Australian Leisure and Hospitality Group Ltd v Trust Company Fiduciary Services Ltd (No 2)
[2010] VSC 119
•23 April 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST B
No. 2000 of 2008
| AUSTRALIAN LEISURE AND HOSPITALITY GROUP LIMITED (ABN 37 067 391 511) | Plaintiff |
| v | |
| TRUST COMPANY FIDUCIARY SERVICES LIMITED (ACN 000 000 993) | Defendant |
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JUDGE: | JUDD J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8 April 2010 | |
DATE OF JUDGMENT: | 23 April 2010 | |
CASE MAY BE CITED AS: | Australian Leisure and Hospitality Group Ltd v Trust Company Fiduciary Services Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 119 | |
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COSTS – Application for specific performance or costs agreement – Issues not pleaded – Apportionment - Parties elected to have the case decided on limited issues.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Zappia | Gilbert & Tobin |
| For the Defendant | Mr N Kidd | Allens Arthur Robinson |
HIS HONOUR:
At the trial of this proceeding, the parties proposed and I agreed to answer four questions. These are set out in paragraph 8 of the Reasons for Judgment in the main proceeding.[1] The questions were formulated in an endeavour to give the proceeding maximum utility in a context where the lease under consideration was one of 105 identical leases, each with the potential to expose the parties to similar disputes.
[1][2009] VSC 574.
On the day I published my reasons in the main proceeding, I invited the parties to formulate proposed declarations and orders. They have been unable to agree. Each offered a slightly different approach to the formulation of declarations, but there is a fundamental difference in relation to costs. The position adopted by the parties is set out in lengthy correspondence passing between them and reflected in various draft orders. I was also assisted by oral submissions.
DECLARATIONS
The substantive difference between the parties on the form of declarations is in their approach to their scope. The plaintiff preferred to narrowly confine the declarations to the particular lease, development proposal, valuation and grounds upon which the defendant may be said to have succeeded when compared with the breadth of its cross claim. Ordinarily, such an approach would be correct. The plaintiff’s approach was also consistent with, and tended to support, its arguments in relation to costs by highlighting the limited grounds upon which the defendant was said to have succeeded. The defendant, on the other hand, was inclined to formulate declarations in a more general fashion, submitting that by their generality they might have greater utility in avoiding future disputes in relation to the exercise of development rights under any of the leases.
There is no doubt that it was the intention of the parties, when formulating the questions and limiting the issues for determination, to achieve an outcome that would be of assistance in the future management of development rights under the leases. That objective may be achieved by making declarations that adhere closely to the questions answered in the Reasons for Judgment but which also reflect the reasons leading to those answers. I propose to make the following declarations:
(1)The development rights conferred upon the plaintiff under cl 2.1(a) of Schedule 3 of the lease of the Vale Hotel situated at 2277 Princes Highway, Mulgrave, Victoria, dated 4 November 2003 (the Lease), did not permit the plaintiff to require the subdivision and transfer of a Balance Lot in the absence of a proposal which includes details of the proposed development on, and the use or proposed use of, the Balance Lot following subdivision and transfer to the Tenant or its nominee.
(2)The overriding provisions of cl 2.6 of Schedule 3 of the Lease will only operate in respect of an Approved Development Proposal which is a Final Development Proposal approved by the Landlord under cl 2.4 of Schedule 3.
(3)The plaintiff’s development proposal dated 24 July 2007, described by it as a Final Development Proposal, was not one to which cl 2.6 applied.
(4)Valuations to be made under cl 2.3(e)(v)(C) of Schedule 3 of the Lease are to be made by a Valuer as defined in cl 1 of Schedule 3 of the Lease.
(5)The valuation prepared by Lunney Watts & Associates, dated 19 July 2007, which accompanied the plaintiff’s development proposal, dated 24 July 2007, was not a valuation of Market Rent or Market Value of the Premises for the purpose of cl 2.3(e)(v)(C) of Schedule 3 of the Lease.
(6)A Valuer of the Premises required to assess the Market Rent of the Premises under cl 2.3(e)(v)(C) of Schedule 3 of the Lease is required to take into account the business conducted on the Premises as a going concern, but is to ignore or put to one side and make no allowance for any value attributable to a Gaming Licence or Liquor Licence as defined in cl 1.1 of the Lease.
