Ridout v Rich [2017] QDC 129 (17 May 2017)

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CITATION:	Ridout & Anor v Rich [2017] QDC 129
PARTIES:	DAVID EDWARD RIDOUT and MARIA CHRISTINA RIDOUT (Appellants) v ANTHONY JAMES INGLES RICH (Respondent)
FILE NO/S:	Appeal No 3379/14
DIVISION:
PROCEEDING:	Appeal
ORIGINATING COURT:	Magistrates Court at Brisbane
DELIVERED ON:	17 May 2017
DELIVERED AT:	Brisbane
HEARING DATE:	10, 11 and 12 February and 18 March 2016, appeal record supplemented 11 April 2016.
JUDGE:	Andrews SC DCJ
ORDER:	The appeal is allowed. In Magistrates Court proceeding B 11332/12: The plaintiff’s claim is dismissed; Judgment for the defendants against the plaintiff. The parties are at liberty to make submissions as to costs within 7 days.
CATCHWORDS:	APPEAL – issue not raised at trial – where issue first raised on appeal – whether the issue could have been met with evidence at trial – whether fair to permit issue to be raised on appeal GUARANTEE AND INDEMNITY – where guarantee of obligations in a lease – where parties agreed at trial that the guarantee touched and concerned the land and was enforceable against the guarantors – whether the guarantors could raise on appeal fresh issue of whether some covenants were unenforceable for failing to touch and concern the land GUARANTEE AND INDEMNITY – interpretation – where guarantee contained all moneys clause – where guarantee of obligations in a lease – whether guarantee of obligations of a tenancy at will – whether all moneys clause inconsistent with commercial purpose – whether all moneys clause inconsistent with context – whether all moneys clause could be read consistently with context and commercial purpose PROCEDURE - COSTS – INDEMNITY COSTS – where prior to trial Calderbank offer made to appellants which was not accepted – where appellants failed at trial – where indemnity costs were ordered against the appellants at trial - whether there was an error in awarding indemnity costs – whether the appellants’ decision to reject the Calderbank offer was unreasonable or imprudent Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 The Mayor, etc. of Congleton v Pattison [1808] EngR 276; (1808) 10 East 130 Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 8-9 applied Duncan Properties Pty Ltd v Hunter [1991] 1 Qd R 101 followed Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 J&D Rigging Pty Ltd v Agripower Australia Limited &ORS [2014] QCA 23 McVeigh (Trustee of the Bankrupt Estate of Piccolo) v National Australia Bank Ltd [2000] FCA 187 Re Piccolo; Ex parte McVeigh [1999] FCA 386 Rushton (SA) P/L & Ors v Holzberger & Ors [2003] QCA 106 Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222 White & Ors v Cariste Pty Ltd [2004] NSWCA 460 Whisprun Pty Ltd v Dixon [2003] HCA 48 at [51] applied
COUNSEL:	H Alexander for the appellants. D Williams for the respondent.
SOLICITORS:	JA Sherwood & Co for the appellants. PHV Law Solicitors and Consultants for the respondent.

[1] Comet Pty Ltd (Comet), occupied premises as a lessee from 1998 pursuant to a lease [1] (the Lease) for a 7 year term to its expiry date on 5 July 2005. During that term, the land was sold and the purchaser (Mr Rich) became lessor. The Lease gave Comet an option to renew for a further term of 3 years to 5 July 2008. Comet did not comply with the mechanism set out in the Lease for exercising the option to renew but continuously occupied the premises until 2014. By the end of its occupation, Comet’s account with Mr Rich had fallen into significant arrears and Comet became insolvent. Mr Rich, sued on a guarantee of Comet’s obligations and obtained judgment in the Magistrates Court against Mr and Mrs Ridout (the Guarantors) for the sum of $92,068.15 together with interest of $37,747.88 and costs of the proceeding on an indemnity basis.

[2] This is an appeal by the Guarantors. There is also a notice of contention,[2] by which Mr Rich contended that the Magistrate’s decision should be affirmed on a ground not relied on by the Magistrate.

[3] When Mr and Mrs Ridout gave their guarantee in 1998, it was not to Mr Rich as he had not yet become the lessor. The lessor named in the Lease was a company, West Pacific Properties Pty Ltd (West Pacific). The Guarantors accept that when the first lessor transferred title to Mr Rich, the Guarantors became liable to Mr Rich for Comet’s obligations for a 7 year term of the Lease and, arguably, for 3 years more to 5 July 2008, a total of 10 years. But the Guarantors deny that they are liable for Comet’s obligations to Mr Rich incurred after 10 years. The judgment debt is for Comet’s liabilities incurred after 10 years.

[4] The parties made their submissions on appeal on 10, 11 and 12 February 2016. The parties obtained a direction by consent on 18 March 2016 to supplement the appeal record with Document 3 of Exhibit 1 from the Magistrates Court proceeding which had not been included with the appeal record received from the Magistrates Court. No copy had been available while the appeal was argued. That further document, a copy “CONTRACT FOR SALE” bearing date “1st day of July 1997” has been included as pages 358 to 392 of the appeal book and was received on 11 April 2016.

3. Appellants’ Outline of Argument in Reply to Notice of Contention 29.09.15 (“ARNC”);

[6] There were three preliminary issues raised for Mr Rich by which he sought to prevent the Guarantors from making some reasonable legal arguments. The resolution of the three preliminary points affects the number of subsequent issues to be determined. Mr Rich’s counsel abandoned two of the preliminary issues on the third day of submissions, after having had the advantage of hearing submissions for the Guarantors. Mr Rich’s counsel maintained the third preliminary issue.

[7] The first preliminary issue raised for Mr Rich was whether the Guarantors were estopped from maintaining their argument that Comet’s option for a 3 year renewal or extension of the lease was not exercised (with the consequence that the Lease was not renewed or extended and any occupation of the premises after the 7 year term expired in 2005 was not an occupation pursuant to the Lease or contemplated by the guarantee). For Mr Rich the submission was that by the Guarantors’ counsel’s conduct below, the Guarantors were estopped from running the argument that the option was not exercised.

[8] The second preliminary issue raised for Mr Rich was whether an estoppel by convention arose to prevent the Guarantors from denying that the option to renew or extend the Lease was properly exercised.

[9] Mr Rich’s counsel conceded that the Guarantors are not estopped from arguing that the option in the Lease was not properly exercised.[3] It follows that I am not required to resolve Mr Rich’s two preliminary arguments, and that I am not required to consider Mr Rich’s notice of contention. Further, the Guarantors are at liberty to submit that the option to renew the Lease for 3 years was not properly exercised, that the Lease was not renewed or extended and that the Lease ended upon expiration of its 7 year term.

[10] The third preliminary issue requires some explanation. Mr Rich was not a party to the guarantee upon which he sues. Mr Rich’s claims against the Guarantors are based on a guarantee agreement made with Mr Rich’s predecessor in title, West Pacific. The Guarantors accept that a person in Mr Rich’s position as assignee of the reversion from West Pacific can enforce covenants in the guarantee which “touch and concern” the land. Mr Rich accepts that he obtained, by operation of law, the benefit of only those covenants in the guarantee which “touch and concern” the land.[4]

[11] For the Guarantors, it is reasonably arguable that some of the guarantee’s covenants do not touch and concern the land, particularly, clause (h) of the guarantee. This argument is contested reasonably for Mr Rich. If the Guarantors were permitted to maintain that issue and if the court accepted that the covenants upon which Mr Rich relies do not “touch and concern the land”, Mr Rich accepts that he could not enforce those covenants against the Guarantors.

[12] The third preliminary issue is whether, because of an agreement made by counsel before trial in the Magistrates Court, the Guarantors are prevented from relying on their fresh argument that the guarantee’s relevant covenants are unenforceable by Mr Rich for failing to touch and concern the land. For reasons which follow, I find that the Guarantors are prevented from maintaining that argument. It follows that in the particular circumstances of this proceeding, a covenant’s failure to touch and concern the land would not be an impediment to Mr Rich’s enforcing the covenant. It also follows that I need not consider whether the guarantee’s covenants touch and concern the land.

[13] The guarantee expressly requires that the Guarantors pay moneys due under “this Lease”. The term of the Lease was only 7 years. But in the guarantee, “this Lease” is given an extended definition to include “renewal or extension”. As Comet’s debt was incurred after the 7 year term of the Lease, there arises an issue whether the debt accrued during a “renewal or extension”. If debt accrued during a “renewal or extension”, the guarantee is more likely to cover that debt. This generated several issues.

[14] The fourth issue is whether the option in the Lease, for an extension or renewal, was properly exercised. (I find that it was not).

[15] The fifth issue is whether, if the option for an extension or renewal was not exercised, the exercise of the option was waived (by Mr Rich [5]), with the consequence that there followed a “renewal or extension” as if the option had been exercised. (I find that a renewal or extension did not follow as if the option had been exercised.)

[16] The sixth issue is whether Comet’s continuing occupation when the arrears were incurred was during an “extension or renewal” of the term of the Lease or a “holding over”.

[18] The eighth issue is the construction of the guarantee’s “any moneys whatsoever” clause (h): whether it is intended to capture debts arising from Comet’s obligations entered into after the guarantee and with a different creditor.

[19] The indemnity costs issue is whether the Magistrate should have ordered the Guarantors to pay certain costs on the indemnity basis having regard to a Calderbank offer. Whichever party succeeds in this appeal, it is prudent to determine this issue before any further appeal.

[20] On 1 July 1997 West Pacific Properties Pty Ltd (“West Pacific”) as vendor and Mr Rich as purchaser entered into a written contract for sale [6] of Lot 1 on a Proposed Building Units Plan at Abercrombie Street, Rocklea.[7]

[21] The contract for sale recited that West Pacific intended to construct a multi-unit building on the land, Lot 3 on RP903310 County Stanley Parish Yeerongpilly.

[23] On 17 July 1998 West Pacific as lessor and Comet as lessee entered into the Lease. It was for warehouse premises. The 7 year term of the Lease was expressed to commence on 6 July 1998 and to expire on 5 July 2005.[8] The premises leased were described as Lot 1 on BUP 106843 situated in Abercrombie Road, Rocklea, Brisbane.

