Babka Pty Ltd v Glenbarry Pty Ltd
[2003] VSC 402
•27 October 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 7205 of 2003
| BABKA PTY LTD | Plaintiff |
| v | |
| GLENBARRY PTY LTD | Defendant |
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JUDGE: | KELLAM J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 9 September 2003 | |
DATE OF JUDGMENT: | 27 October 2003 | |
CASE MAY BE CITED AS: | Babka Pty Ltd v Glenbarry Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 402 | |
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LICENCE TO OCCUPY PREMISES – Licence annexed to contract of sale of land from plaintiff vendor to defendant purchaser – Purported rescission of contract of sale of land by vendor – Notice of termination of licence – Whether licence revocable at will – Plaintiff’s application for interlocutory injunctive relief restraining the defendant from remaining in occupation of premises – Balance of convenience – Application granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr H.A. Aizon | Paul Egan & Associates |
| For the Defendant | Mr J. Guss (Solicitor) | Joseph Guss |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
The proceedings................................................................................................................................. 2
The evidence....................................................................................................................................... 3
The relief sought by the plaintiff.................................................................................................... 6
The defendant’s submissions.......................................................................................................... 8
Conclusion........................................................................................................................................... 9
A serious issue to be tried............................................................................................................... 12
Balance of convenience................................................................................................................... 12
HIS HONOUR:
Introduction
The plaintiff is the registered proprietor of premises situate at 58-64 Glenbarry Road, Campbellfield, upon which factory premises are constructed. On 20 March 2003, the plaintiff entered into a contract to sell the premises to the defendant. The date of settlement under the contract was to be 19 July 2003. On the same day and by reason of the desire of the defendant to obtain occupation of the premises prior to settlement, the plaintiff granted a licence to the defendant to occupy the premises.
Settlement did not take place as contemplated and on 21 July 2003 the plaintiff purported to give notice of rescission of the contract. On the same date, the plaintiff purported to give notice to the defendant that the licence was terminated.
By summons filed on 14 August 2003, the plaintiff seeks an interlocutory injunction restraining the defendant from remaining in occupation of the premises.
The proceedings
The summons was listed for hearing in the Practice Court on 22 August 2003 but was adjourned to enable the service of affidavits. The matter finally came on before me in the Practice Court on 9 September 2003. The hearing took in excess of four hours.
The application before the court is one of several proceedings issued by the parties in this Court in relation to the contract of sale.
By proceeding No. 7204 of 2003, issued on 14 August 2003, the plaintiff seeks a declaration that the contract of sale has been rescinded. In addition, the plaintiff seeks that a caveat which has been placed on the title to the land by the defendant, be removed and in addition, an order for compensation pursuant to s.118 of the Transfer of Land Act 1958 is sought.
By proceeding No. 7534 of 2003 issued 8 September 2003, the defendant seeks specific performance of the contract of sale and a declaration that the rescission notice upon which the plaintiff seeks to rely is invalid.
The evidence
The plaintiff’s application is supported by affidavits sworn on 25 August 2003 and 8 September 2003 by Dean Kalimnou, the solicitor for the plaintiff. The defendant relies upon affidavits sworn by the solicitor for the defendant company, Mr Joseph Guss, sworn 4 September 2003; a director and the secretary of the defendant company, Mr Tony Dunlap; and a manager of the defendant company, Mr David Wall, each sworn on 5 September 2003.
The contract of sale is exhibited to Mr Kalimnou’s affidavit of 25 August 2003. The contract, which is dated 20 March 2003, provided that the sale price of the land and premises was to be $2.1 million, with $10,000 being paid as deposit upon the signing of the contract, and a further $190,000 being paid upon the granting of possession of the premises to the defendant.
The contract provided that upon payment of the sum of $190,000, vacant possession of the property and chattels was to be given to the defendant, “On the condition that the purchaser shall occupy the premises as licensee until the date of settlement in accordance with the terms of the licence agreement attached hereto”. The contract provided for settlement on 19 July 2003, which as it turned out was a Saturday. The next business day after 19 July 2003 was 21 July 2003.
