Circuit Finance Pty Ltd v Goodwood Road Pty Ltd
[2006] VSC 399
•25 October 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 8477 of 2006
| CIRCUIT FINANCE PTY LTD and ANOR | Plaintiffs |
| v | |
| GOODWOOD ROAD PTY LTD and ORS | Defendants |
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JUDGE: | KAYE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 October | |
DATE OF JUDGMENT: | 25 October 2006 | |
CASE MAY BE CITED AS: | Circuit Finance Pty Ltd & Anor v Goodwood Road Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 399 | |
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CONTRACT – leases of horses – breach by lessee – previous proceedings and judgement for outstanding rental – further breaches – claim for delivery up – res judicata – election.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P. Fary | |
| For the Third Named Defendants | Mr P. Cawthorn |
HIS HONOUR:
This proceeding has been brought by originating motion by the two plaintiffs, Circuit Finance Pty Ltd ("Circuit Finance") and Circuit Finance Australia Ltd ("Circuit Finance Australia") seeking delivery up of two horses which were leased by them to the defendants. The facts of the case are not in dispute. The trial of the proceeding was conducted before me on affidavit.
Circuit Finance is the owner of a chestnut horse known as Silent Action, foaled on 22 September 2001. Circuit Finance Australia is the owner of a bay horse, Lord Jim, foaled on 7 August 1997. On 20 May 2004, Circuit Finance entered into a lease agreement with the third defendant, Golden Silence Pty Ltd ("Golden Silence") for the lease of Silent Action for a term of 36 months. The lease provided for payment of an initial instalment of rent, including taxes and duties, of approximately $55,000, and thereafter 35 monthly instalments of rent, including taxes and duties, of approximately $18,000. The residual value of the horse under the lease, including Goods and Services Tax, was fixed at $49,500.
On 26 May 2005, Circuit Finance Australia entered into a lease agreement with the first defendant, 501 Goodwood Road Pty Ltd, the second defendant, Malcolm Pettingall, and Golden Silence in respect of the lease of Lord Jim for a period of 36 months. The rent was payable by six half-yearly instalments of approximately $32,000 each. The residual value under the lease was $14,300.
Apart from details such as rental and residual values, the two leases were, for present purposes, identical. Under Clause 2.1 of the lease, the title to the horse remained in the lessor. By Clause 7.13, the lessee agreed, at the expiration of the term or upon the lessor being entitled to possession, to deliver the horse up to the lessor. Clause 8 of the lease prescribed the events of default under the lease. Relevantly, Clause 8.2 provided that a failure to pay an instalment or any other moneys payable under the lease constituted an event of default.
Clause 9 of the lease provided for the rights of the lessor on termination of the lease. It stated:
"If during the continuance of this lease there is an event of default, the lessor may forfeit and become entitled without notice to the lessee to terminate this lease and at the lessor's option to retake possession of the goods. Upon termination in the event of default, or by the effluxion of time, the lessor may recover forthwith from the lessee the recoverable amount as defined in Clause 1.1."
Clause 1.1(f) of the lease defined the recoverable amount to mean, firstly, the amount of rental and other money payable under the lease and, secondly, the present value at the date of termination of the residual value of the goods and all the rental that would have been payable during the term of the lease but for the termination. Clause 1.1(f) also provided that in calculating the recoverable amount the lessor must take into account the proceeds received by it following any sale of the goods.
Both horses were delivered to the lessee nominated in each lease agreement. Subsequently, each lessee defaulted in payment of the rentals payable under the two leases and as a consequence the plaintiffs repossessed the two horses on 21 June 2005.
On 29 June 2005, Circuit Finance commenced County Court proceedings against Golden Silence as the lessee under the lease, and against 501 Goodwood Road and against Pettingall as guarantors of that lease, for moneys owing in respect of the lease of Silent Action. Circuit Finance entered judgment in default against Golden Silence and 501 Goodwood Road on 20 July 2005 and subsequently, on 28 July 2005, it entered judgment against Pettingall.
On 29 June 2005, Circuit Finance Australia commenced a Supreme Court proceeding against Golden Silence, 501 Goodwood Road and Pettingall for moneys owing in respect of the lease of Lord Jim. On 25 July 2005 it entered judgment in those proceedings in default against Golden Silence and on 29 July 2005 it entered judgment in default against Pettingall.