[24] On 17 July 1998 the Guarantors executed the guarantee, extracts from which appear below. The Guarantors thereby guaranteed Comet’s obligations to West Pacific under the Lease and, generally speaking, purported to guarantee all other obligations Comet might incur to West Pacific or its successors or assigns. The Guarantors were directors of Comet at that date and were also directors of Bentala Holdings Pty Ltd, Comet’s holding company.

[25] The parties accept that the guarantee was attached to the Lease and that the guarantee was given by the Guarantors when the Lease was signed on 17 July 1998.

[26] The parties accept that to properly interpret the Lease and the guarantee one must read both documents together and the whole of each document. In extensive oral argument, submissions directed attention to very few clauses of each document. I set out the clauses with which counsel were primarily concerned and add sufficient of the further context as seems relevant to those clauses:

In this Lease unless a contrary intention appears and unless such interpretation shall be excluded by or be repugnant to the context wherever the same is used herein, this Lease shall be interpreted and/or the following terms shall have the meanings hereinafter stated:

“Demised Premises” means the Lot in the Plan leased by the Lessee pursuant to this Lease and described in Item 5 in the Form 7 Lease to which this Schedule is attached.

The term “the Lessee” shall, where the context admits, mean and include ... in the case of a corporation, its successors and permitted assigns.

The term “the Lessor” shall, where the context admits, mean and include ... in the case of a corporation, its successors and permitted assigns.

Headings have been included for ease of reference and guidance only and this Lease shall be construed without reference to them.

The obligations herein contained or implied shall continue throughout the term hereby created and any extension or renewal thereof or any period thereafter during which the Lessee may be in occupation of the demised premises.

(a) ...on the same day of each month during the term or any extension hereof.

(b) From... the commencement of the second and third years of any extension hereof the annual rental shall be...

(c) At...the commencement of the first year of any extended term hereof the annual rental shall be...

If the Lessee shall with the consent of the Lessor remain in occupation of the demised premises after the expiration of the term hereof the Lessee shall (in the absence of any express agreement to the contrary) be deemed to hold the demised premises as tenant from month to month at a monthly rental equal to the monthly instalments of rent payable in respect of the last calendar month of this term.

21.1 If the Lessee shall have given notice in writing of its intention in that behalf to the Lessor not less than three (3) months prior to the expiration of the term hereof ... the Lessee shall have the right to be granted a further Lease ... of the demised premises for the term of THREE (3) YEARS commencing on the day after the expiration of the term hereof upon the same terms and conditions as are herein contained except for the provision of this clause which shall be omitted and except for the annual rental payable in respect of the first rental year of such extended term which shall be determined in the manner provided in clause 2.1(c).

21.2 If the option of renewal is exercised the parties shall executed a Deed of Extension of the Lease to be prepared, stamped and if necessary registered by the Lessor’s solicitors at the expense of the Lessee for such further term.

[27] From the guarantee attached to the Lease, the following clauses appear to be relevant:

IN CONSIDERATION of the Lessor at the request of Maria Christina Ridout and David Edward Ridout... (hereinafter called “the Guarantor”) agreeing to lease the demised premises to COMET FOODS PTY LTD (hereinafter called the “Lessee”) at the rental and upon and subject to the terms covenants and conditions contained in this Lease (hereinafter with any extension or renewal called “this Lease”) the Guarantor... HEREBY GUARANTEE to the Lessor the due and punctual payment of the rental, all other moneys and the due observance and performance of the terms covenants and conditions contained in this Lease for payment observance and performance by or on the part of the Lessee AND AGREES as follows:-

(b) This Guarantee shall be continuing guarantee and shall not be considered as wholly or partially discharged by the payment at any time hereafter of any of the moneys hereby secured or by any settlement of account or by any other matter or thing whatsoever and shall apply to the present and any future balance of the moneys hereby secured.

(d) This Guarantee and the liability of the Guarantor hereunder shall not be affected:-

(ii) By reason of any transaction or arrangement that may take place between the Lessor and the Lessee or any co-surety or any other person;

(h) The Lessor may... without the consent of the Covenantor increase or otherwise vary the rental or the amount of any other moneys secured by this Guarantee or otherwise amend or vary or agree to any amendment or variation of this Lease or other arrangements now or from time to time hereafter in force between the Lessor and the Lessee and the Lessor may transact any business with for or on account of the Lessee at its absolute discretion and without any consent by the Guarantor being necessary to the intent that this Guarantee shall extend to cover all contracts and arrangements from time to time in force and any moneys whatsoever payable by or as between the Lessor and the Lessee.

(n) In the event of any assignment of the reversion of this Lease the rights of the Lessor hereunder (whether or not there is an expressed assignment of the same) shall be deemed to be assigned to the assignee.

(o) Except to the extent that such interpretation shall be excluded by or be repugnant to the context...the expression “the Lessor” means and includes the Lessor and its successors and assigns;

[28] The completion of the sale of the land by West Pacific to Mr Rich was on 21 July 1998.

4. On the 21st July 1998, West Pacific sold the Premises and assigned the reversion of the Lease to the plaintiff (Mr Rich) and accordingly:

(a) the plaintiff (Mr Rich) became the Lessor pursuant to the Lease and Comet commenced to pay the rent and other charges pursuant to the Lease;

(b) the rights of West Pacific under the guarantee were deemed to be assigned, by operation of law in conjunction with clauses (n) and (o) of the guarantee, to the plaintiff (Mr Rich).

4. As regards the allegations of fact contained in paragraph 4 of the Statement of Claim, the (guarantors):

(a) do not admit that on 21 July 1998 West Pacific assigned the reversion in the Lease to the Plaintiff (Mr Rich)...

(b) admit that on a date in or around July 1998 Comet commenced to pay rent and other charges pursuant to the Lease to the plaintiff (Mr Rich);

[31] The appeal book contains a copy of the FASOC dated 1 September 2014 and a copy of the AD dated 10 July 2014. The AD occasionally refers to an Amended Statement of Claim and to a Statement of Claim rather than referring to the FASOC but that is inconsequential as Mr Rich is taken to rely on his AD as an answer to the FASOC. [9]

[32] On 18 August 1998 the lease was registered and immediately thereafter,[10] Mr Rich became the registered owner of Lot 1 on BUP106843, County of Stanley, Parish of Yeerongpilly and became the “Lessor” within the meaning of that word in the Lease.

4A. On a date the plaintiff is unable to recall but before the expiry of the Lease on 5 July 2005, Comet by its accountant Mr John Martin, gave oral notice of its intention to exercise the option to renew, such notice being accepted by the plaintiff.

4B. As and from the 6^th July 2005 until 6 July 2008 for the duration of the option period, Comet remained in occupation of the premises pursuant to the terms and conditions of the Lease.

4A. The Defendants (the guarantors) admit the allegation in paragraph 4A of the Amended Statement of Claim.

(a) by Comet’s accountant, Mr John Martin giving oral notice of his intention to exercise the option to renew, on a date that cannot be recalled, Comet failed to give notice in writing of its intention in that behalf to the Lessor not less than three (3) months prior to the expiration of the term in accordance with cl 21.1 of the Lease which determined on 5 July 2005 with the result Comet’s holding over after 6 July 2005 operated as a surrender of the Lease and a grant of a new lease.

[36] On and from 6 July 2005 and for the next three years Comet remained in possession of the premises.

[37] On 21 November 2007 Mr and Mrs Ridout resigned as directors of Comet, Comet Foods.

[38] On 2 January 2008 a transfer was registered, of all the shares in Comet Foods, from Bentala Holdings Pty Ltd to Withcott Group Pty Ltd.

[39] Mr and Mrs Ridout, the Guarantors, by selling their beneficial interest in Comet’s shares and by resigning their directorships thus severed their connections with Comet. Mr Rich admits he was told, on a date he cannot remember, that the Ridouts were selling their shares to Withcott Group Pty Ltd.[12] The sale, the resignations and the knowledge were not submitted by either party to have any relevance to the resolution of the appeal.

[40] On 24 March 2008, Mr Rich wrote by email to Sharlene Bott of Withcott Seedlings (Qld) Pty Ltd, so far as seems relevant:

Re Abercrombie St and Comet Foods – there are two things we need to agree upon – one is the term of the new lease and the market rent. The form we should use is the Qld Law Society standard form version 7, I suggest a four year plus four year ROR and just under market rent. .. If you have any thoughts please let me know...

... your contact will be Graham Erhart who is the Managing Director as well as the owner of the companies ...

[42] On 11 June 2008 Mr Trimble, the Chief Financial Officer of Withcott Seedlings (Qld) Pty Ltd wrote by email to Mr Rich, relevantly:

We would like to extend the current lease term or enter into a new lease for a minimum of 6 months extendable on a monthly basis thereafter with a 3 month notice period ... if you can give me a call ... we can discuss ...

... My initial response is that what you propose is acceptable – will email again ... with ... a couple of small concerns ...

... Firstly with your consent, I propose we do not enter into a new lease – the costs for which in Queensland is paid for by lessee – and that we rely on exchange of letters but adhere to the conditions of the existing lease ...

There is no evidence that any exchange of letters occurred. I proceed on the basis that the only correspondence sent is that which follows.

Given the short term we would be agreeable to an increase of 15% on current rent instead of the 10% you had proposed for a new lease.

... Are you referring to the rent from 6 July as the $126.73 net I asked for and explained how it was arrived at in my emails to Sharlene of 10 June and to which you responded with your Board’s decision, and the 15% increase you offered being on top of that? If that is the case I will send through a Tax Invoice for the first payment.

I was referring to the current rent of $114.68 – an increase to what you proposed at $126.73 was a large 10.5% increase – I propose a 15% increase on current rent to $131.90 – The market is fairly tight at he moment & this would be a stretch for the next 9-12 months however I think in conjunction with the 3 month notice period it still provides you with an incentive for the short term rental.

... That’s okay – I will email you a TI shortly for consecutive monthly payments at $131.90 plus GST – no new lease and the terms and conditions of existing lease apply ... best wishes for your continued success with Comet Foods ...

... Only 12 months since we were talking about rent from 7 July 08 – 6 July 09 – since we are one month away from a new rent year, what would you suggest as a fair increase on the same terms as 08-09-?

