Arlone Pty Ltd & Ors v Teller Properties Pty Ltd & Ors [1995] FCA 492

IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. G324 of 1993 ) GENERAL DIVISION ) BETWEEN: ARLONE PTY LIMITED First Applicant JAMES WASLEY Second Applicant ROBERT NORMAN BRADBERY Third Applicant AND: TELLER PROPERTIES PTY LIMITED First Respondent HAWCROFT HOLDINGS PTY LIMITED Second Respondent TIBOR BALOG Third Respondent EDWARD HAWCROFT Fourth Respondent

JUDGE MAKING ORDER: LOCKHART J. WHERE ORDER MADE: SYDNEY DATE ORDER MADE: 14 JULY 1995 MINUTE OF ORDER THE COURT ORDERS THAT: 1. The matter is adjourned to a date to be fixed for the purpose of making all necessary orders to complete the matter. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

CATCHWORDS CONTRACT - Sales of lease - lease terminated by re-entry by lessor - construction of lease - rent - goods - bond - guarantee. INTEREST COSTS Federal Court of Australia Act 1976 (Cth) Trade Practices Act 1974 (Cth) ARLONE PTY LIMITED, JAMES WASLEY, ROBERT NORMAN BRADBERY v TELLER PROPERTIES PTY LIMITED, HAWCROFT HOLDINGS PTY LIMITED, TIBOR BALOG, EDWARD HAWCROFT G324 of 1993 LOCKHART J. SYDNEY 14 JULY 1995

IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. G324 of 1993 ) GENERAL DIVISION )

BETWEEN: ARLONE PTY LIMITED First Applicant JAMES WASLEY Second Applicant ROBERT NORMAN BRADBERY Third Applicant AND: TELLER PROPERTIES PTY LIMITED First Respondent HAWCROFT HOLDINGS PTY LIMITED Second Respondent TIBOR BALOG Third Respondent EDWARD HAWCROFT Fourth Respondent 14 July 1995 REASONS FOR JUDGMENT LOCKHART J. On 7 February 1995 I published my reasons for judgment in this matter. I observed in the concluding two pages of my reasons that Teller succeeded in part upon its cross-claim and Arlone succeeded in part upon its defence to the cross-claim (also reflected in certain of its assertions against Teller in the statement of claim itself). I made no orders on 7 February 1995, but stood the matter over to a date to be fixed so that the parties could consider my findings. I directed Teller and Arlone to bring in short minutes of order on the adjourned date to give effect to those findings; but said that, if there were any outstanding questions that had not been dealt with, the parties could make brief submissions when the matter was restored to the list. I mentioned that there may be some outstanding questions because of "this mass of detail and sometimes minuscule amounts of claims". Consequently, counsel for Arlone, Teller and the Hawcroft interests lodged brief written submissions with my Associate and I heard oral argument with respect to them. What follows are my reasons for judgment with respect to these outstanding matters and the question of costs. Before turning to costs I shall deal with the few outstanding points that remain in the case. I shall for convenience refer to them under headings, adopting where applicable the same heading or description used by me in my reasons for judgment of 7 February. Rent I dealt with the question of rent outstanding to 24 May 1993 at pages 25 and 26 of my reasons, and concluded that on the material then before me, rent was outstanding by Arlone to Teller in the sum of $64,956.16. Counsel for Teller submits that the correct figure is $66,464.11 because rental, he submits, is payable monthly. If one adopts that approach his figure is correct. Counsel for Arlone submits that the rental is an annual rental. The lease provides (clause 1) that Hawcroft Holdings shall pay to Teller rent at the rate of $338,700 per annum by equal calender monthly instalments of $28,225 each in advance. Clause 1 also provides that payment of the rental instalments shall be made by Hawcroft Holdings delivering to Teller prior to the commencement of each year of the lease 12 signed pre-dated cheques. I agree with the submission of counsel for Arlone that upon the true construction of the lease, the rent is an annual rent. The correct method of calculation is as set out in my reasons for judgment. However, the correct figure for rent should be $65,884.11, not $64,956.16 because there were 71 not 70 days of unpaid rent. The $65,884.11 figure is accepted as correct by counsel for Arlone and Teller, subject in Teller's case to counsel's argument that rental is payable monthly. Goods The heading "Goods" is the heading adopted by counsel for Teller in his submissions. Counsel for Teller submits that certain items, namely, 37 tables and 36 chairs which were left on the motel site when Arlone vacated the premises, should