271 Collins Pty Ltd v Calcorp (Australia) Pty Ltd and Ors (Ruling)
[2009] VCC 1489
•3 July 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
BUSINESS LIST – MISCELLANEOUS DIVISION
Case No. CI-07-03745
| 271 COLLINS PTY LTD | Plaintiff |
| v | |
| CALCORP (AUSTRALIA) PTY LTD | First Defendant |
| and | |
| ANTONIO DATTILO | Second Defendant |
| and | |
| PATRIZIA DATTILO | Third Defendant |
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| JUDGE: | HIS HONOUR JUDGE O’NEILL |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 30 June 2009 |
| DATE OF RULING: | 3 July 2009 |
| CASE MAY BE CITED AS: | 271 Collins Pty Ltd v Calcorp (Australia) Pty Ltd & Ors (Ruling) |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 1489 |
RULING
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Catchwords: Application to enter judgment – default under terms of settlement – whether entry of judgment constitutes a penalty.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms Z E Maud | Mark Fagenblat |
| For the Defendants | Mr D B Clough | Nicholls Legal |
| HIS HONOUR: |
1 This is an application upon summons by the plaintiff to enter judgment against the defendants in the sum of $376,777.13. In support of the application there were filed two affidavits of Mr Fagenblat, solicitor for the plaintiff, affirmed 25 and 30 June 2009. There was a further affidavit filed by Mr Nicholls on behalf of the defendants, affirmed 30 June 2009.
2 By its Amended Statement of Claim, the plaintiff claimed arrears of rental pursuant to the terms of a Lease made 13 February 2006 (“the Lease”) between the plaintiff and the first defendant. The second and third defendants were guarantors under the Lease. The first defendant took possession of the leased premises in February 2006. The Statement of Claim pleaded that as from September 2006, the first defendant failed to make payments of rental and outgoings, and in February 2007, the plaintiff re-entered the premises and took possession. In total, an amount of $77,809.72 was said to be outstanding for rental and arrears, from which was deducted an amount of $52,013.09, being a sum lodged as a guarantee in respect of performance of the Lease. The net amount due was $25,796.63.
3 In May 2007, the plaintiff leased the premises to another tenant at a lower rental than the Lease with the first defendant. An amount of $93,729.06 was claimed, being the rental and outgoings lost before that new lease took effect. A further amount of $108,819.21 was claimed as the difference in rental between the leases over the period when occupation under the new lease commenced on 1 August 2007 until 19 February 2011. Interest on the arrears due, was also claimed.
4 By their Defence, the defendants admitted the Lease, but joined issue with some of the claims of the plaintiff, and in particular alleged that the plaintiff re-entered the premises for reasons unrelated to the failure to pay rental and outgoings. Further, the defendants alleged the plaintiff had failed to mitigate its loss in respect of the new lease. By its counterclaim, the defendants alleged that the plaintiff wrongfully and in breach of the terms of the Lease took possession of the premises, as a result of which its stock, fixtures and fittings were taken, and as a result they suffered loss and damage.
5 None of the issues the subject of the pleadings were determined, as the proceeding, including the counterclaim, was compromised before trial. The terms of that compromise were reflected in a document entitled ‘Terms of Settlement’ dated 28 November 2008, and signed by the parties (“the terms”).[1]
[1] Exhibit MF1 to affidavit of Mark Fagenblat affirmed 25 June 2009
6 The terms provided, inter alia, that the defendants were to pay the plaintiff the total sum of $200,000 by various instalments over the period December 2008 to May 2009, together with a final instalment of $120,000 payable on or before 10 June 2009 (Clause 2).
7 Clause 4 of the terms provided:
“4 If for any reason whatsoever the defendants fail to make any payment required to be made by 5 pm on the due date as set out in paragraph 2 of these terms, the plaintiff shall be entitled immediately and without further notice to the defendants to enter judgment in this proceeding against the defendants or any of them for:
(a) The full amount of the plaintiff’s claim in the proceeding in the agreed sum of $262,648.96 (less the total of any payments actually made by the defendants); (b) Plus interest (at the rates from time to time fixed under the Penalty Interest Rates Act 1983); and (c) The full amount of the plaintiff’s costs of and incidental to its conduct of the proceeding (including the costs of entering judgment) calculated as the total of all costs and disbursements paid by the plaintiff to its solicitor and/or counsel as evidenced by the tax invoices rendered by the plaintiff’s solicitor and counsel.”
