Cross v Murstaff Industries Pty Ltd [2016] QDC 51

DISTRICT COURT OF QUEENSLAND CITATION: Cross v Murstaff Industries Pty Ltd & others [2016] QDC 51 PARTIES: Cross (Appellant) v Murstaff Industries Pty Ltd & others (Respondent) FILE NO/S: 102/15 DIVISION: Civil PROCEEDING: Appeal ORIGINATING COURT: Brisbane DELIVERED ON: 11 March 20161 DELIVERED AT: Brisbane HEARING DATE: 31 August 2015 JUDGE: Rackemann DCJ ORDER: Appeal allowed. The decision of the Magistrate is set aside. Judgment is entered for the second defendant with costs of the action and of the appeal. CATCHWORDS: APPEAL FROM DISMISSAL OF SUMMARY JUDGMENT APPLICATION BY A DEFENDANT – where relevant defendant was a guarantor under a lease – where option to renew exercised – whether guarantee extended to obligations during the further term – whether, if not, a term to that effect should be implied – whether moneys otherwise recoverable pursuant to the terms of an indemnity COUNSEL: R. Frigo for the appellant I. Klevansky for the respondent SOLICITORS: Woods Hatcher Solicitors for the appellant Worcester and Co Solicitors for the respondent 1 Preparation of this judgment was delayed by a significant period of leave, including special leave as a consequence of a significant medical incident -- 1 of 8 -- 2 [1] This appeal is against the decision of a Magistrate to dismiss an application, by the appellant/second defendant, for summary judgment against the plaintiff/respondent. The plaintiff’s claim against the second defendant is for money said to be owing as a result of his having guaranteed, pursuant to a deed of assignment (the assignment), the first defendant’s obligation to pay rent, interest and outgoings under a lease of a certain premises. [2] The defence admitted paragraphs 2 and 3 of the Amended Statement of Claim, which plead that: (i) On 1 May 2009, the first defendant became a tenant of the premises pursuant to an assignment (ii) The assignment took effect on 1 May 2009 and the first defendant became bound by the provisions of the lease, including as to the payment to the plaintiff of rent and outgoings (iii) On 1 May 2009 and by reason of clause 7 of the assignment, the second defendant agreed to A. Pay the Plaintiff on demand all money payable by the First Defendant to the Plaintiff under the Lease. B. Indemnify the Plaintiff against any loss or damage suffered in connection with the First Defendant’s failure to comply with the terms and conditions of the Lease. [3] The summary judgment application was brought on the basis of the second defendant’s contention that he was not the guarantor of those of the first defendant’s obligations to which the claim relates. That is because the claim is for rent, interest and outgoings for a period commencing, at the earliest, from 30 June 2011, beyond the first term of the lease, which expired on 28 February 2011. [4] The first defendant’s tenancy continued after expiry of the initial term. There is, on the pleadings, a dispute about the nature of that ongoing tenancy but, for the purposes of the summary judgment application, the second defendant was content for the court to proceed on the basis, as pleaded in paragraph 4 of the Amended Statement of Claim, that the first defendant exercised an option to renew for a further 3 years. [5] The appellant contends that the learned magistrate erred in the following 2 respects: (i) by failing to conclude that the guarantee did not extend to the renewed term and/or; (ii) in failing to find that a new guarantee was required in order for the second defendant’s obligations to extend to the renewed term. Those propositions call for an examination of the relevant terms of the lease and the assignment. [6] Clause 7 of the lease made provision for a guarantee. In particular, clause 7.2 of the lease provided; “In consideration of the Landlord entering into this documents at the request of the Guarantor, the Guarantor irrevocably and unconditionally guarantees to the Landlord the punctual payment by -- 2 of 8 -- 3 the Tenant of the Guaranteed Money and performance by the Tenant of the obligations of the Tenant under this document.” [7] Paragraph 21.4 of the Lease is in the following terms: “If the Tenant exercises the option to renew the Lease of the Building for the Further Term under and in accordance with clause 21.1: (a) The documents for the New Lease, including the Guarantee and Indemnity by the Guarantor, will be prepared by the Landlord’s solicitors; (b) The Tenant must return the documents for the New Lease or the extension of this Lease, as the case may be, properly executed by the Tenant, the Landlord, or its solicitors within 20 Business Days after it is