Business and Professional Leasing Pty Ltd & Anor v Akuity Pty Ltd & Anor [2008] QCA 215

SUPREME COURT OF QUEENSLAND CITATION: Business and Professional Leasing P/L & Anor v Akuity P/L & Anor [2008] QCA 215 PARTIES: BUSINESS AND PROFESSIONAL LEASING PTY LTD ACN 001 436 522 (plaintiff/first appellant/first defendant by counter-claim) MACQUARIE HEALTH CORPORATION LTD ACN 003 531 860 (second appellant/second defendant by counter-claim) v AKUITY PTY LTD ACN 071 202 947 (first defendant/first respondent/plaintiff by counter-claim) GRAHAM BRUCE GILLION (second defendant/second respondent/not a party to the counter-claim) FILE NO/S: Appeal No 3292 of 2008 DC No 336 of 2006 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: District Court at Southport DELIVERED ON: 1 August 2008 DELIVERED AT: Brisbane HEARING DATE: 21 July 2008 JUDGES: Muir and Fraser JJA and Lyons J Separate reasons for judgment of each member of the Court, each concurring as to the orders made ORDERS: (a) The orders made by the primary judge on 14 March be set aside (b) The first respondent, Akuity Pty Ltd and the second respondent, Graham Bruce Gillion pay the first appellant, Business and Professional Leasing Pty Ltd $2,380.69 plus interest thereon at the rate of nine per cent per annum from 10 July 2003, the date from which interest was claimed in the further amended statement of claim, until the date of this order (c) Upon payment of the sum referred to in paragraph (b) and payment of the further sum of $1, Business and Professional Leasing Pty Ltd execute and deliver to Akuity Pty Ltd an assignment of its right, title and interest in the property the subject of the rental agreement dated 30 May 2002 and do all such acts and things necessary to give effect to such assignment -- 1 of 24 -- 2 (d) The first and second appellants pay one half of the first and second respondents’ costs of and incidental to the proceedings at first instance incurred after 7 January 2007 to be assessed on the standard basis (e) The first and second appellants pay one half of the first and second respondents’ costs of and incidental to the appeal and cross-appeal by the first and second respondents, to be assessed on the standard basis CATCHWORDS: EQUITY – GENERAL PRINCIPLES – MISTAKE – EQUITABLE RELIEF IN CASE OF MISTAKE – RECTIFICATION – GENERALLY – where the first respondent agreed to purchase from the second appellant x-ray equipment and an x-ray services business – where the first appellant, a subsidiary of the second appellant, provided finance for the transaction through the leasing of the x-ray equipment to the first respondent – where the parties agreed to terms contained in a letter and a standard rental agreement – where the appellants claimed against the respondents for unpaid rent for 47 months – where there was a dispute as to the length and obligations under the rental agreement – where there were inconsistencies between the letter and the standard rental agreement – whether there was common or unilateral mistake over the terms of the rental agreement – whether rectification of the parties’ agreement was necessary to reflect the parties’ common intention that the equipment would be purchased for $1 after the expiration of a 12 month non-renewable term CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON-PERFORMANCE – REPUDIATION – GENERAL PRINCIPLES – where the first appellant argued that the first respondent repudiated the contract by the non-payment of the last monthly instalment of the rent due under the 12 month rental agreement – where the first respondent never tendered to the first appellant the sum of $1 for the transfer of title in the x-ray equipment – where any tender of the sum of $1 would have been futile – whether the right on the part of the first appellant to acquire the equipment was lost through the effluxion of time DAMAGES – GENERAL PRINCIPLES – OTHER MATTERS – where the first respondent retained the x-ray equipment after the termination of the rental agreement by the first appellant – where no steps were taken by the first appellant to repossess the equipment – whether the first appellant was entitled to mesne profits TRADE AND COMMERCE – TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION – -- 2 of 24 -- 3 CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – MISLEADING OR DECEPTIVE CONDUCT GENERALLY – GENERALLY – where the first respondent by counter-claim alleged that the first appellant made misleading representations that their practice of charging a facility fee was lawful and could continue to be charged – whether the charging of the facility fee was in breach of s 20A Health Insurance Act 1973 (Cth) and thereby unlawful – whether damages were recoverable by the first respondent under s 82 Trade Practices Act 1974 (Cth) for a breach of s 52 Trade Practices Act 1974 (Cth) APPEAL AND NEW TRIAL – APPEAL - GENERAL PRINCIPLES – INTERFERENCE WITH DISCRETION OF COURT BELOW – PARTICULAR CASES – OTHER MATTERS – COSTS – where the primary judge decided that each party should pay its own costs of the proceedings – where the first respondent cross-appeals against the costs orders – where the first respondent made offers to settle – whether the primary judge took into account the offers to settle as provided under r 360 and 361 Uniform Civil Procedure Rules 1999 (Qld) – whether the primary judge’s discretion as to costs miscarried Health Insurance Act 1973 (Cth), s 3, s 20A Trade Practices Act 1974 (Cth), s 52, s 82 Uniform Civil Procedure Rules 1999 (Qld), r 360, r 361 Australian Blue Metal Ltd v Hughes [1963] AC 74, cited Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621; [1953] HCA 25, cited Dockside Holdings Pty Ltd v Rakio Pty Ltd (2001) 79 SASR 374, cited Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, applied Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; [1986] HCA 3, cited Geroff & Ors v CAPD Enterprises P/L & Ors [2003] QCA 187, cited Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 147 ALR 568, cited Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4, cited Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23, cited Murphy v Overton Investments P/L (2000) 216 CLR 388; [2004] HCA 3, cited Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25, cited -- 3 of 24 -- 4 Roadshow Entertainment Pty Ltd v ACN 053006269 Pty Ltd (Receiver and Manager Appoitned) (1997) 42 NSWLR 462, cited Ross T Smythe & Co Pty Ltd v TD Bailey Son & Co (1940) 3 All ER 60, cited Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40, cited Watson v Phipps (1985) 63 ALR 321, considered Westpac Banking Corporation v Tanzone Pty Ltd & Ors [2000] NSWCA 25, cited York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11, considered COUNSEL: C C Wilson for the appellants and defendants by counter- claim M D Martin for the respondents and plaintiffs by counter- claim SOLICITORS: Provest Law for the appellant and defendants by counter- claim Martinez Quadrio for the respondents and plaintiffs by counter-claim [1] MUIR JA: Introduction The first appellant, Business and Professional Leasing Pty Ltd ("BPL") and the second appellant, Macquarie Health Corporation Ltd ("Macquarie") appeal against the whole of the judgment of the learned primary judge given on 14 March 2008 after a trial in the District Court. In general terms, the first respondent Akuity Pty Ltd agreed with Macquarie to acquire from it x-ray equipment and the x-ray services business which Macquarie was conducting at Miami through a related company, Miami Medical Imaging Pty Ltd. [2] Akuity had difficulty in financing the purchase and BPL, a related company of Macquarie, was introduced into the transaction by Macquarie to provide finance through the medium of a lease of the x-ray equipment to Akuity. The second respondent, Mr Gillion, a director of Akuity, guaranteed to BPL Akuity's obligations under the lease. The equipment did not perform satisfactorily and Akuity ceased paying rent. [3] BPL commenced proceedings against Akuity and Mr Gillion claiming unpaid rent. Akuity and Mr Gillion defended the claims on various bases including alleged misrepresentations by BPL and Macquarie inducing them to enter into the lease. [4] Before