Supreme Court
Action No. 518 of 1998
3rd February, 2000
Shanks, J.

Ms. S. Musa for the Plaintiff
Mr. Zuniga for the Defendant

Lease Agreement - Breach of Agreement by Respondent - Respondent purporting to terminate Lease Agreement contrary to option clause allowing renewal of Lease Agreement - Whether option clause was void for uncertainty - Assessment of damages for breach of Lease Agreement Factors taken into account.

J U D G M E N T

This is a claim for damages by Paola Fiore against Paradise International Corporation Ltd. for breach of a Lease Agreement dated the 3rd December, 1997. The Lease is for a deli/bar at the Paradise Resort Hotel in San Pedro. I was referred to the relevant Clauses of the Lease as follows:

"Mrs. Paola Fiore will:

Ms. Fiore took up occupation of the deli/bar and started business there and the business as far as she was concerned was progressing well until the 12th of May, 1998 when Mr. Zuniga acting for the Defendant wrote a letter which recited those conditions (5) and (6), which I have read out and then set out six, "negative comments" which had apparently been received from clients from the hotel about Ms. Fiore. The letter ended as follows:

"I have been instructed to write you and demand that you rectify these breaches during the next month failing which the Lease Agreement may be cancelled."

That clearly was in reliance on the provision for termination which I have just read. In reaction to that, Ms. Fiore went and had a look at a book which is maintained in the hotel where visitors write their comments along the lines set out in Mr. Zuniga's letter but she told me that they were all from one particular group of people who had complained, quite unjustifiably, about something that arose which I need not go into. Mr. Zuniga has also produced to the Court three letters apparently from clients of the hotel which set out other complaints which may have formed the subject matter of his letter of the 12th of May, 1998.

Although the letter said that there may be a cancellation after a month in fact nothing happened at all and business continued well and Ms. Fiore told me that guests were happy and enjoyed the bar and the facilities she offered. Then came Hurricane Mitch on, I think, the 25th of October, 1998. In the Hurricane, the bar premises were badly damaged and became unusable after that and Ms. Fiore told me that she made contact with the owners of the hotel (in particular a Japanese gentleman called Mr. Nakogawa) who she contacted through his agent, Mr. Shabano. Those two gentlemen came to the island to San Pedro on or around the 7th or 8th of November, 1998. They met Ms. Fiore, they shook her by the hand, thanked her and said that there would be a meeting the next day. That meeting duly took place and at the meeting she was told out of the blue, as far as she was concerned, that her Lease which was to expire in December of 1998 would not be renewed, notwithstanding the Clause which provides an option for renewal which I have referred to. Three days later, another letter came from Mr. Zuniga which was dated the 11th of November which referred back to his letter of warning of the 12th of May, 1998 and stated that almost six months had passed and then said:

"You persist in being as one hotel guest complained on the 14th of August, 1998 "Paola is the worst person we have ever seen in our lives" with reference to you the guests begged my client to "please do something about this hysterical person if you really love your guests" and the letter continued. "Consequent upon your failure to maintain a high standard of conduct and service as mandated by Clause 6 of the Agreement, I have been instructed to notify you that the Agreement will not be renewed after it expires on the 2nd December, 1998."

I had no direct evidence about the complaint to which Mr. Zuniga referred in his letter of 11th November, 1998 save that words to the effect he had quoted were apparently in the book maintained in the hotel. The response from Ms. Fiore was to which she did on November 24, 1998. The letter rejected the complaints and stated that it was Ms. Fiore's intention to exercise he option of renewing the Lease for a further year and that she vehemently objected to and challenged the unfair decision to end the Lease. However, in spite of that letter, the Lease was not renewed. Ms. Fiore was kept out of possession of the deli/bar, but it was duly repaired and it was ready to do business again early in January and it was given to someone else to operate. Those are the facts.