8 Clause 5 of the terms provided:
“5
In the event of the defendants’ default, the defendants, by their execution of these terms, irrevocably consent to the plaintiff entering judgment against them in the proceeding for the amounts as set out and calculated in accordance with paragraph 4 of these terms. In the event of the defendants’ default, the defendants shall make no objection to any such entry of judgment against them by the plaintiff and these terms may be produced and pleaded by the plaintiff in absolute bar of any objection made or proceeding to set aside the judgment instituted by the defendants and any such proceeding to set aside shall be forever stayed.”
9 Clause 7 of the terms provided that upon execution of the terms, the defendants released the plaintiff from any claim arising out of the counterclaim.
10 Clause 8 of the terms provided:
“8 Upon the plaintiff being paid the total amount of $200,000 as provided in paragraph 2 of these terms, the plaintiff for itself, its successors and assigns forever releases and discharges the defendants from and against any and all complaints, claims, suits, demands, proceedings, costs, expenses, obligations and causes of action of whatever nature which the plaintiff now has or may have or which but for its execution of these terms might have against the defendants arising out of or relating to or in any way connected with the claim made by the plaintiff against the defendants in the proceeding.”
11 The defendants made all payments due pursuant to the terms, save in respect of the final payment of $120,000 due on 10 June 2009.
12 The defendants claim through their solicitor that payment of the final instalment, together with due interest, will be made on 3 July 2009.[2]
[2] See affidavit of Matthew David Nicholls affirmed 30 June 2009, together with exhibits
13 The judgment which the plaintiff seeks to enter is for the total sum of $376,777.13. That sum is made up of what is said to be the total sum of the plaintiff’s claim in the proceeding, $262,648.96, less the sum of $80,000 paid by the defendants pursuant to the terms, plus the plaintiff’s legal costs and disbursements, said to total $157,803.54,[3] and interest.
[3] See affidavit of Mark Fagenblat affirmed 30 June 2009, together with exhibits
14 It is clear that the compromise of the action was for the sum of $200,000, and inclusive of costs. The amount in respect of which judgment is sought to be entered is for the full amount of the plaintiff’s original claim plus costs and disbursements, and interest.
15 Essentially, Mr Clough, on behalf of the defendants, argues that the additional amount constitutes a penalty, and judgment ought be entered for no other sum than the $120,000 presently due under the terms, together with interest thereon.
16 I was taken to a number of authorities by counsel. In O’Dea and Ors v Allstates Leasing System (WA) Pty Ltd and Ors,[4] the High Court was concerned with a lease agreement for the use of a truck. The agreement provided that the lessee pay monthly instalments over a period of three years. Early on in the agreement, the lessee defaulted in payment of instalments, and the truck was repossessed. The lessor claimed all of the instalments for the whole of the period of the lease, together with further amounts. The court found that the claim by the lessor for the instalments over the whole period of the lease was a penalty. Murphy, J[5] referred to the claim as one for “accelerate instalment payments” and found the agreement unconscionably harsh. He said:
“Where a contract provides that failure to comply strictly with conditions on an obligation to pay a certain sum, results in an obligation to pay a higher sum, that obligation is treated as an unenforceable penalty unless the increase can be shown to be a genuine pre-estimate of the damage sustained by the non-performance of the conditions.”
[4] (1982-83) 152 CLR 359
[5] at p.375
17 Mr Clough relies upon statements made in the judgment of Gibbs, CJ[6] where His Honour categorised cases as, firstly:
“[I]f a sum of money is payable by instalments, and it is provided that in the event of one instalment not being punctually paid the whole sum shall immediately become payable, the acceleration of payment is not a penalty. ... In all the cases of this kind there is a present debt, which, by reason of an indulgence given by the creditor, is payable either in the future, or in a lesser amount, provided that certain conditions are met. ...”
