Min Lung Pty Ltd v Moonace Pty Ltd

[2007] QDC 317

DISTRICT COURT OF QUEENSLAND

CITATION:

Min Lung Pty Ltd v Moonace Pty Ltd & Ors [2007] QDC 317

PARTIES:

MIN LUNG PTY LTD

Plaintiff

AND

MOONACE PTY LTD

First Defendant

AND

OLRAC INVESTMENTS PTY LTD

Second Defendant

AND

JOHN PATRICK DONNELLY

Third Defendant

AND

CARLO DE LUCA

Fourth Defendant

AND

O’BRIEN SERVICES PTY LTD

Fifth Defendant

AND

LINDSAY ROBERT O’BRIEN

Sixth Defendant

AND

SANDRA CHRISTINE O’BRIEN

Seventh Defendant

FILE NO/S:

BD696/07

DIVISION:

PROCEEDING:

Application

ORIGINATING COURT:

District Court, Brisbane

DELIVERED ON:

23 November 2007

DELIVERED AT:

Brisbane

HEARING DATE:

14 November 2007

JUDGE:

McGill DCJ

ORDER:

Judgment that the sixth and seventh defendants pay the first to fourth defendants $98,352.16.

CATCHWORDS:

PRACTICE – Third Party Notice – against existing defendant – summary judgment for plaintiff – no defence – judgment on third party claim without trial

GUARANTEE AND INDEMNITY – Right of Surety- against co‑surety – claim of surety of secondary creditor against surety of primary creditor

Supreme Court of Queensland Act 1991 s 118E.

UCPR rr 201, 206(3)(a), 658.

Becton Dickinson UK Ltd v Zwebner [1989] QB 208 – followed.
Karacominakis v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313 – cited.
Klaasen v Grand Mariner Resort CTS 4264 [2006] QDC 88 – cited.
Selous Street Properties Ltd v Oronel Fabrics Ltd (1984) 270 EG 643 – cited.

COUNSEL:

M. T. Brady for the first to fourth defendants

No appearance of the sixth and seventh defendants

SOLICITORS:

N. R. Barbi Solicitor for the first to fourth defendants

Worcester & Co solicitors for the sixth and seventh defendants

1. This is an application for judgment in somewhat unusual circumstances.  The plaintiff sued all of the defendants by a claim filed 12 March 2007; the first to the fourth defendants filed a notice of intention to defend, as did the sixth and seventh defendants, but the fifth defendant did not.  The fifth defendant has subsequently gone into liquidation.  The first to fourth defendants were given leave by another judge to issue a third party notice against the sixth and seventh defendants, and did so.  Subsequently, however, the plaintiff obtained summary judgment against the first to fourth defendants, and the sixth and seventh defendants, which judgment the first to fourth defendants have now satisfied.  The third party proceedings have not been defended by the sixth and seventh defendants, and the first to fourth defendants now seek judgment in the third party proceedings for the amount they have paid the plaintiff, together with legal costs.

Background

1. In July 2007 the then owners of a particular property leased it to the first and second defendants for a term of 10 years; the tenants’ obligations under the lease were guaranteed by the third and fourth defendants. The premises were used to conduct a restaurant and takeaway business. In July 2003 the first and second defendants sold the business to the fifth defendant. Subsequently a deed of covenant on assignment was executed,[1] and the sixth and seventh defendants guaranteed the obligations of the fifth defendant under the assigned lease. That guarantee, however, was given to the landlord, and there was no guarantee in favour of the first and second defendants of the fifth defendant’s obligation to those defendants under the assignment. The first and second defendants, however, remained liable on the original lease, and the third and fourth defendants remained liable to the landlord on their original guarantees.

   [1]Affidavit of Chen field 14 June 2005, Exhibit PC-4.

1. In October 2003 the plaintiff became registered proprietor of the land and hence landlord of the premises in place of the previous owners.  Accordingly the plaintiff became entitled to enforce the landlord’s rights under the lease and the deed, and to enforce the various guarantees.

1. During 2006 the assignee stopped paying rent, hence these proceedings.  On 11 July 2007 summary judgment was obtained against all defendants except for the fifth defendant, which had gone into liquidation on 30 March 2007.  On 10 August 2007 that judgment was satisfied by the first to fourth defendants[2], but no amount has been paid in connection with the judgment by the sixth and seventh defendants, either to the plaintiff or to the first to fourth defendants.  The sixth and seventh defendants had filed a notice of intention to defend and defence to the claim and statement of claim on 13 April 2007, and were subsequently served personally with third party proceedings and a copy of the order giving leave to issue the third party proceedings.[3] Under r 206(3)(a), in these circumstances no notice of intention to defend had to be filed in response to the third party notice, but a defence can be filed and served in response to the third party statement of claim, and no such defence has been filed or served by the sixth and seventh defendants.[4]  Correspondence to them relating to the third party proceedings has been ignored, and they did not appear on this application.

