Cossari Smith Pty Ltd v P-Value Pty Ltd

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IN THE SUPREME COURT OF VICTORIA		Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2011 00982

COSSARI SMITH PTY LTD	Plaintiff
v
P-VALUE PTY LTD AND ORS (see schedule of parties attached)	Defendants

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JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	7, 8, 9, 13, 14 August 2012, 20 September 2012
DATE OF JUDGMENT:	2 August 2013
CASE MAY BE CITED AS:	Cossari Smith Pty Ltd v P-Value Pty Ltd and ors
MEDIUM NEUTRAL CITATION:	[2013] VSC 397	Revised 6 August 2013

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Contract – Sale of business – Whether ownership of fixtures, fittings and equipment passed to purchaser of freehold – Whether plaintiff had claim for unjust enrichment or restitution – Whether plaintiff had concluded agreement with first defendant that the first defendant would make any future lease to a tenant conditional upon that tenant purchasing fixtures, fittings and equipment from plaintiff.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A M J Meagher	M A Legal
For the Defendants	Mr C Northrop	Scammell Black Mileo

HIS HONOUR:

This proceeding involves claims made by the plaintiff, Cossari Smith Pty Ltd (“Cossari Smith”) over the ownership of fixtures, fittings and equipment (“the installation”) installed at premises at 255 Chapel Street, Prahran (“the property”) owned by the first defendant, P-Value Pty Ltd (“P‑Value”).

In its amended statement of claim dated 28 May 2012, Cossari Smith’s claims were characterised as being for unjust enrichment by reason of the conferral of a benefit on P‑Value, for unjust enrichment against P‑Value based on a failure of consideration and for damages including aggravated and exemplary damages against P-Value for:

(a)trespass to goods;
(b)conversion of the installation; and
(c)detinue of the installation.

In the amended statement of claim, Cossari Smith alleges that between January and August 2008 it installed the installation at the property at a cost of $800,000. It alleges that on 12 March 2008, it entered into an agreement by which it sold the installation to a company, Two Five Five Pty Ltd (“Two Five Five”) for $900,000. It says that sum was to be paid within 5 years of the date of that agreement or upon the sale of the nightclub business conducted by Two Five Five at the property. Cossari Smith alleges that the effect of the agreement was that it would retain title over the installation until payment was made for them.

Cossari Smith alleges that from about 30 June 2008 until May 2010, Two Five Five was the lessee of the property under a lease originally entered into between it as lessee and Vicland Property Group 1 Pty Ltd and Vicland Property Group 2 Pty Ltd (collectively Vicland) as lessors. Cossari Smith says that Two Five Five operated a nightclub business known as “White Charlie” at the property from about 14 August 2008. When the property was sold to P-Value on 5 September 2008, Cossari Smith says that it was sold subject to the lease to Two Five Five as lessee.

On 24 May 2010, the creditors of Two Five Five resolved that it be wound up voluntarily and that Andrew Dunner, a liquidator, be appointed as liquidator in the winding up. Two Five Five did not pay any part of the sale price of $900,000 for the installation. The installation remained at the property after the departure of Two Five Five.

Cossari Smith contends that under the terms of the Sale agreement, it retained legal title over the installation and that, by reason of the winding up of Two Five Five, an event of default occurred under the Sale agreement and that Cossari Smith entered into possession of the installation “upon or after the resolution of Two Five Five on 24 May 2010”.

Cossari Smith alleges that by an oral agreement that was struck between one of its directors, Victor Smith, on 24 March 2010, and Ms Nguyen, the director of P-Value, it agreed to allow P-Value to retain the installation at the property for the purpose of leasing the nightclub to a future tenant, upon the condition that the future tenant would purchase the installation from Cossari Smith.

Cossari Smith says that on or about 25 June 2010, Cossari Smith, to the knowledge of P-Value and under its rights to the Sale Agreement, sold the installation to Nguyen Chapel Investments Pty Ltd (“NCI”) for $600,000, conditional upon the transfer of a liquor licence from Two Five Five to NCI.

On 1 July 2010, NCI entered into a lease of the property with P-Value. It is alleged that the lease was made subject to the rights of Cossari Smith in relation to the installation. On 16 July 2010, Two Five Five and NCI made application to transfer the liquor licence to NCI. That application was refused on 19 November 2010. As a result of this, the agreement of 25 June 2010 between Cossari Smith and NCI was terminated and Cossari Smith contends that it thereupon had an immediate right to possession of the installation.

Cossari Smith alleges that in early December 2010 P-Value entered into an agreement to lease the property to the second or third defendants (“the McDonald interests”) and purported to lease the installation at the same time. This, it is said, was done without Cossari Smith’s consent. The lease from P-Value to the McDonald interests was not made conditional upon payment to Cossari Smith for the installation. Cossari Smith complains that P-Value continues to refuse to account to Cossari Smith for the installation.

In its defence of 6 July 2012, P-Value alleges that, if there was a sale agreement of 12 March 2008 between Cossari Smith and Two Five Five, at the time of entering into the agreement, the installation that is said to be the subject of the agreement did not exist and could not have been owned by Cossari Smith.

In addition, P-Value says that, upon putting in the installation, it ceased to be chattels and became part of the property. In so far as the lease to Two Five Five by P-Value is concerned, P-Value says that any of the tenant’s installations or other property left on the property after termination of the lease became its property as the landlord. P-Value also says that it purchased the property from Vicland (including any fixtures on the property) for value without notice that Cossari Smith claimed any interest in any property located at the nightclub.

P-Value says that the Two Five Five lease was terminated by P-Value for failure to pay rent by re-entry on 5 May 2010 and, upon termination of that lease, Two Five Five’s installations and other property left on the premises became the property of P‑Value pursuant to the terms of the Two Five Five lease. As to the lease to NCI, P‑Value says that any of that tenant’s installations or any other property left on the premises became the property of P-Value and those items included the installation that is now the subject of these proceedings.

As the trial of the proceeding progressed, certain of the claims made by Cossari Smith against P-Value were no longer pressed. Cossari Smith, in its written opening of 1 August 2012, prepared by its counsel, Mr Meagher, put its claims on three bases. First, a claim for unjust enrichment by reason that Cossari Smith had provided a benefit to P‑Value; secondly, a claim for restitution for total failure of consideration arising from the agreement said to have been made between Mr Smith of Cossari Smith and Ms Nguyen of P-Value in March 2010; and, thirdly, conversion and detinue. The claim for trespass to goods was not pursued.

In his oral opening at the commencement of the trial, Mr Meagher, counsel for Cossari Smith, contended that when P‑Value purchased the property from Vicland that the sale agreement and its accompanying documentation made it clear that the fit out was installed by the tenant and owned by it and that in purchasing the property P‑Value was not purchasing the fit out. It was contended that when that tenant, Two Five Five, went into liquidation, a default event occurred under the agreement between Cossari Smith and Two Five Five as a result of which what he described as the “right to the renovation” returned to Cossari Smith. Mr Meagher conceded that if this was found not to be the case, then Cossari Smith had no right to the installation and its claim must fail against P‑Value.

Secondly, Mr Meagher contended that prior to Two Five Five going into liquidation, one of the directors of Cossari Smith entered into what he described as an agreement or an understanding with P‑Value that Cossari Smith would leave the installation in the property and would not remove it, and that P‑Value would make any future lease to a tenant conditional upon that tenant purchasing the installation from Cossari Smith. Mr Meagher accepted that that agreement was crucial to the unjust enrichment claim and described it as in fact being the “main claim” that Cossari Smith brought. He conceded that if I decided that no such agreement was reached, then, on an application of the principles set out in the decision of the High Court in Lumbers and anor v W Cook Builders Pty Ltd (in liquidation)[1] Cossari Smith’s claim in restitution would fail.
[1](2008) 232 CLR 635.

Cossari Smith also makes a claim against the second and third defendants, John McDonald and McDonald Design Build Pty Ltd (“the McDonald interests”) for trespass, conversion and detinue of the installation. It is said that in December 2010, without Cossari Smith’s consent, P‑Value entered into a lease of the property to the McDonald interests and purported to lease the installation to them and that the McDonald interests have unlawfully entered into possession of and intentionally interfered with the installation. Of course, the claim is made against the McDonald interests dependent on Cossari Smith establishing its entitlement to the installation. Mr McDonald did not appear at the trial. The registration of the third defendant was cancelled by ASIC and the claim against it was not pursued.

Summary of conclusions

The evidence in this matter occupied several days of court time. I have concluded that much of that evidence including, for example, whether or not Two Five Five was entitled to a rent‑free period under the lease of the property, had no central relevance to my conclusion that the ownership of the installation the subject of the claim passed to Two Five Five under the terms of the June 2008 agreement and when the lease to that company was terminated, the installation became the property of the landlord, the first defendant, P-Value under the terms of the lease.[2] My conclusion in that regard is based on the legal effect of the 12 March 2008 agreement to which reference will be made below. In short, I consider that the effect of that agreement was to pass property in the installation to Two Five Five and thereafter Cossari Smith never regained ownership of those items. My view in that regard is fortified by the ability of Cossari Smith to take a charge over the installation under the terms of the March 2008 agreement, which indeed it did in March 2010.
[2]See generally Adrian J Bradbrook, Clyde E Croft and Robert S Hay, Commercial Tenancy Law (LexisNexis Butterworths, 3^rd ed, 2009) at [10.5].

