Hardie Finance Corporation Pty Ltd v Ahern [No 3]
[2010] WASC 403
•22 DECEMBER 2010
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: HARDIE FINANCE CORPORATION PTY LTD -v- AHERN [No 3] [2010] WASC 403
CORAM: PRITCHARD J
HEARD: 15 JUNE - 2 JULY & 2023 JULY 2010
DELIVERED : 22 DECEMBER 2010
FILE NO/S: CIV 1426 of 2000
BETWEEN: HARDIE FINANCE CORPORATION PTY LTD
Plaintiff
AND
MARCUS AHERN
First DefendantFERGUSON CORPORATION PTY LTD
Second Defendant
Catchwords:
Joint tortfeasors - Joint purpose and concerted action
Trespass - Trespass to land - Implied consent to entry - Purported right to enter pursuant to a Romalpa clause
Trespass - Trespass to goods
Trespass - Conversion of goods
Trespass - Apology - Relevance of published apology and settlement deed to liability for trespass
Negligence - Duty of care - Duty to take reasonable care not to cause economic loss to plaintiff
Negligence - Duty of care - Duty of care not to cause economic loss to plaintiff - Vulnerability of plaintiff
Economic torts - Tort of causing loss by unlawful means - Existence of the tort in Australian common law
Legislation:
Chattel Securities Act 1987 (WA)
Fair Trading Act 1987 (WA)
Sale of Goods Act 1895 (WA)
Trade Practices Act 1974 (Cth)
Result:
Action dismissed
Category: A
Representation:
Counsel:
Plaintiff: Mr M L Bennett
First Defendant : Mr D R Williams QC & Mr G K Macnish
Second Defendant : Mr D R Williams QC & Mr G K Macnish
Solicitors:
Plaintiff: Lavan Legal
First Defendant : Cocks Macnish
Second Defendant : Cocks Macnish
Case(s) referred to in judgment(s):
Alleslev-Krofchak v Valcom Limited (Unreported, Court of Appeal for Ontario, 24 August 2010)
Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676
Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots [1991] 1 VR 637
Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452
Barker v The Queen (1983) 153 CLR 338
Beaudesert Shire Council v Smith (1966) 120 CLR 145
Bennett v Minister of Community Welfare (1992) 176 CLR 408
Bonnington Castings Ltd v Wardlaw [1956] AC 613
Brodie v Singleton Shire Council (2001) 206 CLR 512
Bryan v Maloney (1995) 182 CLR 609 618
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
Byrne v Kinematograph Renters Society Ltd [1958] 1 WLR 762
Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' (1976) 136 CLR 529
Canberra Data Centres Pty Ltd v Vibe Constructions (ACT) Pty Ltd [2010] ACTSC 20
CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013
Chappel v Hart (1998) 195 CLR 232
Coco v The Queen (1994) 179 CLR 427
Correia v Canac Kitchens (2008) 91 OR (3d) 353
Credit Lyonnais Bank Nederland NV v Export Credit Guarantee Department [1998] 1 Lloyd's Rep 19
Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1
Cuff v Broadlands Finance Ltd [1987] 2 NZLR 343
DC Thomson & Co Ltd v Deakin [1952] Ch 646
Deepcliffe Pty Ltd v Council of the City of Gold Coast [2001] QCA 342
Deepcliffe Pty Ltd v The Council of the City of Gold Coast [2002] HCATrans 326
Dodd Properties Ltd v Canterbury City Council [1980] 1 WLR 433
D'orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1
Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317
Driver v War Services Homes Commissioner (1923) 44 ALT 130
Duyvelshaff v Catchcart & Ritchie Ltd (1973) 47 ALJR 410
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43
Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Fazlic v Milingimbi Community Inc (1982) 150 CLR 345
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473
Fitzgerald v Penn (1954) 91 CLR 268
Fortuna Seafoods Pty Ltd v The Ship 'Eternal Wind' [2008] 1 Qd R 429
Garret v Taylor (1620) Cro Jac 567
General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 227 CLR 305
Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540
Halliday v Nevill (1984) 155 CLR 1
Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584
Henville v Walker (2001) 206 CLR 459
Hill v Van Erp (1997) 188 CLR 159
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
John Fairfax & Sons Ltd v Vilo (2001) 52 NSWLR 373
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2003) A Tort Rep 81‑692; [2003] VSC 27
JT Stratford & Son Ltd v Lindley [1965] AC 269
Kuru v The State of New South Wales (2008) 236 CLR 1
Lincoln Hunt Australia Pty Ltd v Willesee (1986) 4 NSWLR 457
Lister v Romford Ice & Coal Storage Co Ltd [1957] AC 555
Livingstone v Rawyards Coal Company (1880) 5 App Cas 25
Louis Vuitton Malletier SA v Toea Pty Ltd (2006) 156 FCR 158
Lumley v Gye (1853) 2 El & Bl 216
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Marinko v Masri (2000) A Tort Rep 81-581
Meretz Investments NV v ACP Ltd [2008] 2 WLR 904
Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507
Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383
Murphy v The Queen (1989) 167 CLR 94
Nagle v Rottnest Island Authority (1993) 177 CLR 423
Naxakis v Western General Hospital (1999) 197 CLR 269
Northern Territory of Australia v Mengel (1995) 185 CLR 307
OBG Ltd v Allan [2008] 1 AC 1
Oren v Red Box Toy Factory Ltd [1999] FSR 785
Orica Investments Pty Ltd v McCartney [2007] NSWSC 645
Parker v South Australian Housing Trust (1985) 41 SASR 493
Patrick Stevedores Operations Pty Ltd v The Maritime Union of Australia (Unreported, WASC, Library No 980215, 23 April 1998)
Perre v Apand Pty Ltd (1999) 198 CLR 180
Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
Pinky's Pizza Ribs on the Run Pty Ltd v Pinky's Seymour Pizza & Pasta Pty Ltd (1997) ATPR 41‑600
Plenty v Dillon (1991) 171 CLR 635
Protective Commissioner v D (2004) 60 NSWLR 513
Purkess v Crittenden (1965) 114 CLR 164
Quinn v Leathem [1901] AC 495
RCA Corporation v Pollard [1983] Ch 135
Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174
Robson v Hallett [1967] 2 QB 939
Rogers v Whitaker (1992) 175 CLR 479
Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431
Rookes v Barnard [1964] AC 1129
Rosenberg v Percival (2001) 205 CLR 434
Sanders v Snell (1998) 196 CLR 329
Scott v Pedler [2003] FCA 650
Scott v Pedler [2004] FCAFC 67
Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322
Spotwire Pty Ltd v Visa International Service Association Inc [2003] FCA 762
Sullivan v Moody (2001) 207 CLR 562
Sutherland Shire Council v Heyman (1985) 157 CLR 424
Swingcastle Ltd v Alastair Gibson (a firm) [1991] 2 AC 223
Talbot and Olivier (a firm) v Witcombe [2006] WASCA 87; (2006) 32 WAR 179
Tame v State of New South Wales (2002) 211 CLR 317
Tarleton v M'Gawley (1794) Peake 270
TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
TCN Channel Nine Pty Ltd v Anning (2002) 54 NSWLR 333
The Koursk [1924] P 140
The State of New South Wales v Ibbett (2006) 229 CLR 638
Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574
Tobin v Dodd [2004] WASCA 288
Tubemakers of Australia Ltd v Fernandez (1976) 50 ALJR 720
Ultramares Corporation v Touche (1931) 174 NE 441
Unilever Plc v Gillette (UK) Ltd [1989] RPC 583
Vairy v Wyong Shire Council (2005) 223 CLR 422
Watts v Rake (1960) 108 CLR 158
Wenham v Ella (1972) 127 CLR 454
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
Wyong Shire Council v Shirt (1980) 146 CLR 40
X v Amalgamated Television Services Pty Ltd (No 2) (1987) 9 NSWLR 575
Zheng v Cai (2009) 239 CLR 446
Zhu v Sydney Organising Committee for the Olympic Games [2001] NSWSC 989
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530
Table of Contents
Overview
The issues
Summary of conclusions
1. Factual background
(a) The parties, the primary participants in the events giving rise to this action, and the witnesses
(b) Findings as to the credibility of the witnesses
(c) Events prior to the Repossession
(i) The leases in respect of the premises and of Shop 28
(ii) The negotiations for the fit‑out of the Premises
(iii) The Contract for the fit‑out and the Romalpa clause
(iv) The Contract Variation
(v) The dispute between FC and Pac-Am in relation to payment for the fit‑out
(vi) Legal advice provided to FC by Mr Ahern(d) The Repossession
(i) Whether items were thrown over the balcony to the trucks below
(ii) Whether damage was done to the Premises in the course of the Repossession
(iii) The conversation between Mr Ahern and Mr Stewart at the commencement of the Repossession
(iv) Mr Ahern's role in the Repossession
(e) Events after the Repossession
(f) Pac-Am's proceedings in the Supreme Court against Mr Ahern, FC and others.
2. Were the defendants acting in concert in conducting the Repossession and therefore joint tortfeasors?
(a) The parties' cases
(b) Legal principles in relation to joint tortfeasors
(c) Did Mr Ahern and FC agree to pursue a joint purpose in conducting the Repossession, and to detain Pac-Am's property thereafter, and did they engage in concerted action to do so?
(d) Conclusion: were Ahern and FC joint tortfeasors?
3. The lawfulness of the Repossession
(a) The parties' cases
(b) The location of the alleged trespass
(c) Principles in relation to trespass and conversion
(i) Trespass to goods; conversion
(ii) Trespass to land
(d) Did Mr Ahern's entry onto the Premises constitute a trespass to land?
(e) Did the entry by FC's servants or agents onto the Premises constitute a trespass to land?
(i) Construction of the Romalpa clause
(ii) By virtue of the Romalpa clause, did FC's servants and agents enter the Premises with Pac-Am's consent?
(f) Did the conduct of either defendant constitute a trespass to goods or conversion of goods?
(g) Relevance of the apology and of the settlement of the Pac-Am action to the defendants' liability for trespass or conversion
(h) Conclusion: was the conduct of either defendant on 21 March 1998 wrongful?
4. The alleged breach of duty of care in negligence causing economic loss
(a) The parties' cases
(b) Principles in relation to establishing a duty of care in cases of economic loss
(i) Indeterminate liability
(ii) Autonomy of the individual and non-interference in ordinary commercial behaviour
(iii) Other freedoms, controls and limitations established by the law
(iv) The defendant's knowledge of the risk and of the magnitude of the risk
(v) Vulnerability of the plaintiff
(vi) Control
(c) Did either of the defendants owe HFC a duty to take care not to cause it economic loss?
(i) Whether FC owed HFC a duty of care
(ii) Whether Mr Ahern owed HFC a duty of care
(d) Was there a breach of any duty of care?
(e) Conclusion
5. Causation
(a) Overview of the parties' cases in relation to causation
(b) Principles governing the determination of causation
(c) The basis for HFC's case in relation to causation
(d) The basis for the defendants' case in relation to causation
(e) Evaluation of the evidence, other than the expert evidence, relating to the question of causation
(i) The unsuitable location claim
(ii) The untenable financial position claim: overview
(iii) The untenable financial position claim: Pac-Am's financial position before the Repossession
(iv) The untenable financial position claim: Pac-Am's financial position after the Repossession
(f) Evaluation of the expert evidence relating to the question of causation
(i) Mr Smith's evidence
(ii) Mr Honey's evidence
(iii) Parallels and divergences in the expert evidence
(iv) Whose expert evidence is to be preferred?(g) Determination of causation having regard to the evidence relating to the unsuitable location and untenable financial position claims
(h) Conclusion
6. The alleged breach of the tort of causing loss by unlawful means
(a) The parties' cases
(b) The elements of, and rationale for, the unlawful means tort
(i) Rejection of the 'hybrid' tort of interference by unlawful means with contractual relations
(ii) Elements of the unlawful means tort - intention to injure the plaintiff
(iii) Elements of the unlawful means tort - wrongful or unlawful means
(iv) Application of the unlawful means tort in the appeal in Douglas v Hello! Ltd
(c) Does the unlawful means tort form part of the Australian common law?
