Gotha Investments Pty Ltd v Westons Property (Vic) Pty Ltd and Bennett
[2012] VCC 1161
•17 August 2012
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised Not Restricted Suitable for Publication |
DAMAGES AND COMPENSATION LIST
GENERAL DIVISION
Case No. CI-08-03096
| GOTHA INVESTMENTS PTY LTD (ACN 004 584 641) | Plaintiff |
| v | |
| WESTONS PROPERTY (VIC) PTY LTD (as trustee for WESTONS PROPERTY (VIC) TRUST) (ACN 100 554 390) | Defendant |
| and | |
| GEOFFREY BRUCE BENNETT | Third Party |
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JUDGE: | HER HONOUR JUDGE KINGS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 May 2012 | |
DATE OF JUDGMENT: | 17 August 2012 | |
CASE MAY BE CITED AS: | Gotha Investments Pty Ltd v Westons Property (Vic) Pty Ltd & Bennett | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1161 | |
REASONS FOR JUDGMENT
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SUBJECT – Breach of contract – negligence
CATCHWORDS – undefended
LEGISLATION CITED – Evidence Act 2008
JUDGMENT – Judgment for the plaintiff.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Bick QC with Mr B Gibson | Andrew Blaak |
| For the Defendant | Mr T Scotter | Robinson Gill |
| For the Third Party | Mr M Bromley | Moores Legal |
HER HONOUR:
Preliminary
1 This proceeding was listed for trial on 2 May 2012. All parties were represented by counsel. Counsel for the defendant sought leave to be excused from the further conduct of the proceeding as the defendant was without funds. Counsel for the defendant informed me that the solicitors for the defendant would remain on the record for the purpose of service of documents. I excused counsel for the defendant. The defendant took no part in the proceeding.
2 Counsel for the third party then sought an order that I dismiss the defendant’s claim against the third party. The third party is Mr Bennett, a director of the plaintiff and former employee of the defendant. Mr Bennett retired from the defendant’s employment in 2007. While employed as a sales agent by the defendant, Mr Bennett handled the sale of the Cranbourne property on behalf of the defendant. Mr Bennett was joined as a third party on the basis that he breached an implied term of his employment agreement with the defendant, in that he failed to exercise reasonable skill and care. The defendant alleged that Mr Bennett knew the defendant was required to insure Mr Remple’s properties and failed to take steps to insure one of Mr Remple’s properties. I dismissed the defendant’s claim against the third party and ordered the defendant to pay the third party’s costs to be agreed within 30 days, otherwise such costs to be taxed. I ordered the costs of 2 May 2012 be paid on an indemnity basis; otherwise costs were on a party-party basis.
3 The effect of the above was that the plaintiff’s proceeding became undefended.
Amendment of the Statement of Claim
4 Counsel for the plaintiff sought leave to rely on an Amended Statement of Claim. I was informed that a copy had been provided to the defendant’s counsel prior to the trial. The effects of the amendments were as follows:
(a)In paragraph 4, the amendment provided more detailed particulars of the Property Management Agreement between the plaintiff and the defendant.
(b)In paragraph 5, the particulars were amended to include particulars of the conversation between the plaintiff and the defendant in February 2005.
(c)In paragraph 13, the plaintiff provided updated particulars of loss and damage. The total amount claimed in the proceeding is $590,134.76.
5 I granted leave to the plaintiff to amend its Statement of Claim in the form of the document produced to me in Court.
Background
6 The plaintiff, Gotha Investments Pty Ltd (“Gotha Investments”), is one of a number of companies that was incorporated by the late Mr Herbert Remple to hold commercial property investments. Mr Remple, through his various companies, owned properties, including commercial investment properties at Mitcham, Balwyn, Nunawading and Cranbourne, a home in Surrey Hills and a farm in Cheshunt.
7 As at March 2004, Elders Real Estate (“Elders”) managed six properties, including the farm property at Cheshunt. Five other properties were managed by the defendant.
8 Mr Remple was elderly (in his mid-seventies) and was assisted by Mr Bennett, the third party, and Mrs Mathies, his longstanding bookkeeper. Ultimately, Mr Mathies and Mr Bennett became directors of the plaintiff.
9 In late 2006, Mr Remple died.
10 In early 2004, while Mr Remple was overseas, there was a fire at the farm property in Cheshunt, with the result that the farm buildings and contents were destroyed. Mr Remple was advised by his then agent at Elders that the buildings had not been insured.