In its original statement of claim in this proceeding, Cossari Smith contended that its rights to the installation were pursuant to that charge, but under its amended statement of claim, as I have said, it abandoned reliance on the charge and the claim by it assumed quite a different character. Further, in my view, even if the March 2008 agreement provided a legal mechanism to retake ownership of the installation, Cossari Smith never actuated the mechanism provided for in the agreement, with all its deficiencies, to recover ownership of the installation.

I also consider that Cossari Smith has not made out that any agreement of the type allegedly struck between Mr Smith on its behalf and Ms Nguyen on behalf of P‑Value on 24 March 2010 was ever concluded. As will be seen, Mr Smith’s evidence in regard to that alleged agreement was of the vaguest kind and in my view did not establish the existence of any such agreement. Ms Nguyen, who I considered to be an impressive witness, was adamant that no such agreement of the type pleaded by Cossari Smith was ever concluded despite searching and protracted cross‑examination about it. The highest that such evidence reached on Cossari Smith’s part was a series of persistent and aggressive assertions by Mr Cossari and Mr Smith that Cossari Smith continued to own the installation.

Although because of my conclusions summarised above it is not necessary to do so, it will be seen that I have also concluded that the evidence adduced by Cossari Smith in regard to the value of the installation is not such as to establish to the requisite evidentiary degree the value of the items installed at the property.

The claim against what I describe as the McDonald interests also fails for the same reasons. Cossari Smith, in essence, have no standing to bring that claim against Mr McDonald as it has no interest in the installation.

Factual background as contended by Cossari Smith

The principal witness for Cossari Smith was Giuseppe Cossari, a director of Cossari Smith. He and Victor Smith are the directors of Cossari Smith. Cossari Smith is involved in construction of fit outs for businesses and property sales and development. Mr Cossari is responsible for the financial aspects of the business while Mr Smith is involved in the preliminary elements of transactions such as identifying properties for development. What follows is a summary of Mr Cossari’s evidence.

In 2004 or 2005, Mr Cossari met William McNee and became involved in several projects with him. In 2007, Mr McNee purchased the property at auction. Mr McNee then contacted Mr Cossari and enquired whether Cossari Smith would be interested in carrying out the fit out for the property.

Shortly afterwards, Mr Cossari and Mr Smith inspected the premises with Mr McNee. The property was derelict and was uninhabitable. Mr McNee enquired as to whether Cossari Smith was prepared to fit out the building, find a tenant and on-sell the fit out at a later date. The property had a liquor licence which was dormant when the property was purchased. One of Mr McNee’s concerns was to activate the licence and get it fully functional as he believed he would be able to get higher rentals if it could be leased as a licensed nightclub. Mr McNee proposed that Cossari Smith embark on the fit out of the property, get the business operational, reinstate the liquor licence and find a potential tenant to take over the business. Mr Cossari stated that the benefit to Cossari Smith in this proposal was that it could charge the tenant what it wanted for the fit out, add value to the business and eventually sell it. Mr Cossari said that he and Mr Smith on behalf of Cossari Smith agreed to this proposal with Mr McNee. Despite the commercial significance and scale of the transaction, it was not documented, even informally.

Mr Cossari stated that Mr McNee’s architect prepared plans for the property and that Cossari Smith worked with the architect to adapt them to their requirements. The plans were lodged with the council and approved. Cossari Smith then proceeded to install the fit out according to the plans.

Various items were purchased in connection with the installation, including furniture such as couches. It also included installation of a beer tap system, which included piping between the kegs and the beer lines. A security system as well as refrigeration, air-conditioning, a cash register and custom made bar fridges were also installed.

The 12 March 2008 agreement

Mr Cossari gave evidence as to an agreement made on 12 March 2008 between Cossari Smith, Mr Cossari and Mr Smith in their personal capacities on the one part, and Two Five Five and Mark Street (the director of Two Five Five) on the other. Significantly, Mr Cossari and Mr Smith are the shareholders of Two Five Five. The agreement was prepared by Mr Cossari, who is not a lawyer, by adapting, cutting and pasting earlier legal documents which had been prepared by solicitors. With respect, that is clearly evident when one considers its terms.

The agreement is of central significance in this proceeding and it is necessary to have reference to its terms. The recitals to the agreement state:

A.“CS” are (sic) the beneficial owners of the fixtures and fittings held at the property 1/255 Chapel Street, Prahran in the State of Victoria.
B.“Street” is the sole director of Two Five Five Pty Ltd.
C.Smith and Cossari and (sic) directors of Cossari Smith Pty Ltd.
D.The parties have agreed upon certain matters relating to the ownership and conduct of the Business, including financing and management of the business, and desire to confirm and record their agreement regarding the operation of the Business in writing as set out in this Agreement.

I note at this juncture that the ASIC records for Two Five Five reveal that Mr Street was not a director of Two Five Five Pty Ltd as at 12 March 2008. He was only appointed as a director on 17 June 2008. I also note that Cossari Smith is spoken of in the agreement as ‘being’ the beneficial owner of the fixtures and fittings held at the property, i.e. not ‘will be’. The definitions segment of the agreement defines “business” as meaning ‘the licensed nightclub premises known as “White Charlie”’. “Fitout” is defined as meaning ‘the fixtures and fittings located at the Business Premises and associated with the conduct of the Business that are beneficially owned by “CS”, being the fixtures and fittings outlined in Schedule 2 [to the agreement]’. As I have observed above, the evidence in regard to the value of the installation was unsatisfactory. It seems that much of the installation was brought into existence after the date that the agreement bears and it would appear that the agreement was made some time after the date it bears.

The agreement defines “insolvency event”. Amongst the circumstances giving rise to such an event are when ‘an application is made to a court for an order that [the person concerned] be wound up, declared bankrupt or that a provisional liquidator or receive (sic) or receiver and manager be appointed…’ or ‘[a person] becomes an insolvent under administration as defined in section 9 of the Corporations Act…’

Significantly for the purposes of this proceeding, “notice” is defined in the agreement as ‘any notice in writing, any statement in writing, any written material and any other written communications’.

Clause 17 makes elaborate provision concerning notices or communication to be given under the agreement, prescribing that these “must be in writing and may be served or given by any lawful means of service within the State of Victoria including without limitation service by hand delivery, ordinary, certified or registered pre-paid post or by facsimile transmission”.

Clause 4 of the agreement provides:

(a)“255” agrees to pay “CS” the sum of nine hundred thousand dollars ($900,000.00) in consideration for the fixtures and fittings to the terms and conditions of this Agreement (“the Payment“) within a maximum time frame of Five (5) years from the signing of this agreement.
(b)The Payment shall be payable to “CS” as follows:
(i)$900,000 upon the sale of the business situated at 1/255 Chapel Street, Prahran in the State of Victoria;

and such payments shall be made by bank cheque delivered to the address set out above or otherwise as directed by CS.
(c)The Payment shall be inclusive of all Taxes applicable to it and “255” shall make no claim against CS after Completion for any Taxes assessed, imposed or otherwise accruing in respect of the Payment.

(d)“255” will allow “CS” to register a charge with ASIC in regard to the fixtures and fittings.
(e)“CS” reserves its right for retention of title to claim depreciation in relation to the fixtures and fittings.
(f)“255” will allow “CS” to hold a security equitable mortgage over 100% of the shares on issue for “255” as security.
(g)On the completion date and upon receipt of the payment “CS” shall effectively release all securities in relation to this agreement including the ASIC charge and the equitable mortgage held over the shares as security, back to “255”.

Two Five Five did not pay Cossari Smith the $900,000 provided for in the agreement.

In my view, it is clear that clause 4(d) can only be given operation if property passes and Two Five Five becomes the owner of the installation at the date of the agreement. That is to say, Cossari Smith cannot be in a position to register a charge over the installation unless property has passed to Two Five Five. I also note that this is not consistent with the purported reservation in clause 4(e) of the Agreement by Cossari Smith of its right ‘for retention of title to claim depreciation in relation to the fixtures and fittings’. One cannot purport to reserve the right to retain title in goods in which property has passed and that are agreed to be capable of being the subject of a registered charge. Clause 4(d) is, in any event, not a retention of title clause as such but purports to reserve a right to retain title, whatever that may mean. Nor, in my view, is it possible to reserve a right to claim depreciation in respect of goods in which property has passed to another entity.

Clause 13 of the agreement is entitled “Involuntary Disposal of Business Interests”. Included amongst defined “Default Events” is an insolvency event occurring in relation to an entity. Sub-paragraph (b) of that clause provides:

Notice of Intention
Upon a Default Event occurring:
(i)the rights attaching to the interest held by the Defaulting Party are suspended (“Suspended Interest”);
(ii)“255” may, within ten (10) Business Days after the Default Event, give the Defaulting Party a Notice that they intend to arrange for the transfer to the (sic) “CS”, of all of the Suspended Interest; and
[there is no further text in the paragraph].

