De Pasquale & Ors v Deppeler & Anor [2011] QDC 117

DISTRICT COURT OF QUEENSLAND CITATION: De Pasquale & Ors v Deppeler & Anor [2011] QDC 117 PARTIES: RALPH PETER DE PASQUALE, FRANCESCO ANTONIO DE PASQUALE, ANTONIO RAFFAELE DE PASQUALE AND ALESSANDRO SIMONE DE PASQUALE (Plaintiffs) AND RAYMOND MAXWELL DEPPELER (First Defendant) AND MICHAEL SLOBE (Second Defendant) FILE NO/S: D1558/10 PROCEEDING: Civil – claims made under guarantees ORIGINATING COURT: District Court, Brisbane DELIVERED ON: 23 June 2011 DELIVERED AT: Brisbane HEARING DATE: 2 June 2011 JUDGE: Jones DCJ ORDER: 1. The plaintiffs’ action against the first defendant is dismissed. 2. The plaintiffs’ action against the second defendant is dismissed. 3. I will hear from the parties as to any consequential orders including costs. CATCHWORDS: GUARANTEES AND INDEMNITIES – personal guarantees given by company directors – where company occupied premises under a registered commercial lease – where lease the subject of a number of assignments – where term of original lease (including options) expired and a new lease entered into – effect of exercising options under the lease CONSTRUCTION – construction of terms of lease including options of renewal – construction of guarantees and indemnities Rider v Ford [1923] 1 Ch 541 -- 1 of 11 -- 2 Swanville Investment Pty Ltd & Ors v Riana Pty Ltd (2003) WASCA 121 Gerraty v McGavin (1914) 18 CLR 152 Mercantile Credits Ltd v Shell Company of Australia Ltd (1976) 136 CLR 326 Mytian v Witham 2001 NSWC 47 Williams v Frayne (1937) 58 CLR 710 COUNSEL: Mr M. Wilson appeared for the plaintiffs Mr Looney appeared for the first defendant Mr Slobe was not represented SOLICITORS: Porta Lawyers on behalf of the plaintiffs The Law Place Solicitors on behalf of the first defendant The second defendant appeared on his own behalf [1] These proceedings are concerned with claims brought against the first and second defendants under guarantees provided by them when directors of a company which leased premises from the plaintiffs. For the reasons set out below the actions against both defendants fail. Background [2] On or about June 1998 the plaintiffs entered into a registered lease1 with Langfield Nominees Pty Ltd. The demised premises is described as Lot 3 on Registered Plan 226475, County of Stanley, Parish of Turnbull. The term of the lease was five years, commencing 12 March 1998 and expiring 11 March 2003. The lease contained an option for renewal for a further five years, expiring 11 March 2008. No further option of renewal was granted. Neither of the defendants were involved in this transaction. [3] Pursuant to what is described as a “Form 13-Amendment”,2 on 28 October 2003 the lease was renewed for a further five years, commencing 12 March 2003 and expiring 11 March 2008. Neither of the defendants were involved in this transaction. [4] On or about 16 March 2006, pursuant to a deed of covenant on assignment of lease,3 Langfield Nominees Pty Ltd assigned its rights and interests under the lease to ASK Group Pty Ltd as trustee for the Deppeler Business Trust. Under the deed the plaintiffs are described as the landlord, Langfield Nominees Pty Ltd as the assignor, ASK Group Pty Ltd as the assignee, Edward Albert Langfield the assignor’s guarantor, and the first defendant the assignee’s guarantor. Clause 2.10 of the deed provided: 1 Exhibit 1, Document 1; Lease dealing number 703069584. 2 Exhibit 1, Document 3. 3 Exhibit 1, Document 4. -- 2 of 11 -- 3 “Guarantee of Assignee’s Obligations The Landlord’s consent under this document is subject to and conditional upon delivery to the Landlord before the assignment date of written confirmation in a form acceptable to the Landlord, by the Assignee’s Guarantor in support of the Assignee’s obligation to perform and observe the lease provisions and the Assignee’s obligations under this document, and in accordance with the guarantee.” [5] As a consequence of the aforesaid deed of covenant, a deed of assignment of the lease was executed between Langfield Nominees Pty Ltd as the assignor and ASK Group Pty Ltd (as trustee) as the assignee.4 Also, consistent with the deed of covenant on assignment, on 3 March 2006 the first defendant entered into a deed of guarantee and indemnity with the plaintiffs.5 Under the deed of guarantee and indemnity, in consideration of the plaintiffs consenting to the assignment of the lease from Langfield Nominees Pty Ltd to ASK Group Pty Ltd, the first defendant did unconditionally guarantee to the lessor: “1. Guarantee (a) The punctual payment of Rent, Outgoings and other monies to be paid by the Assignee under the terms of the lease; (b) The punctual performance and observance by the Assignee of all the Obligations of the Assignee under the lease. 