| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : FAVEO PTY LTD -v- SHEPHERDSON [2013] WADC 103 CORAM : BRADDOCK DCJ HEARD : 13 JUNE 2013 DELIVERED : 21 JUNE 2013 FILE NO/S : CIV 1484 of 2012 BETWEEN : FAVEO PTY LTD Plaintiff
AND
WILLIAM GEORGE SHEPHERDSON
JENNIFER MARGARET SHEPHERDSON
WILLIAM GEORGE SHEPHERDSON (JNR)
Defendants
Catchwords: Practice and procedure - Default of appearance of defendant at trial - Discretion to proceed in the absence of the defendant
Breach of contract - Terms contract - Default and termination - Assessment of loss and damage - Calculation of interest - Indemnity costs Legislation: Rules of the Supreme Court 1971 (WA) O 34 r 2
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Result: Judgment for the plaintiff
Representation: Counsel:
Plaintiff : Mr M Curwood
Defendants : In person
Solicitors:
Plaintiff : Lander Lawyers
Defendants : Not applicable
Case(s) referred to in judgment(s):
Bank of Western Australia Ltd v Ponga (Unreported, WASC, Library No 980697, 5 November 1998)
Broadway Pty Ltd v Lewis [2012] WASC 373
Citibank Savings Ltd v Nicholson (Unreported, SASCA, Judgment No 6603, 1 April 1998)
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Gomba Holdings (UK) Ltd v Minories Finance Pty Ltd (No 2) [1992] 4 All ER 588
Robinson v Harman (1848) 1 Ex 850
Statewide Development Pty Ltd v Higgins [2011] NSWCA 35
Wenham v Ella (1972) 127 CLR 454
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Introduction 1 The Nungarin Hotel is situated about 40 km north of Merredin. It is 291 km east of Perth and it is not on the Great Eastern Highway. It is located in the eastern wheatbelt and the town has a population of approximately 100. The Shire of Nungarin has a population of about 340. The regional centre is Merredin which provides a full range of commercial retail, educational and government services. 2 The Nungarin Hotel is a large two storey brick and iron roof hotel dating from around 1929 with verandahs to two street frontages. It is described by the valuer as fairly typical of a good number of wheatbelt town hotels in the area built during that era. 3 The plaintiff, a company incorporated in Western Australia, is and was the registered proprietor of the Nungarin Hotel. On 26 August 2010 the plaintiff entered into a contract with the defendants by which the defendants agreed to purchase the hotel for the sum of $435,000. The contract was a terms contract of that date. 4 Under the contract the defendants were given possession of the land on 27 September 2010, having paid a deposit of $10,000 on entering into the contract and a deposit of $50,000 on the date they went into possession. They were obliged under the contract to pay interest, until a final payment of $375,000 was made on 27 September 2013. The interest was fixed at 5% if it were paid promptly giving a monthly figure of $1,562.50. If they were in default of the terms of the agreement the rate was 7% and the defendants would have to pay $2,187.50. 5 Having taken possession, the defendants presumably ran the hotel, and paid the interest payments as required until the last on 22 December 2011. The payments were made a month in advance. 6 The plaintiff claims that they failed to make an instalment payment due not later than 27 January 2012. The defendants apparently left the property on 9 January 2012. As a consequence of these matters, on 3 February 2012 the plaintiff issued a notice of default, which was served on that day. The default notice required the defendants to pay the instalment that was due on 27 January 2012 (at the full rate). This did not occur. In fact, there were no communications from the defendants to the plaintiff after the non-payment in January 2012. Communications prior to that had been minimal, simply correspondence between the defendants (Page 4)
and the plaintiff's service company. On 22 March 2012 the plaintiff issued a notice of termination in relation to the failure to remedy the default as per the default notice of 3 February 2012. 7 The plaintiff seeks damages for the breach of the contract.