be taken back by Arlone. He said that Teller has frequently requested Arlone to take them back, but it has not done so. In the meantime they remain in storage in the garage at the motel under the control of Teller. They have no value to Teller. A calculation was made by counsel for the parties based on my earlier reasons for judgment (see page 49 of my reasons) showing that Arlone's claim against Teller in respect of certain goods including the chairs and tables in question totalled $12,953.93. Counsel for Teller submitted that Teller should be given credit for the amount in respect of the chairs and tables. Counsel for Teller submitted also that certain other items, namely, brochures, business cards and stationery in the name of "East Side Motel" and showing Mr and Mrs Wasley as the proprietors were not items which were of benefit to Teller in any way notwithstanding that they were left on site at the motel when Arlone vacated the premises. Counsel submitted that Teller should be given credit for these items also. These matters received very little attention at the trial because there was limited evidence available and little was said about it by counsel, no doubt because of the small sums of money involved. At an early stage in the matter Arlone did indicate to Teller that it was prepared to take back certain goods in exchange for some money. It was an offer that was never accepted, indeed it lapsed during the hearing. Teller denied that Arlone was entitled to ownership of the goods. Arlone tendered a cheque for a larger sum which dealt with these and other goods, but the cheque was refused. As to the items of stationery and brochures and business cards, evidence was extremely limited with respect to it. There is no substance in the argument advanced by Teller with respect to these matters. Bond Counsel for Teller made a submission relating to the bond of $20,000 which had initially been provided by Hawcroft Holdings to Teller (clause 17 of the lease) as security for the observance by the former of the terms of the lease. Following the assignment, the residual benefit of the $20,000 bond was treated by the parties as accruing in favour of Arlone. Very little mention was made of the bond during the evidence or argument. As I said in my reasons for judgment of 7 February 1995 (pages 12 and 13), counsel for Teller in final address produced a document which specified Teller's claim for damages and this claim included an item: "Outgoings $20,000 (equals bonds)"" Counsel for Teller submitted to the Court that what he had in mind in his earlier submissions was that the outgoings due by Arlone to Teller were equivalent to the bond, so that the bond should be treated as offsetting the outgoings. He relied on the fact that one of the expert witnesses, Mr Robertson, to whom I referred in my earlier reasons, adopted the same approach. Counsel said that in the result the amount of the bond, namely, $20,000 should not be deducted from Teller's cross-claim as Teller is not propounding a claim for the outgoings. Counsel for Arlone submitted that this argument was based on a fundamental misconception. At an early stage of the hearing it was plain that the Arlone interests challenged the claim of $20,000 for outgoings made by Teller. Arlone conceded certain of the items (which are set out on page 13 of my reasons for judgment), but denied others. Hence, counsel submitted, all the items by way of outgoings (which were $20,000 in total and which were sought to be recovered from Arlone by Teller in its cross-claim) were considered by the parties and either admitted by Arlone or disputed and were therefore the subject of my earlier judgment. The only material to support Teller's case is what was described by counsel for Arlone as a "throw away line" by Mr Robertson, the expert. I am satisfied that the submission of counsel for Arlone is correct. There was no issue before this Court as to outgoings being the equivalent of the bond so that the one in effect cancelled the other except in the evidence of Mr Robertson. There was a real issue as to outgoings claimed by Teller and each item was addressed by Arlone either by concession or dispute. I reject the submission of counsel for Teller about the bond. The amount of the bond of $20,000 should be deducted from Teller's claim and the outgoing treated as I did in my reasons for judgment. I shall leave it to the parties to work out from my earlier reasons and these reasons the precise amount for which judgment should be entered for Teller