Botany Pub Pty Ltd v A&P Atra Pty Ltd

[2017] NSWSC 335

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Botany Pub Pty Ltd v A&P Atra Pty Ltd [2017] NSWSC 335
Hearing dates:	30 March 2017
Date of orders:	30 March 2017
Decision date:	30 March 2017
Jurisdiction:	Equity
Before:	Pembroke J
Decision:	See paragraph [33]
Catchwords:	EQUITY – relief against forfeiture – hearing eight months after termination – discretionary considerations – claim dismissed PRACTICE & PROCEDURE – non-appearance of plaintiff – unmeritorious claim – discretionary considerations – cross claim – judgment against absent plaintiff
Category:	Principal judgment
Parties:	Botany Pub Pty Ltd – plaintiff A&P Atra Pty Ltd – defendant
Representation:	Counsel: No appearance for the plaintiff G Farland – for the defendant   Solicitors: No appearance for the plaintiff Sally Khadi Lawyers – for the defendant
File Number(s):	2016/257388

Judgment

1. The facilities of the Court are not available to indulge hopeless cases. Nor are they available to allow unmeritorious litigants to delay and prevent innocent parties from obtaining their just entitlements. This case was commenced by the plaintiff on 26 August 2016. The summons sought relief against forfeiture. The summons was not accompanied by any affidavits explaining the basis of the claim. No early return date was sought and the summons came before me as duty judge on 30 September 2016, having been referred from the Registrar at the defendant’s request. I made directions to facilitate the earliest possible hearing and directed that the proceedings be listed before the Real Property List Judge on 7 October for the allocation of a hearing date. On that date the plaintiff resisted an early date on the ground of inconvenience or unavailability and the defendant was forced to accept a hearing date of 30 March 2017.

2. The curious result is that the plaintiff seeks relief against the forfeiture of a lease more than eight months after the lease was terminated. The lease was actually terminated automatically and consensually pursuant to the terms of a settlement agreement between the parties. The claim is wholly unmeritorious and should not have occupied the time and trouble of the Court or the expense of the defendant for as long as it has. The plaintiff did not appear at the hearing this morning. The sole director of the plaintiff is currently a person called Ms Rawling. She appears to have been either the wife or the partner of Mr Paul McMahon, who swore the principal affidavit on behalf of the plaintiff on 21 September 2016. I do not know the personal circumstances of Ms Rawling at all, except that the company search of the plaintiff company shows that she and Mr McMahon shared the same address at 281 Elizabeth Street Sydney and that the plaintiff’s former solicitor informed me today – when he appeared as a matter of courtesy to withdraw – that Mr McMahon was or had been her partner.

3. The plaintiff had already made an application to vacate the hearing date. I rejected the application earlier this week and gave brief reasons. That application was made by a solicitor who appeared as amicus and provided me with an undated and unsigned medical certificate which provided no description of the problem supposedly afflicting Ms Rawling. In response to my reasons for refusing the application, Ms Rawling sent a lengthy complaining letter to me and arranged to have another certificate sent to the Court today. I should point out that the unsatisfactory certificate relied upon for the first application stated only that Ms Rawling was unfit to appear in Court due to medical reasons during the period from 15 March to 31 March.

4. The second medical certificate is dated and signed by the same doctor but still discloses no reason or explanation for Ms Rawling's supposed infirmity. It says that she is unfit to appear in Court on 16 March but states that the medical reasons are confidential. It adds, for no apparent reason, that Ms Rawling has three young children. There are occasions when a Court may possibly accept such a certificate but in the circumstances of this case, I do not think that the slender evidence as to Ms Rawling's inability to attend Court is persuasive. It is certainly not determinative. Among other reasons, I have decided to refuse the application and to proceed with the hearing in the interests of justice. The plaintiff's claim is hopeless and Ms Rawling's evidence can hardly be of any assistance. These events primarily concern the entry into a lease in November 2015, its termination in August 2016 and the events that occurred between those dates. Ms Rawling had nothing to do with those events.