going to the terms of the primary judge's orders and the grounds of appeal it will be useful to explain the nature of the transactions between the parties and how they unfolded. Factual background [5] Macquarie, which carried on a number of businesses in and in relation to the supply of health care, in September 2001, had three medical centres in Queensland. In one of these at Miami, Macquarie Medical Imaging carried on the business of providing x-ray services. Towards the end of 2001 Mr David Wenkart, a director of -- 4 of 24 -- 5 Macquarie and BPL, entered into negotiations with Mr Gillion, the director of the Miami Medical Centre, with a view to the sale by Macquarie and the purchase by Akuity of the x-ray business and its assets. At the beginning of February 2002 Mr Gillion offered on behalf of Akuity to purchase the x-ray business for $27,000. Mr Wenkart made a counter-offer of $40,000 which was not accepted. Further discussions took place concerning the prospective sale and purchase and on 21 March 2002 Mr Wenkart wrote to Mr Gillion accepting the latter's offer of $30,000 and stating a number of other terms and conditions of sale. They included matters in relation to the annual leave entitlements of the radiographer who operated the x-ray equipment. The letter concluded, "once we have received written confirmation of your agreement of the above, we will prepare a simple business purchase agreement". The matter dragged on. [6] On 22 April 2002 Mr Wenkart wrote to Mr Gillion stating that Macquarie wished to "finalise an arrangement forthwith". He referred to Akuity's "financial pressures" and its difficulty in "funding the acquisition". The letter stated that BPL had agreed to "finance the transaction" and continued: "Business and Professional Leasing Pty Ltd (BPL) have agreed to finance the transaction. The amount to be financed has been calculated at follows, as at 19 April 2002: ƒ Amount of Sale $30,000.00 ƒ Less Outstanding Rent (Oct to March) $ 2,665.95 ƒ Less M. North entitlements (as at 19 April) $ 2,340.36 ƒ Amount to be financed: $24,993.69 Enclosed are the lease documents from BPL, Would you please execute the documents in accordance with the instructions detailed on the front page and return them to BPL by Friday 26th April, 2002." [7] The lease agreement accompanying the letter provided for a lease of the x-ray equipment for a term of 36 months at a monthly rental of $956.67. On 30 April 2002, in a facsimile transmission to Mr Wenkart, Mr Gillion stated Akuity's readiness "to proceed with the purchase" and set out the terms and conditions upon which Akuity was prepared to contract. They included: "1. Initial payment of $2,083 by the 6th May 2002 being one months payment of the sale price of say $24,993.69. 2. Second installment of $5,000 by the end of May 2002. 3. Third and subsequent ten installments by bank direct debit of $1 791.69 with final payment in March 2003. 4. Takeover date of the 6th May . . . 5. Akuity will assume responsibilities for M North. 6. Business to be sold as going concern . . . . . . 11. Gurantor of lease payments- G B Gillion Director Akuity Pty Ltd" [8] The offer contained in the facsimile was not accepted. On the same day, in an email to Mr Gillion, Mr Wenkart set out a "list of issues that will need to be addressed as part of the sale of the business and associated assets". That list included: "1. Preparation of a simple business sale agreement. -- 5 of 24 -- 6 2. Appropriate applications to Queensland Health for the transfer of the Xray equipment. 3. Finalisation of any adjustments to the agreed purchase price (namely Staff Entitlements and Rent) … 4. Securing of the initial payment and payment guarantee. 5. Notification of the sale of business to Southern Xray and Dr. Roger Burgess …" [9] In a letter to Mr Gillion of 2 May 2002, Mr Wenkart stated: "The agreed sale price as at 6 May, 2002 is $30,000.00. This will need to be adjusted as follows: ƒ Amount of Sale $ 30,000.00 ƒ Less Outstanding Rent (Oct to 28 April) $ 2,879.68 ƒ Less M. North entitlements (as at 6 May) $ 2,570.07 ƒ Purchase Price $ 24,550.25 MHC will retain responsibility for debtors and creditors up to the purchase date. As regards the purchase of the business, I have discussed this issue at length with our accountants. Based on these discussions, I suggest the following arrangement which is extremely tax effective for you, as compared with an outright purchase: 1. Akuity Pty Ltd (APL) will purchase the business, excluding assets, debtors and creditors, for $1.00. 2. APL will offer employment to M. North on the same terms and conditions as she is currently employed with MMI, and takeover current entitlements. I have both emailed and enclosed a draft copy of this letter to insert on your letterhead. . . . 4. You will be required to make 12 equal, monthly rental payments. The first payment, payable by cheque, will be due on 6 May, 2002. All subsequent payments will be made by direct debit of your nominated account on the 6th day of each calender month (a Direct Debit form is enclosed for your completion). The monthly payments are calculated as follows: Monthly Rental $2,148.15 Stamp Duty on Rental $ 16.11 G.S.T $ 216.43 Total $2,380.69 You will be able to claim back the full amount of any GST. The rental payments are fully tax deductible as a business expense. A rental agreement, documenting the terms and conditions of this arrangement is enclosed. 5. At the end of the rental period you will have the right to purchase the assets of the business for $1.00. 6. The rental will need to be guaranteed by G.B. Gillion, Director, Akuity Pty Ltd. BPL require your authorisation to conduct a credit check immediately." -- 6 of 24 -- 7 [10] The letter was accompanied by a printed standard form rental agreement showing Akuity as the lessee and BPL as the lessor. It provided for an "initial term" of twelve months from 30 May 2002 and for a fixed monthly rental of $2,380.69. [11] In a letter to Mr Gillion of 8 May 2002 Mr Wenkart advised that BPL had given its consent to the rental agreement. He stated that Mr Gillion should attend to a number of matters including the execution and return of the rental agreement and a cheque for the first month's rental. [12] In a letter of 20 May 2002 to Mr Gillion, Mr Wenkart described adjustments which would need to be made in respect of the radiographer's annual leave. The letter stated that the total value of adjustments was $1,951.11 and asserted that Macquarie "will retain responsibility for debtors and creditors up to the purchase date". A letter of 24 May 2002 from Mr Wenkart to Mr Gillion further listed the documents and payments which in Mr Wenkart's view were required in order to conclude the parties' transaction. They included a cheque for $2,380.69 in favour of BPL by way of rental for the first month and a cheque for $1 in favour of Macquarie as payment for the purchase of "the business of Macquarie Medical Imaging Miami". [13] Mr Wenkart wrote to Mr Gillion on 28 May 2002 acknowledging receipt of various monies including the cheque for $1 in favour of Macquarie and a cheque for the sum of $2,380.69. He enclosed a copy of a letter to Southern X ray Clinics Pty Ltd advising "of the sale of the Macquarie Medical Imaging to Akuity Pty Ltd". [14] On 23 January 2003 BPL wrote to Akuity acknowledging receipt of a payment of $2,380.69 on 2 January 2003 and advising that Akuity was in arrears in the sum of $2,380.69. [15] After completion, the x-ray equipment operated unsatisfactorily and relationships between the parties deteriorated. On 14 April 2003 Mr Gillion wrote to BPL advising that the x-ray equipment had broken down immediately "on commencement" and had taken some weeks to repair. He referred to a loss of income and requested "the stopping of the last payment of twelve monthly payments due to BPL of $2,380.69". BPL responded to the letter on 2 June 2003 asserting that monthly rental instalments had to be paid monthly until the rental agreement was finalised. The letter asserted that monthly instalments for April and May 2003 were outstanding and advised that "if the rental agreement runs for a longer period than the