2. Indemnity If the guarantee in Clause 1 is void or unenforceable for any reason the Guarantor (as a separate and additional obligation) indemnifies the Lessor against all loss or damage which the Lessor suffers or incurs arising directly or indirectly as a result of or in connection with the Assignee not paying the rent and other money or not promptly performing and observing the covenants referred to in Clause 1.” [6] The guarantee and indemnities provided were irrevocable and remained in force until the assignee had performed and observed all its obligations under the lease. The liability of the guarantor was relevantly prescribed in the following terms: “The Lessor’s rights and the liability of the Guarantor under Clause 1 and Clause 2 are not prejudiced or affected by: … 4 Exhibit 1, Document 5. 5 Exhibit 1, Document 6. -- 3 of 11 -- 4 (c) any variation of the lease, extension or renewal of the term of the lease, holding over or continued occupation of the premises by the Assignee; … (e) any assignment of the lease; … .” (emphasis added) [7] On or about 24 April 2007 the lease was assigned from ASK Group Pty Ltd to Langfield Industries Pty Ltd, (not Langford Nominees Pty Ltd – the original lessee). At the relevant time, the first and second defendants were directors of Langfield Industries. Under this deed of assignment,6 both the first and second defendants were described as “Assignees Guarantor”, the assignee of course being Langfield Industries Pty Ltd. The assignment was to take effect on 24 April 2007 or on a date as otherwise agreed between the parties in writing. In this document, consistent with the other documents already referred to, the lease was described in terms which made it abundantly clear that it was a reference to the original lease. Pursuant to Clause 6 of this deed of assignment, the first and second defendants relevantly provided guarantees in the following terms: “6.1 Guarantee The Guarantor guarantees to the Assignor: (1) the payment by the Assignee of the rent and other money under the lease; and (2) prompt performance of the observance of all the Assignor’s [sic] covenants and obligations contained or implied in the lease. 6.2 Indemnity The Guarantor indemnifies the Assignor against any loss or damage which the Assignor may suffer or incur in connection with any breach or default by the assignee under the lease or any extension or renewal of the term. 6.3 Liability of Guarantor The Guarantor’s liability under Clauses 6.1 and 6.2 is not prejudiced or affected by: … (2) any variation of the lease, extension or renewal of the term, holding over or continued occupation of the premises by the Assignee; … .” (emphasis added) [8] On 3 March 2008 a “Form 13” was registered in the Queensland Land Registry.7 In this document the plaintiffs are described as the lessor and Langfield Industries Pty Ltd is described as the lessee. The dealing number on the front sheet of this 6 Exhibit 1, Document 7. 7 Exhibit 1, Document 8. -- 4 of 11 -- 5 document refers to the dealing number of the original lease. However, under the schedule to this document, it is identified that: “Introduction A Langfield Industries Pty Ltd … [Tenant] leases [the property] from [the plaintiff] under the Lease referred to in Item 1 of the Form 13 [current lease]. B The Tenant has requested and the Landlord has granted a New Lease for a term of five years from 12 March 2008 to 11 March 2013 [new term] at the expiration of the current Lease. C The New Lease contains an option of five years from 12 March 2013 to 11 March 2018. D This document sets out the amendments to the New Lease which apply from the commencement of the New Term. It is agreed: 1. New Lease 1.1 The Landlord leases to the Tenant and the Tenant take [sic] the lease of the premises for a new term subject to the provisions of the Current Lease or the following variations: … 2. Item 6 of the Form 7 Lease is amended to read: commencement date: 12 March 2008 expiry date: 11 March 2013 options: five years from 12 March 2013 to 11 March 2018 3. The reference schedule is amended to readapt ‘first option period’, term give years commencement date: 12 March 2013 termination date: 11 March 2018 2. Balance unaltered 2.1 Unless varied by this document all other clauses of the Lease remain unaltered.” (emphasis added) [9] There are a number of significant features about this document. First, it speaks of the plaintiffs’ granting a “new lease” to Langfield Industries Pty Ltd but then goes -- 5 of 11 -- 6 on to provide that the relevant lease is that referred to in Item 1, where the details of the original lease (which is referred to as the “current lease”) is identified. Further, pursuant to Clause 2.1, it is clear that unless expressly varied, the terms and conditions of the original lease are to apply. It is also of significance that the commencement date of the so-called “new lease”, 12 March 2008, is the day after the expiration of the option of renewal provided for under the original lease. [10] At the time this transaction was entered into, the first defendant was no longer a director or office bearer of Langfield Industries Pty Ltd. The second defendant was. Langfield Industries Pty Ltd went into liquidation on or about 9 February 2010. The allegations against the defendants [11] In the plaintiffs’ amended statement of claim the deed of assignment of April 2007 is referred to as the “second deed”. In paragraphs 10, 11, 12 and 13 of the amended statement of claim, it is relevantly pleaded against the defendants: “10. By signing the second deed, the first and second defendants agreed to guarantee the obligations of Langfield Industries pursuant to the lease (the second guarantee). 