Lex Group Holding Pty Ltd v De Ren Xu
[2019] VSC 238
•18 April 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2013 03792
| LEX GROUP HOLDING PTY LTD (ACN 112 087 491) (formerly known as DEX GROUP HOLDING PTY LTD) AND OTHERS (according to the attached Schedule) | Plaintiffs |
| v | |
| DE REN XU | Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26, 27, 28 and 29 November 2018 |
DATE OF JUDGMENT: | 18 April 2019 |
CASE MAY BE CITED AS: | Lex Group Holding Pty Ltd & ors v De Ren Xu |
MEDIUM NEUTRAL CITATION: | [2019] VSC 238 Revised 2 May 2019 |
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CONTRACTS – Dispute regarding the implementation of a settlement deed (‘Deed’) involving the sale of a property – Construction of reasonable endeavours clause – Whether the defendant breached his obligations under the Deed by refusing to sign the sale authority or to nominate an agent to sell the property – Steps required by the parties must be essential to performance of the contract – Plaintiffs failed to discharge the burden of proving quantum of damages arising from delay in the sale of the property – Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] 196 ALR 257 – NCON Australia Ltd v Spotlight Pty Ltd (No 5) [2012] VSC 604 and MA & J Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd [2019] VSCA 46, referred to – Meaning of the term vacant possession – Whether refusal of access to the property to co‑owner to inspect the property amounts to failure to provide vacant possession – Whether the plaintiffs were entitled to withhold payments of the settlement sum to set off the defendant’s obligations under the Deed – Whether the defendant suffered any loss from the plaintiffs’ withholding of payments – Nominal damages awarded on both the claim and the counterclaim.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T Sowden | HenleyLegal |
| For the Defendant | Mr H Kirimof | SMR Legal |
HER HONOUR:
Introduction and Background
The second plaintiff, De Quan (‘Jack’) Xu, and the defendant, De Ren Xu (‘De Ren’), are brothers. The first and third plaintiffs are companies controlled by Jack and his wife Helen respectively.[1]
[1]For ease of reading, I have used the given names of the parties, and, in the case of the second plaintiff and his wife, their English names. No disrespect is intended.
Until 2013, the first plaintiff, (‘Lex Group’), then known as Dex Group Pty Ltd, owned and operated a screen printing and laser engraving business which imported and customised promotional products (such as stationery, pens and the like) using materials imported from China through the third plaintiff (‘business’). The commercial side of the business was managed by Jack, who has tertiary qualifications from Swinburne University, and is fluent in English. After he started the business, he sponsored De Ren to emigrate from China and join the business. De Ren was in effect the production manager of the business. His English is poor.
The business, along with the importing business operated by the third plaintiff, operated from three premises in Taunton Drive, Cheltenham. One of the premises, 5/35 Taunton Drive, a warehouse with some office facilities (‘property’), was owned by Jack and De Ren as tenants-in-common in equal shares. Since October 2013, the business has operated from a single, larger facility in Produce Drive, Dandenong (‘Produce Drive property’), which is sublet from the successor company of the third plaintiff.
In about 2011, a dispute arose between the brothers, in circumstances that are not entirely clear. On 2 April 2012, De Ren issued a proceeding in this Court claiming to have a fifty per cent interest in the business of Lex Group, despite Jack being the sole shareholder of Lex Group. During the course of a mediation in that proceeding on or about 2 October 2012, De Ren’s claims were compromised on the following terms:
(a) the plaintiffs would pay De Ren the sum of one million dollars (‘settlement sum’);
(b) the settlement sum was to be paid in monthly instalments of $25,000;
(c) to secure the settlement sum, De Ren was granted a charge over the property, and the assets of Lex Group and the third plaintiff;
(d) the property was to be sold within six months of the date of the settlement (that is, by 2 April 2013), and the sale proceeds applied first to the selling costs of the property; secondly, to the extinguishment of the loan secured by a mortgage over the property (‘BOQ mortgage’); thirdly, fifty per cent of the balance to De Ren; fourthly, to reduce or extinguish the balance of the settlement sum owing to De Ren; and finally, the residue, if any, was payable to Jack. Lex Group was to pay rent and meet all expenses prior to giving vacant possession of the property, following which both Jack and De Ren were equally responsible for the payment of loan repayments and other expenses (‘outgoings’);
(e) there was to be an exchange of personal property, including motor vehicles, documents, and other chattels; and
(f) the Deed required De Ren to account for the sum of $149,000 taken by De Ren from Lex Group’s accounts, ostensibly for business purposes, and established a process by which that accounting would take place (‘accounting exercise’).
The agreement was documented in a Deed dated 2 October 2012 (‘Deed’). A number of disputes have arisen regarding the implementation of the terms of the Deed. No progress was made regarding the sale of the property: indeed, the property was not sold until September 2016. On 23 July 2013, the plaintiffs issued this proceeding, seeking, among other things, to compel De Ren to join with Jack to sell the property.
There was also an ongoing dispute between the parties regarding the exchange of personal property, with the plaintiffs continuing to press their claims in that regard until the first day of trial. There was also a dispute between the parties about deductions made from the instalments of the settlement sum representing one half of the outgoings from 9 December 2013, the date nominated by the plaintiffs as the date Lex Group vacated the property. De Ren also disputed the entitlement of Jack to withhold an amount of $100,000 from the proceeds of sale of the property to provide a reserve in the event that De Ren was unable to account for the withdrawals referred to in paragraph 4(f) above. The accounting exercise is yet to be undertaken as the parties are unable to agree about the appointment of an accountant.
While this proceeding was issued on 7 July 2013, it was not served until 9 September 2013. A court ordered mediation took place early in 2014, following which Tao Jiang Lawyers commenced acting for De Ren. The parties appear to have been preoccupied by other matters in 2014: there were six adjourned directions hearings between 19 May 2014 and 11 May 2015. Apparently, meaningful progress of this proceeding was delayed by applications to reinstate Lex Group and the third plaintiff (which were reregistered after orders made on 2 June 2015), the involvement of both Jack and De Ren in a proceeding in the Federal Circuit Court brought by former employees of Lex Group, and the illness and subsequent death of Jack and De Ren’s father in China.
Tao Jiang Lawyers ceased to act for De Ren on 16 March 2015. The matter continued to proceed at a leisurely pace, with the remainder of 2015 taken up with the parties finalising their pleadings. At a directions hearing on 14 December 2015, an associate judge made directions with respect to the plaintiff’s foreshadowed application for the property to be sold and the proceeds of sale be held in trust pending the resolution of all of the outstanding issues between the parties. At this hearing, De Ren, who was by then self‑represented, signalled his opposition to this application. The application was initially made returnable before Vickery J on 6 May 2016. There was no appearance for the plaintiffs on this occasion, and the application was ultimately heard on 19 May 2016. His Honour made orders for the sale of the property. While the orders were not expressed to have been made by consent, the evidence is that the orders were drafted by counsel engaged to appear for De Ren, which indicates that there was no resistance by De Ren to the property being sold at that time.
After the property was sold, further orders were made by Vickery J on 19 October 2016 regarding the disbursement of the proceeds of the sale of the property, and giving directions for the further conduct of the proceeding. Pleading amendments, discovery, and ongoing disputes regarding the exchange of personal property and the accounting exercise consumed the rest of 2016 and 2017.
On 9 March 2018, I fixed the matter for trial on 23 July 2018. De Ren appointed solicitors in June 2018, and the trial was adjourned to 17 September 2018. A further adjournment was granted to, among other things, enable the parties to participate in a judicial mediation. A judicial mediation held on 12 September 2018 was unsuccessful.
The pleadings, the correspondence between the parties, and the evidence concerning what took place between the parties’ entry into the Deed in October 2012 and the sale of the property in September 2016 are referred to in more detail later in these reasons. However, in summary, Jack contends that, in breach of his obligations under the Deed, De Ren impeded the timely sale of the property by failing to cooperate with Jack in facilitating the sale process, by doing things such as appointing an agent or nominating a listing price for the property. Instead, he either failed to respond to correspondence, or made unreasonable demands for information that either did not exist or he was not entitled to receive under the Deed. The delay in the sale of the property caused Jack loss, in that he had to pay half of the outgoings for approximately three years, and he incurred other minor expenses. The total sum claimed by Jack amounts to $102,477.16.
In response, De Ren says that he did not impede the sale of the property. Among other things, neither Jack or the plaintiff’s solicitors would allow him to inspect the property in order to assess its condition, so that he could be satisfied that a proper price would be obtained for the property. They refused to provide rental schedules and other relevant information regarding the property.
Furthermore, De Ren says that by refusing to allow him to access the property, Jack and Lex Group did not provide ‘vacant possession’ of the property, within the meaning of the law, such that not only was De Ren not required to pay a half share of the outgoings from 9 December 2013, Lex Group was also required to pay rent up to the time when he was able to gain access to the property on 29 December 2015. In any event, the clear and unambiguous language of the Deed did not permit Jack to set off a half share of the outgoings against the payments to him under the Deed, or retain the sum of $100,000 from the settlement sum. De Ren seeks orders that the sum of $236,974.49 withheld from the settlement sum be paid to him. De Ren also claims from Lex Group the sum of $140,381.25 by way of rent.
The Relevant Events
Prior to turning to the chronology of events which post-dated the Deed, the relevant clauses of the Deed are reproduced below, as follows:[2]
[2]In the earlier proceeding, the defendants were the plaintiffs in this proceeding, and the plaintiff was De Ren.
2.The Defendants are jointly and severally liable to the Plaintiff in the sum of One million dollars ($1,000,000) (‘the settlement sum’) which shall be paid as specified hereunder.
3.The settlement sum is payable by equal monthly instalments of Twenty‑five Thousand dollars ($25,000) without deduction or set‑off, until the settlement sum has been paid in full or such other sum as is owing by the defendants to the Plaintiffs having regard to paragraph 12 hereof. The said monthly payments of $25,000, shall be paid in cleared funds on the first day of each calendar month, commencing 1 November, 2012, save that should the date fall on a weekend or public holiday, then the due date for that payment shall be the first working day thereafter.
4.Upon the sale of the property situated at and known as Unit 5, 35 Taunton Drive, Cheltenham (‘the property’) being more particularly described in Certificate of Title Volume 10917 Folio 206, the Plaintiff and the Second Defendant shall each be entitled to one half of the net proceeds of the sale.
5.The plaintiff and the second defendant shall sell the property in the manner described hereafter, and
(a)the Second Defendant shall forthwith pay to the Plaintiff the Second Defendant’s share of the net proceeds of sale in part payment of the settlement sum;
(b)the payment by the second defendant of his share of the net proceeds of sale shall not detract from the ongoing obligation of the Defendants to make the said monthly payments of $25,000;
6.The Plaintiff and the Second Defendant forthwith do all acts and things and sign all necessary documents to effect the sale of the property and by way of consequential arrangement that shall be made for the purposes of effecting a sale.
7.The listing price for the property shall be as agreed between the parties and if there is no agreement, the listing price shall be as determined by a valuer nominated by the President of the Real Estate Institute of Victoria or his nominees.