The licence agreement attached to the contract provided that the consideration for the licence was the sum of $200,000 which sum was to be applied to the purchase price. This sum, of course, was the deposit provided for by the contract of sale.
The licence agreement further provided by clause 4 that the licensor and the licensee agreed and declared that –
“(a)The licence hereby created shall be personal to the licensee and that the covenants and agreements contained herein shall rest in contract only.
(b)The licensee shall obtain no tenancy or leasehold interest in the said premises or the land on which it is situated and the legal right to possession and control remains vested in the licensors throughout the term of the licence and the licensor hereby indemnifies the licensee in respect of any damage it may suffer as a direct or indirect consequence of the legal right to possession and control being in the hands of the licensor.
(c)That this agreement does not confer any of the rights referred to in s.42 of the Transfer of Land Act 1958.”
The licence agreement provided for termination of the licence in the following terms:
“The licensor may terminate this licence during its term by giving seven (7) days written notice of termination to the licensee’s registered address at any time in the following circumstances:
(a)Breach by the licensee of any covenant contained in this deed.
(b)The licensee ceasing to occupy the premises other than an absence from the premises for a period not more than 14 consecutive days.”
On 10 April 2003, the defendant served requisitions on title and the plaintiff provided answers to such requisitions on 14 April 2003.
On 15 April 2003, the sum of $190,000 was paid by the defendant to the plaintiff and on that day the defendant was provided with the keys to the premises.
By letter dated 16 April 2003, addressed to the solicitors for the plaintiff, Mr Wall, the manager of the defendant, expressed concern that “ … some parts of the property had changed … “ since the agreement to purchase. It was alleged by Mr Wall in this letter that some of the electrical installation and part of a compressed air system had been removed and that there was damage to two doors.
A subsequent letter from Mr Wall dated 22 April 2003, asserted that a hot water heater in the kitchen had been removed, a “roof light” in the office was broken, a fire escape door required repairs and that several “exit” signs were missing or were not illuminated. Mr Kalimnou, the solicitor for the plaintiff, deposes that upon receipt of the above letter from Mr Wall he telephoned Mr Wall and requested further details whereby Mr Wall said he would provide specific evidence in the form of video of the premises which had been taken prior to the contract being signed. Mr Kalimnou states that at the date of swearing his affidavit on 25 August 2003 he had not received any such video, nor had he been provided with further details of the allegedly damaged items by Mr Wall.
During May 2003, Mr Kalimnou became concerned about the progress of the conveyancing transaction, particularly as the defendant appeared not to have instructed solicitors. The defendant did not provide a Transfer of Land to the plaintiff’s solicitors and accordingly, on 13 May 2003, Mr Kalimnou prepared a transfer and forwarded it to the defendant. Mr Kalimnou heard nothing further from the defendant and on 9 July 2003 he (Mr Kalimnou) wrote to the defendant seeking a statement of adjustments.
Settlement was arranged for 21 July 2003 at the National Australia Bank in Collins Street, Melbourne. Mr Kalimnou attended upon the bank and whilst there received a telephone call from Mr Wall who informed him that the defendant could not settle. Mr Kalimnou asserts that Mr Wall told him that solicitors had not been instructed, that he, Mr Wall, did not know how to settle transfers of property and that finance had not been finalised.
Mr Kalimnou informed Mr Wall that if the defendant did not attend the settlement the plaintiff would rescind the contract. By letter dated 21 July 2003, addressed to the defendant at its address given on the contract of sale, and to its address at the premises, a notice of rescission was forwarded by post and by facsimile to the defendant by the solicitors for the plaintiff.
In addition, on 21 July 2003, a letter was sent by post and facsimile to the defendant, giving seven days notice to vacate the premises under the licence agreement.
Mr Kalimnou deposes that on 28 July 2003 Mr Wall telephoned him and advised that the defendant would be ready to settle on Tuesday 5 August 2003. Mr Kalimnou deposes that he advised Mr Wall that an extension of time would be granted on the proviso that the rescission notice and termination of licence agreement would not be waived and that Glenbarry Pty Ltd would be liable to pay penalty interest and rent for the premises after the “expiration” of the licence agreement. Following this telephone conversation Mr Kalimnou wrote to Mr Wall enclosing a statement of adjustments. He received no response from Mr Wall and attempts to be in touch with Mr Wall by telephone on 31 July 2003 and 4 August 2003 were to no avail.
