Kensitt & Sheehan v Fairway Trading Pty Ltd

[2001] FMCA 3

FEDERAL MAGISTRATES COURT OF AUSTRALIA         [2001] FMCA 3

AT CANBERRA  CZ 1 of 2001

CZ 2 of 2001

BETWEEN:             STEPHANIE KENSITT  

AND

BRENDAN SHEEHAN  (Applicants)

AND

FAIRWAY TRADING PTY LIMITED

(Respondent)

JUDGMENT DELIVERED BY

FEDERAL MAGISTRATE BREWSTER

DATE OF HEARING:        8 February 2001

DATE OF JUDGMENT:     13 February 2001

APPEARANCES:

Mr J Pappas of Counsel (instructed by Messrs Vandenberg Reid of 18 Lonsdale Street, Braddon ACT) for the applicants.

Mr T M Johnstone of Counsel (instructed by Messrs Barker and Barker of 7-9 Moore Street, Canberra City ACT) for the respondent.

1. This matter concerns on the one hand applications by Brendan Sheehan and Stephanie Kensitt (“the applicants”) to set aside Bankruptcy Notices issued against them by Fairway Trading Pty Ltd (“the respondent”) and on the other an application by the respondent for Orders under Section 50 of the Bankruptcy Act 1966.

1. The issues currently before the court arose in the following way.

(a)    In 1996 a company Project Blue Moon Pty Ltd (“Blue Moon”) subleased premises in Civic from a company Guisida Pty Ltd (“Guisida”). At the same time the applicants executed a guarantee in which they guaranteed the performance of Blue Moon’s obligations under the sublease. The premises were used by Blue Moon to conduct a business known as the “Gipsy Bar.”

(b)   In 1997 Guisida sold the premises to the respondent.

(c)    A dispute arose between the respondent and Blue Moon concerning noise levels from live music activities carried on at the demised premises. This culminated in Blue Moon purporting to terminate the sublease. The respondent treated this as a repudiation of the sublease and itself terminated the sublease on 23 March 1998.

(d)   A dispute then arose as to Blue Moon’s entitlement to so terminate. The parties litigated this dispute in the ACT Tenancy Tribunal. Each of them lodged Notices of Dispute under the Tenancy Tribunal Act. The Notices lodged by the respondent named both Blue Moon and the applicants as parties to the dispute.

(e)    The first Notice filed was by Blue Moon on 12 March 1998. It claimed that the respondent had engaged in harsh and oppressive and/or unconscionable conduct and had derogated from the grant of the sub-lease and sought damages. This was given suit number TT 109 of 1998.

(f)    The second Notice was issued by the respondent on 31 March 1998. It named as the parties against whom the dispute was lodged both Blue Moon and the applicants. It claimed the recovery of arrears of rent. This Notice was apparently given suit number TT 139/98.

(g)   The third notice was also issued by the respondent. It sought damages for the costs of making good and for loss suffered as a result of the alleged repudiation of the sublease by Blue Moon. It was given suit number TT 243 of 1998.

(h)   This dispute was heard by the Tribunal in April 1999. It is clear that the applicants did not dispute the statement made in paragraph 6.2 of the respondent’s Notice of Dispute that they were “the guarantors and indemnifiers of the Tenant’s obligations by virtue of the guarantee and indemnity which forms part of the sublease” or that the guarantee was limited in any way. Nor did they apparently dispute that the Tribunal had jurisdiction to include them in the proceedings. In this respect see sub paragraph (m) below. The case was argued on the basis that Blue Moon was entitled to terminate the sublease because the respondent had derogated from its grant of the lease and/or had engaged in unconscionable and/or harsh and oppressive conduct.

1. On 16 April the Tribunal handed down its decision. It found that there had been a derogation entitling Blue Moon to damages. It found that the respondent was entitled to compensation for make good expenses and rent which were offset against the damages payable to Blue Moon. The net result was a verdict for Blue Moon of $119,575.71.

(j)     The respondent appealed to the ACT Supreme Court. The applicants filed a Notice of Contention but this did not raise the issues that the Tribunal lacked jurisdiction with respect to them or that they were not bound by the guarantee. On 7 October 1999 that Court allowed the appeal and remitted the matter to the Tribunal to assess damages against Blue Moon and the applicants.

(k)   The appellants appealed to the Federal Court. For reasons that are not apparent to me the Tribunal proceeded to hear the case for assessment of damages notwithstanding that this appeal was pending.