This is a most curious provision. In the present context, Two Five Five, the “Defaulting Party” by reason of it having gone into liquidation, is entitled by the clause to give itself a notice of the type described in sub-paragraph (ii) at a time after it has gone into voluntary liquidation (and its director has no power of agency on its behalf) to effect what amounts to a post liquidation disposition of its property. There was no evidence adduced by Cossari Smith to establish that a written notice of the type contemplated by clause 13 of the agreement was ever given.

The first schedule to the agreement is headed “Lease” and provides for rent of $200,000 per annum, and a term of seven years plus two further terms of five years each. Schedule 2 of the agreement then lists a series of items under the heading “Fitout Fixtures and Fittings”. The list includes certain items which appear to clearly be fixtures, such as a cool room, a stainless steel wash basin, light fittings, toilets, doors, and an overhead extractor fan and canopy. Other items might be classified as chattels, such as glassware and rubber bar mats. Some items are identified by make and model which would suggest they had already been purchased by the time the agreement was prepared.

By a lease commencing 30 June 2008, the then owner of the property, Vicland leased the property to Two Five Five for a term of seven years at a rental of $200,000 for the first year, and subject to 3.5% increases on each yearly anniversary. The lease is a standard Law Institute of Victoria Copyright lease. It was contended in the course of the trial that there was an agreement for a rent‑free period during which Two Five Five would not be obliged to pay rental to the landlord. The lease does not mention any rent‑free period and the contemporaneous communications that ensued when P‑Value sought to be paid rent after becoming the owner of the property would suggest that Ms Nguyen, the director of P‑Value, was never informed of any such alleged rent‑free period. I regard the issue of the alleged rent‑free period as a peripheral issue, but the evidence given by Cossari Smith in regard to it points to a curious manner of doing commerce. In my view, having regard to the significance of such an agreement, on would expect that it would have been documented, even if informally.

Significantly in the present context, clause 5.1 provides that when the term of the lease ends, ‘if the tenant leaves any tenant’s installations or other property on the premises after the end of the lease, unless the landlord and the tenant agree otherwise, those tenants’ installations and property will be considered abandoned and will become the property of the landlord…’ In my view, that is precisely what occurred in these circumstances and it is one reason why Cossari Smith’s claims fail. The evidence is that Two Five Five departed the premises and left installation behind.

As I have observed, Cossari Smith did not persist with a contention that it had rights to the installation under its charge as it originally contended in its statement of claim of March 2011. There, it had contended that the resolution of the creditors to wind up Two Five Five was an event of default under the charge and that on or after 24 May 2010, under its rights under the charge, Cossari Smith entered into possession of, inter alia, the installation.

Despite the manner in which Cossari Smith’s claim in this proceeding was originally pleaded, Mr Meagher, Cossari Smith’s counsel, stated the charge could not be relied upon. In my view, on any construction of the agreement, property passed under the sale agreement and gave Cossari Smith the right to register such a charge. Indeed, a charge, purportedly executed on 28 July 2008 was ultimately registered, albeit well past the time prescribed by the Corporations Act (2001) on 30 March 2010.

On 24 May 2010, Two Five Five went into liquidation. In his evidence, Mr Cossari asserted that Two Five Five purportedly gave notice under clause 13(b)(ii) of the agreement, stating “They certainly told us. Mark Street certainly told me in relation to the business to go into liquidation…”

No evidence was adduced that written notice was given as required by the notice provisions of the agreement to which I referred and have extracted above and the assertion as to even oral notice was not elaborated upon or particularised by Cossari Smith in the evidence adduced at the trial. Even if the “suspended interest” provision of the agreement was capable of operating to “revest” the installation back to Cossari Smith as it purports, there is no evidence that there has been compliance with clause 13(b) to actuate this.

Mr Northrop, counsel for P-Value observed that it was not pleaded in the amended statement of claim that Cossari Smith acquired title again in this way. Certainly no mention is made in the amended statement of claim as to the notice, nor was it pleaded that Cossari Smith became entitled to the installation by reason of a particular provision in the agreement, in particular, clause 13.

There was no evidence that Cossari Smith ever entered into possession of the installation, either pursuant to the charge or, as it now contends, under the agreement of 12 March 2008.

Nguyen Chapel Investments

Mr Cossari gave evidence that following the liquidation of Two Five Five, Cossari Smith entered into an agreement dated 25 June 2010 with NCI purporting to sell the installation to that company. The agreement was between Cossari Smith Pty Ltd, NCI, Mr Smith and Mr Cossari and NCI’s director, Mr Garry Nguyen (who is not related to the director of P-Value, Ms Nguyen). Again, it was apparently drafted by Mr Cossari. It emerged in cross examination that Mr Cossari and Mr Smith were the shareholders in NCI.

The recitals of the agreement state as follows:

A.The Vendor is the owner of the plant and equipment as identified in Schedule 1, that is located at the premises situate (sic) at Level 1/255 Chapel Street, Prahran in the said State of Victoria (“the Assets”).
B.The Vendor has agreed to sell and the Purchaser has agreed to purchase the Assets from the Vendor.
C.The Director of Liquor Licensing must agree to transfer of the Liquor License to the Purchaser.
D.The Covenantors are the directors and managers of the Vendor and have agreed to give certain assurances.
E.The Guarantor is the director of the Purchaser and agree (sic) to guarantee the performance of the Purchaser’s obligations under this Agreement.
F.The parties enter into this agreement to record their rights and obligations.

The definitions segment of the agreement defines assets as being the assets described in the first schedule to the agreement. The schedule to the agreement then lists the fit out, fixtures and fittings which are identical to those appearing in the schedule to the agreement entered into with Two Five Five on 12 March 2008. The “Purchase Price” is defined as $600,000.

Clause 2 provides as follows:

2.1The Vendor sells and the Purchaser buys the Assets for the Purchase Price upon the terms of this Agreement.
2.2The Liquor License must be transferred to the Purchaser by the Director of Liquor Licensing.
2.3The Purchaser will pay the Purchase Price on the Settlement Date to the Purchaser’s Lawyers trust account to be held on trust for the benefit of the Vendor and transferred to the Vendor or at the Vendor’s direction on the Liquor License Approval Date.
2.4The Purchaser must provide the Vendor with evidence of the payment of the Balance of the Purchase Price on the Settlement Date, pursuant to clause 1.3.

“Settlement date” is previously defined as meaning “1 day after the date on which the Purchaser obtains a successful transfer of the Liquor License of the premises at Level 1/255 Chapel Street, Prahran in the State of Victoria”.

NCI was not successful in obtaining a transfer of the liquor licence and settlement never occurred.

The value of the installation

Mr Cossari gave evidence in respect of the cost of the installation. There were a number of objections from Mr Northrop concerning this evidence, which were upheld.

The basis of the objections was that the documents by which it was sought to establish the cost of the installation were not primary documents, such as invoices but accounting entries in the books of Cossari Smith and other documentation which I ruled were not probative of payments being made by Cossari Smith. Mr Meagher stated that the reason that the primary documentation was not available was that there was a police raid on the premises and the documents had been seized. There was no evidence however about what attempts had been made to retrieve the documents from seizure. Mr Meagher accepted that those documents did not establish payment. It was sought to establish the cost of the fit out by reference to a bank statement of Cossari Smith and Mr Cossari’s own hand-written list of cheque payments but again the underlying documents to establish this were not produced and I upheld Mr Northrop’s objection in that regard.

Mr Cossari sought to establish the value of the fit out by reference to a depreciation schedule for Cossari Smith as of 30 June 2009 prepared for annexation to its taxation return by Cossari Smith’s accountants. That document contained entries which included a list of improvements to the property, including the installation. Mr Meagher contended that the depreciation schedule was evidence of the payments made for the improvements and its depreciation for tax purposes and was a business record of Cossari Smith. Mr Northrop objected to the reception of the depreciation schedule for this purpose, submitting that the document is at best a secondary, not primary record. He contended, correctly in my view, that the depreciation schedule was not evidence in relation to ownership or values of the prices put against the items of property, but are merely amounts an accountant, on the instructions of a client, has chosen to allocate to particular items in a depreciation schedule for the purposes of showing an entitlement to tax deductions. I agreed with Mr Northrop’s submission that the treatment for accounting purposes of the depreciation of the property is of no relevance in this instance.

A series of photographs of the premises with the fit out installed took this no further. Because I have decided to dismiss the plaintiff’s claims, I will not elaborate further on this aspect of the plaintiff’s case save to say that its proofs did not establish the value of the installation, which of course it had the onus of establishing.

Cross-examination of Mr Cossari

Mr Northrop cross‑examined Mr Cossari at length. It would be fair to say that Mr Cossari was evasive from the outset of his cross‑examination. His responses were vague. He adopted expressions such as “he would have” or “imagined” that certain things had occurred. His responses were also often non responsive. He adopted a combative attitude, even in answer to questions in cross‑examination to what were apparently non‑contentious matters. He was a most unsatisfactory witness.