11 As a result of Elders’ failure to insure the property, Mr Remple transferred the management and insuring of all his properties to the defendant. In February 2005, a meeting was held whereby Mr Remple informed the representatives of the defendant that he wished to engage the defendant to manage all his properties, which included insuring all properties. On 14 February 2005, exclusive lease and management authorities were executed for each property and the defendant managed the properties in accordance with the authorities and arranged insurance for each property.
12 On 12 July 2005, Mr Remple purchased a property, being 233 South Gippsland Highway, Cranbourne (“the Cranbourne property”). The registered proprietor of the Cranbourne property was the plaintiff. On 1 October 2005, Mr Remple, on behalf of the plaintiff, executed a lease and management authority in respect of the property at Cranbourne. The lease and management authority was in the same terms as the authorities for the management of the other properties, pursuant to which insurance had been arranged. The Cranbourne property was subject to a lease to Hudson Building Supplies Pty Ltd. The tenant was not obliged to insure the property. The defendant sought particulars of the insurance for the property. A cover note was provided indicating that the property was covered for industrial special risks, that is, risks associated with the timberyard business of the tenant. The cover did not provide insurance in respect of the buildings.
13 In June 2007, Hudson’s lease was surrendered and a new lease entered into with Dahlsens. Clause 6.2 of the lease and item 11 provided that the landlord must take out insurance.
14 On 2 October 2007, intruders broke into the office at the Cranbourne property and, after stealing money and equipment, set fire to the building. The offices, front shop and hardware area were destroyed and parts of the warehouse were damaged. It became apparent that the defendant had not insured the property.
The Proceeding
15 The plaintiff alleges two causes of action against the defendant. The first is a breach of contract and the second is in negligence.
16 In respect to the cause of action in breach of contract, the plaintiff alleges the defendant agreed to manage the Cranbourne property and act as managing agent. The agreement was partly oral, partly in writing and partly to be implied. It was a term of the property management agreement that the defendant would arrange to insure the Cranbourne property on behalf of the plaintiff against damage and loss by fire. Further, that the defendant would inform the plaintiff if it was unable to arrange or obtain such insurance.
17 The defendant breached the property management agreement by failing to comply with this term.
18 In respect to the cause of action in negligence, the plaintiff alleges that the defendant owed it a duty of care to act with reasonable care and breached that duty by failing to insure the Cranbourne property or not informing the plaintiff that the property was not insured.
19 By reason of the defendant’s breaches of the property management agreement and/or by reason of the defendant’s negligence, the plaintiff suffered loss and damage of $590,134.76.
The Evidence
20 Counsel for the plaintiff relied upon documents in the Court Book. Those documents were all business records of the plaintiff, being either its own records or records of its agent, the defendant. Those documents were tendered under s48 of the Evidence Act 2008.
21 The plaintiff relied upon the evidence of Mrs Mathies and Mr Bennett to verify the authenticity of the documents that were tendered. They also provided further evidence.
Renate Maria Mathies
22 Mrs Mathies said she and Mr Geoffrey Bennett were the executors of the estate of Mr Remple and were directors of various companies that owned the properties comprising the estate, including the plaintiff.
23 Mrs Mathies said that she and her husband had been associated with Mr Remple as a friend and business partner. She had been Mr Remple’s bookkeeper since the early 1970s, managing the books and accounts of the plaintiff and other companies in the Remple group. She agreed the documents counsel referred to in the Court Book were part of the business records of the plaintiff or documents of its agent, the defendant.
24 She said that she attended two meetings with Mr Remple and representatives of the defendant. The first meeting took place in 2005. She attended that meeting with Mr Remple, her husband and Mr Ross Wood of the defendant. She said Mr Remple told Mr Wood that he was very unhappy that Elders had not insured the Cheshunt property, which had then burnt down. At the meeting, Mr Remple said that as a result, he would like the defendant to manage all his properties, including arranging for the properties to be insured. Mr Wood agreed and said he would arrange a further meeting with Mr Fonstin of the defendant.
25 A few weeks later, a further meeting was arranged which was attended by Mr Remple, herself and her husband, and representatives of the defendant, being Mr Bennett, Mr Fonstin, Mr Wood and Mr Bata. At that time, Mrs Mathies said Mr Bennett was employed by the defendant in sales. Mr Bata and Mr Wood were employed as managing agents, which meant that they had the responsibility for managing all aspects of the rental properties. At the meeting, Mr Remple said that he wanted to ensure all his properties were insured. Mr Fonstin and Mr Wood agreed that they would insure all the properties for him. Mr Wood and Mr Bata arranged the insurance for the properties.