(l)     On 9 February 2000 the Federal Court heard the appeal. Apparently no issue as to jurisdiction or the validity of the guarantee was raised at that hearing.

(m) On 11 February 2000 the Tribunal handed down its decision on damages. It awarded damages to the respondent totalling $462,045.78. I will return to the precise nature of the Order later in this judgment. The Tribunal observed at paragraph 15 of its judgment that “No submissions were made that any judgment entered in this matter (against Blue Moon) should not be also entered against them” (that is the applicants)

(n)   On 18 February the Federal Court dismissed the applicant’s appeal.

(o)   On 18 December 2000 the respondent had Bankruptcy Notices issued against the applicants. These were served on 21 December. Those Notices referred to “a debt of $494,777.60.”

(p)   On 11 January 2001 the applicants lodged an application in the ACT Supreme Court to extend the time in which to appeal against the Tribunal’s judgment of 11 February 2000. In this respect it should be noted that Section 58 of the Tenancy Tribunal Act provides that appeals should be filed within 28 days although provision is made to allow this time to be extended. The application is to come before the Court on 2 March. Given the situation the applicants find themselves in it is surprising that they did not seek to have it heard at the earliest possible date. There is evidence before this Court that it could have been listed for hearing as early as 2 February. It should be noted that no application has been made to stay the operation of the Orders of the Tribunal.

(q)   The application indicated that the grounds of appeal, if an extension of time is granted, would be firstly that the Tribunal had no jurisdiction to hear the claim against the applicants and secondly that there was no evidence before the Tribunal that there was any guarantee given by the applicants to the respondent. Insofar as this last matter is concerned it appears that the applicants would claim that there was no evidence that the guarantee given to Guisida was ever assigned to the respondent.

(r) On 22 January 2001 the applicants filed an application to set aside the Bankruptcy Notice. This application was heard by Registrar Quinn on 24 January and was dismissed. The applicants seek to have that decision reviewed. In the meantime the respondents filed an application for orders under section 50 of the Bankruptcy Act.

1. The fact that the applicants filed their application in the Supreme Court shortly after service upon them of the Bankruptcy Notice and ten months out of time and have arranged for it to be listed some six weeks after its filing excites considerable suspicion that this is purely a delaying exercise. However for the purpose of this judgment I do not need to make any finding as to this.

1. When the matter came before me on 8 February 2001 I had formed a preliminary view, based on the matters set out in the Notice of Appeal, that the proposed appeal had no realistic prospects of success. However when the hearing commenced Mr Pappas of counsel who appeared for the applicants, and who had neither advised upon or drafted the grounds of appeal or appeared at the hearing before Registrar Quinn, indicated that the applicants would not be relying on those grounds but instead upon other grounds and that they would not be relying solely on the pendency of the Supreme Court application to found their application to set aside the Bankruptcy Notice. It might be noted that these new matters were not agitated before Registrar Quinn and her decision was not challenged in relation to the matters argued before her.

1. Mr Pappas indicated that if leave were granted to appeal out of time it would be contended that the guarantee executed by the applicants was a limited guarantee and did not extend to any loss referable to the period after the sublease was terminated by the respondent. I was not enamoured of the argument advanced in support of this on its face but, in view of the decision I have come to in relation to the other contention advanced by the applicants, it is unnecessary for me to set out its basis or to pass any considered comment on it.

1. The second argument advanced by Mr Pappas was that the Bankruptcy Notices were defective because they encompassed amounts owing under more than one judgment against the applicants. It was accepted on behalf of the respondent that if this were the case the Notices would be defective. This principle has been established in a long line of cases commencing with Re Low ex parte Argentine Goldfields Ltd [1891] 1 QB 147. The issue is whether or not there was more than one judgment. To determine this it will be necessary to examine what occurred in the Tenancy Tribunal and in the Supreme Court.

1. As set out above there were three Notices of Dispute filed in the Tribunal. Two of these, the two filed by the respondent, overlapped. It would appear to have been more logical if only one Notice had issued by the respondent covering the whole of the claim against the applicants.

1. If the claim set out in the first of the Notices had been litigated prior to the hearing of the claim set out in the second Notice then the second claim would have been defeated by reason of principles of res judicata. However both were heard together. At the conclusion of his judgment in the first hearing before the Tribunal the learned President said

“ All three disputes arose out of the same lease and the same factual circumstances. I consider it appropriate that instead of 3 judgements arising out of what was really the one dispute only one judgement should issue.