11. By Clause 6.3(2) of the second deed, the guarantor’s liability ‘is not prejudiced or affected by any variation of the lease, extension or renewal of the term holding over or continued occupation of the premises by the assignee’. 12. By Form 13 Amendment dated 26 February 2008 the lease was amended to include a further option for renewal from 12 March 2013 to 11 March 2018. 13. As a result of Clause 6.3 of the second deed, the first and second defendants’ liability as guarantors for the tenant’s obligations under the lease continues.” [12] The defendants did not dispute that Langfield Industries breached essential terms of the lease and in particular failed to pay rent as required. Instead, the defendants denied liability, essentially on the basis that the guarantees provided by them did not extend to obligations arising under the new lease commencing 12 March 2008. Quantum [13] In the event that liability was found against the defendants, the level of damages sought by the plaintiff ($106,447.42) together with the sum of $230 (being the cost of entering judgment in default) was not disputed. The position of the plaintiffs [14] Mr Wilson, counsel for the plaintiffs, submitted to the effect that the so-called “new lease”, referred to in paragraphs 8 and 9 above, was really an extension or renewal of the original lease entered into in June 1998 and was therefore caught under the guarantees provided by the defendants. In oral argument Mr Wilson put the plaintiffs’ position: -- 6 of 11 -- 7 “… we submit there is no – no breakage in the chain. The first Form 13 was merely an extension of the lease and the original terms stayed in place and also, more importantly, even though it wasn’t envisaged the February 2008 Form 13, which is the material one, was merely an extension of the term of the lease which was contemplated in the deed of guarantee and indemnity entered into in 2006, only two years previously, and in the deed of assignment only less than one year beforehand. There was clear contemplation in the guarantee that there would be a further term … you wouldn’t have a clause talking about variations, extensions or renewals of the term if it wasn’t in the contemplation of the parties that it could be that. Now, what – what’s happening is a variation of extension or under (E) an assignment, at least, what happens in those circumstances, where they are obviously contemplated, they’re not leaving it uncertain. They’re obviously contemplating that this might happen and that’s probably understandable given we’re only two years out from the end of the lease. …”8 And: “… this is not a new lease. Go to Item D, perhaps, your Honour, and there – there the tensions are set up, but we say resolved in the plaintiffs’ favour. This document sets out the amendments to the new lease which applied from the commencement of the new term. So we have now got a thing called a new term. We wouldn’t be talking about a new term if you’re talking about a brand new lease. A new term refers to an existing lease; there’s been the first term, the second term to 2008; now we’re talking about a new term to the existing lease. So the appearance of the new term, we submit, takes you away from the unhelpful references to a new lease to what the intention of the parties is. This is just a new term on the (original) lease … .”9 [15] According to Mr Wilson, the original lease has never lost its effect. The position of the defendants [16] Mr Slobe in essence adopted and relied on the submissions made by Mr Looney, counsel for the first defendant. I, with respect, consider that the heart of the defence of the first defendant (and by implication that of the second defendant) is captured in paragraphs 23-28 of Mr Looney’s written submissions: “24. The 2006 guarantee expressly provides relevantly that the liability of the first defendant ‘… is not prejudiced or affected by … any variation of the lease, extension or renewal of the term of the lease …’. The lease is defined to be lease dated 28 October 2003. Such lease contained no option for renewal and the relevant term of the lease expired 8 T1-59 L35-60 – T1-60 L1-10. 9 T1-63 L30-42. -- 7 of 11 -- 8 on 11 March 2008. Such wording is not consistent with a suggestion that the obligation of the first defendant under this deed is to be understood as extending to encompass any obligations arising under any further lease of the property beyond the lease referred to in the deed. This term does not extend to the first defendant’s obligations in respect of the relevant lease to any obligations under any variation, extension of renewal of the lease. Rather, this term operates to prevent the first defendant from relying on any such variation, extension or renewal as a basis for disputing his existing liability. 