On 3 August 2005 Mr Pettingall telephoned the plaintiffs and made a proposal for what is described as the continuation of the Circuit Finance and Circuit Finance Australia leases. The terms proposed by Mr Pettingall are set out in paragraph 37 of the affidavit of Peter Chwalko sworn 28 August 2006. Among other matters, the proposal involved the payment of a sum of $150,000 to Circuit Finance (Australia) on or around 21 August 2006, a payment of $50,000 to Circuit Finance at the same date, and for the defendants to pay to Circuit Finance (Australia) all moneys received from stud contracts in respect of Lord Jim.
The plaintiffs accepted that proposal and accordingly delivered the horses to the defendants on 16 August 2005 at the Lakewood Stud in Wellington, South Australia. However, the payments which were referred to in the proposal which had been accepted were not made by any of the defendants. As a result, the defendants defaulted. A number of demands have been made on the defendants that the two horses be delivered up to the plaintiffs. However, the defendants have failed to deliver the horses up.
On 21 January 2006, Golden Silence and 501 Goodwood Road were both deregistered by ASIC pursuant to s.601AB of the Corporations Act. On 2 June 2006, Master Efthim made orders reinstating each of those two companies. On 7 June 2006, Pettingall was declared bankrupt by order of the Federal Magistrates' Court. In the meantime, on 12 April 2006, a deed of release and indemnity was entered into between the plaintiffs and the defendants by which the defendants undertook to pay $700,000 to the plaintiffs in two payments. At the same time, the solicitors for the defendants, Tress Cocks, signed minutes of consent orders for delivery up to the plaintiffs of the two horses. However, the deeds were entered into when 501 Goodwood Road and Golden Silence were both deregistered.
Section 601AB(1) of the Corporations Act provides that a company ceases to exist on deregistration. The orders made by Master Efthim re-registering the companies in June 2006 did not validate anything that had been done between deregistration and reinstatement of the companies under s.601AH(3)(a) of the Corporations Act. Accordingly, the deeds and the consent orders were clearly ineffective as against 501 Goodwood Road and Golden Silence.
In these proceedings, apart from relying on the deeds, the plaintiffs base their claim for delivery up of the two horses on two other bases, namely, firstly, the two lease agreements and, secondly, a claim in detinue. Circuit Finance (Australia) does not pursue its claim against 501 Goodwood Road and has accepted that that company is not in possession of either horse.
At the trial before me, the second defendant, Mr Pettingall, did not appear. The third defendant, Golden Silence, was represented by Mr Cawthorn. Mr Cawthorn initially opposed the orders sought by the plaintiff on three bases, namely: first, that there was no proof that Golden Silence was in possession of either horse; secondly, that the judgments of July 2005 obtained in the County Court and in this court constituted res judicata estopping any judgment as sought by the plaintiffs in this case; and thirdly, by seeking and obtaining judgment in the 2005 proceedings for the outstanding rental, the plaintiffs have elected not to seek repossession of the horses and therefore are not entitled to now claim repossession of them.
At the outset, Mr Cawthorn abandoned the first basis originally relied on in the written submissions before me. He was correct in doing so. There was clearly evidence in the form of Mr Hough's affidavit that, pursuant to the August 2005 agreement, the horses were delivered up to the relevant defendants. There is no evidence that the horses had subsequently left the possession of the defendants. Accordingly, it would be open to and appropriate for the court to infer that the horses have remained in the possession of the defendants, the relevant lessees under the leases. That inference is reinforced by the fact that the third defendant did not adduce any evidence to the contrary.[1]
[1]See Jones v. Dunkel (1959) 101 C.L.R. 298.
There was argument before me in relation to a letter sent by Tress Cocks to the solicitors for the plaintiffs dated 11 April 2006. Mr Cawthorn submitted that that letter was covered by privilege because it was sent on an occasion which was without prejudice. However, the plaintiffs have only sought to use that letter as an admission by the third defendant that it is in possession of the horses. In view of the matters which I have just discussed, and in view of the concession that that fact has been proven, it is not necessary for me to decide the admissibility of that letter.
