Feldman v Blake Napier Ltd as trustee of the Blake Napier Property Trust
[2011] NSWSC 456
•27 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: Feldman & Ors v Blake Napier Ltd as trustee of the Blake Napier Property Trust & Ors [2011] NSWSC 456 Hearing dates: 19 May 2011 Decision date: 27 May 2011 Before: Ball J Decision: The plaintiffs' motions filed on 24 March 2011 be dismissed.
Catchwords: PROCEDURE - civil - summary disposal - whether defendants have an arguable defence - whether question of set-off should be determined as a separate question EQUITY - defences - set-off - whether cross claim sufficiently connected to permit set-off - whether defendants entitled to bring claim said to give rise to set-off Legislation Cited: Civil Procedure Act 2005
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 32
AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705
Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653
Dey v Victorian Railway Commissioners (1949) 78 CLR 62
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Hadley v Baxendale (1854) 9 ExCH 341; 156 ER 145
Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215
Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464
Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound (No 1)) [1961] AC 388
Tepko Pty Ltd v Water Board (2001) 206 CLR 1
Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598Texts Cited: R Meagher, D Heydon, M Leeming, Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th Edition, 2002, Butterworths
R Derham on The Law of Set-Off, 4th Edition, 2010, Oxford University PressCategory: Procedural and other rulings Parties: Pnina Feldman (First Plaintiff/First Applicant)
Rabbi Yosef Feldman (Second Plaintiff/Second Applicant)
Pincus Feldman (Third Plaintiff/Third Applicant)
Blake Napier Ltd (First Defendant/First Respondent)
Michael Moss (Second Defendant/ Second Respondent)
Ian Levi (Third Defendant/Third Respondent)
Richard Gelski (Fourth Defendant/Fourth Respondent)
Carl Reid (Fifth Defendant/Fifth Respondent)Representation: J A D Needham SC (Applicants/Plaintiffs)
G M McGrath (Applicants/Plaintiffs)
P M Wood (Respondents/Defendants)
J Horowitz (Respondents/Defendants)
Arnold Bloch Leibler (Applicants/Plaintiffs)
DSM Austin (Respondents/Defendants)
File Number(s): 2011/231327
Judgment
Introduction
Rabbi Pinchus Feldman is a well-known member of the Orthodox Jewish community in Sydney. On 14 December 2003, he entered into a deed of settlement (the Deed ) with a large number of other parties in relation to proceedings to which he was a party concerning the management of the Jewish school then known as Yeshiva College. The college was operated by Yeshiva College Limited and Yeshiva Jewish Day School Limited. Both those companies are also parties to the Deed.
Under the terms of the Deed, the then trustees (referred to in the Deed as "Newco") of the Blake Napier Property Trust (the Trust ), who are the second to fifth defendants in these proceedings, agreed in their capacity as trustees of the Trust, to pay an amount of $541,000 (defined in the Deed as the "Feldman Restraint Consideration") in accordance with the Deed in consideration for Rabbi Feldman agreeing to a number of restraints set out in the Deed. The amount of $541,000 was primarily intended to indemnify Rabbi Feldman and the other former directors of Yeshiva College Limited and Yeshiva Jewish Day School Limited, who included Pnina Feldman (Rabbi Feldman's wife) and Yosef Feldman (Rabbi Feldman's son), against tax liabilities they had incurred as directors of those companies. In these proceedings, Rabbi Feldman and his wife and son sue Newco and the first defendant, Blake Napier Ltd, which replaced Newco as trustee of the Trust on or about 29 January 2004, for the sum of $541,000. In response, the defendants plead that Rabbi Feldman breached the restraints imposed on him and that his wife and son induced that breach. The defendants seek to set-off the amount of their claim against the amount claimed by the plaintiffs.
This judgment concerns two motions filed on behalf of the plaintiffs. The first seeks summary judgment in relation to part of the $541,000. The second seeks determination as a separate question the question whether, as a matter of law, the defendants are entitled to set-off the amount they claim against the amount claimed by the plaintiffs.
The Deed
The relevant obligations are set out in cl 12 of the Deed. Sub-clause 12(1) provides:
In consideration of the mutual promises contained in this deed and in consideration of the payment by Newco of the Feldman Restraint Consideration in accordance with the provisions of this clause, RPF [that is, Rabbi Feldman] agrees to abide by each of the restraints contained in this clause, from the date of this deed.
Sub-clause 12(3) provides:
The benefit of each of the restraints contained in this clause enures in favour of Newco and Yeshiva College and the successors and assigns of Newco and Yeshiva College.
