Aero South Pacific Pty Ltd v Byrt [2012] QSC 62

SUPREME COURT OF QUEENSLAND CITATION: Aero South Pacific Pty Ltd v Byrt [2012] QSC 62 PARTIES: AERO SOUTH PACIFIC PTY LTD ACN 114 467 060 (Plaintiff) v TERENCE JOHN BYRT (Defendant) FILE NO: BS 2624 of 2009 DIVISION: Trial PROCEEDING: Civil DELIVERED ON: 16 March 2012 DELIVERED AT: Brisbane HEARING DATES: 30-31 January; 1–3 and 6 February 2012 JUDGE: Fryberg J ORDERS: 1. Judgment for the plaintiff on the claim. 2. Counterclaim dismissed. CATCHWORDS: Contracts – General contractual principles – Discharge, breach and defences to action for breach – Repudiation and non-performance – Repudiation – Application to leases – Repossession – Failure to pay rent – Damages for loss of bargain Guarantee and indemnity – The contract of guarantee – Construction and effect – Extent of liability – Miscellaneous guarantees – Damages for loss of bargain Trade Practices Act 1974 s 51AC, s 52, s 87 Canon Australia Pty Ltd v Patton [2007] NSWCA 246, followed Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited [2008] HCA 10; (2008) 234 CLR 237, cited Progressive Mailing House Pty Ltd v Tabali Pty Limited [1985] HCA 14; (1985) 157 CLR 17, cited Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, distinguished -- 1 of 17 -- 2 COUNSEL: AW Duffy for the plaintiff R A Perry SC and M Henry for the defendant SOLICITORS: Warlow Scott the plaintiff Clark Kann for the defendant [1] FRYBERG J: This claim is an unfortunate sequel to the demise in 2009 of a regional airline in Queensland operated by Macair Airlines Ltd (“Macair”). The plaintiff (“Aero”) claims against the defendant under a guarantee signed by the defendant in August 2008 by which the defendant guaranteed the performance by Macair of its obligations under two aircraft hire agreements. Mr Byrt resists the claim on the ground that the guarantee is liable to be set aside under s 87 of the Trade Practices Act 1974 either for misleading and deceptive conduct in breach of s 52 or unconscionable conduct in breach of s 51AC and he seeks that relief by counterclaim. He also raises a number of issues which go to the existence or extent of Macair's liability to Aero. Background [2] Mr Andrew Reid is a man with varied interests. His family had pastoral holdings in northern New South Wales and he was initially propelled toward a career on the land. Despite this, he chose to join the Royal Australian Air Force, where he qualified as a pilot. He resigned in 1983. When his family acquired a cattle station near Kowanyama in North Queensland, they wished to have an aircraft for transport between their various properties. The family company purchased a Fairchild Metro 23 with the registration mark VH-MYI (“MYI”). When not required by the company, the aircraft was hired to an air services operator. In 2001, the company leased it to Macair. Mr Reid pursued other interests until 2005, when he and his wife acquired Aero. [3] Aero operated as an aircraft owner and lessor. At first both Mr and Mrs Reid were directors, but Mr Reid resigned as such in early 2008. Mrs Reid is now the sole director. Mr Reid was and remains the manager. In April 2005 Aero purchased MYI. Macair remained in possession of it and on 26 May that year it entered into an aircraft hire deed with Aero in respect of it. The deed was described by counsel as a lease, and was for a period of two years. Providing aircraft for use in regional Queensland was consistent with Mr Reid's view that “Queensland requires regional aviation services and that … anybody that was supporting that and could continue with that service to regional Queensland should be supported”. Consistently with that view Aero also agreed to acquire a Saab 340B to hire to Macair. It did so, and in October 2005 leased that aircraft, VH-UYF (“UYF”), to Macair for five years. [4] Macair provided scheduled and charter flights throughout regional Queensland. It carried passengers and freight. Its clients included mining companies and the Queensland government. It operated a number of aircraft, at least seven, predominantly the Saab 340Bs preferred under the Queensland government contract. Two of these are presently relevant. One was UYF, already referred to. The other, which bore the registration mark VH-UYH (“UYH”), it leased from an -- 2 of 17 -- 3 American company, CRI Leasing Inc, a company whose agent was for all material purposes a United States citizen named Dominic A Cipolla. [5] Mr Cipolla controlled a United States company which traded under the business name Aviation Services of America and its Australian subsidiary, Aviation Service of Australia Pty Ltd (“ASOA”). It seems that their business was to find aircraft on the world market and provide them, if necessary through the leasing company, to those wishing to purchase or lease them in different parts of the world. Mr Cipolla and his companies had a long association with Macair. [6] Prior to May 2008 Macair was owned and controlled by persons not involved in this case. A new general manager, Mr Kent Donaldson, had been appointed in January 2008. In late April or early May Mr Reid heard that the defendant, Mr Byrt, was negotiating to purchase Macair. Mr Byrt was said to have interests in mining and fishing. He and Mr Reid arranged to meet. Mr Reid described the conversation: “I said to him in my opinion that Macair was capable of being a good airline but right at the moment it was probably being misrun, mismanaged. Kevin Gill, the General Manager, had left two or three months previous to that and it was my view that he shouldn't buy it just yet but perhaps wait a little bit to - if it was placed into external administration that he'd do a better negotiation and a cleaner purchase. His response was, „Don't tell me what to do. I've already bought it. You just worry about running your airline - keeping your aeroplanes up to us because we need those aeroplanes to continue Macair's services and grow the company‟. Now, did you have any discussion with him about the status of accounts as between Macair and your company, in relation to the hire of the two aircraft?