(d) If so, are the elements of the tort established in this case?
(i) Are the elements of the unlawful means tort established in relation to Mr Ahern's conduct?
(ii) Are the elements of the unlawful means tort established in relation to FC's conduct?
(e) Conclusion
7. Mitigation
(a) The parties' cases
(b) Principles in relation to the 'duty' to mitigate loss;
(c) Did the defendants establish that HFC failed to take action to mitigate its loss?
(i).... The failure to re‑lease Shop 28, Shop 26 and Shops 39 and 40, until 7 February 2000, 1 February 2001 and 1 May 2001 respectively
(ii)... Continuing to seek rent in excess of a rate at which a restaurant of a type similar to Spageddies could operate profitably from the Premises
(iii).. Failing to register a charge against Pac‑Am's assets until on or about 24 December 1998 and failing to appoint a receiver until on or about 15 July 1999 having regard to Pac‑Am's inability to pay its rent from about August 1997 and in view of the rental history of previous tenants of the Premises and Shop 28
(iv).. Failing to sell Spageddies, despite offers to purchase the business having been made to Mr Carrello, and only selling Spageddies' plant and equipment to Mr Love on or about June 2000 for $80,000
(d) Conclusion in relation to mitigation
8. Damages
(a) The parties' cases with respect to damages
(b) The evidence in relation to HFC's loss and damage
(c) Conclusion in relation to quantum of damages
9. Conclusion
PRITCHARD J:
Overview
On 12 June 1997 a new restaurant, Spageddies Italian Kitchen (Spageddies), opened in South Perth. It was located in the South Shore Piazza (the Piazza) which is located on the corner of the Esplanade and Mends Street in South Perth, facing the Swan River. The Piazza is a multistorey building, with undisturbed waterfront views of the Swan River and of Perth City. On the ground floor of the Piazza there were located a number of retail shops, commercial premises, restaurants and cafes, all of which were leased to tenants.
Spageddies was owned by Pac‑Am Restaurants (WA) Pty Ltd (Pac‑Am). Spageddies occupied that part of the Piazza identified as Shops 26, 39 and 40 (which contained the restaurant itself, and to which I will refer in these reasons as the Premises) and Shop 28 which was in an adjacent part of the Piazza. Pac‑Am leased Shops 26, 39, 40 and 28 from Hardie Finance Corporation Pty Ltd (HFC), which owned the Piazza.
Those involved in establishing Spageddies had high hopes for its future prospects, and intended that it would be the base from which the Spageddies chain of restaurants would expand into Australia. In preparation for the opening of Spageddies, they engaged Ferguson Corporation Pty Ltd (FC) to undertake a fit‑out of the restaurant, at a cost of more than $250,000.
Spageddies' opening night was a gala event, attended by the then Premier of Western Australia, Richard Court, representatives of the Singaporean government, and invited guests. The opening of the restaurant was reported in Perth newspapers.
Despite this relatively auspicious start, by late May 1999 or early June 1999, Spageddies had closed, by 5 July 1999 Pac‑Am had been placed into administration, by 15 July 1999 a receiver and manager had been appointed to the company and by 28 September 1999 Pac‑Am had been placed into liquidation. At the time of its liquidation, Pac‑Am was significantly in debt. Amongst its creditors was HFC, which was by then owed unpaid rent in excess of $300,000.
In these proceedings, HFC seeks to recover from FC, and from FC's solicitor, Mr Marcus Ahern, the money HFC claims it lost as a result of the demise of Pac‑Am. HFC claims that Pac-Am's demise was attributable to the conduct of FC and Mr Ahern.
Within a few months of FC carrying out the fit‑out of Spageddies, a dispute arose between Pac-Am and FC as to whether Pac-Am had paid FC what it was owed for the fit‑out, and for other work which FC carried out for Pac‑Am at the Premises. On 21 March 1998, in the purported exercise of rights FC claimed to have under a contract with Pac-Am, representatives of FC entered Spageddies, and repossessed a large quantity of items from the Premises (the Repossession). In doing so, FC acted on legal advice from its solicitor, Mr Ahern. Mr Ahern attended at the Premises while the Repossession was carried out.
As a result of the Repossession, Pac-Am was forced to close Spageddies for almost two weeks.
HFC says that Pac-Am never recovered from the financial losses Spageddies sustained as a result of the Repossession, or from the damage to Spageddies' reputation with its customers, suppliers and creditors, which resulted from the Repossession, and that Spageddies' eventual closure, and Pac‑Am's ultimate demise, was attributable to the Repossession.
HFC's claims against the defendants are set out in greater detail below. The essence of its claims is that the defendants are jointly, and individually, liable to it for the losses it suffered as a result of Pac-Am's breach of its lease of the Premises. HFC claims that the defendants owed it a duty to take reasonable care not to cause HFC economic loss, and that their conduct in relation to the Repossession resulted in a breach of that duty. HFC also claimed that the defendants' conduct in relation to the Repossession amounted to a breach of the tort of causing loss by unlawful means. HFC claims that the defendants are liable for damages suffered by HFC arising from this conduct, including the loss of rent and outgoings owed by Pac-Am, and costs and expenses associated with re-leasing the Premises to new tenants, and in the appointment of a receiver.
Initially, HFC also claimed that the defendants were liable for breaches of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA), arising from alleged misrepresentations made by the defendants by virtue of the conduct of the Repossession. However, HFC expressly abandoned these claims in the course of the trial.
The essence of the defendants' response to HFC's claims is to deny that they were under any duty of care to HFC in negligence, or that they breached such a duty (if it existed). They also deny that the tort of causing loss by unlawful means forms part of the Australian common law, and even if such a tort exists in Australia, they deny that the elements of the tort have been made out in this case. In addition, the defendants claim that even if the duties claimed by HFC, and a breach of those duties, have been established by HFC, they are not liable for the losses claimed by HFC. The defendants claim that HFC's losses were not caused by the defendants' conduct, because they say that Spageddies would have failed, and Pac-Am would have gone into administration and liquidation, and breached its lease from HFC, irrespective of the conduct of the Repossession, having regard to (amongst other things) the financial position of Pac-Am, and to the manner in which Spageddies was operated, both before and after the Repossession. In addition, the defendants claim that they should not be held liable for the losses claimed by HFC because they say HFC should have taken steps to mitigate its losses.
The issues
The pleadings give rise to a number of interesting, and in some respects novel, issues. These reasons deal with the following matters, which reflect the issues which arise:
1.Factual background:
(a)The parties, the primary participants in the events giving rise to this action, and the witnesses;
(b)Findings as to the credibility of witnesses;
(c)Events prior to the Repossession;
(d)The Repossession;
(e)Events after the Repossession;
(f)Pac-Am's proceedings in the Supreme Court against Mr Ahern, FC and others.
2.Were the defendants acting in concert in conducting the Repossession and therefore joint tortfeasors?
(a)The parties' cases;
(b)Legal principles in relation to joint tortfeasors;
(c)Did Mr Ahern and FC agree to pursue a joint purpose in conducting the Repossession, and to detain Pac-Am's property thereafter, and did they engage in concerted action to do so?;
(d)Conclusion: were Ahern and FC joint tortfeasors?
3.The lawfulness of the Repossession:
(a)The parties' cases;
(b)The location of the alleged trespass;
(c)Principles in relation to trespass and conversion;
(d)Did Mr Ahern's entry onto the Premises constitute a trespass to land?
(e)Did the entry by FC's servants or agents onto the Premises constitute a trespass to land?
(f)Did the conduct of either defendant constitute a trespass to goods or conversion of goods?
(g)Relevance of the apology and of the settlement of the Pac‑Am action to the defendants' liability for trespass or conversion;
(h)Conclusion: Was the conduct of either defendant on 21 March 1998 wrongful?
4.The alleged breach of duty of care in negligence causing economic loss:
(a)The parties' cases;
(b)Principles in relation to establishing a duty of care in cases of economic loss;
(c)Did either of the defendants owe HFC a duty to take care not to cause it economic loss?
(i)Whether FC owed HFC a duty of care;
(ii)Whether Mr Ahern owed HFC a duty of care;
(d)Was there a breach of any duty of care?
(e)Conclusion.
5.Causation:
(a)Overview of the parties' cases in relation to causation;
(b)Principles governing the determination of causation;
(c)The basis for HFC's case in relation to causation;
(d)The basis for the defendants' case in relation to causation;
(e)Evaluation of the evidence, other than the expert evidence, relating to the question of causation:
(i)The unsuitable location claim;
(ii)The untenable financial position claim: overview;
(iii)The untenable financial position claim: Pac‑Am's financial position before the Repossession;
(iv)The untenable financial position claim: Pac‑Am's financial position after the Repossession;
(f)Evaluation of the expert evidence relating to the question of causation;
(g)Determination of causation having regard to the evidence relating to the unsuitable location and untenable financial position claims;
(h)Conclusion.
6.The alleged breach of the tort of causing loss by unlawful means:
(a)The parties' cases;
(b)The elements of, and rationale for, the unlawful means tort;
(c)Does the unlawful means tort form part of the Australian common law?
(d)If so, are the elements of the tort established in this case?
(e)Conclusion.
7.Mitigation:
(a)The parties' cases;
(b)Principles in relation to the 'duty' to mitigate loss;
(c)Did the defendants establish that HFC failed to take action to mitigate its loss?
(d)Conclusion in relation to mitigation.
8.Damages:
(a)The parties' cases with respect to damages;
(b)The evidence in relation to HFC's loss and damage;
(c)Conclusion in relation to quantum of damages.
9.Conclusion.
Summary of conclusions
In summary, I have concluded that the defendants are not liable to HFC for the loss and damage it claims to have suffered, because:
1.The defendants were not joint tortfeasors;
2.FC did not owe HFC a duty to take reasonable care to protect HFC from economic loss;
3.Mr Ahern did not owe HFC a duty to take reasonable care to protect HFC from economic loss;
4.Even if the defendants had owed HFC such a duty, I would not have found a breach of that duty by either defendant;
5.Although the tort of causing loss by unlawful means should now be recognised as part of the Australian common law, the elements of the tort were not established on the evidence;
6.I would not have found that the loss and damage suffered by HFC were caused by the negligence of the defendants;
7.Had it been necessary to assess damages, I would have found that HFC suffered loss and damage in the sum of $1,090,026.35 and I would not have found that HFC failed to mitigate its loss.
My reasons for these conclusions are explained below.
Factual background
(a) The parties, the primary participants in the events giving rise to this action, and the witnesses
It is convenient to begin by briefly identifying the parties to the proceedings, the persons who were the primary participants in the events giving rise to the proceedings, and those who gave evidence in the proceedings.
HFC was incorporated in August 1981. Mr Graham Hardie has been a director of HFC since its incorporation and he has been the secretary of the company since 10 January 2002.
Mr Terry Pilbeam was employed as a property manager for HFC from mid‑1991 until August 1998, and again from February 2000 until October 2005. In that role he was responsible for the management of the Piazza.
Pac-Am was incorporated on 4 April 1997. It was established with an initial shareholding of one ordinary $1 share, which was beneficially owned by Mr Hin Wee Khoo (Mr HW Khoo).
Mr HW Khoo was a director of Pac-Am from its incorporation until 4 March 1998.
Mr Hin Hiong Khoo (Mr HH Khoo) was a director of Pac-Am from 13 January 1998 until 30 January 2007. Mr HH Khoo was Mr HW Khoo's brother.