Mr Cossari was cross‑examined on the agreement of 12 March 2008. He indicated that he drafted the agreement without assistance, saying that it was “a poor attempt” but that he had got “the gist of it”. Mr Cossari agreed that he was a shareholder in Two Five Five and became one in June 2008. He was vague as to when the White Charlie nightclub opened, despite his investment and involvement in it but ultimately he agreed with Mr Northrop that the night club commenced operations in August 2008.

He was cross-examined on when the works the subject of the schedule were carried out. As I have noted, the recitals to the March agreement state that Cossari Smith “are” the beneficial owners of the installation. It was put to him that in March 2008 this could not have been the case as the majority of the works were done and chattels acquired after that time. As an example, the brown leather couches were not purchased until some considerable time after March 2008, apparently just before the nightclub opened for business in August 2008. In addition there is specific reference to quantities of glassware which were not in existence in March 2008. Mr Cossari said that they were ordered in dozens and estimates were made about this and included in the agreement. Mr Northrop pressed him on how dishwashers, deep fryers, fridges, which were specified in detail and identified by make and model, were able to be mentioned in the schedule to the agreement despite not being purchased and installed until some considerable time after March 2008. Mr Cossari said that the items had been sourced prior to that time.

Mr Cossari disagreed that in March 2008, when the agreement was dated, the renovation work had not yet commenced despite it being put to him that the first invoice from OTS was for works done in May 2008. Mr Cossari asserted that works had been carried out prior to this date, stating that the May 2008 invoice was for painting and works which would have been carried out before that, however, no invoices for works prior to that time were presented by him in evidence.

It was then suggested to Mr Cossari that the agreement was made much later than 2008, perhaps some time in 2010. He denied adamantly that the agreement was backdated but he could not demonstrate when the agreement was actually prepared. He was asked how the agreement was able in March 2008 to define the “Business” as the licensed nightclub business known as ‘White Charlie” when the liquor licence to Two Five Five was not granted until 19 June 2008. The agreement was not conditional upon Two Five Five getting a liquor licence, rather it assumed that a licence to Two Five Five was already in existence. Mr Cossari responded that the building already had a liquor licence, run by the previous owner.

It was put to Mr Cossari that in his evidence‑in‑chief he had detailed his experience in financial matters as a finance broker and asserted that he had “an enormous list” of businesses. He also stated that he was a councillor of the City of Knox, a Justice of the Peace and former director of several companies on the Australian Stock Exchange. He agreed he was familiar with dealing with financial documents and said he did a lot of agreements. He stated that when the agreement was drafted, Mr Smith, Mr Street and he produced a document which they considered formed the basis of their agreement. Despite this experience he appeared to concede that the agreement was poorly drafted.

Mr Cossari was taken to the lease to Two Five Five by Vicland, dated 30 June 2008. Special condition 22.3 provided that the landlord Vicland, had entered into a contract of sale to purchase the land and the landlord had the right to enter into the lease subject to the settlement of the contract which, by such terms, was an event in the future. In fact, Vicland had became registered as the proprietor of the property in December 2007 and it was suggested to Mr Cossari that the lease must have been prepared some time prior to that because of the prospective reference in the document to settlement of the purchase of the property.

Mr Cossari denied seeing the lease prior to preparation of the agreement in March 2008 yet the terms of Schedule 2 of the agreement precisely describe the terms of the lease.

The cross‑examination then moved to the loan agreement and the deed of debenture dated 28 July 2008 between Cossari Smith and Two Five Five. Unlike the March 2008 agreement, these documents were apparently prepared by Cossari Smith’s solicitor, M A Legal. When asked why he chose to prepare the sale agreement of March 2008, the most significant document in the transaction, himself, and yet have the other documents prepared by his solicitor some months later, Mr Cossari said that he had been involved in similar transactions before. He did not consider that there was any complexity to this transaction and just substituted the entities’ names. He stated that he just cut and pasted the provision in relation to the charge in the agreement.

As to the debenture charge, it was put to Mr Cossari the charge was not registered on the ASIC register until March 2010, nearly two years after its creation, well outside of the time prescribed by the Corporations Act2001 for its registration and shortly before Two Five Five went into liquidation. Despite the evidence he gave as to his business experience and acumen, he said that he did not know that the charge had to be registered despite the provision in the March 2008 agreement, which he drew, in that regard. He blamed his solicitors and said that he assumed his legal team would attend to registration and do what was required. His evidence in this regard was particularly vague, exemplified by his employment of the expression that he “imagined “certain things to be the case. Ultimately, no satisfactory explanation was forthcoming about the late registration of the charge. The fact that it was registered is clearly indicative that Cossari Smith considered some two years after the March 2008 agreement that it had a right to take security over the installation to protect its position. Again, to my mind this clearly indicates that it was the intention that property in the subject items passed on execution of the agreement. This position is confirmed by the fact that in the form that this proceeding initially took, Cossari Smith were relying in large part on its rights as chargee to recover the items.

Mr Cossari was asked if he accepted that the night club opened in August 2008 and that Ms Nguyen entered into the contract to purchase the property in September 2008. He agreed that that was correct.

Mr Cossari said that he did not, other than on two brief occasions, communicate with Ms Nguyen. One of those occasions was shortly after she signed the contract to purchase the property when she came to seem Mr Cossari at the night club. He met her out the front of the night club and she introduced herself as the new owner.

It was put to Mr Cossari that when Ms Nguyen came and spoke with him on that occasion that he had introduced herself as the manager of the night club. He denied that and said he did not know who the manager was at the time as he was not involved in the day to day running of the business. Similarly, he stated that he did not know who managed the business in 2009 or 2010.

I consider that response to be implausible. He was one of the two shareholders in the company that operated the business and the evidence points to his close involvement in it. I note at this juncture that Mr Cossari lodged a claim in the liquidation of Two Five Five for $20,000 as an employee. His explanation as to why he did so was evasive and most unconvincing but it does point to participation by him in Two Five Five’s affairs. Mr Cossari said he did not complete the document making that claim, nor did he sign it or consent to it. He was asked who else would have told the liquidator of Two Five Five, Mr Dunner, that Mr Cossari was making a claim for $20,000 in his capacity as an employee, and responded:

I didn’t write that sheet, but when we received whatever the previous document was I would have lodged I was owed money, personally owed money.
You told Mr Dunner?---I filled out the form that was required, I didn’t really speak to Mr Dunner.
You filled out the form claiming an entitlement of $20,000 as an employee?--- No, I didn’t fill out this form. I did not.
[…]
What is the $20,000 for?---If you listen to what I said before I said personally I was owed money, there was no doubt I was owed money personally.
What for?--- Like I said it was a combination of subcontracting, it could have been services rendered to Two Five Five.

Mr Smith, his co shareholder is listed as making a similar claim for $10,000.

It was put to Mr Cossari that settlement of the sale took place and Ms Nguyen’s company, P‑Value, became registered as the proprietor of the property in January 2009 and that from that date no rent was paid until September 2009, to which he agreed.

Despite stating that he had very limited communication with Ms Nguyen, a number of emails passing between them in the period 7 April 2010 to 7 October 2011 were put to him. He was taken to an email from Ms Nguyen which stated, “Hi Joe, I have tried to contact you and left messages for you in your office and your mobile phone about outstanding rental payments and a tax invoice”. Mr Cossari said in response that the email had been sent to “functions@whitecharlie”. Initially he said that was not his email address, then admitted that there was no doubt it was, but then said about 15 people have access to that email address and that the email could have been written by anybody.

Because of the failure by Two Five Five to pay rent, P‑Value commenced proceedings against it in the County Court of Victoria. Mr Cossari said he was not even aware that such proceedings had been commenced. He had never seen the statement of claim in that proceeding, or been involved in preparation of the defence, despite being one of the two shareholders in the company.

P-Value’s statement of claim alleges breaches of obligations to pay rent in February, March, April and June of 2009. A defence was filed by Two Five Five. Mr Cossari did not recall the circumstances of the filing of that defence nor did he know that a third party notice was issued by Two Five Five against Vicland alleging that, prior to settlement of the sale to P-Value, there was an agreement with Vicland that Two Five Five would not be required to pay rent for a period of 8 months, that it would not be required to pay a security deposit of $60,000 and that Vicland would pay those amounts on its behalf. Vicland in turn issued a fourth party notice against the selling agents for in essence failing to draw a contract of sale which reflected its instructions. Mr Cossari also stated that he was unaware of a subsequent default judgment entered against the company in February 2010 followed shortly afterwards by a statutory demand. He did admit to being made aware of Two Five Five’s financial difficulties by Mr Street prior to Two Five Five going into liquidation but not of termination of the lease by a notice pursuant to clause 7.4 of the lease dated 14 April, 2010.

It was put to Mr Cossari that when P-Value re-entered the premises on 5 May 2010 and changed the locks by reason of the failure by Two Five Five to pay rent, Two Five Five itself subsequently re-entered the property and changed the locks again. Mr Cossari denied any recollection or involvement in that event or that he authorized that to happen and said that he did not even know if he was notified about it. When Two Five Five re-entered and changed the locks again, stickers were attached to various items at the property that asserted ownership of those items by Cossari Smith. In cross examination Mr Cossari was initially evasive in his responses concerning this, at first suggesting that his co director, Mr Smith must have been responsible for this. Ultimately he admitted involvement, saying that the text of the stickers may have been composed by Mr Smith or himself. The sticker quoted Mr Cossari’s phone number.

