.3 of the lease (see page 114 of Exhibit A1), and that the rent paid or extracted should be repaid or credited to it.

2 The plaintiff’s complaint is based on the absence of toilets, hand basins, hot water and air conditioning and inadequacies in fire fighting and fire safety equipment (see, for specific examples, Exhibits C, D and E, the affidavit of Mr De Gioia, a consulting engineer, sworn 14 May 2010 and the affidavit of Mr Zammitt, a director of WCM, sworn 19 April 2010 at paragraph 42).

3 Gajic accepted that toilets have not been installed (there is only a temporary toilet on the ground floor), that the air conditioning is not complete and that there are no hand basins, nor is there hot water. It disputed that the building did not comply with fire safety requirements, but in a number of respects, including the failure to complete a diesel pump, to install vibration pads under that pump, and the presence of mullions in front of a drenching system for fire fighting, the evidence of Mr Dowsett, Director of Planning and Development of Botany Bay City Council, and Mr de Gioia establishes that these defects exist.

4 The matter is one of considerable urgency due to the interlocutory regime that was put in place previously. If the defendant is entitled to rent, it is being held out of its money. The plaintiff, as part of the interlocutory regime, has given undertakings not to carry out fit-out work relevant to its occupation of the premises and the occupation of sub-tenants. By reason of this urgency and to avoid delay in handing down the Court’s decision, I have endeavoured to keep these reasons brief.

5 Before the building was constructed, an offer was made by CB Richard Ellis Pty Ltd, on behalf of Devcon Holdings Pty Limited (“Devcon”), to Safety Scene Pty Limited, which offer was accepted on behalf of Safety Scene Pty Limited or its nominee, and it nominated WCM (see pages 13-17 of Exhibit A). All page references hereinafter are to the consecutive-numbered pages of Exhibits A1 or A2.

6 An agreement to lease was entered into by WCM with Devcon on 3 December 2008 (see pages 19-32). That agreement annexed a form of lease identical with the lease which was in fact entered into by WCM with Gajic, and it provided that the lease was to be entered into on Devcon obtaining an “occupation certificate”. It also provided that Devcon would construct the premises in accordance with all statutory codes and requirements: clause 3.1 at page 25. It contained a definition of “Lessor” as “the Lessor, its successors and assigns”: see clause 1.1(h)(i) at page 22.

7 In December 2008, Devcon transferred ownership of the property to Gajic: see page 134. On 6 November 2009, Mr Lyall Dix of Dix Gardner issued an “interim occupation certificate” (see page 98). Gajic called on WCM to execute the lease (see pages 123, 131 and 719).

8 Initially, WCM resisted the call to execute the lease (see pages 123-124), taking the view that the building was not complete and inferentially disputing the validity of the occupation certificate. On or about 23 November, WCM executed the lease. Mr Zammitt gave as his explanation for having entered into the lease that he was promised by Mr Gajic and Mr Alcorn, representatives of the defendant, that the building would be completed by January 2010 (see T31-32). He had not made reference to this promise in his affidavits, but no evidence was called from Mr Gajic or Mr Alcorn, both of whom were present in Court, to rebut the oral evidence.

9 The lease was essentially in a standard Law Society form with a few special conditions. One of those special conditions was that no rent would be charged until 4 March 2010. A second special condition was that WCM was permitted to sub-lease the premises or parts of the premises. In that respect, it was required to obtain the approval of Gajic.

10 It appears from the evidence that WCM intended to sub-lease level 1 to Mascot Radiology and the ground floor to, at least, a cafeteria. There was also a pharmacy in contemplation, but WCM intended to occupy the balance of the building, which is five storeys high.

11 There are only a few clauses of the lease to which I need make reference. The first is clause 7.1.3, to be found at page 114. It provides that the lessor must “maintain essential services”. I will set out also the clause 8.2.1 that appears at page 115, which is in these terms:

“If the property for the building of which it is part is damaged (the term which includes destroyed) -

8.2.1 The lessee is not liable to pay rent, or any amount payable to the lessor in respect of outgoings and other charges, that is attributable to any period during which the property cannot be used under this lease or is inaccessible due to that damage;

8.2.2 If the property is still usable under this lease but its usability is diminished due to the damage, the lessee's liability for rent and any amount in respect of outgoings attributable to any period during which usability is diminished is reduced in proportion to the reduction in usability caused by the damage.”