On 4 August 2003 Mr Kalimnou wrote to the defendant advising it that “time was of the essence” and that should settlement not take place on 5 August the plaintiff would exercise its right to re‑enter the premises. The following day Mr Kalimnou attended the National Australia Bank for settlement but no representative of the defendant appeared at that time.
At approximately 1.00 p.m. on 5 August 2003 Mr Kalimnou received a telephone call from Mr Joseph Guss who announced that he was acting for the defendant and that it refused to settle as certain items were missing from the premises. Late that day a facsimile was received from Mr Guss asserting that some chattels had been removed and/or damaged, and that special condition 10 of the contract of sale, pursuant to which the vendor was required to service the automatic fire sprinkler system to comply with Australian Standards, had not been complied with by the plaintiff. Mr Guss asserted, “The above are fundamental provisions under the contract of sale and our client requires them to be remedied and complied with by the vendor prior to settlement”.
The facsimile asserted further that the rescission notice dated 21 July 2003 was invalid because it was served in breach of the service provisions of clause 19 of the contract and at a time when the vendor was in default under the contract. The facsimile further contended that the purported notice of termination of the licence was invalid by reason of the breach of the service provisions contained in clause 5 of the licence and that there was no basis upon which to serve such notice.
The relief sought by the plaintiff
The summons seeks an interlocutory order that the defendant be restrained from remaining in occupation of the premises. Mr Aizon of Counsel, who appears for the plaintiff, submits that the issue before the court is simple and that the plaintiff has a strong claim to injunctive relief.
Mr Aizon submits that the terms of the licence agreement are clear and that the licence creates no interest in the land. The licence provides, by clause 5, that the licensor may terminate the licence by giving seven days written notice and Mr Aizon submits that that has been done. He submits that the plaintiff has a strong case in its reliance upon the rescission notice served by it on 21 July 2003. He submits that the defendant is disentitled to rely upon any immediate defect in the state of the premises, or chattels upon it, because clause 6 of the licence agreement provided that the licensee accepted the property in its “present condition” and would not make any claim “for compensation in relation to the state or condition of the premises from the date of possession”.
Insofar as the defendant claims that the plaintiff failed to comply with special condition 10 of the contract of sale in failing to have the automatic fire sprinkler system serviced to comply with Australian Standards before possession took place, he submits that this is not a defect in title. He relies upon the words of Jordon CJ in Tramways Advertising Pty Ltd v Luna Park (New South Wales Limited)[1]:
“If it is a condition that is broken, ie, an essential promise, the innocent party when he becomes aware of the breach, has ordinarily a right as his option either to treat himself as discharged from the contract and recover damages for the loss of the contract, or else to keep the contract on foot and recover damages for the particular breach. If it is a warranty that is broken, ie, a non-essential promise, only the latter alternative is available to the innocent party; in that case he cannot of course obtain damages for the loss of the contract … The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.”
[1]38 SR NSW 632 at 641.
Mr Aizon submits that any breach of special condition 10 relating to the fire sprinklers and/or any damage to chattels is a breach of a “non-essential” term of the contract and entitles the defendant to the recovery of damages. He submits that the contract provided, by condition 5 of Table A of the Transfer of Land Act 1958, for time to be of the essence. Mr Aizon submits that in such circumstances, where the defendant has failed to complete the contract of sale, and where the plaintiff granted a licence to permit the defendant to enter upon the premises pending settlement of the contract of sale, no interest in the land is created. He submits on the authority of Porter v Hannah Builders Pty Ltd[2] that the defendant is in effect now a trespasser and that interlocutory relief is appropriate. Mr Aizon further relies upon Cowell v Rosehill Racecourse Co Limited.[3] He submits that the licence granted in this case to the defendant was not coupled with a grant or interest in any property but was merely a right to use the premises pending settlement of the conveyancing transaction. It was, as I understand Mr Aizon’s submission, merely permission to do what would otherwise have been an invasion of the rights of the plaintiff. Mr Aizon submits that the permission having been terminated, further continuance of occupation of the premises by the defendant is unlawful and ought to be restrained.