25. None of the documents relied on by the plaintiffs containing any obligation in favour of the plaintiffs relates to a lease of the property for a period beyond 11 March 2008. As such, none of the documents relied on by the plaintiffs as being a guarantee given by the first defendant is relevant to the amounts which are the subject of the proceedings. 26. It is difficult to understand the basis upon which the plaintiffs assert that the second deed is relevant. As noted above, the guarantee contained in this document is a guarantee in respect of the obligations of [Langfield Industries Pty Ltd] given by the first defendant expressly in favour of [ASK Group Pty Ltd] alone. Contrary to the implication in paragraph 11 of the statement of claim, in this deed no guarantee is expressed to be given by the defendants in favour of the plaintiffs and on a proper construction of this document no such guarantee was given. 27. If, contrary to the submissions of the first defendant, the court were to find that the effect of the 2008 Form 13 was to amend the original lease and that the terms of the 2006 guarantee and the second deed was such that the first defendant had provided a guarantee to the plaintiffs in respect of the obligations of [Langfield Industries Pty Ltd] as an assignee of the amended original lease, a further defence is available to the first defendant. By amending the original lease in the way recorded in the 2008 Form 13, the obligations of [Langfield Industries Pty Ltd] to the plaintiffs was materially altered. This was because, on this analysis, the period of the lease was extended by a further five years with a further five year option available. This is relevant because the default of [Langfield Industries Pty Ltd] relates only to the period after 11 March 2008. 28. The authorities are clear that where such obligations of the principal are materially altered without the consent of the guarantor or the prior agreement of the guarantor, the guarantor is discharged from any obligation under the guarantee.” -- 8 of 11 -- 9 Terms of the original lease [17] The term of the original lease was for five years from 12 March 1998 to 11 March 2003. The lease also provided for a “first option period” of five years commencing 12 March 2003, terminating 11 March 2008. Clause 2 of the lease provided: “2. TERM 2.1 Grant of lease. The Lessor leases to the Lessee, and the Lessee accepts from the Lessor, a lease of the Premises of the Term which the Lessee may occupy and use only in accordance with the provisions of this lease. 2.2 Option for renewal. If: (a) the Lessee wishes to be granted a lease of the premises for an Option Period; … Then the Lessor must grant to the Lessee and the Lessee must accept from the Lessor, a further lease of the premises upon the same terms and provisions (subject to other provisions of this lease) as are contained in the lease (including where there is a Guarantor) a guarantee and indemnity by the Guarantor (or other person who is acceptable to the Lessor) who must execute the lease for the Option Period as Guarantor as a condition of the grant of the further lease except that: (e) the term of the lease for the Option Period is as specified in the Reference Schedule and the commencement and expiry dates shall be varied accordingly; … (g) the reference to a second Option Period (if any) specified in the Reference Schedule shall be renumbered in the Reference Schedule as the first Option Period and any other Option Periods renumbered sequentially; …” As already identified, no second option period was provided for in the lease. -- 9 of 11 -- 10 [18] The “Term” of the lease is defined (by reference to Item 6 of Form 7 of the lease) as five years. That, of course, was subject to the right of renewal provided for under the option. [19] The option for renewal (subject to the stipulated conditions being satisfied) is a right to call for a new lease.10 In this context the right to renew is the right to have restored or re-established the contractual arrangements between the parties created under the original lease. Upon the exercise of the option to renew a new lease is created.11 [20] The termination (11 March 2008) of the new lease created pursuant to the exercise of the option, the lessee had no further or existing contractual right or right in equity to call for another lease. This is clear from the Form 13 document registered in the Queensland Land Registry on 28 October 2003.12 The Variation Schedule of that document provides: “The Landlord and Tenant have agreed to vary the Lease by the Landlord granting and the Tenant accepting a further Lease of the demised premises for the Renewed Term on the