Happy to continue on the same terms. As discussed we will give you 3 months’ notice.

... In the Comet Foods and all my other leases there is an annual increase of 4% which is what I would expect in this case ...

[53] A letter dated 29 November 2011, and written by one Guarantor, Mr Ridout advised:

The lease had one option period of three years commencing 6 July 2005 and expiring 5 July 2008. The option was exercised.

We provided a personal guarantee for Comet’s obligations under the lease. In the guarantee "this Lease" includes the obligations of Comet in the initial lease and any extension for renewal of the lease.

[54] Mr Rich’s counsel on appeal, Mr Williams, was also Mr Rich’s counsel at trial. Mr Williams submitted that before the start of the trial, he and trial counsel for the Guarantors reached agreement on some matters;[13] in particular, they agreed about the allegation in ASOC paragraph 4(b).[14] The Guarantors had formally denied ASOC 4(b) in their AD at paragraph 4(c). By the agreement the issues appeared to have reduced.

[55] Counsel below, consistently with counsels’ agreement, advised the Magistrate:[15]

MR CHRISTIE: It's agreed between the parties that there's no separate assignment document, as such, in existence, and it is agreed between the parties that as a matter of law, the guarantee - and that's addressed in both parties' submission - written submissions, but as a matter of law, a guarantee touches and concerns the land, and it runs with the reversion, so it's capable of and is assigned by the assignment of the reversion.

MR WILLIAMS: In fact, your Honour will see there in the statement of claim that it picks up clauses (n) and (o) of the guarantee which say the same thing.

BENCH: ........ So just by way of summary, you’re not arguing, are you, that the guarantee doesn’t cover the assignment?

BENCH: Yep. You accept that it’s been rightly assigned to Mr Rich and that your clients are bound by the guarantee then?

[57] I inserted the shading for emphasis. The shaded words demonstrate that trial counsel made an agreement to proceed on the basis that as a matter of law the guarantee touched and concerned the land, ran with the reversion and was assigned by the assignment of the reversion to Mr Rich, and that the Guarantors were bound by the guarantee. It would follow that the guarantee was enforceable by Mr Rich against the Guarantors.

[58] Importantly, trial counsel for the Guarantors did not expressly qualify the agreement between counsel by suggesting that there were portions of the guarantee by which the Guarantors were no longer bound, or that there were some covenants which could be distinguished from others in that they did not “touch and concern the land” and, accordingly, were not assigned. The Guarantors’ proposed argument that some covenants might not touch and concern the land, or that Mr Rich ceased to be an assignee in 2005 or 2008 were not apparent from the Guarantors’ denial in paragraph 4(c) of their AD. Mr Rich’s counsel submitted at trial,[17] correctly at that time, that there had been no argument for the Guarantors that the guarantee was not applicable to them. The Guarantors accept that they did not take the point at trial that portions of the guarantee were not assigned or enforceable.[18]

[59] I accept that a consequence of trial counsels’ agreement is that they agreed for the purpose of the trial that the guarantee touches and concerns the land, and each of its clauses is enforceable by Mr Rich against the Guarantors.

Can the Guarantors argue on appeal that some of the guarantee’s covenants are unenforceable by Mr Rich because they do not touch and concern land or the guarantee covenants in the Lease which do not touch and concern the land?

[60] The Guarantors’ appeal counsel seeks to argue that some of the guarantee’s covenants are unenforceable by Mr Rich because they guarantee covenants in the lease which do not touch and concern the land or because the covenants in the guarantee do not touch and concern land. The arguments were not raised in the Magistrates Court.

[61] In essence, the Guarantors’ fresh counsel on appeal submits that he is at liberty to raise the fresh arguments because they raise no new facts and Mr Rich suffers no relevant prejudice if the Guarantors raise these fresh arguments on appeal.

[62] The Guarantors’ appeal counsel submitted that if a question of law is raised for the first time on appeal by an appellant, upon the construction of a document or upon facts admitted or proved, it is not only competent but expedient in the interests of justice for the appeal court to determine the question of law; the times when consideration of procedural fairness prevent a party, with an apparently good legal argument, from relying on it should be regarded as exceptional. [19] Mr Rich’s counsel did not expressly dispute those submissions. I accept those general propositions.

1. He conducted the trial on the basis of the agreement that the guarantee was assigned to Mr Rich and that the Guarantors were bound by the guarantee;

2. He took no instructions at trial on the issues arising from a distinction between covenants (on the basis that some did not touch and concern the land) or the parties’ intentions at relevant times because the distinction was not in issue below. It is the case that no evidence was led at trial on this issue, or any other issue. No oral evidence was led;

3. He could have led further evidence at trial if he had known that the issue would be taken for the Guarantors (that some covenants in the guarantee did not run with the land and as a consequence were not assigned to and enforceable by Mr Rich or that some covenants ceased to bind the Guarantors).

[64] Although Mr Rich’s counsel did not submit that he would have led further evidence at trial, the High Court applies the “could have” test.[20]

[65] A finding on appeal that a party would have led further identifiable evidence, would be particularly significant. Mr Rich’s counsel did not ask for such a finding, conceding that he did not know what evidence was available. One exception was that he had some evidence to show Mr Ridout’s signature on a document attached to the contract of sale between the owner, West Pacific, and the new purchaser, Mr Rich, which might suggest that it must have been in Mr Ridout’s contemplation that he was guaranteeing the obligations not just of West Pacific for a very short period of time, but of Mr Rich as the successor in title as the purchaser of the reversion. To make a submission that a party would have led further identifiable evidence would conceivably require preparation, perhaps further conferences, to determine whether there was relevant, cogent evidence available at the date of trial and capable of meeting the fresh issue. It would add to the costs of litigation and add an unsatisfactory degree of uncertainty to appeals if the outcome of an appeal became dependent upon further fact finding. It would presumably require findings on the balance of probabilities that there was further relevant evidence available at the date of trial and that a party would have led that further evidence if the fresh issue had been maintained at trial by the opposing party.

...fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish... In a case where, had the issue been raised in the Court below, evidence could have been given which by any possibility could have prevented the point from succeeding, this court has firmly maintained the principle that the point cannot be taken afterwards.

It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial. Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination...

1. Mr Rich could not have led further evidence as to the meaning of the documents as none would have been admissible;

2. Whether the guarantee’s covenants were enforceable by Mr Rich involved interpretation of documents which are in evidence;

4. Ordinarily it is a guarantor who argues that there is ambiguity affecting the interpretation of a guarantee and who may have an interest in leading evidence of the factual matrix but the Guarantors did not seek to introduce evidence of a factual matrix.

[68] Unless the Guarantors’ fresh legal arguments “could not possibly have been met by further evidence at the trial,”[23] it would be appropriate to allow the Guarantors to raise them. If Mr Rich could satisfactorily deal with matters of fact by referring to the evidence in the record he would suffer no relevant prejudice. Any legal arguments that might have been raised at trial could have been raised on appeal for Mr Rich.

[69] The particular issue was expressed in two ways in the Coulton and Whisprun decisions above: firstly, whether “evidence could have been given which by any possibility could have prevented the point from succeeding” or, secondly whether the Guarantors’ point “could not possibly have been met by further evidence at the trial”. In neither passage does the High Court expressly require the party opposing the introduction of the fresh issue to satisfy an onus that relevant evidence was available to be led.

[70] Mr Rich and Mr Ridout were each present at the trial. Mr Ridout was a guarantor and a former director of Comet, potentially person who had negotiated on behalf of Comet with Mr Rich.

[71] Mr Rich’s counsel did not articulate any particular argument which he could or would have run at trial but implied that there were some upon which evidence could have been led. He did not specifically identify an ambiguity about which factual matrix evidence might have become admissible. He did note that there had been no evidence led of surrounding circumstances. He submitted that there were persons present in the court at trial who might have been called or from whom instructions might have been taken if the Guarantors had denied that they were bound by every covenant; that there may have been evidence available as to what each party knew or discussed in relation to the future use of the premises, the effect of the guarantee, plans they had in mind, whether they had any flexibility in terms of the nature of arrangements for the future and “their future legal relations influenced by commercial considerations”.

[72] The Guarantors’ legal argument could possibly have been be met by evidence of at least four different types, if such evidence existed: evidence to resolve ambiguity in the guarantee; evidence of separate agreement between Mr Rich and the Guarantors; evidence of representations by the Guarantors to Mr Rich relied upon by him to his detriment; evidence that the guarantee’s relevant covenants affected the value of the land.

[73] If Mr Rich could establish by evidence or legal argument that the contentious covenants did touch and concern the land, Mr Rich could enforce them by reason of his becoming assignee of the reversion without express assignment. If he could not establish that the covenants touched and concerned the land he might still be able to enforce them if Mr Rich had made a separate agreement with the Guarantors that he could enforce the guarantee against them or if Mr Rich acted to his detriment upon a representation by the Guarantors that he could enforce the guarantee against them.

[74] The Guarantors’ counsel submitted that evidence of the thoughts or conversations about the meaning of the written documents would be inadmissible on the issue of the interpretation of the lease and guarantee. I accept that submission. While evidence could not have been led about what the parties believed the guarantee to mean, it is possible that a latent ambiguity could have become contentious once it was apparent that the Guarantors denied the enforceability by Mr Rich of all relevant covenants. An issue about ambiguity can make evidence of surrounding circumstances relevant.

[75] The parties accepted that an argument about whether a covenant touches or concerns the land involves the issue of whether the covenant affects the value of the land and whether it would affect the amount paid by a willing but not anxious purchaser to a willing but not anxious seller. A covenant’s effect on land value was irrelevant until the Guarantors argued that some covenants do not touch and concern the land. The Guarantors’ fresh argument on appeal arguably makes relevant whether a covenant affects land value. Land value is a question of fact upon which expert valuation opinion evidence is generally admissible. The Guarantors argue that the contentious covenants do not affect value and that even if a covenant for payment of sums to the owner of land for the time being enhances the value of land it may not be a covenant touching and concerning the land. Mr Rich argues that the contentious covenants do affect the value and that effect assists with the argument that the covenants touch and concern the land.