In the course of argument before me, Mr Cawthorn also abandoned reliance on the doctrine of res judicata. In my view he was clearly correct in doing so. In the earlier proceedings the plaintiffs relied on breaches of lease agreements occurring before the institution of proceedings in June 2005. The plaintiffs' claim was confined to one for moneys payable under the leases. In these proceedings the plaintiffs' claims are based on repudiation and breach of the agreement of August 2005. The plaintiffs' claims are for delivery up of the two horses. Clearly the two sets of litigation involve different facts and are based on different causes of action, and thus there is no scope for application of the doctrine of res judicata.[2]
[2]See Macquarie Bank Ltd v. National Mutual Life Association of Aust. Ltd. (1996) 40 NSWLR 543 at 559, per Clarke, J.A.; Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 C.L.R. 589 at 596-597, per Gibbs, C.J. and Mason and Aickin, JJ.
In the end, the claim was resisted by the third defendant on the basis of the doctrine of election. Mr Cawthorn submitted to me that as a matter of construction Clause 9 of the lease agreements provided for two alternative and inconsistent rights on default by a lessee. One right was to claim the recoverable amount owing under the lease. The alternative right was to retake possession of the horse. Mr Cawthorn submitted that in the case of each horse the plaintiffs, on default by the lessee, had elected in July 2005 to sue and enter judgment for the outstanding rental. It had thus elected not to pursue its rights for possession of the horses. Accordingly, it was submitted that the plaintiffs were now disentitled from claiming possession of the horses under the leases.
The doctrine of election applies where a party knowingly chooses between two alternative and inconsistent rights under a contract. In Commonwealth of Australia v. Verwayen[3], Brennan, J. stated:
"Election consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights. ...A doctrine closely related to election and sometimes treated as a species of election is the doctrine of approbation and reprobation. This doctrine precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right he has exercised, as, for example, where a person having accepted a benefit given him by a judgment cannot allege the invalidity of the judgment which conferred the benefit."
Accordingly, where a party to a contract on the breach by the other party has a choice of two alternative and inconsistent courses which he might take, that party is bound by his election of one of those courses, provided that that choice or election is unequivocal and is made with knowledge.
[3](1990) 170 CLR 394 at 421.
There are four reasons why, in my view, the doctrine of election does not apply in this case. First, as a matter of construction, I do not consider that Clause 9 of the lease agreements provides for two alternative and inconsistent rights of the lessor on default by the lessee, namely, either the right of recovery of the recoverable amount or the right to retake possession of the leased horse. The words of Clause 9 do not provide for those rights to exist as contradictory alternatives. On default, Clause 9 permits a lessor to terminate the lease. In addition, and at its option, the lessor may retake possession of the goods. Upon termination, the lessor may recover the recoverable amount. On its plain wording, Clause 9 does not provide that recovery of that amount may only be by way of alternative to the retaking of possession of the horse. That construction is supported by the definition of recoverable amount in Clause 1.1. That clause states that the recoverable amount consists of the amount of rent and other moneys owing under the lease, plus the present value of the horse on termination of the lease, but less the proceeds of any sale by the lessor of the horse. Clearly, the lease contemplates that the lessor may take possession and at the same time pursue an action for outstanding moneys under the lease as one option available to the lessor. Accordingly, self-evidently, the two rights are not inconsistent alternative rights under the lease.
The second answer to the defendants' reliance on election arises from what occurred in July 2005, for, in fact, the plaintiffs did take repossession of the horses and at the same time did sue for and recover the recoverable amount under each lease. In other words, in each case the plaintiffs did exercise their option to take possession of the horse and to sue for and enter judgment for the moneys owing under the leases. In those circumstances it could not be maintained that in the earlier proceedings the plaintiffs had elected not to exercise their rights to possession of the horses. On the contrary, the plaintiffs did exercise that very right.
The third answer to the reliance by the third defendant on the doctrine of election lies in a correct analysis of the arrangements made by the parties consequent upon the telephone conversation of Pettingall with the plaintiffs on 3 August 2005. Before that conversation, both lease agreements had been terminated under Clause 8. The agreement made in August 2005 was a new and discrete agreement. It incorporated, with specified variations, the terms of the previous lease agreements. However, it was not the same agreement as the previous lease agreements. It is the rights under the later agreement made in August 2005 which the plaintiffs now assert. Thus, in these proceedings the plaintiffs do not rely on the same agreement as they did in the earlier proceedings. It follows that they could not, in the earlier proceedings, have made any election in respect of the rights inhering in them under the August 2005 agreement.