The restraint is set out in sub-clause 12(4). That sub-clause provides that Rabbi Feldman "covenants with Newco" that he would not, among other things, be concerned in, as consultant or spiritual leader, a school which competed with the activities "of the Yeshiva College either by offering all or predominantly secular education or all or predominantly Jewish education" within a radius, relevantly, of 30 kilometres from Dover Heights during the period of 18 months commencing on the date of the Deed.
Sub-clauses 12(5) and 12(6) provide:
(5) RPF irrevocably authorises and directs Newco to negotiate with the ATO on behalf of RPF and the other former directors of Yeshiva College a possible reduction in the amount of the Tax Debt. RPF must sign all documents and do all things to assist Newco in carrying out any such negotiations with the ATO.
(6) On the later of the following dates:
(a) the date on which the negotiations with the ATO by Newco are complete; and
(b) the date of completion of the Dover Heights Contract
the Feldman Restraint Consideration will become payable and RPF hereby irrevocably directs Newco to pay the Feldman Restraint Consideration as follows:
(c) the amount necessary to discharge the Tax Debt (as reduced by any amount agreed by the ATO) to the ATO, but not exceeding $541,000; and
(d) the balance (if any) shall be paid by Newco to RPF on the expiration of eighteen (18) months from the date of this deed provided that RPF complies with all of his obligations contained in this clause.
"Yeshiva College" is defined in the Deed to mean Yeshiva College Limited and Yeshiva Jewish Day School Limited and their successors which operate a Jewish day school at Dover Heights. "Tax Debt" is defined to mean "the amount owed by the directors of Yeshiva College to the ATO on account of the director penalty notices issued to them from time to time or such lesser amount as Newco is able to negotiate with the ATO."
Agreed facts
On or about 30 April 2004, Yeshiva College Limited changed its name to Kessler Torah College Limited ( KTC ). That company continues to operate a school at Dover Heights.
On or about 30 June 2004, Blake Napier, as trustee of the Trust, acquired the land on which the school is operated. It leases that land to KTC.
For the purpose of the two motions only, the following facts are also agreed:
- Between January 2004 and June 2005, Rabbi Feldman breached the restraints set out in sub-clause 12(4) of the Deed, having been induced to do so by his wife and son, by being involved with the establishment and operation of a school in competition with the KTC school.
- As a result of Rabbi Feldman's breaches of those restraints, KTC suffered loss and damage in the form of lost school fees, levies and government grants in relation to each child who left the KTC school to attend the Cheder.
- By reason of this loss and damage, KTC was unable to pay all rental monies owing to Blake Napier between 1 July 2004 and 28 February 2009, thereby causing loss to the Trust.
The issues
Originally, the approach taken by the plaintiffs in relation to the motions involved two steps. First, leaving the question of set-off aside, the plaintiffs submitted that the defendants had no arguable defence. Consequently, the plaintiffs maintained that, subject to the question of set-off, they were entitled to summary judgment on their claim. Second, the plaintiffs submitted that, as a matter of law, the defendants were not entitled to a set-off and that the court should determine that question in their favour as a separate question. At the hearing of the motion, however, Mr Wood, who appeared for the defendants, did not seek to raise a defence other than the set-off and who the appropriate parties to any set-off were and Ms Needham, who appeared for the plaintiffs, submitted that the plaintiffs were entitled to summary judgment in relation to the question of set-off, even if the court was not prepared to determine that issue as a separate question.
Two other points should be mentioned. First, the plaintiffs only seek judgment in relation to the amount said to be payable under sub-clause 12(6)(c) of the Deed - that is, the Tax Debt. Rabbi Feldman does not seek judgment in relation to the balance alleged to be payable to him under sub-clause 12(6)(d). He accepts that that claim raises the factual question whether he has complied with all of his obligations contained in cl 12, and that that factual question cannot be determined either on an application for summary judgment or as a separate question. Second, it is accepted by the parties that the only basis for a set-off in this case is in equity. No other form of set-off is relied on.
As a result, the following issues are raised by the motions:
(a) Are each of the plaintiffs entitled to bring a claim for the Tax Debt against each of the defendants?
(b) Is the subject matter of the defendants' cross-claim sufficiently closely connected to the subject matter of the plaintiffs' claim so as to give rise to an equitable set-off?
(c) Are the defendants entitled to bring a claim against the plaintiffs in respect of the losses said to have been suffered as a consequence of Rabbi Feldman's breach of the restraint?
The questions to be answered in relation to those issues are, first, whether summary judgment should be given in respect of them and, second, whether it is appropriate to determine them as separate questions on the material before the court.