original agreed term, payments must be made for the extra months the rental has continued". [16] In a letter to Akuity of 18 June 2003 BPL asserted that the rental agreement had been terminated as a result of Akuity's breach of contract. The letter demanded payment of arrears of rent of $7,142.07 in respect of the months April, May and June 2003. The Magistrates Court proceedings [17] On 10 July 2003 BPL filed a claim in the Southport Magistrates Court claiming against Akuity the sum of $7,142.07 for monies owing under the rental agreement -- 7 of 24 -- 8 together with interest and costs. It claimed the same amount against Mr Gillion as guarantor of the obligations of Akuity under the rental agreement. Termination of the rental agreement was not alleged in the initial statement of claim or in an amended statement of claim filed in April 2005. The latter pleading claimed unpaid rental on the basis that the rental agreement remained on foot. The District Court proceedings [18] An order was made on 10 July 2006 remitting the proceedings to the District Court. In a further amended statement of claim, for which leave was given on 16 April 2007, BPL claimed against Akuity and Mr Gillion for unpaid rent under the rental agreement of $111,892.43 for the 47 month period between 30 May 2003 and 29 April 2007 and for rental at the rate of $2,380.69 per calendar month from 30 April 2007 until the 29th day of the month in which Akuity delivers up possession of the x-ray equipment. In the alternative, BPL claimed $4,761.38 for two months unpaid rent and $107,131.05 for damages for breach of the rental agreement, being 45 months rental instalments of $2,380.69 per month. It also claimed interest. [19] In their third further amended defence and second further amended counter-claim pursuant to leave given on 16 April 2007 ("the final pleading") Akuity and Mr Gillion alleged the existence of an agreement between Akuity, Mr Gillion, Macquarie and BPL which included the following terms: "(a) Akuity would purchase the assets and the business of the x-ray service at the centre for the purchase price of $24,550.25 ($30,000 less agreed adjustments); (b) the purchase price would be paid as follows, incurring some additional agreed charges (interest at 5% pa, stamp duty and GST) due to the structured payment schedule – (i) $1 for the business excluding assets, debtors and creditors; (ii) 12 equal monthly rental payments payable to BPL of $2,380.69; (iii) $1 for the assets of the business at the end of 12 months (optional); (c) the business would be sold as a going concern; (d) MHC would ensure that the assets, particularly the equipment, of the business were in good working and approved working order at the time of settlement; (e) MHC would continue to maintain the business in working operation until settlement; (f) Gillion would guarantee the 12 equal monthly rental payments of $2,380.69; (g) an adjustment would be made to the purchase price after 12 months, and a refund issued, to the extent that the maintenance and repair costs expended on the x-ray service at the centre exceeded 5% of the revenue excluding the facility fee in that year.; (h) the Rental Agreement to be signed would be in the same terms as this agreement."1 1 Paragraph 1S of the final defence -- 8 of 24 -- 9 [20] It appears to be alleged that the agreement arose out of a facsimile from Mr Wenkart to Mr Gillion of 4 February 2002, a facsimile of 21 March 2002 from Mr Wenkart to Mr Gillion; a facsimile of 30 April 2002 from Mr Gillion to Mr Wenkart, an email of 30 April 2002 from Mr Wenkart to Mr Gillion, a letter dated 2 May 2002 from Mr Wenkart to Mr Gillion and a facsimile from Mr Wenkart to Mr Gillion dated 8 May 2002. [21] It is alleged2 in the final pleading that the rental agreement was entered into as a result of the unilateral mistake on the part of Akuity and Gillion or a mutual mistake on the part of Akuity, Gillion, Macquarie and BPL. The mutual mistake alleged is that the parties understood that the rental agreement was in accordance with the terms set out in paragraph 1S of the final pleading. In relation to the unilateral mistake, it is alleged that Macquarie and BPL knew or ought to have known that Akuity and Gillion entered into the rental agreement under the misapprehension that it was in accordance with paragraph 1S. Rectification is sought in the counter-claim in the final pleading on the basis of mutual mistake or, alternatively, unilateral mistake. [22] It is alleged also that Mr Gillion and Akuity were induced to contract on the basis of a number of misrepresentations by Mr Wenkart on behalf of Macquarie and BPL in breach of s 52 of the Trade Practices Act 1974. Mr Gillion and Akuity claim relief under that Act. Rectification [23] The critical findings of the primary judge in relation to rectification are as follows: "[28 ] The evidence of Mr Gillion, Mr Wenkhart and Dr Wenkhart3 and the correspondence between the parties, critically the letter of 2 May 2002, establish the parties developed a consensus that the business would be purchased over a fixed term of 12 months and the rental agreement would be the mechanism used to realize that. The common intention was to enter into an arrangement whereby the adjusted purchase price plus interest would be paid by monthly instalments under a rental agreement over 12 months. The common intention was that those 12 payments (and the $1 fee to exercise the option) were all that Akuity would pay for the equipment. [29 ] There is no evidence to suggest any change to that common intention between the time the letter of 2 May 2002 was sent and the time the rental agreement was signed by both parties. Mr Gillion gave evidence of his mistake that he would not be required to pay more than 12 equal monthly payments under the rental agreement. I infer from the evidence of Mr Wenkhart and Dr Wenkhart about the negotiations and from the terms of the correspondence between the parties that Mr Wenkhart was, likewise, mistaken. 2 In paragraph 7. 3 Dr Wenkart is the brother of Mr Wenkart and was also a director of Macquarie. -- 9 of 24 -- 10 [30 ] The appropriate remedy is to rectify the rental agreement to fix its term at 12 months non-renewable. There is no dispute that 11 monthly payments were made. As rectified, Akuity's obligation is to make one further monthly rental payment of $2,380.69. The rental agreement provides for interest on default payments of 20% (clause 19). Akuity asserts interest at that percentage amounts to a penalty. BPL claims interest only at 9% per annum." [24] The primary judge's finding that Mr Wenkart was BPL's agent "for all purposes during the negotiations" is not challenged on appeal. It is plain from the correspondence and, in particular, from the letter of 2 May 2002 that Mr Gillion and Mr Wenkart intended to contract on the basis that, however the subject transaction was structured and subject to two one dollar payments, Akuity would obtain title to the business and its assets on payment of $24,550.25. Akuity was to enter into a lease agreement in respect of the x-ray equipment with BPL under which twelve monthly rentals of $2,380.69 would extinguish or replace any obligation by Akuity to pay for the x-ray equipment. The obligation on Akuity's part to pay the sum of $1 was imposed merely to provide formal a mechanism by which title to the x-ray equipment could pass from BPL to Akuity. [25] The appellants' counsel argues that as a director of BPL it is unlikely that Mr Wenkart would have been mistaken about the provisions of its standard form rental agreement. The question though is not whether Mr Wenkart was mistaken in that regard. More relevant to the rectification issue is his understanding of the terms of the bargain struck by him and Mr Gillion and, in particular, his understanding as to whether these terms of the rental agreement would apply if they were inconsistent with the terms contained in the letter of 2 May 2002. [26] It is submitted also that the primary judge failed to explore the intent of the parties in the event that Akuity did not exercise the $1 option at the end of the rental term. It is argued that uncertainty about this stands in