8.The property shall at first instance be sold by publicly advertised auction on the following terms and conditions:
(a)The listing agent shall be an agent nominated by the Plaintiff and the Second Defendant (‘the real estate agent’);
(b)The auctioneer shall be as determined by the real estate agent;
(c)The auction shall take place within six (6) months of the date of this Deed of Settlement;
(d)The reserve price for the auction shall unless agreed upon by the parties and if there is no agreement the listing price shall be as determined by a valuer nominated by the President of the Real Estate Institute of Victoria or his nominees;
(e)The Plaintiff and the Second Defendant shall each pay and be responsible for payment of one half of auction expenses payable before the property is auctioned.
9.Upon completion of the sale the proceeds of the sale shall be applied as follows:
(a)Firstly, to pay all costs, commissioners and expenses of the sale and to pay any council and water rates and maintenance levies outstanding in respect of the property;
(b)Secondly, to discharge the mortgage and any other encumbrances affecting the property;
(c)Thirdly, as to 50% of the net proceeds to the Plaintiff;
(d)Fourthly, as to the other 50% of the net proceeds to the Second Defendant who hereby irrevocably directs that the sum be paid to the plaintiff for the purposes specified in paragraph 5 herein.
10.For the purposes of securing the settlement sum:
(a)the first defendant and the third defendant hereby charge all their assets and undertakings to the Plaintiff and shall, upon request by the Plaintiff to them or any one or other of them respectively execute a fixed and floating charge over all assets and undertakings and such a Charge shall be in a form in compliance with the Personal Property Securities Act and able to be registered thereunder;
(b)The second defendant hereby charges all his interest in real property wheresoever situated from time to time, to the Plaintiff;
11.(a) until the property has been sold the first defendant shall pay the rental as hereinbefore, such rental to be paid to the Mortgagee of the property, as is currently being paid, save that the first defendant’s liability for rental can expire upon 3 months notice in writing to the Plaintiff with no right of reinstatement;
(b)upon the first Defendant providing vacant possession of the property, the Plaintiff and the second defendant shall equally share all costs and expenses incurred in relation to the property including mortgage repayments, insurance, rates and other outgoings.
12.(a) In respect of the amounts deposed by the Second Defendant in paragraph 183 of the Affidavit sworn by him the 25 June 2012, the Plaintiff shall account, including providing original documents, invoices and handwritten timesheets, for payments made under his supervision as payments of company expenses.
(b)Should there be any dispute in relation to these matters, then the Plaintiff and the second Defendant shall appoint an accountant to adjudicate on these issues and the accountant’s determination shall be binding on them. Each of the parties hereto may make such submissions orally and/or in writing as the account allows, and shall equally share the cost of the accountant.
(c)The accountant shall be the person nominated by the president for the time being of the Law Institute of Victoria, failing agreement by the Plaintiff and the Second Defendant.
(d)Should there be any shortfall in the payment of the company expenses then the plaintiff shall pay such amount as might be owing by the Plaintiff to the first Defendant in deduction from the settlement sum.
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15.Should there be any default in payment of any monies due by the Defendants to the Plaintiff under this Deed of Settlement, including payment of any monthly instalment of $25,000 and/or the Second Defendant’s share of the net proceeds of the property, then the Plaintiff shall be at liberty forthwith to enter judgement for the full amount then outstanding and the reasonable costs of the entry of judgement and:
(a)this Deed of Settlement or a copy thereof, shall constitute conclusive evidence by all parties hereto to the consent by the Defendants to entry of judgement against them or any of them;
(b)an affidavit prepared by or on behalf of the Plaintiff shall constitute prima facie evidence of the failure by the defendants to make due payment and of the amount then outstanding.
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21.Each party to this Deed of Settlement agrees, at each party’s own expense, upon the request of the other parties to do everything reasonably necessary to give effect to this Deed of Settlement.
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26.Time is of the essence in the performance of the terms and obligations under this Deed of Settlement.
Both Jack and De Ren gave evidence at trial, as did Mr Greg Wilkinson of Wridgways Business Relocations (‘Wridgways’), and Mr Ron Levinson, a friend of De Ren. Mr Wilkinson gave evidence regarding the relocation of the business to the Produce Drive property in October 2013, and documents which showed what services were provided by Wridgways were tendered through him. Mr Wilkinson gave evidence to the effect that he assisted De Ren by translating correspondence sent to De Ren by HenleyLegal into English, and by helping him draft responses to that correspondence. He visited the property on 2 or 3 February 2016 in the company of Mr Adrian Garvey, a real estate agent, and took some photographs.
While both Jack and De Ren were extensively cross‑examined at trial, and De Ren disputed that he had received at least one piece of the correspondence sent to him by Jack’s solicitors, what actually occurred between October 2012 and September 2016 is not a matter of any great dispute, given that the dealings between the parties over that time were largely in writing. Rather, the dispute largely concerns the legal consequences of the parties’ conduct between early 2013 and early 2016.
Notwithstanding the fact that most of the dealings between the parties were in writing, the credit of the parties was to some extent an issue at trial, given that the parties’ motivations were relevant, at least to some extent, to whether they had acted reasonably or unreasonably, and to the question of whether the responsibility for the delay in selling the property should be sheeted home to Jack or De Ren. Counsel for De Ren submitted that I should not accept Jack’s evidence for the following reasons:
(a) he gave inconsistent evidence about storing the third plaintiff’s stock at the property;
(b) he gave inconsistent evidence about the rent paid by Lex Group for the property prior to and after the parties’ entry into the Deed;
(c) he caused Lex Group to be deregistered, telling ASIC that it had no liabilities, when it in fact had liabilities under the Deed. He provided an unsatisfactory explanation of the reasons for the deregistration of Lex Group;
(d) despite the fact he claimed to be ‘desperate’ to sell the property, Jack failed to follow up Mr David Li, a real estate agent engaged by De Ren, he commenced proceedings when Lex Group was still in occupation of the property, and sought specific performance of the terms of the Deed in circumstances where the plaintiffs were not ready, willing and able to perform their obligations under the Deed, given that Lex Group had been deregistered, was still in occupation of the property, and Jack had not obtained an auction authority;
(e) there were omissions and inconsistencies in his affidavit in opposition to the application to reregister Lex Group and the third plaintiff: he failed to mention his communications with Mr Li, he failed to refer to the fact that Tsimos was engaged by him pursuant to a sale authority, not an auction authority, and he deposed that Lex Group vacated the property in mid‑2013, not December 2013;
(f) his evidence about the amounts of rent paid by Lex Group and the existence or otherwise of rental schedules was inconsistent; and
(g) he breached, or caused the breach of the plaintiffs’ obligations under the Deed, including, by way of example, deducting a half share of the outgoings from instalments of the settlement sum, failing to vacate the premises within six months of the date of the Deed, failing to nominate a listing price or a reserve price for the property, failing to provide vacant possession of the property, imposing additional conditions upon the exchange of personal property contemplated by the Deed, and failing to provide an auction authority.
I do not consider the above matters are of any great significance, and they did not detract from the overall credibility of Jack’s evidence. The only real basis upon which Jack’s conduct could be criticised is his actions in causing the deregistration of Lex Group and the third plaintiff in circumstances where they had obligations to De Ren under the Deed, but this conduct had no practical effect. Subject to the dispute between the parties regarding any set offs made against the settlement sum, Jack paid De Ren the settlement sum, and, as discussed later in these reasons, the deregistration of Lex Group did not prevent the sale of the property and/or the discharge of the BOQ mortgage.
In my view, Jack gave evidence candidly. De Ren appeared to be more defensive in giving his evidence, although that impression may well have been contributed to by the interpolation of an interpreter. However, I do not consider that De Ren gave dishonest evidence: indeed, he accepted that he had not nominated an agent, that he had not set a reserve price or a listing price, and that he had not paid his share of the outgoings. Rather, he remained wedded to the view that he had done nothing wrong in continuing to demand that he be provided with certain documents and access to the property before appointing an agent and setting a reserve price. As noted by counsel for the plaintiffs, De Ren appears to have been fixated upon his belief that he should have been granted access to the property, even though he did so in May 2013, and agents instructed by him did so in April 2013 and July 2015. Significantly, when the matter was directly put to him in cross‑examination, he accepted that the reason why the property did not sell until September 2016 was because he did nothing.[3]
[3]T295, 23-25.
Turning now to the chronology of events after the parties’ entry into the Deed, Jack gave evidence that after the parties entered into the Deed, he contacted Mr Adrian Garvey, a real estate agent with Knight Frank, to locate a new property for the business. He wanted to move the business as soon as possible, as he wanted larger premises from which the business could operate from under one roof. Mr Garvey gave him a list of potential properties in October 2012. He did locate a suitable property to purchase in March 2013, but that fell through, following which he entered into negotiations for the third plaintiff to lease the Produce Drive property.
At around the same time (late 2012 or early 2013), Jack retained Mr Ron Jones of Tsimos Commercial Real Estate (‘Tsimos’) to sell the property. He chose Tsimos as Lex Group had dealt with Tsimos before. He told Mr Jones that the property had to be auctioned, and Mr Jones had access to the premises. As he was told by Mr Jones that De Ren had not responded to a call from him, he left the matter to be dealt with by the solicitors for the parties.
On 28 February 2013, De Ren wrote to Jack as follows:[4]
Jack,
I have received the email from agent which regarding the sale the property of 5/35 Taunton Drive, Cheltenham[5]. before I meet with Ron I would like to have a most recent bank statement from Bank of Queensland. The rental schedule for the financial year 2009–2010, 2010–2011 and 2011–2012. Can you also provide the Contract of Sales and contact details of the settlement solicitor.
Deren
[4]There are spelling and grammatical errors in this email and in much of the correspondence reproduced in these reasons, no doubt reflecting the fact that the authors are not native English speakers. Rather than edit the correspondence, or repetitively use the term (‘sic’), the correspondence is reproduced ‘as is’.
[5]The ‘email from agent’ is not in evidence.
On 9 March 2013, Jack wrote to De Ren’s solicitors, Varrasso & Associates (‘Varrasso’), as follows:
hi Maria
Please find attached contract for sell property of 5/35 Taunton Drive, Cheltenham, we need to sell this property within six months from Oct. 2012 as agreed in our deed, now we have to move forward. Would you please forward this contract to your client to sign and pay the 50% advertising fees a.s.a.p.
for any further information you need, please contact my solicitor or myself at any time.
thanks
Jack xu
On 21 March 2013, the solicitors for the plaintiffs, Mr Henry Wong of HenleyLegal wrote to Varrasso, as follows (’21 March letter’):
We refer to paragraph 8 of the Deed of settlement dated 2 October 2012. In accordance with the same, we advise as follows:
1.Our client has nominated Tsimos Commercial Real Estate to sale the premises at 5/35 Taunton Drive, Cheltenham (premises), particulars of which are enclosed. Our client has no objection if you wish to nominate a different estate agent.
2.Our client will vacate the premises 3 months from today.
3.Pursuant to paragraph 11 of the Deed, your client will share 50% of the current mortgage repayment of $11,418.62 per month and outgoings, from the date our client vacates the premises. These particulars will be provided at the time.
As to paragraph 14 of the Deed, your client has continionus ignored our client’s attempt to perform this part of the Deed. (our emails dated 22 January, 30 January, 1st February and 13th February 2013 and our letters dated 18th October, 11th November, 23 November 2012 and 15 February 2013). Once again, please advise if your client intends to comply with the same and if so, the manner and time in which the same may be completed.
