Iris Diversified Property Pty Limited v Banrun Pty Limited

[2010] NSWSC 1231

CITATION:	Iris Diversified Property Pty Limited v Banrun Pty Limited [2010] NSWSC 1231 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	6, 7 and 15 October 2010
JUDGMENT DATE :	27 October 2010
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer AJ
DECISION:	1. Order that the sum of $28,647.84 being the balance of the deposit held by the second defendant under contract of sale dated 29 May 2009 between the plaintiff and the first defendant be paid by the second defendant as follows: (a) $12,758.83 to the plaintiff; (b) $15,899.01 to the first defendant. 2. Order the plaintiff and first defendant to authorise and direct the second defendant to make such payments. 3. Order the first defendant to pay the plaintiff’s costs thrown away by the adjournment on 6 October 2010. 4. Otherwise no order as to costs with the intent that the parties bear their own. 5. Exhibits may be returned. Note: if the second defendant has not been served, then order 1 would be deleted and order 2 altered so as to require directions to the agent to make the payments in the amounts set out in order 1.
CATCHWORDS:	CONTRACT - Vendor and Purchaser - claim by vendor for balance deposit and cross-claim by purchaser for damage to premises and non-delivery of fixtures or included items.
CATEGORY:	Principal judgment
PARTIES:	Iris Diversified Pty Limited (Plaintiff/Cross-Defendant) Banrun Pty Limited (First Defendant/Cross-Claimant) Kelmarsh Pty Limited t/as Raine & Horne Concord (Second Defendant)
FILE NUMBER(S):	SC 290269 of 2010
COUNSEL:	C M Lawrence (Plaintiff/Cross-Defendant) A Ogborne (First Defendant/Cross-Claimant) No appearance (Second Defendant)
SOLICITORS:	Shanahan Tudehope (Plaintiff/Cross-Defendant) Tudehope Partners (First Defendant/Cross-Claimant) No appearance (Second Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER AJ

WEDNESDAY 27 OCTOBER 2010

09/290269 IRIS DIVERSIFIED PROPERTY PTY LIMITED V BANRUN PTY LIMITED

JUDGMENT

Issue

1 The plaintiff, Iris Diversified Property Pty Limited (Iris), sold a property 363 Great Western Highway, South Wentworthville upon which was conducted a Black Stump restaurant to the defendant, Banrun Pty Ltd (Banrun), by contract for sale dated 29 May 2009. Certain fixtures were excluded from the sale and certain non-fixed items were included. The purchase price was $3,500,000. The contract provided that the deposit would be retained by the agent stakeholder as security for the vendor’s obligation to remove its property without damage to the premises and as security for the included items being provided in good working order and condition subject to fair wear and tear. The agent is the second defendant. It has not appeared.

2 The deposit was released to the vendor less a sum retained of $28,647.84. The vendor claims that amount. The purchaser claims that damage was done to the premises while the vendor was removing its property; that some items that should have remained either under the inventory or as fixtures were removed; that some items were not in good condition; and that some property of the vendor was not removed and expense was incurred in removing it. The purchaser’s claim by cross-claim is $44,306.31. This should have been a simple contract claim heard in the Local Court or the District Court of New South Wales.

Facts

3 The contract, as I have said, was dated 29 May 2009. Settlement took place on 31 July 2009. The sale was subject to a lease but the vendor controlled the lessee and could give it notice terminating the tenancy. In fact possession was given on 7 August 2009 but the contract allowed a week for the vendor to remove its property. It was the lessee company which was conducting a Black Stump restaurant on the property. Special Condition 53 of the contract is as follows:

53. Lease Deed
Completion is conditional upon the Lessee under the Leases entering a deed with the Purchaser, whereby the parties agree that the Leases may be surrendered or terminated without claim or penalty following one weeks written notice from either party, and acknowledging that the items the Lessor is entitled to retain on surrender or termination are as per the Inventory attached as “X” and does not include the exclusions listed thereon.

4 There is no direct evidence the condition was fulfilled but it can be assumed it was as the purchaser gave one week’s notice on 31 July.

5 The contract provided on the front page that “Lessor’s property Inventory X” was included in the sale and “Lessor’s property (see Item 6 to 8 in the Schedule)” was excluded. Property is defined to mean “the land the improvements all fixtures and the inclusions but not the exclusions”.