Furthermore, and as a fourth response to the reliance of the third defendant on the doctrine of election, the plaintiffs rely on different breaches of the agreement from the breaches relied on by them in the earlier proceedings. In those earlier proceedings the plaintiffs relied on breaches of terms of the leases requiring, in the case of the Circuit Finance lease, monthly rental payments and, in the case of the Circuit Finance (Australia) lease, six-monthly payments. The plaintiffs now rely on the failure by the defendants to make the payments which are specified in paragraph 37 of the affidavit of Mr Chwalko. They had not previously exercised any rights in relation to those breaches. Accordingly, they could not have made any prior election in respect of those breaches.
For each of those reasons I reject the arguments made on behalf of the third defendant based on the doctrine of election. It is not disputed that the plaintiffs would have otherwise made out their claims to possession of the horses under the agreements relied on, and I therefore uphold those claims.
Mr Cawthorn made one final submission in relation to the matter of relief. He submitted that, if I were disposed to make an order for immediate possession of the horses, I should stay the making of that order for 30 days to enable the horses to be valued. He submitted that the case could then come back before me for hearing and that the defendants would then have the option to pay the value of the horses to the plaintiffs rather than deliver the horses up to the plaintiffs. Mr Cawthorn referred me to Rule 22.13 of the Rules of the Supreme Court and to General & Finance Facilities Ltd v. Cooks Cars (Romford) Ltd[4] and to Juhlinn-Dannfelt v. Crash Repairs Pty Ltd[5].
[4][1963] 2 All E.R. 314.
[5][1969] QWN 1.
Apart from referring to those cases, Mr Cawthorn was not able to advance any basis why the plaintiffs should be held out of their contractual rights to possession of the horses. The third defendant has not put forward any evidence to support a basis on which I should act as Mr Cawthorn has contended. Golden Silence has not filed any evidence to show that it would be able to pay the value of the horses to the plaintiffs. On the contrary, all three defendants have repeatedly breached the original lease agreements and subsequently the agreement of 3 August 2005. A total sum of more than $700,000 remains owing and unpaid to the plaintiffs. The deregistration of the third defendant in 2005 even further diminishes any confidence one might otherwise have that the third defendant might be able to pay the value of the horses. No material has been put forward as to the present disposition and condition of the horses. I was informed, with the consent of Mr Cawthorn, that the property at which the horses are now located has been sold by way of mortgagee sale and settlement is due on 15 November 2006.
In those circumstances, not only has no basis been made out for me to exercise any discretionary power to give the defendants the option of paying the value of the horses, but indeed, on the contrary, all the facts which I have just recited make it inappropriate and unjust for me to do so. Accordingly, I do not accede to the submission made by Mr Cawthorn to stay the entry of such judgment.
The Circuit Finance lease agreement was for the lease of Silent Action to Golden Silence. However, the second defendant, Pettingall, was a director of Golden Silence until his bankruptcy. Mr Hough's affidavit states that both horses were delivered to Pettingall at the Lakewood Stud. Accordingly, it is appropriate that I pronounce judgment against the second defendant as well as the third defendant for delivery up of the horses.
Accordingly, I intend to pronounce judgment in favour of the first plaintiff against the second and third defendants for delivery up of Silent Action and in favour of the second plaintiff against the second and third defendants for delivery up of Lord Jim.
In addition, the plaintiffs, by their counsel, Mr Fary, have also claimed costs on a solicitor-client basis under Clause 1.1(a)(iii) of each lease. Mr Cawthorn submitted that Clause 11 was not part of the agreement made between the parties in August 2005 and therefore it does not apply. However, in my view, the agreement of August 2005 did incorporate the terms of the two lease agreements with appropriate variations. Mr Chwalko, at paragraph 37 of his affidavit, stated that Mr Pettingall requested that the earlier lease agreements "be continued". That proposal was accepted. Thus, in my view, Clause 11 was incorporated in the agreement of August 2005. Accordingly, the plaintiffs are entitled to orders for costs on a solicitor-client basis.
Subject to comments from counsel, I therefore pronounce judgment as follows:
The judgment of the court is:
1.That the second defendant and the third defendant deliver up immediate possession to the first-named plaintiff of the chestnut horse foaled on 22 September 2001, with Australian Stud Book identification number AUS00817450, named Silent Action.
2.That the second defendant and the third defendant deliver up immediate possession to the second-named plaintiff of the bay horse foaled on 7 August 1997, with Australian Stud Book identification number ARG00365388, named Lord Jim.
3.That the second and third defendants pay the plaintiffs' costs on a solicitor and client basis.
4.That there be liberty to apply.
5.That the Prothonotary settle and authenticate this judgment as soon as possible.
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