-- I told him that our two aircraft were in arrears of hire agreement at present and that it was my view that Macair needed sufficient funds to make sure that a pressing creditor didn't foreclose on Macair.” Byrt Holdings Pty Ltd bought the shares in Macair in May 2008. I infer that at this time, Macair was financially stressed. [7] In mid-2008 CRI Leasing terminated Macair‟s lease of UYH. The aircraft was not repatriated to America, but remained on the tarmac at Townsville Airport, unable to be used by Macair. It became obvious to everyone involved that Mr Byrt would need to inject substantial funds into that company to keep it afloat. It must also have been obvious that without the use of all of its aircraft its business was at risk. Not only had the lease of UYH been terminated, but also the lease of MYI between Macair and Aero (which had been extended to June 2008) had expired. During July Mr Reid spoke to Mr Donaldson and asked when Aero was going to get MYI back. Mr Donaldson responded with words to the effect, “I can't give you MYI back because UYH is parked on the pavement here. I wish I could get my hands on it.” The negotiations [8] Two things happened as a result of that conversation. The first was that Mr Reid prepared and Mr Donaldson signed on behalf of Macair an extension of the aircraft hire agreement for MYI to 26 October 2008. The second was that Mr Reid had a -- 3 of 17 -- 4 discussion with Mr Cipolla about UYH. The latter indicated that he was willing to sell the aircraft to Aero for leasing to Macair. Mr Reid raised the suggestion with Mr Donaldson and Mr Byrt and discussions began toward the end of July. Mr Cipolla told Mr Reid that he was willing to take MYI as a trade in on the purchase. Mr Reid intended that Aero would borrow enough to finance the balance of the purchase price. Actual prices had not yet been agreed; they depended upon expert appraisal of the aircraft. Mr Byrt said that Macair wanted eventually to own its own aircraft and sought the inclusion in any lease of an option for purchase. [9] On 31 July Mr Reid e-mailed Mr Byrt and Mr Donaldson attaching a document which he described as proposed heads of agreement.1 Relevantly, it provided: “Background: 1. ASP is the owner of two aircraft, Saab 340B VH UYF and Metro 23 VH MYI currently hired to MAC who utilises the aircraft in its airline business based at Townsville QLD. 2. ASP may purchase and (sic) additional Saab 340B VH UYH for hire to MAC on the below terms and conditions. Conditions of Hire. 1. MAC to enter into a hire agreement for 4 years with an option for MAC to buy the aircraft at 18 months maturity. 2. The aircraft hire would be identical terms and conditions as the existing hire agreement for UYF dated 26 October 2005, except for monthly rental (to be agreed when final purchase price known), 4 year term and option agreement sale price (refer Cls 1). 3. The option purchase price is agreed at the start of hire. Price is set when purchase price agreed with UYH seller. 4. TB to guarantee both hire agreement and option purchase agreement. 5. If ASP does not acquire UYH or the monthly hire rate is not agreed or the option sale price is not agreed, this agreement terminates.” It is clear from the body of the e-mail that prices had yet to be agreed. [10] Discussions continued among the parties during the first half of August 2008. Mr Cipolla met Mr Byrt's accountants in Brisbane on 12 August, presumably to discuss the amount owed to his companies by Macair; he wanted this covered by an agreement. On 14 August he and Mr Reid both flew to Townsville to meet Mr Byrt, Mr Donaldson and Mr Byrt‟s accountants at the latter's office, and negotiations continued throughout the day. Mr Reid was excluded at first, while matters between Macair and Mr Cipolla were discussed. Mr Byrt did not arrive until about lunchtime. He was briefed by Mr Donaldson and the accountants and participated when negotiations resumed after lunch. Mr Donaldson then announced that they had resolved that Macair should lease UYH. Mr Reid asked if Macair would require MYI after October and Mr Donaldson replied, “No, not if we get UYH.” Mr Cipolla repeated his willingness to accept MYI as a trade in. There was some discussion as to whether in that case Mr Cipolla's company would take an assignment of the lease of that aircraft. He said that he should lease it to Aero which could sublease it to Macair. Mr Reid told the meeting, “We will work out 1 Exhibit 12. -- 4 of 17 -- 5 something between ourselves, it is only for two months.” No firm agreement was reached on the price of UYH. It was agreed that Mr Cipolla's solicitor, Mr Neive O'Donoghue, would draft the necessary documents for review and appraisal. [11] Further discussions ensued in the next couple of days. On 15 August Mr Reid sought confirmation from Mr Byrt and Mr Donaldson that Macair was willing to hire UYH on the same terms and conditions as the existing hire agreement for UYF. He foreshadowed to them a monthly rent of $42,000 plus GST and enquired at what time Macair wished to have an option to purchase exercisable. That implies that he had reached agreement with Mr Cipolla as to the price to be paid by Aero for UYH. There is no evidence that Mr Byrt or Mr Donaldson ever responded to Mr Reid's query about the timing of the option to purchase. In the event, no such option was included in the sublease. Mr Cipolla told Mr Reid that he was sending a bundle of documents to Macair that day. There is no evidence whether he did so; Mr Byrt neither gave nor called evidence. Mr Donaldson and Mr Byrt then signed the heads of agreement document. Mr Reid agreed to Mr Cipolla‟s wish that MYI be leased to Aero and subleased to Macair. [12] Mr Byrt pleaded that at no time prior to the execution of the documents was there any discussion of a requirement for a guarantee by him in relation to the lease or sublease of either aircraft. That allegation formed part of Mr Byrt's case in relation to unconscionability. Because