Summary judgment
UCPR r 13.1(1) provides:
If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief:
(a) there is evidence of the facts on which the claim or part of the claim is based, and
(b) there is evidence, given by the plaintiff or by some responsible person, that, in belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,
the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires.
There is no dispute that summary judgment should only be granted where it is clear that no reasonable defence is disclosed: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598; Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91.
As to the first issue (who is entitled to bring a claim against whom in respect of the Tax Debt), although the first part of sub-clause 12(6) is expressed in the passive, the obligation to pay the Tax Debt is unarguably placed on Newco. It is Newco that is authorised to negotiate with the ATO and it is Newco that must pay Rabbi Feldman the balance of the $541,000, if any, if the condition set out in sub-clause 12(6)(d) is satisfied. The payment of the Tax Debt is for the benefit of Rabbi Feldman and his wife and son (among others) and each of them is a party to the Deed. Consequently, it seems clear that each of them can sue Newco to recover the amount of the Tax Debt.
On the other hand, it is not clear that the plaintiffs are entitled to judgment in respect of the Tax Debt against Blake Napier. Blake Napier was not originally a party to the Deed. It replaced Newco as trustee of the Trust and, in the defendants' Commercial List Cross-Claim Statement, the defendants plead (in para 8(c)) that, as a consequence of that fact, Blake Napier "is entitled to enforce the Restraints [that is, the restraints imposed on Rabbi Feldman] for its own benefit". However, assuming that Blake Napier is entitled to enforce the benefits of the Deed, it does not follow from that that it became bound by the obligations undertaken by the former trustees. It may have become bound by those obligations as a consequence of conduct engaged in by it after becoming trustee. However, there is no evidence that would support that conclusion; and ultimately, if that is what is alleged, that will be a question of fact for determination at the hearing of the matter. For that reason alone, the plaintiffs are not entitled to summary judgment against Blake Napier.
As to the second issue (the question whether the claim and cross-claim are sufficiently closely connected), that question turns largely on the correct construction of the Deed. However, it may also depend on the precise test that is to be applied in determining whether an equitable set-off should be permitted. Neither of those questions has an obvious answer. As to the test to be applied, there is a question whether, in order for an equitable set-off to arise, the cross-claim must impeach the claim against which the set-off is said to operate or whether it is sufficient that it would be "unjust or inequitable" not to permit the set-off . Historically, courts applied the narrower test of impeachment. However, there are a number of decisions in New South Wales that have adopted the broader test of what is just and equitable: see, for example, AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 712 per Giles J; Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326. Those decisions have been criticised: see R Meagher, D Heydon, M Leeming, Meagher, Gummow & Lehane's Equity Doctrines and Remedies , 4 th ed (2002) Butterworths at [37-050]. See also R Derham on The Law of Set-Off, 4 th ed (2010) Oxford University Press at 4.22ff. However, I do not think it can be said that it is clear that the court should apply the narrower rather than the broader test in this case.
In any event, whichever test applies, I do not think that it can be said that it is clear that the defendants cannot set-off amounts properly recoverable for Rabbi Feldman's breach of the restraint against the amount claimed by the plaintiffs in respect of the Tax Debt. Clause 12(1) of the Deed provides that Rabbi Feldman agrees to abide by the restraint in consideration for "the payment by Newco of the Feldman Restraint Consideration in accordance with the provisions of this clause". Sub-clause 12(6) then sets out how that payment is to be made. It is arguable that the effect of sub-clause 12(6) is to displace the set-off that would otherwise arise under sub-clause 12(1) because it appears to require payment of the Tax Debt on the later of the two dates identified in sub-clauses 12(6)(a) and (b) (come what may), whereas sub-clause 12(6)(d) only requires the balance to be paid to Rabbi Feldman provided he complies with his obligations under cl 12. However, I do not think that the position is so clear that it can be said that the set-off on which the defendants rely is unarguable. It might still be argued on the basis of sub-clause 12(1) that Newco agreed to pay the $541,000 to secure Rabbi Feldman's compliance with the restraint and that a claim that Rabbi Feldman breached the restraint impeaches (to use the narrower test) the claim for any part of the $541,000 and not simply that part (if any) to be paid to Rabbi Feldman. If a set-off exists in relation to the defendants' claim that Rabbi Feldman breached sub-clause 12(4) of the Deed, then it is also at least arguable that a set-off arising from the defendants' claim that Rabbi Feldman's wife and son induced Rabbi Feldman to breach sub-clause 12(4) can be pleaded in defence to their claim for payment of the Tax Debt. Although it may be more difficult to say that the former claim impeaches the latter, it is at least arguable that it would be unjust and inequitable to permit Rabbi Feldman's wife and son to recover in respect of the Tax Debt when, presumably, that recovery will operate to the benefit of Rabbi Feldman and, on the facts that have been agreed for the purposes of the motions, they induced the breach which gives rise to a right of set-off in relation to Rabbi Feldman's own claim.