5. I should make clear that in order to ensure that the plaintiff received a fair hearing, despite chosing not to attend, I have read and marked as exhibits all of the affidavits that were filed on its behalf and have taken into account and carefully considered the statements made in them. In addition, counsel for the defendant has been exemplary in drawing to my attention aspects of the plaintiff’s evidence or argument that appeared to be critical to its case.

6. Ms Rawling became the sole director of the plaintiff on 16 August 2016, after the termination of the lease. She affirmed an affidavit in September last year in which she said that she had recently been appointed as the director of the plaintiff. She explained that:

Together with my husband and our family company we have been the major creditors and beneficiaries of the shareholder of the plaintiff company since its incorporation and entering into the lease of the Botany Bay Hotel.

7. She said that she was a farmer and that she attended to home duties, and that she has not been involved in the day to day business of operating the hotel. She added that she has become acquainted with the facts and circumstances surrounding the financial and legal arrangements of the company and its business, but that she has not had access to the financial records of the company. She said that she has read the affidavit of Paul McMahon and believes that the facts stated in that affidavit are in accordance with her own observations and knowledge. It is patently clear that Ms Rawling's evidence, if she was present in Court to give it, would be of no assistance. It is not only peripheral and secondary, it is legally irrelevant to the resolution of any of the issues for determination. It simply does not assist.

8. Ms Rawling referred to the fact that her husband and family company were the major creditors and beneficiaries of the shareholder of the plaintiff. That seems to be a reference to an entity called Property SA, whose address is at 17 Boulevard Royal, Luxembourg. The company search reveals that it holds in excess of 99% of the issued shares in the plaintiff. There is no information about the ownership of Property SA. The plaintiff was registered on 17 August 2015. It appears to have been a special purpose vehicle established for the object of entering into the lease with the defendant. The sole director at the time of establishment of the company was Mr Richard Wynne. At that stage the shareholders of the plaintiff were Property SA and another company called Reginald Roy Pty Ltd as to 50% each. On 14 January 2016 Mr McMahon was appointed as the director and secretary, and Mr Wynne ceased to be the director and secretary. On 24 March 2016 Mr Wynne was reinstated as the director and secretary, and Mr McMahon ceased to be the company's director and secretary. On 16 April 2016 Mr McMahon was reinstated as the plaintiff director. On 1 August 2016 Mr Wynne ceased to be a director. There appears after that date to have been a gap until 16 August when Ms Rawling was appointed as the plaintiff's director.

9. The premises which are the subject of the lease are known as the Botany Bay Hotel. The defendant purchased the hotel as a going concern on 10 November 2015. The purchase price was $4.2 million, including goodwill and all the business assets, and with all employees remaining in employment. The purchase included a comprehensive inventory. The licensee at the time remained as the licensee following the purchase until she was later replaced. The lease between the plaintiff and the defendant for the hotel was entered into on 2 November 2015. It was for a period of ten years with two five-year options. Clause 15.7 of the lease provided for a licence of the Business Assets, as defined in the lease, including the Inventory, as defined. The result was that the goodwill, the liquor licence and the inventory remained the property of the defendant. Clause 13 of the lease contained an assignment clause in the usual form. Clause 13.5 deemed any change in the beneficial ownership of tenant's share capital to be an assignment by the tenant. Clause 13.8(b) provided that the tenant had to satisfy the landlord that the assignee ‘is or is guaranteed by a respectable, responsible and solvent person and an experienced hotelier’.

10. The defendant negotiated the lease with Mr Richard Wynne. He was the initial director of the plaintiff and remained so from August 2015 until January 2016 and was later reinstated for a period. Mr Wynne was the face of the plaintiff. He was experienced in the hotel trade. The defendant knew nothing of Mr McMahon or Ms Rawling at the time of entry into the lease. I am afraid to say that it is relevant to refer to the character of Mr McMahon, bearing in mind the defendant's complaint that there was a change in beneficial ownership and an alteration to control of the plaintiff. Mr McMahon has a long criminal record and many apparent aliases. The documents produced by the Australian Federal Police reveal that in 2009 he was convicted on 39 counts of obtaining financial advantage by deception, and that he was sentenced to a term of imprisonment. An appeal to the Court of Criminal Appeal was dismissed.