The 21 March letter enclosed a General Sale Authority (‘sale authority’) appointing Tsimos as the selling agent for the property. The sale authority was signed by Jack on 18 February 2013, and referred to an estimated selling range of $1,650,000 to $1,800,000.
Jack gave evidence that in April 2013, Mr David Li of Eastfield Real Estate visited him at the property. Mr Li had been instructed by De Ren to inspect the property. Mr Li seemed to be more interested in Jack’s relationship with De Ren than in the property. He said he told Mr Li that he was desperate to sell the property, and that he was happy to agree to any agent selling the property. He did not discuss the sale price with Mr Li, and never received a sale authority from him or De Ren.
On 11 April 2013, Mr Wong wrote again to Varrasso, stating, among other things, as follows:
We refer to our correspondences dated 22 January, 30 January, 1st February and 13th February 2013, 18th October, 11th November, 23 November 2012, 15 February 2013 and 21 March 2013.
Once again, please advise if your client intends to comply with paragraphs 13‑14 of the Deed of settlement dated 2 October 2012 (Deed) and if so, the manner and time in which the same may be completed.
…
Needless to say, if your client refused to comply with the Deed, our client will have no alternative but to make an application to enforce the Deed and will produce this letter on question of costs, on an indemnity basis.
On 12 April 2013, Mr Li wrote to De Ren, as follows:
Sorry about the late response. I had an car accident yesterday, and too busy in dealing with the matter.
The property I think in the current market will fetch $1.7 million around, comparing with the similar sale results in the area. Rental will be about $10,000 per month if it is leased out.
I have talked with Jack, and as I talked to you previously that he is happy to sale this property at auction with a price you are happy with.
If you need our agency to do the sale, please let me know. I am happy to assist you in the matter.
On 27 April 2013, unbeknown to De Ren, the first and third plaintiffs were deregistered. Jack gave evidence that he deregistered the companies with the assistance of his solicitors because he wanted to make a fresh start. After that date, he paid for the rent for the property, and then the outgoings personally.
On 1 May 2013, De Ren sent an email to Jack in response to an email sent by Jack on 1 March 2018:[6]
I am again requesting that you provide following information to me
The rental schedule of 5/35 Taunton Drive, Cheltenham for the financial year 2009-2010, 2010-2011 and 2011-2012.
A copy of the lease for property 5/35 Taunton, Drive Cheltenham
The loan statement from Bank of Queensland.
[6]This email is headed ‘Re: factory property’ but its contents are written in Mandarin Chinese, and no translation was provided.
On 28 May 2013, Mr Wong sent a further follow up letter to Varrasso with respect to the 21 March letter. On 6 June 2013, unbeknown to the plaintiffs, Varrasso ceased to act for De Ren.
On 25 July 2013, the plaintiffs issued this proceeding, seeking specific performance of the terms of the Deed. The writ and statement of claim was served upon Varrasso on 9 September 2013, along with a letter from Mr Wong giving notice that the plaintiffs would vacate the property on or before 9 December 2013. The letter stated as follows:
We refer to paragraph 8 of the Deed of settlement dated 2 October 2012 (Deed). In accordance with the same, we advise that our client will vacate the premises at 5/35 Taunton Drive, Cheltenham, 3 months from today (that is on or before 9 December 2013).
Pursuant to paragraph 11 of the Deed, your client will share 50% of the current mortgage repayment of $11,418.52 per month and outgoings, from the date our client vacates the premises. These particulars will be provided at the time.
Jack gave evidence that he located the Produce Drive property in July 2013, and the third plaintiff signed the lease for the Produce Drive property on 9 September 2013, the same day that Lex Group gave notice to vacate.
The relocation process commenced on 30 September 2013, which took five days to complete. This was confirmed by the evidence of Mr Greg Wilkinson of Wridgways that the relocation was completed on 4 October 2013. The lease for the Produce Drive property commenced on 1 October 2013.
From December 2013, Jack commenced deducting a half share of the outgoings from the monthly payments of the settlement sum.
On 6 December 2013, De Ren sent an email to HenleyLegal, as follows:
I refer to paragraph 15 of the Deed of settlement dated 2 October 2012 In accordance with the same, please advise your clients that the payment of $25,000 for the month of December was not received in full. Please make the short amount of $4553.55 within 3 days.
You had advised me that your client will vacate the premises 5/35 Taunton Drive, Cheltenham, on or before 9 December 2013. However, I have received no notification about the final situation of the premises 5/35 Taunton Drive, no final inspection has been made for the vacated premises of 5/35 Taunton Drive, Cheltenham and also no notification about where the Dex Group Pty. Ltd. And CJC Corporation Pty Ltd business have been relocated to.
I refer to your email Dated 9 September 2013. Pursuant to paragraph 11b of the Deed of settlement I would like to request that you client provide the copies of the outgoing details, the mortgage details included the details of the business loan repayments and the statement of the loan account directly to Deren Xu.
Jack gave evidence that he did not respond to his email, or instruct HenleyLegal to respond to this email, because he was busy in the pre-Christmas period. He gave evidence that De Ren never tendered any payment with respect to his half share of the outgoings. That no payment was tendered by De Ren is not a matter in dispute in the proceeding.
The following can be discerned from the evidence, including the correspondence between the parties over the course of 2013:
(a) following the parties’ entry into the Deed, Jack fairly promptly took steps to locate new premises for the business, and to engage an agent to sell the property;
(b) between February 2013 and April 2013, the parties corresponded regarding the sale of the property. However, despite Mr Li giving De Ren an appraisal of the value of the property on 12 April 2013, De Ren continued to press for documents. He and his solicitors failed to respond to HenleyLegal’s letters pressing for De Ren to execute the sale authority or nominate an alternative agent;
(c) Lex Group and the third plaintiff were deregistered in April 2013;
(d) the property was vacated by Lex Group on 4 October 2013;
(e) no response was received by HenleyLegal to its notice of 9 September 2013 that Lex Group would vacate the property on 9 December 2013. Instead, De Ren filed a defence denying that he was in breach of the Deed, and asserted that the property had not been vacated; and
(f) De Ren wrote again to HenleyLegal in December 2013 demanding further information, to which there was no reply. No real explanation was provided by Jack for the lack of response, save that he was busy.
On 18 April 2014, Tao Jiang Lawyers, the lawyers then on the record for De Ren in this proceeding, wrote to HenleyLegal, as follows:
I refer to the order 2 of the Honourable Associate Justice Landsdowne (sic) dated 17 March 2014.
The application seeking orders to the effect that the 2nd Plaintiff cause the re‑registration of the 1st Plaintiff and the 3rd Plaintiff has been filed on 7 April 2014 and ASIC and the defendants (De Quan Xu and Yue Li Cui) named in the originating process have been served.
I am not sure if your law firm is acting for both the defendants in this application (SCI 01625/2014) and would like to seek your confirmation as to if you act for both defendants in this application.
This application is to be heard by Associate Judge at 10 am on 9 May 2014.
Also, regarding SCI 2013/03792, please inform your client Mr. Dequan Xu that our client requests him to immediately start to lease the property 5/35 Taunton Driver Cheltenham to mitigate the loss.
Please note that it is your client’s duty to mitigate the loss.
Our client also requests that your client must pay the monthly payment amount of $25,000 without any deduction according to the Deed of Settlement.
For reasons which remain unclear, there was no further written correspondence between the parties for nearly twelve months.
On 17 March 2015, De Ren wrote to HenleyLegal as follows:
I refer to my email dated 6 December 2013, I emphasized for you to ask your clients provide the keys to access the property 5/35 Taunton Drive Cheltenham 3192.
Please take notice that on the 6 December 2013, your client ignored my request for a final inspection of the property and prohibited my access to the property that was occupied by Dex Group Pty Ltd ACN 112 087 591 since 2007.
I would like to point out that in order to sell the property a proper valuation needs to be obtained as soon as possible.
You should hand over the keys to me for the purpose of conducting the inspections as valuing the property should be the first thing to do.
Handing over the keys to the co-owner would be regarded as co-operative in allowing for the sale of the property. This would cost nothing to parties and could save huge legal cost and avoid the huge lost for all.
Please give me a reason why your clients refuse conduct a final inspection and hand over one set duplicated keys to me unless your client is still in using the property and would like to keep it as a warehouse for their business.
I refer to the letter dated 12 February 2014, in which the solicitor, Tao Jiang of Tao Jiang Lawyers wrote to you on the page 2, paragraph 4 said “We note that the deregistered company has a active website still advertising for the business online”. I noticed that until 3 February 2015, more than one year after the letter sent to Henley Legal, the business named Dex Group Pty Ltd still had their advertised business address at 5/35 Taunton Cheltenham Vic 3192. This information was provided on the internet by Dex Group Pty Ltd ACN 112 087 591, from their website which stated that the property, 5/35 Taunton Drive was still in use for Dex Group Pty Ltd's business activities.
On the 9 December 2013, I was visited 5/35 Taunton Driver Cheltenham, however I was unable to view the property.
Recently I visited the property 5/35 Taunton Driver Cheltenham Vic 3192, but was still unable to present any inspections for the purpose of valuation and conducting the sales of the property 5/35 Taunton Driver Cheltenham Vic 3192 at all. This was due to no accesses to the property was gained from your clients.
Please provide the keys to access the property 5/35 Taunton Drive Cheltenham Vic 3192 as appropriate considering that it is ludicrous to prohibit the 50% owner of a property to enter his own property. Whilst your client has suggested that we may 'forcibly' enter, this suggestion seems to be ridiculous, and would probably invite further waste of police resources from false actions.
In order to avoid more stolen goods accusations made by your clients and more report made to police by you clients, please ask you client to hand me a set of keys, and I will make the arrangements for the real estate's agents come to the property 5/35 Taunton Driver Cheltenham 3192 and conduct a property inspection to make the valuation as soon as possible.
Please realize that this is an urgent matter given that a huge amount of time and resources has been spent.
This letter will be brought to the Judge's attention at the earliest opportunity.
In breach the “Deed” Caules 3, your clients did not pay the monthly payment of $25,000 in full and on time since December 2013, these amount in exceeding $70,000 already, please make the payment of the set-off amount without delay.
Please arrange a time to exchange the vehicles.
Please provide the rental schedule for the financial year 2009–2010, 2010–2011 and 2011–2012 due to my accountant requested above information for my tax propose.
It appears that this email did not come to the attention of HenleyLegal until 28 March 2013, as the email was filed in their ‘spam’ folder. In response, HenleyLegal wrote:
We will arrange for the key to be provided to your valuer directly in due course.
In the meantime, on 24 March 2015, De Ren wrote to Jack directly, as follows:
I have sent two letters by email to your solicitor Henley Legal last week. My request was to obtain a access to the property 5/35 Taunton Drive Cheltenham, (“the property”).
I contacted Steven from Crabress Real Estate who offered to make a property valuation for us. We need the copy of the keys to enter the premises, however I have received no reply from your Solicitor.
Please provide access (the keys to me) for the valuation as soon as possible. I have received three email form Steven who requested me for the keys.
I consider that you wish to keep “the property” if you continue to refuse to provide access to me. This would mean that you and/or your company Dex Group Pty Ltd would be liable to pay the rent and outgoings without dispute.
Please hand over one set of keys to me or make the original keys available for me so that I can duplicate the keys as soon as possible if you do not want to pay rent and outgoings of the property.