The issues it seems to me are three:

The first issue is whether the Defendant was entitled to cancel the contract. I have referred to the letter of the 12th of May, 1998. Assuming in the Defendant's favour that there were preexisting breaches of Clauses 5 and 6 on that date and the letter was therefore a proper letter, it was nevertheless necessary in order to terminate the Agreement in my judgment for the Defendant to show that during and after the initial month there were still breaches of the Agreement and also that they had exercised the right to terminate within a reasonable time. That they clearly failed to do. In fact, six months went by and they then wrote the letter of 11th of November, 1998. That as I have said, referred to one complaint of the 14th of August and it purported to rely on Clause 6 of the Agreement. Clause 6 of the Agreement required Ms Fiore to maintain a high standard of conduct and service. To show a breach of Clause 6 would clearly require some evidence from the Defendant and as I have said, I have no direct evidence in relation to the complaint at all. So it seems to me that the Defendant was not entitled to terminate as they purported to do, first of all because there was a failure to comply with the termination provisions and secondly because there was in any event no admissible evidence of any breach of Clause 6. I should say there was also as far as I can see no evidence of a breach of Clause 5. This equally required proof of some behaviour by Ms. Fiore and in any event, there was only one isolated complaint from August, 1998 which in my judgment could never be said on its own to lead to the undermining of the whole reputation of the Paradise Resort Hotel.

I turn then to the second question, namely whether Ms Fiore was entitled to renew. I have referred to the "option to renew" Clause. That option was clearly properly exercised by Ms. Musa's letter of the 24th of November, 1998. However, Mr. Zuniga says that the entire Clause giving the option to renew was void for uncertainty because of the Clause that comes after it which is as follows:

"At the end of each lease year Paradise International Corporation will have the option to negotiate for the following year's rental fee for the buildings which cannot be increased by more than 20 percent annually"

He referred me to a case called Kings Motors v. Lacks, 1969. 3 A.E.R. 665. In that case there was an option in a Lease for a further term "at such rental as may be agreed between the parties" and it was decided that in the absence of an arbitration Clause that term was void for uncertainty. He also referred me to a case called Brown v. Gold, 1971, 2 A.E.R. 1505 which states that, "unless driven to it, a court is very reluctant to hold void for uncertainty any provision which was intended to have legal effect": that statement arose in the context of an option to renew a lease as here. Ms. Musa also referred me to Halsbury's Laws Vol. 27 Par. 114 which states that "if an option does not state the terms of renewal, the new Lease will be for the same period and on the same terms as the original lease so far as those terms arise out of the relationship of landlord and tenant."

It seems to me that my first job in approaching this is to construe the Lease Agreement bearing in mind that it was put together by laymen and that it was certainly designed to have legal effect. The option given to Ms. Fiore to renew standing on its own works perfectly well and the rent on the second year on the renewed year would clearly be $1,500.00 Bz in the absence of any other Clause. Then comes the next Clause which is the one that Mr. Zuniga relies on which gives the Defendant, Paradise International Corporation, an option to negotiate about the rental in each Lease year after the first. It seems to me that Ms. Musa is right to say that this is an option, if anything, given to the Defendant and that they didn't take up that option as they might have done. If they had done so a number of things might have happened. If the matter had come to court, the court might have said that it was too vague an option to be enforceable because it is always open to parties to negotiate about rent in the future. Or the Court might have enforced it by saying that there was an obligation on Ms. Fiore to negotiate in good faith about the rent for the next year. Or, most favourably to the Defendant, the Court might have construed it as allowing them to impose a 20 percent increase. But none of this happened and, as I say, the best result for the Defendant would have been a 20 percent increase in the rent for the second year. What they in fact did was to fail to allow a renewal pursuant to an option which was properly exercised by Ms. Fiore. They were therefore in breach of contract and must pay damages for depriving Ms. Fiore of the opportunity of making money out of running the deli and bar for the second year of Lease.

That brings me to damages. As I say, the deli/bar was rebuilt by early January 1999 and Ms. Fiore would have therefore had another 11 months of business from it. She told me and it wasn't challenged that she made $36,734.00 net out of this business in the first 11 months. Being conservative, I would therefore award her damages of $35,000.00 for the breach which I have mentioned to represent the loss of 11 month's business in 1999.

Mr. Zuniga raised a point on mitigation and said that Ms. Fiore had failed to mitigate because as was accepted she had done nothing to get a new business going between January, 1999 and December, 1999. When this was put to her she explained that her failure to do anything arose because this was the wrong time of the season to start a new business and that the appropriate time to do that was in December. I have no way of judging whether that was correct but the fact was that Mr. Zuniga did not challenge her about it and didn't call any evidence to show that it wasn't the case and I therefore on the basis of her evidence accept that she has done her best to mitigate her damage and that she is therefore entitled to the full amount I mentioned which is $35,000.00. So there will be judgment for $35,000.00.

She will also have costs to be taxed if not agreed.

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