Mr Cossari was then cross-examined on the lease to NCI. Although Mr Cossari and Mr Smith are the two shareholders in NCI, Mr Cossari was generally evasive about the lease and professed ignorance as to its terms but Cossari Smith’s counsel admitted that the lease about which he was being cross‑examined was the subject lease. It was put to him that NCI commenced trading at the premises in July 2010 to which Mr Cossari responded that that company never obtained its liquor licence so never did trade there. Mr Northrop put it to Mr Cossari that alcohol was sold from the premises between July and October 2010 and Mr Cossari’s response was, again, evasive. He was asked whether he ever saw alcohol being served during that period of July to October 2010 and he stated that he could not recall. It was put to him that there was alcohol on the shelves, to which Mr Cossari responded that this did not establish that it was trading.

I do not consider this evidence to be credible. In his affidavit sworn 18 November 2010 in the proceeding commenced against the State of Victoria, he makes reference to the “venue manager” Mr Edge and four or five staff members being present on the occasion that the premises was raided on 29 October 2010 by the police and officers of Responsible Alcohol Victoria. Mr Cossari stated that he went to the property during the raid by the Liquor Licensing authorities. He deposes that he sought to intervene and prevent those persons from being interviewed by the police. He asserts in that affidavit that the Responsible Alcohol Victoria officers removed $15,000 worth of alcohol from the premises. The evidence given by Mr Cossari in that affidavit reveals a close knowledge of and involvement in the nightclub business being conducted on the property.

As a result of that raid, Cossari Smith issued the proceedings against the State of Victoria in this Court.[3] Mr Cossari was cross-examined about the allegations in Cossari Smith’s statement of claim in that proceeding in which it was pleaded that “On 28 July 2008, Two Five Five charged all of its assets and undertakings to the second plaintiff, Cossari Smith, under a fixed and floating charge, which assets are undertaken to have included the fixtures, fittings and equipment located at the premises”. Mr Cossari professed ignorance about this allegation and of the allegation that Cossari Smith was mortgagee in possession of the assets, that is, exercising its rights as mortgagee and not as owner. He stated that his understanding of the charge was that “Cossari Smith always owned the goods but because we were giving possession to a third party we registered the charge just to secure our position and put the world on notice that we had some sort of charge over it”.
[3]No 6288 of 2010.

Thus, in the present proceeding, it is pleaded that the installation were sold to Two Five Five by the agreement of 12 March 2008. In the proceedings against the State of Victoria, it is alleged that on 28 July 2008, Two Five Five charged its assets, including the installation, to Cossari Smith. These positions are consistent but thereafter the positions presented in the respective proceedings sharply diverge. In this proceeding, Cossari Smith now says that the sale agreement included a retention of title clause whereby it retained title to the installation and because it had not been paid, it retained title. In the proceedings against the State of Victoria, it is said that the winding up resolution was an event of default under the charge which entitled Cossari Smith to possession of the subject items. It is said in paragraph 14 of the statement of claim in this proceeding that Cossari Smith entered into possession on or after 24 May 2010 pursuant to its rights under the sale agreement, whereas in the other proceeding it entered into possession of the property of Two Five Five pursuant to its rights under the charge.

Mr Cossari said in cross‑examination that he was not party to or present on the occasion in March 2010 when Mr Smith made the agreement with Ms Nguyen that she could enter into a lease of the property provided it was conditional upon the tenant buying the installation. Mr Cossari said he would not comment because he was not a party to it, but that there were no documents to his knowledge in existence in relation to the arrangement. As such, he had no evidence to give in relation to the alleged agreement. It was put to him that solicitors on Cossari Smith’s behalf were sending letters on behalf of that company to P-Value, yet no mention was made of the alleged agreement.

It was put to Mr Cossari that at all times, including the commencement of this proceeding, Cossari Smith were persisting with the claim (until it was amended) that Cossari Smith had rights under the charge.

In this regard, in a lengthy email sent to Ms Nguyen on 22 January 2011, reference is made to the charge but not to the alleged agreement. On 28 January 2011, Templeton Knight Lawyers, for Cossari Smith and NCI, wrote to P-Value’s solicitors, Scammell Black. In that letter there was reference to the fixed and floating charge, and an indication that they were prepared to enter into a lease on the same terms as the NCI lease. There was no reference to or assertion that Cossari Smith was actioning an agreement between Mr Smith and P-Value of the nature that Cossari Smith now contends. Questioned about this, Mr Cossari stated that it was “not just solely the charge we’re hinging our case on, we’re saying we have always owned the equipment”.

The letter does not refer to any contention as to an agreement about any new lease being conditional upon the sale by Cossari Smith of the installation. Mr Cossari stated that he was unaware of the letter and sought to explain away the issue by saying that he would not take any responsibility for what the company’s lawyer has written unless he had signed off on the final draft.

In a letter of 9 February 2011, Templeton Knight Lawyers again asserted that the installation was the subject of the charge. Similarly, in a letter of 11 February 2010 to the third defendant, Mr McDonald, Templeton Knight Lawyers contended that Cossari Smith was the holder of a fixed and floating charge over the installation. There was no reference, as one would expect, to an agreement or an arrangement made with P-Value that any lease would be conditional upon the tenant coming to an agreement to buy the installation. There was only reference to the charge. On 23 February 2010, Mr Cossari, in an email to Ms Nguyen, contended that she had “completely ignored the registered charge over the equipment”. On 4 March 2011, Cossari Smith commenced the current proceeding, contending that the installation was subject to the charge with no reference being made to the alleged March 2010 agreement.

Mr Smith’s evidence

Victor Smith, Mr Cossari’s fellow director, then gave evidence. Mr Smith described his role at Cossari Smith as being in purchases and negotiations. In a typical transaction, he identified potential properties in which Cossari Smith might be involved and finalises the arrangements, after which Mr Cossari takes over the operation of the project.

Mr Smith gave evidence of very similar substance to Mr Cossari in relation to the dealings with Mr McNee in late 2007. His evidence then turned to the agreement of March 2008. He stated that he discussed the purchase of the fit out with Mr Street, to which he was agreeable. At a later meeting, when Mr Cossari was also present at the Balcony Night Club, it was explained to Mr Street that Cossari Smith had the nightclub business, they had fitted it out and wanted to know if Mr Street wanted to take it over and run it for them. The business would be handed over to him but with a rent‑free period attached to it. Mr Smith says that he personally never took part in the operations of Two Five Five. Later, in cross examination, documents and events were put to him which were quite at odds with this contention. For example, on two occasions he swore affidavits in which he described himself as the manager of Two Five Five. He represented the company at a mediation of the proceedings commenced by P‑Value against it for non-payment of rent.

Mr Smith says he first met Ms Nguyen in early 2009 when she purchased the property. She contacted him and informed him that rent was outstanding on the property. Mr Smith’s response was that he did not know how that was possible as there was a rent‑free period agreed to by the previous landlord Vicland. At the time that Two Five Five went into liquidation in May 2010, he stated that he was in contact with Ms Nguyen, telling her he was trying to resolve the rent issue. After Two Five Five went into liquidation, he still continued discussions with Ms Nguyen, trying to introduce another tenant to her. He stated that in the course of those discussions he asserted that the installation was his, saying “It’s my equipment, I want to be paid for my equipment.” Smith persisted in his quest to find a new tenant for the property and had a number of conversations with Ms Nguyen over the telephone. He stated that he told Ms Nguyen that he owned the equipment and that he was going to sell that to the tenant, to which she responded that “she just wanted a tenant in the property and the rent paid”.

Ultimately, his search for a tenant resulted in him having a conversation with Garry Nguyen. Mr Nguyen had worked for Mr Smith at the Balcony Night Club a few years previously and had a hospitality background. In his discussions with Garry Nguyen, Mr Smith told him that he would give him possession of the installation and that if he entered into a lease with the landlord, P-Value, he could pay for the goods at a later date. He later learned that Mr Nguyen had taken a lease from P‑Value. Mr Smith said that he then contacted Mr Cossari and told him to organise an agreement, which was the agreement dated 25 June 2010. The terms of that agreement, to which reference has already been made, provided that Cossari Smith would lend NCI $100,000 on the settlement date which was the date on which NCI obtained a successful transfer of the liquor licence. The purchase price, $600,000, was never paid.

Mr Smith said that he had no dealings with the property after that, nor did he have any further contact with Ms Nguyen at that time.

As he was being taken through his evidence in chief, Mr Smith made no mention at the appropriate juncture in his evidence of the agreement pleaded in paragraph 15A of the statement of claim which was allegedly struck between Ms Nguyen on behalf of P‑Value and Mr Smith on behalf of Cossari Smith on 24 March 2010. When he was asked about conversations that he had with Ms Nguyen he stated:

You mention you had several conversations, did you have any other conversations on that particular topic?---We spoke a fair bit, I don’t know, there might have been some other conversations a month or so later right up to the fact that Two Five Five went under I was trying to fix the situation.
After Two Five Five went under did you have any conversations on that topic?---I don’t think for a little while but we did later that year.
What was that?---Towards the end of 2010.
Where did those conversations take place?---Over the phone.
And who was party to those conversations?---I was myself on the phone talking to her.
What did you say to her?---Towards the end I said I had some new potential tenant, I constantly tried to get different tenants in there to get some money for our goods, I had some people I wanted her to meet and potentially take as a tenant.