11. The documents produced by the New South Wales Police reveal a similarly disturbing picture. They reveal many aliases and many false dates of birth, as well as convictions for a range of offences, including leaving or preparing to leave Australia without the permission of his trustee in bankruptcy; opening an account with a cash dealer in a false name; operating an account with a cash dealer in a false name; making false or misleading statements in relation to an Australian travel document; making false statements to obtain or renew or endorse an Australian passport; opening an account with a cash dealer in a false name; and making a false statement to a cash dealer when identifying a signatory. Many of the convictions occurred before 2006 but I doubt that that would have been much consolation to the principals of the defendant if they had known about them. In almost every case Mr McMahon's appeal was dismissed.

12. I should make one final reference to those who control the plaintiff company. I have mentioned the Luxembourg entity, Property SA. The other shareholder is Reginald Roy Pty Ltd. When the plaintiff was established, that company held 50% of the issued shares. It now holds less than 1% of the issued shares. That company was controlled by Richard Wynne. It has subsequently been deregistered.

13. The practical result of the commencement of these proceedings by the plaintiff has been that the defendant has been without rent for almost eight months and that its losses – to which I will return –now approach $1 million. The defendant has lost a new tenant, Bourke St Pub 2 Pty Limited, which took up occupation of the premises about the time the summons was filed but was not prepared to risk continuing as lessee in the face of the unresolved proceedings commenced by the plaintiff. In an effort to secure another replacement tenant, the defendant decided to repaint and upgrade the premises and to borrow funds to do so.

14. One of the unsatisfactory features of the commencement of these proceedings by the plaintiff is that having filed the summons without any supporting affidavits it took no steps to preserve the status quo pending the hearing or to expedite a final resolution. It opposed an early hearing date. Its conduct has resulted in the defendant suffering further losses. It did not seem interested in doing anything other than commencing the litigation and deferring its resolution for as long as possible. The defendant, in turn, sought to have the proceedings dealt with urgently, but ultimately had to accept the allocation of a hearing date in March 2017. The defendant took other steps to act reasonably in the hope of breaking the litigation impasse which the plaintiff had instigated. After receiving the summons it made an open offer to restore the plaintiff to the premises. This may have been unwise given the plaintiff’s past history of non-payment of rent, but having lost Bourke St Pub 2 Pty Limited as a replacement tenant the defendant’s action was understandable.

15. The losses which the defendant now seeks to recover include $337,213 due up to 6 October 2016 plus damages in lieu of rent due and payable in October, November, December 2016 and January, February and March 2017. In addition, it seeks damages for incidental expenses including repairs to the poker machine room, the resurfacing of the kitchen floor, the painting of the premises and to add insult to injury, the payment of fines incurred by officers of the plaintiff to the Office of State Revenue totalling $4,555, the payment of a gas bill not paid by the plaintiff totalling $10,417 and the payment of a Telstra account not paid by the plaintiff totalling $1,136. It also seeks damages for anticipated future expenses. However, those amounts are not supported by any precise or adequately credible evidence which would enable me to adjudicate on them.

16. The plaintiff’s record of not paying its creditors is dismal. Its former solicitor appeared out of courtesy and pursuant to his duty to the Court. He had previously filed a notice of intention to cease to act and sought leave this morning to cease to act one day prior to the period specified in his notice. I granted him leave. He explained to me that the plaintiff owed his firm $17,893; it owed $12,556 to counsel; it owed $4,917 to this Court for the hearing fee which every plaintiff is responsible for paying and it owed approximately $230 for disbursements incurred by Mr Heffernan’s firm. Mr Heffernan’s calculation of the total amount outstanding and unpaid by the plaintiff in connection with this litigation was $35,595.