given to the Tenant or its solicitors; and (c) The Guarantor must, and the Tenant must procure the Guarantor to, return the document for the New Lease, including the Guarantee and Indemnity, properly executed by the Guarantor to the Landlord or its solicitors within 30 Business Days after it is given to the Tenant or its solicitors. [8] The ‘Guarantor’ for the purposes of the lease was Konstantino Green. He was described in the assignment as the “existing guarantor”, whereas the second defendant was described as the “new guarantor”. The “background” recitals in the assignment included that: “ E. The Existing Guarantor has guaranteed the obligations of the Existing Tenant under the Lease. F. The New Guarantor guarantees the obligations of the New Tenant under this deed and the Lease.” [9] By clause 7.1 of the assignment, the existing guarantor consented to the assignment and variation of the lease. By clause 10.5 the parties acknowledged that the existing guarantor was released from liability from the Assignment Date, being 1 May 2009. [10] The new guarantor’s obligations were provided for in clause 7 of the assignment, including relevantly, as follows “7.3 Guarantee and Indemnity In consideration of the Landlord consenting to the assignment of the Lease to the New Tenant, the New Guarantor irrevocably and unconditionally agrees to: (a) Pay to the Landlord upon demand all money payable by the Tenant under the Lease or this Deed on and from the Assignment Time; and -- 3 of 8 -- 4 (b) Indemnify the Landlord against all actions, liabilities, penalties, claims, demands, loss or damage incurred or suffered directly or indirectly in connection with the New Tenants failure to comply with any term or condition of the Lease or this Deed.” [11] The present dispute arises in circumstances where a Lease Renewal Deed (which included a provision as to the continuity of the guarantee given by the second defendant pursuant to the assignment) was prepared but never executed. In the absence of any new guarantee for the renewed term, there is a question as to whether the new guarantor’s obligations extended to performance of the obligation to pay money payable by the first defendant beyond the initial term of the lease. [12] Although extracting certain provisions of the lease in relation to the guarantee given by the original guarantor (including a provision that that guarantee was not adversely affected by any renewal), the learned Magistrate correctly observed that, pursuant to the terms of the assignment, the second defendant guaranteed the obligations of the first defendant, but did not assume the obligations of the existing guarantor under the lease. [13] The obligations of Mr Green, as guarantor under the lease, were provided for in clause 7 of the lease. That clause created obligations on the ‘Guarantor’, a word which was defined, in the lease, to include not only Mr Green, but also “any other person required to give a Guarantee and Indemnity from time to time”. The expression ‘Guarantee and Indemnity’ was, in turn, defined to mean the guarantee and indemnity under Clause 7 of the lease. The second defendant was not a person who was required to give a Guarantee and Indemnity in the terms of clause 7 of the lease. Instead, by virtue of clause 7.3 of the assignment, the second defendant gave a different (and more confined) guarantee and indemnity pursuant to that separate instrument and dealing. The second defendant did not thereby became a Guarantor pursuant to the extended definition of that word in the lease or become bound by the same obligations which Mr Green had assumed under clause 7 of the lease. [14] The scope of the second defendant’s obligations are to be found by reference to clause 7 of the assignment, rather than by reference to clause 7 of the lease. The learned Magistrate concluded however that, properly construed, clause 7.3 of the assignment rendered the second defendant liable in respect of the option period. Her Honour erred in that regard. [15] The second defendant’s obligation under clause 7.3(a) was, relevantly, to pay to the landlord, upon demand all money payable by the first defendant under the “Lease” on and from the Assignment Time. The Assignment Time commenced on 1 May 2009. Clause 7.3(a) did not state any end date for the period of the obligation. The learned Magistrate correctly approached the matter by focusing on whether the money now claimed, in respect of the option, was money payable “under the Lease” for the purposes of clause 7.3 of the assignment. [16] The term ‘Lease’ in clause 7.32. That is significant because clause 1.1(b) of the assignment relevantly provides that, unless