[76] I am satisfied that for Mr Rich “evidence could have been given which by any possibility could have prevented the point (that some covenants were not enforceable by Mr Rich because they guaranteed clauses of the Lease which did not touch and concern the land and that some covenants of the guarantee did not touch and concern the land) from succeeding”.

[77] I have a discretion in the interest of procedural fairness to prevent the Guarantors from raising their fresh argument in this appeal. For the reasons identified, I determine that the Guarantors may not raise their fresh argument that some of the guarantee’s covenants are unenforceable by Mr Rich on the basis that they guarantee covenants in the Lease which do not touch and concern the land or on the basis that the covenant in the guarantee fails to touch and concern the land.

[78] That becomes a significant constraint on the submissions which may be used by the Guarantors in this proceeding. It constrains the Guarantors from relying on many of their arguments, impressively developed, in writing and in oral submissions, many of which Mr Rich’s counsel did not challenge (other than indirectly by submitting they could not now be raised).

[79] Arguments made by the Guarantors’ counsel on appeal which are inconsistent with the agreement made at trial were not identified. It seems to me that they include at least the following:

1. Mr Rich ceased to be a transferee or assignee of the reversionary estate in the land after 7 or 10 years; Mr Rich then ceased to be a “successor or assign” of any rights of the original lessor West Pacific; consequently Mr Rich ceased to have the benefit of covenants under the Lease and guarantee that had run with the land or otherwise;

2. Clause (h) of the guarantee particularly and the guarantee generally cannot apply because: they do not touch and concern the land; by operation of law they applied only during the duration of the assignment of the reversion of the lease;

3. The guarantee should be construed so as to prevent it from relating to future possible leases or tenancies (ie arising after 7 or alternatively 10 years) because possible leases and possible tenancies are too remote to touch and concern the land;

4. The guarantee’s covenants are not intended to apply to rent accruing after 10 years of occupation (and other obligations accruing after 10 years) because the covenants do not touch and concern the land;

5. The Guarantors were discharged from the guarantee by reason of the further agreements for lease made in June 2008 and/or June 2009 or the leases or tenancies that arose as a result of those agreements, upon payment of rent while in possession.

[80] As a consequence, I do not deal further with the submissions for the Guarantors in the Appellant’ Second Amended Outline of Argument at paragraphs 54 to 58, 70 and 89 to 91.

[81] Although the ruling has the consequence that the Guarantors may not argue that the guarantee was not assigned to Mr Rich, there is enmeshed with that argument two others which they may fairly maintain. The first is that, while Mr Rich may enforce the guarantee against the Guarantors, on the proper construction of the guarantee, it does not relate to the relevant debts. The second is that, whether or not the “all moneys” clause of the guarantee was intended to relate to debts of the type for which Mr Rich sued, on the proper construction of the guarantee, clause (h) was for the benefit of the original lessee West Pacific, not for any assignee of the guarantee or subsequent lessor, and thus, was not for the benefit of Mr Rich.

The fourth issue: whether the option in the Lease, to take a further lease for 3 years, was properly exercised.

[82] Counsel for Mr Rich orally submitted that the option was exercised. He made no oral arguments in support of that submission (as opposed to his arguments that there was a waiver of the formalities for the exercise of the option and the option was exercised as a consequence of the waiver).

[83] The Guarantors submit that the option in the Lease was not duly exercised as notice of intention to exercise it was oral, not written and that the magistrate erred in finding that it was duly exercised.

[84] When one looks again at FASOC par 4A, one sees that Mr Rich did not allege that the option was exercised. Rather, it was alleged that oral notice of intention to exercise the option was given and accepted. The Guarantors’ admission of FASOC par 4A did not amount to admission that the option was exercised. The Lease at clause 21.1 required the notice of exercise of the option to be in writing. The Guarantors did not, by their AD, admit or allege that the option was duly exercised.

[85] From the pleadings it follows that on a date before 5 July 2005, the date for expiry of the Lease, Comet by its accountant, John Martin, gave oral notice of Comet’s “intention to exercise” the option to renew the Lease to Mr Rich and Mr Rich accepted that notice.[24] Significantly, it was a notice of intention to exercise as opposed to an exercise of the option.

[86] The Lease at clause 21.1 provided for the notice to be in writing and to be given not less than three months prior to the expiration of the term.[25] Firstly, the notice failed to comply with clause 21.1’s requirement for writing. Secondly, there is no evidence that the notice was given in time to comply with clause 21.1’s requirement for notice not less than three months prior to the expiration of the term.

[87] The Lease at clause 21.2 provided that “if the option of renewal is exercised the parties shall execute a Deed of Extension of the Lease to be prepared, stamped”. That deed was not executed.

The fifth issue: was the exercise of the option waived, with the consequence that there followed a “renewal or extension” as if the option had been exercised?

[89] By the further amended reply at paragraph 2, Mr Rich alleged, in effect, that as a result of Comet, by its accountant Mr Martin, giving oral notice of Comet’s intention to exercise the option to renew and as a result of Mr Rich’s accepting that notice and Mr Rich’s allowing Comet to remain in possession, Mr Rich “waived his entitlement in the Lease to require the exercise of the option in writing in strict performance with cl 21.1 of the Lease”.

[90] In a letter dated 29 November 2011 Mr Ridout asserted that the option was exercised. I do not regard that expression of an opinion about a legal issue, more than 5 years after the event, as having any relevance in determining whether the events of 2005 amounted to an exercise of the option or a waiver.

[91] Counsel for Mr Rich maintains a submission that Mr Rich was able to waive the formalities for the exercise of the option so that a “renewal” followed. The submission was supported by reference to Traywinds Pty Ltd v Cooper,[26] but counsel conceded that the point was not necessary for decision in that case and accepts that the decision of de Jersey J as his Excellency then was in Duncan Properties Pty Ltd v Hunter[27] is against his submission. The proposition from Duncan that “due exercise of the option of renewal ... depended on exact compliance with its notice requirement” was cited with apparent approval by the Court of Appeal in Rushton (SA) P/L & Ors v Holzberger & Ors.[28]

[93] I reject the submission for Mr Rich that non-performance of the conditions for the exercise of the option to renew was waived resulting in the exercise of the option to renew. I find that there was not a “renewal”. It follows that, with the benefit of the extensive appeal submissions and concession, I have reached a different conclusion from the Magistrate’s. The option was not duly exercised.

The sixth issue: whether Comet’s continuing occupation when the arrears were incurred was during an “extension or renewal” of the term of the Lease or a “holding over”.

[94] It is arguable that the Guarantors are sureties for liabilities incurred during the 7 year term and “any extension or renewal” or for “holding over” but not for occupation otherwise. Much attention was directed to the legal characterisation of Comet’s occupation of the premises:

[95] There are contests over whether the lapse or waiver of the option in 2005 resulted in a surrender, a new lease or a tenancy at will, or an “extension” or a “renewal” or a continuous “holding over”.

[96] The focus on whether the occupation was pursuant to an “extension”, a “renewal” or a “holding over” has utility. The rationale is to determine whether debts incurred in 2010/11 were incurred pursuant to the obligations in the Lease for the guarantee expressly guarantees “performance of the terms covenants and conditions in this Lease for payment.” Lease is defined to include any “extension or renewal”. Hence there is an issue as to whether the occupation in 2010/11 was during an “extension or renewal”.

[97] The guarantee does not expressly guarantee payment during a “holding over” or even refer to a “holding over”. Mr Rich seeks to prove Comet’s occupation in 2010/11 was a “holding over” within clause 13.1 of the Lease. The argument that there was a “holding over” is premised on the idea that if the occupation in 2010/11 was during a “holding over” as described in clause 13.1 of the Lease, Comet’s failure to pay for that occupation was non-performance of a “term covenant or condition in the Lease for payment”.

[98] Generally speaking, it was common ground that Guarantors are sureties for “performance of the terms covenants and conditions in this Lease for payment”. The Guarantors dispute that they are sureties for any other obligations (unless contrary to the Guarantors’ submission they are liable as a result of the “all moneys” clause (h) of the guarantee).

[99] Counsel for Mr Rich, having had the benefit of the submissions for the Guarantors that “renewal” has an accepted legal meaning, accepted that if the option was not exercised, then the occupation which followed the 7 year term was not a pursuant to a renewal. But he submitted that the word “extension” in the lease and guarantee was wide enough to describe Comet’s occupation in the period when the debts were incurred in 2010 and following and that if there was no “extension” there was a “holding over”.

1. Unlike the word “renewal” which has an accepted legal meaning, the word “extension” has no accepted legal meaning;

2. The first paragraph of the guarantee refers to “renewal or extension” in the context of paragraphs 21.1 and 21.2 of the Lease, and that use of “extension” in both documents was contemplating a lease in the form of a deed for a three year term;

3. “Extension” has two meanings, at least, and one meaning is a continuation of the lease or tenancy and another meaning is a new term, but the new term is an addition to it a lease or tenancy;

4. As there are two or more meanings it’s ambiguous, and the court should prefer the meaning that benefits the Guarantors.

[101] The Guarantors added written argument relating to the combined words “any extension or renewal” in the definition of “this Lease” in the first paragraph of the guarantee, that those words “any extension or renewal”:

1. If read with or in the context of clause 21.1 and 21.2 of the registered lease, meant a lease for a further term of 3 years in the form of a “deed of extension”, which would be sufficient to protect the lessee’s title because it was a short term lease: see Land Title Act 1995, s 185(1)(b), (2); Schedule 2 (definition of ‘short lease’).

2. Were to be read strictly and did not include an “agreement” for a renewal or extension but required an instrument in writing because of the description in the following lines which required “the due observance and performance of the terms covenants and conditions contained in this Lease” (emphasis added by counsel). Further or alternatively, the Guarantors submitted that if those words may have referred to a lease or agreement to lease, then the meaning was ambiguous, and the words should be given their more strict meaning of a lease.

[102] The submission for Mr Rich that “extension” was wide enough to describe the period of occupation when the debts were incurred is inconsistent with the use of the word “extension” in the Lease and in the guarantee.

