Hortis v Papanikolaou

[1999] NSWSC 805

CITATION:	Hortis v Papanikolaou [1999] NSWSC 805
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	3643/97
HEARING DATE(S):	5 August 1999
JUDGMENT DATE:	5 August 1999
PARTIES :	Edison Hortis and Dionysia Hortis (P) George Papanikolaou and Maria Papanikolaou (D)
JUDGMENT OF:	Master McLaughlin

COUNSEL :	Mr. M. W. Young (P)
SOLICITORS:	Lawrence F. Tanna (P) Douglas Knaggs (D)
CATCHWORDS:
CASES CITED:	General Steel Industries Incorporated v Commissioner for Railways (1964) 112 CLR 125
DECISION:

SUPREME COURT OF
NEW SOUTH WALES
EQUITY DIVISION

MASTER McLAUGHLIN

Thursday, 5 August 1999

3643/97 EDISON HORTIS & ANOR -v- GEORGE PAPANIKOLAOU & ANOR

JUDGMENT

1    MASTER: There is presently before the Court an application by the plaintiffs Edison Hortis and Dionysia Hortis made by way of notice of motion filed on 21 July 1999. By that notice of motion the plaintiffs seek orders for the dismissal of certain parts of the amended cross-claim filed by the defendants George Papanikolaou and Maria Papanikolaou on 11 March 1998 and, in the alternative, an order that certain parts of that amended cross-claim be struck out. 2    The plaintiffs are named as cross-defendants to that amended cross-claim in which the defendants are the cross-claimants. 3    The proceedings were instituted by statement of claim filed on 18 August 1997. Subsequently there was on 22 September 1997 filed an amended statement of claim. The cause of action relied upon by the plaintiffs in the amended statement of claim related to the rights of the plaintiffs as the owners of certain property at Bankstown against the defendants as guarantors of a lease entered into in respect of that property by a company Kalwino Pty Ltd (to which I shall refer as “Kalwino”) as lessee, on 13 March 1996 with the plaintiffs as lessors. The defendants guaranteed the performance by Kalwino of its obligations under that lease. 4    There was filed a defence to the amended statement of claim on 16 October 1997 and there was also filed a cross-claim, and subsequently on 11 March 1998 an amended cross-claim. It is that amended cross-claim which is the subject of the present application. 5    By that amended cross-claim the defendants in paragraph 2, which is headed 'Refusal of Assignment' assert that they were sole shareholders and directors of Kalwino (that company being described as 'now in liquidation') and assert that the company entered into a contract for the sale of a business conducted by Kalwino as a reception centre operator, such sale being subject to the assignment of the lease (being described as ‘subject to the assignment of the lease between the plaintiff and the company as lessee and the defendants as guarantors’). 6    Paragraphs 3 and 4 assert that the consent of the plaintiff as lessor was sought to the assignment of the lease, such consent being conditional on the sale of the business, and that the plaintiff wrongfully refused to consent to the assignment. 7    Paragraph 5 asserts that the defendants as a result of such refusal suffered damage (such damage being described as being 'consequent upon the failure of the company to receive the proceeds of the sale of the business nett $468,649.50'). 8    Particulars of damage are then set forth in paragraph 6. I note that the amended cross-claim contains two paragraphs numbered 6. Paragraph number 6, where secondly appearing, is in the following form:

In the alternative the plaintiff filed to mitigate their loss by their refusal to consent to the assignment of the business.

9 Paragraph 7 sets forth particulars of mitigation of loss. Paragraphs 8, 9, 10, 11, 12 and 13 of the amended cross-claim relate to an alleged refusal by the plaintiffs to discharge a mortgage. Those paragraphs are not the subject of any application presently brought by the plaintiffs in respect to the amended statement of claim. 10 Paragraph 1 in the notice of motion seeks dismissal of the claim of the defendants in respect to any cause of action arising out of the refusal of the plaintiffs to consent to the assignment of the lease. 11 Paragraph 2 of the notice of motion seeks dismissal of the cause of action asserted by the defendants as arising out of the failure of the plaintiffs to mitigate their loss. Each of those paragraphs of the notice of motion seeks dismissal of the cause of action pursuant to the provisions of Part 13 rule 5 of the Supreme Court Rules, it being submitted that the parts of the amended cross-claim the subject of the present applications disclose no cause of action and are frivolous and vexatious and are an abuse of the process of the Court. 12 Part 13 rule 5 provides, relevantly, in subrule (1) thereof as follows:

Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings
(a) no reasonable cause of action is disclosed;
(b) the proceedings are frivolous or vexatious; or
(c) the proceedings are an abuse of the process of the Court,
the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings.