the contrary intention appears, words beginning with capital letters are defined in clause 1.2. The word ‘Lease’ is defined in clause 1.2 as meaning “the lease of the premises in Item 3 as varied by this deed”. Item 3 reads as follows: 2 and also in recital F in the ‘background’ in the assignment. -- 4 of 8 -- 5 Item 3 Lease Commenced 1 March 2008 Expiry 28 February 2011 [17] Reading clause 7.3 (a) with the relevant parts of clauses 1.1 and 1.2 supports the appellant’s contention that the guarantee only related to the obligations under the lease for the period from the Assignment Time to the stated expiry date in item 3. [18] The learned Magistrate referred to Murray v Redcliffe Taxation & Management Services3 where it was held that guarantors continued to be liable, in the absence of a further guarantee, where the tenant exercised an option to renew or extended the term of a lease. That was, however, in circumstances where the guarantors had guaranteed: “by way of continuing guarantee the due and proper payment of all payments of rental moneys and all other monetary obligations and liabilities … under, pursuant to, or connected with the lease and the due, proper and prompt observance, performance and fulfilment of all agreements, covenants, terms, conditions and stipulations express or implied in the lease”. The same document defined “the lease” to include any extension, renewal or holding over by the tenant. There was no such provision however, in the definition of “Lease” under the deed of assignment in this case. [19] In concluding that the moneys payable under the Lease, for the purpose of clause 7.3 of the assignment, included that payable in the option period, the learned Magistrate relied upon clause 1.24 of the assignment where the word “Term” is defined to mean “the term of the Lease and includes the term of any options for renewal and any over holding under the Lease”. Her Honour saw that definition as extending the obligations of the second defendant, as guarantor, to the period of any renewal. The difficulty with that however, is that the provision relied upon by her Honour is only a definition, to be used when construing those provisions of the assignment which use that word. In this case neither clause 7.3 nor the definition of any word used therein referred to “Term” as defined. The defined word ‘Lease’ is used in the definition of the word ‘Term’ but not vice versa. Clause 7.3 could easily have been drafted to extend to money payable throughout the ‘Term’ of the lease had that been the intention of the parties, but that is not what it provides. There was nothing which engaged the defined meaning of Term let alone in a way which imposed an obligation upon the second defendant. Her Honour erred in construing the extent of the Guarantor’s obligations in clause 7.3 by reference to the definition of a word not used in the relevant clause.5 [20] It was pointed out, on behalf of the plaintiff/respondent, that the word ‘term’ is used in the indemnity given by the second defendant in clause 7.3(b) of the assignment as follows 3 [1999] QSC 341. 4 Incorrectly referred as clause 1.1 in the learned Magistrate’s reasons. 5 I note that the word does not appear to be used in any operative clause of the assignment. -- 5 of 8 -- 6 “(b) indemnifying the landlord against all actions, liabilities, penalties, claims, demands, loss or damage incurred or suffered directly or indirectly in connection with the New Tennant’s failure to comply with any term or condition of the Lease or this deed”. That is however, of no assistance, because the expression ‘term’ as used in the indemnity is not the same as the defined word “Term”. The former obviously describes an obligation under the lease rather than its duration. [21] It was submitted, on behalf of the plaintiff/respondent that summary judgment ought not be given even if the amounts claimed were not owing by the second defendant pursuant to the guarantee in clause 7.3(a) of the assignment. It was contended, in this respect, that the plaintiff/respondent ought instead be given an opportunity to amend its statement of claim to seek to recover the moneys on the basis of (A) an implied term, or (B) the indemnity in clause 7.3 (b) [22] In support of the first of those (the implied term) it was submitted that:  but for the assignment, the guarantee given by the original guarantor under the lease would, having regard to its terms, have survived the exercise of an option to renew;  there should be implied into the terms of the guarantee given by the second defendant in the assignment, that it was assuming the same extent of obligation; and  the definition of ‘Term’ in the