[6] at p.366-7
18 Mr Clough submits that principle has application, in that the amount in respect of which judgment is sought is not a “present debt”. This is because, he says, there was never any adjudication on the merits of the claim made by the plaintiff, and on the counterclaim by the defendants. There is thus no sum certain or actual debt which is the subject of the claim.
19 The facts of O’Dea are different from the present case. The present claim, in essence, is in respect of arrears of rental and outgoings, a loss said to be suffered because of the terms of the second lease being less favourable than that with the first defendant. It is not akin to the situation in O’Dea where the claim was in respect of then-future payments due under the agreement. The situation would have been similar had the plaintiff, as part of its claim, contended that it should be entitled to payments under the Lease for the whole of the future term of the Lease.
20 Ms Maud, on behalf of the plaintiff, relies upon Osborn and Anor v McDermott and Anor.[7] That case was concerned with the concepts of accord and satisfaction and accord executory. The terms of settlement in that case provided for payment of a sum of money and delivery up of a motor vehicle by a repairer. The repairer failed to deliver up the vehicle on the appointed day, and the owner sought to maintain the original suit which included a claim for damages for wrongful detention, conversion, and loss. At first instance, the repairer obtained an injunction for the specific performance of the terms of the settlement. The court held[8] that a compromise of an action may be by way of accord executory or by way of accord and satisfaction. In the former case, the compromise did not act to discharge the existing rights until the complete accord was performed. In the latter, the discharge was effective immediately.
[7] [1998] 3 VR 1
[8] at p.7-8
21 Ms Maud submits that particularly having regard to Clause 8 of the terms, there was mere accord executory, and the rights of the plaintiff to maintain its principal cause of action were preserved upon failure to adhere to the terms.
22 In Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd,[9] the Queensland Court of Appeal was concerned with a leave application relating to the enforcement of a deed of settlement. The claim was in relation to engineering works carried out. A defence was filed claiming that the sums alleged to be due were in dispute, and included a counterclaim for alleged bad work. The deed of settlement of the proceeding required instalments to be made in full settlement of the claim. The claim as finally pleaded was for the sum of $72,567.13, and the total amount due pursuant to the instalments was $55,000. There were five instalments due to be paid. The first and second were paid on time, but the third, fourth and fifth were paid late. After the fourth instalment, the applicant applied for judgment of the whole of the amount said to be due under the claim. The facts are, thus, similar to the present case. In reliance upon the principles of O’Dea, the court noted that the equitable doctrine preventing recovery of a penalty would not apply in circumstances where a debt was due but a creditor was prepared to accept payment of part of the debt subject to certain conditions. If a failure to meet those conditions occurred, then the whole of the debt could become due and payable. The court referred to the learned author in ‘The Principles of Equity’:[10]
“Where a stipulated sum is presently due and owing as a debt and the creditor grants the debtor an indulgence to pay the debt by instalments, it is not a penalty for the creditor to provide, as a condition of granting the indulgence, that the indulgence will be withdrawn if the debtor defaults in payment of an instalment. However, this principle ... has no application where, having regard to the substance and notwithstanding the form of the transaction, the stipulated sum is not owing as a present debt.”
[9] (2001) 2 Qd R 114
[10] Professor Parkinson (1996), p.296
23 Mr Clough relies upon this case in support of his argument that the amount alleged to be due under the lease was not a “present debt”.