12 There is no disagreement between the parties that what was to be provided to WCM under the lease was a “base building”, that is, a building completed but without fit-out. Partitions, carpets, office cupboards and the like were to be provided by and paid for by WCM or, I think it can be accepted, by arrangement between WCM and its sub-tenants, although the lease does not actually deal with that topic.

13 Between November 2009 and March this year, there passed a number of emails and SMSes between Gajic and WCM in which Gajic called for details of the fit-out proposed and WCM responded by referring to and providing copies of the DA drawings which it had submitted to the Botany Bay City Council (“the Council”) with the consent of Devcon at an earlier time.

14 The defendant’s position was that the plaintiff was never able or willing to provide it with the fit-out plans for its own tenancy and that of its sub-tenants, and therefore that it, Gajic, has never approved the fit-out plans.

15 The plaintiff’s witnesses maintain that the plans which were submitted for development approval (“DA”) and which were drawn by the architect common to both the owner and WCM in accordance with the agreement to lease were much more detailed than is usual for DA drawings and that there are no further plans except in relation to the Mascot Radiology, where some minor changes to accommodate radiology equipment had been proposed (see T106-107).

16 The defendant challenges the evidence of Mr Zammitt and Mr Frassetto (who is a consultant to WCM) to that effect, asserting that in none of the written responses by WCM does WCM ever make that assertion and pointing out that WCM’s own certifier, McKenzie, clearly thought that there would be further drawings and were not told by the plaintiff that the DA drawings were all that was needed for WCM to obtain a construction certificate from the Council as a necessary precursor to work being carried out.

17 The situation is further complicated by the fact that work by Mascot Radiology did commence fit-out on level 1, and a small amount of work was done in respect of the cafeteria, which led to protests by the defendant. On the defendant’s case, there was no approval for that work, and it is clear that no construction certificate has been issued for that work by the Council or by any independent certifier, as required by the terms of the DA: see page 35 of Exhibit A1.

18 No sub-lease has been executed by Mascot Radiology, although Mr Zammitt, who is a director of WCM, is also a director of and appears a shareholder in Mascot Radiology, which might explain why Mascot Radiology would be permitted by WCM to commence fit-out work on level 1 without the sub-lease having been executed by Mascot Radiology.

19 To the extent that the defendant relies on the above in support of the contention that WCM is in breach of the lease because it is carrying out or was carrying out work when no consent had been given by Gajic, the plaintiff’s response, in part, is that no such breach has been pleaded by Gajic in its Defence, an assertion which is correct.

20 The questions for determination are:

(1) Was the building, in the period 6 November 2009 to date, lacking essential services?

(2) If the answer to (1) is yes, was the absence of essential service a breach of the lease?

(3) If the answer to (2) is yes, is the plaintiff entitled to damages for that breach?

(4) If the answer to (3) is yes, to what damages is the plaintiff entitled?

The scope of “essential services”
21 I will deal now with the question of “essential services”. In my view, unaided by any expert evidence, the provision of toilets, hand basins, hot water, air conditioning and operative commissioned and properly installed fire safety equipment are unquestionably essential services for a commercial office block. I should add that Mr Washington of counsel, who appeared for the plaintiff, referred to legislative provisions in support of his contention that this was so, including making reference to s 27 of the Building and Construction Industry Improvement Act 2005 (Cth) and s 4 of the Essential Services Act 1988 (NSW), but I do not think that it is necessary to have resort to those legislative provisions to reach the conclusion that the services in question are essential.

22 Mr Dowsett was called in the plaintiff’s case and has had extensive experience in relation to building applications, and he gave evidence that each of these matters is the subject of detailed provision in the Building Code of Australia and that in the absence of completed works of those kinds, an occupation certificate should not be issued. He indicated that he has inspected the building and that he will be recommending to the Council on 15 June that steps be taken in the Land and Environment Court to have the interim occupation certificate issued by Mr Dix set aside. Mr Dowsett explained that an interim certificate is issued when there is still work to be done of a non-essential nature, such as carpets or partitions, but it is not appropriate when there are services of the kind missing here.

23 Mr Dowsett’s evidence only re-enforces my view, and I conclude that essential services for the premises were not complete on 6 November 2009 and remain incomplete. I might add that no explanation has been given by the defendant as to why that work has not been completed.

24 I also mention that Mr Dowsett drew attention to another problem in relation to the building, which is that it appears that some of the fire hydrants have been installed, contrary to the terms of the DA, outside of the margins of the building. That is something which he indicated that the Council would also be taking action in respect of.