COSTS
The defendant sought costs on a full indemnity basis under cl 4.1 and/or cl 2.15 of Schedule 3 to the Lease. A claim in those terms was made in paragraph F of the defendant’s prayer for relief in its cross claim. The basis for the defendant’s claim was advanced by it as a claim for specific performance of the lease. Clause 4.1 provides:
4.1 the Tenant Indemnity
The Tenant:
(a)must indemnify the RE, the Landlord, the ALE Property Trust and the ALE Direct Property Trust on demand against all Loss of any nature which may be incurred by, brought, made or recovered against the RE, the Landlord, the ALE Property Trust and the ALE Direct Property Trust consequent on or arising directly or indirectly from:
(i)anything done by the Tenant or any Related Body Corporate of the Tenant or any employee, agent or contractor of them in the investigation of the feasibility of or the working up of proposals for a Development prior to their approval under this Schedule, including due diligence, physical works, testing or other investigation on the Premises;
(ii)the conduct of a Development and any Works;
(iii)the default or delay of the Tenant or any Related Body Corporate of the Tenant or any employee, agent or contractor of them in complying with clauses 2, 3 and 6 of this Schedule (including arising from any Works not authorised by this Schedule); or
(iv)the default or delay of a Developer or any Third Party in making any payments referred to in this Schedule, in complying with the terms of the relevant Development Agreement or otherwise in the conduct of a Development or Works,
Including any costs (on a full indemnity basis) incurred by the RE, the Landlord, the ALE Property Trust and the ALE Direct Property Trust in enforcing or attempting to enforce this indemnity. This indemnity will survive expiration or termination of this Lease.
“Loss” is defined in cl 1 of Schedule 3 to mean:
… any loss, claim, demand, remedy, suit, injury, proceeding, right of action, claim for compensation, action, liability, damage, cost, charge, expense, outgoing, payment, diminution in value or deficiency of any kind or character (whether direct, indirect or consequential) which a party pays, suffers or incurs or is liable for including:
(a) liabilities on account of Tax;
(b) interest and other amounts payable to third parties;
(c)legal and other expenses reasonably incurred in connection with investigating or defending any claim or action, whether or not resulting in any liability; and
(d)amounts paid in settlement of any claim or action.
The defendant submitted that cl 4.1(iii) might be invoked because the outcome of the case revealed a relevant “default” by the plaintiff in complying with clauses 2, 3 and 6 of the Schedule. Loss, as defined in cl 1, included “legal and other expenses reasonably incurred in connection with investigating or defending any claim or action, whether or not resulting in any liability…”
Clause 2.15 provides:
The Tenant must pay all reasonable costs incurred by the Landlord, the RE, and ALE Property Trust and the ALE Direct Property Trust with respect to or in any way associated with:
(a)the assessment of any Development including with respect to Indicative Development Proposals, Final Development Proposals and the Approved Development Proposal and any variation of them (including consultants and advisers costs);
(b)performing their obligations under the Development Agreements and any other documentation entered into pursuant to clause 2.5(b); or
(c)otherwise arising with respect to the exercise by the Tenant of its rights in clauses 2.1(c), 2.2 and 2.3.
The defendant submitted that “the obligation to pay all reasonable costs incurred… with respect to or in any way associated with… the assessment of any Development” included the defendant’s legal costs incurred in this proceeding.
The plaintiff submitted that costs should be apportioned having regard to the limited scope of the trial and the issues upon which the defendant succeeded. It proposed that it should not be required to pay more than 75 per cent of the defendant’s costs on a party/party basis. The plaintiff supported its submission by relying upon the scope of the case pleaded by the defendant in its cross claim when compared with the limited grounds upon which it ultimately succeeded.
The plaintiff also submitted that the court should not entertain the defendant’s application for specific performance of a contractual entitlement as no such claim had been pleaded, nor was it an issue in the proceeding. The plaintiff went further and submitted that even if the defendant’s claim to a full indemnity called for the exercise of the discretion as to costs in conformity with the defendant’s claimed contractual entitlement, the claimed right was not sufficiently certain as to invoke any ordinary rule in favour of such an outcome. The authorities make it clear that the discretion as to costs will ordinarily be exercised so as to reflect a relevant contractual right which is expressed in plain and unambiguous language.[2]
[2]See generally Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87, [12]-[14]; Russo v Buck (No 2) [2007] SASC 157; Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171.