26 Ms Mathies said subsequent to the meetings, the plaintiff purchased a further property, the Cranbourne property, which was subject to a lease. The defendant managed that property. She verified the loss and damage suffered by the plaintiff.
27 I accept the evidence of Mrs Mathies. Mrs Mathies’ evidence was corroborated by Mr Geoffrey Bennett and by the documentary evidence.
Geoffrey Bennett
28 Mr Bennet said that the management of the rental properties, including insurance, was handled by the defendant’s property department, in particular, by Mr Wood, Mr Bata and Ms Oakley. He was employed by the defendant in the selling of commercial properties.
29 Mr Bennett said he had not conferred with the legal representative of the plaintiff as he had been represented by his own counsel and solicitors as he was joined as a third party to the proceeding.
30 Mr Bennett said that he was familiar with the documents in the Court Book which were the business documents of either the plaintiff or its agent, the defendant.
31 At the time of the fire at the Cranbourne property, Mr Bennett said he was no longer employed by the defendant. At the time of the fire, he believed the property was insured by the defendant because Mr Wood assured him that the properties were insured. He said he had frequent discussions with Mr Wood about the insurance of the properties that the defendant was managing.
32 Mr Bennett said at the time the Cranbourne property was purchased, he said to Mr Wood:
“You know the drill – make sure its insured.”
33 He said, Mr Wood agreed to insure the property.
34 After the fire, Mr Bennett said he, as a director of the plaintiff, spoke with Mr Fonstin about the insurance. Mr Fonstin believed the property was insured but could not find the file. Mr Wood told him two or three days after the fire that the property was uninsured. Mr Bennett attended a meeting with Mr Fonstin, who said the defendant’s insurance would cover the damage and he (Mr Fonstin) had been told not to admit liability.
35 I accept the evidence by Mr Bennett. Mr Bennett’s evidence was corroborated by the evidence of Mrs Mathies and was consistent with the documentary evidence.
Documentary Evidence
36 The documentary evidence was that on 14 February 2005, exclusive lease and management authorities (the authorities) were executed in respect of each of the properties then held. Mr Remple signed the authorities on behalf of the plaintiff. The signature of the agent was illegible.[1] Each authority established that it was the defendant’s function to arrange and pay for the building insurance, which the defendant was then to collect as one of the lessee’s outgoings.
[1]I was taken to the written authorities for 2 Griffin Close, Surrey Hills; 274 Whitehorse Road, Balwyn; 430 Whitehorse Road, Balwyn; 535 Whitehorse Road, Nunawading; 545 Whitehorse Road, Nunawading; Factory 1, 21-25 Redland Drive, Mitcham; 27 Redland Drive, Mitcham; 19 Redland Drive, Mitcham; Lot 1, 634-644 Mitcham Road, Mitcham, and Lot 2, 634-644 Mitcham Road, Mitcham.
37 I was provided with the insurance policies arranged by the defendant from 2004 through to 2008 for the properties it managed for the plaintiff. All the policies had a common expiry date each year on 7 May.
38 I was provided with the renewal tax invoice issued by BJS Insurance Brokers, the broker used by the defendant. The invoices were issued to the plaintiff, care of the defendant. On the invoices was a stamp with a crediting code, property code, charge tenant, “yes or no?”, hold until payment “yes or no?”, the amount, then “authorised by”.
39 I was taken to the invoice for 19 Redland Drive, Mitcham. Beside “authorised by” were the initials “AB”. Counsel for the plaintiff said his client understood the initials to mean Mr Bata.
40 The defendant collected the insurance premiums for all of the properties. I was referred to the defendant’s invoices, an income and expense summary provided to the plaintiff which confirmed that the cost of the insurance had been charged to the tenant and then deducted from the income received in order for the defendant to pay the insurance.
41 I accept that the documentary evidence confirms that the defendant arranged and paid for insurance for the properties it managed on behalf of the companies of Mr Remple, other than the Cranbourne property.
The Cranbourne Property
42 On 12 July 2005, the plaintiff purchased the Cranbourne property through Mr Bennett, who at that time was a sales agent for the defendant. Mr Bennett said that he passed the file to Mr Wood, and asked Mr Wood to make sure the property was insured.
43 On 1 October 2005, Mr Remple, on behalf of the plaintiff, executed a lease and management authority (the Cranbourne authority) in respect of the Cranbourne property. The Cranbourne authority was in the same terms as the authorities for management of the other properties, whereby the defendant was given authority to manage the property and pursuant to which insurance had to be arranged by the defendant.