The trial 8 A writ was issued on 21 May 2012. The matter was listed for trial on 13 June 2013. During the course of the proceedings and until 5 June 2013 the defendants were represented by Howard I Evans, Solicitor. However, on 5 June 2013 a notice of acting and address for service, signed by William George Shepherdson for the defendants, informed the court that the Shepherdsons now acted on their own behalf and gave an address for service in Duranillin. There was no appearance by the defendants, or any of them on 13 June, nor did counsel appear on their behalf. Counsel for the plaintiff advised the court that he had personally spoken to Mr William George Shepherdson the previous week and been informed that the Shepherdsons did not intend to appear at trial. An order made by the deputy registrar amended the defence after the last pre-trial conference, and reflected that the defendants had admitted each of the factual matters claimed by the plaintiff, save for the issues going to the quantification of loss and damage. Mr Curwood for the plaintiff sought leave to proceed with the trial in the absence of the defendants. 9 Order 34 r 2 of the Rules of the Supreme Court 1971 provides that if, when a trial is called on, one party does not appear the judge may proceed with the trial of the action in the absence of that party. The court has a discretion as to whether to proceed with or adjourn the trial. Two considerations govern the exercise of the court's discretion in these circumstances. The first is that natural justice must be afforded to parties to litigation. The second and related consideration is that the paramount objective of litigation is the just resolution of disputes: Broadway Pty Ltd v Lewis [2012] WASC 373 [43] and [44]. 10 In this case, given the representation of the defendants until the week before trial, and the communication by counsel with the defendants, I was satisfied that the defendants were aware of the listing for trial on 13 June 2012. There was no application made or received from the defendants to adjourn the trial. Nor was there any notification to the court from the defendants of any inability to attend the trial. No submissions have been filed on behalf of the defendants or by the defendants. The litigation had resulted in two pre-trial conferences, but otherwise had been unremarkable. In my view, the factual circumstances and the (Page 5)
documentation provided at trial, to which I will refer later, indicated a relatively straightforward historical account of events, leaving only an issue between the parties as the assessment of the loss to the plaintiff upon the termination of the contract. 11 In these circumstances, I was satisfied that the defendants had been given reasonable opportunity to take part in the proceedings and had not been prevented doing so by any external difficulty. There were no grounds to otherwise adjourn the trial. The issues between the parties suggested that the defendants were in difficult financial circumstances. Furthermore, the fundamental objective of the litigation process is the just resolution of disputes. The plaintiff has an interest in the timely resolution of this matter, the plaintiff attended at trial represented by counsel having arranged for the attendance of witnesses, including an expert witness and was ready to proceed. Where possible, litigation should be conducted in such a way as to facilitate the timely disposal of business. Whilst this action had not been before the court for an extended period, considering the position of the parties and the nature of the claim, the non-attendance of the defendants should not in my view preclude the resolution of the litigation. Accordingly, I gave the plaintiff leave to proceed.
The issues 12 As indicated above, there was no dispute on the pleadings but that the plaintiff was appropriately incorporated and the proprietor of the Nungarin Hotel, which was sold to the defendants subject to a terms contract on 26 August 2010. Furthermore, there was no dispute that the defendants had paid their obligations under the contract until 27 January 2012. There was no dispute that the notices of default and termination had been issued and served as described. 13 By its statement of claim the plaintiff particularised the damages sought as the difference between the purchase price and the market value, specified to be $70,000 less the payment of the capital sums paid by the defendants under the contract of $60,000. In addition, the plaintiff sought legal costs paid as a consequence of the breach and the insurance of the land subsequent to the breach, plus interest and costs. At trial the plaintiff calculated damages relying on a valuation that at the time of the termination being 22 March 2012, the property was worth $130,000 resulting in a capital loss of $245,000 plus legal professional fees paid prior to the issue of the writ of $5,219.21 and the insurance premiums paid on 26 April 2012 totalling $7,360. In addition, the plaintiff sought (Page 6)
interest calculated at 6% being the relevant Supreme Court rate on the capital sum outstanding from 22 March 2012 to trial and on the other expenses from 7 May 2012 to trial totalling $18,981.49.