25 There is a real question as to why an occupation certificate was issued when the building was incomplete, particularly having regard to Mr Dowsett’s evidence, and Mr Dowsett’s intention to seek to have the certificate set aside is understandable. In a sense, the certificate has led to the very odd situation in which the parties now find themselves. It would have been open to WCM to resist the validity of the certificate and the consequential requirement to enter into the lease, but that did not happen, and the Court is left to determine how the lease is to be interpreted in circumstances which I do not think would have been foreseen.

Breach of the requirement to maintain essential services
26 Turning now to the question of breach of the lease, clause 7.1.3 does not in express terms state that the landlord is required to install essential services. The plaintiff puts its case in several ways, asserting that the lease was subject to an implied term that such services would be installed and that the lessor must do whatever is necessary to deliver the promise that has been made by the defendant.

27 A passage from the decision of the then Chief Justice of Queensland, Griffiths CJ, Butt v M'Donald (1896) 8 QLJ 68, was relied on:

“It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract... such an implied warranty may be excluded by circumstances, but there are no circumstances in this case excluding it, and extrinsic evidence tends to strengthen rather than weaken the implication.”

28 WCM also submitted in the alternative that the clause itself could be construed as requiring the lessor to provide the services. Mr Rogers of counsel, who appeared for the defendant, argued that the tenant, having signed the lease with the premises in the condition in which they were in, cannot require the lessor to do more than what the clause read literally requires, that is, to maintain what is there.

29 Mr Rogers pointed out that Devcon, not Gajic, was the builder and that it was upon Devcon, not Gajic, that was imposed an obligation to complete the building in accordance with the Building Code of Australia and other relevant legislation.

30 If this argument is correct, then it follows that Gajic has no obligation to install the toilets and equipment, even now or at any time in the future.

31 Mr Washington argued that Gajic has at all times acted as if it is the successor to Devcon: see particularly the emails from Mr Alcorn, formerly of Devcon and then of Gajic, at page 719, 123 and 131-132. Mr Washington argued that Gajic cannot now proceed as if it has not taken over the rights and obligations of the agreement to lease, since to do so would be to approbate and reprobate.

32 On Mr Rogers’ theory, there was no right for Gajic to call on WCM to enter into the lease in November 2009, since if his contention is correct, there was no agreement then between Gajic and WCM on foot. There can be little doubt that if WCM had resisted execution of the lease on the basis that Devcon was to be the lessor, and not Gajic, it would have been provided with a formal document of assignment by Devcon to Gajic. Further, if the agreement to lease is not relevant, then there is no provision relevant in respect of sub-leasing other than special condition 4. I accept Mr Washington’s argument that Gajic cannot approbate and reprobate as it seeks to do: see VACC Insurance Co Ltd v BP Australia Ltd [1999] NSWCA 427; (1999) 47 NSWLR 716 at 724 ([32]) per Fitzgerald JA, with whom Meagher JA concurred.

33 In any event, the existence of the agreement to lease in its terms between Devcon and WCM, even if it was not assigned by Devcon to Gajic, is an extrinsic fact known to both parties to the lease, and if regard were had to those matters, it would only assist the plaintiff’s case.

34 I am of the opinion that a promise to maintain essential services entails a promise to install the essential services. If I am wrong in that conclusion, I regard it as appropriate to imply a term to that effect, as it would meet the requirements for implication of a term laid down in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266 at 282-283 and approved in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347, namely that:

(1) it is reasonable and equitable;

(2) it is necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

(3) it must be so obvious that “it goes without saying”;

(4) it must be capable of clear expression; and

(5) it must be not contradict any express term of the contract.

Damages
35 I turn now to damages. The plaintiff, having established breach of the lease by the defendant, is entitled to damages. Although nothing was said about the point, it is clearly entitled to at least nominal damages for the breach: see Luna Park (NSW) Ltd v Tramways Advertising [1938] HCA 66; (1938) 61 CLR 286 and see A J Bradbrook, C R Croft & R S Hay, Commercial Tenancy Law (3rd ed., 2009), LexisNexis Butterworths, Sydney at [13.13]. The dispute was, however, as to the measure of damages.