The obligations herein...shall continue throughout the term hereby created (seven years) and any extension or renewal thereof or any period thereafter during which the Lessee may be in occupation of the demised premises.

[104] The Lease, by those words, contemplated that “the obligations herein” would continue in up to 3 or 4 types of period. They were:

3. “or any period thereafter during which the Lessee may be in occupation...”

[105] Clause 2.1, which provided for the amount of rent to be paid and for days of the year when it should be paid, contemplated that an extension would be for three years with an “annual rental” calculated in accordance with the clause. That is not consistent with “extension” having the meaning for which Mr Rich argues.

[106] The Lease, immediately before clause 2.1 by referring to “any period thereafter during which the Lessee may be in occupation of the demised premises” distinguished that period from a period during an “extension”.

[107] The words “extended term” as opposed to the word “extension” appear in two places in the Lease being clauses 2.1 (c) and 21.1. Their use is consistent with “extended term” being the term which is created by an “extension’.

[108] Clause 21.1 which deals with an option refers to the “extended term” to be created by the exercise of the option and provides for the method for calculation of annual rental for the first rental year of the extended term. It refers back to clause 2.1(c) of the Lease. It supports the inference that “extended term” referred to in clause 2.1(c) and the references to “extension” in clause 2.1(a) and (b) relate to the “extended term” which would be created by the due exercise of the option.

[109] There is another reason for construing “extension” or “extension or renewal” where they appear in the guarantee, as referring to the term created by the exercise of the option in a way which has complied with clause 21 of the Lease. The money payable by Comet was expressed in the Lease to be payable during 3 periods. They periods were:

2. An extended term of three years created by the exercise of the option; or

3. Any period thereafter during which Comet may be in occupation of the demised premises.

[110] The Lease created obligations to pay objectively assessable amounts of money for each of those three periods. In the case of the term for seven years, in the case of a period of three years following the term and in the case of a holding over, there was a formula set out in the Lease to which the parties could refer to calculate the sums which would be owing. Formulae for rent and other monies owing during the seven year term were provided for at clause 2.1 and following. The formulae for determining the rent and other monies owing if the option was exercised were set out at clause 2.1 and following. The formula for calculating rent and other monies owing if Comet remained in occupation after the expiration of the term were provided for in clauses 13.1 and 13.2 of the Lease.

[111] The Lease contained provisions anticipating increases or changes in the rent, outgoings and other moneys,[29] whether by agreement or in default of agreement by a valuer in the fourth year and the first year of any renewal,[30] and in other years either CPI increases or 4%, whichever was the greater.[31] The provisions for the amount of rent, variations of the rent or other moneys at the time of entry into the Lease and guarantee were those set out in “this Lease”.

[112] It is inconsistent with that framework to have included reference to a kind of occupation for which the parties had provided no formula for calculating the monies which would be owing. The effect of the submission for Mr Rich that “extension” was intended to be wide enough to describe Comet’s occupation in the period when the debts were incurred in 2010 and following, is that “extension” meant any type of occupation about which the parties had not agreed any condition. That is an unlikely meaning. Such a general meaning is inconsistent with the use of the words “any period thereafter during which the Lessee may be in occupation”.

[113] I reject the submission for Mr Rich that the word “extension” in the guarantee is wide enough to refer to the period of occupation after 2010 when the relevant debts accrued.

[114] I find that the period of an “extension” as used in the guarantee, if there had been an extension, was 3 years ending on 5 July 2008.

[116] It is submitted for Mr Rich that if the option was not exercised, there was a continuous “holding over” from 2005 but significantly, to capture the period in 2010/11 when Comet’s debts accrued. The submission implies several things:

1. That occupation 2010/11 meets the description of the occupation in the Lease clause “13.1 HOLDING OVER”;

2. Comet’s obligations to pay for occupation in 2010/11 was agreed in clause 13.1 of the Lease; or

3. Comet’s obligation to pay for occupation in 2010/11, though not agreed in the Lease were described in clause 13.1 of the Lease as an obligation capable of arising.

4. On either basis, Comet’s obligation to pay for occupation in 2010/11 is in the covenants in the Lease at clause 13.1;

5. If one construes the guarantee (other than the “all moneys” clause (h)) as imposing obligations for “payment of the rental, all other moneys and the due observance and performance of the terms covenants and conditions contained in this Lease” then the Guarantors are sureties for debts incurred for Comet’s occupation in 2010/11.

[117] Reference to the Lease at clause 13.1 shows that it contemplated that if Comet, with the consent of the Lessor, remained in occupation of the demised premises after the expiration of the term of the Lease, Comet should (in the absence of any express agreement to the contrary) be deemed to hold the demised premises as tenant from month to month at a monthly rental equal to the monthly instalments of rent payable in respect of the last calendar month of this term.

[118] Absent any express agreement to the contrary, clause 13.1 provided an objective formula for calculating the term and monthly rent.

[119] That has particular relevance when considering the arguments about whether the debts were incurred during a “holding over”. If the debts due for occupation in 2010/11 were calculated in accordance with the formula in clause 13.1 of the Lease it would add strength to Mr Rich’s contention that it was an obligation in the Lease. If not, Mr Rich must rely on the less attractive argument that the Lease and guarantee are to be construed to allow the sureties’ obligations to be altered without the sureties’ consent.

[120] The arguments for Mr Rich began with a misunderstanding of the Guarantors’ amended defence. It was submitted that the Guarantors had admitted par 4(b) of the FASOC that between 2005 and 2008 Comet remained in occupation of the premises pursuant to the terms and conditions of the Lease and that “admission” was a premise for a submission that what followed was a continuous “holding over”. In fact, the allegation was not admitted by the Guarantors. The issue remains to be determined.

[121] There is a contest about whether the “term hereof” referred to in clause 13.1 of the Lease ended in 2005 or 2008. Clause 13.1 of the Lease contemplates that a “holding over” would arise from occupation after the expiration of “the term hereof”. Counsel for Mr Rich submitted that whether the term of the Lease ended in July 2005, as the Guarantors submit, or on 5 July 2008 as he submits, Comet’s occupation after the end of the term was continuously a “holding over” referred to in clause 13.1 the Lease. The submission implies that Comet’s obligations to pay in 2010/11 were obligations incurred pursuant to clause 13.1 in the Lease.

[122] The agreements for occupation from 2005 for three years and from 2008 were not in writing and not registered nor intended to be registered. On that factual premise, the Guarantors submitted that:

4. The registered lease terminated and was surrendered upon the expiration of its term on 5 July 2005 or by operation of law;

5. What followed from 5 July 2008 after 3 years of tenancy at will would not have been “occupation after the expiration of the term” within the meaning of clause 13.1 of the Lease.

[123] I accept the correctness of those submissions. The term of the Lease ended on 5 July 2005. But occupation following immediately after the term expired in July 2005 was “occupation after the expiration of the term” within the meaning of those words in clause 13.1.

[124] By the email correspondence between 24 March 2008 and 17 June 2008, between Mr Rich and Mr Trimble of Withcott Seedlings (Qld) Pty Ltd, purporting to act for or on behalf of Comet, it was agreed that that there be an increase of 15% on the current rent of $114.68 to $131.90 plus GST,[32] that there be a “short term rental” for a minimum of 6 months, thereafter on a monthly basis with a 3 month notice period,[33] that there be “no new lease and the terms and conditions of the existing lease apply”,[34] but that was in the context of a previous proposal that “we do not enter into a new lease – the costs for which in Queensland is paid for by the lessee – and that [scil.] we rely on exchange of letters but adhere to the conditions of the existing lease”.[35] There is no evidence an exchange of letters occurred.

[125] The email correspondence indicates that a 15% rent increase, quite different to the greater of the CPI or 4% contemplated by the Lease, was to compensate for the “short term rental”.

[126] Once Comet began to pay the 15% higher rent ($131.90 plus GST) while in possession, for the minimum term of 6 months it was pursuant to an obligation incurred as a result of an agreement which was not found in the Lease and not in accordance with the formula in clause 13.1 of the Lease. It was an arrangement which did not match the description in clause 13.1 of “a tenancy from month to month at rental equal to the monthly instalments of rent payable in respect of the last calendar month of the term”.

[127] By an email dated 5 June 2009, Mr Rich wrote “in the Comet Foods and all my other leases there is an annual increase of 4% which is what I would expect in this case”.[36] This suggestion was ignored. Comet paid at the same rate as was agreed in 2008. Comet’s obligations were not pursuant to the Lease. Clause 2.1(b) of the Lease provided for annual rent increases according to the increase in the Consumer Price Index Brisbane (All Groups) or by 4% per annum whichever was the greater. That formula was not applied to the occupation from 5 July 2008.

[128] Mr Rich has not shown that Comet’s occupation after 5 July 2008 was on terms and conditions set out in clauses 13.1 and 13.2 of the Lease. Comet’s obligation to pay for its occupation after 5 July 2008 was in the Lease and did not comply the Lease’s formulae for calculating the costs for a holding over. The obligations to pay for occupation in 2010/11 are not found in the terms, covenants or conditions of the Lease. As clause 13.1 anticipated might happen, the parties made “an agreement to the contrary” about the obligations from July 2008. The source of those obligations was not the Lease.

[129] I am not satisfied that the relevant debts were incurred during a “holding over”.[37]

[130] Clause 13.1 of the Lease contemplated that the lessor and Comet might be parties to an express agreement contrary to the terms in clause 13.1. Does that mean Comet’s occupation in 2010/11 on terms agreed with Mr Rich, contrary to the terms in the Lease, should be called a “holding over”? It seems to me that the name for the species of occupation in 2010/11 is irrelevant. What is relevant is whether Comet’s obligation to pay in 2010/11 was an obligation whose performance was described in the guarantee.

[131] I am satisfied that Comet’s debts to Mr Rich for occupation in 2010/11 were not incurred during the period of a renewal or an extension or a holding over. More importantly, the debts were not incurred pursuant to obligations in the Lease. They were incurred pursuant to obligations which arose independently of the Lease and after the end of the 7 year term.

[133] If I made such findings against the submissions for Mr Rich, his counsel argued that it follows that there was a tenancy at will in 2010/11. The Guarantors submit the same.