on its cross-claim. I shall stand the matter over for brief mention on a date in the near future so that a schedule may be brought in. I expect that it will be the same as or similar to the schedule which was attached to the outline of submissions by counsel for Arlone dated 15 February 1995. Interest Interest under s. 51A of the Federal Court of Australia Act 1976 should also be included in the amount of the judgment and the date which should be the starting point for the commencement of the calculation of interest is 24 May 1993 because by about that time every relevant item of claim on which Teller has succeeded would have fallen due. Hence although the precise date is a little arbitrary in my opinion the interest calculation should commence on 24 May 1993. Guarantee In my earlier reasons (page 11) I said that no submissions were made by counsel for any party concerning the guarantees, so I declined to make any findings about them. In view of the multitudinous issues of fact and claims made in the case I said (as mentioned earlier) that if there were any outstanding questions that I did not deal with, the parties could do so later. This has been done in respect of the item of guarantees. The transcript of the addresses before me during the earlier hearing do show that the question of the enforceability of guarantees by Teller against the Hawcroft interests was addressed by counsel for Teller and the Hawcroft interests, so I shall now proceed to deal with that question. Counsel for Teller referred to the relevant guarantee in clause 32 of the lease. This states that Mr Hawcroft is the guarantor of the due performance and observance by Hawcroft Holdings of the terms, covenants and conditions of the lease; and that Mr Hawcroft indemnifies Teller against any loss thereunder. Clause 32 further states that the guarantee and indemnity shall be a continuing guarantee and indemnity for so long as Hawcroft Holdings shall have any liability under the lease. Counsel for Teller referred me also to the deed of 28 February 1992 entitled "Consent to Assignment of Lease" whereby Teller consented to the assignment of the lease from Hawcroft Holdings to Arlone (the deed of consent); and whereby Mr Hawcroft undertook obligations as guarantor to which reference shall be made later. In the result counsel for Teller said Hawcroft Holdings remained as the "primary lessee" and that Mr Hawcroft himself guaranteed the obligations of the assignee, Arlone, under the lease. Counsel for Mr Hawcroft made submissions as to the deed of assignment and said that upon its proper construction neither Hawcroft Holdings nor Mr Hawcroft has any relevant liability for the damages sought by Teller against them, so that once the lease was transferred to Arlone, all liability of Mr Hawcroft or Hawcroft Holdings to pay money or comply with any terms of the lease ended and was replaced by Arlone's assumption of liability. On 28 February 1992 three relevant documents were executed. First, the contract for sale of the motel business whereby Hawcroft Holdings agreed to sell to Arlone the business of the East Side Motel for $150,000. The second document is a "deed of assignment of goodwill and of covenants, warranties and indemnities" between Hawcroft Holdings as vendor, Mr Hawcroft, and Arlone as purchaser whereby Hawcroft Holdings assigned to Arlone the motel business comprised in the lease (clause 1); Hawcroft Holdings assigned and transferred to Arlone the businessname "Eastside Motel" (clause 2); Arlone covenanted with Hawcroft Holdings that it would during the residue of the term of the lease pay the rent reserved by the lease and otherwise perform and observe the terms, conditions and covenants on the part of the lessee contained in the lease on and from the date of completion of the contract (clause 4); and in consideration of the sale and of the said deed and the transfer of the lease, Arlone and its directors, Mr Wasley, Mrs Wasley and Mr Bradbury, indemnified Hawcroft Holdings its directors and any other guarantors under the lease to be transferred against any payments including rent and outgoings under the lease as from the date of settlement. This was expressed to be a continuing indemnity and not to merge on settlement (clause 8). The third document is the deed of consent. This deed is between Teller, Hawcroft Holdings, Mr Hawcroft as Hawcroft Holdings' guarantor, Arlone, Mr Wasley and Mr Bradbury as guarantors of Arlone's obligations. Under this deed: . Teller consented to the transfer by Hawcroft