[2][1969] VR 673.
[3](1937) 56 CLR 605.
The defendant’s submissions
Mr Guss, who appears for the defendant, submits that injunctive relief should not be granted. He submits that the licence agreement, which is undated but annexed to the contract of sale, is an integral part of the contract of sale. He submits that the contract of sale is a contract of sale of land which grants rights to possession of the land prior to settlement. He submits that insofar as the plaintiff purports to rely upon clause 5 of the licence agreement in relation to termination, it has no basis to do so. Clause 5 states that termination may be given during the term of the licence only where there is a breach by the licensee of any covenant contained in the licence deed or where the licensee ceases to occupy the premises. He submits that neither of these circumstances has occurred. He submits that the plaintiff’s reliance upon cause 6 of the licence agreement that “the licensee accepts the property in its present condition” is unreal in circumstances where the defendant asserts that damage has taken place to the property and its chattels between the date of execution of the contract and the date at which the defendant entered upon the premises pursuant to the licence agreement annexed to the contract of sale. Mr Guss submits that in any event the notice of termination of the licence given by the defendant on 21 July 2003 is not a valid notice. He states that the assertion made by the plaintiff in that notice that “the term of the licence has expired this 21 July 2003” is incorrect. He submits that the licence agreement does not state any terms of expiry.
Mr Guss submits that the licence which was granted in this case to his client is not a licence revokable at will and that it is revokable only in accordance with the terms of termination as set out in the agreement. He submits that the principles of “ticket cases” are not relevant in the circumstances before me. He submits that the licence in the circumstances of this case is a licence coupled with a grant of interest which is not revokable at will.
Furthermore, Mr Guss submits that the plaintiff has not denied the allegations of damage to chattels or to the premises and in such circumstances there is a valid issue as to whether the plaintiff is entitled to rely upon the notice of rescission. He asserts that the clear implication of the licence agreement was that it was to exist until settlement of the conveyancing transaction or other determination of the conveyancing transaction.
In terms of balance of convenience he submits that damages would not be a suitable remedy for the defendant in the event that the plaintiff was to obtain the order that it seeks. He submits that the fact that the defendant conducts its furniture manufacturing business upon the premises is a matter of significance. He submits that only in a clear case should relief of the type sought be granted. There are serious matters for trial in his submission.
Conclusion
The proper resolution of the application before me is, in my view, far from easy. On the material before me (and without prejudging the competing claims of the separate proceedings brought by the plaintiff seeking a declaration that the rescission notice is valid, and by the defendant seeking specific performance and damages) there does seem to be a sound basis for saying that the principal cause of the failure to settle the conveyancing transaction on 21 July 2003 was an incapacity on the part of the defendant to raise the necessary finance. Although it is true that minor issues relating to the state of the premises were raised by the defendant on 15 April 2003, nothing further appears to have been done in relation to these matters until well after the proposed settlement date when on 5 August 2003, Mr Guss first informed the plaintiff’s solicitors that he acted for the defendant and informed them that he relied upon the damaged and/or missing chattels and fixtures and the alleged failure of the plaintiff to comply with special condition 10 relating to the fire sprinkler system.
It is apparent that the plaintiff, perhaps unwisely, permitted the defendants to enter into possession of the property pending settlement which it anticipated would occur on 21 July 2003, at the latest. Settlement has not taken place and the defendant remains upon the premises, conducting its furniture manufacturing business without any payment by it to the plaintiff other than the deposit of $200,000. If the injunction is not granted the defendant may well remain in occupation for many months without any payment until such time as the contractual dispute between the parties is resolved. If the plaintiff succeeds in establishing that it properly rescinded the contract of sale, the defendants will have been permitted to remain in possession without any legal right to do so from the date of rescission.