36 The plaintiff in its Statement of Claim claims that it has suffered, and continues to suffer, loss and damage. It particularises as its damage the rent paid on 6 March 2010, the amount extracted from the bank guarantee called on by the defendant on 16 April 2010, and the amount of loss and damage “attributable to the plaintiff’s inability to enjoy the benefit of the lease including to receive rent”. It then refers to the three sub-tenancies, including the Mascot Radiology sub-tenancy, which at the hearing it did not seek to establish were entered into. The plaintiff now puts its case solely on the basis of the rent paid. Mr Rogers argued that the plaintiff had in fact suffered no loss or damage notwithstanding the defendant’s breach if, contrary to his contention, that was made out, for the following reasons, as I understood his argument:

(1) The payment of rent is a contractual obligation and cannot be “damage” or a head of damages.

(2) The plaintiff was unable to complete its fit-out for a number of reasons, not solely because of the absence of essential services.

(3) The defendant asserts that the fit-out cannot be completed, or even commenced, because no construction certificate has been issued by the Council, and no construction certificate has been issued because, in addition to the problems identified by the plaintiff:

(a) there was no waste management plan submitted by the plaintiff to the Council;

(b) there was no “section 73 certificate” submitted to the Council; and

(c) Gajic has not consented to or approved the fit-out plans for the subtenancy, and that is because WCM, it is alleged, has not provided the relevant documentation to the defendant.

37 The waste management plan, the section 73 certificate and the approval of the owner of the property were required by the DA.

38 Mr Rogers argued that the general principle in the assessment of damages applicable to a breach of contract is to compare the position that the plaintiff has been placed in by reason of the breach to the position that the plaintiff would have been in had there been no breach.

39 This test, I note, has been long established: see Robinson v Harman [1843-1860] All ER Rep 383, Rentokil v Channon (1990) 19 NSWLR 417 at 420, and more recently Commonwealth v Amann Aviation [1991] HCA 54; (1991) 174 CLR 64 at 80, 98 and 116.

40 Before expressing my views on this matter, I draw attention to the fact that there have been a number of cases in more recent times that have departed from the view that rent is different to other payments due under a contract. The development of the law is detailed in British Anzani (Felixtowe) Ltd v International Marine Management UK Ltd [1980] QB 137 and further in Victoria in MEK Nominees Pty Ltd v Billboard Entertainments Pty Ltd [1994] ANZ ConvR 363. See also a summary in the decision of Byrne J in Mirvac Hotels Pty Ltd v 333 Collins Street Pty Ltd (unreported, Supreme Court of Victoria, Byrne J, 24 December 1994) BC 9401396 at page 11 and see also Bradbrook, Croft and Hay supra at [7.4].

41 British Anzani and the later cases establish that a lessee can offset against the lessor’s claim for rent damages incurred by reason of the lessor’s breach of covenant. Sometimes the damages may be the actual cost of undertaking repair that the landlord should have undertaken, but that is not the only head of damage available. There does not appear to be any authority which supports the proposition that rent cannot be claimed by a landlord even where the premises are unoccupiable, and there is authority to the contrary: see Chatfield v Elmstone Rest House [1975] 2 NZLR 269 at 275 and the cases there cited.

42 Mr Rogers’ argument focuses upon the damages, and he does not dispute that if, contrary to his contentions, the plaintiff has suffered a loss, it can offset damages for that loss against the rent, as held in British Anzani and confirmed in Mirvac. His point is that the plaintiff has suffered no loss.

43 It will be observed that the defendant’s argument places focus on the issue of a construction certificate and the question of the fit-out. There are difficulties even on that analysis, but in my view, the argument ignores the fact that the plaintiff was, by the lease, to be provided with a building that was complete, and what it was given, because of the breach, was a building that was incomplete.

44 The plaintiff does not now make any claim for lost rent due to it from the sub-tenancies, so the question of whether it would have obtained rent if the lessor had done all that was required of it does not arise. It has been provided with premises that are not able to be used or occupied even if it completes the fit-out successfully. The defendant’s argument implicitly proceeds upon the basis that the provision of an incomplete base building constitutes no damage or loss at all to the plaintiff, and I am not able to accept that proposition.

45 The quantification of damages in such circumstances is, I think, aided by the clause of the contract dealing with damage to the building, since although it is not applicable in terms to the present problem, that section deals with a closely analogous situation and those terms provide that if the premises cannot be used, then no rent is payable, and provide that if they can be used but only in part, there will be, in effect, a proportionate abatement.

46 Mr Rogers did not resist the proposition that clause 8 provided some guidance, but he argued that the plaintiff can use the premises for fit-out, so that clause 8.2.2 is applicable by analogy. This argument is based on the evidence of Mr Dowsett and Mr Frassetto that portable toilets, portable hot water systems and basins and portable air conditioning can be provided to enable fit-out work to be carried out.