We need to have a proper valuation done in order to sell the property as soon as possible. If my agent's valuation is different to the valuation made by your agent's valuation I believe that the listing price shall be as determined by a valuer nominated by the President of the Real Estate institute of Victoria or his nominees, (please refer to Deed Clause 6, 7, 8,).
The Dex Group Pty Ltd has occupied these premises since 2007. I notice that from 16 March 2015, the Company Dex Group Pty Ltd has changed their address to another place. If the premises has already been vacated, please arrange for a final inspection and please keep the property reasonably clean for the inspection and valuation.
Please take notice that according to Deed 10 b that this property is charged to me for the purpose of securing the settlement sum.
Please find attached email below from Steven Solopek of Crabtrees Real Estate for your information.
On 13 April 2015, HenleyLegal wrote to De Ren enclosing an auction authority from Knight Frank signed by Jack on 9 April 2015, which stated as follows:
We refer to the deed of settlement dated 2 October 2012 that each of our clients have signed.
You will recall that clause 6 of the deed of settlement required De Quan Xu and De Ren Xu to forthwith do all acts and things and sign all necessary documents to effect the sale of the property at Unit 5, 35 Taunton Drive, Cheltenham, which you own jointly. Clauses 7 and 8 contain provisions about how the sale is to be conducted to the effect that the property is to be offered for sale by public auction in the first instance. Clauses 5 and 9 provide that the net proceeds of sale are to be shared equally by our respective clients, and our client is to pay you the balance of the $1,000,000 settlement sum then owing out of his 50% share of the sale proceeds. Clause 11(b) provides that upon our client vacating the property, you are liable to share equally with our client all of the costs associated with the property including mortgage payments and outgoings. Finally, clauses 12(a) and 13 require you to deliver to our client all of the documents identified in those clauses for the purpose of the accounting that you are liable for under clauses 12 and 13.
In our client’s statement of claim dated 25 July 2013, he has pleaded the relevant terms of the deed of settlement and you have admitted the terms in his defence dated 6 November 2013.
You will also recall that by letter dated 21 March 2013 to your former solicitors Varasso & Associates, we forwarded a signed authority in favour of Tsimos Commercial Real Estate for the sale of the property and asked whether you would agree to that agent proceeding to sell the property. In the event that you preferred a different agent, we asked you to nominate that agent. In the letter, we stated that our client would vacate the property within three months in the event of a sale so a 90 day settlement was contemplated at the time. We did not receive a meaningful response to our letter. You did not agree to our client’s choice of agent and he did not nominate another agent. Again, our client largely alleged those matters in his statement of claim.
The only defences that you have alleged in your pleaded defence are:
(a) The property had not been vacated as of the date of the defence;
(b) You agreed (apparently conditionally) to our client’s choice of agent;
(c)You had delivered to our client all of the documents required under clauses 12 and 13 of the deed of settlement but our client refused to accept them (so you still have them).
Our client disputes the matters apparently alleged in the defence but those matters now do not constitute a defence to the claims alleged in our client’s statement of claim.
In particular, there is no reason why the property cannot be sold immediately because it is now beyond dispute that our client has vacated the property. In any event, the deed did not require that the property be vacated before it could be offered for sale. Failure to sell the property now only exposes our respective clients to the ongoing costs associated with the property (which you must share equally under clause 11(b)), and it delays unnecessarily payment to you of the balance of the $1,000,000 settlement sum. Further, regardless of the truth or otherwise of the allegations in your defence, there is no reason now why you cannot deliver under clauses 12 and 13 of the deed of settlement. The matters that you have alleged in his defence do not derogate from those fundamental and ongoing obligations under the deed of settlement.
We enclose a signed authority dated 9 April 2015 in favour of Knight Frank Australia Pty Ltd for the sale of the property.
Our client now demands that within seven days of the date of this letter you:
(a)Sign the enclosed authority and return it to us so that the marketing of the property can commence and it can be sold forthwith;
(b)If you prefer another agent, deliver to us an authority signed by you and that agent for our client to consider;
(b)deliver to our client all of the documents identified in paragraph 12(a) of the deed of settlement being all original documents, invoices and handwritten timesheets for payments made under your supervision as payments of company expenses (being the expenses of the former Dex Group Pty Ltd (ACN 112 087 591); and
(c)Deliver to our client all of the Bankcard statements from 1 October 2011 under clause 13 of the deed of settlement.
Should you fail to complete those matters within seven days, our client will apply immediately and without further notice to the court for orders compelling you to perform those matters, including orders under Rule 22.02 of the Court’s Rules for summary judgment on part of our client’s claim and Rule 23.01(2) for judgment.
Should you refuse to co-operate and it is necessary for our client to seek court orders, other parts of our client’s claim will continue in the ordinary course. In particular, you are liable to our client under clause 11(b) for half of the costs associated with the property from the date that our client vacated. We have been instructed that our client vacated the property in December 2013. So you are liable for half of the costs from that time. Further, the accounting exercise contemplated under clauses 12 and 13 of the deed of settlement might result in our client seeking a sum of money from you, which our client will seek in this proceeding. We will write to you further about those matters shortly but in the meantime there is no reason for you not to comply with the demands in this letter.
We await your urgent response to the above.
All of our client’s rights remain reserved.
As to your request for access to the property, kindly arrange your valuer to contact this offer to arrange the same.
The auction authority accompanying this letter referred to an estimated selling range of $1,240,000 and $1,360,000.
On 1 July 2015, HenleyLegal wrote to De Ren again. This letter covered much of the same ground as the letter of 13 April 2015, stating as follows:
You have not responded in any substantive way to our letter to you of 13 April 2015. You continue to refuse to co-operate in the sale of the Cheltenham property as required by clauses 5, 6, and 9 of the Deed of settlement dated 2 October 2012 (“Deed”). Your current defence does not make out a defence to orders that the second plaintiff seeks for the sale of the property, and we cannot conceive of what defence you could have. We anticipate that your defence to the amended statement of claim will not make out an arguable defence. If you do not make out an arguable defence, the second plaintiff will apply immediately for summary judgment for sale orders (as well as other matters for which you do not make out an arguable defence). All of the plaintiffs’ rights in this regard remain reserved.
This letter went on to say:
You have not made any attempt whatever to account to the first and second plaintiffs for the $149,000 that you withdrew from the first plaintiff’s company account. You have not sought to establish that the money was applied to company expenses or explain how that occurred, as the Deed requires. As things stand, you owe the first plaintiff $149,000 to be paid by way of deduction from the $1,000,000.
The plaintiffs have already paid you $800,000 under the Deed, which amount takes account of deductions made from the monthly payments under clause 11(b) of the Deed for your share of the costs associated with the property. It was necessary for the second plaintiff to impose those deductions because you have not made any attempt to pay, or tender payment for, your half share of the property costs. Your failure to cooperate to sell the property is only increasing the time over which you must contribute to the property costs.
In the circumstances, the first and second plaintiff are plainly entitled to deduct the $149,000 from the $1,000,000 payable to you under the Deed. The Deed provides as much. Accordingly, our clients have instructed that they will not be paying you the final $149,000 of the $1,000,000 payable under the Deed. However, rather than just cease payment completely, our clients have instructed that instead they will pay $25,000 per month (less deductions for your half share of the property costs) into an interest bearing account to be held on trust for the first plaintiff, second plaintiff, and you pending you accounting to the first and second plaintiffs under clause 12(b) of the Deed, an independent accountant determining that the $149,000 was properly applied to company expenses, or the court determining the matter. It might be that you are not able to establish that the $149,000 was applied to company expenses, or that an accountant or court determines the result, and the first plaintiff is entitled to the money as a deduction from the $1,000,000 referred to in the Deed. On any view, you are not entitled to payment of all the $1,000,000 in the absence of a proper accounting under clause 12 of the Deed.
Our clients made a further monthly payment under the deed of settlement to you today. As you have now been paid $825,000 under the Deed (including the July 2015 payment of today), there remains $175,000 to be paid, subject of course to your obligation to account. If you are not able to account for the $149,000, that money should be deducted from the $175,000 leaving a balance of $26,000 payable to you. Should you wish to be paid the $26,000, you will need to make an arrangement with us or with the second plaintiff forthwith to pay your share of the property costs every month until the property is sold. Otherwise, our clients will have no choice but to pay all of the remaining $175,000 into our trust account pending a resolution of all the outstanding issues including your accounting obligation and your obligation to pay half of the property costs.
We await your prompt response to all of the issues raised above.
On 1 July 2015, Mr Wong’s personal assistant sent the following email to De Ren, and a valuer, Mr Steven Salopek of Crabtrees Real Estate, as follows:
Dear all,
No one has contacted us for access. Just call us if you need access.
On the same day, Mr Salopek replied as follows:
Good Morning Lynn,
Thanks for your reply, however as per your previous email when you were to obtain keys you were going to contact me directly.
Deren I would be happy to assist you in this matter and I will contact Lynn to arrange for the collection of the keys.
What is the best time say tomorrow if I can get the keys today?
Thanks again and I look forward to hearing from you.
On 2 July 2015, Mr Wong’s personal assistant replied with the contact details for Adrian Garvey of Knight Frank. Later that day, Mr Wong wrote to Mr Salopek as follows:
Dear Steven,
Thankyou for your telephone today. I confirm that you have yet to hear from Deren and you have not heard from him since March 2015 in relation to access. Your firm has not also received any signed authority from Deren to act. When you are ready and have received your instructions, please contact us and we will authorise our agent to provide access for your appraisal (nothing your advice also today that it is not a valuation on your part). Please let us have your advice anytime and we will endeavour to assist.
De Ren was copied into all correspondence between Mr Salopek and HenleyLegal. On 7 July 2015, Mr Salopek wrote as follows:[7]
Hi Deren,
I have inspected the building.
Please advise of the next course of action.
Thanks again and I look forward to hearing from you.
[7]At trial, De Ren denied receiving this email, despite it being sent to his acknowledged email address: see T279,23-25.
On 8 September 2015, Mr Garvey of Knight Frank wrote to Jack, as follows:
Hi Jack,
See below offer to lease 5/35 Taunton Drive, Cheltenham. I know you want to sell the property but was unsure if you would consider taking income to offset holding costs?
Please note that 3 months’ rent free is the only leasing incentive the tenant is seeking and plan to undertake their own fit out of the site.
At a rental of $96,000 per annum + GST and a 7.5% sale yield we have buyers that would pay $1,280,000 for the property.
The tenant is a reputable company:
do you think?
Adrian
DETAILED OFFER
In terms of what we’d need from the Landlord at 5/35 Taunton, I’m thinking about the following:
• Rent - $96,000
• Term 5 + 5
• Rent free period – I suggest first 3 months
• Building mods (see rough sketch below)
•Modify disabled toilet into a Male toilet (we would like at least one urinal , basin plus a cubicle)
•Rebuild room that was next to (right hand side) of the disabled toilet. You recall the factory wall was painted the same colour as the office walls. We would like to use this as a small store room, so simple flouro light and a couple of power points.
•Install partitions for 2 offices (glass front, solid inbetween) at opposite end of the office
•NIB wall (1.8m high x 2.5 m long ???) at exit door into factory
•Small entrance area. Wall on right hand side could be 1.8 tall with a small “return”. No door.