6 Schedule 6 is a copy of the lease. It defines lessor’s property as “the lessee’s fixtures fittings and goods in the premises but does not include any fixtures fittings or goods in the premises replacing or renewing the lessor’s property”. Schedule 8 is a copy of variation of lease. It adds to the definition of lessee’s property certain words so that after variation lessee’s property is defined as meaning “all the lessee’s fixtures fittings and goods in the premises including all internal fit out furniture kitchen equipment (including stainless steel) cool rooms and signage”. Special Condition 54 reads as follows:

54.1 Included in the sale are the items listed in inventory “X” which are warranted by the vendor and its directors to be unencumbered as at completion, those items listed as exclusions are to remain the property of the vendor and the purchaser agrees that these items may be removed from the property with 7 (seven) days of completion and the purchaser shall provide the vendor reasonable access to do so. This clause shall not merge on completion. The stake holder is to retain the deposit held as security for the vendor’s obligations to remove out its property without damage to the premises until authorised to release it by the purchaser acting reasonably following the inventory being provided to it in good working order and condition excepting fair wear and tear, and the Lessee referred to in special condition 53 vacates the premises. Within 24 hours of being requested to provide the abovementioned authority the purchaser must provide the authority to the shareholder.
…
54.3 The Vendor agrees to maintain each of the inventory items in proper working condition between exchange and completion subject to fair wear and tear.
54.4 The Vendor shall provide to the purchaser on completion a Surrender of Lease AE48536 referred to on the title.

This clause 54.4 is in conflict with Special Condition 53 but nothing turns on that.

7 Inventory X is as follows:

INVENTORY ‘X’
Dining room -
1. All dining room fixtures and fittings
2. All bathroom fixtures and fittings
3. All Floor coverings including Timber flooring.
4. All wall coverings
5. All light fixtures including dimming control panel but excluding decorative pendant lights.
6. Wine display.
7. Complete Bar, inc Bar top, Beer taps, refrigeration equipment, Stainless Steel benches.
Kitchen:
1. Hobart dish washer and surrounding Stainless Steel benches
2. Hobart Glass washer and surround stainless steel benches.
3. Restaurant office fit out including Safe and Fax/Printer
4. Staff toilet fixtures.
5. Fixed Stainless Steel benches and sinks excluding Chefs counter.
6. All Exhaust hoods.
Storage
1. Cool room, Freezer and Keg rooms including all doors, compressors, condensers, controls and shelving contained within.
2. Complete Beer system except for the cobra beer fonts (2), Chiller plate, glycol tank and cleaning system located in the keg cool room
3. Coca Cola Post mix dispensing system .
4. Hot water heaters
HVAC
1. Complete Air-conditioning system plant and equipment including, condensers, compressors, controls, ducting and diffusers.
2. All exhaust fans serving kitchen exhaust hoods, toilet exhaust and dish area exhaust.
____________________________________________________________
Exclusions
1. All Cooking equipment – including ovens, grills, fryers, salamanders, microwaves
2. Complete Chefs counter including all Refrigeration cabinets contained within and associated compressor.
3. Ice Machine
4. All Furniture including – booths, tables and chairs and reception Desk.
5. CCTV system.
6. Music System
7. Coffee machine.
8. Decorative pendant lights
9. Cobra beer fonts (2), Chiller plate, glycol tank and cleaning system located in the keg cool room.
10. redundant Pepsi post mix super chiller.
11. Coca Cola post mix system, owned by Coca Cola, removed subject to agreement between Coca Cola and purchaser.


Office Furniture

Inclusions
• All desks including built in desks.
• Cupboards
• Cabinets
• Filing cabinets
• Chairs
• Blinds
• Telephone System (NEC) and Uniden handsets
• Computer Hubs
• White boards
• Split System Air conditioning
• Partitions

Exclusions
• Walnut Cadenza
• Photocopier
• Four gas lift office chairs
• Telephone System (Siemens) and handsets

Onus

8 The plaintiff claims the balance of the deposit. Its entitlement to that requires it to establish that insofar as it removed excluded items this was done without damage to the property and insofar as it handed over included items these were in good working order. The defence is that the process of removal damaged the property, and that certain items were not in good working order. In addition there is a cross-claim that certain inclusions were not handed over and that certain fixtures were removed. The onus here is on the cross-claimant but this action will not be decided by onus of proof.

Witnesses

9 Evidence for the plaintiff was given by a director, Mr Arnout, and its general manager, Mr Lawson. Evidence for the defendant was given by Mr Ivancic, a director, and Mr Palmer a manager. None of the witnesses’ evidence could be accepted in its entirety but generally where there is a dispute photographs tendered helped to establish the true position. Mr Lawson gave evidence which could not be accepted about fire hoses and Mr Ivancic gave me the impression that to some extent he was seeking to have cost of renovation laid at the feet of the plaintiff company.