Mr Subramani Krishnamoorthy was a director of Pac-Am from 13 January 1998 until 30 January 2007.
Mr Mark Kim Hock See was a director and company secretary of Pac‑Am from 4 March 1998 until 12 October 1998.
Mr Krishnamoorthy and Mr Dato Ronald Khoo ( Mr DR Khoo) were investors in Pac‑Am. Mr HH Khoo also invested funds in Pac-Am, although to a lesser extent.
Pac-Am went into administration on 5 July 1999. Mr Glenn Featherby and Mr Mark Reilly of Featherby Reilly Chartered Accountants were appointed the administrators of Pac-Am until 28 September 1999 when they were appointed the liquidators of the company. They ceased that appointment on 30 January 2007, when Pac-Am was deregistered.
Mr Giovanni Carrello was appointed a receiver and manager of Pac‑Am on 15 July 1999 and acted in that capacity until 10 January 2003.
The Spageddies Italian Kitchen restaurant chain was established in the United States by Brinker International Inc (Brinker), an American company.
Pac-Am Food Concepts (PAFC) was a holding company based in the British Virgin Islands. Mr HH Khoo was the Chairman of PAFC from its incorporation.
Brinker sold the worldwide franchise rights for Spageddies to PAFC in the early 1990s. Brinker subsequently acquired a 25% interest in PAFC.
In about August 1993, PAFC formed a subsidiary company, Pac-Am Restaurants (S) Pte Ltd (Pac-Am Singapore), to operate Spageddies in Singapore. Pac-Am Singapore was described by Mr HH Khoo as a 'joint venture company' between three other companies, Dinervest Investments Pte Ltd (a subsidiary of Singapore Technologies, which was a company incorporated in Singapore and owned by the Singaporean Government), Nations Corp Ltd and Brinker. Mr HH Khoo was the Chairman of Pac‑Am Singapore from its incorporation.
In March 1995, PAFC and Pac-Am Singapore opened the first Spageddies Italian Kitchen restaurant in Singapore, in the Tanglin Mall. It subsequently opened a second Spageddies Italian Kitchen restaurant at the Marina Megaplex.
Pac-Am Singapore and PAFC planned to expand the Spageddies Italian Kitchen franchise into Australia. Pac-Am was incorporated for that purpose.
It was Mr HH Khoo's evidence that the one share in Pac-Am which was owned by Mr HW Khoo was held on trust for other 'shareholders' namely Brinker, Dinervest Investments Pte Ltd, Nations Corp Ltd (Mr HH Khoo's family company), Mr DR Khoo and Mr Krishnamoorthy (ts 699 ‑ 700).
Mr Jude Cohen was the Development and Construction Manager for Pac-Am Singapore. He was involved with organising the fit‑out of Spageddies in Perth.
Mr Selvam Sevasamy was employed by Pac-Am Singapore from March 1995, and by January 1997 was the Assistant General Manager of Spageddies Italian Kitchen in the Tanglin Mall in Singapore. In around late August or early September 1997, Mr Sevasamy was sent to Perth to assist in the management of Spageddies and spent a month working in the restaurant (ts 599). He returned to Spageddies in Perth in around mid March 1998, and worked at the restaurant as the General Manager until February or March 1999 (ts 605).
Mr David Stewart was a manager at Spageddies in Perth from July 1997 to around mid to late 1998.
Mr Robert Smales is the owner of Valentino's Café Restaurant (Valentino's) in Northbridge which he has owned since 1996. He has been involved in the food and restaurant industry since 1978 and has owned a number of other cafes and restaurants apart from Valentino's.
FC was incorporated in November 1980. In 1997 the company operated a cabinetmaking business, undertaking fit-outs of shops and restaurants.
Mr Ferguson was a director of FC from 27 November 1980, and was the company's secretary from 27 March 1985.
From 11 September 1996, Mr Ferguson was also a director of a company called Lauranne Pty Ltd (Lauranne). Lauranne owned a restaurant called Il Fiume Ristorante (Il Fiume), which operated from the Premises immediately prior to Spageddies' occupation of the Premises.
Mr Ahern is a barrister and solicitor in Western Australia, and since February or March 1998 has practised as a sole practitioner under the business name Ahern & Associates.
Mr Terry Ghazouly was employed by FC from mid 1997 to late in 1999 as a financial controller and accountant.
Ms Verity James has worked as a radio presenter, newspaper and magazine columnist and restaurant reviewer over many years. She was working as a restaurant reviewer during the time when Spageddies was open in Perth. Ms James dined at Spageddies in October 1997 and wrote a review of her experience, which was published in the West Australian newspaper on 22 October 1997.
Mr Andrew Peaston is a chef, and the proprietor of the restaurant Chanterelle at Jessica's, which he operates with his wife. He has worked in the restaurant industry for more than 39 years, and has worked in the Perth restaurant industry for the past 21 years.
Mr Hardie, Mr Pilbeam, Mr HH Khoo, Mr Stewart, Mr Sevasamy, Mr See and Mr Smales were called by HFC to give evidence. Mr Ferguson, Mr Ahern, Mr Ghazouly, Ms James and Mr Peaston gave evidence on behalf of the defendants.
Three experts provided witness statements and gave evidence in these proceedings. Mr Jim Tsagalis is the Managing Director of Lease Equity Pty Ltd, has a Bachelor of Economics and a Graduate Diploma of Business (Management), is a member of the Australian Property Institute, a registered real estate representative and has worked for over 20 years in the commercial property industry. His evidence concerned the practices adopted by landlords of commercial properties in about 1997 to obtain security for the rental obligations of their lessees.
Mr Vincent Smith is a partner in the Transaction Advisory Services Division of the accounting firm Ernst & Young, where he leads the Restructuring team. He was previously a Senior Partner at the accounting firm Pitcher Partners. Mr Smith has a Bachelor of Commerce (Accounting), is a member of the Institute of Chartered Accountants in Australia, is an Official Liquidator and is a member of the Insolvency Practitioners Association of Australia. Mr Smith has more than 20 years of experience in corporate restructuring and business consulting. Mr Smith prepared a report to the Court for the purposes of these proceedings dated 19 October 2006. Mr Smith prepared a supplementary report to the Court for the purposes of these proceedings dated 6 June 2010.
Mr Barry Honey is a partner in the chartered accounting firm Honey & Honey. He was previously a partner at accounting firm KPMG from July 1985 until June 2004. Mr Honey has a Bachelor of Business, and a Graduate Certificate in Forensic Studies (Accounting). Mr Honey is a member of the Institute of Chartered Accountants, is a Registered Liquidator and Official Liquidator, and is a member of the Insolvency Practitioners Association of Australia. Mr Honey has more than 25 years of experience in the area of corporate recovery, including business appraisals, insolvency arrangements and forensic accounting. Mr Honey prepared a report for the purposes of these proceedings dated 27 March 2006. Mr Honey also prepared a supplementary report for the purposes of these proceedings dated 3 December 2006.
(b) Findings as to the credibility of the witnesses
It is convenient at this point to make some general observations in relation to my conclusions as to the credibility of the witnesses. Where I have preferred the evidence of one witness to that of another in relation to a particular issue, however, I have explained in greater detail, at that point, the basis for that preference.
Subject to the reservations which follow, generally speaking I found the witnesses who appeared for HFC to be truthful and credible and their evidence to be reliable. None of the witnesses (apart from Mr Hardie, whose evidence I accept) have any interest in the outcome of these proceedings. My reservations pertain to aspects of the evidence of Mr Stewart and Mr HH Khoo.
Generally speaking, Mr Stewart was open and earnest in giving his evidence, and forthcoming with his answers. However, there were two issues in his evidence about which I had doubts, and for the reasons I explain below, I formed the view that his memory was inaccurate in relation to those matters, or alternatively that he had exaggerated his evidence in relation to those matters. I nevertheless accepted the balance of his evidence.
Although I accept the evidence given by Mr HH Khoo, the overriding impression I was left with was that he was (at the relevant times) and to a large extent remained, in denial about the reasons for the precarious financial position which Pac-Am was in throughout its existence. That impression led me to be cautious about placing reliance on his evidence as to Pac‑Am's financial prospects. Ultimately, however, that was of little moment because that issue was analysed in considerable detail by the expert witnesses, Mr Smith and Mr Honey.
I have discussed the evidence of the expert witnesses, Mr Tsagalis, Mr Smith and Mr Honey, below.
I found Mr Peaston and Ms James to be truthful and credible, and their evidence to be reliable, although for the reasons explained below, that evidence was ultimately of limited assistance in resolving the issues in this action.
I found Mr Ahern, on balance, to be a credible witness. Mr Ahern frankly admitted that he had made mistakes and acknowledged that he did not remember all of the events the subject of his evidence with equal clarity. In cross‑examination Mr Ahern answered only the specific questions put to him. I concluded that that was not borne of an attempt to avoid answering questions, and that his approach to those questions was hardly surprising given he is a solicitor.
Counsel for HFC submitted that Mr Ahern's lack of recollection of critical aspects of his defence cast doubt on his credibility, and that his lack of memory is to be considered in light of the fact that he was sued by Pac-Am immediately after the Repossession, at which time he handed over his file to his insurer. I do not accept that submission, for the following reasons. First, as I explain below, Mr Ahern did not provide written advice to FC in relation to the Repossession. It is, therefore, not surprising that Mr Ahern did not remember all of the detail of the advice he gave. Secondly, the litigation commenced by Pac‑Am was settled in April 2002 (again, see below) but Mr Ahern ceased to be a defendant to those proceedings in early 1999. In those circumstances, it is not surprising that Mr Ahern does not recollect all of the detail of the advice he gave. Thirdly, counsel for HFC sought to point to the inadequacy of the basis for the advice provided by Mr Ahern to FC as undermining his credibility as a witness. While the enquiries made by Mr Ahern prior to providing his advice were relevant to the question whether his advice was negligent, I do not consider that that matter casts doubt on Mr Ahern's credibility as a witness. Accordingly, I accept Mr Ahern's evidence.
Mr Ferguson was not an impressive witness. His demeanour during cross‑examination suggested an unwillingness to answer questions, or a desire to avoid answering the question which was in fact put to him (eg ts 1148, 1156 and following). His evidence was at times imprecise and he was inclined to speculate about what he would have done rather than what he in fact did (eg ts 1152). However, the fact that Mr Ferguson did not recollect in detail all of the factual matters the subject of this action is not surprising given the time since the events occurred, and that of itself would not necessarily cast doubt on his credibility. However, Mr Ferguson also acknowledged that there were mistakes in his witness statement, and admitted that his witness statement (which was received into evidence as his evidence‑in‑chief) was inaccurate in parts (eg pars 4 and 41; ts 1184). Nevertheless, these concerns did not lead me to reject Mr Ferguson's evidence in its entirety, particularly as his evidence in some respects (for example, in relation to damage done to the Premises in the Repossession) was consistent with that of the witnesses called by HFC. Accordingly, my approach to Mr Ferguson's evidence was to be cautious about accepting his evidence where it was inconsistent with the evidence given by other witnesses whose credibility was not in doubt.