24 In Cameron v UBS AG,[11] the Victorian Court of Appeal was concerned with a judgment which had been obtained by the respondent against the appellant in Switzerland for the sum of $8.4 million. There was a dispute as to whether the judgment could be registered and enforced in Victoria, but that dispute was settled by the terms of settlement which provided for the payment of $1 million by instalments. There was default in payment and the respondent sought to enter judgment for the full amount of $8.4 million. The terms contained, by implication, an acknowledgment that the appellant was liable for the $8.4 million. The court concluded that the claim by the respondent to enter judgment in the full sum was not a penalty. The court found that by entering the deed, the appellant acknowledged the judgment debt, thereby giving up any defences he may have to the claim. That amounted to a concession that the debt was owed. The court considered O’Dea, noting that the provision in that case for the acceleration of the instalments due was a penalty, particularly in view of the concurrent right of the lessee to recover the truck as well as moneys due for the unexpired term of the lease. In those circumstances, at the date of the contract, there was no present existing obligation to pay the entire rental. The court spoke of the Swiss judgment as a present debt. It concluded that the requirement in the terms of settlement for payment of the $8.4 million upon default did not constitute a penalty. Phillips, JA[12] stated:
“As I understand it, the law as to penalties is that if the parties to an agreement include a provision for the payment of a sum of money by one party to the other by reason of the former’s defaulting in the performance of an obligation owed by him or her to the other under the agreement, then payment of that sum can be enforced against the party in default only if that sum is a genuine pre-estimate of the damage likely to be occasioned by the default. If it is not a genuine pre-estimate of damage it is unenforceable as being a penalty — meaning a penalty imposed merely to induce or compel compliance with the obligation which has not been fulfilled and intended therefore to secure for the innocent party a benefit or advantage which is altogether collateral to the purpose of the main agreement (because ex hypothesi it goes beyond mere compensation for the breach). In this instance the sum of $8.4m was not agreed as a genuine pre-estimate of damage should the defendant fail to comply with cl 2 in one respect or another; but neither was it a penalty imposed to induce or compel compliance by the defendant with cl 2, and thus to secure some collateral benefit or advantage to the plaintiff. The sum of $8.4m was the sum due and allegedly owing under the Swiss judgment; neither more nor less.”
[11] (2000) 2 VR 108
[12] at p.114
25 Mr Clough submits that the additional amount sought under the judgment is not a pre-estimate of damage, and is thus unenforceable as a penalty. He says that the sum claimed in Cameron – that is, the $8.4 million – was certain and quantified, as evidenced by the judgment entered in Switzerland.
26 A proceeding not dissimilar to the present was determined by Mandie, J in Commonwealth Bank of Australia v Mileoak Pty Ltd and Ors.[13] In that case the bank claimed against various defendants a sum of approximately $70,000. The defendants filed a defence and counterclaim for damages in negligence, breach of fiduciary duty, and breach of contract. The damages claimed included a sum for loss of profits of $2.8 million. Subsequently, a compromise of the proceeding was reached in terms of settlement executed. Those terms provided for the fourth defendant to pay $25,000, inclusive of legal costs, in settlement of the proceeding. Like in the present case, the terms provided for the release of the bank from the counterclaim, and further, for the release of the fourth defendant from the bank’s claim upon payment of the $25,000. His Honour considered O’Dea, and in particular Cameron, and rejected the argument that the claim for the whole amount constituted a penalty and was thus unenforceable. He rejected the argument that there was no antecedent debt established. His Honour appears to have relied heavily upon the terms of settlement, and said:[14]
“Although the terms of settlement contain an immediate release of the counterclaim the terms of settlement do not discharge the claim of the plaintiff unless and until the settlement sum is paid. Under para 1 the plaintiff is not accepting the promise of payment in full and final settlement of the proceeding but is agreeing to accept payment on or before ... in full and final settlement of the proceeding. ... In my opinion the terms of settlement in substance contain an irrevocable consent to judgment for the amount claimed and an indulgence by the plaintiff whereby, if a lesser sum is paid by the stipulated date, the proceeding is settled and at an end. Otherwise the plaintiff’s rights in the proceeding are unaffected and the plaintiff is entitled to rely upon para 7 of the terms of settlement to obtain judgment for the amount claimed.”
[13] [2001] VSC 12
[14] paragraph 7
27 Ms Maud relies upon His Honour’s judgment and reasoning, and says the facts in Commonwealth Bank are on point with the present case. Mr Clough argues, with respect, that His Honour did not analyse the question of whether the additional amount claimed in the judgment constituted a present debt, but simply applied the terms of settlement as constituting an irrevocable right to enter judgment.