Jack forwarded this email to De Ren. The forwarding email is in Mandarin Chinese, and no translation is in evidence. Jack gave evidence that he was advised by various agents to sell the property with vacant possession in order to obtain the best price for the property, and therefore took no steps to lease the property.
On 10 September 2015, De Ren wrote to Jack, as follows:
I have never received any of your email or mail or phone call with regard the matter of lease the property 5/35 Taunton Drive Cheltenham.
Two years ago, my solicitor Ms Jiang had twice emailed to your solicitor Mr Henley Wong of Henley Legal to express my requesting to lease the property for the purpose of reduce the damage, due to the proceeding with reference No SCI 2013 03792 and SCI 2014 01625 that need to come to a conclusion, also due to that you breached the terms and condition of the securities Clause 10 of the Deed of settlement, however I received no reply.
I have asked many times for obtain the accesses to the property, 5/35 Taunton Driver Cheltenham 3192, however I am unable to near the property at all, for the past a few years you and your wife called police many times to prevent me near the property
On the May 2013 and September 2013 after I forced left the property,5/35 Taunton Driver Cheltenham 3192, however your wife still created untruthfully report to the police criminal investigation unit put my as a suspector and such false accusation has been already proved was not true. You both knew that what kind of person I am, the behavious of yours are unacceptable.
I would nominate an agent conducting the auction selling the property however both you and your wife should stop making stories to the police and accused me stolen goods, and the security of the property removed by you should replace properly.
I tolerated more than five times you and your wife cause the police officers disturbed me, as a innocent person my tolerance will come to the end, at past I did not issued a legal proceeding against you and your wife with regards the police matters, the untruthful signature matters and some other matters because you are my brother.
Yes, I understand that you and your wife brought me to Australia and I had never forgotten that. Your children are all my blood, I love them same as you do. I have to had my daughter help me you understand why.
Please made payments of those off set amount which should not been deducted from the monthly payments since December 2013. the $25,000 monthly payment is required paid in full. I am still waiting for you comply the Deed of Settlement made the monthly payments paid on time and paid in full.
With regard the property selling price of $1,280,000, it brought me great concerning. According to this offer of $1,280,000 the value of the property now is more than $400,000 less than the value which you had assured me on the 2 October 2012. the value of the property which you had assured to me was $1,700,000 on the time we signed the Deed of Settlement.
Now the property's value is more than $400,000 less than the value had written on you affidavit, date 2 July 2014, the value of the property you assured to me on you affidavit were $1,700,000.
The subject property was purchased at price of $1,350,000 on March 2007, after 8 and half years paying the interest to the loan, for the normal situation, the property should increase and the payments should appreciated the property value, however instead increasing the the market value of the property now have decreased $100,000.
Please provide me all documents include the business loan and Security documented specially with those had my signature marked on the these documents. I need to carefully check all of those documents.
I am repeating my consent to lease the property 3/35 Taunton Drive Cheltenham, in order to reduce the damage while we waiting the court discussion.
I request to collect the keys and making a final inspection for the property 5/35 Taunton Drive Cheltenham 3192 . Until I received a formal letter from Dex Group to inform that Dex Group has terminated to lease the property, until I am able to access the property, until Dex Group ACN 112 087 591 or Dex Group 163 058 892 cease to control the property 5/35 Taunton Driver Cheltenham and conducting businesses, Dex Group should paying the rent and outgoing of 5/35 Taunton Driver Cheltenham 3092.
De Ren wrote to Jack again on 14 September 2015, as follows:
Please arrange the date and time for me to collect the keys of Taunton Drive, Cheltenham.
From 30 October 2015, Jack ceased paying half of the mortgage repayments.
On 10 November 2015, De Ren wrote again to Jack as follows:
I email to your solicitor several times that required a final inspection and obtain the keys to access to the property of 5/35 Taunton Drive Chaltenham. Please reply when would I be able to access the property which leased to Dex Group Pty Ltd since 2007.
Please provide the valuation of the 5/35 Taunton Drive Cheltenham according to the Deed.
Please provide all the Assets and Stocks lists of Dex Gorup and CJC, Please also proved the clients list of Dex Group and CJC.
Please note that the PPSR register Charged all present and after –acquired property – no Exceptions of the Dex Group and CJC.
Please made payment of $25,000 monthly repayments in full and on time.
Please respond my previous email to you dated 6 November 2015.
On 29 December 2015, HenleyLegal wrote to De Ren, as follows:
We refer to the above matter and advise that the key to 5/35 Taunton Drive, Cheltenham is with Knight Frank and that you can inspect the property at any time by prior appointment with Knight Frank. Please contact
Adrian Garvey
Director in Charge – Eastern Office, Industrial
Knight Frank Australia Pty Ltd
Ground Floor, Building 1
540 Springvale Road
Glen Waverley VIC 3150 Australia
T: +61 3 8545 6161
M: +61 419 549 951
We also advise that our client does not have a key either than only Knight Frank has the key;
Should you have any query, please feel free to contact this office
The Bank of Queensland issued a Notice of Default on 3 December 2015, and a Notice of Demand on Guarantee on 12 January 2016. It seems that the bank refrained from taking further recovery action to enable the parties to sell the property themselves. Orders were made for the sale of the property on 19 May 2016, and on 1 September 2016 the property sold for $2 million. Orders were made by Vickery J on 18 October 2016 concerning the distribution of the proceeds of sale.
The pleadings and the issues in this proceeding
In their second further amended statement of claim dated on 16 March 2018, the plaintiffs claimed that:
In breach of the terms in clauses 5, 6, 8, and 21 of the Deed the defendant, after the first plaintiff vacated the Property, despite request, failed or refused to:
(a)sign all necessary documents, and otherwise do the things reasonably necessary, to effect the sale of the Property by public auction;
(b)sign sales authorities retaining selling agents nominated by the second plaintiff to sell the Property by public auction;
(c)nominate a selling agent to sell the Property by public auction and nominate a reserve price; and
(d)otherwise cooperate with the second plaintiff to sell the Property.
The plaintiffs alleged that De Ren continued to be in breach of the Deed until 19 May 2016, as a result of which, Jack suffered loss and damage by reason of incurring holding costs, and other incidental costs[8] with respect to the property, subsequently quantified at $102,477.16.
[8]For example, rates, utilities, and accounting fees, as the property was held by Jack and De Ren in partnership. Jack also claimed penalty interest and legal fees charged by the Bank of Queensland consequent upon the default in making full loan repayments on the property.
The plaintiffs further alleged that De Ren has failed to account for the sum of $149,000 in accordance with the terms of clauses 11 and 12 of the Deed. As previously noted, the accounting exercise contemplated by the Deed is currently awaiting the appointment and determination of an accounting expert.
The plaintiffs made the following allegations with respect to the payment of outgoings (omitting particulars):
17.In breach of clause 11(b) of the Deed, the defendant from 9 December 2013, despite request, failed to tender, pay, or make arrangements to pay his half share of all costs and expenses incurred in relation to the Property, including mortgage repayments, insurance, rates, and other outgoings.
18.Accordingly, commencing on about 9 December 2013, being when the first plaintiff vacated the Property, the plaintiffs deducted from the $25,000 monthly payments under clauses 2 and 3 of the Deed, as they are entitled to do, the defendants half share under clause 11(b) of the costs associated with Property.
19.Subject to the matters set out in paragraphs 17-18 above, the plaintiffs have now paid the defendant the $1,000,000 Settlement Sum under the Deed.
20.If the court finds that the plaintiffs were not entitled to deduct the defendant’s half share of the Property costs from the $25,000 monthly payments as they have, and the court orders them to repay the deducted amounts to the defendant then:
(a)the defendant will have breached clause 11(b) of the Deed by failing to pay his half share of the Property costs from about 9 December 2013; and
(b)by reason of the defendant’s breach of clause 11(b) of the Deed, the second plaintiff will have suffered loss and damage.
In his further amended defence and counterclaim filed on 23 April 2018, prepared when De Ren was representing himself,[9] defended the allegations made by the plaintiffs on the following bases:
[9]This pleading has not been amended since De Ren obtained legal representation in mid-2018.
(a) Jack caused Lex Group and the third plaintiff to be deregistered to avoid their obligations under the Deed, and/or to hinder enforcement of the Deed;
(b) the plaintiffs failed to make payments of the settlement sum in full from 9 December 2013;
(c) Lex Group had failed to provide vacant possession of the property, as Lex Group had not actually vacated the property as at 9 December 2013. Further, as noted in the particulars to paragraph 7 of the defence:
Second, when requested, the plaintiffs refused to provide the keys to the premises. The plaintiffs retained the keys to the property and would not release them to the defendant (co‑owner), a final inspection was not allowed until it was permitted to the defendant 29 December 2015, whereupon damage to the premises was revealed.
Third, over 2 years, the plaintiffs refused many times of requests from the defendant to inspect to the property.
Fourth, plaintiffs continued to use this address to conduct business, advertising on the internet that the address was their business warehouse. This was in spite of the notice to vacate.
(d) De Ren did not fail or refuse to cooperate with Jack to sell the property. Rather, the attempted engagement of Tsimos did not comply with the Deed, which required sale by auction, not private sale. Further, the engagement of Knight Frank in 2015 was rejected by De Ren on the grounds that the listing price was too low. The failure of Jack to reinstate Lex Group meant that the BOQ mortgage could not be discharged prior to July 2015;
(e) between 2013 and 2015 De Ren sought to facilitate the sale of the property, but Jack did not provide information requested by him, and refused him access to the property;
(f) until Lex Group was re‑registered on 28 July 2015, the sale of the property would have been impossible, as Lex Group was the borrower of the loan secured by the BOQ mortgage. In this period the plaintiffs intended to use, and did use the property in the operation of the business;
(g) the plaintiffs refused to mitigate the loss by leasing the property, and in fact, it would be impossible for them to do so as the plaintiffs were in actual possession of the property until 29 December 2015; and
(h) in relation to the plaintiffs’ claim for loss and damage:
The defendant denies paragraph 13. It was due to intentional hindrance of the Plaintiffs that the Property was not sold in a timely manner. Further, regardless of fault, the Defendant denies there was actual loss to the Plaintiff.
Particulars
The defendant refers to paragraphs 9 – 13 of this defence. The ultimate sale of the property was to a capital gain totalling around $550,00 (sic). Had the property been sold earlier, there may have been a capital loss.
In his counterclaim, headed ‘Wrong Set-off of $ $ 236,974.49 in breach of Deed’, De Ren alleged, among other things:
(a) the $100,000 withheld by the plaintiffs from the settlement sum in respect of the accounting exercise was withheld in breach of the Deed; and
(b) the sum of $136,974.49 withheld from the regular payments of the settlement sum representing a half share of the outgoings should not have been withheld, by reason of the terms of clause 3 of the Deed. Further, the plaintiffs were in possession of the property until 29 December 2015, refused De Ren access to the property, and failed to co‑operate to sell the property.
Under the heading ‘Lost Rental on the Property’, De Ren stated as follows:
The defendant refers to paragraph 7 of this Defence and Counterclaim and states that the plaintiffs obstructed the sale of the Property by providing false information to voluntarily deregistering the first plaintiff.
This resulted in the first plaintiffs being unable to sign the security release document to the satisfaction of the Bank of Queensland as they were no longer legal persons under the Corporations Act. Consequently, the property was unable to be sold, and should have been rented out.