Mr Byrt did not give evidence there is no testimony from him on this topic. Mr Reid was cross-examined at some length. Two features of the cross-examination may be noticed. First, Mr Reid was not asked about discussion of a guarantee in relation to UYH. In effect the plea was abandoned in respect of the guarantee of that lease. That is hardly surprising in the light of the terms of the heads of agreement. Mr Byrt made no attempt to explain the incorrect plea. Second, while Mr Reid‟s recollection was tested in cross-examination, no version inconsistent with his testimony was put to him. [13] Mr Reid testified that he raised the question of giving a guarantee in relation to the sublease of MYI with Mr Byrt a few days after 14 August and prior to 19 August. When put under pressure during cross-examination he displayed some confusion about whether this occurred on or after 14 August and a certain testiness with the questioning. Although there are some aspects of the evidence which are not entirely satisfactory, I am satisfied that it was correct and that Mr Byrt was told of Aero‟s requirement for both the sublease and the guarantee within a few days of 14 August. [14] Mr Reid also testified that he instructed his solicitor, Mr Jenkinson, to prepare two guarantees, one in respect of the lease of UYH and the other in respect of the sublease of MYI. In the event, one guarantee was prepared covering both documents. It is unnecessary to determine when or by whom it was prepared. [15] On 19 August draft documents began to emanate from Mr O'Donoghue's office. Some at least were sent to Mr Jenkinson on that and the succeeding three days. There is no evidence of whether they were sent to Mr Byrt or any lawyers or accountants acting for him. Mr Cipolla flew to Townsville early on Saturday 23 August to have the documents executed by Macair and Mr Byrt. Precisely what he did for the weekend is unknown. In particular there is no evidence as to whether he had contact with Mr Byrt or his advisers. Paper copies of the documents were made for the purpose of being signed, but the evidence does not disclose who made them -- 5 of 17 -- 6 or when or where they were printed. They are variously dated on 23 and 24 August and they were executed by Macair and Mr Byrt over that weekend. [16] Mr Byrt pleaded that Mr Cipolla in the presence of Mr Reid required the documents to be signed on the Saturday, knowing that Mr Byrt had no access to legal advice. The fact that the majority of the documents (or at least a majority of those tendered) were dated 24 August suggests that this plea was false. Moreover Mr Reid swore that he did not go to Townsville that weekend. Before me Mr Byrt expressly withdrew the allegation of Mr Reid‟s presence. Mr Byrt offered no explanation for the erroneous pleading. [17] In fact Mr Reid was with his solicitor, Mr Jenkinson, at the latter's Brisbane office from approximately 11.00am until 12:40pm on 24 August. During that time, according to Mr Jenkinson's diary note, the solicitor telephoned Mr Byrt and: “told him that I was acting for Aero South Pacific and I needed to be sure that he had signed a guarantee which I had been provided and that he knew that he was personally guaranteeing that Macair would perform … .”2 The guarantee was dated 23 August. Presumably somebody had faxed or e-mailed a signed copy to Mr Jenkinson by the time of the phone call. The Trade Practices Act issues [18] The misleading or deceptive conduct plea was founded upon statements allegedly made by Mr Cipolla to Mr Byrt. In his defence Mr Byrt alleged that these statements were either made in the presence of Mr Reid (and, by implication, were adopted by him) or were made by Mr Cipolla as agent for Aero. In his address Mr Perry SC for Mr Byrt conceded that on the evidence, any agency was of limited authority and extended only to the purpose of securing the execution of the documents in Townsville. In my judgment the evidence does not disclose even such a limited agency. Mr Reid was content for Mr Cipolla to have the documents executed, but the latter was not acting on behalf of the plaintiff in procuring their execution. Mr Byrt made no submissions on this defence and I take it to have been tacitly abandoned. [19] The unconscionable conduct defence was pursued. It has some significant theoretical problems relating to causation, but it is unnecessary to examine them. I am satisfied that it fails on the facts. The plea culminated in para 36 of the defence which identified the relevant conduct of the plaintiff as that constituted by the actions and omissions of Mr Cipolla and Mr Reid “as pleaded in the preceding paragraphs”. Having regard to my findings relating to Mr Cipolla's agency it is unnecessary to refer to such of those paragraphs as involve only him. As for those paragraphs which involved Mr Reid, it is convenient to set out the pleaded circumstances, knowledge and conduct and to interpolate my findings in relation to each item. [20] Paragraph 19 referred to all times material to the negotiation of the lease, the sublease and the guarantee. It alleged that Mr Byrt: 2 Exhibit 40A (emphasis added). -- 6 of 17 -- 7 a. did not know the true financial position of Macair. There is no evidence of the level of Mr Byrt's knowledge, although one might have expected him and his accountants to have carried out a due diligence analysis of Macair before he bought into the company b. in particular did not know the true extent of liabilities owed by Macair. The same applies c. was not and was not intended to be taking an active role in the management of Macair. There is no evidence to support this assertion and Mr Byrt's involvement in the negotiations already discussed suggests otherwise d. did not know the terms upon which Macair had previously leased aircraft from Aero or companies associated with Mr Cipolla. There is no evidence to support this allegation. Given that the heads of agreement sent to Mr Byrt on 31 July 2008 expressly referred to “the existing hire agreement for UYF