the way of rectification. Akuity had an "option" in a broad sense. At the end of the twelve month period it could, if it wished, purchase the rented equipment for $1. The intention of the parties was surely no mystery. It would not have crossed the mind of either Mr Wenkart or Mr Gillion that Akuity would not take advantage of its right to acquire the equipment having made the 12 rental payments. There was no commercial or even rational reason for Akuity not to pay the $1. Counsel for BPL was unable to advance one. [27] Plainly it was not the intention of Akuity or BPL that Clause 8 of the rental agreement would operate so that, if Akuity failed to give "notice of cancellation 90 days prior to the term" of the rental agreement and return the equipment, the term of the agreement would be renewed for another 12 months and Akuity would be obliged to pay again the sum agreed as the purchase price. [28] There is thus no substance in the attack mounted on behalf of BPL and Macquarie in respect of the findings about the parties' intention. If rectification was to be -- 10 of 24 -- 11 ordered, the order needed to take the form of a precise alteration to an instrument, in this case the rental agreement, not a directive that the rental agreement have a 12 month non-renewable term. In my view, however, it was unnecessary to order rectification. The agreements entered into between the parties included the terms contained in the letter of 2 May 2002 and the rental agreement. The two contractual instruments, being part of the same transaction, need to be construed together. That is particularly so as the parties' contractual intention was plainly that their bargain be in accordance with the matters recorded in the 2 May letter and the rental agreement played the subsidiary role of implementing the bargain encapsulated in the letter.4 The letter of 2 May was specific in its terms. Those terms prevailed over the standard printed terms of the rental agreement to the extent of any inconsistency. The following observations in the joint reasons of Dixon CJ and Fullagar J in Fitzgerald v Masters5 are very much on point: "Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon. What they must clearly have intended is to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon, and cl. 8 must be read as if it said 'consistent' or 'not inconsistent'." [29] Macquarie was not a party to the rental agreement. It is expressed to be between BPL and Akuity as lessor and lessee. Mr Gillion was bound as guarantor. Macquarie, however, agreed with Akuity that the rental agreement be entered into. Mr Wenkart represented both Macquarie and BPL in the subject negotiations. Although the letter of 2 May 2002 is on Macquarie letterhead, Mr Wenkart does not purport to be acting only for Macquarie. Terms in the letter create obligations in favour of and rights against BPL and it was necessary that BPL, as lessor, be bound by the bargain that there be 12 equal monthly payments and a right to purchase at the end of the rental period. [30] A court in construing a contract may supply omitted words and correct words inserted in error where it is necessary in order to achieve the parties' contractual intention. For example, in Fitzgerald v Masters6 , the court read the word "inconsistent" as meaning the precise opposite. Dixon CJ and Fullagar J, explaining their reasons for so doing, said:7 "There is a superficial difficulty in cl. 8, because it purports to incorporate a set of conditions so far as they are inconsistent with what has been specifically agreed upon. No real difficulty, however, is created. Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency." 4 See Geroff & Ors v CAPD Enterprises P/L & Ors [2003] QCA 187 at paras [42] – [43]. 5 (1956) 95 CLR 420 at 427. 6 (1956) 95 CLR 420. 7 (1956) 95 CLR 420 at 426. -- 11 of 24 -- 12 [31] Examples of greater textual interference in the process of construction are provided by Westpac Banking Corporation v Tanzone Pty Limited & Ors8 and Dockside Holdings Pty Ltd v Rakio Pty Ltd 9 . [32] In Watson v Phipps10 the Privy Council, on appeal from the Full Court of the Supreme Court of Queensland, construed a clause in a lease which provided that 'the lessee may offer to purchase the demised land from the lessor for a stipulated sum' as creating a right to purchase. The Full Court had ordered that the lease be rectified to achieve this result but the Privy Council regarded rectification as unnecessary. In the course of the reasons, delivered by Lord Brightman, it was said: "The function of a court of construction is to ascertain what the parties meant by the words which they have used. For this purpose the grammatical and ordinary sense of the words is to be adhered to, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency, but no further: see the speech of Lord Wensleydale in Grey v Pearson (1857) 6 HLC 61 at 106, repeated by Lord Blackburn in Caledonian Railway Co v North British Railway Co (1881) 6 App Cas 114 at 131." [33] In my view the rental agreement, on its correct construction, is to be read as if the introductory words on the front page under "TERMS AND CONDITIONS" commenced with the words "Subject always to the contents of the letter of 2 May 2002 from Macquarie to Akuity" and as if Clause 8 of the terms and conditions and "subject to paragraph eight (8)" in Clause 2 of the terms and conditions had been deleted. The order for specific performance [34] The primary judge's critical findings in this regard are: "[31 ] As well as rectification, Akuity seeks an order that, upon payment of the outstanding monthly payment plus the $1 option fee, BPL must assign its interest in the equipment to Akuity. It is common ground that Akuity sought to exercise the option after the 12 month term expired but that was ineffective. Akuity had not made the final monthly instalment and did not tender the option fee. It is appropriate to make an order providing for specific performance of the business sale agreement upon rectification of the rental agreement and performance by Akuity of its obligations there under." [35] Akuity's pleading does not allege that Akuity requested the transfer of the x-ray equipment to it or that it paid the consideration of $1 in that regard. Nevertheless it sought an order that upon its paying the outstanding rent of $2,380.69 and the sum of $1 to BPL, BPL and Macquarie assign to it the title to the x-ray equipment. In its 8 [2000] NSWCA 25. 9 (2001) 79 SASR 374. 10 (1985) 63 ALR 321 at p 324. -- 12 of 24 -- 13 reply and answer BPL alleged that Akuity had an option to purchase the x-ray equipment at the end of the rental period which it could exercise by paying the sum of $1 to Macquarie. It further alleged that Akuity was not entitled, by virtue of an implied term, to exercise the option whilst in arrears in payment of rent or otherwise in default under the rental agreement. [36] In its further amended statement of claim BPL pleaded in the alternative, in paragraph 8A, that Akuity repudiated the agreement by its letter of 14 April 2003 and by neglecting to pay rent owing under the rental agreement. It is further alleged that the rental agreement was duly terminated by BPL's letter to Akuity of 18 June 2003. [37] On the appeal BPL did not persist with its contention that the rental agreement had been terminated by it in consequence of Akuity's repudiatory conduct. It preferred to rely on its argument that Akuity had not exercised its "option" to acquire BPL's interest in the x-ray equipment for the consideration of $1. Also, its claim for unpaid rent for the period 30 May 2003 to 29 April 2007 was inconsistent with the rental agreement having been terminated. In fact, BPL's counsel challenged the primary judge's finding11 that the rental agreement had been terminated by BPL's letter of 18 June 2003. BPL's argument in this regard was that a termination of the contract constituted an election by the innocent party and for such an election to be effective it must be unequivocal in the sense that it is "consistent only with the exercise of one of two sets of rights and inconsistent with the exercise of the other".12 The primary judge observed "there was nothing equivocal about the terms of reference to the letter". The primary judge's conclusion was well justified. [38] BPL's pleaded case was one of acceptance of Akuity's repudiatory conduct. That conduct consisted of the letter of 14 April 2003 from Akuity to BPL and an alleged failure to pay rent for May, June, July, August, September, October and November 2003. Repudiation of a contract is "a serious matter, not lightly found or inferred." 