Mr Ghazouly was also not an impressive witness, primarily because it appeared he had only a limited independent recollection of the events the subject of this action, and relied for any recollection on his witness statement which was received into evidence as his evidence‑in‑chief, and what recollection he had became confused in the course of cross‑examination. In cross‑examination, Mr Ghazouly accepted that he signed his witness statement in 2009 without turning his mind to whether he had any independent recollection of the truth of the matters contained in it (ts 1344 ‑ 1345). Mr Ghazouly simply assumed that he had compared his typed witness statement with a handwritten witness statement he prepared in 1998 (ts 1314). Mr Ghazouly had only a limited recollection of the contents of a witness statement and an affidavit which he prepared in relation to earlier, related litigation (which is discussed below) (ts 1314). As I explain below, there were occasions during his evidence when I formed the impression that Mr Ghazouly was concerned in his answers to minimise his role in the events. Given his poor recollection of the events in question, much of Mr Ghazouly's evidence proved unhelpful, and my approach to the balance of his evidence, in those instances where it was inconsistent with the evidence given by other witnesses whose credibility was not in doubt, was to prefer the evidence of those other witnesses.
(c) Events prior to the Repossession
The leases in respect of the premises and of Shop 28
Having decided to expand the Spageddies Italian Kitchen franchise into Australia, PAFC and Pac-Am Singapore settled on Perth as the first location for Spageddies in Australia. Mr HW Khoo, who at that time resided in Perth, set about searching for a suitable venue for the restaurant. In late 1996, Mr HH Khoo learned that Il Fiume, which was located on the ground floor of the Piazza, was for sale. On 25 February 1997, and again on 3 March 1997, Mr HH Khoo, on behalf of Pac-Am Singapore, wrote to the proprietor of Il Fiume, Lauranne, and offered to purchase its business together with plant and equipment for $400,000. On 4 March 1997, Mr Ferguson, on behalf of Lauranne, accepted that offer.
Pac-Am was incorporated shortly thereafter as the vehicle through which Spageddies would operate in Australia.
Mr HW Khoo and Mr HH Khoo then commenced negotiations with HFC for a lease over that part of the Piazza which had been occupied by Il Fiume. They met with Mr Hardie and Mr Pilbeam on 1 April 1997 to discuss the lease arrangements. Mr HW Khoo and Mr HH Khoo sought a long lease in the expectation that Spageddies would operate in Australia for many years.
On 21 May 1997, HFC entered into two leases of parts of the Piazza to Pac-Am. The first (Lease A) was a lease of that part of the Piazza comprising the Premises (ie Shops 26, 39 and 40). It was a term of the lease that Pac‑Am use the Premises for the use specified under the lease, namely as a licensed restaurant trading under the name of Spageddies Italian Kitchen. The restaurant operated from the Premises the subject of Lease A. The Premises were large in size, with a seating capacity of 300 ‑ 350 diners, which was larger than the average Spageddies restaurant in Asia (which had a seating capacity of between 200 ‑ 250 diners). However, Mr HH Khoo considered that the size of the restaurant was desirable because it was intended that Spageddies in Perth would be a training base for Spageddies staff in Australia.
Pac-Am initially intended to use Shop 26 of the Premises as a takeaway facility. Mr HH Khoo's evidence was that a takeaway facility had been utilised at other Spageddies restaurants and had worked well, enabling quick sales especially during lunch times. Mr HH Khoo estimated that takeaway food typically accounted for 20% of the revenue of Spageddies restaurants. However, HFC refused to permit Shop 26 to be used as a takeaway facility, because this was contrary to HFC's agreement with the City of South Perth concerning the Piazza. That part of the Premises comprising Shop 26 was eventually utilised by Pac-Am as an office immediately adjacent to the restaurant (ts 705).
The second lease (Lease B) was a lease to Pac-Am of Shop 28 in the Piazza, the permitted use for which under the Lease was as a lunch bar trading under the name of Spageddies Italian Kitchen.
Also on 21 May 1997, HFC entered into an agreement with Pac‑Am for a licence in respect of the balcony area immediately in front of the Premises for the purpose of an alfresco dining area ancillary to the restaurant.
Settlement on the purchase of Il Fiume was originally intended to take place on 1 May 1997 but this was delayed for a short time. Pac‑Am nevertheless agreed to pay rent to HFC for the Premises and for Shop 28, pursuant to Lease A and Lease B, from 1 May 1997.
The negotiations for the fit‑out of the Premises
Once the Premises had been identified as the likely location of Spageddies, and while the lease negotiations were proceeding, Mr HW Khoo and Mr HH Khoo began planning for the fit‑out of the Premises. They intended that Spageddies would open in early June 1997.
The concept behind the Spageddies franchise was that of a casual dining restaurant, serving full bodied, traditional Italian dishes, with an emphasis on good food and friendly service. The interiors of all restaurants in the Spageddies franchise were fitted out in a consistent manner, in tones of terra cotta, green and white, with an open kitchen and a wood-fired pizza oven. Accordingly, it was necessary to arrange for the Premises to be fitted out in this décor.
Pac-Am and Pac-Am Singapore approached FC for a quote for the fit‑out. FC was approached because Mr Ferguson had become known to Pac‑Am's representatives during the course of negotiations to purchase the Il Fiume and because FC had undertaken the fit‑out of Il Fiume and was familiar with the Premises. Mr Ferguson had assured Pac‑Am and Pac‑Am Singapore that FC could perform a suitable fit-out for the Premises.
On 8 April 1997, Mr Ferguson, on behalf of FC, sent a letter to PAFC by facsimile, setting out the scope of the 'proposed alterations & additions for Pac‑Am Restaurants ... South Shore Plaza' [sic] in South Perth (exhibit 143). The estimated price was $271,278 and covered work set out in a lengthy schedule, including tiling, painting, various items of joinery (including five waiter's stations, reception desk, shelving and so on), installation of various stainless steel items (including stainless steel benches, doors for refrigerators and a canopy over the cooking area), various items of plumbing, electrical and glazing work, installation of roller shutters and signage.
The Contract for the fit‑out and the Romalpa clause
By letter dated 9 April 1997, which was sent by facsimile, Mr Ferguson, on behalf of FC, wrote to PAFC providing a quote for the 'proposed alterations & additions for Pac‑Am Restaurants (WA) Pty Ltd ... South Shore Plaza' [sic] (exhibit 154). The proposed alterations and additions to which the quotation pertained largely reflected those set out in FC's letter of the previous day, although with some minor amendments and additions. The price quoted for the work was $270,000. The letter indicated that upon acceptance of the quote, the works could be commenced immediately with practical completion by 8 May 1997 (which date ultimately proved to be prior to the commencement of Pac‑Am's lease over the Premises). The letter indicated that the terms of payment would be 40% deposit prior to commencement, 50% payment on completion and a further 10% after completion.
FC's letter also set out the following terms:
4.That upon your acceptance of the quotation either verbally or in writing and irrespective of whether any further formal contract is entered into or not, you acknowledge and agree that:
4.1ownership of any goods supplied by Ferguson Corporation Pty Ltd (the Company) shall remain vested in the Company and shall not pass to yourselves until the Company has been paid the invoiced price in full, together with any freight, costs, and Sales Tax (where applicable).
4.2If such payment is overdue then:
4.2.1the Company by its servants or agents may recover and sell the goods supplied by the Company to yourselves;
4.2.2the Company may enter upon your business premises and take possession and remove such goods, it being acknowledged yourselves that until the Company is paid in full, the relationship of yourselves to the Company shall be fiduciary in respect of any goods supplied and if the same is sold by yourselves, the Company shall have the right to trace the proceeds thereof.
I will refer to these terms collectively as 'the Romalpa clause'.
Mr HH Khoo 'approved' the quote on 9 April 1997, and signed it 'for and on behalf of ...', Pac-Am. He sent the signed quote back to FC the same day.
Although the letter (exhibit 154) expressly stated that it 'merely constituted a quotation' and that if FC requested it, a formal contract with regard to the proposed works containing FC's 'standard terms and conditions' (which were not specified in the letter) would be required to be entered into, no such further document was ever executed (ts 1201). It appears that Pac-Am and FC understood that Mr HH Khoo's signature constituted an acceptance of the quotation and that it resulted in a contract between Pac-Am and FC for the performance of the alterations and additions, for the price quoted, and on the terms set out in the letter. This was notwithstanding the fact that the quotation had been addressed to PAFC and not to Pac-Am. Although counsel for HFC noted this discrepancy in his opening submissions, HFC did not plead, and its counsel did not seek to contend, that there was no contract between HFC and Pac-Am in accordance with the terms set out in the letter.
That the parties proceeded as though the acceptance of the quote on 9 April 1997 gave rise to a contract between them for the fit‑out work was confirmed by the fact that on 9 April 1997, Mr HH Khoo wrote to Mr Pilbeam requesting his approval for a fit‑out of Spageddies. In addition, Mr Ferguson flew to Singapore, and on 10 April 1997 he inspected the Spageddies restaurants there to see first hand the Spageddies concept and the layout and fit‑out of the Spageddies restaurants. By letter dated 11 April 1997, Mr Ferguson, on behalf of FC, wrote to Mr Khoo and expressed his thanks to Mr Khoo for his faith in FC 'to do your fit-out in Perth', and provided FC's bank details (presumably for the payment of the deposit) (exhibit 156.1).
I find that on or about 9 April 1997 the parties agreed that FC would undertake the fit‑out work, for the price, and on the terms, set out in FC's letter of that date. I will refer to the letter dated 9 April 1997 from FC to PAFC as 'the Contract'.
In cross‑examination, Mr Ferguson was asked whether he understood, from the terms of the Contract, that he had reserved a contractual right to add in variations. His evidence was that 'it was a given that there was going to be some variations along the way' (ts 1201). However, he was unable to point to anything in the Contract that indicated that variations were to be covered by the Contract, and he accepted that the Contract did not make any express provision for variations (ts 1201).
The Contract Variation
Shortly thereafter, FC commenced the fit-out of the Premises. The work took approximately five to six weeks. Pac-Am's supervisor for the fit-out of the Premises was Mr Jude Cohen.
Mr Ferguson's evidence was that during the five to six week period in which the fit-out was carried out, he attended the Premises on a number of occasions, and was asked by representatives of Pac-Am (whose names he could not recall) to carry out additional works. Mr Ferguson agreed to perform this work and told Pac-Am's representatives that FC 'would invoice Pac-Am for the reasonable costs of carrying out the work associated with these variations' (exhibit U par 11). Mr Ferguson's evidence was that 'some of these variations were confirmed in writing, others were purely oral' (exhibit U par 11).
On 16 April 1997 Mr Ferguson, on behalf of FC, sent a facsimile to Mr Cohen and provided a quotation for 'works regarding the floor' (exhibit 160.1). The letter indicated that the quotation followed 'discussions on site', presumably with Pac-Am's representatives. The quoted work was for the removal of a raised floor section of the restaurant, the removal of concrete, debris and carpet, sanding and filling the floor, supplying and laying tiles, and with an allowance for the removal and/or salvage of floor material. In addition, the quotation included one other item of work unrelated to the floor, namely 're‑cover existing timber chairs in vinyl'. The quoted price for the work was $31,000. The quote contained a Romalpa clause in identical terms to that set out above.
Following a meeting with Mr Cohen, Mr Ferguson, on behalf of FC, again wrote to Mr Cohen by letter dated 6 May 1997 and indicated that '[FC] will carry out the following additional works to the contract, previously dated April 9th, 1997' (exhibit 160.10). The letter contained a long list of additional works. The first two sets of items in that list duplicated the works referred to in FC's facsimile to Mr Cohen of 16 April 1997 (that is, the works to the floor, and the re-covering of the chairs). The additional work included removal, installation and alteration of gyprock walls, fitting a new stainless steel top to the top of the existing bar, installing a new cabinet for the telephone and security system, extending a shelving unit behind the bar, and supplying and fitting signage to the front entry area. The letter noted that the original contract price was $270,000, that the revised contract sum would be $285,000 and that an amount of $108,000 had been paid by that date. The balance outstanding was therefore $177,000. The letter contained a Romalpa clause in the terms set out above.