44 The General Conditions of the defendant’s retainer contained in the authority defined “managing” to mean:
“Managing the Property and/or the collection of rent, body corporate contributions, interest and/or other fees and amounts in any way connected with the Property. Managing Expenses are those expenses relating to the Managing of the Property and accounting to the Client.”
45 The Agent’s Fee Schedule in the Authority provided that the defendant received a management fee of $235.73 per calendar month. The authority continued for the life of the lease.
46 I was taken to the defendant’s Commercial Property Management and Leasing Instructions Form signed by Mr Remple, which stated:
“It is our practice to pay all expenses incurred for your property from the rents received. This is done in order to provide you with comprehensive income and expenditure statements. We can act on your behalf when dealing with local and state authorities, water and sewerage, electricity and gas suppliers and body corporate manager, insurers and maintenance contractors. If, however, you do not wish for us to do that, we require your instructions to that affect.”
47 There was no evidence that the plaintiff gave instructions contrary to the defendant’s standard practice.
48 The Cranbourne property was subject to a lease to Hudson Building Supplies Pty Ltd.
49 On 7 October 2005, by letter, the defendant advised the tenant that it was the managing agent, and requested:
(a) that the plaintiff, as owner, be noted on all insurance policies
(b) a copy of the insurance policies outlining current levels of cover be provided, and
(c) a certificate of currency be provided.
50 The defendant assumed the tenant had insured the building.
51 On 1 November 2005, the tenant provided to the defendant a Certificate of Currency for an industrial special risks policy with CGU from June 2005 to June 2006, which included the contents of the warehouse and the office, but did not cover the building.
52 The plaintiff submitted, and I accept, that the letter of 7 October 2005 demonstrates a consciousness in the defendant of its obligation to ensure the building was insured.
53 In April 2007, Hudsons’ lease was surrendered and a new lease entered into with Dahlsens. I was referred to an application for the transfer dated 24 April 2007 signed by a representative of Dahlsens. I was informed that the existing lease had a short period to run and that Dahlsens required a longer lease, so a new lease was entered into between the plaintiff and Dahlsens. I was taken to that lease, which was prepared by Coadys, solicitors for the plaintiff, and was forwarded to the defendant.
54 Clause 6.2.1 of the lease provided:
“The landlord must take out at the start of the term and keep current policies of insurance for the risks listed in item 11 against
– damage to and destructions of the building, for its replacement value.”
55 Item 11 in the schedule to the lease listed the risks which insurance policies had to cover, and included, amongst others, risk of fire.
56 Clause 5.4.1 of the lease provided:
“In relation to building outgoings, the parties agree –
The landlord must pay the building outgoings when they fall due for payment but may require the tenant … to reimburse the landlord within 7 days of a request … .”
57 Building outgoings were defined in clause 1.1 of the lease, and included, amongst other things:
“Premiums and charges for the following insurance policies taken out by the landlord –
- damage to and destruction of the premises for their replacement value for the risks listed in item 11.”
58 I accept that, under the lease, the plaintiff was required to insure the building against, amongst other things, fire, and Dahlsens was obliged to reimburse the plaintiff for the cost. I accept that under the Cranbourne agreement this was the responsibility of the defendant.
59 I was informed that the defendant was aware of and knew the terms of the lease. The defendant wrote to Dahlsens pointing out terms in the draft lease that required amendment.
60 On 2 October 2007, intruders broke into the Dahlsens’ office and after stealing money and equipment, set fire to the building. The offices, front shop and hardware area were destroyed and parts of the warehouse were damaged. In evidence, Mr Bennett said he believed the property was insured. He was not aware the property was uninsured. I was referred to extracts of Mr Bennett’s diary on 2, 5, 8 and 9 October 2007, which confirm he was following up the insurance issue with the defendant. By 10 October 2007, he was suggesting that insurance be taken out on the property. I was also taken to a file note prepared by Mr Fonstin of 3 October 2007 which noted that the defendant could not find a copy of the policy. I was informed that the defendant insured the property after the fire.[2]
[2]This was supported by documentation in the Court Book, including a quotation for the property prepared by BJS Insurance Brokers on the instruction of the defendant; an email from Jason Toy of BJS Insurance Group dated 18 October 2007 confirming “that cover is in place as at 17 October 2007”, and a tax invoice from BJS Insurance Brokers dated 30 October 2007 for the policy invoice.
