Balanced Securities Ltd v Bianco
[2010] VSC 201
•21 May 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 7182 of 2008
| BALANCED SECURITIES LIMITED (ACN 083 514 685) | Plaintiff |
| v | |
| ANTONIO FILLIPO BIANCO & ORS | Defendants |
AND BETWEEN
| ANTONIO FILLIPO BIANCO & ORS | Plaintiffs by Counterclaim |
| v | |
| BALANCED SECURITIES LIMITED (ACN 083 514 685) | Defendant by Counterclaim |
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JUDGE: | J FORREST J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 May 2010 | |
DATE OF JUDGMENT: | 21 May 2010 | |
CASE MAY BE CITED AS: | Balanced Securities v Bianco & ors (No 2) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 201 | |
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TRESPASS – Damages - Mesne profits – Availability of a claim for Hungerfords damages in a claim for trespass.
TRESPASS TO LAND – Remedies – Market rent of premises – Loss of commercial opportunity – Election of remedy – Measure of damages for trespass – Compensatory damages.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr W Coady | Herbert Geer Lawyers |
| For the Defendants | Mr D Hyde | Nathan Kuperholz |
HIS HONOUR:
Introduction
On 12 May 2010 I determined that the plaintiff, formerly HG & R Finance Limited (“HGR”) (now Balanced Securities Limited) was entitled to possession of a unit in Prahran currently occupied by the first defendant, Mr Antonio Bianco and his sub-tenant Ms Nicole Joakim, the third defendant. I also determined that Mr Nicos Joakim, the second defendant, was a joint tortfeasor with Mr Bianco in the unlawful occupation of the unit.
The unit has been occupied by Mr Bianco and his sub-tenants since October 2003. HGR’s entitlement to possession arose at the time of default in a loan repayment by International Investments and Development Pty Ltd (“IID”) which occurred on or about 1 November 2003.[1]
[1][2010] VSC 162 [23].
HGR, however, did not register the mortgage until 10 December 2003.[2] Its right to enter into possession under the Transfer of Land Act (“TLA”) arose as of that date[3].
[2]Ibid [24].
[3]Ibid [90] and [92].
It was agreed between the parties that Ms Joakim would cease occupation of the unit by 28 May 2010. The question that now has to be determined is that of the quantum of the damages payable as a result of the unlawful occupation of the unit by Mr Bianco and Mr Joakim. HGR did not seek relief in the form of damages from Ms Joakim.
The issues
The primary issue is the manner in which damages are to be assessed. Usually in such cases damages are measured by an award of mesne profits.[4] However, HGR also seek, for a portion of the period during which the unit has been unlawfully occupied, damages in accordance with the principles enunciated in Hungerford v Walker.[5] If decided in favour of HGR then the question arises as to whether, in the circumstances, such an award is appropriate. A secondary but important issue arises concerning two substantial periods of procrastination on the part of HGR in bringing this proceeding and the effect of such delay on the quantum of damages.
[4]Wilson v Kelly [1957] VR 147, 152. “Mesne profits” are an ancient remedy traditionally accompanying recovery of possession or ejectment by the owner of the property.
[5](1988) 171 CLR 125, (“Hungerfords”).
The submissions of the parties
HGR contended that it was entitled to a mix of mesne profits and damages. It sought mesne profits from 1 July 2004 to 30 June 2006 in the sum of $44,400. It argued that, but for the occupation, the unit would have been sold by mortgagees’ auction by 1 July 2006 and thereafter it said that it was entitled to damages on a Hungerfords basis from 1 July 2006 to 28 May 2010, totalling $237,943. HGR relied upon the evidence of Mr Clayton, a valuer, to establish the market value of the rental of the unit and its capital value. It also adduced evidence from Mr Trevor Wilson, its General Manager, and Mr Peter Wilkinson, a Forensic Accountant, to make out its claim for Hungerfords damages. To meet the argument raised by the defendants as to its delay in bringing this proceeding, HGR contended that an allowance of two years of mesne profits and thereafter calculation on a Hungerfords basis met such a complaint. Its alternative argument, based solely upon mesne profits, is for a total amount of approximately $141,000, being the rental foregone.