dated 26 October 2005” as the basis for the proposed agreement for UYH, one might expect Mr Byrt to have found out about the terms e. had very limited experience with the aviation industry. There is no evidence about Mr Byrt's experience in that industry f. was not aware of the obligations being imposed upon him by executing the personal guarantee and indemnity. There is no direct evidence of the level of Mr Byrt's awareness, but a man with extensive business interests might reasonably have been expected to understand those obligations g. was an elderly man. Mr Byrt‟s age is not in evidence, but in any event I would not be prepared to attribute incapacity to a person based simply upon their age h. did not have the benefit of legal advice. There is no evidence on this question i. was not given the lease, sublease or guarantee documents until 24 August 2008. The evidence does not disclose when these documents were first given to Mr Byrt or his advisers. However some of the executed copies (including the guarantee) are dated 23 August j. was required by the plaintiff through Mr Reid and Mr Cipolla to execute the documents forthwith. There is no evidence to support this allegation. Whether he executed the documents was a matter for Mr Byrt. Mr Reid was not in Townsville at the time and Mr Cipolla was not the plaintiff's agent k. did not have explained to him by any person acting for or on behalf of Aero the terms and conditions of any of the documents and in particular the inclusion of the MYI sublease and clauses 17.2.2(b) and 17.2.3 thereof and clauses 16.2 (2) (b) and 16.2 (3) of the UYH lease. Mr Reid was not expressly asked whether any such explanation was given, but it is unlikely. This allegation is probably correct. [21] Paragraph 20 of the defence relevantly pleads that at all material times in relation to the negotiation of the sublease, the lease and the guarantee the plaintiff through Mr Reid knew: a. that Macair had entered into an agreement with the Queensland government for the conduct of regional air services in Queensland. That allegation is correct b. the importance of the Saab aircraft UYH to the business operations of Macair. I am satisfied that Mr Reid did know that Macair was keen to regain the use of the aircraft -- 7 of 17 -- 8 c. the extent of liabilities owed by Macair. Mr Reid did not know the extent of Macair's liabilities and it was not put to him that he did d. that Mr Byrt was a newcomer to Macair and was not acquainted with the business and in particular was not aware of the terms on which Macair had entered into aircraft leases with the plaintiff or companies associated with Mr Cipolla. Mr Reid was aware that Mr Byrt had bought into Macair in May 2008. There is no evidence to support the other matters alleged e. that Mr Donaldson had only recently joined Macair. Mr Reid knew that Mr Donaldson had joined Macair in about January 2008 f. that the defendant would need to inject substantial funds into Macair to keep it afloat. Mr Reid probably did know this g. that the lessor of UYH had terminated the lease of that aircraft, so that it was not available for use by Macair. Mr Reid did know this h. that Macair and/or Mr Byrt did not wish to lease or otherwise obtain the use of any aircraft other than the UYH. Mr Reid knew that Macair wished to employ Saab aircraft. Before the documents were signed he offered Macair early termination of the MYI lease, but Mr Donaldson declined that offer. [22] By para 25 of the defence Mr Byrt alleged that at no time prior to the execution of the sublease, the lease and the guarantee was it discussed that: a. if Macair hired UYH from the plaintiff that Mr Byrt would be required to guarantee that hire. In the light of the ex 12 I am satisfied that this allegation was false b. a new agreement would be entered into in respect of MYI. I have already found that Mr Reid told Mr Byrt of Aero's requirements a few days after 14 August.3 There is no evidence of any response by Mr Byrt c. that Mr Byrt would be required to enter into a guarantee with respect to any arrangement concerning the use by Macair of any aircraft. This plea is partly dealt with above. To the extent that it includes a reference to a guarantee in relation to MYI I have already found that Mr Reid told Mr Byrt of Aero's requirements shortly after 14 August4 d. that any agreement would contain a provision in terms of clauses 17.2.2(b) and 17.2.3 of the MYI sublease and clauses 16.2(2)(b) and 16.2(3) of the UYH lease. There was probably no explicit discussion of those clauses, but they were included in the existing lease of UYF, the terms of which were to be included in the new documents e. that Mr Byrt would or could become liable to Aero for any of the liabilities of Macair arising under the lease or sublease. That was probably not discussed in express terms; it hardly needed to be. [23] Those allegations were summarised in the particulars of unconscionable conduct provided in para 36. One other action was there alleged: that the plaintiff required Mr Byrt to guarantee obligations which had previously been incurred by Macair at a time when he had no involvement with it. There is no evidence of any such requirement. One other circumstance was alleged: that UYH could have been acquired (presumably by Macair) at a price substantially below that which had been represented. The precise meaning of this plea is unclear and there is no evidence in relation to it. 3 Paragraph [13] 4 Ibid. -- 8 of 17 -- 9 [24] The onus of proving unconscionable conduct lay on Mr Byrt.5 He has not discharged that onus. The plea fails. The guarantee should not be set aside; it is valid and effective. No defences under the Trade Practices Ac 1974t have been established and the counterclaim must be dismissed. [25] It is therefore necessary to identify the extent if any to which Macair failed to perform its obligations to Aero under the sublease and the lease. I turn to that question. Events from August 2008 to February 2009 [26] The evidence does not disclose when UYH