The Plaintiffs continued to be actual in possession of the Property, until (30 November 2016), despite purportedly providing vacant possession on 9 December 2013 in the letter of 21 September 2013).
Particulars
The Plaintiff refused to provide the keys to the Property to the Defendant despite multiple requests including on 9 December 2013, 19 March 2015, 24 March 2015, 30 March 2015 and 10 September 2015. The Plaintiff also advertised its business on the internet. The plaintiff first made the keys to inspect the Property available to the Defendant on 29 December 2015. The Plaintiff therefore occupied the premises without rent from 21 June 2013.
The Plaintiffs continued to advertise the Property as their business address on the internet until March 2015. After its business was reinstated by order of this Honourable Court in July 2015, its business address was still the Property.
The continued actual possession of the Property by the Plaintiffs until 29 December 2015 made it impossible to sell or rent out the property. The Plaintiff therefore should be liable for loss rental income and mortgage repayments.
Subject to the matters in paragraph 33, the Plaintiffs should be responsible for the defendant’s share of mortgage payments for the period that it obstructed the sale of the Property (at least between 21 June 2013 and 29 December 2015).
Subject to the matters in paragraph 33, the Plaintiffs should be responsible for the market rent of the Property for the period between 21 June 2013 and 29 December 2015.
De Ren also contended that there was no basis for the withholding of part of the proceeds of sale of the property for the purpose of securing De Ren’s obligations under the Deed, as clause 10 of the Deed only secures the performance of the plaintiffs’ obligations under the Deed, not De Ren’s obligations.
In their reply and defence to counterclaim filed on 31 May 2018, the plaintiffs, as well as joining issue with the matters raised in the defence, asserted as follows:
(a) in or about early July 2015, access was provided to the property, and De Ren’s agent, Mr Salopek, inspected the property on De Ren’s behalf;
(b) on 14 December 2015, Dr Ren admitted to Lansdowne AsJ at a directions hearing that he objected to the sale of the property;
(c) neither Lex Group or the third plaintiff are registered proprietors of the property;
(d) by reason of clause 12(d) of the Deed, the plaintiffs were entitled to deduct the sum of $100,000 from the settlement sum, pending the finalisation of the accounting exercise; and
(e) in response to De Ren’s allegation that the plaintiffs’ possession of the property until 29 December 2015 made it impossible for the parties to sell or lease the property, and as such, the plaintiffs should be liable for lost rental income and outgoings:
(a)up to about 9 December 2013, the first plaintiff occupied the Property and paid rent by meeting the mortgage repayments on the Property under clause 11(a) of the Deed;
(b)on 9 September 2013, the first plaintiff notified the defendant in writing under clause 11(a) of the Deed that it would be vacating the Property by 9 December 2013, and that it would cease paying rent by meeting the mortgage repayments on the Property;
Particulars
The plaintiffs refer to a letter from Henley legal to Varrasso & Associates, the defendant’s solicitors at the time, dated 9 September 2013. The letter is available for inspection at Henley Legal’s offices.
(c)the first plaintiff vacated the Property on about 9 December 2013;
(d)under clauses 11(a) and 11(b) of the Deed, from about 9 December 2013:
(i)the first plaintiff ceased to be liable for rent or to meet the mortgage repayments on the Property;
(ii)the defendant became liable for half the costs and expenses incurred in relation to the Property including mortgage repayments, insurance, rates, and other outgoings;
(e)in breach of clause 11(b) of the Deed, from 9 December 2013, the defendant failed or refused to pay for any Property associated costs as alleged in paragraph 17 of the further amended statement of claim;
Accordingly, the issues in this proceeding arising from the pleadings are as follows:
(a) whether De Ren breached his obligations under the Deed by failing to co-operate with Jack to put the property up for sale in a timely manner;
(b) whether the plaintiffs provided vacant possession of the property on 9 December 2013, or 29 December 2015; and
(c) whether the plaintiffs were entitled to withhold amounts from the payment of the settlement sum.
A further issue which arose on the pleadings, but which was the subject of only limited direct evidence at trial, was the question of the loss and damage said to have been as a result of the delay in the sale of the property. As noted above, Jack claimed the holding costs incurred by him by reason of the delay in the sale of the property, being interest payments with respect to the loan secured by the BOQ mortgage, along with other sundry expenses. The quantification of those expenses was not in dispute. However, in his defence, De Ren asserted that Jack had suffered no loss by reasons of any delay in the sale of the property, as the property had increased in value by $550,000. While the date from which the property had increased in value was not specified, I can infer from the sum referred to in the defence and counterclaim that De Ren is referring to the value of the property in early 2015, when appraisals showing a selling range of $1,240,000 to $1,360,000 were in evidence.
At trial, De Ren adduced no expert opinion evidence in support of this assertion. The plaintiffs adduced no evidence in rebuttal of this allegation. There was in evidence a number of appraisals with respect to the estimated sale price of the property between 2013 and 2015, which were admitted into evidence in support of the proposition that Jack was seeking to sell the property, but that De Ren had failed to cooperate in selling the property. While the values referred to in the appraisals varied, they all fell short of the actual sale price of $2 million in 2016.
After the close of evidence, and prior to the parties making their final submissions, I raised the question of whether it was incumbent upon the plaintiffs, in order to establish that they had suffered loss and damage, to adduce evidence of the price that the property would have sold for had it been sold in 2013, as contemplated by the Deed. Counsel for the plaintiffs submitted that having made the allegation in his defence that Jack had suffered no loss, the burden rested on the defendant to make good that allegation. Counsel for De Ren submitted to the contrary, the burden rested on Jack to establish that he had in fact suffered loss as a result of any delay in the sale of the property.
Findings
In summary, I make the following findings:
(a) the responsibility for the delay in the sale of the property lay with De Ren, who breached his obligations under the Deed to use reasonable endeavours to co‑operate to effect the timely sale of the property;
(b) the plaintiffs have not discharged the onus upon them to prove that Jack has suffered any loss and damage by reason of the delay in the sale of the property;
(c) the plaintiffs provided vacant possession of the property by 9 December 2013 at the latest. Accordingly, De Ren was liable to pay half the outgoings after that time, and his claim for rent fails; and
(d) the plaintiffs did breach the terms of the Deed insofar as the sum withheld from the settlement sum exceeded $149,000. However, De Ren has not established that he suffered any loss by reason of the plaintiffs’ breach of clause 3 of the Deed.
My reasons in relation to each of the above matters follows.
Did De Ren breach his obligations under the Deed?
Counsel for De Ren submitted that De Ren was not responsible for the delay in selling the property, because:
(a) the plaintiffs did not retain Wridgways to ‘make good’ the property to enhance its condition for sale;
(b) photographs taken in February 2016 show the property in a derelict state;
(c) the sale authority does not comply with clause 8 of the Deed (which required the property to be sold at auction);
(d) De Ren wrote to Jack and HenleyLegal numerous times seeking information and access to the property, without receiving an adequate response;
(e) it is apparent from the evidence that De Ren was prepared to cooperate in selling the property. He asked Jack for information before he met with Mr Jones of Tsimos, he made enquiries of Mr Li, and asked for keys to enable him to inspect the property on numerous occasions;
(f) HenleyLegal delayed providing the keys for the property for several months in 2015;
(g) this proceeding was commenced in 2013, after Lex Group and the third plaintiff had been deregistered, which necessitated the application to reregister these companies; and
(h) the plaintiffs did not brief counsel to appear at the first return of their ‘urgent’ summary judgment application in May 2016, and did not properly brief counsel who attended at a directions hearing in October 2015.
Counsel for De Ren submitted that De Ren did not breach the Deed by failing to nominate Tsimos to sell the property. The Deed did not require De Ren to nominate a particular agent. Indeed, Jack failed to properly nominate an agent prior to executing an auction authority for Knight Frank in April 2015. The nomination of Tsimos in March 2013 did not comply with the Deed, as the Deed required that the property be sold by auction. Further, Jack failed to provide documents to De Ren which would assist him to make an informed decision about a listing price and a reserve price. Accordingly, Jack’s assertion that he was desperate to sell the property is not made out on the evidence.
Counsel for De Ren submitted that De Ren was required to use ‘reasonable endeavours’ to give effect to the terms of the Deed, not his ‘best endeavours’. He submitted that, accordingly:
(a) De Ren was entitled to make an informed choice when appointing an agent;
(b) the Deed did not contemplate a ‘fire sale’, and as such, De Ren was entitled to make an informed choice about the sale process, including the reserve price;
(c) in order to make an informed choice, De Ren was entitled to inspect the property, and obtain rental schedules and other documents;
(d) Jack had effective control of the property, and denied De Ren access to the property; and
[49][1911] AC 105.
[50]Ibid, 119.
Counsel for the plaintiffs relied upon the decision of Pape J in Cowan v Stanhill Estate Pty Ltd (No 2) (‘Cowan’)[51] in support of his submission that, having made a positive allegation in his defence that Jack had enjoyed the benefit of a capital gain by reason of the delay in the sale of the property, the onus lay on De Ren to adduce admissible evidence that the property had increased in value between 2013 and 2016 to a sufficient extent to, in effect, enable Jack to recoup the holding costs incurred by Jack over that period, such that Jack suffered no loss by reason of the delay in the sale of the property. In Cowan[52], the vendor of a property validly rescinded a contract of sale as a result of the default of the purchaser in paying rates, and claimed damages. Pape J held that, in calculating damages, the deposit previously paid by the purchaser, the increase in the value of the land, and unpaid rates and taxes were to be taken into account in assessing the vendor’s loss. His Honour held that the vendor was not entitled to any damages, because, after deducting the deposit and the unpaid rates and taxes, the value of the land at the date of rescission was greater than its value at the date of the contract. His Honour relied upon the decision of Botherway v Stinson,[53] as follows:
In an action for damages for breach of contract, the plaintiff is entitled (subject to considerations as to remoteness of damage) to be placed in as good a position as if the contract had been fulfilled, but he is not entitled to be placed in a better position. If, therefore, the breach of contract has enured in some respects to the loss of the plaintiff and in other respects to his benefit, I think that in estimating damages the profit must be set off against the loss, and that it is only the balance, if any, that can be recovered by the plaintiff … . On the facts of this case, however, it must be taken that the defendant by refusing to buy this land at £95 per acre left in the hands of the plaintiff property which was immediately resaleable at £97 15s. an acre, and was therefore worth that sum. Had the situation been reversed, and the value at the date of breach been less than the contract price, the difference would have been recoverable by the plaintiff as damages. Where, as here, the value at the time of the breach is greater than the contract price, the defendant (though he cannot claim the profit as money received to his use) can nevertheless require the plaintiff to take it into account in estimating his damages, and to set it off against any loss suffered by him in other respects in consequence of the breach of contract.[54]
[51][1967] VR 641.
[52]Ibid.
[53][1921] NZLR 403.
[54]Ibid, 408.
Counsel for the plaintiffs referred to a reference in the headnote of the report of the decision in Cowan[55] to the defendant in that case having been given leave to amend its defence at the commencement of the trial to allege that the relevant land had increased in value between the date of the contract of sale and the date of the rescission of the contract. The defendant asserted that the value of the land at rescission was £250,000, compared with £134,000 at the date of the sale. Counsel for the plaintiffs submitted that, as a matter of logic, if the defendant in Cowan[56] obtained leave to amend its pleadings to make a positive allegation with respect to the question of whether the plaintiff had in fact suffered no loss and damage by reason of the defendant’s breach, then the onus of proving that the plaintiff suffered no loss must have been borne by the defendant.