The defendant helpfully reconfirmed and clarified its position. It expressly disavowed any reliance upon the discretion to achieve its desired outcome. Its claim was for the enforcement of a contractual right to costs on a full indemnity basis. Thus, it became unnecessary to decide how the costs discretion should be exercised and whether the plaintiff’s submission concerning the absence of contractual certainty was correct for that purpose. Nevertheless, the plaintiff’s submissions concerning uncertainty in the construction of the relevant clauses and the validity of the defendant’s claim also exposed potential difficulties with the defendant’s “specific performance” case.
While it is true that a claim for costs under cll 4.1 and 2.15 is to be found in the defendants prayer for relief, the basis for the claim was never articulated until this application, and then only in a summary fashion. Had the claims been fully pleaded, as the plaintiff submitted was required, it is probable that a number of issues would have been raised by the plaintiff requiring a determination by the court before any order for specific performance would be made. For example, what was the intended scope of each clause? Were they intended to cover the defendant’s costs in a case such as this? Were the clauses mutually inconsistent? Was cl 4.1 internally inconsistent?
It was common ground that the clauses were intended to ensure that “the Landlord, the RE, the ALE Property Trust and the ALE Direct Property Trust” would be indemnified for their reasonable costs incurred as a consequence of the plaintiff exercising its development rights. The plaintiff, however, drew attention to what it described as ambiguities in the extent of the obligations variously imposed under the clauses. It argued that the provisions do not extend to a dispute as to how development rights were to be exercised or whether a proposal was a Final Development Proposal for the purpose of Schedule 3.
The plaintiff’s submissions exposed other issues which might require determination before any order for specific performance would be made. Was there a relevant “default” under cl 4.1? Was the defendant’s claim associated with “the assessment of any Development”? Should a demand for a sum precede an order for specific performance? That is, was the defendant’s claim for specific performance premature?
Another twist to the argument before me was the extent to which the defendant’s claim for costs, in the manner advanced by it, might constitute an election or give rise to an estoppel, precluding the defendant from later claiming other possible costs or expenses apart from legal costs. While that question is academic at this time, its expression evidences some of the difficulties confronting the defendant.
I reject the defendant’s application for costs under cll 4.1 and 2.15 of Schedule 3 on the basis advanced by it. Any such claim, if made, should have been fully pleaded. The scope and operation of the clauses relied upon by the defendant are not plain or unambiguous. With the assistance of the limited argument on the matter, it is probable that, if pleaded, issues of construction would arise and other issues, not yet argued, should be decided in the course of addressing the ultimate question, as to whether the defendant was entitled to be indemnified under the Lease for its costs and expenses in respect of this proceeding.
It follows, that if I were called upon to decide whether to exercise my discretion under s 24 of the Supreme Court Act1986 and the Rules of Court to give effect to the alleged contractual obligation, I would decline to do so.
I do not, however, accept that the defendant should be denied its ordinary entitlement to costs on a party/party basis in this proceeding. Having regard to the answers to each of the questions agreed by the parties, the defendant was successful. It is not appropriate to dissect the grounds advanced by the defendant in its cross claim, by which it sought to resist the asserted development right, and compare those with the grounds upon which it succeeded, as a basis to apportion costs. The parties chose to have the case decided on limited issues. Litigants should not be discouraged from limiting the scope of a proceeding or refashioning the issues where appropriate. Pragmatism in litigation, designed to achieve shorter trials and more meaningful outcomes, should be encouraged. Both parties were beneficiaries of the limited scope of the trial. Save for the unpleaded claim for specific performance, the plaintiff does not now propose that further issues be decided.
Putting to one side its claim for specific performance, the defendant did not advance any reasons as to why an order for costs should be made on any basis other than a party/party basis.
I order that the plaintiff pay the defendant’s costs and in default of agreement to be taxed and paid on a party/party basis.
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