Mr Aizon argues that the licence held by the defendant is a contractual licence of the same type considered by that of Latham CJ in Cowell v Rosehill Racecourse Co Limited[4] when he said:
“For the reasons mentioned, I cannot regard the transaction as buying a ticket for entertainment as creating anything more than a contractual right in the buyer against the seller – a right to have the contract performed. For the breach of such a right there is a remedy in damages, but the remedies applicable to the protection of proprietary rights are not legally (or equitably) appropriate in such a case. There is, strictly, no grant on the interest. What is created is something quite different, namely contractual rights and obligations.”
[4]See p.617.
On the other hand, Mr Guss submits that the licence granted to the defendant was a licence with a grant of interest. He submits that in circumstances where the licence is an integral part of the contract of sale, a contractual interest of such a nature has been created to the extent that the licence is not revocable at will. He relies upon Kouveras v Angas[5] where Buchanan J, in considering the well-known principle laid down in Wood v Leadbitter[6] said that it was apparent that the word “grant” in that judgment was used in a wider sense which would extend to and include a contractual right which did not amount either to an interest in the land or the property and some chattel upon it.
[5][1919] SALR 98 at 107.
[6](1845) 13 M and W 838.
In the circumstances before me it is true, as Mr Guss submits, that the licence forms part of a contract of sale in the sense that it is referred to in the contract of sale and annexed to it. The contract of sale specifically provided that vacant possession of the “property and chattels” was to be given to the defendant no later than 28 days after the signing of the contract and upon payment of the balance of deposit “on the condition that the purchaser shall occupy the premises as licensee until the date of settlement in accordance with the terms of the licence agreement” annexed to the contract.
The parties chose to include in the contract a term which provided for seven days’ written notice of termination in the event of two specified events, breach of any covenant of the licence deed, or cessation of occupation of the premises by the defendant. It is true that neither of those events has occurred.
That said, however, I have grave doubts that the contractual licence granted by the deed annexed to the contract created any interest in the land or any other interest which would make the grant of the licence irrevocable. In my opinion, the better view is that the licence was a contractual licence to occupy the premises until such time as settlement took place in the ordinary course of the contract of sale. That is, the licence granted to the defendant merely permitted the defendant to do something which otherwise would not have been lawful. It did not create an interest in the land nor did it create a proprietary right akin to but less than an interest in land as submitted by Mr Guss. Clearly it was not within the contemplation of the plaintiff that settlement of the conveyancing transaction would be delayed, as it has, by many months past the intended settlement date of 21 July 2003. It is inconceivable that the plaintiff would have granted a licence upon terms whereby no effective payment is made by the defendant for occupation of the land beyond the date of such proposed settlement.
If my preliminary conclusion is correct it appears to me that the arguments advanced by Mr Guss as to the failure of the plaintiff to give proper notice of the termination of the licence have no weight. First I consider that adequate notice was given but in any event it is well arguable that no demand for possession is necessary prior to the issuing of the writ.[7]
[7]Porter v Hannah Builders Pty Ltd at 680.
A serious issue to be tried
I am satisfied that the plaintiff has established that it has a cause of action against the defendant and that there is a serious issue to be tried and that it has a case of some strength. I consider that the history of this transaction to date does raise a real question of whether damages would be an adequate remedy for the plaintiff in the event that it succeeds in these proceedings. Certainly there appears to be a real question in relation whether or not the defendant has the financial viability to meet any order for damages in due course.
Balance of convenience
Turning to the issue of balance of convenience there can be no doubt that it will be most inconvenient for the plaintiff to have the defendant upon its premises, in effect as a trespasser from the intended date of settlement, if it succeeds in its litigation against the defendant. Furthermore, the fact that the defendant has been upon the premises for a period of more than six months now without payment of anything other than the deposit money is a matter of concern, particularly in the event that the plaintiff succeeds in both this proceeding and the proceeding whereby it claims a declaration that its rescission of the contract is valid.
To some extent, this concern may be ameliorated by the fact that it is perhaps unlikely that until such time as the litigation about the contract of sale is resolved, the plaintiff will be able to let the premises to another tenant. The plaintiff has obvious difficulty in re‑selling the property whilst this litigation is being undertaken. Nevertheless, it is apparent that the plaintiff has an argument of considerable weight in terms of the balance of convenience.