The defendants submitted that the appropriate measure of damages is mesne profits. Whilst the defendants put no specific argument to the contrary, it was implicit in their contentions that Hungerfords damages should not be permitted in a claim for trespass. They also argued that the nature of the loss alleged under the Hungerfords principles constituted a business loss and as such was not claimable. Counsel for the defendants placed considerable reliance upon the delay of HGR in prosecuting the claim against his clients, contending that this should result in a significant reduction in the amount of damages available to HGR, whichever basis was chosen for the purpose of assessment.
Is it open to HGR to claim Hungerfords damages?
A claim pursuant to Hungerfords principles arises out of a party’s deprivation of money which would have been available to it and utilised for commercial purposes (such as an investment with interest or to reduce existing indebtedness) but for the wrongful act of the other party. Those principles were explained in the joint judgment of Mason CJ and Wilson J, who, having noted that the fundamental principle where a plaintiff establishes a claim for damage for breach of contract, is an entitlement to restitutio in integrum, went on to say:-
According to that principle, the plaintiff is entitled to full compensation for the loss which he sustains in consequence of the defendant's wrong, subject to the rules as to remoteness of damage and to the plaintiff's duty to mitigate his loss. In principle he should be awarded the compensation which would restore him to the position he would have been in but for the defendant's breach of contract or negligence. Judged from a commercial viewpoint, the plaintiff sustains an economic loss if his damages are not paid promptly, just as he sustains such a loss when his debt is not paid on the due date. The loss may arise in the form of the investment cost of being deprived of money which could have been invested at interest or used to reduce an existing indebtedness. Or the loss may arise in the form of the borrowing cost, ie, interest payable on borrowed money or interest foregone because an existing investment is realized or reduced.
The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money. Opportunity cost, more so than incurred expense, is a plainly foreseeable loss because, according to common understanding, it represents the market price of obtaining money. But, even in the case of incurred expense, it is at least strongly arguable that a plaintiff's loss or damage represented by this expense is not too remote on the score of foreseeability. In truth, it is an expense which represents loss or damage flowing naturally and directly from the defendant's wrongful act or omission, particularly when that act or omission results in the withholding of money from a plaintiff or causes the plaintiff to pay away money. [6]
Their Honours concluded as follows:-
……... But we see no reason for allowing the reluctance of the common law to extend to cases where the defendant's breach of contract or negligence has caused the plaintiff to pay away or the defendant to withhold money and, as a result, the plaintiff has been deprived of the use of the money so paid away or withheld. The recovery of compensation for the loss may be ascribed to the operation of the second limb in Hadley v Baxendale. However, we would prefer to put it on the footing that it is a foreseeable loss, necessarily within the contemplation of the parties, which is directly related to the defendant's breach of contract or tort.[7]emphasis added)
[6]Ibid, 143-4. Emphasis added.
[7]Hungerfords 171 CLR 125, 149. Citations omitted.
It is to be noted that there was no suggestion by the High Court that a claim for Hungerfords damages is limited to any particular form of tort – notwithstanding that Hungerfords itself was a professional negligence claim and that most claims determined subsequently applying its principles arise out of negligence or breach of a statutory obligation.