was delivered to Macair; I assume that this occurred at about the end of August 2008. MYI was already in Macair‟s possession when the sublease commenced. When the sublease expired on 26 October 2008 Macair did not redeliver MYI to Aero. It placed the Metro in an aviation workshop, Worland Aviation, for completion of the work which cl 22.13 of the lease required to be done prior to redelivery. That work was not performed promptly because Macair failed to pay Worland the cost of procuring necessary parts. Mr Reid pointed out by e-mail that rent was continuing to accrue, and Aero continued to invoice Macair for it. He flew to Townsville to see the position for himself in December and observed that the aircraft was in the hangar in an un- flyable condition. He had a meeting with Mr Byrt and pressed him and Mr Donaldson to have the work completed. He testified: “The summary of that meeting was he needed - David Worland needed some parts and some labour time, funds from Macair to complete the job. Terry Byrt arrived later on. I said, „Terry, you owe it to us to get this off hire as quickly as possible. You're still paying for it and you are guaranteeing the agreement, so it is only prudent that you achieve this end.‟ He said basically, „Look, things are very tight‟ and I know that Macair's business is very seasonal.” He agreed to a payment schedule for Macair to begin paying off arrears but the schedule was not adhered to by Macair. [27] A further conversation took place between Mr Byrt and Mr Reid in the first half of January 2009. On 15 January Mr Byrt e-mailed Mr Reid: “Reference to our conversation a short while ago I can confirm that Macair has in place a funding package that will enable the company to pay its accounts in full and with the restructure of the company taking place will be positioned to move into becoming a corporate citizen.” Mr Reid responded by telling Mr Byrt that he would advise Worland of this and the specified list of parts which they needed to complete the work order. It seems that Mr Byrt took offence at this. He was determined that Macair should maintain control over MYI. He e-mailed Mr Reid on 17 January 2009: “Dave Worland is a maintenance facility used by Macair. I am Dave Worlands customer and his corporate loyalty belongs to me. I want you to realize your exact position in this as I propose to move against 5 Canon Australia Pty Ltd v Patton [2007] NSWCA 246 at [56]. -- 9 of 17 -- 10 any party that tries in any way to undermine my business and I have an hr by hr handle on this. You have aircraft on lease to Macair who has a responsibility to you but you in turn have a responsibility to Macair. If at any time yourself or any other party aircraft owner or otherwise tries to collude in any way I will immediately place a writ on them no matter who they are. This is NOT a warning this is just how I conduct business in a proper and respectable way.” [28] By 20 January Mr Cipolla was sufficiently concerned to go to Townsville. He met Mr Byrt and Mr Worland. Mr Byrt informed the others that Macair was unable to pay Worland Aviation and the suppliers were withholding urgently required replacement parts to enable repairs to MYI to be completed. He referred to a $7 million ex gratia payment from the Queensland government from which, he said, he would make all payments and which would be coming that Friday, 23 January 2009. Unsurprisingly, no ex gratia payment was made. On 26 January Mr Byrt e- mailed Mr Reid to advise that he was going to Brisbane the following day to present the government with documents for his claim of $7 million against it. He cannot have been very persuasive, for two days later an administrator was appointed to Macair and on 30 January it was placed in receivership. [29] On 5 February the administrator gave Aero notice that he did not propose to exercise rights in relation to UYH. The following day the receivers gave notice that they did not propose to exercise rights in relation to either aircraft, whether on behalf of Macair or anyone else. Aero repossessed UYH on 7 February and ASOA took possession of MYI the following day. Eventually Macair was wound up. Mr Byrt pleaded that each repossession amounted to repudiation by Aero of the lease and sublease respectively. I revert to that submission below.6 I accept his submission7 that Aero determined the lease and the sublease upon the repossessions on 7 and 8 February 2009. Rent under the MYI sublease [30] Aero's claim for rent under the sublease as it stood by the end of the trial8 can be summarised thus: Rent and reserves9 September-October 2008 $ 71,558.08 Rent and reserves November 2008 and January 2009 $ 68,615.36 $140,173.44 Less receipts October-November 2008 $ 16,000.00 $124,173.44 Mr Byrt does not accept that Macair was liable for the $68,615.36. 6 Paragraph [43]. 7 Outline of submissions of the defendant, para 1.2. 8 Exhibit 32A. 9 Strictly speaking the clauses providing for payment for reserves differed from those providing for payment of rent. However the amounts involved for reserves was small and the parties treated them in argument on the same basis as rent. -- 10 of 17 -- 11 The provisions of the sublease [31] The sublease provided: “2. TERM AND LEASING CHARGES 2.1 The Sublessor grants to the Sublessee and the Sublessee accepts the exclusive right to use the Aircraft during the Rental Term. 2.2 Term. Subject to Clause 2.1, the Leasing of the Property shall commence upon Acceptance of the Property by the Sublessee on the Delivery Date and shall continue for the Term unless this Agreement is terminated prior to the expiration of the Term. 2.3 Lease Charges. The Sublessor and Sublessee agree that the Sublessee shall pay to the Sublessor monthly in advance on each Payment Date the Lease Payment.” [32] “Lease Payment” was not defined; but “Leasing charge” and “Rent” were each defined to mean AU$29,000 per month. The parties have conducted the case on the basis that this requires a monthly payment of $31,900, which is the amount of the rent plus GST. [33] “Payment