61 The evidence of Mr Bennett and Mrs Mathies was that over the weeks following the fire, the defendant first claimed to have insurance but said they had difficulty finding the details of the policy. The defendant made extensive searches for the insurance documents before finally conceding that there was no insurance for the property. Further, upon discovering the building was not insured, Mr Fonstin first reassured Mr Bennett not to worry, and said that he (Mr Fonstin) was protected by his own insurance. In November 2007, Mr Fonstin was told by his insurer not to admit any liability and discussion between the parties broke down.
62 I was provided with tax invoices of the defendant for the period 18 October 2005 through to 24 March 2009. The insurance premium for the Cranbourne property collected from Dhalsens for the first time was in June 2008. I was told that there was no issue raised by the tenant in connection with payment of the insurance for the building. The tenant accepted it was its responsibility under the lease to reimburse the plaintiff for the premium.
63 Over the next twenty-six months, the buildings that had been damaged at the Cranbourne property were rebuilt by the Johns Lyng Group. The cost for that work totalled $513,876.76. I was provided with invoices/progress claims and loss and damage receipts from Johns Lyng Group totalling $463,491.95. I was provided with receipts for the remaining items, bringing the total cost to $513,876.76. I was informed that the plaintiff engaged a quantity surveyor to cost the reinstatement works as at 2009 cost levels, excluding GST. The quantity surveyor estimated the cost of reinstatement in excess of the figure provided by the Johns Lyng Group.
64 As a result of the fire, under the terms of the lease it was necessary to reduce the rent payable by Dahlsens during the period of rebuilding. The agreed reduction in rent was $35,200 per annum, or $76,258 over the period of the work. I was taken to the agreement.
65 The evidence was that the defendant was involved in managing the rebuilding after the fire. I was referred to emails dated 18 April 2008 where the defendant was dealing with the City of Casey over aspects of the rebuild. Emails of the defendant dated 21 and 22 April 2008 confirm that the defendant was dealing with property maintenance providers over the reinstatement of the Cranbourne property. The evidence was that as at 1 May 2008, the defendant sought quotes from other insurers through BJS, its broker, and ultimately moved the policy for the Cranbourne property to AMP.
Findings
66 I am satisfied on the balance of probabilities:
(i) That in February 2005, the plaintiff engaged the defendant to be the exclusive management agent of its properties.
(ii) That under the management authorities, the defendant was required to ensure that all properties were insured, in particular, against fire.
(iii) That under the authorities, the defendant was responsible for collecting rent and outgoings from the tenant and deducting and paying all outgoings on the respective properties before accounting to the plaintiff.
(iv) That the defendant performed its obligations in respect to the authorities dated 14 February 2005.
(v) On 12 July 2005, the plaintiff purchased the Cranbourne property.
(vi) On 1 October 2005, the plaintiff executed the Cranbourne authority, which was in the same terms as the authorities executed on 14 February 2005, whereby the defendant was given authority to manage the Cranbourne property, pursuant to which insurance had to be arranged by the defendant.
(vii) At the time of purchase, the Cranbourne property was subject to a lease to Hudson Building Supplies Pty Ltd.
(viii) Pursuant to the Cranbourne authority, the defendant wrote to the tenant and sought details of the current levels of insurance, informing the tenant to notify the defendant of the insurance coverage. I accept that this demonstrates that the defendant knew of its obligation under the Cranbourne authority to ensure the property was adequately insured.
(ix) The defendant failed to meet its obligations under the Cranbourne authority because it failed to identify that the tenant had not insured the property and it did not take steps to insure the property.
(x) In 2007, the plaintiff entered a new lease with Dahlsens. Under that lease, it was the plaintiff’s obligation to keep the property insured and to seek reimbursement from the tenant.
(xi) The defendant was aware of the plaintiff’s obligations under the lease and that those obligations passed to it under the Cranbourne authority.
(xii) The defendant failed to insure the property, which breached the Cranbourne authority.
67 Accordingly, I find the defendant responsible for the reinstatement of the property, totalling $513,876.76. In addition, I accept that as a result of the fire, under the terms of the lease, the plaintiff was required to reduce the rent payable by Dahlsens, which was agreed at $35,200 per annum or $76,258 over the period of the work.
68 Accordingly, I assess damages at $590,134.76.
69 In addition, the plaintiff claims interest from the date of the issue of the Writ until judgment, which I propose to allow.
70 I will hear counsel on the amount for interest.
71 I will hear counsel as to the precise form of orders sought and on the issue of costs.
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