   [2]Affidavit of Dore filed 1 November 2007 para 4.

   [3]Affidavit of Heydt filed 7 November 2007.

   [4]Affidavit of Dore filed 1 November 2007 para 10.

No default judgment

1. The first to fourth defendants subsequently sought default judgment against the sixth and seventh defendants, but that was refused by the deputy registrar.  That refusal was in my opinion correct.  Rule 201 contemplates default judgments in third party proceedings but only where judgment in default has been given for the plaintiff against the relevant defendant, which is not what occurred here.  There is no power to give default judgment in relation to third party proceedings in other situations[5] because of the assumption that, if the matter is proceeding to trial between the plaintiff and the defendant, any third party proceedings can be dealt with at the trial, and because usually it is not appropriate to have a judgment on a third party proceeding prior to there being a judgment between the plaintiff and the defendant.  In the present case, however, because of the successful application. for summary judgment, there will not be a trial between the plaintiff and the defendants, and there already is a judgment in these proceedings.

   [5]Klaasen v Grand Mariner Resort CTS 4264 [2006] QDC 88.

1. It would still be open for the first to fourth defendants to proceed to trial on the third party proceeding, but that would be a cumbersome process.  It would first be necessary to dispense with the signature of the sixth and seventh defendants on a request for trial date, which would then have to be filed, the matter would have to be set down for trial, notice would have to be given to the sixth and seventh defendants, and the first to fourth defendants would have to be in a position to proceed on the day of trial, in case they turned up and resisted the third party proceeding, and if they did not turn up it would still be necessary for the first to fourth defendants to prove their claim in the third party proceeding:  r 476(1).  However, it seems to me that there is a more convenient way in which the matter can be dealt with.

Section 118E

1. The applicants sought to rely on s 118E of the Supreme Court of Queensland Act 1991, which provides that, to the extent that the conduct of a proceeding is not provided for by rules of court or practice directions, the court may make the orders and give the directions it considers appropriate for the conduct of the proceeding. Subsection (2) permits a court to have regard to practices and procedures in force before the commencement of the Uniform Civil Procedure Rules in doing this. It was submitted that in this way reference could be made to the former District Court Rules, which provided in r 132 the power to give judgment in a third party proceeding “as the nature of the case may require”. But the difficulty is with the application of s 118E to the District Court. That section is in Part 9 of the 1991 Act. There are some parts of the 1991 Act which apply to the District Court, but there is no specific provision that Part 9 does apply to the District Court, nor is there anything in s 118E to indicate specifically that it does.[6] On the other hand, in s 118E the term “court” can mean the District Court: s 117(b). It seems to follow that s 188D does apply to the District Court.

   [6]In this respect, it may be contrasted to s 188D, which expressly applies to the District Court.

1. It was submitted, in the alternative, that its operation was picked up by s 69 of the District Court of Queensland Act 1967. That section, however, is concerned with the remedies available in a proceeding in the District Court, rather than the procedure to be followed in a proceeding.

Rule 658

1. Reliance was also placed in r 658, which provides that the court may at any stage of a proceeding make an order, including a judgment, that the nature of the case requires. This is potentially a very wide rule. In circumstances where effectively the only matter left for determination is the third party proceeding, and the sixth and seventh defendants have not shown any interest in defending that proceeding, and the situation does not fall within any other specific provision of the rules, it is appropriate to act under r 658.

1. In these circumstances, the real issues are whether it is appropriate to give final judgment in the circumstances, and if so, what judgment should be given.  As to the former point, there has never been any response on behalf of the sixth and seventh defendants to the third party proceeding.  Apart from not delivering a defence, the sixth and seventh defendants have not responded to any correspondence about the third party proceeding,[7] nor have they appeared in response to the present application.  It certainly appears that they have no interest in resisting the application for judgment.  In those circumstances, the appropriate response is to give judgment against them on the third party proceeding, without further delay.

   [7]Affidavit of Dore sworn 14 November 2007 para 7.

What judgment?