13    The principles relevant to the exercise of the discretion of the Court under the foregoing provisions of the Rules are well known and do not here need to be repeated. They are set forth in a number of authorities including the decision of the High Court of Australia in General Steel Industries Incorporated v Commissioner for Railways (1964) 112 CLR 125, in particular the judgment of Barwick CJ. 14 It is not necessary for the Court on an application such as this to be persuaded that at an ultimate hearing one or other party is likely to succeed. What is necessary in order for the applicants to obtain the relief sought in their notice of motion is for the applicants to satisfy the Court that at a final hearing there is no possibility that the defendants will succeed upon those parts of the amended cross-claim which are the subject of the present application. 15 It is appropriate that I should deal firstly with the complaint made by the plaintiffs concerning paragraphs 6, where secondly appearing, and 7 in the amended cross-claim which assert a cause of action grounded upon the alleged failure of the plaintiffs to mitigate their loss by their refusal to consent to what is described in paragraph 6 as the assignment of the business, but presumably is intended to mean the assignment of the lease. 16 It has been submitted on behalf of the plaintiffs that a failure to mitigate loss may constitute a defence but that it does not constitute any cause of action known to the law. I am in agreement with that submission. No authorities to the contrary were relied upon by the defendants in supporting the asserted cause of action pleaded in paragraph 6 and 7 of the amended cross-claim. I propose therefore, since those paragraphs do not disclose any cause of action, to dismiss the claim of the defendants based upon such asserted cause of action. 17 I turn now to the complaint of the plaintiffs concerning the asserted cause of action pleaded in paragraphs 2 to 6, where firstly appearing, in the amended cross-claim, being a cause of action grounded upon the alleged refusal of the plaintiffs to consent to an assignment of the lease. It will be appreciated that the Court in considering such an application assumes that any factual matters asserted in that pleading can at an ultimate hearing be established by the party asserting those factual matters. 18 The amended cross-claim recognises that the lease was a lease between not the defendants but Kalwino, a company of which the defendants were the sole shareholders and directors. There is no assertion in the pleading that the defendants themselves have any contractual right with the plaintiffs. Kalwino is in liquidation. 19 It is also to be observed that concerning a dispute between the present plaintiffs and Kalwino that company in 1996 instituted proceedings 3816 of 1996 in the Equity Division. The relief sought in those proceedings, which were instituted by summons, was not identical to the relief sought in the present proceedings. Indeed, it was relief relating to the rights of Kalwino under the lease and the alleged interference by the present plaintiffs with those rights and, in particular, the right of quiet enjoyment of the premises. 20 The matter came before Mr Justice Cohen upon an interlocutory application. His Honour delivered a judgment on 7 February 1997. It would appear that there had already at that stage been an application made by Kalwino to the plaintiffs for their consent to assignment of the lease, which consent had not been forthcoming. However, that assignment, which was adverted to in Mr Justice Cohen's judgment, was not the assignment which is the subject of the claim made by the defendants in the amended cross-claim. 21 It has been submitted on behalf of the defendants that, although they were not parties to the lease and although it was Kalwino which had the entitlement under the lease to seek an assignment thereof, nevertheless as shareholders in Kalwino, firstly, they have suffered a loss in consequence of the withholding by the plaintiffs of their consent to an assignment of the lease and, secondly, that they are entitled to bring the present proceedings. 22 It has rightly been pointed out by Counsel for the applicant/plaintiffs that it is not every loss suffered by a person which gives rise to some legal right of redress in that person. A loss of itself does not establish a cause of action. Neither is it the law that the rights of sole shareholders can be regarded as identical to the rights of the company in which they are the sole shareholders. 23 In the instant case Kalwino is in liquidation. If there are rights which may have arisen as a result of the failure of the plaintiffs to consent to an assignment of the lease between the plaintiffs and Kalwino then it is for the company through its liquidator to pursue these rights, not for the defendants. 24 I am satisfied that there is no cause of action in the defendants, either in their capacity as sole shareholders and directors or any other capacity, to bring a claim against the plaintiffs arising out of an alleged loss suffered by reason of the plaintiffs failing to consent to the assignment of the lease between the plaintiffs and Kalwino. There is no suggestion in the instant case that the defendants had any contractual relationship with the plaintiffs which might have given rise to some cause of action in the defendants. 25 In those circumstances therefore I propose to order that the proceedings grounded upon the refusal of the plaintiffs to consent to the assignment of the lease be dismissed. 26 It follows therefore that I will make the orders sought in paragraphs 1 and 2 in the notice of motion filed by the plaintiffs on 21 July 1999. It is unnecessary for me to deal with the claim for alternative relief sought in paragraph 3. 27 I make the following orders:

1. I make orders as in paragraphs 1 and 2 in the notice of motion filed by the plaintiffs on 21 July 1999;
2. I order that the defendants pay the costs of the plaintiffs of the aforesaid notice of motion;
3. I grant leave to the plaintiffs to proceed forthwith to assessment of the foregoing costs;
4. I grant to the defendants leave to file an amended defence raising a defence, asserting failure of the plaintiffs to mitigate their loss on or before 19 August 1999;
5. I make orders as in short minutes of order dated 5 August 1999 signed by Counsel for the plaintiffs and the solicitor for the defendants, initialled by me and filed in Court this day.

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