47 There seems to be a degree of inconsistency on the part of both the plaintiff and the defendant, because the plaintiff, which asserts that its fit-out was impeded, in fact seems to have permitted its sub-tenant to carry out work, and the defendant, which now seeks to make out a case that the plaintiff could have proceeded with its fit-out (see Mr Samardic’s affidavit sworn 4 June 2010 at pages 1209-1212) and therefore has suffered no loss, sought to prevent the fit-out from going ahead, at least in part because it had not approved the fit-out: see, for example, pages 450, 472 and 480. The defendant did not plead that the plaintiff was in breach of the lease or agreement to lease because it did not obtain the defendant’s approval, so there can be no case advanced that the fit-out was not proceeding due to the plaintiff’s own breach.

48 The defendant has not provided, or offered to provide, all of the items that have been identified as being required to enable the premises to be utilised to permit the fit-out to continue. No argument is advanced against the plaintiff on the basis of a failure by the plaintiff to mitigate its damage. The plaintiff, or its proposed sub-tenant, Mascot Radiology, apparently did provide portable air conditioning to level 1 (see T106-107), but it is unclear whether or not this met the relevant safety requirements.

49 There is no clarity as to what interim fire safety regime should be imposed for the safety of workers carrying out fit-out work on the premises. So it is not clear what would need to be done, and by whom, to ensure that the premises were ready for fit-out work in accordance with statutory requirements. The fire safety requirements are matters within the province of the owner of the premises.

50 There was evidence from Mr Frassetto that the fit-out should not take place before the main air conditioning units were installed (see T78) and although some of the air condition work has been done (see T62-63), it is not complete: see paragraphs 17 and 18 on page 180.

51 The parties, by the lease which allowed for a four month rent holiday, seem to have taken into account that premises which are complete but in respect of which fit-out has not been completed are not appropriately the subject of a charge for rent, reinforcing the notion that the rent specified was for a completed and fitted-out building, and not for a building which did not provide essential services and could not be used even if fitted-out.

52 In determining the damage that the plaintiff has suffered by reason of the defective premises, the rent required by the lease to be paid is also a useful guide as to the commercial worth of the lease. I note that a similar approach was taken in UCB Leasing Ltd v Holtom [1987] RTR 362, a case involving a motor car which had “a serious defect in its electrical system”. Lloyd LJ, having noted that the lenders were entitled to damages for non-payment of instalments which had fallen due but that the hirer was entitled to the cost of hiring of a car on similar terms less the value of the use actually obtained, then said at 367:

“How is one to arrive at such a cost? The answer is to take the actual cost of hiring the car in question from the plaintiffs. The matter is put very clearly by Donovan LJ in Charter House Credit Co Ltd v Tolley [1963] 2 QB 683. After explaining that the defendant must pay instalments outstanding at termination, Donovan LJ continued, at p 706:

‘For this outlay however he has received nothing, owing to the company’s breach of contract, except the two rides to Greenwich. What is required to put him, so far as money can, in the same position as if the contract had been performed? To my mind, it is a sum equal to the cost of hiring a similar car on similar terms as to the eventual option to purchase for £1. There is no reason why one should not adopt as the figure of that cost what the hirer actually has to pay to the company for the like hiring in the present case.’

That leaves only the proper deduction for the defendant’s use of the car during the second period. Mr Irvin submits that there should be no deduction, since the defendants’ use was minimal.”

53 Obviously the decision is in a different context to the present one, but the problem is analogous to the present, even without the additional factor of clause 8.2.

54 My conclusion is that the premises have not been shown to be usable as a commercial tenancy in the period between March, which is when the rent started, and now, and accordingly that the plaintiff is entitled to offset against the rent as damages the amount of the rent. If I am correct in this approach, it is not necessary to consider the issue at the heart of Gajic’s defence to the breach, which is that no loss was caused to the plaintiff because of the absence of the construction certificate.

55 I shall deal with each of the other factors asserted, the first of which is the lack of approval by the defendant. I have noted that there is no assertion in the Defence that the plaintiff was in breach of the lease by not seeking the defendant’s approval, and Mr Rogers in his submissions did not actually assert a breach either: see also T106.30-45. Rather, he asked the Court to find that the plaintiff had never genuinely believed that the DA drawings were sufficient for approval by the defendant. The lease itself imposes no requirement on WCM to obtain Gajic’s approval, and the agreement to lease is the only source of the requirement that the plans had to be submitted to the builder’s architect and be drawn by that same architect.