Recently the Court of Appeal in St George Bank Ltd v Quinerts Pty Ltd[8] dealt with an argument by a bank for Hungerfords damages said to flow from breach of contract, negligence and misleading and deceptive conduct on the part of a valuer engaged by it in relation to a mortgaged property. Nettle JA (with whom Mandie JA and Beach AJA agreed) said as follows:
…In my view the judge’s analysis on this point was correct. The decision of the High Court in Hungerford v Walker established that expenses incurred and opportunity costs arising from money being paid away or withheld as a result of a negligent breach of contract are able to be recovered as pecuniary losses suffered by a plaintiff as a result of the defendant’s conduct. But as the High Court later explained in Commonwealth v Amann Aviation Pty Ltd, such damages are simply manifestations of the principle that a party who has sustained loss by reason of a breach of contract is entitled to be placed in the same position, so far as money can do it, as if the contract had been performed. Consequently, the incurrence of such losses must be proved. It is not enough for a party like the Bank simply to assert that, because it is in the business of lending money, it must follow that it has suffered a loss equal to the return on funds which it might have achieved if it had entered into a successful transaction at the same rate of return as the failed transaction. At best, the opportunity foregone represents a loss of a chance to invest in a more successful transaction and, depending on the facts of a case, the value of the loss may have to be discounted significantly to allow for the vicissitudes of chance.[9] (emphasis added)
[8](2009) VSCA 245.
[9]Ibid [25].
In Lollis v Loulatzis & Petruccelli,[10] Kaye J conducted a scholarly and extensive analysis of the principles associated with an award of damages for trespass. Two of the authorities considered by his Honour merit repetition in the context of this application.
[10][2007] VSC 547.
In Swordheath Properties Ltd v Tabet & ors[11] a leading authority on an allowance for mesne profits, Megaw LJ said:
It appears to me to be clear, both as a matter of principle and of authority, that in a case of this sort the plaintiff, when he has established that the defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of the damages. (emphasis added)
It will be noted that his Lordship was not limiting the measure of damages solely to mesne profits, but rather making the observation that this was the usual form of assessment in a trespass case.
[11][1979] 1WLR 285, 288.
Subsequently in Inverugie Investments Ltd v Hackett[12] the Privy Council said:-
It is sometimes said that these cases are an exception to the rule that damages in tort are compensatory. But this is not necessarily so. It depends on how widely one defines the ‘loss’ which the plaintiff has suffered … In Stoke-On-Trent City Council v W & J Wass Limited [1988] 1 WLR 1406 Nicholls LJ called the underlying principle in these cases the ‘user principle’. The plaintiff may not have suffered any actual loss by being deprived of the use of his property. But under the user principle he is entitled to recover a reasonable rent for the wrongful use of his property by the trespasser. Similarly, the trespasser may not have derived any actual benefit from the use of the property. But under the user principle he is obliged to pay a reasonable rent for the use which he has enjoyed. The principle need not be characterised as exclusively compensatory, or exclusively restitutionary; it combines elements of both.
[12][1995] 1WLR 713 at 717–718.
I should now return to the judgment of Kaye J in Lollis. His Honour described the law relating to assessment of damages for trespass as being well settled:
Damages awarded for trespass to land are sometimes described as “mesne” profits. The usual measure of such damages is constituted by the value of the market rent for the premises which the trespasser should have paid during the period of the trespasser’s occupation of the premises. In order to prove an entitlement to such damages, it is not necessary for the plaintiff to establish that the property has been damaged, or that the plaintiff would have been able, or indeed willing, to lease the premises during the period of the trespass.[13] (Citation omitted).
However his Honour went on to say as to the principle underpinning such an award:
Similarly, to the extent to which damages in a case such as this may be compensatory, it is basic that, in an action for tort, damages are awarded as compensation, in order to restore the plaintiff to the position in which the plaintiff would have been, had the tort not occurred.[14] (emphasis added)
[13](2007) VSC 547 [219]. See also Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17.
[14][2007] VSC 547 [230].
There is no suggestion as Kaye J noted, that basic compensatory damages principles are not applicable to a claim in trespass. It must follow, I think, that there is no inherent limitation on a claim for trespass to damages solely in the form of mesne profits.
In light of the above, I think the following can be concluded:
(a)Damages for trespass are to be treated in no different way to damages in respect of any other form of tort. Insofar as such damages are compensatory, they endeavour to restore the plaintiff to the same position which he or she would have been in, but for the wrong.
