Hernals Pty Ltd as trustee for the Winterton Surgery Land Trust v Burger
[2023] WASC 9
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: HERNALS PTY LTD AS TRUSTEE FOR THE WINTERTON SURGERY LAND TRUST -v- BURGER [2023] WASC 9
CORAM: ACTING MASTER MCDONALD
HEARD: 26 JULY 2022
DELIVERED : 19 JANUARY 2023
PUBLISHED : 19 JANUARY 2023
FILE NO: CIV 1203 of 2022
BETWEEN: HERNALS PTY LTD AS TRUSTEE FOR THE WINTERTON SURGERY LAND TRUST
Plaintiff
AND
FREDERICK MARTHINUS BURGER
First Defendant
ANDREA ELEANOR KELLY
Second Defendant
Catchwords:
Property law - Application for sale of property by person holding one third interest in property - Summary judgment - Whether clear case that sale will be ordered
Legislation:
Property Law Act 1969 (WA), s 126
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | M D Reid |
| First Defendant | : | P G McGowan |
| Second Defendant | : | P G McGowan |
Solicitors:
| Plaintiff | : | Jackson McDonald |
| First Defendant | : | DTS Legal |
| Second Defendant | : | DTS Legal |
Cases referred to in decision:
Giacci v Giacci Holdings Pty Ltd [2010] WASC 349
Martin-Smith v Woodhead [1990] WAR 62
Mitchell v Cullington [1997] ANZ Conv R 342
Primewest (Mandurah) Pty Ltd -V- Ryom Pty Ltd as trustee for Golden Asset Pty Ltd [2012] WASC 443
Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14
Warren v Lawton [No 3] [2016] WASC 285
ACTING MASTER MCDONALD:
This is an application for summary judgment (Application) brought by the plaintiff for the sale of a property in Mount Hawthorn (Property) pursuant to s 126 of the Property Law Act 1969 (WA) (the Act).
The plaintiff and the two defendants each hold a one‑third share in the Property as tenants in common. The defendants oppose the application for summary judgment.
As the plaintiff does not hold a half-share in the Property, it is not entitled to the benefit of s 126(1) of the Act, pursuant to which the court would be required to direct a sale, unless it saw good reason to the contrary.
The plaintiff, rather, seeks to have the court exercise its discretion to order a sale of the Property pursuant to s 126(2) of the Act. The court's discretion under that provision is enlivened where it appears to the court that 'a sale would be for the benefit of the parties interested'.
Being an application for summary judgment, the plaintiff faces a high hurdle. As the Court of Appeal said in Sutton Investments Pty Ltd v Realistic Investments Pty Ltd:[1]
Summary judgment will be granted only when there is no real question to be tried. The power to order summary judgment is one that should be exercised with great care: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99. It is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial, that summary judgment ought properly be granted: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46]; Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 [24], [53] ‑ [55].
[1] Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14 [24].
In the Application, given the nature of the relief sought, the plaintiff must demonstrate that there is no real question as to whether a sale would be for the benefit of all of the parties, and that there is a high degree of certainty that the court would ultimately exercise its discretion in the plaintiff's favour and upon what terms it would do so.
For the reasons that follow, I am not satisfied that the plaintiff has demonstrated that this is an appropriate case for summary judgment. I would dismiss the Application.
Factual background
The plaintiff relied upon three affidavits in support of the Application:
(a)affidavit of Peter Martin Winterton (Dr Winterton) sworn 6 May 2022;
(b)affidavit of Matthew Reid sworn 9 May 2022; and
(c)affidavit of Peter Martin Winterton sworn 23 June 2022.
Dr Winterton is the sole director and shareholder of the plaintiff, Hernals Pty Ltd. Dr Winterton is a medical practitioner.
The defendants relied upon two affidavits in opposition to the Application:
(a)affidavit of Frederick Marthinus Burger (Mr Burger) sworn 25 May 2022; and
(b)affidavit of Frederick Marthinus Burger sworn 21 July 2022.
Mr Burger is the first defendant. The second defendant, Andrea Eleanor Kelly (Dr Kelly) is a medical practitioner. Mr Burger and Dr Kelly are married.
Mr Burger and Dr Kelly are the directors and shareholders of Marlea Medical Pty Ltd (Marlea). Marlea carries on business as a medical practice known as the Mount Hawthorn Family Practice (Medical Practice). Dr Kelly works as a general practitioner in the Medical Practice. Mr Burger deposes that the practice manager of the Medical Practice is FMB Consultants Pty Ltd (FMBC), a company of which he is the sole director and shareholder.