The examination then moved on to a different subject.

However, when Mr Smith resumed giving his evidence the following morning, he stated the following:

Mr Smith, you recall in your evidence yesterday you at the end of your evidence said that you were trying to put forward some groups to the defendant?---Yes, after Two Five Five had been liquidated I put a phone call to Nguyen and suggested that, yes.
What did she say?---She said her main concern was getting her rent, that was her main concern and she didn’t want to spend one cent, I said I will get her a tenant, that tenant will pay me for the fit out, she agreed to that, no problems whatsoever, will get the tenant and he or she will go in there and take over the equipment.
When do you say this conversation took place?---This conversation took place after Two Five Five was liquidated.
How long after?---Not long after it at all, it might have been a week or so, I’m not too sure of the exact date but it was not long after I had this phone conversation with her and discussed this with her.
Can you recall the month?---I would say it would be around June, July 2010, I can’t give you the day or anything like that.

The alleged agreement of 24 March 2010 pleaded in the statement of claim is central to Cossari Smith’s claim for restitution and Mr Smith’s failure to advert to it at an appropriate juncture on the first day of his evidence or indeed really at all in terms of the pleadings, is remarkable. His evidence, extracted above, was that an agreement, if it could be called that, was reached in June–July 2010 and was described in the vaguest of terms and Ms Nguyen’s alleged assent to it was not elaborated upon. This was after termination of the lease with Two Five Five and the liquidation of Two Five Five. By that point, under the terms of the lease, the items left at the property by Two Five Five had become the landlord’s property by operation of clause 5 of the lease.

Mr Smith stated that the next occasion he had dealings with Ms Nguyen was towards the end of 2010 when he telephoned her and said that “We’re in the same position again here”. Ms Nguyen complained that there was no tenant on the property and she was sick of not having any rent paid. She was under difficulties because she had a mortgage to pay on the property. Mr Smith said he was in the same boat as he had not been paid for his goods, to which she allegedly responded that she just wanted a good tenant.

Mr Smith said he then went looking for further tenants and called Ms Nguyen in late December 2010 and said that he had a couple of possible tenants. One of them was a Mr Rakesh who wanted to view the property, but Ms Nguyen said she wanted to see a proposal from him first and then she would let him inspect the property. Not long after that, Mr Smith said he got an email from Ms Nguyen to say that the premises had been let to Mr McDonald.

Mr Smith was pressed as to when the work in respect to the installation was performed and it was put to him that Cossari Smith had no work done on the premises prior to May 2008, which he denied. He was not, however, able to produce any documents to prove that work was done prior to May 2008. He said Mr Cossari handled the fit out; his job was completed after the “introduction”.

The cross‑examination then moved to the evidence given by Mr Smith that Mr Street wanted a substantial rent‑free period. It was put to him that the lease which was prepared for the premises in the name of Two Five Five by Mr McNee’s companies, Vicland, made no mention at all of a rent‑free period. Mr Smith contended, somewhat unconvincingly, that it was a verbal agreement. He was asked why it did not appear in the lease and he responded that it was not put in the lease but he gave Mr Street his word that there would be no rent payable for a 12 month period.

Similarly, it was put that there is no reference in the agreement of March 2008 to a rent‑free period. Mr Smith responded that he did not feel there was a need to include it, despite the fact that there was a reference to the lease, the rental and its length. He responded “That is correct, but this is just the way Bill McNee and I worked”. He said that Mr Street “trusted me enough that he would get his rent‑free period and he got it”.

I note that the schedule to the Vicland-Two Five Five lease contains detailed and elaborate terms as to the payment of rent on the first day of each month, commencing on the commencement date as one would expect but no mention is made about any rent‑free period.

Mr Smith was then cross-examined regarding emails of February and March 2009 passing between him and Ms Nguyen. In one email of 6 February 2009, Mr Cossari emailed Ms Nguyen regarding her requests that the rent be paid. The email stated that Mr Smith was handling all the rent and that the February rent was paid in advance to the original landlord. This was despite his evidence that no rent was ever paid to Vicland under the lease. Again, on 17 February, Ms Nguyen emailed Victor Smith and stated, “As per our conversations please pay the rate directly.” Ms Nguyen continued to press Mr Smith for the rent to be paid and in those exchanges there is no mention at all about a 12 month rent‑free period as being a reason for non payment of rent.

Mr Smith agreed that Ms Nguyen took no part in any discussions with Mr McNee and if she had read the terms of the lease she would not have been aware of the rent‑free period upon which they allegedly agreed. He stated, “I didn’t know, when I had already spoken to her she had already owned a property so I thought she would have known [about the rent‑free period]”. When she said to him that the rent was to be paid he stated that he was shocked as he thought there was no rent to be paid at all and told her this on the telephone the first time he spoke to her. There was no reaction of this type recorded in any of the emails coming from him and Mr Smith had no explanation for this.

As well as the emails passing between Ms Nguyen and Mr Smith during the period of February and March 2009, Mr Smith was also speaking with Ms Nguyen on the telephone. Ms Nguyen made notes of those conversations and they were put to Mr Smith. One of the conversations occurred on 24 March 2009 in which she spoke about the outstanding rent and outgoings. In that conversation Mr Smith promised to pay the amount by the end of the week. Asked about this and how it sat with the existence of the alleged 12 month rent‑free period, Mr Smith stated, again to my mind unconvincingly, that Ms Nguyen “didn’t acknowledge [the rent‑free period] and I said ‘Let’s sort that out in the court’ and in the meantime the tenant was trying to pay some of the rent and it did”.

Mr Smith was asked why, in a third party notice filed by Two Five Five against Vicland in the County Court proceedings taken by P‑Value against Two Five Five in June 2009 there is reference made to a lease of 30 June 2008 but no mention of a 12 month rent‑free period. He stated that such a matter would not be in any documents, it would be “kept out”.

Mr Smith stated that he could not recall any involvement in the County Court litigation but he did admit that he represented Two Five Five at the mediation of the proceeding. He did not recall the affidavit of documents that he swore in the County Court proceedings in which he described himself as the “manager” and “shareholder” of Two Five Five. In response to that question he stated in response that he did not manage the property and he did not manage the bar, he “managed everything else”. In another affidavit filed in the County Court proceeding, sworn on 1 October 2009, he again swore that he was the manager and shareholder of the company.

Mr Smith was cross-examined as to whether he spoke to Ms Nguyen on 14 April 2010 when he telephoned and offered to pay her rent from December to April and outgoings and legal fees within 7 days. In addition Mr Smith allegedly said that if the matter did not settle he would rip everything out including toilets, tiles and leave a hole in the wall. Mr Smith was unable to recall any such conversation. He denied making the threat.

Mr Smith was cross-examined on his affidavit sworn 16 November 2010 in the proceedings brought by Cossari Smith against the State of Victoria. There is no doubt in my mind when one has regard to the contents of the affidavit that Mr Smith took an active role in the business and that he knew that the nightclub was trading and selling alcohol.

Mr Smith was then asked about an email from him to Ms Nguyen of 22 February 2011 in which it is suggested to Ms Nguyen that she break the lease with the McDonald interests. He was unable to say why there was no reference in his email to any agreement of the type alleged in respect of the installation, as was said to have been reached with her in March 2010.

The other evidence called by Cossari Smith

Carmello Papalia, who was a director of OTS Developments, was then called by Cossari Smith. Mr Papalia says he first saw the property in mid to late 2007. He stated that Mr McNee engaged him to do basic works and bring the property up to a safe standard because it was derelict. He thought that the engagement by Mr McNee was in December 2007 and was probably completed around March-April 2008. The works done for Mr McNee involved bringing the building up to a safe standard, the flooring required on the top floors and engineering work that needed to be carried out to make it safe for public use. He thought that the works for Cossari Smith in respect of the fit out probably started in January 2008 and this involved the fit out of the upstairs and downstairs of the property. He was shown a series of invoices in connection with the fit out works, the first of which was dated 12 May 2008 and the final one August 2008. Cossari Smith made the payments for those invoices. It seems that Cossari Smith were permitted by OTS Developments to pay for the fit out over an extended period of time. The OTS invoice of 12 May 2008 is for the week ended 11 May 2008, and any work done at the premises prior to this was not paid for by Cossari Smith.

Mr McNee was then called on behalf of Cossari Smith. He said that when he purchased the building for Vicland, it was in very bad shape and not habitable. The property was purchased with plans and permits for future development. He was unable to recall when the fit out was carried out. Mr McNee stated that the Contract of Sale between Vicland 1 and 2 and P-Value was never the subject of a meeting but on the day of the auction he met with Ms Nguyen. She was in Mr McNee’s office and there was a discussion about whether or not she was going to buy the building that day because it was scheduled for auction in 30 minutes time. There was a limited window of opportunity regarding whether or not she was going to purchase the property or whether they were going to proceed to auction. The meeting was brief, consisting of an exchange as to whether or not she was going to buy the building. Ultimately she agreed to do so and the property was removed from the auction. There was some discussion about tenants, some money being left for some rent paid in advance on behalf of the tenants but that was all.