(b)The usual measure of damages for trespass is by an award of mesne profits, being the value of the market rental for the premises during the period of the trespasser’s occupation;
(c)However, given that the damages sought by HGR in this case are compensatory in nature, their evaluation is not limited to mesne profits, but rather, may, be determined by the application of general principles relevant to an award of compensatory damages;
(d)Accordingly, in an appropriate case there may be ways of measuring the loss caused by the trespass other than mesne profits. Damages pursuant to the Hungerfords principle are compensatory and, therefore, may be awarded if the facts support such an allowance – that is to say that it is open to HGR to make a claim for the loss of the commercial opportunity to invest the putative funds, realised from the hypothetical mortgagees’ sale, in other investments or transactions.
Over what period should HGR’s loss be calculated?
As I have said, HGR contended that its loss should be measured from 1 July 2004 to 28 May 2010, by which time Ms Joakim will have vacated the premises. The defendants argue that the dilatory nature of HGR’s conduct in prosecuting its claim for possession of the premises is such that it is unreasonable to allow a claim for the whole of the period. Although no argument of mitigation of loss had been pleaded, it was clear from the outset of the trial (as demonstrated by the cross-examination of Mr Wilson) that the question of HGR’s procrastination was a live issue.
Any award of damages against the defendants is, of course, for a sum that is fair and reasonable and a court, even without a plea of mitigation, may examine the plaintiff’s conduct to determine whether the defendants’ actions were, in truth, a cause of HGR’s loss or part thereof.
In Kewside Pty Ltd v Warman International Ltd,[15] French J said of loss or damage suffered in contravention of s 52 of the Trade Practices Act: (“TPA”)
The causal connection is not that of the strict logician, but is to be understood according to common sense concepts. Selection principles influenced by policy and not merely logic operate. Concepts such as contributory negligence and mitigation have no role as such in this process but analogous notions may apply to decide whether or not a claimed loss was truly caused by the contravention in question.[16] (Citation omitted).
[15](1990) ATPR 41-012
[16]Ibid 51281. See also Mehta v Commonwealth Bank of Australia (1989) Unreported, New South Wales Supreme Court 27 June 1990).
Subsequently in Henville v Walker,[17] McHugh J said, in relation to a case also brought under s 52 of the TPA:
Nothing in the common law in ss 52 or 82 or in the policy of the Act supports the conclusion that a claimant’s damages under s 82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant’s part. There is no ground for reading into s 82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant, it will be appropriate in assessing damages under s 82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act. But that proposition is concerned with the items that go to the computation of the loss. As I have pointed out, nothing in the judgments of the courts below shows that there was any unreasonable conduct on the part of Mr Henville in incurring costs or raising revenue.[18]
[17](2001) 206 CLR 459.
[18]Ibid 140. See also Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565, 575.
It follows, I think, that if it is determined that HGR’s conduct in the prosecution of proceedings for possession was unreasonable, then any loss of HGR attributable to that conduct is not recoverable against the defendants.
In February 2004 Herbert Geer and Rundle wrote to the occupiers of the units advising that HGR was entitled to possession. By the commencement of April 2004 it was aware that Mr Bianco held the tenancy agreement with IID. Whilst a number of letters were forwarded to the sub-tenant, the first demand that I have been able to identify upon Mr Bianco for possession was on 19 May 2004.[19]
[19]Exhibit P 4, 65.
No further step was taken by HGR to obtain possession for nearly a year. On 29 April 2005 it initiated proceedings at VCAT which were dismissed on 6 May 2005. Apart from a burst of correspondence between itself and the defendants’ solicitors in June and July 2006, HGR did nothing until 16 June 2008, when it issued a proceeding for summary possession under Order 53, and then this proceeding on 10 July 2008. The time between initiation and judgment in these two proceedings (combined) is just short of two years.
Mr Wilson candidly explained the delay when asked what happened after the flurry of correspondence in July 2006:
I’m not exactly sure, Mr Hyde, but again, this was a problem that was, you know, continually put to the bottom of the drawer of being one of those hard ones that you had to deal with, and you know, this was one of the – we had other things to do and had dealt with all the other units, this was one that we just had to get around to dealing with, and it was procrastination from my part, dealing with the harder things last.[20]
[20]T92.