13 [39] The existence or otherwise of repudiatory conduct is to be determined by reference to: "…objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor’s conduct ‘would be reasonably calculated to have upon a reasonable person’. It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it".14 [40] The letter of 14 April 2003 hardly manifested an intention by Akuity not to be bound by its contractual obligations. It made out a case of financial misfortune and requested "the stopping of the last payment of twelve monthly payments due to BPL 11 In paragraph 36 of the reasons. 12 Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 646. 13 Ross T Smythe & Co Pty Ltd v T D Bailey Son & Co (1940) 3 All ER 60 at 71 per Lord Wright; and Roadshow Entertainment Pty Ltd v CEL Home Video Pty Ltd (1997) 42 NSWLR 462 at 479. 14 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658. -- 13 of 24 -- 14 of $2,380.69." A reasonable person in BPL's situation would not have viewed the letter as disavowing either the rental agreement or obligations under it. [41] BPL's response was not given until it rejected Akuity's request in a letter of 2 June 2003. That letter, wrongly, asserted an obligation on Akuity's part to continue monthly rental payments after the expiration of the twelve month term of the agreement. The purported letter of termination of 18 June 2003 wrongfully demanded rent owing for June 2003. [42] It is a relevant consideration that the breach of the rental agreement consisted of a failure to pay only the last rental instalment under an agreement which provided for twelve equal rental instalments and which conferred on the lessee the right to acquire the leased property on the payment of $1 at the expiration of the term of the lease.15 In those circumstances something more than mere non-payment of the instalment would be required for the lessee's conduct to be considered repudiatory. In my view a case of repudiation was not made out. [43] Akuity pleaded, in the alternative, that BPL by its letter of 18 June 2003 terminated the rental agreement. The basis upon which termination is alleged to have been effected was not pleaded but it was open on the pleadings for the primary judge to make a finding of termination for the breach of contract constituted by Akuity's failure to pay the final rental instalment. Akuity did not challenge that finding. On the face of it, Akuity would have had a soundly based claim for relief against forfeiture had it offered to pay any monies owing by it to BPL in respect of the rental agreement. 16 No such claim was made. [44] On the termination of the rental agreement, however, the right to purchase "the assets of the business for $1.00" remained unless it had expired by effluxion of time. That right was never provided for in the rental agreement; it was to be found in the terms contained in the letter of 2 May. Macquarie and BPL did not allege termination of any agreement other than the rental agreement. Was the right to purchase lost through delay? [45] As Dixon J said in York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth17 "the ordinary prima-facie rule is that when a contract provides for the doing of an act and there is no express provision as to time the law implies that it must be done within a reasonable time." It was not until the filing of the second further amended defence and the further amended counter-claim on 7 January 2007 that Akuity sought specific performance in relation to the x-ray equipment. [46] What constitutes a reasonable time for the exercise of a right such as the one under consideration is to be determined in the light of the circumstances existing at the 15 See the observations of Mason J in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 34. 16 See the discussion in Meagher, Gummow and Lehane's Equity: Doctrines and Remedies 4 th ed, para [18-025]. 17 (1949) 80 CLR 11 at 62; see also Perri v Coolangatta Investments (1982) 149 CLR 537 at 543; Ballas v Theophilos (No 2) (1957) 98 CLR 193 at 197. -- 14 of 24 -- 15 time the right is exercised18 . The right to acquire should be taken as having been exercised, at the latest, by the claim for specific performance. Akuity's solicitors wrote to BPL's solicitors on 3 December 2003 stating: "To the extent necessary, our client hereby agrees to purchase of the assets of the business for the sum of $1.00, pursuant to the agreement encompassed in the letter from Macquarie … to our client dated 2 May 2003." [47] The sum of $1.00 however, was not paid or tendered. The evidence does not reveal any response to the letter but BPL did not seek the return of the equipment and, until April 2007, persisted in a claim against Akuity on the basis that the rental agreement remained on foot. BPL has never claimed for delivery up of the equipment or its value. [48] The right to acquire the x-ray equipment could be exercised only by payment of the sum of $1.00 unless BPL agreed to the contrary. It may also be the case, as BPL contends, that the right could not be exercised until all instalments of rent were paid. But, whatever the position, no restrictive view can be taken of what amounted to a reasonable time within which to exercise the right in the peculiar circumstances of this case. BPL, it may be inferred, did not want the equipment. Akuity had possession of it. Once the termination took place it may be inferred, safely, that until the litigation was resolved any tender of the sum of $1 would have been futile. [49] BPL and Macquarie, having by their conduct made it obvious to Akuity that there was no point in Akuity tendering the consideration of $1, it was excused from so doing. 19 Akuity had made it plain in its December 2003 letter that it wished to exercise its right and BPL was thus acquainted with Akuity's position. Even if Akuity was not excused from notifying BPL of the exercise of its rights and making payment it could not be said that it had failed to act within a reasonable time. Time did not run against it, in the circumstances I have outlined, whilst acts in exercise of its rights to purchase would have been pointless. Consequently, the right to acquire the equipment was not lost through the effluxion of time. Consequences of the findings as to the terms of the agreements [50] It was common ground that the final rental payment of $2,380.69 was not made. Akuity remained liable to make the payment as an accrued right to payment existed prior to termination of the rental agreement.20 The primary judge recognised this entitlement and ordered that Akuity pay the $2,380.69 together with interest at nine per cent. No complaint was made on appeal about the interest rate. 18 Australian Blue Metal Ltd v Hughes [1963] AC 74 at 99 (PC): Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 576; Stickney v Keeble [1915] AC 386 at 419 and Laurinda v Capalaba Park Shopping Centre Pty Ltd (1988) 166 CLR 623 at 638, 639. 19 See Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, at 246-247 per Dixon CJ; Kelly v Desnoe [1985] 2 Qd R 477 at p 495 per Williams J; Nyhuis v Anton [1980] Qd R 34 at 41; Grieve v Enge [2006] QCA 213 at [22]-[25]. 