The schedule of the contract of sale from Vicland to Ms Nguyen or her nominee describes Two Five Five as a lessee for a term of seven years at a rental of $200,000 per year for the first year of the term commencing 30 June 2008. On the last page of the contract there is a handwritten clause added, apparently by Vicland’s agents, which states:

30.The Vendor shall at settlement pay to the Purchaser the sum of $200,000.00 being a security deposit over the Tenancy [of] Two Five Five Pty Ltd to be held for a period of 2 years from settlement date which can be drawn by the Purchaser at any time if the tenant is in default of the lease. At the expiry of two years if the tenant has not been in default then $200,000.00 shall be refunded to the Vendor.

Mr McNee contended that this clause was intended to provide for the rent to be paid in advance but he accepted that it was “probably not” worded appropriately. He said that it did not express it in those terms because there were five agents in the room that morning with a lot of pressure on them to withdraw the property from auction. He stated that he was “very disappointed obviously to see the wording of this…” because he stated they agreed on a rent‑free period being left.

As I have said, I regard the issue of the rent-free period as being quite peripheral to the issues in this proceeding but it is to be noted that there is no mention whatsoever in the contract of sale or the vendor’s statement about a rent‑free period. Mr McNee’s evidence about this issue was most vague and confusing.

Mr McNee was taken to the provisions of Item 9 of the lease to Two Five Five, which stated that rent was to be paid:

Monthly in advance to the Landlord or as directed by the Landlord from time to time and payable on the first day of each month, commencing on the commencement date of the term.

He was asked why such a term would be included if in fact an agreement had been reached that there would be no rent payable for 12 months after the property was sold. He stated that the provisions of Item 9 were a standard clause in a lease but that there was a separate agreement about this. The clause was “just a standard clause inside a lease but they had a separate agreement to this lease as we did with many other properties that he had bought and sold with Cossari and Smith”. He added:

To us, we have had the fortunate position of being able to shake hands on agreements and for those agreements to be honoured so this lease is only meant to be applicable in the event that I had sold the building.
[…]
[The lease] was only relevant to any incoming owner of that property.

He agreed there was nothing in that lease that would inform P-Value or any other potential purchaser that there was a rent-free period. He also accepted that the flyer the agents produced for the property contained no suggestion of a rent‑free period. He was asked why, if there was a 12 month rent‑free period, this was not referred to in the flyer, to which he responded that “there are a lot of things in a lease you couldn’t get on a little flyer like that” and that “these things are always taken care of by the real estate agents…” He accepted that buyers, being commercial people, would be interested in knowing the amount of rental being obtained from leases and that the amount of rent they were to recover from the leases would affect the value they would place on the property.

It was put to him that the flyer was large enough to be able to inform potential buyers that there were great depreciation benefits to be enjoyed by a purchaser and he was asked whether depreciation benefits applied specifically to fixtures and fittings. He said that depreciation benefits applied to certain aspects and components of a building and its structure such as air conditioning, plant and equipment, but not tenants’ belongings. The flyer, while referring to great depreciation benefits, contained nothing to indicate that they did not include the fixtures and fittings installed at the property.

Mr McNee was then asked about Vicland being joined as a party to the proceedings in the County Court. He had no recollection of this. In the Third Party Notice issued by Two Five Five against Vicland, it is alleged there was an agreement made in or about 30 June 2008 that if Vicland was successful in the purchase of the building then Two Five Five would lease the property and Vicland agreed to contribute to the fit out of the premises. Mr McNee stated that this was a reference to the fit out of structural works. He stated that Vicland paid for the structural fit out works of the building including rooftop support structures to accommodate plant and equipment such as heating and air conditioning but he did not know when the work was done. What was striking about Mr McNee’s evidence was how little he was able to recall of the dealings his companies had in relation to the property and of the litigation which ensued. It was put to him that it was prior to June 2008, but he did not know when the work was done.

Mr Street, the director of Two Five Five, gave evidence that he signed the March 2008 agreement, the charge in favour of Cossari Smith and the lease from Vicland. Mr Street agreed that he was appointed as a director of Two Five Five on 17 June 2008. He was not sure how he could be described as a director in the March 2008 agreement. He stated that when he signed the agreement he was a director. He stated that he checked the list of fixtures, fittings and equipment in the agreement physically when he signed the agreement by going around the premises and checking. His evidence as to when he did this is unclear but it seems he performed this task at the earliest in mid 2008, well after the agreement was signed. Despite being the sole director of Two Five Five, he was unable to indicate who gave instructions to the lawyers to serve a third party notice on Vicland. He never met Ms Nguyen, as Victor Smith had all the dealings with her. Aside from this evidence, he seemed to know very little about matters relevant to this proceeding.

Gary Nguyen, the director of NCI, gave evidence which I consider peripheral to the issues in the proceeding. Mr Nguyen was asked whether the liquor licence mentioned in the agreement of 25 June 2010 was ever transferred and he stated it was not, the transfer having been refused on 18 November 2010. He stated that Mr Smith was one of the directors of the company whereas he was not. Despite saying that Mr Smith was not involved in the business, he agreed that Mr Smith was authorised to sign cheques on behalf of NCI although he did not know if he ever did so.

Mr Nguyen stated that prior to the nightclub at Two Five Five he worked at the Balcony Nightclub for Mr Smith as a bartender and bar manager on and off over a period from 2004 to about 2010. He had no previous experience in owning or operating a nightclub prior to the involvement by Nguyen Chapel Investments. Under the agreement he committed the company to pay $600,000 and he stated that he planned to finance this by taking over and running the business and that, if he decided to sell it, he would then pay the money from the sale of the business. He stated that it was the understanding that he would not have to pay that money until he actually sold that business. The lease commenced in July 2010. The only payments of rent made by NCI were from a bond that was paid for $91,000. He has not received the bond back yet. NCI paid rent to P-Value on 10 August 2010 of $9,800 and other amounts in September and October. Those funds were sourced from his own savings and from money that his family lent to him. Mr Nguyen agreed that Mr Smith was directly involved in the running of NCI. Nguyen agrees that there was a raid at the premises on 29 October 2010 but, unlike Mr Cossari and Mr Smith, he did not attend the property that night and he did not do so for several days. He states that he was not notified until a couple of days afterwards.

He denied that NCI was a corporate vehicle through which Mr Cossari and Mr Smith were able to operate the nightclub business. He says that the business was not operating and the rent was not paid from takings.

Mr Andrew Dunner, the liquidator of Two Five Five Pty Ltd stated that he had conducted enquiries about ownership of the assets of the company but did not elaborate on what those enquiries consisted of. He believed that the company had no interest in the installation; however, in an affidavit that he swore in the proceeding, he deposed:

I do not list the fixtures and fittings in the accounts as an asset of Two Five Five as I believe they had no commercial value.

When asked to elaborate and explain this clearly inconsistent statement, he stated that what he meant was that he considered that the fixtures and fittings were not owned by the company.

Mr Dunner acknowledged the existence of the charge registered over Two Five Fives’ assets which included the installation. He confirmed that Mr Cossari and Mr Smith made claims in the winding up as employees of Two Five Five.

The evidence called by P-Value

The director of P-Value, Thi Huo Nguyen, was the only witness called on behalf of P‑Value. Ms Nguyen stated that she saw the property for sale some time in June 2008 on a website and contacted the agent, Richard Thomas. She learned that the property was going to be auctioned on 5 September 2008. She attended the property on the day of the auction with Mr Thomas who took her upstairs.

After a short time Mr McNee and Mr Nucara from a firm of estate agents arrived. They told her that the auction was to be cancelled, that another prospective purchaser had already offered $5.2 million and that if she wanted to buy the property she could bid more than that.

She offered another $5,000 on top of that figure. At the same time she asked for a $400,000 security bond for the rent on the premises because she was concerned about the premises being used as a nightclub and the reliability of tenants. She had already mentioned this to Mr Thomas in June 2008 but she renewed it that day, stating to Mr Nucara the agent, that she was concerned about the rent.

Ultimately she agreed to reduce this figure from $400,000 to $200,000 and she signed the contract which included the handwritten term as to the $200,000 security bond. That clause was handwritten by Richard Thomas, Vicland’s agent. Mr Thomas was in the room with her together with a number of other people including other agents and Mr McNee. She was told the tenants were good tenants and that they ran another nightclub. During the discussion with the agents there was mention of depreciation. Mr Nucara said that there were great depreciation benefits for the building and that in addition $100,000 was earned for advertising on the outside wall of the property.

Ms Nguyen stated that in coming to her decision in respect of the purchase price of $5.925 million for the property she was conscious of and took into account the issue of rent and the yield on the capital she would be investing. She signed the contract on the same day as the auction but the deposit was not paid that day.