[134] If Comet incurred the debts as a tenant at will of Mr Rich, his counsel submitted the guarantors would be liable, with, or without the benefit of the “all moneys” clause (h) of the guarantee.

The seventh issue: whether the Guarantors are liable for the debts accruing during Comet’s occupation of the premises in 2010/11.

[135] As Comet’s debts to Mr Rich for occupation during a tenancy at will in 2010/11 were not incurred pursuant to obligations in the Lease, are the Guarantors liable for them?

[137] It is a settled principle that the liability of a surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety.[38] The principle derives from an equitable rule which protects a surety from any alteration in the surety’s obligations without the surety’s consent.[39] As a consequence, if a creditor, without the surety’s consent, alters the obligations of its debtor in a way which prejudices the surety, for instance by increasing the debtor’s debt, the surety is discharged. The application of such rules is contentious in this proceeding because the “all moneys” clause (h) of the guarantee permits Mr Rich to increase the rental or alter Comet’s obligations without consulting the Guarantors.

[138] The Guarantors submit that when construing the guarantee, the court should have regard to the commercial purpose of the guarantee and the matrix of facts and law known to the parties at the time of execution of the guarantee. Counsel for Mr Rich did not submit that these propositions were controversial. The Guarantors urged that there were several relevant features of the matrix of facts and law and counsel for Mr Rich did not contest the submission. The Guarantors submit the following matrix of facts and law known to the parties at the time of the execution of the guarantee included:

1. Mr Rich agreed to purchase the land pursuant to a contract dated 1 July 1997 between West Pacific as vendor and Mr Rich as purchaser;

3. The Lease from West Pacific to Comet was to run from 6 July 1998 for 7 to 10 years, depending upon whether the option to renew was exercised;

5. The leased premises were to be used as a warehouse and offices for food processing, packaging and storage in connection with Comet’s business;

7. The Guarantors’ company, Bentala Holdings Pty Ltd, owned or controlled the shares of Comet;

8. The sale of Comet’s business by way of sale of shares in Comet during the term or renewed term of the Lease was within the contemplation of the parties;[40]

9. A lease for more than three years needed to be registered to be enforceable against a subsequent purchaser or mortgagee and, if not registered, such a lease had effect as an equitable lease as well as, by statute, a deemed tenancy at will.

[139] Mr Rich’s counsel relies on the prefatory words of the guarantee, extracted below:

[140] Mr Rich’s counsel submitted the prefatory words pick up “all other moneys" which must be read in conjunction with clause (h) which refers to “any moneys whatsoever payable”.

[141] I note that the prefatory words twice named the “terms covenants and conditions contained in this Lease”. Without resort to clause (h) there were “other moneys” which would become payable pursuant to terms covenants and conditions in the Lease and those terms were within the contemplation of the West Pacific and the Guarantors when the guarantee was executed.[41]

[142] Mr Rich submits the Guarantee must be read in conjunction with the Lease which provided (above cl. 2.1) that:

The obligations herein contained or implied shall continue throughout the term hereby created and any extension or renewal thereof or any period thereafter during which the lessee may be in occupation of the demised premises.

[143] He submitted that the period in 2010/11 was a “period thereafter during which the lessee” was in occupation and was an “extension.” I rejected that characterisation of “extension” above.

[144] Mr Rich’s counsel did not submit that the occupation in 2010/11 was the other species of occupation referred to in the Lease, namely, “any period thereafter during which the lessee may be in occupation.” For completeness I note that species of occupation was not one about which the Lease provided any terms or formulae for computing monies which would be owing.

[145] Obligations in the Lease at clause 13.1 to pay rental and at clause 13.2 to abide other terms and conditions of the Lease were capable of continuing for years after the term of the Lease ended. Rental or other moneys due pursuant to those obligations would have been due pursuant to “the terms covenants and conditions contained in this Lease”. But Comet and Mr Rich made an agreement in 2008 which meant Comet’s obligations were not those in clause 13.1 or 13.2.

[146] Obligations arising from the terms of a lease are distinguishable from obligations arising elsewhere.

[147] A guarantor was not liable under a guarantee of the obligations “under this lease” in a lease in registrable form, with a term of 5 years that was not registered, because the obligation to pay rent did not arise “under this Lease” (that is, an instrument of lease in its character as a lease), but the tenant’s obligations arose under a common law tenancy (that arose on payment of rent after entering into possession) or an agreement that gave rise to an equitable lease that was the equivalent of a lease at law.[42]

[148] Mr Rich’s counsel referred also to clauses (b) and (d) of the guarantee. The references do not assist with the construction of the prefatory words or the guarantee’s application to Comet’s obligations generally.

[149] I construe “all other moneys" in the prefatory words of the guarantee as referring to the money other than rental which Comet was obliged by the terms covenants and conditions of the Lease to pay. I reject the submission that reference to clause (h) changes the clear intent of “all other moneys” in the prefatory section. I contrast Comet’s obligation to pay for occupation 13 years later, arising from an agreement not in the Lease, under a tenancy at will whose terms as to rent were more onerous than the terms of the Lease.

[150] The obligations to pay rent and other moneys for 2010/11 did not arise from a term, covenant or condition in the Lease.

1. That the relevant parties, when the Guarantors gave the guarantee, would have contemplated the possibility of a tenancy on terms not derived from the Lease. (I accept that they would have contemplated the possibility. This is obvious from the terms of the Lease at clause 13.1 where occupation after the term of the Lease was expressly referred to and where an express agreement on terms different from the formula in the Lease was anticipated);

2. The purpose of (h) in the guarantee in question, construed objectively, was clearly to capture either any variation or changes to the Lease whereby the Lessee was to remain in possession subject to an obligation to continue to pay rent. (The submission overlooks an occupation which is not pursuant to a variation of the Lease or a change to the Lease, but a tenancy at will whose terms are not terms of the Lease or a variation of the Lease);

3. “All contracts and arrangements” and “any moneys whatsoever payable” are carefully crafted, deliberately chosen words of very wide meaning. Considered together they are analogous to the commonly used phrased “on any account whatsoever” as to which see the High Court decision in Cambridge Credit Corporation Ltd v Lombard Australia Ltd,[43] where the Court gave effect to the obviously wide import of the words “all such further and other sums of money... as are now or hereafter shall become due and payable ... upon any account whatsoever”;

4. Clause (h) empowers the lessor to vary “this Lease”. (The lessor needed no guarantee to have freedom to vary the Lease. The issue suggested by the submission is whether the Guarantors guaranteed obligations to pay arising from a variation of the Lease. The issue has become hypothetical because of findings made above. The obligations to pay for occupation in 2010/11 did not arise from a variation of the Lease. They arose from agreements after the Lease ended or was surrendered and those agreements did not vary the Lease);

5. Clause (h) empowers the lessor to make any other arrangements now or from time to time hereafter in force between the Lessor and the Lessee. (The lessor needed no guarantee to have freedom to make other arrangements then or from time to time thereafter in force between the lessor and the lessee. The issue is whether these words of clause (h) show that the Guarantors, intended to guarantee Comet’s unspecified obligations not in the Lease);

6. Clause (h) empowers the lessor to transact any business with...the lessee at its absolute discretion. (The lessor needed no guarantee for that power. The issue is whether these words of clause (h) show that the Guarantors, intended to guarantee Comet’s obligations to pay arising from any business transacted between Comet and the original lessor or any subsequent lessor).

[154] Counsel for the Guarantors properly referred to a decision contrary to one of his submissions. A wide construction of “all moneys” clauses was considered appropriate notwithstanding the special rules governing the construction of guarantees. The decision is Commonwealth Bank of Australia v McArthur.[44] In that case, the defendant guarantor had given a mortgage to secure repayment of a loan to a creditor. The guarantor argued that the terms of the loan were varied after he gave the guarantee; that the variation had made the repayment terms more onerous for the creditor. The guarantor, relying on Ankar[45] submitted that the special principle should apply to the surety contract and that she should be discharged from her obligations. There was a comprehensively drawn “all moneys” clause of seven subparagraphs in the bank’s memorandum of common provisions associated with the mortgage executed by the guarantor. The trial judge found that the guarantor was aware of the implications of the “all moneys” third party mortgage she executed, that she read the literature accompanying the mortgage and that she was aware that her liability under the mortgage would extend to advances made on different terms from those set out on the original basis and that in the event that such advances were not repaid, the security property could be lost.

[155] It was against that background that the trial judge considered the application of the special principle to cases where a particular liability is guaranteed, but is altered or varied without the surety’s consent, or the surety has certain contractual rights which are disregarded. The trial judge appeared to accept [46] that if there is a guarantee in respect of all loans without reference to any particular contract, the creditor and principal could conclude a new loan and proceed to vary its terms without that variation operating to discharge the guarantor. The trial judge wrote:

[195] Limitations upon, or reservations concerning, the special principle endorsed in Ankar Pty Ltd v National Westminster Finance Australia Ltd have been applied. For example, in The Wardens and Commonality of the Mystery of the Mercers of the City of London v New Hampshire Insurance,^[47] Phillips J considered that the principle applies only in relation to obligations arising under a specific contract which are guaranteed and not to obligations arising from a future course of dealings. Accordingly, if there is a guarantee in respect of all loans without reference to any particular contract, the creditor and principal could conclude a new loan and proceed to vary its terms without that variation operating to discharge the guarantor.

[196] A further exception to the variation principle is where the contract of guarantee or third party mortgage expressly permits variation. In the present case, the CBA mortgage by cl9.12 expressly provided for the mortgagee's right to vary advances and accommodation.

[197] Similarly, the principle has no application to a subsequent independent agreement, as distinct from the variation of the terms of a particular original agreement. Whilst discharge will result from variation of the terms of a particular agreement unless it is unsubstantial and unprejudicial or the guarantor consents, the guarantor will remain liable in relation to entirely independent contracts, provided that they are within the scope of the guarantee.

[198] Therefore, where there is a widely drafted "all moneys" guarantee or mortgage clause, as in the present case, and as widely employed in modern commercial practice, a fresh advance or a subsequent loan would be within the scope of the guarantee. Moreover, a variation of a single agreement would also appear to be within the scope of such a guarantee.