For a number of years, the Medical Practice previously operated from premises in Oxford Street in Mount Hawthorn. In 2016, Dr Winterton commenced working as a consultant general practitioner at the Medical Practice at the Oxford Street premises.
In 2018, Mr Burger and Dr Kelly invited Dr Winterton to join with them in purchasing the Property, which is located at 61 Flinders Street, Mount Hawthorn. It was proposed that the Medical Practice would move from the Oxford Street premises to the Property.
Dr Winterton agreed and the parties purchased the Property, as tenants in common in equal shares, on 1 February 2019. The purchase price was $1,450,000. The Property is subject to a mortgage in favour of Medfin Australia Pty Ltd (Medfin), which secures a loan advanced to the parties for the purchase of the Property. As at 31 March 2022 the balance of the loan was approximately $1,090,000.
There is currently on the Property an old (circa 1930s) dwelling that has been converted into a medical centre. The Property is occupied by Marlea, which continues to operate the Medical Practice from the Property. The Medical Practice has operated from the Property since about 1 July 2019.
In addition, Sonic Healthcare Ltd trading as Clinipath (Clinipath) occupies a room within the premises on the Property, carrying out pathology services. Clinipath has been operating from the Property since about 1 August 2019.
Disputes between the parties
Dr Winterton has since had a falling out with the defendants. There appear to be a number of disputes between the parties.
Dr Winterton deposes that:
(a)there was no written lease between the parties (as landlord) and Marlea (as tenant). Marlea initially paid $3,000 (exclusive of GST) per month in rent for the premises at the Property and $1,500 (exclusive of GST) per month in rent for use of the car bays on the Property;
(b)there was a shortfall between the rent received by the parties and the loan repayments to Medfin of approximately $3,000 per month. As a consequence, it was agreed that each of the parties would pay $1,000 per month to cover the 'shortfall';
(c)in June 2021, Mr Burger provided Dr Winterton with a written lease document between the parties and Marlea in relation to the Property (Lease). Dr Winterton said he was not happy with the terms of the Lease and Mr Burger refused to change any of the terms;
(d)he later received minutes of a meeting of owners at which he was not present, purporting to approve entry into the Lease;
(e)the defendants advised him (contrary to their original advice) that the lease with Clinipath was not a lease with the owners of the Property but a sub-lease between Marlea and Clinipath. Dr Winterton said that they advised him that the plaintiff's share of the Clinipath rent applied to loan repayments had to be repaid by the plaintiff and that the plaintiff would have to make up the shortfall;
(f)as he disagrees that the Clinipath lease is a sub‑lease with Marlea, the plaintiff has not paid the shortfall demanded by the defendants;
(g)he terminated his consultancy agreement with the Medical Practice on 25 January 2022 and no longer works there;
(h)he received notice that the defendants were calling a meeting of owners to reduce the rent payable by Marlea, which would in turn increase the parties' liability to pay the shortfall on the Medfin loan; and
(i)he disputes the defendants' entitlement to reduce the rent by majority vote.
Mr Burger deposes that:
(a)Marlea leases the Property pursuant to a written lease, subsequent to an oral lease agreed by the parties;
(b)the sub‑lease with Clinipath is contained in a Deed of Lease dated 21 January 2019 between Clinipath and FMBC;
(b)between July 2021 and January 2022 the parties entered into negotiations for the defendants to purchase the plaintiff's share of the Property. There is, contained in the affidavit material, a series of communications between the solicitors for the parties in that context, including disagreement as to whether disputed amounts should be deducted from any purchase price;
(c)Dr Winterton's resignation from the Medical Practice significantly impacted on the income of the practice, and accordingly the ability to pay rent was reduced; and
(d)the Clinipath space was leased from the Medical Practice and not the owners of the Property.
In relation to the application under s 126 of the Act, Mr Burger deposes, in his affidavit of 25 May 2022:
54.These proceedings and the mortgage liability specifically emerged because myself and Dr Kelly had certain management issues with Dr Winterton. Arising from this we advised Dr Winterton and his solicitors that we would seek that he sell his share (Hernals' share) in the premises (to avoid reliance on s 126 of the Property Law Act and unnecessary cost). The gross value of each party's share in the premise was agreed based on two sworn valuations of the premises. It was agreed that Dr Winterton (Hernals) would sell its share to the remaining proprietors (myself & Dr Kelly). What became an issue was the actual liability of each party for the mortgage, exacerbated by Dr Winterton suddenly decamping from the building/premises/business.
55.Marlea Medical is a sitting tenant as is Clinipath, with regard to the premises.
56.I have devoted a great deal of time and effort to finding these premises and to arranging a change of use and to renovating the premises and to subleasing part of the premises to Clinipath, none of which effort was contributed to by Dr Winterton.