20 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 and Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361. -- 15 of 24 -- 16 [51] BPL was also entitled to have the order made against Mr Gillion, as guarantor of Akuity's obligations. His counsel advanced no reason on the hearing of the appeal as to why he could escape liability. The Trade Practices Act claims [52] In paragraph 1H of the final pleading it was alleged that financial details provided by Macquarie represented inter alia: "(a) Revenue included a $5 facility fee per patient, recoverable for approximately 55% per of the patients; (b) Maintenance and repair costs were 5% of revenue excluding the facility fee." [53] This was referred to as "the first representation". [54] A "second representation" as follows was alleged in paragraph 1 I(e): "(e) as to the facility fee, Wenkart confirmed that - (i) Akuity could charge a facility fee of at least $5 directly to each patient over and above any claimed Medicare rebate; (ii) MHC charged such a fee at all of their sites; (iii) there was no problem in charging such a fee, particularly as Akuity was a separate legal entity from the Radiologists who read the films, and it was a charge that could be made without contravention of any legal and permitted charge under HIC policies; and (iv) such a fee could be allowed for in profit projections, …" [55] In paragraph 1AC of the final pleading it was alleged that the first representation was false, misleading and deceptive because: "(a) The charging of the facility fee as a co-payment in addition to bulk billing the x-ray procedure to the HIC was not a legal and permitted charge under HIC policy; (b) Akuity could not charge a facility fee of at least $5 directly to patients over and above any claimed Medicare rebate; (c) The charging of the fee was discontinued from about 12 November 2002; (d) The fee could not properly be allowed for in proper projections." [56] On the trial no evidence of the content of "HIC policy" was led. At the commencement of the trial there was discussion about the particularisation of the allegations in paragraph 1AC. That discussion culminated in an explanation by Macquarie and BPL's then counsel to the effect that the charging of the facility fee was in breach of s 20A of the Health Insurance Act 1973 (Cth) ("the Act") and, consequently, unlawful. -- 16 of 24 -- 17 [57] The critical findings of the primary judge for the present purposes are as follows: "The facility fee [43] Akuity claims Macquarie made misleading representations that their practice of charging a facility fee was lawful (in breach of s 52) and that Akuity could continue to charge the fee (in breach of s 51A). [44] Macquarie provided Akuity with data which disclosed revenue derived from a 'facility fee' paid by approximately 55% of their patients. Mr Gillion asked Mr Wenkhart whether the facility fee could be charged. Mr Wenkhart told him it can be, if the company which operates the facility is a different entity to that which supplies the radiologists who 'read' the films. Mr Wenkhart agreed he said that but could not recall all the details of his conversations with Mr Gillion. He agreed he would have said something which would have led Mr Gillion to believe that Akuity could continue to charge the fee if it adopted the same structure. [45] Akuity asserts both statements are misleading representations. They also contend the representation that Akuity could continue to charge it relates to a future matter and Mr Wenkhart had no reasonable basis for making it. [46] Mr Gillion said he relied upon Mr Wenkhart's statements and they induced him to enter into the contract. He did not say that he would not have entered into the contract had he known the practice was not lawful. Rather, it would have caused him to look more closely at the business because of the contribution of the facility fee to the profitability of the business. It contributed almost 30% of Macquarie's profit in the 13 months to which the financial records related. [50] The question is whether co-billing is lawful under the Health Insurance Act 1973 (Cth). Akuity and Mr Gillion rely on s20A. Macquarie argues that section does not render the facility fee unlawful. Any illegality, it says, rests upon a false declaration by the radiologist in the assignment form submitted to Medicare. That form includes a declaration by the practitioner that no payment has been sought from any person 'in respect of professional services' specified in the assignment form. If that declaration is false then the practitioner is exposed to prosecution. (s129 HIA and s 134.2 Criminal Code Act 1995) No doubt this was GCMI's fear. … [60] The proper reading of s 20A is that no other amount may be charged by any person for the service to which the assignment relates. The facility fee charged by Macquarie and, for a time by Akuity, was a charge in respect of the -- 17 of 24 -- 18 professional service of diagnostic imaging. I am satisfied the practice offends the HIA and could not be maintained lawfully. [61] The facility fee was an important contribution to the value of the business. It was all profit. Macquarie attributed no costs to it. Of the overall profit of $15,036 over a 13 month period, $4,386 or 29.11% was contributed by the facility fee. [62] Akuity abandoned the facility fee on 12th of November 2002 and closed the x-ray service on 23 October 2005. Based on a low average use of the facility and assuming 55% patients would have been charged that fee, Akuity claims $12,375 in lost revenue as damages for the misrepresentation. Macquarie argues damages should be properly assessed on after-tax income. That is not disputed. Assuming the general company tax rate of 30% is applied, the net loss over that period would be $8,662.50." [58] It will be seen from paragraph [46] that the primary judge did not make a finding that Akuity was induced by the alleged representations to enter into the subject agreements. It is, perhaps, implicit in her Honour's finding that she did not conclude that the inducing effect of the alleged representations had that consequence. However, that is a matter which it is unnecessary to explore having regard to the matters about to be addressed. [59] Sub-sections 20A(1) and (5) of the Act provide21 : "Assignment of Medicare benefit (1) Where a medicare benefit is payable to an eligible person in respect of a professional service rendered to the eligible person or to another eligible person, the first-mentioned eligible person and the person by whom, or on whose behalf, the professional service is rendered (in this subsection referred to as the practitioner) may enter into an agreement, in accordance with the approved form, under which: (a) the first-mentioned eligible person assigns his or her right to the payment of the medicare benefit to the practitioner; and (b) the practitioner accepts the assignment in full payment of the medical expenses incurred in respect of the professional service by the first-mentioned eligible person. ... (5) An assignment of a medicare benefit shall not be made except in accordance with this section." 21 Health Insurance Act 1973 (Cth). -- 18 of 24 -- 19 [60] "Eligible person" is defined as "an Australian resident or an eligible overseas resident." [61] "professional service" is defined relevantly as 22 : "(a) a service (other than a diagnostic imaging service) to which an item relates, being a clinically relevant service that is rendered by or on behalf of a medical practitioner; or … (f) a diagnostic imaging service that is rendered by or on behalf of a medical practitioner pursuant to a subsection 16B(1) request;or (g) a diagnostic imaging service (other than a service referred to in paragraph (f)) that is a clinically relevant service rendered by or on behalf of a medical practitioner. Note: See subsection (17) for when a service is taken to be rendered on behalf of a medical practitioner." [62] For present purposes it is unnecessary to determine which of paragraphs (a), (f) or (g) of the definition of "professional service" applies to the provision of x-ray services. [63] That is because the evidence does not disclose the making of an assignment in breach of s 20A. The evidence is to the effect that the radiologist referring patients to the subject x-ray service would enter into an agreement with patients "in accordance with the approved form" under which the radiologist would accept the "assignment in full payment of medical expenses incurred in respect of the professional service by" the radiologist, including the x-ray service. There is no evidence that the radiologist was aware that a "facility fee" was being charged by Miami Medical Imaging. [64] The facility fee was a sum of $5 requested of some patients. If they showed reluctance to pay the fee the receptionist did not persist with the request. The primary judge concluded that the "facility fee was apparently a fee for access to the facility". [65] However, the facility fee is categorised, it was not a component or term of any assignment by a patient to the radiologist in accordance with the approved form. Nor did the evidence disclose that it was a requirement or pre-condition for any such assignment. The facility fee may have been "expenses incurred in respect of the professional service" by the assignor but, on the evidence, it was distinct from the transactions of assignment. The way in which the facility fee was charged is quite different from the way in which the impugned fee was imposed in Dalima Pty Ltd v Commonwealth of Australia,23 a case relied on by Akuity. In that case a similar fee was charged by the company which owned the medical centre in which the radiologists operated. A patient could see a radiologist only after payment of the fee. The radiologists in the medical centre paid a fee equal to 60 per cent of their bulk billing receipts to the centre owner. It was thus difficult to contend that 22 Health Insurance Act 1973 (Cth), s 3. 