[55][1967] VR 641.
[56]Ibid.
The report of the decision in Cowan[57] is silent on the question of the onus of proof, and what evidence his Honour relied upon to reach the conclusion he did. However, I do not consider that this decision stands for the proposition contended for by counsel for the plaintiffs. Again, I consider Cowan[58] to be an orthodox application of the principles of assessment of damages, and in particular, the principle that the object of damages in cases of breach of contract is to put the innocent party in the same position as it would have been had the contract been performed, and in no better position. Indeed, Cowan[59] illustrates the need for a plaintiff to bring into account benefits received, as well as losses suffered, as a result of a breach of contract concerning the sale of land.
[57]Ibid.
[58]Ibid.
[59]Ibid.
Counsel for the plaintiffs also relied upon a decision of the New South Wales Court of Appeal in Currie v Dempsey[60] in support of the proposition that the onus of proof lies upon a defendant to prove a positive allegation in a defence which is not a denial of an essential ingredient in a cause of action, but is one which, if established, will constitute a good defence sufficient to avoid a claim which, prima facie, the plaintiff has.
[60](1967) 69 SR [NSW] 116.
However, Currie v Dempsey[61] concerned the question of where the onus of proof lay in determining the question, under a statutory scheme, in relation to matters relevant to the determination of whether a licensed club should be granted registration. The authorities indicate that the only occasion upon which the onus shifts to a defendant with respect to the question of loss and damage for breach of contract is where a defendant has made an allegation that a plaintiff has failed to mitigate their loss,[62] or, that the steps it has taken to mitigate its loss have conferred a benefit upon the plaintiff which has either reduced or has overcome the prima facie loss claimed by the plaintiff.[63] For example, on the facts of the current case, De Ren could have alleged that Jack failed to mitigate his loss by leasing the property after 9 December 2013. While he made that allegation in some of the correspondence in evidence, he did not ultimately defend Jack’s claim on this basis, and as such that issue goes nowhere.
[61]Ibid.
[62]See Chesire v Fifoot [23.41], Placer (per Callinan J) [83].
[63]See, for example, British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (‘British Westinghouse ‘) [1912] AC 673.
There is also authority to the effect that where a plaintiff achieves a benefit as a result of steps taken by it to mitigate its loss, even where there was no duty to take such steps, those benefits must be taken into account in calculating loss and damage. In British Westinghouse,[64] a plaintiff was successful in establishing that the defendant had supplied defective equipment, but the plaintiff’s damages were reduced to take into account the improved productivity of replacement equipment purchased by the plaintiff. In Fenridge Pty Ltd v Retirement Care Australia Ltd,[65] Hargrave J held that the purchaser of a property who had been misled by the vendor as to the use to which the property could be put had to take into account the profits realised by the plaintiff when the property was developed for other purposes, despite there being no duty upon the purchaser to take the steps it did to mitigate its loss. In that case, the profitability of the substitute development was taken into account.
[64]Ibid.
[65][2013] VSC 464.
The position with respect to the burden of proof where it is contended that the plaintiff has obtained a benefit from steps taken in mitigation of loss is summarised in the following extract from Halsbury’s Laws of England, 4th ed, Vol 12, (at 481):
Loss which the plaintiff has avoided. Where a plaintiff has taken more steps in mitigation than were required of him and has thereby reduced, or further reduced, his loss the defendant may take advantage of the reduction unless the steps in mitigation were completely collateral to the original wrong. The defendant may take advantage of steps which are a reasonable and prudent course naturally arising out of the circumstances in which the plaintiff was placed by the defendant's wrong, but not those which are res inter alios acta or collateral to the wrong. Thus account may be taken of transactions which form part of a continuous dealing with the situation in which the plaintiff finds himself, but not independent or disconnected transactions. If a transaction of which account may be taken produces a gain to the plaintiff that gain may be set against the initial loss.
The burden of proving that the plaintiff's loss has been diminished or avoided lies on the defendant.
This principle is derived from the following statement of Grove J in Roper v Johnson:[66]
The plaintiffs having made out a prima facie case of damages, actual and prospective, to a given amount, the defendant should have given evidence to shew how and to what extent that claim ought to be mitigated.[67]
[66](1873) LR 8 CP 167.
[67]Ibid, 184.
Some support for the proposition that a defendant bears the onus of establishing any facts which negative or reduce any claim for loss and damage by a plaintiff for breach of contract can be found in the decision of the New South Wales Court of Appeal in Ruthol Pty Ltd v Tricon (Australia) Pty Ltd,[68] where the Court held that there should be no reduction in damages payable to a plaintiff on account of rent paid by the plaintiff (a purchaser as well as a tenant of the relevant property) where the defendant (the landlord/vendor of the property) had delayed the completion of the sale of the property. By reason of the delay in the completion of the sale, the plaintiff remained liable to pay rent to the defendant for the period of the delay. The Court rejected an argument that the amount of rent paid should be offset by an amount referable to the interest the plaintiff would have had to incur on any loan obtained to purchase the property. There was no evidence that the plaintiff would have had to borrow funds to complete the purchase of the property.
[68][2005] NSWCA 443.
Giles JA referred to the decision in British Westinghouse[69] in support of the proposition that:
If the innocent party does take action to mitigate the loss to it consequent on the guilty party’s wrong, even if the action goes beyond reasonable action, in general the guilty party is entitled to an allowance for the benefit to the innocent party from that action (the avoided loss principle).[70]
[69][1912] AC 673.
[70][2005] NSWCA 443 [40].
His Honour went on to say:
The avoided loss principle only applies so far as the innocent party in fact gained a compensating advantage. The guilty party bears the burden of proving that loss had been avoided and the extent to which it had been avoided.[71]
[71]Ibid [43].
In Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd,[72] Beaumont J (dissenting in the result, but not on the question of principle) rejected a submission that the onus was upon a plaintiff to prove that a benefit received by it was not sufficiently connected with the defendant’s fraud so that it ought not to be taken into account in assessing the plaintiff’s loss and damage. His Honour stated that:
… the principle in British Westinghouse has always been treated as an extension, to a special situation, of the general principles governing mitigation of loss. There is no doubt that the onus in respect of mitigation of loss is on a defendant, and it would be extraordinary if the rule were the other way in respect of an elaboration of it.[73]
[72](1991) 104 ALR 397.
[73]Ibid, 412.
Accordingly, the issue for determination here is whether any gain obtained by Jack by reason of the delay in the sale of the property falls within the avoided loss principle, such that the onus of establishing the fact and the quantum of any such gain is borne by De Ren?
The authorities concerning the avoidable loss principle are often concerned with the question of whether the innocent party’s entry into a transaction which generates a compensating benefit is sufficiently connected with the breach of contract to justify the offset of the compensating benefit against the prima facie loss suffered by the innocent party. In the current case, for any benefit to Jack from the delay in the sale of the property to fall within the avoidable loss principle, the ‘transaction’, being the sale of the property in 2016, must be sufficiently connected with De Ren’s breach of contract.
There is no question that the sale of the property, whenever it occurred, was connected with the parties’ obligations under the Deed, indeed, the Deed expressly imposed an obligation upon the parties to sell the property. However, the ultimate sale of the property was not a transaction entered into by Jack to mitigate the loss caused by De Ren’s breach of contract, such as leasing the property to generate income: rather, it was the transaction contemplated by the Deed.
Accordingly, I do not consider that the avoidable loss principle, insofar as it affects the burden of proof with respect to loss and damages, applies in the current case. This is not a case where a compensating benefit, if proved by De Ren, could be set off against a prima facie loss proved by the plaintiffs. Rather, in this proceeding, the Court is concerned with the antecedent calculation of Jack’s prima facie loss, from which any deduction for failure to mitigate, or for any benefit obtained from any action taken to mitigate, must be brought into account. The onus for establishing the prima facie loss, and the elements which go to the calculation of the prima facie loss, continues to be borne by the plaintiffs. The difference between the sale price of the property had it been sold in accordance with the terms of the Deed and the sale price at the time it was finally sold is an essential element in this calculation. By failing to adduce admissible evidence to show the sale price of the property in December 2013, Jack has failed to prove a key integer in the calculation of his prima facie loss.
It would have been open to De Ren to simply deny the allegation that Jack had suffered loss and damage by reason of the delay in the sale of the property, without being required to plead any factual matters to support that denial. Rule 13.12(3) of the Rules provides that:
Any allegation that a party has suffered damage and any allegation as to the amount of damages shall be taken to be denied unless specifically admitted.
Accordingly, it seems to me that if De Ren’s defence merely included a bare denial of the allegation that Jack had suffered loss and damage as a result of the delay in selling the property, he would not have been shut out of submitting, as he did at the conclusion of the trial, that Jack had failed to prove that he had suffered loss and damage. Indeed, that seems to be what occurred in NCON[74], where the defendant led no evidence in rebuttal of the plaintiff’s claim for loss and damage. The question remains, does the inclusion of a positive allegation in the defence that Jack had made a capital gain as a result of the delay in the sale of the property alter the position with respect to the burden of proof?
[74][2012] VSC 604.
I do not believe so. The objective of pleadings is not only to set out the material facts upon which a party intends to prove at trial, it is also to define the issues which might arise at trial. If De Ren had not made the allegations that he did in his further amended defence and counterclaim, he may well have fallen foul of the requirements of Rule 13.07 of the Rules, which requires, among other things, a party to plead any fact or matter which, if not pleaded specifically, might take the opposite party by surprise. In my view, De Ren acted properly in bringing to the plaintiffs’ attention the allegation that Jack had suffered no loss and damage by reason of the delay in the sale of the property. However, compliance with the rules of pleading does not alter the fundamental common law principle that plaintiff must prove both the fact and amount of loss before it can recover substantial damages.
Counsel for the plaintiffs submitted that, in any event, Jack would have a claim for loss of use of money by reason of the sale of the property. However, there are two difficulties with that submission. First, such a claim was expressly disclaimed at trial, and no evidence was led in relation to such a claim. Secondly, any claim for loss of use of funds would be complicated by the fact that, if the property had been sold in 2013, it is likely that the settlement sum would have been paid more promptly than it in fact was, as the Deed provided that Jack’s share of the net proceeds of sale was to be applied first to payment of the outstanding balance of the settlement sum. Any claim based upon the principles in Hungerfords v Walker[75] would thus need to bring into account any corresponding benefits to Jack from an earlier discharge of his liability to pay the settlement sum.
[75](1989) 171 CLR 125.
When did Lex Group provide vacant possession of the property?
On 9 September 2013, the date that the plaintiffs served the writ and statement of claim upon De Ren’s former solicitors, Varrasso, the plaintiffs gave notice that they would vacate the property on 9 December 2013. The uncontested evidence is that Lex Group actually vacated the property on or about 4 October 2013, and that from this time, Lex Group operated the business from the Produce Drive property. The electricity was disconnected not long after Lex Group vacated the property.
De Ren denied that Lex Group gave vacant possession of the property at any time before 29 December 2015, being the date upon which HenleyLegal wrote to him telling him that the key for the property was with Knight Frank, and that he could inspect the property by appointment with Adrian Garvey of Knight Frank.