57.Arising from the breakdown of the relationship Dr Winterton moved out of the premises and ceased contracting to Marlea Medical, thereby causing a substantial loss of income to MHFP/Marlea Medical.
58.An order for the sale of the whole of the premises will have a very substantial and very adverse effect upon Marlea Medical. Such an order would require that we (and Clinipath) move out. That such concerns and costs should be visited upon the majority owners by the minority owner of the premises, when the minority owner who by any description, was a contract doctor (to the business of Marlea Medical) has left the premises, having originally been a willing investor.
59.Furthermore, the extensive work done by myself to find, to change use, and to arrange renovations of the premises will have been waster. For these reasons and that Marlea Medical would need to find new premises it would be extremely and disproportionally prejudicial to both of us personally and to the medical practice generally (8 staff including 4 doctors plus Clinipath) of Marlea Medical.
The parties' submissions
Section 126 of the Act, relevantly, provides:
(1)Where in an action for partition the party or parties interested, individually or collectively, to the extent of a half share or upwards in the land to which the action relates request the Court to direct a sale of the land and a distribution of the proceeds, instead of a division of the land between or among the parties interested, the Court shall, unless it sees good reason to the contrary, direct a sale accordingly.
(2)The Court may, if it thinks fit, on the request of any party interested, and notwithstanding the dissent or disability of any other party, direct a sale in any case where it appears to the Court that, by reason of the nature of the land, or of the number of the parties interested or presumptively interested therein, or of the absence or disability of any of those parties, or of any other circumstance, a sale of the land would be for the benefit of the parties interested.
(3)The Court may also, if it thinks fit, on the request of any party interested, direct that the land be sold, unless the other parties interested, or some of them, undertake to purchase the share of the party requesting a sale; and, on such an undertaking being given, may direct a valuation of the share of the party requesting a sale.
(4)On directing a sale or valuation to be made under subsection (3) the Court may give also all necessary or proper consequential directions.
As I noted at the outset, the plaintiff's claim for relief is brought pursuant to s 126(2) of the Act, it not having a half‑share in the Property entitling it to relief under s 126(1) of the Act.
The plaintiff referred to a number of authorities of this court dealing with s 126 generally.[2] It placed particular emphasis on the decision in Warren v Lawton in which Le Miere J concluded that words 'a sale of the land would be for the benefit of the parties interested' are used in reference to partition not the status quo. Therefore, his Honour said:[3]
the question for the court is whether having regard to the nature of the land, the number of the parties interested therein or any other circumstance, a sale would be more beneficial to the parties than a division of the land.
[2] See Martin-Smith v Woodhead [1990] WAR 62 (Martin-Smith v Woodhead); Mitchell v Cullington [1997] ANZ Conv R 342 (Mitchell v Cullington); Warren v Lawton [No 3] [2016] WASC 285 (Warren v Lawton).
[3] Warren v Lawton [218] (Le Miere J).
In relation to whether partition (ie division of the Property) was appropriate, the plaintiff referred to valuation evidence to the effect that the Property did have subdivision potential for approximately six group housing lots. The plaintiff further submitted, however, that a division of the Property between the co-owners would only be a future proposition given the existence of the leases over the Property and 'the existence of the leases do not make division of the Property a practicable option at this point in time'.
The plaintiff submitted that the economic benefits of a sale favoured the parties and that the concerns raised by Mr Burger at par 58 and par 59 of his affidavit of 25 May 2022 fail to distinguish between the interests of the defendants in their personal capacities and their interest in Marlea and the Medical Centre. At the same time, the plaintiff submitted that there were no non-economic benefits to the parties relevant to the court's exercise of discretion whether to order a sale.
The plaintiff made a number of submissions concerning the disputes between the parties as to the lease with Marlea, the rent payable by Marlea, the occupancy by Clinipath and the mortgage shortfall. As to the lease with Marlea, the plaintiff contends that the decision made to enter into the written lease was invalid, as was the decision to reduce the rent. Similarly, the plaintiff submitted that the Clinipath lease was never a sub‑lease and there was no basis for the claim for reimbursement by the plaintiff of the share of the Clinipath rent.
The defendants submitted that the present case was not an appropriate one for summary judgment.
The defendants submitted that the disputes between the parties were not pleaded, nor did they form part of the cause of action in these proceedings. They submitted, nevertheless, that the relief claimed by the plaintiff invited the court, in effect, to make final findings of fact as to those disputes. In that context, the defendants referred to the fact that the decisions relied upon by the plaintiff, Warren v Lawton and Mitchell v Cullington, involved the court exercising its discretion after considerable reference to evidence at trial (in that regard I also note that Mitchell v Cullington was a case in which Templeman J made an order for partition rather than sale). The third case referred to by the plaintiff, Martin‑Smith v Woodhead, the defendants noted, was an application under s 126(1) of the Act, in relation to which completely different considerations apply.