1. As to what judgment should be given, generally when a number of defendants are subject to a common demand and one or some of those defendants satisfy that demand, there is an obligation on the part of those defendants who did not assist in satisfying the demand to make an appropriate contribution to those who have.  One situation where this occurs is between guarantors.  Ordinarily, a right of contribution is predicated on the assumption that the burden should fairly be spread equally between the parties,[8] but that is not always applicable.  In some circumstances, it can be seen that the position of two or more defendants subject a common demand is not the same, so that as between the defendants one is subject to a primary liability.  In such circumstances, the obligation on the defendant subject to the primary liability will be to indemnify any other defendant for any amount actually paid by that other defendant.  For example, a debtor is liable to indemnify a guarantor to the extent that the guarantor has actually discharged the indebtedness of the debtor.[9]

   [8]O’Donovan & Phillips “The Modern Contract of Guarantee” (4^th Ed, 2004) para 12-1100.

   [9]ibid paras 12-100, 12-110.

1. This is just an example of a general proposition, that whenever a plaintiff has been compelled or was compellable by law to make a payment, and did not officiously expose himself to a liability to make the payment, and that payment discharged a liability of the defendant, the plaintiff is entitled to recover the amount of the payment to the defendant.[10]  This principle has been applied in circumstances where there has been an assignment of a lease and the original lessee, who has been required to pay the landlord rent or damages for breach of covenant in respect of a period where the premises were in the hands of an assignee (even if not a direct assignee from the original lessee, so that there was no privity of contract), is entitled to recover those amounts from the assignee who was at the time when the default arose liable to pay the rent or damages.[11]  On the basis of that principle, in the present case the first and second defendants would be entitled to recover the amount of their payment from the fifth defendant.

   [10]Goff and Jones “The Law of Restitution” (4^th edition 1993) p 344.

   [11]Ibid p 348.

1. The deed of covenant on assignment dated 26 September 2003 included a provision that the assignee, that is to say the fifth defendant, “shall … strictly observe and perform the lease provisions in the same manner and to the same extent as if the lease had originally been entered into between the landlord and the assignee” (clause 2.2).  There was no express covenant in this document to indemnify the assignor against liability for breach of covenant by the assignee.  In the present case, however, there was no claim against the fifth defendant; the claim was against the sixth and seventh defendants, who executed a guarantee in favour of the landlord, but no guarantee of any obligation of the fifth defendant to the first and second defendants.

1. Nevertheless, there is authority that a lessee who has assigned the lease is also entitled to recover from a guarantor of the assignee, on the application of this principle: Becton Dickinson UK Ltd v Zwebner [1989] QB 208.[12]   On this basis, the first and second defendants are entitled to recover an indemnity from the sixth and seventh defendants.  It also seems to me that on principle the third and fourth defendants are also entitled to recover.  The third and fourth defendants would certainly be entitled to contribution from the sixth and seventh defendants, even though the liability arose from different instruments of guarantee, because it is ultimately liability in respect of the same amount.[13]  Although from the point of view of the plaintiff both the first and second defendants and the fifth defendant are liable on the lease, and all of the third, fourth, sixth, and seventh defendants are liable as sureties of obligations arising under the lease, because as between the respective lessees the fifth defendant is primarily liable, it follows in my opinion that as between the sureties, the sureties of the fifth defendant are primarily liable.[14]  I should say that I was not referred to any authority in relation to these propositions, but on the other hand there has been no argument against them on behalf of the sixth and seventh defendants.  The position is simply that, unassisted by argument, they seem in principle correct.

   [12]Followed by the New South Wales Court of Appeal in Karacominakis v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313.

   [13]Ibid p 308.

   [14]Selous Street Properties Ltd v Oronel Fabrics Ltd (1984) 270 EG 643.

1. Apart from this, it may well be that there are rights of subrogation arising in favour of the first to fourth defendants as a result of the discharge of the sixth and seventh defendants’ liability to the plaintiff.  In the circumstances, however, I do not think that I need to go into that.

1. I am therefore prepared to give judgment against the sixth and seventh defendants for the amount of the judgment sum against all defendants, together with the amount of the costs which the first to fourth defendants have paid or are liable to pay the plaintiff,[15] and the first to fourth defendants’ costs of the third party proceedings, including this application. It seems, however, that those defendants are not entitled to their costs of defending the plaintiff’s action against them.[16]  The first to fourth defendants are also entitled to interest by statute from the date on which they satisfied the judgment until the date of judgment; I will allow 9%.

   [15]These costs had not been quantified when the application was heard.

   [16]Ibid p 349.

1. There will therefore be judgment that the sixth and seventh defendants pay the first to fourth defendants $98,352.16 including $2,296.96 by way of interest, and that the sixth and seventh defendants pay to the first to fourth defendants any costs paid by the first to fourth defendants to the plaintiff, and the first to fourth defendants’ costs of and incidental to the third party proceeding, including the costs of the application filed 1 November 2007, to be assessed.