23 Unreported, NSWSL, No 25304/87, 22 October 1987. -- 19 of 24 -- 20 the radiologists, who presumably were aware of how the system operated, accepted the assignment by the patient "in full payment of the medical expenses incurred in respect of the professional service …" 24 . [66] Neither the primary judge nor this Court was called upon to find whether the charging of the facility fee was otherwise unlawful. [67] For the above reasons, the primary judge erred in finding that the charging of the facility fee breached s 20A and was therefore illegal. As Akuity's relevant Trade Practices Act claim rested entirely on the alleged breach, BPL and Macquarie are entitled to have the order made in respect of this claim set aside. [68] There is another reason why Akuity's counter-claim should not have succeeded. [69] Reference to paragraphs [61] and [62] of the reasons reveals that Akuity's claim for damages based on the first representation was not a claim for damages at all. The claim, in substance was for a loss of revenue from the conduct of the x-ray business. The lost revenue calculated by the primary judge appears to equate to the monies which would have been received by Akuity, after tax, from the charging of a facility fee to 55 per cent of patients who used the subject x-ray service between 12 November 2002, when the charging of the fee ceased, and 23 October 2005, when the x-ray services ceased to be provided. [70] Such lost revenue does not equate with loss and damage recoverable under s 82 of the Trade Practices Act for breach of s 52: The tortious measure of damages, prima facie, is the appropriate measure to be applied. Such damages are arrived at, normally, by determining how much worse off the representee is as a result of entering into the transaction which the representation induced it to enter into, than it would have been had the transaction not taken place.25 [71] In accordance with this principle, where a business or other property is purchased in reliance on a misrepresentation, the prima facie measure of damages is the difference between the price paid and its true value.26 As was pointed out in Kenny & Good Pty Ltd v MGICA27 this is not an inflexible rule. It may be that as a result of being induced to acquire a business as a result of a misrepresentation the business, although not as represented, is more valuable than the purchase price. In such a case the purchaser will have suffered no recoverable loss or damage, at least as a general proposition. Of course, such a purchaser may suffer recoverable consequential loss. In this case Akuity has not claimed or adduced evidence of any loss on any recoverable loss. Akuity relied on expressions of principle in Murphy v Overton Investments P/L28 and Kizbeau Pty Ltd v WG & B Pty Ltd29 which gave a broad scope to the meaning of "loss or damage" in s 82. But it remains the case that recoverable loss and damage, as opposed to diminution in expected profits or 24 Section 20A(1)(b) of the Act. 25 Gates v City Mutual Life Assurance Society Ltd (1985-1986) 160 CLR 1 at 12. 26 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 147 ALR 568 at 588. 27 Supra. 28 (2000) 216 CLR 388 at 407. 29 (1995) 184 CLR 281 at 291. -- 20 of 24 -- 21 revenue, must be both pleaded and proved. Counsel for Akuity argued that it was possible to find in the appeal record evidence which would demonstrate that loss and damage had been suffered. But Macquarie and BPL had not been called on to meet such a case at first instance and had the damages claim been pleaded differently, it is obvious that Macquarie and BPL may have had different or other evidence and may have conducted the case differently. It is thus inappropriate to entertain a damages claim on a new basis on appeal.30 BPL's mesne profits and damages claims [72] The retention of the x-ray equipment by Akuity after the termination of the rental agreement by BPL did not found a good claim for mesne profits by BPL. Mesne profits have the character of damages for trespass.31 Akuity did not retain possession of the leased equipment without at least the implicit consent of BPL. BPL's letter of 18 June 2003 to Akuity stated, "Please contact me regarding the return of our equipment under the rental agreement." That could be regarded, perhaps, as an implicit request for the return of the equipment. But in its statement of claim filed on 10 July 2003 BPL claimed rent for July 2003 and did not allege termination of the rental agreement. The claim was thus inconsistent with the assertion of a right to possession. The amended statement of claim filed on 27 April 2005 also claimed rent on the basis that the rental agreement remained on foot. [73] The April 2007 statement of claim, for the first time in the proceedings, alleged breach of the rental agreement and termination. It also alleged, without particulars, wrongful refusal to deliver up the leased equipment. BPL claimed damages "for lost rent" and, alternatively, damages for breach of the rental agreement. By this time the equipment was in storage and had long since ceased to be used by Akuity. Moreover, the primary judge found that "BPL declined an offer to repossess the equipment" in 2006 and that "no other steps were taken by BPL to repossess the equipment." [74] As the primary judge pointed out in her reasons, BPL's claims for damages and mesne profits also suffer from the difficulty that there is no evidence of market rental. Nor is there any evidence which establishes that there was a rental market for the equipment after Akuity ceased using it in 2005. The fact that BPL has not claimed for the value of the equipment or its return suggests that its value is modest. BPL contends that such lack of evidence is irrelevant because of the traditional practice of allowing mesne profits calculated at a rate equivalent to the rental paid under the lease.32 The rationale for the practice is that the rental under the expired lease is evidence of the market rental. Evidence, however, may be adduced to establish that the lease rental is different to market rental.33 The evidence in this case is that the rental under the rental agreement was determined on a basis which was not intended to be a market rental and which may have borne no relationship to a market rental. Consequently, even if mesne profits fell to be assessed, it would be wrong in principle to adopt the rental under the rental agreement and there would be no evidence of market rental. 30 Coulton v Holcombe (1986) 162 CLR 1 at 7-8. 31 27 Halsbury's Laws of England 24 th ed. Para 255. 32 Rock Bottom Fashion Market Pty Ltd v Innes, Innes & HR & CE Griffiths Pty Ltd [1998] QCA 33. 