Mr Ferguson's evidence was that the calculation of the additional $15,000 which was to be added to the cost of the Contract in respect of this extra work took into account the fact that work which FC was initially to have done to fit-out Shop 26 as a takeaway facility was no longer to go ahead (ts 1201).
The letter advised that the $177,000 balance which remained (following the deduction of the payment of $108,000 from the revised contract sum of $285,000) 'will be our final account' (exhibit 160.10).
Although there was nothing on the face of the letter to indicate that this variation of the Contract was accepted by Pac-Am, and no document was tendered in evidence indicating any written acceptance by Pac‑Am of this variation of the Contract, the letter appears to have been regarded by Pac‑Am as constituting a variation of the Contract. I find that on 6 May 1997, FC and Pac-Am varied the Contract, so that FC would undertake both the fit-out described in the Contract, and the additional work set out in FC's letter of 6 May 1997, for the total price, and on the terms, set out in that letter. For convenience I will refer to the letter dated 6 May 1997 from FC to Pac-Am as 'the Contract Variation'.
FC completed the work specified in the Contract and Contract Variation, in advance of the official opening of Spageddies on 12 June 1997.
The dispute between FC and Pac-Am in relation to payment for the fit‑out
Following the completion of the initial fit-out, FC undertook further work at the Premises, at Pac-Am's request. The evidence as to how this work came to be performed was sketchy, but it appears that Mr Ferguson understood that this work was requested, and agreed to, by Pac-Am's representatives, particularly (or perhaps solely) Mr Cohen. There was no evidence to suggest that these additional works were documented by the provision of a quotation by FC which was formally accepted on behalf of Pac-Am. There was, however, some evidence to suggest that Mr Cohen, and Pac-Am, accepted that Pac‑Am had requested that some further work be carried out, in addition to that which was specified in the Contract and Contract Variation.
Between April and December 1997, FC issued a number of invoices in respect of further work it claimed that it had carried out, and other monies which it claimed it was owed by Pac-Am.
Not surprisingly, given the lack of documentation in relation to the performance of this further work, a dispute soon emerged between Pac‑Am and FC in relation to what money Pac-Am owed to FC for all of the work FC had undertaken for Pac-Am.
The way in which the dispute arose, the quantum of money involved, the merit of FC's claims to additional payment over and above the Contract Variation price, and the contractual terms on which this additional work was performed are all examined in greater detail below in the context of the lawfulness of the Repossession. For present purposes it suffices to say that the dispute between FC and Pac-Am covered whether the additional work, and if so which parts of the additional work, were covered by the Contract Variation (and therefore subsumed within the price quoted for the Contract Variation) and which parts of that additional work were to be the subject of additional charges, whether some items of the additional work for which FC sought to charge Pac‑Am had actually been undertaken by FC, or had in fact been undertaken at Pac‑Am's request, and whether some items of the additional work were undertaken by FC but were items of work for which Pac-Am was not, or should not be, liable to pay (for example, because the work had to be undertaken as a result of errors by FC).
After a number of letters and phone calls were exchanged between Mr Ferguson and Mr Ghazouly, on behalf of FC, and Mr HH Khoo and Mr Cohen, on behalf of Pac-Am, Mr Ferguson met with Mr HH Khoo in November 1997 in an effort to resolve the dispute. On 23 December 1997, Mr Ferguson and Mr Ghazouly wrote to Mr HH Khoo enclosing a list of items which they considered there could be no dispute that Mr Cohen had requested, and indicated that payment of $32,460 would be accepted in satisfaction of the amounts claimed by FC in respect of additional work undertaken for Pac-Am. However, at the same time, FC continued to make claims for payment in respect of other monies it claimed it was owed by Pac-Am.
By January 1998, FC claimed that Pac-Am owed $56,332.17 for the additional work undertaken by FC at the Premises, and for other monies FC claimed it was owed by Pac-Am, arising from the sale of Il Fiume, and the payment of freight charges and import duty on items used in the fit‑out.
Legal advice provided to FC by Mr Ahern
By February 1998, the debt FC claimed it was owed by Pac-Am remained outstanding. On about 16 February 1998, Mr Ferguson approached Mr Ahern for legal advice in relation to the Romalpa clause in the Contract and Contract Variation, and specifically in relation to whether that clause permitted FC to repossess goods from Spageddies (the Repossession).
In about August of the previous year, Mr Ahern provided advice to Mr Ghazouly in relation to the repossession of goods from another restaurant, Quattros Café, in reliance on a Romalpa clause in a contract between FC and the owners of Quattros Café. Mr Ghazouly's evidence was that on that occasion, Mr Ahern's advice was that because full payment had not been made on the goods supplied to Quattros Café, FC still owned the goods it had supplied and FC was entitled to repossess those goods pursuant to the Romalpa clause. In about September 1997, FC acted on Mr Ahern's advice and repossessed the goods it had supplied to Quattros Café.
Mr Ahern's evidence was that in his meeting with Mr Ferguson on 16 February 1998, he gave advice which, in substance, was the same advice he had previously given to Mr Ghazouly, namely that:
[T]he Romalpa clause arguably covered all of the goods that had been supplied [to Spageddies by FC]. The Romalpa clause allowed [FC] to repossess all the goods that it had supplied whether they had been paid for or not if there were any outstanding accounts in respect of the equipment which had been supplied (exhibit FF pars 9 and 12).
Mr Ahern's evidence as to the advice he gave was consistent with Mr Ferguson's evidence as to the advice he received. I accept Mr Ahern's evidence as to the advice he gave.
Mr Ahern had a brief meeting with Mr Ghazouly at his office on 19 March 1998. Two factual questions arose on the evidence concerning that meeting. First, the witnesses had different recollections of what Mr Ahern advised in relation to the entitlement of FC's staff to enter Spageddies to undertake the Repossession. In a witness statement Mr Ghazouly prepared in April 1998, he stated that he asked Mr Ahern whether Pac-Am's staff could 'kick us out' during the Repossession, and that Mr Ahern advised him that 'they can but not many people know what the law is' (exhibit EE). In cross‑examination, Mr Ghazouly's evidence was that exhibit EE was a typed version of the handwritten statement he had prepared in 1998, and that when he wrote that statement, he was writing out his best recollection of the truth (ts 1341). His evidence was that what was written in the statement (in relation to this aspect of Mr Ahern's advice) in fact occurred (ts 1341).
Mr Ahern was unable to recall whether Mr Ghazouly asked him what might happen in the Repossession, and whether Spageddies could 'kick us out' (ts 1374). However, Mr Ahern's evidence was that if he had been asked he may have said that 'if we're asked to leave, we would have to leave' (ts 1374). Although he did not recall giving this advice, he accepted that he may have said that 'not many people know the law' (ts 1374).
Although Mr Ghazouly's recollection of the events of 1998 proved poor during the course of the trial, I accept his evidence that when he prepared his witness statement in 1998 he intended to write down a true account of what had occurred. Given the recency of the events when Mr Ghazouly prepared that statement, Mr Ahern's inability to recall whether or not he gave this advice, and his concession that he may have said that 'not many people know the law' I accept that Mr Ahern advised Mr Ghazouly that if FC's workmen were asked to leave Spageddies they would have to do so.
The second factual issue arising from the meeting of 19 March 1998 concerned FC's intention with respect to what goods were to be seized during the Repossession. Mr Ahern was instructed by Mr Ferguson to draft a letter to Pac-Am which was to be handed over to one of Pac-Am's representatives during the Repossession (the Repossession letter). The Repossession letter was addressed to Pac‑Am from Ahern & Associates. Mr Ahern settled the Repossession letter on 23 February 1998 (ts 1367) and on 25 February 1998 sent a copy of it by facsimile to Mr Ghazouly, who passed it on to Mr Ferguson. Mr Ahern said that he attached to the Repossession letter a copy of an inventory, which indicated all of the goods which were to be repossessed. A copy of the Repossession letter, including the inventory attached to it was tendered in evidence. The evidence was that the goods taken during the Repossession were those listed in the inventory (the Repossession inventory).
Mr Ahern's evidence was that in the course of his meeting with Mr Ghazouly he was shown an inventory of the goods which he was instructed FC had supplied to Pac-Am. Mr Ahern said that Mr Ghazouly identified the goods which had been paid for and the goods for which payment had not been received. Mr Ahern's evidence was that he believed that FC had decided to repossess only those goods that it had supplied to Pac-Am which had not been paid for in full. Mr Ahern's evidence was that Mr Ghazouly told him that 'he and Ferguson had been through the inventory carefully and that they wanted to make sure that they were only taking goods for which payment hadn't been received' (exhibit FF par 27). Mr Ahern maintained that evidence under cross‑examination (ts 1360, 1372, 1374). Initially, Mr Ahern's evidence was that the Repossession inventory was the inventory he had been shown by Mr Ghazouly. However, in cross‑examination, Mr Ahern said that the inventory he had seen listed all items provided by FC, including those paid for as well as those not paid for, and he suggested that the Repossession inventory must have been a clean copy of the inventory he had been shown, which listed only those items which had not been paid for (ts 1371 ‑ 1373).
Although I accept that Mr Ahern's understanding was that FC intended to repossess those items for which it had not been paid, I do not accept that the Repossession inventory listed only those goods for which FC had not received payment. Instead, I find that the Repossession inventory listed all of the goods which FC proposed to repossess, and that it was not the case that the goods listed were only those for which no payment had been made. I have reached that conclusion for five reasons.
First, Mr Ahern did not have any role in relation to the preparation of the Repossession inventory. That document was prepared by Mr Ferguson, probably with some input from Mr Ghazouly (although Mr Ghazouly could not have assisted in identifying the goods to be repossessed because he was not involved with the fit‑out and was not aware what goods had been supplied) (ts 1193, 1251).
Secondly, Mr Ghazouly's evidence was that it was difficult to identify those goods which had been paid for and those which had not, because payments were not allocated to particular items on the invoices (ts 1249).
Thirdly, that the Repossession inventory included goods supplied to Spageddies for which payment had been made, as well as those for which payment had not been made, is more consistent with Mr Ahern's evidence as to the advice he gave - namely that the Romalpa clause extended as far as permitting the repossession of goods where there was any money outstanding under the Contract, even where the bulk of the payments had been made (ts 1374).
Fourthly, Mr Ferguson denied instructing Mr Ghazouly to convey to Mr Ahern that the Repossession inventory listed only those goods that had not been paid for in full. Instead, Mr Ferguson's evidence was that he 'said they were the goods that we could probably repossess easily' and he accepted that this was because those goods were valuable and easy to remove (ts 1219).
Finally, the value of the goods on the Repossession inventory was stated to be in excess of $116,000. Mr Ferguson claimed that the amount sought by FC in conducting the Repossession was the amount it had sought in December 1997, namely $32,000 (ts 1195). If that was the case, then it is difficult to see how the seizure of goods said to have a value of more than $116,000 could have involved only goods for which Pac-Am had not paid FC. Mr Ferguson suggested that the figure of $116,000 would have represented the manufactured cost of the goods, and not the actual value of the goods (ts 1195). Even if that explanation is accepted, it still tends to detract from the conclusion that the inventory of goods to be seized during the Repossession listed only those goods for which Pac‑Am had not paid.
(d) The Repossession
After receiving the draft Repossession letter from Mr Ahern, Mr Ferguson considered the matter for a while and then decided to go ahead with the Repossession. Mr Ferguson's evidence was that he waited a month after seeing Mr Ahern before going ahead with the Repossession because he 'had other things on his mind' at the time, and hoped that the dispute with Pac‑Am would resolve itself (ts 1219).
Once he had decided to proceed with the Repossession, Mr Ferguson chose the date and time of the Repossession. Mr Ferguson then asked Mr Ghazouly to put things in train with Mr Ahern. Mr Ahern was to attend the Repossession, and Mr Ferguson authorised Mr Ahern to hand over to Spageddies' staff the Repossession letter, which set out the grounds on which FC was carrying out the Repossession.