covenant, conditions and terms contained in the Lease. Save that: (a) the rent payable in the first rental year of the amended Lease will be an amount equal to the new rent; (b) the provisions in the Lease granting to the Tenant the option for renewal of the Lease for the renewed term will not apply; and (c) any provision of the Lease inconsistent with the covenants, conditions and terms of this Document will not apply. The renewed term is five (5) years commencing on 12 March 2003 and ending on 11 March 2008. …” (emphasis added) [21] Accordingly, for the lessee to remain in occupation of the premises after March 2008, it was necessary for the plaintiffs as the lessor and Langfield Industries Pty Ltd as lessee to enter into a new and discrete contractual arrangement. I accept that, in circumstances where a new lease is effectively created upon the exercise of an option to renew, the references to a “new lease” at the “expiration of the current lease” in the lease created 2 March 2008 are not determinative on this point. However, in the circumstances of this case, the language is appropriate. [22] Under the guarantees provided by the defendants, they guaranteed the assignee’s obligations under “the” lease. The indemnity provided for therein indemnified the assignor against any loss of damage which they may have suffered or incurred in connection with any breach or default by the assignee under the lease or any extension or renewal of the term (of the lease). 10 Rider v Ford (1923) 1 Ch 541 at 547 per Russell J; cited with approval by Malcolm CJ in Swanville Investments Pty Ltd & Ors v Riana Pty Ltd (2003) WASCA 121 at para 34. 11 Gerraty v McGavin (1914) 18 CLR 152 at 163 per Isaacs J; Mercantile Credits Ltd v Shell Company of Australia Ltd (1976) 136 CLR 326 at 344-345 per Gibbs J (as he then was). 12 Exhibit 1, Document 3. -- 10 of 11 -- 11 [23] For the reasons given, the leasing arrangements entered into between the plaintiffs and Langfield Industries Pty Ltd in March 2008 is not an extension or renewal of the term of the original lease, nor is it a new lease created under any rights the lessees might have had (or any obligation on the part of the plaintiffs) under the original lease. The fact that the terms of the new lease are to a material extent identical to those in the original lease does not alter the fact that it is a new and discrete contractual arrangement between the lessors and the lessee. [24] It was submitted on behalf of the plaintiffs to the effect that when the defendants entered into the guarantees in April 2007 further ongoing lease arrangements beyond 11 March 2008 were “clearly contemplated” by the defendants. This is not a case involving a variation of existing contractual arrangements where there is evidence that the defendants have consented to, participated in or ratified the variation.13 And I was not taken to any evidence that the first and/or second defendant, when they entered into the guarantee in 2007, consented (either expressly or by implication) to the extension and operation of their obligation as guarantors beyond the term of the existing lease. Nor was I directed to any evidence that at the time the guarantees were entered into a new lease to commence in 2008 for potentially a further 10 years was, to use the plaintiff’s term, “contemplated”. [25] The references to “any extension or renewal of the term” in the indemnity and guarantee should not be read as an intention (or contemplation) on the part of the defendants to enter into a new lease. The meaning and effect of those words is to identify that the guarantor’s obligations, duties and level of exposure under the guarantee are not to be prejudiced (e.g. expanded or increased) in the event that that lease was extended or renewed. [26] Finally, in paragraph 6 of the amended statement of claim, it is alleged that by or under the deed of covenant dated March 2006 the first defendant “assumed the obligations of Guarantor of the ASK Group”.14 As I understand the plaintiffs’ case, as argued before me, they do not rely on that transaction or the subsequent guarantee executed by the first defendant. However, if I am wrong about that, I do not consider that they attach any liability to the first defendant. [27] The liability of the defendants under the subject guarantees does not extend to include any breaches by Langfield Industries Pty Ltd under the 2008 lease. The relevant breaches occurred under that lease between January and May 2010. 15 [28] For the reasons given, the plaintiffs’ claims must fail. Orders 1. The plaintiffs’ action against the first defendant is dismissed. 2. The plaintiffs’ action against the second defendant is dismissed. 3. I will hear from the parties as to any consequential orders including costs. 13 Williams v Frayne (1937) 58 CLR 710 at 717 and 729 per Latham CJ and Dixson J: Mytian v Witham 2001 NSWSC 47. 14 Amended statement of claim, para 6. 15 Amended statement of claim, paras 14-24. -- 11 of 11 --