[199] Where an "all moneys" guarantee or mortgage is executed, the guarantor has undertaken to guarantee an indefinite number of liabilities without limit. In such a context, it is artificial to distinguish between original and subsequent independent agreements, on the one hand, and variations of a single agreement, on the other hand. In the absence of misrepresentation as to the effect of the "all moneys" guarantee or mortgage, or other vitiating factors, there appears to be no reason why equity should require the discharge of the guarantor's obligation in either case.

[156] The Guarantors submit this decision should not be applied on the facts before me. Counsel for the Guarantors submit that the propositions cited were wrong and unnecessary for that decision. I found the propositions persuasive and accept that:

1. If there is a guarantee in respect of all loans without reference to any particular contract, the creditor and principal could conclude a new loan and proceed to vary its terms without that variation operating to discharge the guarantor;

2. The guarantor will remain liable in relation to entirely independent contracts, provided that they are within the scope of the guarantee;

3. A further exception to the (non) variation principle is where the contract of guarantee or third party mortgage expressly permits variation.

[157] They were essentially general propositions premised on the hypotheses that one has a guarantee drawn to achieve those meanings. I regard it as equitable to compel a surety to abide the terms of a guarantee after a variation of the principal contract if the guarantee shows the surety has given consent in advance to a variation on such terms. I see no reason to distinguish sureties for performance of lessees.

[158] The Guarantors submit Commonwealth Bank of Australia v McArthur is distinguishable because, in this proceeding the guarantee directs attention to this Lease (I assume the difference is that in CBA v McArthur there was specific provision for the mortgagee to vary advances and accommodation and an unambiguous “all moneys” clause found to be understood by the guarantor) and clause (h) is either patently ambiguous or ambiguous having regard to the context and commercial purpose of the guarantee in this case, unlike the clear clause in Commonwealth Bank of Australia v McArthur.

[159] Each side accepts that I may look at the context of the documents, the factual matrix and the commercial purpose of the guarantee. Some authority for that proposition usefully appears in Coghlan v S H Lock (Australia) Ltd,[48] a decision of the Privy Council. The guarantee in that case defined “the monies hereby guaranteed” to mean:

mean the totality of the monies now, or which may hereafter be owing due and/or payable (but remaining unrepaid) by each and all of the Debtors to each and all of the Lenders in any manner and for any reason on any account whatsoever in any place and either alone or jointly with any other person or on partnership account...

[160] It was argued for the Guarantors that the intention at the date of execution was that the monies guaranteed required monies directly advanced to the debtor but not moneys due from the debtor pursuant to a cross-guarantee. In approaching the issue, their Lordships observed:

At the outset Mr Bennett QC on behalf of the appellants has reminded their Lordships of certain well-known principles of construction in relation to guarantees. Such a document falls to be construed strictly; it is to be read contra proferentem; and, in case of ambiguity, it is to be construed in favour of the surety. But these principles do not, of course, mean that where parties to such a document have deliberately chosen to adopt wording of the widest possible import that wording is to be ignored. Nor do they oust the principle that where wording is susceptible of more than one meaning regard may be had to the circumstances surrounding the execution of the document as an aid to construction.

Their Lordships found that, even construing the document contra proferentem, there was no reason to import the limitation that the money must be advanced directly to the debtor; that there was no ambiguity and that there was nothing in the context of the document or the circumstances surrounding the execution of the guarantee which supported the meaning contended for.

[161] That case is a useful compendium of the principles to apply and for showing how they were applied. It differs in material ways from the circumstances I must consider. In Coghlan, on the one hand the terms of an “all moneys” clause in were wider and clearer than those in clause (h). In Coghlan there was no opportunity to read the clause down contra proferentem. There are ways to read portions of clause (h) down contra proferentem. In Coghlan there was nothing in the context or surrounding circumstances giving a basis for reading it down. There are arguable bases for reading down clause (h) in each of the context and surrounding circumstances.

[162] The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. It will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.[49]

[163] That proposition is consistent with the observations of Kenny J in McVeigh (Trustee of the Bankrupt Estate of Piccolo) v National Australia Bank Ltd,[50] where it was observed:

[83]...it is accepted that "all moneys" clauses in guarantees and mortgages are to be "confined in their operation by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve in": see Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817 at 11,819-11,820 per Gleeson CJ; Burke v State Bank of New South Wales Ltd (1994) 37 NSWLR 53 at 71 per Santow J, affd (1997) NSWConvR 55-814; and Re Clarke's Refrigerated Transport Pty Ltd (in liq) [1982] VicRp 100; [1982] VR 989 at 995-996 per Brooking J.

[84] There is no need to accept the entirety of the approach (and the guidelines) proposed by Young J in Estoril Investments Pty Ltd v Westpac Banking Corp (1993) 6 BPR 13,146 and other cases, in order to accept the proposition that, in many cases, an "all moneys" clause will not be construed to secure a debt of a fundamentally different character from the debt specifically contemplated by the parties at the time of entering the contract. In construing such a clause, a court confines its operation by reference to its context and commercial purpose.

[164] The consideration for the guarantee is relevant but not determinative in construing the terms of a surety’s obligations, and the narrative of the consideration may explain the genesis of the transaction.[51] The consideration for the guarantee is expressed in it as follows (irrelevant words omitted):

[165] The significance of the consideration is its reference to particular terms covenants and conditions, being those contained in the Lease with any extension or renewal.

[166] An all-purpose, all moneys guarantee of all Comet’s obligations to any entity which is a lessor to Comet was not an obvious commercial purpose of the guarantee. It had a more obvious commercial purpose. The guarantee was entered into contemporaneously with the Lease and each document referred to the other. The commercial purpose was to guarantee the obligations under “this Lease” or other arrangements contemplated in the Lease which might later come into force between a Lessor and Comet, such as “any extension or renewal” for 3 years or a tenancy arising if the Lease was not registered, or a holding over on terms provided in the Lease.

[167] Several propositions in clause (h) if read strictly, remain consistent with the commercial purpose.

[168] The first proposition in clause (h) is that “The Lessor may... without the consent of the Covenantor increase or otherwise vary the rental or the amount of any other moneys secured by this Guarantee”. It must be read with the whole of the Lease and guarantee and the whole of clause (h). But for present purposes, it is useful to examine it without reference to other discrete propositions in clause (h). The words “moneys secured by this Guarantee” used in clause (h) appear to refer back to the prefatory words. The prefatory words are about a guarantee to pay “rental, all other moneys and the due observance and performance of the terms covenants and conditions contained in this Lease (defined in the prefatory words to include any extension or renewal) for payment observance and performance by or on the part of the Lessee”.

[169] Strictly construed, the first proposition in clause (h) means the lessor may increase or otherwise vary the rental or other moneys payable pursuant to the terms covenants and conditions in the Lease or any extension or renewal. There is nothing in the context of the Lease and guarantee (other than parts of clause (h)) which requires an expanded meaning. The context contains no reference to any obligation arising outside the terms covenants and conditions in the Lease.

[170] Further, one must consider whether the first proposition, strictly construed, was an agreement to accept a prejudicial variation to the terms of the Lease. Firstly, it did not permit variation of terms conditions or covenants. It permitted variation of “rental or other monies payable”.

[171] At the time of entry into the guarantee, the Lease contained provisions anticipating increases or changes in the rent, outgoings and other moneys [52] guaranteed, whether by agreement or in default of agreement by a valuer in the fourth year and the first year of any renewal,[53] and in other years either CPI increases or 4%, whichever was the greater.[54]

[172] The first proposition, strictly construed, does not reveal an intent to accept prejudicial changes to the terms, covenants and conditions in the Lease. If I am wrong about that, the first proposition permits the lessor to increase rent and other moneys payable pursuant to the terms covenants and conditions in the Lease or any extension or renewal. That is different from permission to enter into a different agreement in 2008 for a tenancy at will.

[173] The second proposition in clause (h) is that without the Guarantors’ consent the lessor “may vary or agree to any amendment or variation of this Lease”.

[174] The lessor could have varied the Lease without the Guarantors’ consent without causing the guarantee to be discharged. According to the special rule protecting Guarantors, so long as variations are “unsubstantial and unprejudicial...the guarantor will remain liable in relation to entirely independent contracts, provided that they are within the scope of the guarantee”.[55]

[175] Strictly construed, the second proposition alone, or read with the first proposition, does not suggest that the guarantors agreed to guarantee substantial or prejudicial liabilities which would be added by “amending or varying the Lease”. The second proposition deals with “amending or varying the Lease” and not with creating obligations to pay by an agreements which are not an amendment or variation of the Lease. Thus, read in isolation, the first two propositions of clause (h) do not render the guarantors liable for the agreement to pay for occupation in 2010/11.

[176] The third proposition in clause (h) is that the lessor may “amend or vary or agree to any amendment or variation of ... other arrangements now or from time to time hereafter in force between the Lessor and the Lessee”.

[177] There were no “other arrangements now in force” when the guarantee was given, apart from those found in the Lease. The arrangement at clause 21.1 of the Lease for creating an extended term of 3 years and at clause 13.1 for creating a holding over were arrangements in force. The potential for a renewal, extension or holding over would have been potential for “arrangements...from time to time hereafter in force between the Lessor and the Lessee”.

[178] To analyse the third proposition, I removed the words “the Lease or” from where they appear in front of “other arrangements”. If the words are restored, the second and third propositions together are that the lessor may “amend or vary or agree to any amendment or variation of the Lease or other arrangements now or from time to time hereafter in force between the Lessor and the Lessee”.

[179] Another arrangement was within the contemplation of the lessor and Guarantors when the guarantee was given. The Lease was in registrable form. There is no evidence that when the guarantee was given there was an intention to register the Lease. Clause 20 of the Lease contemplated it may not be registered. Had it not been registered, a situation like that in Chan v Cresdon Pty Ltd,[56] would have arisen. Because the Lease was not registered there arose a common law tenancy on payment of rent after entering into possession or an agreement that gave rise to an equitable lease that was the equivalent of a lease at law.[57]

[180] Read strictly, the third proposition can be interpreted as referring to an amendment which is “unsubstantial and unprejudicial” to the Lease or to a renewal or extension or to a common law tenancy arising from non-registration of the 7 year Lease. It should not be interpreted more widely, as if it permitted making a fresh arrangement which is not an amendment of an arrangement now in force. Only such a wide interpretation would cover the making of the agreement in 2008 for a tenancy at will based on obligations not in the terms covenants and conditions contained in this Lease.

the Lessor may transact any business with for or on account of the Lessee at its absolute discretion and without any consent by the Guarantor being necessary to the intent that this Guarantee shall extend to cover all contracts and arrangements from time to time in force and any moneys whatsoever payable by or as between the Lessor and the Lessee.