33 27(1) Halsbury's Laws of England 4 th ed. (re-issue) para 258. -- 21 of 24 -- 22 [75] BPL has failed to establish that the primary judge erred in rejecting its claim for mesne profits. Costs [76] When the primary judge delivered her reasons on 14 March 2008 the parties were afforded the opportunity of making written submissions on costs. In her reasons of 23 April 2008 the primary judge decided that each party should pay its or his own costs. Akuity and Mr Gillion had argued that they had met with substantial success in the action and that BPL should pay costs on a standard basis until the date of an offer to settle made by Akuity and thereafter on the indemnity basis. BPL and Macquarie had contended that an order that each party bear its own costs reflected the parties' relative success in the proceedings. [77] In her reasons the primary judge took into account the fact that Akuity and Mr Gillion had successfully resisted BPL's large counter-claim and had succeeded in the claim for rectification and on one of the misrepresentation claims. She identified the issues in the proceedings and the time spent on them and their relative importance as follows: "[5] Broadly speaking, the counterclaim raised four other issues: the condition of the equipment; the taxation implications of the structure of the business sale agreement; the legality of the facility fee and the licence requirements. Of those four broad categories, the condition of the equipment involved three separate sub-issues: the merchantability and fitness for purpose of the equipment; the historical maintenance costs of the equipment; and whether the purchase price would be adjusted if those costs exceeded a threshold. [6] The primary issues as the matter was conducted at trial were the enforceability of the rental agreement and the condition of the equipment. Akuity wholly succeeded on the former and BPL on the latter. Of the remaining issues raised by the counterclaim, Akuity succeeded on two (the legality of the facility fee and the licence requirements) and BPL successfully defended the third (the taxation implications of the business sale agreement). All were secondary issues. [7] I have not sought to accurately attribute time taken in evidence on different topics. However, BPL has referred me to the passages of The transcript which contain evidence regarding the two aspects of the counterclaim on which it succeeded. Roughly speaking this occupies some 40% of the time taken in evidence during the trial." [78] Akuity and Mr Gillion cross-appeal against the costs orders. As well as advancing the arguments urged on the primary judge, Akuity and Mr Gillion assert that the primary judge failed to have due regard to the following matters: (a) Mr Gillion was wholly successful in the proceedings; (b) Mr Gillion was not a party to Akuity's counter-claim; -- 22 of 24 -- 23 (c) BPL recovered nothing against Mr Gillion and only the $2,380.69 inclusive of costs which were offered to BPL by Akuity and Mr Gillion in an offer to settle in accordance with Part 5 of Chapter 9 of the Uniform Civil Procedure Rules on or about 27 September 2004; (d) The award against Akuity in favour of BPL was less beneficial to them than an offer to settle under the rules made by Mr Gillion and Akuity on 24 March 2006. It was that Akuity would return the x-ray machine to BPL and Macquarie and pay them $15,000 and each party would bear its own costs. [79] Appellate courts are understandably reluctant to interfere with a primary judge's exercise of discretion in relation to costs and there exists "a strong presumption in favour of the correctness of the decision appealed from."34 Save in one respect, the primary judge gave careful consideration to the question of costs and decided, for reasons which were rational, logical and, if I may respectfully say so, sensible that each party should bear its own costs. She did however appear to overlook the significance of the offers made under the Uniform Civil Procedure Rules and, in particular, the second of those offers. I do not regard the first offer as of any significance as it did not include interest on the sum offered and BPL had an entitlement to interest. The second offer though was significantly more favourable to BPL and Macquarie than the result they achieved on trial. [80] Under r 361 of the Uniform Civil Procedure Rules Akuity had a prima facie right to an order for costs "calculated on the standard basis up to and including the day of service of the offer to settle" and an "order that [Macquarie and BPL] pay [its] costs" on the indemnity basis thereafter, unless Macquarie and BPL showed that another order for costs was appropriate. For the purposes of these rules "plaintiff" includes a counter-claiming defendant. Under r 360 Akuity was entitled, unless BPL and Macquarie showed that another order for costs was appropriate, to costs on an indemnity basis in respect of its counter-claim. [81] The provisions in relation to offers to settle play an important role in encouraging resolution of litigation and the avoidance of unnecessary costs and expense. As the primary judge did not address the application of the Uniform Civil Procedure Rules in relation to the offers to settle the exercise her discretion miscarried and it is necessary for this court to exercise it afresh. [82] Akuity has been less successful as a result of the appeal than it was at first instance. Its counter-claim, except for the specific performance claim, has failed. Mr Gillion has been made subject to the order to pay the outstanding sum of $2,380.69 and interest but it is plain, I think, that the costs of proceeding against him added little to the costs which were incurred by Akuity or in respect of claims against Akuity. Akuity and Mr Gillion had the same representation. However, Akuity and Mr Gillion have had the greatest measure of success overall as they have been 34 See Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621, at 627 referred to in Thiess v TCN Channel Nine Pty Ltd (No 5) [1994] 1 Qd R 156, at 207. -- 23 of 24 -- 24 successful in resisting BPL's claim for rent, damages and/or mesne profits. The monetary value of those claims far outweighed the monetary value of the claims in the counter-claim. [83] The role of the unsuccessful counter-claims, however, should not be overlooked. What should have been a relatively straight forward piece of litigation became unduly complicated by those counter-claims which not only failed but which were time consuming to prepare and present. Even the contractual claims were formulated in an unduly complex way calculated to conceal the true issue from the primary judge. And, it must be remembered, many of these claims made a late appearance in the proceedings. There was no specific performance claim before the filing of the penultimate defence and counter-claim and the value of the leased equipment is modest. The order for costs proposed below reflects these competing considerations. Conclusion [84] For the above reasons I would order that: (a) The orders made by the primary judge on 14 March 2008 be set aside. (b) The first respondent, Akuity Pty Ltd and the second respondent, Graham Bruce Gillion pay the first appellant, Business and Professional Leasing Pty Ltd $2,380.69 plus interest thereon at the rate of nine per cent per annum from 10 July 200335 until the date of this order. (c) Upon payment of the sum referred to in paragraph (b) and payment of the further sum of $1, Business and Professional Leasing Pty Ltd execute and deliver to Akuity Pty Ltd an assignment of its right, title and interest in the property the subject of the rental agreement dated 30 May 2002 and do all such acts and things necessary to give effect to such assignment. (d) The first and second appellants pay one half of the first and second respondents' costs of and incidental to the proceedings at first instance incurred after 7 January 2007 to be assessed on the standard basis. (e) The first and second appellants pay one half of the first and second respondents' costs of and incidental to the appeal and cross-appeal by the first and second respondents, to be assessed on the standard basis. [85] FRASER JA: I agree with the reasons of Muir JA and the orders proposed by his Honour. [86] LYONS J: I have had the advantage of reading the reasons for judgment of Muir JA. I agree with the reasons and the orders proposed by his Honour. 35 The date from which interest was claimed in the further amended statement of claim. -- 24 of 24 --