The evidence 14 The plaintiff called Heather Janet Oliver, director and the secretary of Faveo Pty Ltd, the plaintiff. She confirmed the contract, and the payments of interest made by the defendants up until 22 December 2011. She confirmed that her solicitors had received a letter from the defendants' solicitors advising that they left the property on 9 January 2012, which was the first she knew about it. She confirmed that the notice of default was issued with its correspondence, upon her instructions to Mr Lander. She gave evidence that there was no further communication from the defendants after the service of the notice of default. Accordingly she gave instructions for a notice of termination to be issued on 22 March 2012. She said that the plaintiff took possession of the hotel not long after that. A letter was received from the Director of Liquor Licensing indicating that the licence of the premises was suspended due to the fact the premises had been vacant for over 28 days, on 30 March 2012. She confirmed that the plaintiff had insured the property from 26 April 2012 both in respect of the fabric of the hotel and public liability. She confirmed that the invoices from Landers had been paid in relation to the pre-trial work done by that firm. In September 2012, the plaintiff entered into a further contract to sell the property to a Mr de Laurant. Mr de Laurant was, however, unable to settle on the contract. That contract was for the sale of the property at $130,000. Subsequent to the proceedings commencing, a further contract was signed with Mr and Mrs Wegner to purchase the property for $150,000, on 31 May 2013, which contract is due to settle on 1 July 2013. 15 Mr Richard Todd is a licensed valuer who has been practising in that capacity since 1971. He has operated the firm of Fincom since 1984 specialising in freehold (going concern properties), where the valuation is of both land and businesses. He estimated that he had valued 100 country hotels in the last 20 years. He prepared and produced a valuation report for the Nungarin Hotel. He had been instructed to value the premises as freehold premises as they stood. He produced Landgate reports of sales which showed the details of the comparable sales upon which he had relied. He valued the property at 30 March 2012 conservatively at $130,000 without a liquor licence and $150,000 with a liquor licence. He confirmed that there would be no difference in his opinion of the value between 30 March and 22 March, the date upon which the contract was (Page 7)
terminated. Due to the fact that the property was not being operated as an hotel at the time of valuation the method of his valuation involved a comparison with other sales of country hotels in the district and other districts. There was no goodwill included in the circumstances and only a nominal value for plant and equipment. His comment was that the general market for freehold going concern hotels and taverns had been subdued since the onset of the global financial crisis in 2008, and that this was particularly so in the case of small wheatbelt hotels which had seen declining turnover due to the variable cropping seasons and declining populations. The Nungarin Hotel did not benefit from any passing trade from any major highway.
Findings 16 I accept the evidence of Mrs Oliver and Mr Todd as to the facts and the history of this matter and the value of the property. I accept that without an operative liquor licence the appropriate valuation figure for the hotel at the end of March 2012 was $130,000. The contract provided that the defendants were to pay $375,000 on 27 September 2013. The defendants had paid $60,000 pursuant to the agreement initially, and had paid interest as required at the concessional rate to the end of January 2012. Having failed to continue to make the interest payments the defendants left the property in January 2012 and have had no direct communication with the plaintiff, outside of the litigation process, since that time. I find that the notices of default and termination were validly served and that the plaintiff is entitled to damages for any losses sustained by reason of the breach of contract. Having repossessed the property in 2012, I find it entirely reasonable that they would provide insurance and instruct their solicitors to deal with the matter. 17 The contract provides, in cl 10, that the defendants were obliged to keep the property insured both in terms of the land and the buildings and maintaining public liability and other insurances. By cl 16.2, the defendants undertook to indemnify the plaintiff directly against any costs, liabilities or expenses due to, amongst other things, a failure by the defendants to pay the secured money when payable or to comply with any obligations owed.