The defendants submitted that it could not be concluded that a sale was for the benefit of all interested parties, without findings in relation to the matters raised by Mr Burger at par 58 and par 59 of his affidavit of 25 May 2022. In that context the defendants submitted that, while Marlea is a separate entity, it was nevertheless the structure through which the defendants operated the Medical Practice, which was (they submitted) a relevant consideration in relation to the exercise of the court's discretion.
Disposition
The plaintiff is correct when it submits that, following Warren v Lawton, the determination of whether a sale of the land would be for the benefit of the parties interested is to be made by reference to partition and not the status quo. While the court must primarily address the economic benefit of a sale, benefits other than economic benefits may be taken into account.
Whether the sale of the land would be for the benefit of the parties, nevertheless, remains a question of fact to be established on the evidence. Moreover, as the authorities make clear, the power of sale is discretionary. Of course, it may be in some cases that, upon all of the evidence, the exercise of the discretion is clear. Such was the case in Warren v Lawton, where there was no evidence that the land was capable of subdivision.
In the present application there is some, albeit limited, evidence that a partition of the Property may be possible. As the plaintiff acknowledged, the valuation evidence included statements to the effect that the Property did have subdivision potential. This is not to say that the parties may ultimately pursue, or the court may ultimately order, partition of the Property. It is however the case that, unlike Warren v Lawton, it cannot be said that there is no prospect of partition.
Moreover, the basis upon which the plaintiff submits that 'division of the Property [is not] a practicable option at this point in time' is the existence of the leases with Marlea and Clinipath. The existence of the leases, in my view, present a similar difficulty for sale of the Property 'at this point in time'. That is because the continuance of any leasehold interest upon the sale of the Property would be a significant matter relevant to any such sale. In that regard, there may be competing arguments as to whether a purchaser would take the Property subject to the leasehold interests said to be held by Marlea and Clinipath, depending upon the registration of any interests and the terms of any proposed sale.[4]
[4] As to which see Primewest (Mandurah) Pty Ltd -V- Ryom Pty Ltd as trustee for Golden Asset Pty Ltd[2012] WASC 443 [98] – [110] (Edelman J).
Any prospective purchaser of the Property would need to be in a position to know the nature of any other interests in the Property before entering any purchase agreement, including whether there was any binding leasehold interest and the terms of any such interest. And yet, the parties are in dispute as to the terms of the purported leases with Marlea and Clinipath, and indeed whether the written lease was validly entered into at all. Without those disputes being resolved, by agreement or external determination, it is difficult to see how the Property could feasibly be sold 'at this point in time'. For example, would the property be sold subject to the written lease? If so, what would the rent be, having regard to the purported reduction in rent? What would, or could, a prospective purchaser be advised as to these matters?
Conversely, if it were suggested that the Property could be sold without being subject to any leasehold interest, a real question would arise as to whether the sale was in the interests of the defendants. Either way, the existence and nature of any leases of the Property are matters relevant to the court's discretion whether to order a sale, and the terms of any such order.
Returning to the plaintiff's burden in the Application, before summary judgment could be entered, there must be a high degree of certainty about the ultimate outcome of the proceedings if it went to trial. That is not simply answered by reference to whether it is clear that, ultimately, the outcome of the proceedings will be that the Property is to be sold. The orders to be made by the court, upon the exercise of the discretion under s 126(2) of the Act, are not confined to a simple binary of 'partition' or 'sale'. Even where there is an order for sale, the court may (and in my view would be expected to) give all necessary or proper consequential directions (s 126(4) of the Act).
Those proper consequential directions may include, for example, orders as to who is to have conduct of the sale. They may also include an order for an account between the parties as to rents, profits or income received from the property. Such were the orders made, following trial, by E M Heenan J in Giacci v Giacci Holdings Pty Ltd [2010] WASC 349.
While not all of the disputes between the parties in the present case will necessarily find their way into an accounting between the parties upon the sale of the Property, in my view, it is sufficiently clear that the issues in dispute between the parties have the real potential to affect the ultimate outcome of the plaintiff's application for sale of the Property.
In those circumstances, I am not satisfied that the ultimate outcome of these proceedings is so clear that this is an appropriate case for summary judgment.
I would dismiss the plaintiff's application.
I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.
TG
Associate to Acting Master McDonald
19 JANUARY 2023
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