The deposit was paid on 8 September 2008.

At or about that time, Ms Nguyen was introduced to Mr Cossari who assured her that there was nothing to worry about regarding the rent.

Settlement of the sale took place in January 2009 when the balance of the purchase price was paid to Vicland. From that time she was expecting to receive payments of rent but none were received. She spoke to Mr Cossari who referred her on to Victor Smith. This was in February 2009. She sent an email to Mr Cossari in regard to the unpaid rent at the email address on his business card, [email protected], but no rent was paid in response to this request.

Ms Nguyen’s diary, which was more in the nature of a notebook, was referred to in evidence. In that notebook she took notes of conversations that she had on the telephone. One entry refers to her speaking to Mr Smith for 19 minutes on 24 March 2009 regarding outstanding rent and outgoings. The note records that Mr Smith promised to pay by the end of the week.

In another entry in her notebook, she notes that Mr Smith called on Wednesday, 7 October 2009 and said that he would call on Friday to pay the rent and apologised for not calling back. The note continues to record that on 2 March 2010 she went to the Chapel Street property with a locksmith in order to change the locks. Mr Smith gave her a post-dated cheque. She changed the locks in that part of the property tenanted by Balcony Nominees.

Another entry recorded for April 2010 notes that Mr Smith rang to offer to pay rent from December to April plus all outgoings and legal fees in seven days. He then said if the matter did not settle in the next week he would rip everything out, including toilet, tiles, et cetera and leave a hole in the wall, with the result being that the property would be worth much less which she interpreted as a threat. In another entry, on 4 March 2010 Mr Smith rang in relation to Two Five Five saying in substance that a cheque would be provided next week after the settlement of the sale of his property in Perth.

Ms Nguyen was then referred to the notice to re-enter which was given on P‑Value’s behalf on 14 April 2010. She stated that after that date she went to the premises in order to change the locks. This took place on 5 May 2010 when she attended the premises with a locksmith. Mr Street was at the premises on 5 May and he called Mr Cossari to come in and see her. Another person called Dean was also present. Mr Cossari said that she could not change the locks and if she did he would be ripping out everything in the nightclub and the property would be worth nothing and that she would lose millions of dollars. He said that all the property there belonged to him.

Despite the fact that the locks were changed on 5 May 2010, she attended the property on 14 May 2010 with an agent from Fitzroys, the estate agents, and found that the locks had been changed again. She found numerous stickers everywhere inside the premises and on the floor, the handrail and on the glasses which asserted ownership of that property by Cossari Smith.

Two Five Five went into liquidation on 24 May 2010. Mr Smith rang her shortly afterwards and said there were people interested in leasing the property and he introduced her to Harry Phung who in turn introduced NCI as tenants. The lease to NCI commenced in the beginning of July 2010. That company was the subject of a police raid on 29 October 2010. After that, Mr Smith rang her and said that he had a number of people interested in the nightclub and asked whether she would let them in to have a look. She declined to let them in but met them in the front of the premises.

At about the same time she came into contact with Mr McDonald, the third defendant. He apparently was put into contact with her by Mr Dunner, the liquidator of Two Five Five and heads of agreement were entered into between P‑Value and Mr MacDonald’s interests.

Ms Nguyen’s notebook recorded a telephone conversation of 19 January 2011 when Mr Cossari rang her. Mr Cossari called her a bitch, accused her of being greedy and threatened her about leasing the property to somebody else. She hung up. He rang again two days later on 21 January but she did not answer.

The next entry was in respect of the events which took place on 26 January 2011 where she met some prospective tenants, George, Nathan and Ben, at a coffee shop near the property. Mr Smith introduced them because they were interested in leasing the property and asked her to take them into the premises to have a look. Again on 27 January Mr Smith contacted her and asked for two groups of people to be shown the property. On 15 February 2011, a Mr Ben Plunkett rang and he said words to the effect that if he could have the property Mr Cossari would “drop all the charges”. He wanted to inspect the premises on 8 February.

P‑Value entered into a lease with a commencement date of 1 March 2011 with McDonald Design Builds Pty Ltd, however, ultimately that company ceased paying rent and another lease was proposed to a Mr Laing. However, that did not proceed either.

Ultimately, a man called Sameet entered into a lease with P‑Value around the week of April 2012. He rang her to indicate he was interested in a lease of the nightclub. She actually started leasing the property to him on 1 June 2012.

Evidence was given by Ms Nguyen as to various payments that were received in respect of the nightclub for rental from Two Five Five and after that company went into liquidation, NCI and after that, Mr McDonald and a Mr Dhinjia. Some of the entries on the document that was tendered in that regard bounced, including payments of $18,350 by Mr McDonald.

In cross examination, Mr Meagher sought to attack Ms Nguyen’s credibility by reference to an affidavit sworn by her solicitor in opposition to an application by Cossari Smith for an adjournment of this matter before Daly AsJ. In that affidavit, her solicitor had referred to the fact that P‑Value was endeavouring to lease the premises and P‑Value’s agents had advised that in substance the new tenants would not take up a lease until this proceeding had been resolved. It was said in the affidavit that in the event that P‑Value entered into a lease with the proposed new tenant with the proceeding unresolved that Cossari Smith may seek to remove the fit out, leaving P‑Value open to a number of claims by the new tenant. It was also said that P‑Value’s inability to receive rent was placing it under enormous financial pressure. The affidavit was sworn on 28 March 2012. Daly AsJ granted an adjournment but on conditions which were designed to eliminate or at lease alleviate the prejudice to P‑Value by any further delay in the hearing. Mr Meagher contended that the matter was set down for trial on the basis that the affidavit material of P‑Value’s solicitor, Mr Mileo, by which date the premises had been re‑leased. The premises were re‑leased on 28 May.

Mr Meagher contended that by allowing such an affidavit to be put forward in opposition to the adjournment application, Ms Nguyen’s credit was destroyed. He contended that by permitting her solicitor to put that affidavit forward as a means of opposing the adjournment, she misled the Court in this proceeding and should not be believed. I reject that submission. The affidavit was sworn by her solicitor and she did not apparently attend the adjournment application. I certainly would not, as Mr Meagher submits, reject all her evidence on that basis.

Ms Nguyen was taken by Mr Meagher to the contract of sale between Vicland and P‑Value, in particular clause 2 of the special conditions. She states she did not read the contract when she signed it, nor did she read the attached leases, nor did she read the attached leases. Clause 2.2 provides:

The purchaser acknowledges and agrees that any chattels, fixtures and fittings in the Property owned by the Lessees at the Property do not form part of the sale to the Purchaser pursuant to this Contract and that the said Lessees may be entitled to remove their chattels, fixtures and fittings subject to the terms of the Leases.

Ms Nguyen was adamant that when she purchased the property she considered that she had bought the fixtures and fittings which belonged to it. She did not read the contract when she signed it.

Mr Meagher sought to contend that the effect of clause 2.2 is such that the installation did not form part of the sale. When examined, that provision states that fixtures and fittings in the property owned by the lessees (in this case Two Five Five) do not form part of the sale and provides that Two Five Five may be entitled to remove their chattels subject to the terms of the leases.

In my view, under the terms of the March 2008 agreement, the installation was transferred to Two Five Five. In this instance, Cossari Smith have contended, at least of recent times, that it is the owner of the installation, not Two Five Five. It is clear that when the lease to Two Five Five was terminated and it no longer occupied the premises, that the installation remained at the property and became the landlord’s property under the terms of the lease to which I have referred. Whatever the effect of clause 2.2, later events overtook it. Two Five Five departed the premises leaving the installation behind. In my view, one thing is clear: clause 2.2 does not avail Cossari Smith of any rights as the installation was not “property owned by the lessees [of] the property”.

It was put to Ms Nguyen that within two weeks of the liquidation occurring Mr Smith rang her to discuss finding a new tenant for the premises to which she agreed. She stated that she remembers saying to Mr Smith, “Whatever you want to do with the tenant is your business, I don’t need to know…” She denied any suggestion that the installation was owned by Cossari Smith.

It is clear that her major concern was to receive the rent. I am satisfied she never agreed with Mr Smith in her conversations with him that the installation was his to deal with. What Mr Smith was asserting to be the position about the ownership of the installation is of no moment.

Ms Nguyen impressed me as a truthful witness who, despite a slight language deficiency, gave her evidence confidently and adamantly. Although this matter can largely be determined by reference to objective verifiable events and documentation, I prefer her as a credible witness to Mr Cossari or Mr Smith if there is conflict in their evidence. Nothing to which she was subjected in cross‑examination improved Cossari Smith’s position in regard to the alleged agreement of March 2010.

I will order that the proceeding be dismissed with costs, including any reserved costs.

SCHEDULE OF PARTIES

BETWEEN:
COSSARI-SMITH PTY LTD (ACN 119 471 000)	Plaintiff
-and-
P-VALUE PTY LTD (ACN 134 544 451)	Firstnamed Defendant
JOHN MCDONALD	Secondnamed Defendant
MCDONALD DESIGN BUILD PTY LTD (ACN 129 726 174)	Thirdnamed Defendant

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[2013] VSC 397

2 August 2013