Date” was not defined, but the parties have taken it to be the same as the date under the earlier lease of MYI, ie 26th of the month preceding the month for which the payment is to be made. [34] “Rental term” was defined to mean from the commencement date to the termination date or the date the aircraft meets the return conditions hereunder whichever is the later. Termination date was defined to mean 26 October 2008. [35] “Term” was defined to mean the period from the commencement date to the termination of the lease, either on termination date or earlier. [36] “Return conditions” was not a defined term but the parties accepted that the expression referred to the conditions set out in cl 22.13 for the return of the aircraft. The interpretation of the sublease [37] Clause 2.3 did not define the duration of the period during which Macair was liable to make the lease payment. It is however clear from cl 2.1 that Macair had the exclusive right to use the aircraft during the rental term. In my judgment the conclusion is irresistible that the obligation to make the lease payments continued throughout the rental term. By definition that continued until 26 October 2008 or the date when the aircraft met the return conditions; in other words, until Macair satisfied the requirements of cl 22.13. That definition did not take into account the possibility that the return conditions might never be met. In my judgment it must be implied that the rental term would not continue after the repossession of the aircraft. [38] I do not accept that the leasing of the property could not continue after 26 October 2008 by reason of cl 2.2. It is true that that clause provides that the leasing should continue for the term, and that word was defined to mean the period to the termination of the lease either on termination date (26 October 2008) or earlier. -- 11 of 17 -- 12 However cl 2.2 was expressly made subject to cl 2.1. That has the consequence in the circumstances of the case that the lease continued to the end of the rental term. As it happens that is consistent with Mr Byrt‟s submission which I have accepted above10, that Aero determined each of the leases upon the repossession of the aircraft on 7 and 8 February 2009. It follows that Macair was liable for rent for the whole of the period claimed. [39] Mr Byrt did not argue otherwise. His submission was that by its pleadings Aero had confined its claim to unpaid rental for the period up to 26 October 2008. The pleadings [40] Aero pleaded: the making of the sublease (SC2); all of the provisions of the sublease set out above (SC3); that the rent and reserves for (among others) November 2008 and January 2009 summarised above11 were due and payable under the sublease (SC7A); and that Macair had failed to pay the rent and reserves by the due date (SC7A). The particulars given of para 7A showed that the claim included amounts for November 2008 and January 2009. [41] Mr Byrt submitted that the pleading was insufficient to raise an issue as to the rent and reserves for November 2008 and January 2009. It was said to be insufficient because there was no assertion that the aircraft did not meet the return conditions on the termination date, so as to justify an extension of the rental term beyond that date. Therefore, it was said, the pleading could not be read as claiming rent after 26 October 2008. [42] I reject that submission. The two end dates referred to in the definition of “rental term” are true alternatives. Either may apply. It is implicit in the claim that rent for periods after 26 October 2008 was due and payable and that Aero's case relied on the proposition that the aircraft did not meet the return conditions during those periods. Perhaps the pleading was elliptical in that it bundled that implication into that assertion. An application made before the filing of a request for trial date might have succeeded in forcing Aero to spell out the implication. No such application was made and in my judgment it is now too late to complain about the form of the pleading. Its meaning was clear and it would have been (and, I am sure, was) understood by Mr Byrt‟s lawyers. [43] Counsel for Mr Byrt supported the submission by reference to the Reply. I referred above to the plea in the Defence that each repossession amounted to repudiation by Aero of the lease and sublease respectively. Aero responded to that plea by asserting that the MYI sublease expired on 26 October 2008. It was submitted (in effect) that the Statement of Claim must be interpreted in the light of that response. In my judgment that argument does not advance Mr Byrt's position. It is trite that the Statement of Claim by itself must set out all of the elements of the plaintiff's claim. The present Statement of Claim does this. If Mr Byrt were prejudiced or 10 Paragraph [29]. 11 Paragraph [30]. -- 12 of 17 -- 13 embarrassed by an assertion in the Reply which was inconsistent with the pleaded claim, it was open to him to make an application to have the pleading struck out before the request for trial date was filed. He did not do so. With the disappearance of the issue to which the Reply was directed, the assertion about the expiry of the sublease became irrelevant. [44] Mr Byrt accepted that the amount claimed by Aero for rent and reserves12 was on that basis correctly calculated. The evidence of non-payment was uncontradicted. I find that Macair failed to perform its obligation under the sublease for MYI to pay rent and reserves totalling $124,173.44. Rent under the UYH lease [45] By the end of the trial Aero's claim for rent and reserves under the sublease for UYH stood at $325,919.30. Non-payment of that amount by Macair was proved. Mr Byrt accepted that figure as accurate. I find that Macair failed to perform its obligations under the lease for UYH to pay rent and reserves totalling that amount. Stipulated Loss Value [46] Clause 17 of the MYI sublease provided as follows: 17. CONSEQUENCES OF EVENT OF DEFAULT 17.1 Upon the occurrence of any Event of Default and so long as the same shall be continuing, the Sublessor may give written notice of termination of the leasing of the Aircraft under this Agreement to the Sublessee, whereupon the Sublessor may exercise any and all legal remedies, as the Sublessor in its sole discretion shall lawfully elect. 