I accept that HGR acted reasonably in bringing proceedings initially at VCAT prior to issuing the Order 53 proceeding or this proceeding.
I am also prepared to accept, with considerable hesitation, that the delay of one year between the claim for possession and the initiation of the VCAT application was reasonable even though there was nothing complex in the application and it was able to be heard within weeks of its initiation. A mortgagee should be afforded the opportunity to effect a consensual departure from the premises of an unlawful occupant. Of more significance is the delay after the defeat of the VCAT application in May 2005. Taking no steps of any sort until HGR issued proceedings for summary possession in June 2008 was patently unreasonable. It should, after defeat at VCAT, have issued proceedings in this Court promptly – in June 2005 – which it can be assumed would have taken two years to resolution.
If HGR had acted reasonably I think it would have obtained an order of possession in this Court in about June 2007 – three years after the approximate date upon which it became entitled to possession. Subsequent to that point of time there is, in my view, no entitlement to damages on the part of HGR: its own conduct severed the degree of connection between the unlawful occupation and damage at that point. True it is that Mr Joakim will have obtained a windfall in relation to his collection of rent for nearly three years subsequent to that putative date. On the other hand, HGR’s claim is for compensatory, rather than restutionary damages and having determined on that course,[21] it can hardly complain.
[21]See Ministry of Defence v Ashman [1993] 2 EGLR 102.
The measure of HGR’s loss
The claim for damages on the basis of the deprivation of a commercial opportunity relied upon the evidence of Mr Wilson and Mr Wilkinson. There was no challenge mounted to their evidence on this aspect of the claim.
The substance of their combined evidence is as follows. HGR is a public company which, at the relevant time, accepted investor funds, and then by use of those funds, together with available capital and retained earnings, made loans over real estate, secured by a first mortgage. Those funds not applied to the real estate business are invested at interest until deployed as loan funds in the mortgage business. This evidence was not challenged.
I have set out the principles relevant to a Hungerfords claim at [8] – [10] above.
The defendants relied upon the decision of Heerey J in Garroway Metals Pty Ltd v Comalco Aluminium Ltd[22] as authority inimical to HGR’s claim for loss of commercial opportunity. In that case his Honour refused to allow a claim for damages on a Hungerfords basis assessed by reference to the trading profits that would have been earned if the money had not been withheld wrongfully by the defendant. However, as I read his Honour’s reasons, the case turned upon the evidence relating to the use of the monies which had been wrongly withheld. His Honour posed the question:
On the assumption that money wrongfully withheld by a defendant would have been ‘put into the business’ by a plaintiff, to what use would the money be put?[23]
His Honour concluded that it was speculative to endeavour to determine how the withheld funds would have been applied in the running of the business. Here the position is different. HGR conducted a mortgage lending practice and derived its income from two modes of investment to which the funds would have been applied. Provided it is accepted that the loss claimed is one of commercial opportunity which must, notwithstanding the reliance upon a retrospective analysis, involve a degree of speculation then there is, I think, no difficulty in such a claim being pursued provided the evidence underpins the claim. Interestingly in Garroway, Hungerford damages were, in fact, awarded by his Honour on the basis that the funds wrongfully withheld would have progressively eliminated the applicant’s overdraft and any surplus would have been invested in bank bills.
[22](1993) 114 ALR 118.
[23]Ibid 132.
Finally, it might be observed that in St George Bank the bank failed in its argument based on loss of commercial opportunity not by reason of the question of principle, (which was accepted) but by its failure to adduce evidence of the type produced in this case relevant to the investment of the funds.