In his defence and counterclaim, De Ren said the following matters supported the contention that Lex Group had not given vacant possession of the property until that time:
(a) the plaintiffs refused to provide the keys to the property to him despite requests made by him on 9 December 2013, 19 March 2015, 24 March 2015, 30 March 2015, and 10 September 2015; and
(b) the plaintiffs continued to advertise the property as their business address on the internet until March 2015.
Counsel for De Ren submitted that Jack’s own evidence established that:
(a) he did not provide De Ren access to the property unless he could be supervised by the agent;
(b) he changed the locks to the property;
(c) his wife called the police when De Ren attended to collect his property on a pre‑arranged visit; and
(d) he did not provide the keys for the property to De Ren.
Accordingly, counsel for De Ren submitted, as Lex Group did not provide vacant possession of the property, De Ren was not liable to meet a half share of the outgoings, and Lex Group was required to pay rent until 29 December 2015, being the date that he was able to inspect the property. The quantum of the claim for rent was based upon rental schedules prepared by the accountant for Lex Group.
Jack gave evidence at trial that the website referred to by De Ren was not a website through which Lex Group conducted their business, and that the failure to change the business address to the Dandenong premises was an oversight. Counsel for De Ren did not press this issue in his closing submissions. However, the plaintiffs’ alleged refusal to provide De Ren with the keys to the property meant that De Ren never had ‘the right to actual unimpeded physical enjoyment of the property.’
Counsel for De Ren submitted that the reference to Lex Group providing vacant possession of the property in clause 11(b) of the Deed must be read to mean the provision of vacant possession to both Jack and De Ren, and not one to the exclusion of the other. Counsel relied upon the decision of Lord Greene MR in Cumberland Consolidated Holdings Limited v Ireland,[76] where it was stated:
the right to actual unimpeded physical enjoyment is comprised in the right to vacant possession …
When we speak of a physical impediment we do not mean that any physical impediment will do. It must be an impediment which substantially prevents or interferes with the enjoyment of a right to possession of a substantial part of the property.[77]
[76][1946] 1 KB 264.
[77]Ibid, 271.
I have no doubt, in general, that the above statement of principle is correct. However, the term ‘vacant possession’ in the Deed needs to be construed in the context of the language and the ascertained objective purpose of the Deed as a whole. The Deed contemplated, indeed required that the property be sold. It was never contemplated that the right to exclusive possession of the property be conferred upon De Ren, save in the unlikely event that he purchased Jack’s interest in the property. The terms of the Deed regulated the parties’ financial obligations until such time as the property be sold. As long as the property continued to be occupied by Lex Group, Lex Group was required to pay rent. As the evidence was that, notwithstanding the rental schedules, the rent paid by Lex Group was an amount equivalent to the outgoings, once Lex Group vacated the property, the burden of the outgoings shifted to the registered proprietors, being Jack and De Ren, in equal shares.
That Lex Group ceased to occupy the property in October 2013 cannot seriously be contested, and is confirmed by the photographs in evidence taken on 14 December 2013. The electricity was disconnected after the Lex Group left the property. There is no evidence that Lex Group left behind goods or rubbish at the property which impeded the owners’ enjoyment to possession of a substantial part of the property.[78] The question is, whether in fact Jack refused to provide De Ren access to the property, and, if that fact is established, whether that amounts to a failure of Lex Group to provide vacant possession within the meaning of clause 11(b) of the Deed.
[78]Ibid, see also Waterhouse v Waugh [2003] NSWCA 139 [52].
Jack’s evidence was to the effect that he did not want De Ren to have unaccompanied access to the property, for fear that the property could be damaged, and that there would be allegations levelled against him that he or Lex Group was responsible for any such damage. It is not necessary for present purposes to reach any conclusion one way or another whether such concerns were reasonable. However, given the disputes which had taken place in the past, requiring that access be arranged through solicitors and/or real estate agents seems to be quite a sensible approach. In any event, Jack’s concerns posed no barrier to agents engaged by De Ren, being Mr Li and Mr Salopek, inspecting the property.
Further, it is not clear from the evidence whether all of the events relied upon by De Ren to contend that the plaintiffs excluded him from the property (such as calling the police, and/or changing the locks) occurred before or after the parties entered into the Deed.
The authorities have generally considered the term ‘vacant possession’ in the context of a landlord‑tenant relationship. However, while there was a landlord‑tenant relationship between Lex Group on the one hand, and Jack and De Ren on the other hand, it came to an end when the successor to Lex Group vacated the property on 4 October 2013. By that time, Lex Group had been deregistered, and there is no evidence that Lex Group (or its successor company) continued to occupy the property: indeed, the evidence is to the contrary. Notwithstanding that Jack was in control of Lex Group prior to its deregistration, responsibility for his alleged exclusionary conduct in his capacity as the co‑owner of the property cannot be sheeted home to Lex Group. It is clear from clause 11(a) of the Deed that the lessee of the property was Lex Group, and that Lex Group would have no liability for any rental at the expiry of the three month notice period referred to in this clause (that is, 9 December 2013).
Accordingly, to the extent that De Ren’s claims that he was excluded from the property have any merit, he has no right to relief against Lex Group: rather, any claim would have to be made against Jack, the co‑proprietor of the property. Presumably, any claim against Jack would be limited to a right to unimpeded access to possession based upon his entitlement as a co‑proprietor of the property. Despite there being a proceeding on foot since 9 September 2013 (when he was served with the writ and statement of claim in the proceeding), no action was taken by De Ren to seek such relief, despite being represented by solicitors over the course of 2014, after the property was vacated by Lex Group.
Accordingly, De Ren’s claim that he was not liable for a half share of the outgoings after 9 December 2013 is not made out, and his claim that Lex Group was required to pay rent until 29 December 2015 fails. Given that I have found that De Ren is not entitled to rent, it is not necessary for me to reconcile the conflicting evidence regarding what rent was paid by Lex Group prior to the parties’ entry into the Deed. However, given that De Ren’s entitlement to rent would only arise from the Deed, the quantum of any rent payable to him would have to be calculated pursuant to the Deed, not the rental schedules in evidence.
Entitlement to set-off
Counsel for De Ren submitted that Jack was not entitled to deduct any sums from the payments of the settlement sum, for the purpose of meeting De Ren’s obligations to pay his half share of the outgoings, or to create a reserve for any sums payable by De Ren to the Lex Group following the completion of the accounting exercise. There is no dispute that the amounts withheld from the settlement sum total $236,974.49.
Clause 3 of the Deed provides that:
The settlement sum is payable by equal monthly instalments … without deduction or set‑off until the settlement sum has been paid in full or such other sum as is owing by [the plaintiffs] having regard to paragraph 12 hereof.
(emphasis added)
Clause 12 of the Deed relates to the accounting exercise. Clause 12(c) provides that:
Should there be any shortfall in the payment of the company expenses then [De Ren] shall pay such amount as might be owing by [De Ren] to [Lex Group] in deduction from the settlement sum.
Counsel for De Ren submitted that, until the accounting exercise is complete, there is no shortfall within the meaning of Clause 12 of the Deed.
In my view, the plaintiffs were entitled to withhold any amount up to $149,000 from the settlement sum (it is not entirely clear from the evidence how much has been withheld, although the funds which remain in trust considerably exceed this amount).[79] However, Jack was not entitled to deduct the amount referable to De Ren’s half share of the outgoings from the settlement sum. That he did so was understandable in the circumstances, but he was exercising a self-help remedy which, on the plain language of the Deed, he did not have.
[79]During the course of the trial, counsel for the plaintiffs handed up a trust account statement from Donald & Ryan Lawyers, which shows that as at 27 November 2018 the sum of $424,655.04 was held on trust for Jack and De Ren.
However, while Jack breached the terms of the Deed in withholding these funds from the settlement sum, De Ren is not entitled to repayment of these amounts, because he has not established that he has suffered any loss by reason of the breach. Consequent upon my findings in relation to when Lex Group vacated the property, in each month from December 2013, De Ren was accumulating a liability to pay half of the outgoings. By taking the equivalent amount from the regular payments of the settlement sum, Jack in effect caused those liabilities to be discharged as they arose.
Of course, it would have been open to De Ren to take action to restrain Jack from deducting the outgoings. However, if he had successfully done so, Jack would have either continued to make the payments himself (and thus De Ren would be incurring a liability to Jack), or De Ren would have had to make the payments himself in order to prevent a mortgage sale of the property. Accordingly, this claim goes nowhere, in the absence of any claim for consequential loss or any claim for loss of use of these funds. In any event, as discussed below, as the plaintiffs were entitled to withhold up to $149,000 of the settlement sum, and De Ren obtained the benefit of the reduction in the amount owing under the loan secured by the BOQ mortgage between December 2013 and November 2015, any such loss would have been quite modest.
While again the language of the Deed is rather clumsy, it is tolerably clear that clause 3 enabled the plaintiffs to withhold from the settlement sum any sum referred to in clause 12 of the Deed which had not been accounted for prior to the final payment of the settlement sum. Clause 12 of the Deed provided a mechanism by which amounts said to have been withdrawn by De Ren from Lex Group’s accounts could be verified as being genuine expenses of Lex Group. In the first instance, De Ren was required to account for those amounts, and in the event that there was a dispute about the validity of De Ren’s claims, the matter was to be referred to an independent accountant, with any amount referrable to any claim by De Ren which was not verified through the accounting exercise being able to be set off against the final payment of the settlement sum.
Clause 12 of the Deed clearly contemplated that the accounting exercise would be completed prior to the final payment of the settlement sum, so at that time, the net amount owing to De Ren pursuant to the terms of the Deed (that is, the balance of the settlement sum, less any alleged expenses of Lex Group unaccounted for by De Ren) would be known. But that did not occur, and, it seems that the accounting exercise is not yet complete.
In my view, the proper construction of clauses 3 and 12 of the Deed is that until the accounting exercise is complete, the prima facie position is that De Ren owes Lex Group the sum of $149,000, with that amount able to be deducted from the settlement sum. No breach has been established in this regard.
Disposition of the proceeding
Accordingly, I propose to make the following orders in respect of the claim and the counterclaim:
(a) there be judgment for the plaintiffs in respect of the defendant’s alleged breach of clauses 5, 6, 8 and 21 of the Deed;
(b) there be judgment for De Ren in respect of paragraph 29 of the further amended defence and counterclaim;
(c) De Ren pay Jack the sum of $1.00 in respect of the judgment in (a) above;
(d) the plaintiffs pay De Ren the sum of $1.00 in respect of the judgment in (b) above; and
(e) subject to seeking further submissions from the parties regarding:
(i) the conduct of the accounting exercise;
(ii) the disbursement of the funds held on behalf of the parties in the trust account of Donald Ryan Lawyers; and
(iii) the question of the costs of the proceeding,
the claim and the counterclaim be otherwise dismissed.
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SCHEDULE OF PARTIES
S CI 2013 03792
LEX GROUP HOLDING PTY LTD (ACN 112 087 491) (formerly known as DEX GROUP HOLDING PTY LTD) First Plaintiff DE QUAN XU Second Plaintiff CJC CORPORATE PTY LTD (ACN 129 799 006) Third Plaintiff - and - DE REN XU Defendant
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5
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