Further facts

10 As I have said completion took place on 31 July 2009. The business traded on 1 and 2 August but nothing turns on that. During the period between settlement and 7 August the plaintiff company removed or arranged to have removed excluded items from the premises and the tenant removed its property. It was argued by Mr Ogborne, that insofar as non-fixed items not listed as exclusions were removed, this was a breach of contract. I do not accept that and it was not really pressed.

11 I will now deal with the matters in issue under the following headings:

A Damage to premises while removing property;

B Inventory items not provided;

C Inventory items not in good working order;

D Cost of removing items not included but left on the premises.

A Damage to premises while removing property

A1 Damage to timber floor This cost of repair is admitted at $760.00.
A2 Ceiling in liquor room. There is a hole in the ceiling and discolouration around the hole. Mr Arnout said this was water damage and the hole in the ceiling was made to prevent it spreading. There is no evidence that anything was removed from the ceiling and no fixture in the liquor room was excluded from the sale. Mr Palmer said he took a photograph of the room on 29 May but this was not put into evidence. This claim is not made out.
A3 Ceiling in storeroom . The evidence establishes that the light was hanging down and there was a gaping hole in the ceiling adjacent to the light on 7 August. A photograph taken on 29 May seems to show the light in position but does not show the whole of the light or the area in question. The gaping hole is more than water damage bubbling and discolouration. I accept the evidence of the defendant’s witnesses it was not there on 29 May. The claim for repair of $470 is made out.
A4 Bathroom toilets and doors . This claim is for damage to the doors and the cost of re-staining them. The evidence is that sheets showing records of cleaning were stuck onto two doors with glue. These appear to have been pulled off with some paper remaining on one door and some discolouration on the other door. I do not accept the cross-claimant has established damage amounting to the cost of having three doors re-stained, getting new for old. The claim is for $720. It is not possible to be precise but I allow $360.
A5. Disabled toilet . This claim is made under the next heading.
A6. Wall tiles in kitchen . The evidence shows a number of fixtures were removed from the kitchen walls leaving holes in tiles or causing breaking of tiles. The claim is for the re-tiling of 61 square metres. That is a very large area for re-tiling which the evidence does not show was required. The claimed amount of $7,353.50. That amount cannot be allowed. There is no evidence of the entire kitchen area but more importantly, no evidence that retiling of 61 square metres was required. Doing the best I can I allow $3,500.
A7. Floor in kitchen . The kitchen bench top which was excluded from the sale was removed. There was some rough material looking like broken concrete on the floor area from which the bench had been removed. The claim of $11,330 is for work of cleaning the floor and applying an elite crete easi trowel epoxy resin “to the entire floor area”. There is no evidence of the condition of the floor under the bench prior to removal of the bench. Neither the vendor nor the purchaser knew of this. There is no evidence that the removal caused damage to any other part of the kitchen floor. The floor was worn at the date of contract. This claim is rejected.
A8. The claim for damage to the dining room ceiling was withdrawn.


The total of all claims under this heading allowed is $5,090.00.

B Inventory not provided

B1 Shelving. The contract provided that all shelving in the cool room freezer room and keg room was included in the sale. Conversations on the topic insofar as they were contrary to the contract do not bear on the matter. The only question could be what was meant by “keg room”. It was not the cool room nor was it the freezer room. New kegs not attached to pipes and empty kegs were kept in the storeroom. The shelving in the cool room and in the freezer room was left in place. There is no evidence there was any shelving in any of the relevant rooms other than the room where the empty kegs were kept. I am satisfied that keg room and storeroom were one and the same. Removal of 11 shelves is established. The cross-claimant is entitled to $4,900.50.
B2 The change table . This was a fixture. It went with the land. There is some evidence it belonged to a third party and that Mr Palmer was told that. He denied that. If it were not included it should have been excluded. If the defendant was entitled to change table which has been removed it was entitled to replace it. The cost of this was $2,246.42 and is allowed.
B3 Dishwasher rinse arm . The dishwasher had a rinse arm on 29 May. Mr Palmer said he took a photo on 7 August or later when there was no rinse arm but the photo was not produced. Mr Lawson said the dishwasher was in good order on settlement and was used for two days thereafter. The plaintiff could not be expected to photograph every item. On balance of probabilities the arm was in place on settlement. There is no evidence the plaintiff removed it. This claim fails.
B4 Hose reels . These items were fixtures. They were removed. The cross-claimant is entitled to the amount claimed less the cost of one wash down gun not established to be on the premises. Though counsel’s figure in a summary was for $1,407.23 the evidence is that the total payment including GST was $1,279.30 from which would be deducted the cost of one wash down gun of $188.78 bringing about a total figure allowed of $1,090.52.