Returning now to the factual substratum of the claim by HGR, I accept that HGR’s primary business is the investment of funds either in its mortgage practice or in interest bearing deposits. Mr Wilson gave no evidence as to the likely sale or disposition of the proceeds of the sale of the unit by HGR pursuant to s 78 of the TLA, however, I am prepared to infer that the funds from the sale of the unit would have been re-invested in the HGR business as described by Mr Wilkinson in paragraph 4 of his report.[24] If the defendants had vacated the unit, as they should have, HGR was entitled to possession in approximately July 2004. It is reasonable to allow, in the context of the mortgagee sales of the number of units, a staggered sale and, I think, to conclude that it would have been in receipt of the funds from the sale of the unit on or about 1 July 2006. This is consistent with Mr Wilson’s evidence that between 21 September 2004 and 2 June 2006 the remaining units were sold.[25]
[24]Exhibit P7. See also Wilson’s evidence at paragraph 3 of Exhibit P1.
[25]Exhibit P1.
On the basis of the undisputed calculations of Mr Clayton, the rental loss from 1 July 2004 to 30 June 2005 was $21,840 and from 1 July 2005 to 30 June 2006, $22,360, a total of $44,200.[26]
[26]Exhibit P8 – IRC4.
The calculations made by Mr Wilkinson, the Forensic Accountant, are based upon an analysis of the annual rate of return achieved by HGR for the financial years ended 30 June 2006 to 30 June 2009 using:-
·The average value of mortgage loans, other receivables, cash and cash equivalent investments and;
·The gross operating cash inflows (i.e. interest, fees and other income).
Mr Wilkinson calculated the rates of return on invested funds for the financial year ended 30 June 2007 of 15.62% which I accept. I also accept Mr Clayton’s valuation of the unit in June 2006 of $450,000[27] and, as I have said, that such a sum would have been available for investment in July 2006. Mr Wilkinson has calculated the loss on $450,000 invested at 15.62% at $70,290 to 30 June 2007,[28] being the date upon which the defendants ceased to be liable to HGR.
[27]Exhibit P8 – IRC4.
[28]Para 6.3 of report annexed to Exhibit in P7.
I do not, however, accept the argument of HGR that such a sum should be allowed, in effect, without any discount. As Nettle JA demonstrated in St George Bank, the claim here is for loss of commercial opportunity which invariably must be subject to a degree of discount. Admittedly in this case HGR can rely upon evidence of an established return over a particular period in the past which makes the task considerably easier. However there are two other relevant considerations in assessing the loss of the commercial opportunity. First, Mr Wilkinson’s estimates did not take into account the unit’s selling costs as he assumes such costs would have been recoverable from the mortgagor, IID, at the time of the sale. No evidence was led by HGR as to whether such costs were in fact capable of being recovered from IID, or had been recovered in other mortgagee sales of the IID units. Indeed on the evidence adduced (i.e. the inability of IID to meet a payment of interest within months of taking out the loan and its subsequent deregistration), one could well surmise that there would have been, even with a timely sale, little prospect of IID contributing to HGR’s costs of such a sale. Secondly, there is the question of improvident investment of the funds realised from such a sale. A ready example of such an investment is the loan to IID itself which, I infer, resulted in forced sales of the units at amounts which would not have satisfied in total the principal amount advanced, let alone interest.[29] Whilst I accept that Mr Wilkinson’s calculations probably take into account losses resulting from bad debts or imprudent investments, there was always the risk that the particular funds realised from the putative mortgagee’s sale of the unit would have had a similar misfortune when invested.
[29]See Exhibit P2 – a table which shows the differences between the valuation figures and the sale price of other units.
In my view an appropriate discount on the figure of $70,290 is 20% which reflects the two contingencies I have adverted to. This produces a figure of $56,230 approximately.
Conclusion
HGR is entitled to damages assessed as follows:
(a)Mesne profit from 1 July 2004 to 30 June 2006 - $44,200
(b)Loss of commercial opportunity –
1 July 2006 – 30 June 2007 $56,230
Total:$100,430
Subject to counsel’s submissions the following orders should be made:
(a) An order for possession in favour of the Plaintiff.
(b) That there be judgment for the plaintiff in the sum $100,430.00 against the first and second defendants.
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