assignment evinces an intention of the parties for the obligations under the assignment to extend to the period following an option. [23] Assuming the first of those propositions to be correct, there would appear to be no reasonable prospect of establishing the implied term contended for. The conditions necessary to ground the implication of a term are:6 (1) It must be reasonable and equitable; (2) It must be 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; (5) It must not contradict any express term of the contract. [24] The implied term for which the plaintiff/respondent wishes to contend fails at least 3 of those conditions. In that regard (adopting the same paragraph numbering): 6 B.P. Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 347 at 347. -- 6 of 8 -- 7 (2) Whilst it might have been wise for the plaintiff/respondent to have negotiated terms with the new guarantor to this effect, the implication of such a term is not necessary to give business efficacy to the agreement. The agreement with its different and more limited guarantee and indemnity, is effective without such an implied term; (3) It is not obvious, to the point of going without saying, that the second defendant, as the new guarantor was assuming obligations which were co- extensive with the departing guarantor, nor does it go without saying the definition of “Term” (or anything else) means that the intention of the parties was that the guarantor’s obligations under clause 7.3 were to extend to an option period; (5) The term sought to be implied contradicts an express term of the agreement, namely clause 7.3 of the assignment which in so far as it relates to money payable under the Lease, is, for the reasons already given, on its proper construction, restricted to obligations for the remainder of that period to 28 February 2011. [25] The contention that the plaintiff/respondent’s case could be pleaded instead on the basis of the indemnity in s 7.3(b) is flawed. The contention is that the second defendant could be liable on the basis of an alleged obligation to indemnify the plaintiff/respondent for loss and damage incurred by reason of the first defendant’s failure to procure a guarantee from the second defendant for the Further Term. That is based on clause 21.4 of the lease and the assumption that the second defendant came within the extended definition of Guarantor and so someone from whom the first defendant was required to procure the return of the new lease, including a Guarantee and Indemnity. This argument might have been provoked by the appellant’s secondary contention, which called clause 21.4 in aid to suggest that the guarantor’s obligation under any option period was dependent upon a new guarantee being procured. [26] It should be noted that the indemnity, as provided for in clause 7.3 of the assignment, is itself confined to compliance with a term or condition of the “Lease”, as defined or the deed. For the reasons given earlier, it is therefore, in so far as a failure to comply with any term or condition of the Lease, an indemnity with respect to the period which expired on 28 February 2011 rather than any renewed period. Even if that were considered to extend to the so called failure upon which the plaintiff foreshadows reliance (and putting to one side any question of waiver or discharge) for the reasons earlier stated, the second defendant did not fall within the extended definition of “Guarantor” as someone who was required to give a Guarantee and Indemnity (as defined)7 at any time, but rather entered into a different guarantee and indemnity by way of a separate dealing, which placed upon him no requirement to execute a further guarantee for a further term. 7 I note that the draft (but unexecuted) lease renewal deed only provided for the continuation of the guarantee which had been provided by the second defendant in the assignment (see clauses 1.1, 6 and Schedule 1), rather than a “Guarantee and Indemnity” as defined in the lease, by reference to clause 7 of the lease. -- 7 of 8 -- 8 [27] For those reasons, I am satisfied that: (1) The learned Magistrate erred in concluding that, by clause 7.3 of the assignment, the second defendant guaranteed all money payable by the tenant during the period following the exercise of an option to renew; and (2) The plaintiff’s claim against the second defendant has no real prospects of success. [28] The appeal is allowed. The decision of the learned Magistrate is set aside. Judgment is entered for the second defendants against the plaintiff. The plaintiff is to pay the second defendant’s costs of, and incidental to, the action, and its costs of the appeal. -- 8 of 8 --