Holdings of all its estate and interest in the lease to Arlone upon the terms and conditions of the deed (clause 1): . Hawcroft Holdings released and indemnified Teller against all claims, actions and demands which Hawcroft Holdings might maintain against Teller in respect of or in any way arising from the lease as from the date of transfer of the lease (clause 4); . Arlone covenanted with Teller that Arlone would on and from the date of transfer and thereafter during the residue of the term granted by the lease, pay the rent reserved under the lease, pay all other moneys payable under the lease and perform, observe and carry out and be bound by each and every one of the covenants, conditions and provisions on the part of Hawcroft Holdings as lessee as if Arlone had originally been party to the lease and named in it as lessee (clause 6); . Mr Wasley and Mr Bradbury as guarantors covenanted with Teller that they would on and from the date of transfer, and thereafter during the residue of the term of the lease, guarantee the due performance and observance by Arlone of the terms, covenants and conditions of the lease and indemnify Teller against any loss thereunder (clause 7); and . Hawcroft Holdings acknowledged that Teller's consent to the transfer of the lease did not release Hawcroft Holdings from its existing or future (emphasis added) obligations under the lease. Hawcroft Holdings and Arlone acknowledged that thenceforth each of them was jointly and severally liable to Teller for the due performance of the obligations contained in clause 6 of this deed (clause 8). In my opinion it is plain from the terms of the deed of consent, whether read in isolation from the other two documents or together with them (I prefer to read the document standing alone; but if it were necessary to resort to the other documents, which I do not think it is, then my conclusion would be the same), that Hawcroft Holdings remains liable to Teller to perform, not only its existing, but its future obligations under the lease, that is the obligations that it would incur if it remained as lessee without any assignment to Arlone. But each of Hawcroft Holdings and Arlone binds itself jointly and severally to Teller for the due performance of the obligations of Arlone mentioned in clause 6 of the deed and referred to above. I discern no evidence of intent from the language of the deed of consent to support the conclusion that Hawcroft Holdings was to be released from any future obligations that might be incurred by Arlone as assignee after the date of the assignment. I accept the argument of counsel for Teller with respect to this question of the liability under the guarantee. I reject the argument of counsel for the Hawcroft interests that the deed of consent does not of itself release Mr Hawcroft from any obligations or those of Hawcroft Holdings because clause 9 contemplates that other things have to be done, including documents signed, in order to enable its registration of the lease to be transferred. Clause 9 and indeed no other clause of the document operates in any way to diminish the operation of clause 8 as mentioned above. When short minutes are being prepared by the parties' legal advisers they should include appropriate relief with respect to my findings on the guarantees. Costs As mentioned in my earlier reasons (pages 6 and 7), on the first day of the hearing the Court by consent of Teller and Mr Balog on the one hand, and the applicants on the other, ordered (a) the proceeding be dismissed as against Teller in so far as the relief sought in paragraph 1 of the application is concerned, that is the claim against Teller based on alleged contravention of s. 52 of the Trade Practices Act 1974; (b) that the proceeding be dismissed as against Mr Balog in so far as paragraph 3 of the application is concerned; and (c) that the applicants pay Teller's costs and those of Mr Balog of the issues raised by those paragraphs of the application including reserved costs. This left, so far as the applicants and Teller were concerned, a small claim by the applicants against Teller totalling $24,538.81, and the Teller cross-claim which is a cross-claim by it against the applicants, Hawcroft Holdings and Mr Hawcroft. Hawcroft Holdings and Mr Hawcroft filed a cross-claim against Arlone and Teller (the Hawcroft cross-claim, see pages 8 and 9 of my earlier reasons). On the first day of the hearing Hawcroft Holdings withdrew its cross-claim against Teller for $20,000 damages, so it ceased to be in