Either on the evening of Friday 20 March 1998, or on the morning of Saturday 21 March 1998 prior to the Repossession, there was a meeting between Mr Ferguson, Mr Ghazouly and some of the workmen who were to conduct the Repossession, to discuss the way in which the goods were to be recovered (ts 1220 ‑ 1221, 1258). Mr Ghazouly's recollection was that the workers 'were instructed that not everything was to be taken' - that is, that only items on the inventory were to be taken (ts 1258) and that 'no damage was to be caused' (exhibit Y par 38; ts 1258).
The Repossession was conducted on Saturday 21 March 1998 at approximately 11.00 am. Present throughout all, or at least most, of the Repossession were Mr Stewart, the manager of Spageddies who was working at the restaurant at the time, Mr Ahern, and Mr Ghazouly. Mr Ferguson went to the car park across the road from the Premises, and waited there for a short term while the Repossession commenced, but then left. Mr Pilbeam, Mr Sevasamy and Mr See attended the Premises during the course of the Repossession and witnessed some of what occurred. Mr Hardie attended the Premises during the course of the afternoon of Saturday 21 March 1998.
My findings in relation to what occurred during the Repossession are set out below. Save where I have indicated, there was no dispute in relation to much of the evidence concerning the Repossession. It is convenient to outline, first, those aspects of the evidence as to which there was no inconsistency in the witnesses' evidence, and then to address the key issues in relation to which there was some inconsistency in the witnesses' evidence.
Spageddies was open and trading on the morning of Saturday 21 March 1998. By 11.00 am, there were either two or four customers at the restaurant, and they were seated on the balcony outside. There were no customers seated inside the restaurant.
Mr Ahern met Mr Ghazouly in the car park opposite the Piazza at approximately 11.00 am. Mr Ghazouly was accompanied by approximately 40 or so workmen. Some of the workmen were employees or subcontractors used by FC, and others had been engaged solely for the purpose of assisting in the Repossession (ts 1192, 1252). Mr Ferguson's brother and his nephew also assisted with the Repossession (ts 1192). They brought some trucks into which the repossessed goods were to be loaded. Some of the workmen were carrying saws, hammers, hacksaws and crowbars.
Mr Ferguson also attended the car park opposite the Piazza but he waited in the car park while the Repossession commenced, and did not go into Spageddies. Mr Ferguson said that he remained in the car park for a small amount of time before leaving (ts 1221). He said he 'was hoping that commonsense would have prevailed and we would have got some sort of a settlement, so I was there if it could be sorted out' (ts 1221).
Mr Ahern and Mr Ghazouly led the workmen up the front stairs of the Piazza and into Spageddies. Mr Ahern came through the door of Spageddies first. There were double doors at the entrance of Spageddies. Mr Ahern entered through the door on the right hand side of the entrance, which was unlocked, and then unlatched the door on the left hand side (which until then had been locked) (ts 1375). Mr Ahern had not asked for, and was not expressly given, permission to unlock the door (ts 493).
Mr Ahern approached Mr Stewart who was at the restaurant desk, and asked him to get the manager. Mr Stewart replied that he was the manager. Mr Ahern told Mr Stewart that he represented FC and Mr Ahern handed Mr Stewart the Repossession letter. The Repossession letter was in the same terms as the draft of that letter which Mr Ahern had prepared and sent to Mr Ghazouly in late February 1998.
In the Repossession letter, Mr Ahern referred to the 'written contract for the carrying out of construction work at [Spageddies] that you entered into with our client and the balance of the contract price that, despite several demands, has not been paid by you'. The letter went on to set out the terms of the Romalpa clause, which I have referred to above, and advised that:
In accordance with our clients [sic] right to re-enter contained in sub‑clause 4.2.2 of the contract as set out above our client elects to hereby enter the premises for the purposes of taking possession of our client's goods.
…
Attached hereto is an inventory of goods supplied by our client which our client intends to hereby take possession of (exhibit 310).
The Repossession inventory which was attached contained a long list of items which FC claimed were goods it had provided to Pac-Am.
Mr Stewart's evidence was that Mr Ahern 'said words to the effect that he and the workmen were going to repossess all the goods that FC had put into the Restaurant as part of the refurbishment of the Restaurant' (exhibit B par 15).
Mr Stewart said that he asked Mr Ahern if he had a court order, and Mr Ahern replied 'by saying words to the effect that the document he had handed me was a legal and binding document and that he had authority to repossess goods from the Restaurant' (exhibit B par 16).
Mr Stewart claimed that he asked Mr Ahern what he was doing by entering and unlocking doors that he did not have permission to touch (ts 499) but at no stage during the Repossession did Mr Stewart ask Mr Ahern, Mr Ghazouly or any of the workmen to leave the restaurant (ts 499).
After this initial exchange, the workmen then moved into the restaurant and commenced the Repossession.
Mr Ahern then left the restaurant and stood on the balcony outside by himself. For the most part Mr Ahern remained standing outside the restaurant on the balcony, although he looked around the restaurant from time to time.
Mr Ahern told Mr Ghazouly that he thought that a couple of the workers should stand by the doors at the entrance to the restaurant 'just in case there was a problem with anyone trying to lock the doors or any physical threat' (exhibit FF par 36; ts 1375). Mr Ahern's evidence was that he was concerned that the workers might leave some of the items from the restaurant unattended on the balcony where they could be stolen or damaged by third parties (ts 1379).
As they removed goods, the workmen carried them from the restaurant down the stairs outside the front of Spageddies and loaded them onto trucks parked outside the Restaurant.
Not surprisingly, Mr Stewart was very concerned about what was taking place, and he telephoned Mr HW Khoo, and Mr See, two of Pac‑Am's directors (ts 495), and Mr Sevasamy, the then General Manager of Spageddies. Someone, perhaps Mr Stewart, also telephoned Mr Pilbeam. Mr Stewart also telephoned the police (ts 495). As I have already noted, Mr See, Mr Sevasamy and Mr Pilbeam came to Spageddies while the Repossession was taking place and Mr Hardie attended the Premises later that afternoon. The police also attended at Spageddies while the Repossession was taking place.
In evidence were a number of photographs of the interior of Spageddies, taken after the Repossession had taken place. Although those photographs did not include photographs of the interior of the restaurant before and after the Repossession occurred, which might have permitted a more accurate comparison to be made of the state of the restaurant after the Repossession had taken place, the photographs nevertheless depict that at least parts of the kitchen, and some parts of the main body of the restaurant, had been stripped of items, leaving gaps and holes. By way of example, the photographs clearly show gaps in the cabinetry from where a stove and sink appear to be missing, a bar area from where the bench‑top and shelving appears to be missing, a cavity in the ceiling from where a range‑hood appears to be missing, exposed electrical wires and exposed plumbing connections. Although some items remained in the restaurant, the scene depicted in the photographs suggests the restaurant was gutted.
The Repossession was completed within a very short time period - the witnesses estimated that it took a total of between one and two hours (ts 1378). Mr Stewart described the Repossession as 'mayhem' (ts 529). The whole event was distressing to Mr Stewart and to the other staff members of Spageddies who were present during the Repossession or arrived while it was being carried out. Mr Pilbeam watched the Repossession 'in disbelief' and said that he 'had never witnessed an event like [it]' (exhibit I pars 162, 165).
After the Repossession was completed, the workmen left and the trucks drove away.
The inconsistencies in the evidence of the witnesses in relation to the Repossession concerned four issues:
(i)Whether items were thrown over the balcony to the trucks below;
(ii)Whether damages was done to the goods or the Premises in the course of the Repossession;
(iii)The conversation between Mr Ahern and Mr Stewart at the commencement of the Repossession; and
(iv)Mr Ahern's role in the Repossession.
Whether items were thrown over the balcony to the trucks below
In his witness statement which was received in evidence as his evidence‑in‑chief, Mr Stewart recollected that during the Repossession, the workmen were 'throwing items they had taken out of the restaurant over the balcony of the restaurant and onto the landing below' (exhibit B par 39). Mr Stewart maintained this evidence during cross‑examination. He said that:
[T]here was a garden bed below which things could be passed over. People could stand up on the garden. Things could be thrown over and things were being thrown over into the lower garden bed (ts 496).
Despite his claim that things were being 'thrown over the balcony' Mr Stewart claimed that no items were damaged in the process:
[B]ecause it was going into a garden bed and there was a couple of people - like, they were passing things over because there was the tables, there was the chairs, basins and piping and other things, dishwashers (ts 496).
I do not accept Mr Stewart's evidence that items seized by FC's workmen during the Repossession were thrown over the size of the balcony adjacent to the restaurant, for several reasons. First, the evidence appears inherently unlikely, having regard to the nature (and probable weight) of the items which were being removed from the restaurant. Secondly, there was no evidence that any of the items seized in the Repossession were actually damaged in the Repossession. It seems highly likely that if items were being thrown over the balcony at least some of the items would have been damaged, even if they had fallen onto a garden bed below the balcony. Thirdly, amongst the items Mr Stewart said were being thrown over the balcony were basins, and there is no mention in the inventory of basins having been seized in the Repossession. Fourthly, Mr Ahern's evidence was that he did not witness equipment being thrown over the balcony. Mr Ahern's evidence was that:
The balcony was around 20ft above the ground and any equipment thrown off the balcony would have been substantially damaged, if not destroyed. I was of the belief that the equipment was owned by [FC] so I believe I would have recalled it if [FC] had not taken due care of its own equipment by throwing it over the balcony (exhibit FF par 54).
Mr Ahern did not see any of the workmen passing goods over the balcony down to people below either (ts 1381). Finally, although I do not place significant weight on his evidence, given his poor recollection of the events, and other concerns I have about his evidence of the Repossession, Mr Ghazouly also denied that any of the goods were thrown over the balcony outside Spageddies (exhibit Y par 56). He denied that he would have allowed that to happen, on the basis that it would have been too dangerous (ts 1321).
I find that in respect of this aspect of his evidence, Mr Stewart's recollection is mistaken, or alternatively that he has exaggerated his evidence, and I do not accept this aspect of Mr Stewart's evidence.
Whether damage was done to the Premises in the course of the Repossession
Other than for the evidence of Mr Ghazouly, the evidence in relation to the Repossession supports the conclusion that the Repossession caused damage to the Premises. Mr Ghazouly's evidence was that he did not recall any damage being done to Spageddies during the Repossession. He stated that:
[T]he Workers who were employed by Ferguson Corporation were skilled professionals who were experienced in the safe installation and disconnection of equipment. The Workers were provided with a full set of tools and where the Goods were fixed to the premises etc, they were correctly removed by unscrewing the bolts, or whatever was required to be done, to disconnect the Goods (exhibit Y par 49).
However, Mr Ghazouly said that he was not monitoring whether the removal was done correctly, but rather was just responsible for making sure that no one got injured and all the goods were taken, and that he didn't remember damage being done to the Premises (ts 1258).
I do not accept Mr Ghazouly's evidence that there was no damage to the Premises as a result of the Repossession, for the following reasons.
First, the evidence of Mr Stewart, Mr Pilbeam, Mr Hardie, Mr See and Mr Sevasamy was to the effect that items were pulled from the walls, leaving exposed water pipes, the water supply was not disconnected before the items were removed so that water leaked onto the floor of the restaurant and eventually leaked into the arcade near to the restaurant, the power supply was not disconnected before items were removed and electrical wires were left exposed, and the phone lines were cut off at one stage (although apparently this problem was rectified before the Repossession concluded).