[182] In this proceeding, a covenant’s failure to touch and concern the land would not, of itself, be an impediment to Mr Rich’s enforcing the covenant. That does not affect the way the covenant is to be construed.

[183] The fourth proposition, construed alone, did not limit itself to contracts to pay rent or other moneys related to occupation of the premises. It ostensibly makes the Guarantors sureties for Comets’s obligations for agreements not in the Lease, not related to the premises, to be made in future and with any person who becomes a lessor. The only limitation appears to be that Comet’s obligations be to West Pacific or any future lessor. It ostensibly would make the Guarantors sureties for Comet’s agreement to purchase Mr Rich’s car.

[184] The debts incurred in 2010/11 were of a fundamentally different character from those which were guaranteed because they arose from obligations which were not in the terms covenants and conditions contained in this Lease.

[185] I disagree with counsel for Mr Rich that because they were obligations arising from a tenancy at will it was of the same character as a holding over contemplated in clause 13.1 of the Lease. The tenancy in 2010/11 was not a tenancy at will arising from the obligations in the Lease, (as the tenancy might have been but for the agreement made in 2008). It is not sensible to read the fourth proposition down to give it the meaning contended for by Mr Rich, namely to cover any tenancy at will. That would be inconsistent with the rest of the context and the commercial purpose.

[186] The guarantee could have provided that it was to continue after the term while the lessee continued to be a tenant or otherwise continued in possession or occupation. It did not. Instead, it specifically referred to obligations arising “in this Lease”.

[187] The fourth proposition in clause (h) because of its extraordinary breadth is capable of extending to obligations not in the Lease. But its extraordinary breadth is inconsistent with the commercial purpose of the guarantee and inconsistent with the meaning derived from the balance of the context. The context I refer to is the balance of the guarantee read with the Lease. I include the first 3 propositions of clause (h) of the guarantee in the context. When they are construed strictly, they are consistent with the guarantee of obligations “in this Lease”.

[188] I do not accept that was the intention of the guarantee to apply to the obligations arising from the agreements made in 2008 and 2009 pursuant to which Comet’s debts arose in 2010/11.

[190] The indemnity costs issue is whether the Magistrate should have ordered that the Guarantors pay Mr Rich’s indemnity costs of the proceeding from 16 July 2014 having regard to a Calderbank offer. Whichever party succeeds in this appeal, it is prudent to determine this issue before any further appeal.

1. In finding that there were special circumstances and that it was unreasonable and imprudent for the appellants not to accept the Calderbank offer served shortly before the first hearing;

2. In ordering the appellants to pay the plaintiff’s costs of the action from 16 July 2014 on an indemnity basis.

[192] By a letter dated 11 July 2014 from Mr Rich’s solicitors, expressed to be without prejudice save as to costs, Mr Rich offered to settle the proceeding. The offer was that the Guarantors pay Mr Rich $110,000 within 28 days, the payment to fully and finally settle all matters outstanding as between the parties, that the parties bear their own costs and that the offer was open until the close of business on 16 July 2014. It foreshadowed that indemnity costs would be sought if Mr Rich was successful at trial. The hearing was scheduled to commence on 17 July 2014.

[193] The legal principles and factors for consideration are conveniently summarised in J & D Rigging Pty Ltd v Agripower Australia Ltd.[58] The court observed:

[5] The failure to accept a Calderbank offer is a matter to which a court should have regard when considering whether to order indemnity costs. The refusal of an offer to compromise does not warrant the exercise of the discretion to award indemnity costs. The critical question is whether the rejection of the offer was unreasonable in the circumstances. The party seeking costs on an indemnity basis must show that the party acted “unreasonably or imprudently” in not accepting the Calderbank offer.

[6] In Farm Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)5, the Victorian Court of Appeal stated that a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard to at least the following matters:

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.”

[194] The Calderbank offer was only made 6 days before the hearing date on 17 July 2014. It lapsed the day before the first day of the hearing. Mr Rich’s first submissions [mistakenly dated 27 July 2014] were delivered on 17 July 2014. Further amendments were made to Mr Rich’s statement of claim and reply on the first hearing date. On or about the first day of hearing the parties agreed on a number of factual matters and the trial book. Mr Rich’s second submissions entitled “Plaintiff’s Supplementary Submissions” mainly about the proper construction of the “all moneys’ clause” in the guarantee, were delivered on or about 22 August 2014, long after the offer lapsed.

[195] The amount offered by way of compromise was 15.26% less than the amount awarded, apart from costs up to that date.

[196] The Guarantors’ main arguments before the Magistrate were that the guarantee, on its proper construction, did not apply to the rent and outgoings incurred by Comet after the term of the original Lease and/or its renewal or that the new leases or tenancies after that term were not variations of the Lease and were alterations that discharged the guarantee. The principles of law that apply to the proper construction of all moneys clauses in guarantees remain unsettled and complex. The appellant’s prospects of success, as at the date of the offer or its expiry, were fairly described as reasonably arguable.

[197] The submissions for Mr Rich are essentially that I should not interfere with the Magistrate’s exercise of a discretion as to costs except for strong reasons, such as the order’s being manifestly unreasonable or based upon an error of law or fact.

[198] The critical question for the Magistrate was whether the Guarantors’ conduct in allowing the offer to lapse was unreasonable in the circumstances the day before the first day of hearing. Counsel for Mr Rich made no submission about that issue. That is to say, he did not argue that the Guarantors’ conduct in letting the offer lapse was unreasonable in the circumstances. He did not point to the bases upon which the Magistrate could properly have concluded that the conduct was unreasonable in the circumstances.

2. Concluded that the Guarantors’ failure to accept the offer was unreasonable and thus, correctly identified the ultimate issue;

3. Omitted to refer to the Guarantors’ prospects of success when the offer was due to lapse or whether Mr Rich’s offer was a reasonable amount having regard to the guarantors’ prospects;

4. Found that the Guarantors had been imprudent at a much earlier time for not seeking legal advice, for not revoking their guarantee and for not seeking an indemnity.

[200] Assuming those factual findings to be correct for the purposes of this analysis, they were findings about whether the Guarantors had been imprudent at historically irrelevant periods about matters unrelated to the prudence of their letting Mr Rich’s offer lapse. These findings were about irrelevant considerations. The relevant conduct to evaluate for its imprudence was the Guarantors’ conduct in allowing Mr Rich’s offer to lapse.

[201] I am satisfied that the Magistrate took into account irrelevant considerations in assessing the issue of indemnity costs. I am left unsure whether the Magistrate considered the relevant circumstances of the Guarantors’ prospects of success when the offer was due to lapse or whether Mr Rich’s offer was a reasonable amount having regard to the Guarantors’ prospects. In those circumstances I should exercise the discretion afresh. The Guarantors’ prospects of success at the date of the offer’s expiry, were fairly described as reasonably arguable. I am not satisfied that the Guarantors were unreasonable or imprudent to allow to lapse an offer whereby each party would pay his or their own costs and Mr Rich would recover about 85% of the amount ultimately awarded.

[202] If costs follow the event, it seems that the respondent should pay the appellants’ costs of the appeal proceeding on the standard basis and the appellants’ costs of the Magistrates Court proceeding B 11332/12. However, as the parties are not appearing when the judgment is delivered, I give liberty to the parties to make submissions as to costs within 7 days.

^[6] AB 358. A chronology at AB 210 was agreed in the trial below. The chronology assigns the date “01.07.97” to a contract to purchase. There has been added to the printed chronology, a handwritten number “1998”. The copy contract includes at its Fifth Schedule a copy statement purporting to be signed the 18^th day of June 1997. That is consistent with the contract date being in 1997. The handwritten number “1998” was not adverted to by the parties and appears to be an anomaly. I proceed on the basis that the parties accepted that the contract of sale was entered into on 1 July, 1997 rather than 1998.

^[10] Opening of counsel for the guarantors T1-3 ln 42, submission of counsel for the lessor T3-8.

^[12] Amended reply, para 1(c); Transcript of proceeding dated 1 September 2014, p 8, lines 14-16.

^[19] Referring to Connecticut Fire Insurance Co v Kavanagh [1892] AC 473, 480.1-.5 and FCT v Linter Textiles Ltd [2005] HCA 20; (2005) 220 CLR 592 [80] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; [141]-[143] per McHugh J; [200]-[201] per Kirby J.

^[32] Email nos. 4 and 4A dated 16 June 2008 and emails nos. 5 and 5A dated 17 June 2008 [Appeal Book, Document No. 6, pp 3-4].

^[33] Email no. 2A undated [responded to on 11 June 2008]; email no. 4A undated [responded to on 16 June 2008]; email no. 5A undated [responded to on 17 June 2008] [Appeal Book, Document No. 6, pp 2-4].

^[35] Email no. 3 dated 12 June 2008; email no. 4A undated [Appeal Book, Document No. 6, p 4].

^[42] Chan & Anor v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242, 249.10-250.1, 256.6-256.8, 258.2 (Mason CJ, Brennan, Deane and McHugh JJ, Toohey J dissenting).

^[49] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 [35] per French CJ, Hayne, Crennan and Kiefel JJ.

^[51] Re Piccolo; Ex parte McVeigh [1999] FCA 386 [17], [20]; aff’d on appeal McVeigh (Trustee of the Bankrupt Estate of Piccolo) v National Australia Bank Ltd [2000] FCA 187 at [65].

^[57] Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242, 249.10-250.1, 256.6-256.8, 258.2 (Mason CJ, Brennan, Deane and McHugh JJ, Toohey J dissenting).

Queensland District Court Decisions

Ridout v Rich [2017] QDC 129 (17 May 2017)