28 Finally, I was taken to Hunt and Anor v Kallinicos and Ors.[15] In that case the litigation concerned a dispute as to a property development which was resolved at mediation. The terms of settlement provided for payment of the sum of $900,000 by two instalments, each of $450,000. There was default in payment of the first instalment, and the respondents sought to enter judgment for the full amount of $900,000. The argument that the full sum was unenforceable as a penalty failed, as the amount claimed was an existing debt, and all that was sought was judgment for that debt. That case has little application to the present situation.
[15] [2009] NSWCA 5
29 Each case must turn upon the nature of the original claim, the terms of the settlement, and whether the sum in respect of which judgment is sought to be entered constitutes a penalty. It is significant, in my view, that by its Defence the defendants admitted the arrears of rental and the failure to make payment of the outgoings. Further, the defendants admitted[16] that the plaintiff re-entered the premises, as it was entitled to do pursuant to the Lease. As a result the Lease was terminated. The defendants contested[17] that the plaintiff was entitled to any loss for the period from February to May 2007 when the premises were vacant, as it was alleged the plaintiff had re-entered the premises for reasons unrelated to any breach of the Lease, and, of its own initiative, granted the new tenant a rent-free period. It was said that the plaintiff did not mitigate its loss by granting such a rent-free period. Further, the defendants claimed[18] that by entering the subsequent lease at a lower rental, the plaintiff had failed to mitigate its loss.
[16] paragraph 12 of the Defence
[17] paragraph 19 of the Defence
[18] paragraph 20 of the Defence
30 The claim was for arrears of rental and outgoings, which was admitted. There was no determination about whether the plaintiff had failed to mitigate its loss in the subsequent lease, or upon the merits of the defendants’ counterclaim for damages for conversion of its chattels.
31 In these circumstances, I am of the view that the amount sought was not a penalty of the type described in O’Dea, but that it was in the nature of a pre- estimate of the damage to which the plaintiff was entitled, even notwithstanding some aspects of the claim were not heard and determined. I am of the view that it was not a penalty imposed to induce or compel compliance with the terms, and thus secure collateral benefit to the plaintiff.[19] It was not a situation analogous to O’Dea where the claim was in respect of lease payments due over the whole period of the agreement rather than up to the date of default.
[19] see Phillips JA in Cameron at p.114
32 Further, in accordance with the reasoning of Mandie, J in Commonwealth Bank, the terms did provide, irrevocably, for the plaintiff to enter judgment in the sum claimed in the event of default in payment of the instalments. There was an express acknowledgment by the defendants that the sum of $262,648.96 was the full amount of the plaintiff’s claim. Further, by entering the agreement the defendants impliedly acknowledged the full amount was due, and that if they did not meet the conditions of payment by instalments, then judgment would be entered for the full claim.[20]
[20] as per Winneke P in Cameron at p.109
33 With the greatest respect, I disagree with the views expressed in Zenith.
34 The amount in respect of which judgment is sought to be entered is $376,777.13. This is made up of:
Plaintiff’s claim as per terms $262,648.96 Interest from the date of filing the Writ $36,324.63 Costs and disbursements $157,803.54 $456,777.13 Less amount paid -$80,000.00 __________ Total $376,777.13 ==========
35 In my view, the amounts sought as the plaintiff’s claim and interest are permissible, but the costs are costs calculated on an indemnity and not a party/party basis.[21] In my view, such costs are not permissible as they are not what the defendants could reasonably have expected to become liable at the conclusion of the proceeding. As such, those costs and disbursements are in the nature of a penalty.
[21] See affidavit and annexures of Mark Fagenblat sworn 30 June 2009.
36 It seems to me appropriate to adjourn the further hearing of the matter for a period to enable the plaintiff’s solicitor to assess his client’s party/party costs and disbursements. Subject thereto, I will enter judgment for the claim, interest and party/party costs.
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