Secondly, the photographs of the Premises after the Repossession was conducted are entirely consistent with the evidence given by Mr Stewart, Mr Pilbeam, Mr Hardie, Mr See and Mr Sevasamy as to the state in which the Premises was left as a result of the Repossession.
Thirdly, Mr Ahern did not see much, if any, of the Repossession actually being conducted inside the Premises. However, to the limited extent that his evidence touched on the manner in which the Repossession was conducted, Mr Ahern's evidence was consistent with that of the witnesses for HFC. Mr Ahern recollected that he was advised of water dripping down from the restaurant into the car park below, and said that he reported this to Mr Ghazouly and asked him to attend to the problem. (Mr Ghazouly denied any recollection of a conversation of this nature with Mr Ahern (ts 1325). I do not accept that aspect of Mr Ghazouly's evidence either.)
Fourthly, Mr Ferguson accepted that the photographs tendered in evidence were taken after FC's workmen had carried out the Repossession (ts 1232), and that the photographs suggested that there had been some damage done to the Premises (ts 1233). Mr Ferguson accepted that the damage was done to the Premises in the course of the Repossession (ts 1233 ‑ 1234).
In addition, I have doubts about the reliability of this part of Mr Ghazouly's evidence, for the following reasons.
First, it was apparent that in many respects Mr Ghazouly's recollection of the events of 21 March 1998 (and the events around that time) was at best vague, and in some cases non-existent. It was apparent as a result of his responses to cross‑examination that at the time of giving evidence in these proceedings, Mr Ghazouly had very little independent recollection of the events of 21 March 1998. In addition, under cross‑examination he clearly became confused about the events, and was unable to recall evidence to which he had deposed in an earlier affidavit and in a draft statement of his evidence prepared in 1998 (see ts 1341 ‑ 1342).
Secondly, the tenor of much of Mr Ghazouly's evidence under cross‑examination, in relation to whether damage was done to the Premises during the Repossession, was that he did not see the damage caused to the Premises. His evidence was that he 'didn't actually go into the kitchen area or anything like that. I was mainly on the floor area where the tables were' (ts 1324). He said that he was 'in the restaurant, not actually physically inside where the workmen were. I was just making sure there was no damage and no‑one got hurt, everything was done properly' (ts 1325).
Thirdly, Mr Ghazouly's evidence was that he was responsible for ensuring that no damage was caused during the Repossession. To admit that damage had been caused would have been to admit that he had failed in his supervisory role, and in that sense, there was some reason for him to seek to minimise either his role or the damage caused in the Repossession.
Accordingly, I find that damage was caused to the Premises during the Repossession.
As I have already observed, and as counsel for HFC conceded in closing, there was no evidence as to damage being caused to any of the goods seized during the Repossession.
The conversation between Mr Ahern and Mr Stewart at the commencement of the Repossession
I have already recounted aspects of the conversation between Mr Ahern and Mr Stewart at the commencement of the Repossession. There was a difference in the evidence of some of the witnesses in relation to one significant aspect of this conversation.
Mr Stewart's evidence was that after Mr Ahern informed him why the workmen were present and handed him the Repossession letter, Mr Ahern
then turned to the workmen, clicked his fingers and moved his arm in a sweeping motion pointing towards the centre of the Restaurant and said to the Workmen 'come on guys let's get everything out of here and wreck this joint' (exhibit B par 19).
In cross‑examination, Mr Stewart maintained that Mr Ahern said these words (ts 493, 497).
In my view, the evidence did not establish that it was unreasonable for HFC to reject the offer from Fast Eddy's having regard to two aspects of the factual context. First, the offer was conditional on approvals being obtained for 24 hour trading, seven days per week, and 24 hour liquor trading. Mr Hardie's evidence was that 24 hour trading was not permitted from the Premises, having regard to the City of South Perth's requirements, and to the fact that there was a residential complex next door to the Piazza (ts 873). Secondly, the rent offered per annum was less than half that which was payable under Pac‑Am's lease of the Premises, and Mr Hardie's evidence was that no other tenancy in the Piazza was leased for the equivalent rate per square metre (ts 873). Mr Hardie's evidence was that he would not have accepted that amount of rent, as it would have become evidence of market rentals in the Piazza and would have affected rentals throughout the whole of the building, and therefore had an adverse effect on HFC's interest as landowner (ts 873).
There was also evidence that on 22 September 1999, Mr Carrello reported that although there had been a number of inquiries in relation to the purchase of Spageddies, these had by then been narrowed down to three potential purchasers, namely Ian Love, Gino La Pegna and a third party, and that negotiations were continuing. There was no evidence in relation to the expression of interest by the third potential purchaser. Mr Hardie's evidence was that Mr Love did not pursue an offer to lease the Premises because Mr Love decided he wanted to pursue the purchase of a freehold interest elsewhere (ts 863). The evidence did not establish that HFC rejected the offer from Mr Love, but rather that Mr Love withdrew his offer to lease the Premises.
Although Mr Hardie and Mr Carrello had discussed an inquiry by the owner of Spaghi's Italian restaurant, Mr Gino La Pegna, to purchase Spageddies, by 22 September 1999 Mr Carrello reported to Mr Hardie that the extent of Mr La Pegna's real interest in the property was difficult to gauge. There was no evidence to suggest that a firm proposal to purchase Spageddies had in fact been received from Mr La Pegna. The evidence did not establish that HFC had rejected an offer from Mr La Pegna to purchase Spageddies.
On 28 September 1999, Mr Carrello received an offer to lease the Premises from Century 21 Westwide Realty, on behalf of Mr Opel Khan, for a five year term with a further year option to renew for five years. The offer proposed a rent free period of 16 weeks, with rent in the first year totalling $187,200 per annum inclusive of outgoings, rising to $239,200 in the second year of the lease, and rising to $291,200 by the fourth year of the lease, with rent adjusted in accordance with the Consumer Price Index thereafter. Mr Khan subsequently made a verbal offer to purchase the plant and equipment at Spageddies for $145,000 (ts 860). Initially, Mr Carrello and HFC engaged in some negotiations with Mr Khan in relation to his offers, including exploration of a lease by Mr Khan of the Premises. Eventually Mr Khan's offers were rejected because they were made on the basis that HFC loan Mr Khan the money for the purchase, and this was not acceptable to Mr Hardie (ts 860), and because of concerns about the financial status of other business ventures undertaken by Mr Khan in Perth and interstate (ts 858). In my view, the evidence did not establish that it was unreasonable for HFC to reject the offer from Mr Khan having regard to these circumstances.
There was evidence that on 13 December 1999, Mr Hardie and Mr Carrello received a proposal from Mr Seong H Pak on behalf of the Glopak Unit Trust, to rent the Premises for a five year term with an option to renew for a further five year period, with an initial six month rent free period, and with rent commencing at $157,248 per annum during the balance of the first year of the lease, exclusive of outgoings, and rising to $201,132 by the fifth year of the lease with rent increases in accordance with the Consumer Price Index thereafter. The proposal also included the provision of a bank guarantee for four months rent and outgoings and a personal guarantee. In addition, it was proposed that various items of plant and equipment valued at $50,000 be purchased, but that this be financed by HFC leasing these to the tenant over a four year period. Mr Hardie doubted that Mr Pak had the financial substance to proceed (ts 860). In any event, however, HFC and Mr Carrello engaged in some initial exploration of this proposal with Mr Pak and in December 1999, wrote to Mr Pak with an offer to lease. However, Mr Pak did not reply to this correspondence (ts 875). On 24 January 2000, Mr Hardie wrote to Mr Pak withdrawing any offer that may have been contained in earlier correspondence. In my view, the evidence did not establish that an offer from Mr Pak had in fact been rejected, or if it had, that it was unreasonable to do so.
The defendants also rely on the fact that Mr Love purchased Spageddies' plant and equipment for the sum of $80,000 on or about 14 June 2000. The evidence established that in late May 2000, Mr Carrello accepted an offer from West Valley Hospitality Pty Ltd, a company of which Mr Love was a director, to purchase the plant and equipment at Spageddies for $80,000. It was not entirely clear from the defendants' pleading whether the decision to sell Spageddies' plant and equipment for this price and at this stage was relied on to demonstrate that HFC failed to act reasonably. To the extent that that was the defendants' case, the evidence did not establish that it was unreasonable for HFC to accept Mr Love's offer to purchase the plant and equipment at that point in time and for that price.
(d) Conclusion in relation to mitigation
I am not satisfied that HFC failed to act reasonably to take action, as pleaded by the defendants, to mitigate its loss.
Damages
In view of my conclusion in respect of the other aspects of HFC's claim against the defendants in negligence, and in view of my conclusion that HFC has not established that the defendants breached the tort of causing loss by unlawful means, it is, strictly speaking, unnecessary to assess damages. Again, however, as the quantum of damages was the subject of evidence at the trial, it is appropriate to indicate the quantum of damages I would have assessed, had it been necessary to do so.
In this section of my reasons I set out:
(a)The parties' cases with respect to damages;
(b)The evidence in relation to HFC's loss and damage;
(c)Conclusion in relation to quantum of damages.
(a) The parties' cases with respect to damages
HFC pleads that by reason of the defendants' breaches of their duty of care to it, HFC suffered loss and damage, in that by virtue of Pac-Am ceasing to carry on business, the appointment of an administrator, the appointment of a receiver, the appointment of a liquidator and Pac-Am's inability to pay its rent and variable outgoings and other expenses as and from March 1998, HFC lost $1,288,597.29 in respect of the Premises, and Shop 28.
According to its statement of claim, the amount claimed was calculated by HFC as follows:
DESCRIPTION
AMOUNT
The total rental income, variable outgoings, rates and taxes that HFC was entitled to receive from Pac-Am pursuant to Lease A and Lease B over the remaining terms of those leases
$2,852,674.81
The total rental income, variable outgoings, rates and taxes that HFC received from Pac-Am pursuant to Lease A and Lease B
- $385,145.86
The total rental income, variable outgoings, rates and taxes that HFC received from new tenants of the Premises and Shop 28
- $1,230,756.36
Proceeds from the sale of the fit-out equipment of Spageddies
- $73,500
Costs incurred by HFC in appointing a receiver to Pac‑Am
+ $44,075.01
Payment of repairs expenses
+ $29,948.81
Loss of income for an additional parking bay offered to Celestial Asset Pty Ltd from 1 May 2001 to 30 April 2006
+ $8,035.88
Payment for the installation of a new fit‑out for E J Tourist and Maria Herrick
+ $43,260.00
TOTAL
$1,288,592.29
I note that the total amount claimed by HFC is in fact incorrect, having regard to the particulars of loss and damage set out in its statement of claim.
HFC also claims the same quantum of loss and damage by reason of the defendants' alleged breaches of the tort of causing loss by unlawful means.
HFC also claims interest on the damages pursuant to s 32 of the Supreme Court Act 1935 (WA).
By the time of the trial, HFC's claim for damages had been modified. According to Mr Hardie, HFC's claim was for damages in the sum of $1,091,230.53 (exhibit G page 8). That figure was calculated as follows:
Total amount payable by Pac‑Am to HFC pursuant to Lease A, comprising the outstanding balance as at the end of August 1999 (of $294,335.40) plus the total amount payable for the balance of the nine year term of Lease A
$2,420,617.48
Total amount payable by Pac‑Am to HFC pursuant to Lease B, comprising the outstanding balance as at the end of August 1999 (of $19,284.68) plus the total amount payable for the balance of the nine year term of Lease B
$169,454.28
Subtotal of rent and outgoings payable under Lease A and Lease B
$2,590,071.76
Less rent received from subsequent tenants:
Shop 26 (part of Lease A) - E J Tourist
$153,651.11
Shops 39 and 40 (part of Lease A) - Celestial Asset / Warren Mead
$1,166,230.23
Shop 28 (Lease B) - Herrick
$76,395.84
- $1,396,277.18
Subtotal - net damages under lease agreements
$1,193,794.58
Additional costs of new leases
Clean up of tenancy for tender / fit‑out for new tenants
$72,763.09
Lease incentive - additional parking provided for Celestial Asset
$8,036.00
Subtotal - additional clean up costs
+ $80,799.09
Legal costs associated with defaulting tenant - appointment of receiver
+ $17,847.95
Costs of appointment of receiver
+ $30,000.00
Gross damages
$1,322,441.62
Less proceeds received via Debenture Charge
- $231,211.09
Net claim for damages
$1,091,230.53
The defendants deny that HFC suffered any loss or damage. The defendants also plead that HFC is required to bring to account all monies it received pursuant to the Debenture Charge, whether as a result of the prosecution of the Pac‑Am proceedings or otherwise.