17. The non-payment by the plaintiff of those amounts is entirely consistent with its pattern of behaviour pursuant to the lease. Within weeks of the lease being entered into the plaintiff was unable to pay the rent and negotiations ensued for what Mr Wynne then described as “rescue package”. The effect of that rescue package was in part to allow the plaintiff some relief from the payment of rent during the first six months and to require the defendant to have recourse to the bond moneys paid by the plaintiff in lieu of the rent which the plaintiff was unable or unwilling to pay.

18. In April, May and June 2016 the defendant had to chase the plaintiff for payment of the rent following the rescue package. In June 2016 the plaintiff sought to pay the rent on a weekly basis, at least it sought to pay part of the rent due on a weekly basis. Eventually, the defendant took formal steps pursuant to the lease. It issued notices of breach of covenant to pay rent on 6 and 29 June 2016. By 13 July the amount owing to the defendant exceeded $51,323. The mounting arrears must be seen in the context that the original bond in the sum of $176,000 had been reduced and applied in part towards the rent which the plaintiff could not afford and in part towards works which the plaintiff wished to carry out. The defendant’s security was being diminished as well as the rent not being paid.

19. On 18 July 2016, as a result of the arrears then outstanding, the defendant issued a notice of termination of the lease. The notice terminated the lease with immediate effect and required vacant possession by 20 July. The plaintiff then instructed solicitors, other than those who later appeared for it. Those solicitors threatened to seek urgent relief from the Court. In an apparent attempt to convince the defendant of the plaintiff’s financial solvency, the plaintiff provided a copy of a BAS return showing a GST refund due to the plaintiff in the sum of $39,230. This was of little use given that the arrears well exceeded that amount.

20. On 20 July 2016, the parties reached an agreement which has been described in the correspondence as a ‘settlement agreement’. It contained as its primary essential term an obligation on the plaintiff to pay $29,333 by 29 July 2016 and $21,999 by 5 August 2016. The agreement provided that failing payment of those amounts, the plaintiff agreed that the lease is terminated. The significance of the agreement for automatic termination upon non-payment of the specified amounts was reiterated in the addendum to the settlement agreement. It provided that ‘failing payment of the amounts in 1 above by the due dates referred to in 1 above, the lessee agrees that the lease is immediately terminated without further notice’. The addendum was specifically accepted by the plaintiff.

21. Item 5 of the settlement agreement provided that the defendant ‘will expeditiously take all necessary steps to register the lease on title to the property’. Registration of the lease had been delayed, among other reasons, because the vendor of the property had gone into administration after settlement and the mortgagee, the National Australia Bank, had been slow in arranging registration. On its proper construction and in the circumstances, taking into account the whole of the plaintiff’s evidence, the obligation on the defendant to take all necessary steps to register the lease was clearly not a condition precedent to the operation of the settlement agreement. Nor was it a condition precedent to the obligation of the plaintiff to perform its primary obligation to pay the specified amounts by 29 July and 5 August 2016. As at the date of the settlement agreement, the registration of the lease was expected by 5 August 2016.

22. On 29 July 2016, he sum of $29,333 was deposited into the plaintiff’s account but on 1 August the cheque was dishonoured and the credit was reversed. The plaintiff’s then solicitor, unaware of the pending reversal, provided evidence of the deposit of the sum of $29,333 and evidence of the account balance showing sufficient funds to meet the payment due. And the defendant’s solicitor, alwo unaware of the reversal, provided a letter on 2 August 2016, informing the plaintiff of the likely expected registration of the lease by 5 August.

23. I am satisfied that, having regard to the terms of the settlement agreement, the lease was terminated as a result of the non-payment of the sum of $29,333 by 29 July 2016. When this obligation was not met, it became clear that no assurance by the plaintiff in relation to the payment of its financial obligations to the defendant could be relied upon. The payment of the sum of $29,333 was an essential term of the settlement agreement. Its non-payment justified the termination of the lease by the defendant.

24. The plaintiff accepted the fact that the lease was terminated. Its solicitor made her position clear by her email sent on 9 August 2016. Mr MacMahon was also clear. Whatever his formal role as a company officer, he was closely involved in the control of the affairs of the plaintiff. He stated by email sent on 12 August 2016 to the defendant's solicitor, that any potential incoming operator or lessee will need to have certain items of equipment on the premises; that the parties should meet to agree on a course of separation; that they should agree on what items were clearly able to be moved and taken away; and that there were certain items in dispute or items for which an adjustment needed to be made as a result of the termination.