17.2.1 the Sublessee, at its own cost, expense and risk, shall immediately return the Aircraft to the possession of the Sublessor, free and clear of all Encumbrances and in the condition specified in Annexure „C‟ by immediately removing the Aircraft from service and transporting the Aircraft immediately to Portland, Victoria or such other airport as nominated by the Sublessor. The Sublessor may enter upon the premises where the Aircraft is located and take immediate possession of and remove the same by summary proceedings or otherwise. Without in any way limiting the foregoing obligations of the Sublessee under this clause, the Sublessee hereby irrevocably appoints the Sublessor as the agent and attorney of the Sublessee, with full power and authority, at any time while the Sublessee is obliged to deliver possession of the Aircraft to the Sublessor, to demand and 12 Exhibit 32A, item 1. -- 13 of 17 -- 14 take possession of the Aircraft in the name of and on behalf of the Sublessee from whosoever shall be in possession of the Aircraft at the time; 17.2.3 should the Sublessee fail to return the Aircraft to the possession of the Sublessor in compliance with clause 17.2.1 within 7 days of the Sublessor‟s notice of termination then the Sublessee shall, in addition to any existing obligations under this Agreement (including, without limitation, the payment of any unpaid Rent and any other amounts referred to in clause 17.2.2), without further demand, immediately pay to the Sublessor as liquidated damages for loss of bargain and not as a penalty, an amount equal to the Stipulated Loss Value.” The UYH lease contained a similar provision. Under the sublease the stipulated loss value was defined to mean AU$1,800,000 and under the lease that term was defined to mean US$2,550,000. [47] On 11 March 2009 Aero gave Macair notice of the termination of the leasing of the aircraft under each of the aircraft hire deeds. On the basis of those notices it claims each of the stipulated loss value amounts. [48] Under cl 17.2.3, the stipulated loss value was payable if Macair failed to return the aircraft to Aero's possession in compliance with cl 17.2.1 within seven days of the notices. Clause 17.2.1 applied only upon Aero giving notice of termination under cl 17.1. It was common ground that an event of default had occurred and was continuing on 11 March 2009. Nonetheless it does not in my judgment follow that Macair was liable for the stipulated loss value. [49] I reach that conclusion because in my view cl 17.2.1 could not operate to oblige Macair to return the aircraft after it had been repossessed. If, by taking advantage of some other legal right to obtain possession, the sublessor (or the head lessor) makes it impossible for the sublessee to comply with any notice under the clause, there is simply no scope for the clause to operate. By parity of reasoning, if the sublessor has terminated the lease of the aircraft at common law it is no longer possible for it to give a valid notice of termination under cl 17.1. [50] Macair was not liable to pay Aero the stipulated loss value. The claim under the guarantee in respect of it fails. [51] It is unnecessary to consider Mr Byrt's alternative argument that in any event the stipulated loss value was a penalty. Events after 8 February 2009 [52] Having repossessed MYI, ASOA re-leased it to a Melbourne company. Extensive repairs were first required. By letter dated 9 July 2009 ASOA demanded $244,141.37 from Aero under the lease. Meanwhile Mr Reid made attempts to re- -- 14 of 17 -- 15 lease UYH. Mr Byrt said he was going to buy or create an airline and suggested that it be utilised in that airline. The proposal did not come to fruition during the next 18 months. Aero advertised UYH for sale or lease in the Australian Aviation Trader, a newspaper widely read in the aviation industry in Australia. Mr Reid made a direct approach to the general manager of Regional Express, an airline in Wagga, which was the other Saab operator in Australia. He had discussions with Vincent Aviation of Christchurch, New Zealand. He also enquired if Mr Cipolla was interested in buying the aircraft back. All attempts to lease or sell the aircraft came to naught. All the while, the condition of the aircraft was deteriorating. In November 2010, having failed to find anyone to lease or purchase the aircraft, Aero sold it to a Saab parts supplier. It realised only US$600,000. [53] I am satisfied that in the circumstances Aero made reasonable efforts to re-lease UYH. Despite those efforts it was unable to do so. It mitigated its loss by selling the aircraft for parts, but did so at a substantial loss – of the order of $1.5 million. It was not suggested that Aero's sale of the aircraft was unreasonable. Damages for loss of bargain under the UYH lease [54] Aero submitted that Macair was liable to it for damages in respect of the rent foregone over the balance of the original term of the lease. It submitted that Macair‟s persistent non-payment of rent amounted to repudiation of the lease, particularly when viewed in the light of the notices given by the administrator and the receivers. It also relied on Macair's failure to return the aircraft in accordance with the return conditions after the notice of 11 March,13 but I have already accepted Mr Byrt‟s submission that the lease terminated on 8 February when the aircraft was repossessed. [55] Mr Byrt submitted that the repossession of the aircraft amounted to a repudiation of the lease by Aero. He did not suggest that this repudiation had been accepted by Macair. On this theory the lease must have come to an end either by abandonment or by tacit mutual agreement. There having been no repudiation by Macair, loss of bargain damages