B5,8,9 Toilet roll holders, towel dispensers, soap dispensers . These items are in the same category as the change table. They were fixtures. They were not excluded and were it seems included although under the dining room heading. The cross-claimant is entitled to damages as they were not provided and the cost of replacement is justified. The total amount is $1,576.57.
B6 Tap . This claim of $200 is admitted.
B7 Toilet seat cover . Assuming that cover means lid this claim is established and allowed at $100.


Total B items allowed $10,114.01.

C Inventory items not in good condition.

C1 Air-conditioning unit . This is the most contentious item. Mr Ivancic said that on 3 May he noted the air conditioning unit was in operating order. Mr Arnout said that it was essential it was working and, that it was working on 2 August when the restaurant closed and, on 3 August when he and Mr Palmer made an inspection. Mr Palmer said that on 3 August Mr Arnout told him that the air conditioner was fine. Mr Palmer said that on that day the premises appeared cold. Mr Lawson said that the air conditioning unit was maintained under a service agreement and that the unit was used daily and was functional and operational at handover. Mr Ivancic said that on 7 August he noticed that the air conditioning appeared to be too cold and that he engaged Mr Prestic of Ultra Refrigeration Pty Limited to inspect the unit. He obtained a quotation to obtain a temperature controller and three timers at $2,365 and to replace one electrically burnt (fusion) compressor for $5,570.13. The work was done and $8,254.13 paid. There is no evidence the air conditioner was not in working order on settlement which is the relevant date and the only evidence available is that it was. There is no evidence apart from the replacement parts of defects in the system nor if a motor was burnt out by fusion when that could have occurred. I do not think the evidence is sufficient to establish any breach of the obligation of the plaintiff to hand over the item in good working order. The only evidence is that it was operating properly at settlement. This claim fails.
C2 Exhaust hoods . This claim was not pressed.
C3 Bar room door . Mr Lawson said the door was removed so the lessee could remove its beer systems. It had to be refitted and rehung and the cost for this was $170 and is allowed.


Total C items $170.

D. Property not removed.

The defendant hired a skip at a cost of $525 into which any items of rubbish or unwanted items were thrown. These items included bread crates, gas bottles, empty kegs and a Pepsi chiller the last of which at least the plaintiff should have removed. Mr Lawson’s evidence was that he had arranged for the bread company, the gas company and the brewery to pick up the crates, bottles and kegs owned by them. At least as to the kegs he had told Mr Palmer of this and Mr Arnout had told Mr Palmer the gas company collected and replaced the gas bottles as needed. There is no reason to doubt that. Were it not for the Pepsi chiller, which was a large item, I would not find the defendant suffered any loss through failure to remove the crates, bottles or kegs. It was the unnecessary rush of Mr Ivancic which would have resulted in the skip being hired. However, skip or no skip, the Pepsi chiller had to be removed and it was not. There is no evidence it could have been collected and dumped at cheaper cost. The claim of $525 is allowed.

Result

12 The result of these findings is that the amounts allowed which total $15,899.01 should be deducted from the deposit retained by the agent and paid to Banrun and the balance of $12,758.83 should be paid by the agent to Iris. Subject to service on the second defendant being proved orders can be made directing payment of the deposit in the said amounts to Iris and Banrun. If service has not been effected then orders can be made requiring Iris and Banrun to direct the second defendant to make payment accordingly.

Costs

13 The plaintiff has had some success on its claim but not total success. Banrun has had some success on its cross-claim and set off defence but not complete success. In earlier discussion it was accepted that judgment following verdicts on the claim and cross-claim would result in one side receiving payment from the other, but as the previous paragraph shows, that is not the outcome. I will hear any submissions, but the proper order would seem to be that there be no orders as to costs, with the intention that the parties bear their own. When the hearing was adjourned on the first day this was done on the acceptance that the price of allowing Banrun to read further affidavits was that the matter would be adjourned to the following day and that Banrun would pay the plaintiff’s costs wasted as a result of the adjourned hearing.

1. Order that the sum of $28,647.84 being the balance of the deposit held by the second defendant under contract of sale dated 29 May 2009 between the plaintiff and the first defendant be paid by the second defendant as follows:

(a) $12,758.83 to the plaintiff;

(b) $15,899.01 to the first defendant.

2. Order the plaintiff and first defendant to authorise and direct the second defendant to make such payments.

3. Order the first defendant to pay the plaintiff’s costs thrown away by the adjournment on 6 October 2010.

4. Otherwise no order as to costs with the intent that the parties bear their own.

5. Exhibits may be returned.

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28/10/2010 - amending an error in the names of the legal representaives of the parties - Paragraph(s) Under Solicitors in the coversheet.