It is well established that the purpose of an award of damages in an action for negligence is to put the plaintiff, as nearly as possible, in the position in which he or she would have been had the tort not been committed: Livingstone v Rawyards Coal Company (1880) 5 App Cas 25, 35 (Lord Hatherley).
Counsel for HFC submitted that there appears to be 'no damages learning' in relation to the tort of causing loss by unlawful means, and counsel for the defendants did not make any specific submissions on the principles applicable to awards of damages for a breach of the tort of causing loss by unlawful means. I have not identified any authority to suggest that in calculating damages for a breach of this tort it would be inappropriate to apply the same principles as are applied in the assessment of damages in negligence actions.
(b) The evidence in relation to HFC's loss and damage
Mr Hardie provided a supplementary witness statement attaching a number of schedules which set out the basis on which HFC's claim for damages in the sum of $1,091,230.53 had been calculated. HFC tendered in evidence copies of its records of receipt of rent for Shops 26, 39, 40 and 28 (exhibitG), in addition to copies of Lease A and Lease B and the subsequent leases of those shops, on the basis of which rent foregone and rent received was calculated. It also tendered invoices and receipts for the amounts it claimed by way of expenses, and which it proposed should be deducted from the total damages it claimed (exhibitG). Although the defendants denied the damages claimed, and in that sense put HFC to proof in relation to the quantum of damages it claimed, they did not seriously seek to challenge much of the claim to damages made by HFC, and cross‑examined Mr Hardie only to a limited extent in relation to his supplementary witness statement.
I accept the amounts claimed by HFC, subject to the qualifications or amendments set out below.
Mr Hardie's evidence was that the net damages claim of $1,193,794.58 was calculated on the following basis. The total rent (comprising base rent and outgoings) payable by Pac‑Am under Lease A and Lease B, incorporating arrears until August 1999, and rent and outgoings payable for the remainder of the nine year terms of those leases, was $2,590,071.76. This sum included interest to which HFC was entitled pursuant to the terms of Lease A and Lease B on the rent arrears owed by Pac‑Am up until the date that each shop was re‑let, either in its entirety (in the case of Shop 28) or in part (in the case of that part of Lease A which was re‑let when Shop 26 was leased to E J Tourist). From this sum was deducted the rent received from subsequent tenants, totalling $1,396,277.18. This figure comprised rent received from the tenant of Shop 26 (E J Tourist) of $153,651.11, rent received from the tenants of Shops 39 and 40 (Celestial Asset Pty Ltd and subsequently Warren Mead) of $1,166,230.23, and rent received from the tenant of Shop 28 (Ms Herrick) of $76,395.84. The lease to Ms Herrick over Shop 28 commenced on 7 February 2000 and the tenant commenced paying rent immediately (ts 985).
As the table above indicates, HFC sought additional costs which it claimed were associated with obtaining new leases over Shops 26, 39, 40 and 38, legal costs associated with dealing with the default of Pac‑Am, and the costs of its appointment of a receiver to Pac‑Am. Those additional costs were claimed to total $1,322,441.62. In so far as HFC sought damages for the cost of providing a lease incentive, this was for additional parking which was provided to Celestial Asset Pty Ltd under the terms of its lease. In so far as HFC sought damages in respect of its legal costs, these were for costs charged by Clayton Utz, which was engaged to provide advice in relation to the appointment of receiver pursuant to the debenture charge. In so far as HFC sought damages for the costs charged by the receiver, Mr Carrello, Mr Hardie's evidence was that the sum of $30,000.00 represented part of those costs. Mr Hardie's evidence was that HFC incurred further costs of $34,255.43 in relation to the receivership, but these costs had been deducted from amounts recovered by the receiver. Mr Hardie was cross‑examined in relation to the payment to Mr Carrello of fees of $30,000, as HFC had not produced an invoice or receipt for that amount. Mr Hardie's evidence was that the $30,000 had been paid, and that Mr Carrello was paid his fees in full (ts 983). I accept that evidence.
In his supplementary witness statement, Mr Hardie explained the basis on which HFC sought to account for the net proceeds it received as a result of the appointment of the receiver pursuant to the debenture charge, totalling $231,211.09. This amount comprised $37,277.07 which HFC received from the proceeds of the sale of the Maldon Way property, $80,000 which HFC received from the company owned by Mr Love for the purchase of items of Pac‑Am's plant and equipment, a further $40,434.02 which was the proceeds (net of GST) which HFC received following the auction of the remainder of Pac‑Am's plant and equipment, and a further $73,500 in net proceeds from the receiver. Counsel for HFC submitted that the sum of $231,211.09 included HFC's account for the proceeds of the receiver's action (on behalf of Pac‑Am) against FC and Mr Ahern. As I noted earlier in these reasons, that action was settled for $120,000. Although there was no express evidence to this effect, having regard to Mr Hardie's evidence, to the modest quantum of the settlement of the Pac‑Am action (from which, presumably, costs would have been deducted) and to the submission of counsel for HFC, I understand that the sum of $73,500 constitutes the balance of the settlement sum paid by FC in the settlement of the Pac‑Am action.
The defendants sought to challenge HFC's claim for expenses for fitting out the Premises and Shop 28 prior to new tenants taking up leases over those parts of the Piazza. These expenses were set out in sch C (and under tab 5) to exhibitG. Mr Hardie agreed that a tenant would normally pay fit-out costs, but his evidence was that HFC had to prepare the shops for leasing to new tenants following Pac‑Am's collapse. In the case of Shop 28, which was leased to Ms Herrick, the shop was converted from a lunch bar to a florist, and work was required to be done to enable that tenancy to be taken up (ts 983). Having regard to the limited evidence on this issue, I accept Mr Hardie's evidence, and I accept that it was reasonable for HFC to incur these costs to enable a new lease to be taken over Shop 28 at the earliest opportunity after Pac‑Am's collapse.
In the case of the Premises, HFC incurred expenses in subdividing the Premises so as to be able to lease part of it to E J Tourist as quickly as possible (the remainder of the Premises was subsequently leased to Celestial Asset Pty Ltd) (ts 983). I accept that evidence.
It was Mr Hardie's evidence that prior to the commencement of these new leases, the plant and equipment used by Pac‑Am at the Premises had to be removed, and there were a number of things that needed to be tidied up in the Premises before they were in a tenantable state (ts 983). In relation to that part of the Premises which included Shop 26, HFC claimed for various invoices for brickwork to Shops 25 and 26. Mr Hardie said that that work would have been for a division wall between Shops 25 and 26 (ts 986). Mr Hardie's evidence was that Shop 25 was used for the office of the restaurant leased to Celestial Asset Pty Ltd. Mr Hardie explained that that area was subdivided off Shop 26 (which had been part of the Premises)
because the tenant at the front didn't want the full area of that back area so we leased off the new tenancy 26 to Rosewood Antiques [the tenant for which was E J Tourist] and 25 became the office of the restaurant; so it's just a subdivision of the existing number 26. …
... What happened was the tenant who wanted the restaurant didn't want all the area so we subdivided off and formed a new tenancy number 26, or 25 I suppose, both new tenancies out of the same area so we could lease that. 26 was leased by Rosewood Antiques and the restauranteur took the balance for its office for the restaurant at the front (ts 987).
Having regard to the available evidence, I accept that HFC incurred the cost of undertaking this brickwork to enable it to subdivide the Premises and that it was reasonable for HFC to incur this cost to enable it to lease the Premises (or parts thereof) at the earliest opportunity.
Part of the fit-out costs for the new tenancies which HFC claimed covered the cost of installing a new air conditioning unit in Shop 26, at a cost of $14,409.10. Mr Hardie's evidence was that as a result of the subdivision of Shop 26 into Shops 25 and 26, the air conditioning unit which serviced the restaurant area could no longer be used to service Shop 26 (which was leased by E J Tourist). Accordingly it was necessary to install a separate air conditioning system for that tenancy (ts 988). Having regard to the available evidence, I accept that HFC incurred this expense and that it was reasonable for it to do so in order to enable it to lease all of the Premises.
Some of the work involved in returning the Premises to a tenantable state involved minor work carried out by a tradesman. In the case of that part of the Premises which was ultimately leased to Celestial Asset Pty Ltd, some of this work was carried within the month after the tenancy had actually commenced (on 1 May 2001). Mr Hardie's evidence, which I accept, was that the tradesman
would just be doing the final things that needed to be done on our behalf for the tenant. … [I]f there was something which was left undone which was our responsibility we would do it, and this is in that period of time - … within a 30 day period of time, which would be a period when we would still be doing things just to make sure that the tenant was able to occupy (ts 989).
In cross‑examination, Mr Hardie accepted that one item had been erroneously included in the list of additional costs for the fit-outs for the new tenancies. This was an invoice for the repair of a lock, which was dated 28 July 2000, in the amount of $68.18 (ts 986).
In relation to the legal costs for the appointment of a receiver, which HFC sought to recover, two of the invoices produced by HFC in support of its claim (namely invoice 11807, in the sum of $872.00 and invoice 7928 in the sum of $264.00) appeared to relate primarily to matters unrelated to the appointment of Mr Carrello. Mr Hardie was either unable to explain how the majority of the work the subject of the invoice pertained to the appointment of a receiver (ts 989) or accepted that the work the subject of the invoice had nothing to do with the appointment of the receiver (ts 990), and in those circumstances I do not accept that these claims were reasonable.
Accordingly, I accept the amounts claimed by HFC by way of damages, other than the sums of $68.18, $872.00 and $264.00, to which I have referred.
(c) Conclusion in relation to quantum of damages
Had it been necessary for me to do so, I would have assessed the damages necessary to place HFC as nearly as possible in the position in which it would have been had the tortious conduct not been engaged in, in the sum of $1,090,026.35.
The defendants have not suggested any reason why HFC should not be awarded interest on that sum from 21 March 1998. I would have awarded interest on the judgment debt from 21 March 1998 until the date of judgment, pursuant to s 32 of the Supreme Court Act.
However, because I have found that neither defendant owed a duty of care to HFC, that in any event there was no breach of any such duty, and further that even had there been a breach of any such duty, that breach did not cause HFC's loss, and because I have found that neither defendant is liable to HFC for a breach of the tort of causing loss by unlawful means, I make no award of damages in favour of HFC.
Conclusion
HFC has not established, on the balance of probabilities, that the defendants owed it a duty of care not to cause it economic loss, that there was a breach of that duty, or that any such breach caused the loss and damage HFC claims. The defendants did not establish that HFC failed to mitigate its loss.
HFC has also not established, on the balance of probabilities, that the defendants committed the tort of causing loss by unlawful means.
Had it been necessary to do so, I would have assessed damages in the sum of $1,090,026.35, together with interest from 21 March 1998 until the date of judgment pursuant to s 32 of the Supreme Court Act. However, in light of my other conclusions, I make no such order.
I will hear the parties on the terms of the orders which should be made in view of my reasons for decision.
22
0
4