were not recoverable against it.14 In any event, he submitted, it was not open to Aero to rely on any repudiation by Macair because no such repudiation had been pleaded. [56] I reject the last submission. Aero pleaded repudiation of the lease in para 7Q of the statement of claim. It is true that it characterised the repudiation as one founded upon breaches of essential terms of the lease, and there is nothing in the hire charge clause (cl 6.2) which expressly makes that clause an essential term. However the characterisation of the repudiation is a matter of law. Non-payment of rent and the appointment of the administrator and the receivers were clearly pleaded in the statement of claim and the giving of the notices by those officers was pleaded in the reply. It was not suggested that Mr Byrt was taken by surprise. [57] I find that by 8 February 2009 Macair‟s continued failure to pay rent amounted, in the circumstances then prevailing and having regard to the rental history, to repudiation by it of the lease. No rent had ever been paid. The payment schedule agreed to in December had been dishonoured. Macair could not even afford the 13 Paragraph [47]. 14 Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620. -- 15 of 17 -- 16 parts for the repair of MYI. In late January the hoped-for $7 million payment from the Queensland government was refused. Thereupon, an administrator was appointed to Macair, presumably by the directors. Receivers and managers were immediately appointed by a major creditor. Both the administrator and the receivers disclaimed any intention to exercise rights in relation to the aircraft. As counsel for Mr Byrt conceded, the receivers‟ renunciation was (or included doing so) as agent of the company. Macair demonstrated its intention not to be bound by the lease. Aero did not repudiate the lease by taking possession of the aircraft. It terminated the lease by reason of Macair‟s repudiation. As the innocent party it was entitled to do so; ordinary contractual principles apply to leases: Progressive Mailing House Pty Ltd v Tabali Pty Limited15; Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited.16 As was said in the latter case: “Save for any applicable statutory requirements or rules of law, there is no reason in law why general contractual principles do not apply to leases in this respect. Under general contractual principles, an innocent promisee can terminate the contract, and recover loss of bargain damages, where there is repudiation, or a fundamental breach, or a breach of condition - ie a breach of an essential term.”17 The case relied on by Mr Byrt, Shevill v Builders Licensing Board, is to be distinguished on the ground that there, the contract was terminated pursuant to an express contractual term in circumstances which would not have entitled the lessor to terminate at common law. [58] The only damages which Aero claimed were for loss of the bargain: $46,200 for 53 months. Mr Byrt did not challenge those figures but submitted that Macair could not have claimed damages in respect of the period after November 2010, when UYH was sold. No authority for such a limitation was advanced, and I can see none in principle. I find that Macair was liable to Aero for damages or loss of the bargain in the sum of $2,448,600. The guarantee [59] Mr Byrt is liable to Aero under the guarantee for and in respect of the following amounts: Rent MYI $ 124,173.44 Rent UYH $ 325,919.30 Damages for loss of bargain $2,448,600.00. Aero is entitled to judgment accordingly. Interest [60] Counsel for Aero handed up some elaborate calculations of interest which would be payable by Macair, but they do not appear to accord with the terms of the sublease and the lease. 15 [1985] HCA 14; (1985) 157 CLR 17. 16 [2008] HCA 10; (2008) 234 CLR 237. 17 Ibid at [58]. -- 16 of 17 -- 17 [61] Clause 7 of the MYI sublease included the following provisions: “7.3 Overdue Payments The Sublessee agrees to pay interest to the Sublessor on any amount payable by the Sublessee under a Transaction Document from when it becomes due for payment, during the period that it remains unpaid, on demand, or at times determine by the Sublessor, calculated on daily balances. The rate to be applied to each daily balance is 12% per annum. 7.4 At intervals that the Sublessor determines, or, if the Sublessor does not make a determination, on the first day of each month, the Sublessor may: 7.4.1 charge interest on unpaid interest for any period; and 7.4.2 add it to the amount for which the Sublessee is liable. The Sublessee will then be liable for interest under clause 7.3 on the total amount.” Clause 7 of the UYH lease contained provisions which were for all practical purposes identical. [62] By letters dated 11 March 2009 Aero gave notice to Macair of its determinations respectively pursuant to each cl 7.4 that the interval was one day. In the statement of claim it claimed an amount in respect of interest on unpaid rent and unrecovered damages calculated on daily balances and compounding at 12% per annum from 1 March 2009. [63] On the face of things it would seem that Macair was liable to Aero for compound interest on rent calculated on monthly balances up to 11 March 2009 and thereafter calculated on daily balances. [64] It is less obvious why such interest would be payable by Macair on damages payable by it to Aero. Damages are not apparently amounts payable “under a Transaction Document” and as presently advised, I see no reason why the quoted clauses could apply to such a claim. The guarantee itself contained no provision for interest. [65] The parties did not address the court on this question. I shall hear them on it after these reasons for judgment are delivered. Other matters [66] I have not considered whether Aero will be liable to pay GST or any other tax on any part of the amount which it recovers under the guarantee. I have not done so because it was not argued that the amount recoverable should be reduced on that account. [67] I shall hear the parties on costs. -- 17 of 17 --