I order that proceeding TT 98/243 and TT 98/139 be consolidated with TT 109 of 1998, and that the damages to which the respondent is entitled be set off against those to which the applicant is entitled.”

1. In this passage the reference to the applicant is a reference to Blue Moon.

10.  It is to be noted that the Tribunal did not explicitly consolidate the two claims by the respondent. What it did was to consolidate the claim of Blue Moon with the two claims by the respondent. If the claims were to be explicitly consolidated it would have been necessary to order that proceedings TT 98/243 and proceedings TT 98/139 be consolidated and that those consolidated proceedings in turn be consolidated with TT 109/98. In the context of what occurred in the Tribunal this had no practical significance and the practical effect of the order was a consolidation of all three actions. Nevertheless while it is by no means a decisive consideration in these proceedings the omission to explicitly consolidate the two actions by the respondent needs to be borne in mind when one examines what subsequently happened in the Supreme Court and in the second hearing before the Tribunal.

11.  On appeal the Supreme Court found that there had been no derogation of the grant of the sublease nor any harsh, oppressive or unconscionable conduct by the respondent. The learned judge said at paragraph 45 that, in consequence of this finding,

“Accordingly, in relation to matter TT 109 of 1998 the orders of the Tribunal must be set aside and the proceedings against the appellant dismissed.”

12.  He went on to say at paragraph 46:

“Unfortunately the finding that the first respondent (Blue Moon) was not entitled to terminate the lease necessarily requires that the award of damages in the appellant’s favour in proceedings number TT 139/98 and TT 243/98 be revisited ………Accordingly it will be necessary to remit those proceedings to the Tribunal for that purpose.”

13.  What then remained when the matter was again heard by the Tribunal were the claims encompassed by the two Notices of Dispute issued by the respondent.

14.  In his judgment of 11 February 2000 the learned President said (at paragraph 16)

“ There will be judgment for the applicant against the respondents (that is Blue Moon and the present applicants) in matter TT 139 of 1998 in the sum of $30,161.28. There will be judgment for the applicant against the respondents in matter TT 243 of 1998 in the sum of $431,884.50.”

15.  The formal orders were set out on the cover sheet to the judgment. They read as follows:

“THE COURT ORDERS THAT

1. Judgment be entered for the applicant in matter TT 139 of 1998 in the sum of $30,161.28.

1. Judgment be entered for the applicant in matter TT 243 of 1998 in the sum of $431,884.50.”

16.  It was argued on behalf of the respondent that in reality the proceedings had been consolidated and that the way the learned President expressed himself was simply a convenient way of distinguishing the separate components of a single claim. However that was not the way the judgment was expressed. Both in the judgment itself and in the formal orders made the amounts ordered to be paid by the applicants to the respondent are expressed in a way that would clearly indicate that two separate judgments are involved. Notwithstanding this, if the previous history clearly pointed to the conclusion that the President was simply using the “two judgment” approach for convenience only and that in reality only one judgment was pronounced, it might be possible to go behind the words used. However when one examines the language used in the first judgment and the language used by the Supreme Court the position in relation to consolidation is at best equivocal. It cannot in my opinion be said that the proposition set out above follows as a necessary implication from what had earlier occurred. In all the circumstances I believe it is more appropriate to categorise what was done as the pronouncing of two separate judgments.

17.  If this be a technical approach then it is supported by authority which indicates that because bankruptcy proceedings can have penal consequences a strict and technical approach is justified. See for example Re Williams ex parte Alberton Electrical Service Pty Ltd 43 ALR 552. However Mr Pappas maintained that it goes beyond a matter of mere technicality. He maintained that there is, or may be, actual prejudice to the applicants in having the Bankruptcy Notices cover the whole debt. This is because the argument he foreshadowed as being advanced in any appeal would involve the applicants being liable for the rent accrued to 23 March 1998 which is the amount the subject of TT 139/98 and the applicants may wish to satisfy that judgment. It is not necessary for me to consider whether or not this has genuine practical consequences for the applicants. On the view I take the Bankruptcy Notices must be set aside irrespective of whether or not any prejudice has been occasioned to the applicants by the way they have been framed.

18. Under these circumstances it is unnecessary to deal with the Section 50 application.

19.  The Order of the Court will be that Bankruptcy Notices numbers 8067/00 and 8068/00 issued 18 December 2000 be set aside.

I certify that the preceding 19 paragraphs are a true copy of the reasons for judgment herein of
Federal Magistrate Brewster

the                day of   2001

………………………

Federal Magistrate’s Associate