7. On 15 August Mr MacMahon sent another email providing a checklist of matters that were necessary to attend to, in order to ensure the adjustment of the parties' rights on termination of the lease. The premise upon which his statements were made involved the acceptance of the state of affairs that the lease had been terminated. It was the basis upon which he was dealing at that time with the defendant. The subsequent conduct of the parties is also entirely consistent with the conclusion that the lease was at an end and that the parties had agreed that it should be so. Arrangements were made for the removal of various personal and business items. Mr Richard Wynne accepted his removal as licensee. Payout figures for the equipment leases were provided and other matters of a similar nature were attended to.

8. As I mentioned, the summons was filed in late August 2016. The defendant's prospective new tenant had failed to sign its lease because of an understandable concern about the plaintiff's summons. As I have also mentioned, the defendant made an open offer to restore the plaintiff as its tenant. The offer was not accepted. The defendant subsequently sought, without success, to reach agreement with another replacement tenant but the existence of the outstanding and unresolved summons filed by the plaintiff prevented the finalisation of any lease with a third party.

9. The plaintiff has never provided a satisfactory undertaking to pay the moneys owing to the defendant. There was reference in Mr MacMahon’s affidavit to an assertion that finance approval of $275,000 was available. But I have no confidence in this evidence at all. The totality of the evidence suggests that it cannot be relied upon. In any event that sum it is insufficient to meet the losses incurred by the defendant.

10. There are several other matters that I should mention. In a sense they are peripheral because it is clear that the lease has been terminated and that this is not an appropriate case, and never was, for the grant of the equitable discretionary remedy of relief against forfeiture. The additional matters are these. When the defendant purchased the hotel it purchased the ‘Inventory’. The plaintiff had a licence to use the inventory as part of the Business Assets under the lease. The plaintiff removed a significant quantity of the defendants plant and equipment. In particular, this included a number of licensed poker machines in relation to which there were extensive payment obligations and pay out obligations. Those inventory items have not been returned or replaced and no undertaking has been given to do so.

11. Another matter to which I have briefly adverted but which I should elaborate is the change in control of the plaintiff. There has been a change in control of the plaintiff without the defendant’s approval. The grant of relief against forfeiture would require the defendant to accept, in effect, a tenant which is different in substance. The defendant, through its directors, only knew Richard Wynne at the time of the negotiations for the lease and entry into it. Mr Wynne, as I have said, was an experienced hotelier and was originally the sole director and secretary of the plaintiff. He signed the lease as the director of the plaintiff and he became the licensee. The principals of the defendant do not know Mr Paul MacMahon and do not know Ms Rawling. Nor do they know the controlling shareholder, Property SA, the Luxembourg company. Nor of course did they have any idea of Mr MacMahon's criminal record. There are no circumstances in which, given those facts, equity would require the defendant to resume its relationship with the plaintiff.

12. The main issue in this unfortunate litigation is the question of the status of the lease and whether the plaintiff's claim for relief against forfeiture has any substance. The defendant's cross claim for damages is probably futile in a practical sense given the likelihood of recovery. However, I am satisfied at a minimum that the plaintiff is entitled to recover the amounts due for damages in lieu of rent, and for the outgoings such as the fines due to the Office of State Revenue, the AGL gas bill and the Telstra invoice, which it paid, but which were incurred and were the responsibility of the plaintiff. I am not prepared to allow damages for the predicted future expenses, but I will allow all other claims, including some minor claims for consequential repairs.