issue on the first day of the trial and the Court gave leave by consent to Hawcroft Holdings and Mr Hawcroft to discontinue the cross-claim by them against Teller with no order as to costs thereof between them. That left the other issue in the Hawcroft cross-claim relating to the assertions by Hawcroft Holdings and Mr Hawcroft against Arlone in which damages were claimed together with interest. When the case was well advanced, that aspect of the case was settled; and on 13 December 1994, by consent, the Court ordered that judgment be entered for Arlone and Mr Wasley and Mr Bradbury against Hawcroft Holdings and Mr Hawcroft in the sum of $105,000 inclusive of costs; that any previous costs orders between those parties be vacated and the Court also dismissed the Hawcroft cross-claim as against the applicants. It meant that the only issues that then remained were those arising from the Teller cross-claim and the limited area of dispute between the applicants and Teller as previously mentioned. The parties made extensive submissions to the Court in writing and orally on the question of costs. I do not propose to refer to them in detail, nor to summarise them; but I have taken them into account in reaching my findings on costs which I shall now state. Teller cross-claimed against the other parties for $490,811.72 but the trial was conducted by Teller on the basis that the true figure sought by it was less than that, namely, $423,714. Arlone conceded that Teller was entitled to a verdict in the sum of some $40,991; the balance was in dispute. Teller is entitled in view of my findings to a verdict on the cross-claim of $69,771.15 (including the concession of $40,991 by Arlone). Teller thus recovered $28,780 of the moneys which were ultimately in contention on the hearing of the cross-claim, that is less than 10% of the sum of $423,714 claimed by Teller. I have considered the offer of compromise made by the applicants pursuant to O 23 of this Court's Rules whereby they offered to compromise the cross-claim (and their claim against the Teller interests which was embodied also in the cross-claim) by payment of $65,000 in respect of the cross-claim but inclusive of Teller's costs of the cross-claim, together with interest in accordance with s. 51A of the Federal Court Act and payment of the costs of Teller and Mr Balog of the applicant's claim against them on a party and party basis. I have also taken into account certain of the correspondence (part of exhibit 43) whereby Teller offered to compromise its cross-claim for $110,000 plus costs.

In my opinion the just order for the costs of the cross-claim (and this would include the elements of the cross-claim that are inherent in the claim by the applicants against Teller and Mr Balog) is that Teller pay two-thirds of the costs of the other parties of the cross-claim. I decline to make any order for costs of the cross-claim other than on a party and party basis. The principles governing the award of indemnity costs are well established. They do not apply in this case. The task that will confront the taxing officer in assessing costs is difficult because there was a fair degree of intermingling of issues between the claims made by the applicants and the claims in the Teller cross-claim and in the Hawcroft cross-claim. As a guide to the taxing officer I indicate that in my opinion approximately one-third of the time of hearing (it was a ten day hearing) was spent by the parties in fighting the Teller cross-claim. Most of the time of the hearing was occupied by the dispute between the applicants and the Hawcroft interests. I direct the applicants to bring in short minutes of order to give effect to my reasons for judgment of 7 February 1995 and these reasons. I expect that counsel and solicitors for the parties will consult together before the adjourned date for the purpose of agreeing on the short minutes. I shall adjourn the matter to a date to be fixed in the near future and for the purpose of making all necessary orders to complete the matter. I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart. Associate Dated: 14 July 1995 Counsel for the Applicants : Mr G A Moore Solicitors for the Applicants : A B Robinson Creais Counsel for the First and Third Respondents : Mr B Green Solicitors for the First and Third Respondents : Emerys Law Firm Counsel for the Second and Fourth Respondents : Mr P Taylor Solicitors for the Second and Fourth Respondents : Rockliffs Date of Hearing : 16 February 1995 Date of Judgment : 14 July 1995