As to the third issue (whether the defendants are entitled to bring the claim said to give rise to the set-off), Ms Needham pointed out that the loss said to arise from Rabbi Feldman's breach of the restraint clause falls into two categories. First, it is alleged that KTC lost pupils as a consequence of that breach. Second, it is alleged that, as a consequence of KTC's loss of pupils, it was unable to pay rent and the trustee of the Trust was entitled to recover that lost rent as damages. Ms Needham submitted that the lost school fees, levies and government grants are not losses in respect of which the trustee can sue and the lost rent is too remote from the alleged breach to be reasonable.
In my opinion, there is force in Ms Needham's submission in relation to the school fees, levies and government grants. Mr Wood submitted that Newco may be entitled to bring proceedings to recover those amounts on the basis that it was a trustee of the promise by Rabbi Feldman to comply with the restraints in cl 12 for the benefit of KTC. However, it is difficult to see why a trust of that type would arise in circumstances where KTC is a party to the Deed and is entitled to enforce it itself. The problem with the set-off in this respect is that the lost school fees, levies and government grants are losses suffered by KTC. That point is highlighted by the fact that KTC has brought separate proceedings against Rabbi Feldman to recover these losses. Even assuming that Newco or Blake Napier could sue in respect of those losses, it is difficult to see why they should be entitled to set-off the amount recovered against an amount which is said to be owing by Newco (but which is not an amount which is owing by KTC).
There may also be considerable force in Ms Needham's submission that the loss of lease payments claimed by Newco or Blake Napier are too remote from Rabbi Feldman's alleged breaches of the restraint to be recoverable. However, I do not think that the position in relation to that claim is so clear that summary judgment should be given in favour of Rabbi Feldman. The question of remoteness cannot be determined simply on the facts alleged and admitted on the pleadings. In the case of the claim against Rabbi Feldman, the question of remoteness is to be answered by reference to the principles derived from Hadley v Baxendale (1854) 9 ExCh 341; 156 ER 145. Under those principles, remoteness is to be determined having regard to what was within the contemplation of the parties: see Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986)161 CLR 653 at 675 . What was within the contemplation of the parties in this case is a matter for evidence.
In the case of the claim against Rabbi Feldman's wife and son, the question of remoteness is to be determined by reference to whether the lost rent was reasonably foreseeable at the time of breach: Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound (No 1)) [1961] AC 388. Again, evidence of the circumstances that existed at the time of breach is likely to be relevant to that question. It follows that the plaintiffs are not entitled to summary judgment in relation to the defendants' claim of a set-off.
Separate Question
UCPR r 28.2 provides:
The court may make such orders for the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings.
In the past, courts have been reluctant to make orders for the determination of separate questions: see Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55 per Kirby and Callinan JJ; Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7] per Einstein J. More recently, since the passing of the Civil Procedure Act 2005, it has sometimes been suggested that courts should be more willing to order separate questions in order to give effect to ss 56 and 57 of the Civil Procedure Act. Those sections require the court, when exercising any power given to it by the Act or the rules of the court and in managing proceedings, to do so in a way which facilitates the just, quick and cheap resolution of the real issues in dispute: see Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 at [6] per Brereton J.
However, even if a more relaxed approach should now be taken to the question whether a separate question should be ordered, in my opinion, this is not an appropriate case in which to make such an order. A separate question would not save any time or costs. Whatever answer is given to the separate question, it will still be necessary to determine the issues raised by the defendants' cross-claim. The only consequence of determining the separate question is that, if it is determined in the plaintiffs' favour, they will recover the amount of the Tax Debt immediately. However, there is no evidence that they will suffer any particular hardship if they are required to wait for that issue to be determined at the same time as the issues raised by the cross-claim. The evidence is that Rabbi Feldman has entered into an agreement to pay the amount of the Tax Debt over time and there is no evidence to suggest that he is unable to meet the payment schedule agreed with the ATO. Moreover, as I have indicated, I do not think that the issues raised by the defendants' set-off defence are purely questions of law. Evidence of the surrounding circumstances and what was within the contemplation of the parties is likely to be relevant to the questions that must be resolved. That makes it inappropriate to determine the question of set-off separately from the other issues in the case.
The plaintiffs' motions filed on 24 March 2011 should be dismissed. I will hear the parties in relation to costs.
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Decision last updated: 27 May 2011
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