13. The damages include the sum of $337,000 incurred prior to 6 October 2016. The defendant’s schedule of damages before 6 October is as follows:

Item	Amount
Damages in lieu of rent due & payable 13 August 2016	$ 29,333.34
Interest payable in accordance with Clause 16.9 at 10.71% p.a	$ 327.07
Damages in lieu of rent due & payable 13 September 2016	$ 29,333.34
Interest payable in accordance with Clause 16.9 at 10.71% p.a	$ 60.25
Loss of bank guarantee/bond ($176,000.00 less amount held $48,677.20)	$ 127,332.80
Lock out fees - Alarm	$ 3,733.00
Lock out fees - Guard	$ 3,794.95
Lock out fees - Locksmith	$ 495.00
Outgoings payable under the Lease and losses relating to business as going concern are met and paid up to date including:
Fire Certificate	$ 698.50
Council Rages	$ 6,144.34
Electronic toll	$ 164.60
OSR fine	$ 177.00
AGL gas	$ 6,929.56
Electricity	$ 15,028.86
Sydney Water	$ 13,721.76
Telstra	$ 736.71
Taxes payable to Liquor & Gaming NSW	$ 24,500.00
Taxes payable to Liquor & Gaming NSW (pending)	$ 11,000.00
Data Monitoring	$ 1,831.68
Liquid Waste Removal	$ 387.20
Destruction to business premises (being to gyprock wall and ceiling adjacent to television screen)	$ 6,800.00
Legal fees for Lockout, Termination of Lease & Summons	$ 16,500.00
Counsel fees	$ 4,000.00
The new lessees' costs and expenses
Lessees legal fees	$ 2,750.00
Staff	$ 27,733.00
Lessors Legal fees in relation to new tenant	$ 2,200.00
The costs of preparation of a new lease, for the balance of the term	$ 1,500.00
TOTAL	$ 337,212.96

32. The defendant’s schedule of damages after 6 october is as follows. I have allowed all items other than those relating to estimated future expenses:

Item	Amount
Damages in lieu of rent due & payable 13 October 2016	$ 29,333.34
Damages in lieu of rent due & payable 13 November 2016	$ 30,213.33
Damages in lieu of rent due & payable 13 December 2016	$ 30,213.33
Damages in lieu of rent due & payable 13 January 2017	$ 30,213.33
Damages in lieu of rent due & payable 13 February 2017	$ 30,213.33
Damages in lieu of rent due & payable 13 March 2017	$ 30,213.33
Repair to poker machine room	$ 5,500.00
Resurface of kitchen floor	$ 12,500.00
Kitchen appliance to replace repossessed items	$ 20,000.00
Furnishing/Equipment to replace repossessed items	$ 180,000.00
Replacement of poker machines to replace repossessed	$ 70,000.00
Painting of premises	$ 50,000.00
Outgoing payable under the Lease and losses relating to business as a going concern are met and paid up to date including the following:
OSR fine ($732.00-$177.00)	$ 555.00
OSR fine	$ 4,000.00
AGL gas ($17,346.66 - $6,929.56)	$ 10,417.10
Telstra ($1,873.49 - $736.71)	$ 1,136.78
Future Damages Claim
Re-Leasing Advertising & Marketing Campaign Fees	$ 35,000.00
Legal Costs, Counsel Fees & Associated Professional Fees	$ 100,000.00
Loss of Rent – Assumed 3 months vacancy, make-up, leasing Up	$ 90,000.00
SUB TOTAL	$ 759,508.87
AMOUNT of damages prior to 6 October 2016	$ 337,212.96
TOTAL now claimed	$ 1,096,721.83

33. I therefore make the following orders:

1. I dismiss the summons and order the plaintiff to pay the defendant's costs.

2. On the cross-claim I make the declarations sought out in prayers 1, 2 and 3.

3. I give judgment to the defendant against the plaintiff for the sum of $871,721.83.

4. I order the plaintiff to pay the defendant's costs of the cross-claim.

5. I order that caveat number AK681995R dated 16 August 2016 lodged by the plaintiff be removed forthwith.

6. I order that these orders be entered forthwith.

34. I note that this is an appropriate case, if the defendant thinks it worthwhile to do so, for the Court to entertain an application that persons other than the plaintiff be made responsible for the costs orders that I have made against the plaintiff.

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Amendments

03 April 2017 - Amendment to cover sheet and paragraphs 31 and 32

Decision last updated: 03 April 2017