The defendant did not provide any affidavit material demonstrating the financial consequences of an interlocutory injunction restraining it from being upon the premises. Mr Guss informed me that the defendant conducts a furniture manufacturing business upon the premises and that its desire to have early vacant possession was fully understood by the plaintiff and catered for in the contract of sale. I infer that the defendant will suffer significant inconvenience if required to vacate the premises.
However on the material before me there is a strong basis to consider that the defendant’s failure to settle the conveyancing transaction was related more to its difficulty in getting appropriate financial arrangements than to the allegedly defective nature of the premises and chattels and fittings. Furthermore, the plaintiff permitted the defendant, for no fee other than payment of the deposit, to take possession of the premises, no doubt in the expectation that settlement would take place on 21 July 2003. Settlement has not taken place and the plaintiff is in the position that the defendant is in occupation of the premises for payment of no fee.
In my view the conduct of the defendant in relation to the transaction in dispute and to the litigation which has followed is such as to entitle me take the view that the principal tactic being adopted by it is one of delay. It appears to be clear on the material before me that the conduct of the defendant prior to the proposed settlement date was dilatory. Even if it is the case that at the time of the defendant taking occupation under the licence the premises were not in the same condition as inspected, the defendant did nothing to resolve this issue between 22 April and 5 August 2002. This application in the Practice Court was marked by delay in the filing of affidavit material on behalf of the defendant for reasons which I do not consider to be acceptable. In this regard it should be noted that on 22 August 2003 Osborn J ordered that the defendant file and serve amending affidavits by 4.00 p.m. on 25 August 2003. That order was not complied with by the defendant as affidavits were not filed on that date by the defendant. The proceeding came on before me on 4 September 2003 upon which date an affidavit sworn by Mr Guss was filed seeking adjournment until 12 September on the grounds that Mr Tony Dunlap, the secretary of the defendant, was overseas. As is apparent from the affidavit of Mr Kalimnou referred to above the principal dealings between the plaintiff and the defendant were between Mr Kalimnou and Mr David Wall, the manager of the defendant. When an affidavit of Mr Wall dated 5 September 2003 was finally filed it was notably different in regard to denial of the principal issues deposed to by Mr Kalimnou.
Furthermore, the defendant has not chosen to make a counterclaim in the plaintiff’s proceeding issued 14 August 2003 but instead has issued separate proceedings. Even my endeavour to obtain the consent of the parties to hand down this decision whilst I was I was on circuit in Warrnambool over the last several weeks was resisted by the defendant’s solicitor. I have no doubt that had a co-operative attitude been displayed in relation to this issue any consequential orders required could have been made, notwithstanding my absence on circuit. In this regard I direct that the facsimile from the plaintiff’s solicitor to my associate dated 16 October 2003 following a number of phone calls from her to Mr Guss remain on file.
Weighing all these matters in the balance it appears to me that the balance of convenience clearly weighs in favour of the plaintiff being entitled to the possession of the land to which it has title. The plaintiff otherwise will remain in the intolerable position that delay in litigation will result in the defendant remaining in possession of the plaintiff’s land and premises without payment of any fee for a protracted period. I am satisfied that should the defendant succeed in its litigation, damages will prove to be an adequate remedy in respect of any breach of its rights under the licence agreement In such circumstances the plaintiff shall, upon making the usual undertakings as to damages, be entitled to an order restraining the defendant by itself or by its servants and/or agents or otherwise howsoever from remaining in occupation of the land situate at 58-64 Glenbarry Rd. Campbellfield. The date upon which this order is to take effect requires to be fixed and I will hear submissions about this matter and other consequential orders.
[Discussed ensued.]
Upon the usual undertaking by the plaintiff I order:
1.The defendant, by itself or by its servants and/or agents be restrained from remaining in occupation of the land situate at 58‑64 Glenbarry Road, Campbellfield on and from 12.01 p.m. on and from Tuesday 11 November 2003 until further order.
2.Order that the defendant pay the plaintiff’s costs of the hearing of the summons including reserved costs.
3.Liberty to apply reserved to the defendant until 4.00 p.m. Friday 31 October 2003.
4.This order be signed by a Judge.
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