The law 18 Upon an action for breach of contract, the purpose is to compensate the innocent party for loss flowing from the breach of the contract. That is, the party who has suffered is to be placed in the same position, insofar as this can be done by an award of money, as they would have been in if the (Page 8)
contract had been duly performed: Robinson v Harman (1848) 1 Ex 850, 855; Wenham v Ella (1972) 127 CLR 454, 460; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. 19 It is settled law that the measure of damages in a case where a vendor of land claims damages, consequent upon a purchaser's repudiation of a contract for sale, is prima facie the difference if any between the contract price and the market value of the land at the time the bargain was lost, after giving account and allowance in favour of any deposit paid under the contract. The damages are assessed at the time of the breach (or at the time that the cause of action arose). 20 There is no suggestion in this case that any other date should be adopted for the date of assessment. The evidence from Mr Todd values the property as at 30 March 2012. There is no detailed evidence of the attempts made by the plaintiff to sell the property, but it is clear that efforts were made relatively soon that resulted in a contract dated September 2012 for the sale of the property. This second contract did not reach settlement. A third contract has been obtained, but this has not yet settled. In each individual case, consequential adjustments may be required on the facts: see Statewide Development Pty Ltd v Higgins [2011] NSWCA 35. 21 In this case the plaintiff claims damages calculated as follows: 1. Contract price $435,000 Less payments made by defendants $ 60,000 Less value of property at date of breach $130,000 $245,000 2. Costs incurred as a result of the breach (a) Legal costs paid to Lander Lawyers (pre action) | Date | Amount | | 01/02/2012 | $1,394.80 | | 28/02/2012 | $827.50 | | 02/04/2012 | $2,161.38 | | 30/04/2012 | $835.53 | | Sub Total | $5,219.21 | (Page 9)
| Date | Amount | Description | | 26/04/2012 | $4,090.00 | Phoenix Insurance Brokers Building & Public Liability Insurance | | 26/04/2012 | $3,270.00 | Phoenix Insurance Brokers Building & Public Liability Insurance | | Subtotal | $7,360.00 | The total claim therefore is $257,579.21. 22 The plaintiff claims interest. In these circumstances interest provides compensation for the sum outstanding from the time of the crystallisation of the damage to time of payment. It is not the loss of the interest that the plaintiff did not receive under the contract. The interest sought is calculated at 6% pursuant to the Supreme Court rate. 23 Calculated on the sum of $245,000 from 22 March 2012 to 13 June 2013 (451 days) the interest is $18,161.77 ($40.27 per day). In relation to the expenses, interest is claimed from 7 May 2012 (the date upon which the last payment was made to Landers Lawyers) to 13 June 2013 (396 days) totalling $819.72 ($2.07 per day). The total interest therefore to the date of trial is $18,981.49. This sum will need to be adjusted to the date of judgment at the daily rate of $42.34. 24 The plaintiff seeks costs of the trial on an indemnity basis. 25 The court has a broad discretion in relation to the basis upon which it orders the costs of an action. However, where the parties to an action are also parties to a contract which contains plain and unambiguous provisions for costs to be paid on a certain basis, the court should ordinarily exercise its discretion in a manner consistent with the contractual provisions: Citibank Savings Ltd v Nicholson (Unreported, SASCA, Judgment No 6603, 1 April 1998); Bank of Western Australia Ltd v Ponga (Unreported, WASC, Library No 980697, 5 November 1998); Gomba Holdings (UK) Ltd v Minories Finance Pty Ltd (No 2) [1992] 4 All ER 588. 26 In my view, the plaintiff has proceeded properly and reasonably to exercise the rights granted by the contract in the circumstances that arose, (Page 10) and has been required to litigate due to the breach of the contract itself. Therefore I am of the view that the contractual right is an appropriate measure in relation to the costs of this action (cl 16.2 of the contract).
Result 1. Judgment for the plaintiff in the sum of $276,560.70 2. Further interest at $42.34 per day from 14 June 2013 to delivery of the judgment. 3. The defendants pay the plaintiff's costs of the action, on an indemnity basis.
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