56 Mr Samardic, a director of the defendant, asserted in an email that what he had seen being installed on level 1 bore no resemblance to what was in the DA drawings approved by Council. He did not give evidence in his affidavit of this.

57 Mr Frassetto gave evidence for the plaintiff that the work being done on level 1 was in accordance with the approved DA drawings, except to a minor degree (see T106-107), and he was not challenged on that. He was cross-examined on the absence of any indication by the plaintiff until now that it regarded the DA drawings as detailed and sufficient to constitute an approval by the defendant, since the DA was certainly lodged with the approval of Devcon.

58 No expert evidence was called to establish that the plans were insufficiently detailed to permit approval by the Council for the fit-out work, and Mr Dowsett was not asked about this by Mr Rogers. The question is not what the directors of WCM thought, but rather whether WCM was in breach of an obligation pursuant to the lease or the agreement to lease.

59 I am not persuaded that the defendant has not been provided with sufficient information to approve the lease to Mascot Radiology or the cafeteria or the pharmacy, or that an independent certifier would be unlikely to approve the plans. There are some indications that Devcon and Gajic have consented to the sub-tenancies: see pages 684, 695 and 868 and the DA drawings themselves.

60 So far as the section 73 certificate is concerned, the reference is to s 73 of the Sydney Water Act 1994 (NSW). It is a certificate required by the DA to be obtained from Sydney Water and it is provided to a developer who has complied with the requirements of section 74 of the Sydney Water Act. It was agreed that this could be easily rectified. In fact, there is evidence that the plaintiff actually sought a copy from the defendant, which was not provided: see T94-95 and page 693. Although it might be true that the plaintiff could obtain the certificate itself, given that the plaintiff asked the defendant for and the defendant said that it would provide it, it is the defendant’s own failure which has lead to the absence of the certificate. No explanation has been given by the defendant as to why it has not supplied that certificate to the plaintiff.

61 Dealing now with the waste management plan, it is clear that it has not yet been submitted to Council, and according to Mr Frasseto’s evidence, it is still being finalised. There is no evidence before the Court as to how long such a plan would normally take to prepare, and there is no evidence from the plaintiff that it had made no progress on that plan because there was no urgency whilst the premises did not have essential services completed.

62 I think that, in any event, there is a real issue of proportionality as between the absence of this document and the failure of the defendant to ensure that the base building was completed, but even assuming in favour of the defendant that the absence of the waste management plan would be a reason for the inability of the plaintiff to proceed with the fit-out, at its highest, its absence is one of a number of causes for the absence of the construction certificate.

63 The defendant's case seems to promote a “but for” test. During submissions, counsel sought to identify the correct test where there are multiple causes which are not interdependent causes. The matter is in fact dealt with by binding authority of the New South Wales Court of Appeal in Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322 at 346 by Samuels JA, with whom Moffitt P and Reynolds JA concurred, approving of a statement in Chitty on Contracts, 23rd edition, page 670 par. 1448, that is:

“If a breach of contract is one of two causes, both co-operating and both of equal efficacy in causing loss to the plaintiff, the party responsible for the breach is liable to the plaintiff for that loss.”

See also J W Carter, E Peden and G J Tolhurst, Contract Law in Australia (5th ed., 2007), LexisNexis Butterworths, Sydney at [35-21].

64 Contributory negligence is not available to a claim based in contract: see Astley v Austrust Ltd (1999) 197 CLR 1.

Conclusion
65 The defendant was in breach of the lease by failing to complete the air conditioning, failing to provide toilets and hot water, failing to complete the installation of fire safety equipment and fire cupboard doors, failing to remove the mullions that impede the drenching system, and failing to remove pipework in the fire stairs. In my view, the plaintiff is entitled to damages for the failure to complete the building, which damages are equivalent to the amount of the rent payable and can be offset against the rent. Any amount already paid by the plaintiff to the defendant out of the security bond should be returned to form part of the guarantee, and the other amount paid should be treated as a credit against rent that will become payable if and when essential services are completed. I will hear the parties on the precise form of orders to be made, but so far as the future is concerned, I am presently inclined to the view that I can declare that the plaintiff is entitled to offset against any rent due the amount of rent payable under the lease up until the time the defendant has established that all essential services in the building, and in particular toilets, hand basins, hot water, air conditioning and fire safety requirements, including removal of the mullions and pipework in the fire stairs, have been completed.

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LAST UPDATED:
20 August 2010