Patterson v Gunbower (WA) Pty Ltd as Trustee for the Eynon Trust

[2016] WADC 90

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   PATTERSON -v- GUNBOWER (WA) PTY LTD as Trustee for THE EYNON TRUST [2016] WADC 90

CORAM:   REGISTRAR KINGSLEY

HEARD:   8 MARCH 2016 & 28 APRIL 2016

DELIVERED          :   14 JULY 2016

FILE NO/S:   CIV 1858 of 2013

BETWEEN:   JEFFREY ROSS PATTERSON

First plaintiff

PETA FRANCES PATTERSON
Second Plaintiff

JEFFREY ROSS PATTERSON, ROCHELLE JOY PATTERSON AND PETA FRANCIS PATTERSON
Third Plaintiff

AND

GUNBOWER (WA) PTY LTD as Trustee for THE EYNON TRUST
First Defendant

GARRY LYNN  EYNON
Second Defendant

JENNIFER JOAN EYNON
Third Defendant

BRIEN ELLIOTT TAYLOR AND PETER JOHN MOLINARI
Fourth Defendant

Catchwords:

Practice - Application for summary judgment by defendant - Application to strike out paragraphs of the statement of claim

Legislation:

Nil

Result:

Application for summary judgment dismissed
Application to strike out allowed

Representation:

Counsel:

First plaintiff                  :     Mr A Areste

Second Plaintiff             :     Mr A Areste

Third Plaintiff                :     Mr A Areste

First Defendant              :     Mr J Cook

Second Defendant         :     Mr J Cook

Third Defendant            :     Mr J Cook

Fourth Defendant           :     Mr A Macknay (on 8 March 2016)

Solicitors:

First plaintiff                  :     Corser & Corser

Second Plaintiff             :     Corser & Corser

Third Plaintiff                :     Corser & Corser

First Defendant              :     Mendelawitz Morton

Second Defendant         :     Mendelawitz Morton

Third Defendant            :     Mendelawitz Morton

Fourth Defendant           :     MDS Legal

Case(s) referred to in judgment(s):

Bruton v London & Quadrant Housing Trust [2000] 1 AC 406

Chan v Cresdon Pty Ltd (1989) 168 CLR 242

Cutts v Head [1984] Ch 290

Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd (1985) 84 FLR 101

Marsden v Edward Heyes Ltd [1927] 2 KB 1

Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198

Nouvelle Homes t/as Wilson & Hart v Hatch [2009] WASC 63

Radaich v Smith (1959) 101 CLR 209

Rainham Chemical Works Ltd (in liq) v Belvedere Fish Guano Co Ltd [1921] 2 AC 465

Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19

Walton Stores (Interstate) Pty Ltd v Maher (1988) 162 CLR 387

1. REGISTRAR KINGSLEY:  The statement of claim has undergone a number of revisions.  The current version I will call the February 2016 statement of claim.

2. The first plaintiff and the second plaintiff (the Pattersons) are the registered proprietors of land comprising the farm property known as Pingarning Hills (Pingarning Hills).  The third plaintiff was a partnership comprising the Patterson's and another (the Partnership).  The first defendant is a corporation (Gunbower) and the second and third defendants (the Eynons) were directors of the corporation and are being sued as guarantors.

3. The Patterson's either licensed to the Partnership the right to occupy and farm, or leased to the Partnership, Pingarning Hills.

4. The February 2016 statement of claim pleads that the Partnership either subleased, or agreed to sublease, to Gunbower Pingarning Hills for a term of two years, commencing 5 March 2008.  By a further sublease, or an agreement for a sublease, between the Partnership and Gunbower, Pingarning Hills was subleased or agreed to be subleased for a further period of two years commencing 5 March 2010.  The terms of the lease March 2010 lease, or sublease, expired on 4 March 2012.

5. The February 2016 statement of claim goes on to plead that the Eynons, as a condition of a grant of exclusive possessory interest in Pingarning Hills by the Partnership, would provide personal guarantees for the due and punctual performance by Gunbower of Gunbower's covenants pursuant to any possessory interest.

6. Apparently noting that the arrangement between the Paterson's and the Partnership may have been a license only, by deeds dated 21 April 2015, Patterson's declared they had leased those portions of Pingarning Hills that were registered in their names to the Partnership for the respective terms referred to in par 4.  As there may be some contention as to whether the relationship between the Partnership and Gunbower is under a lease, sublease, or even a licence I intend to use a neutral term of agreement.

7. The statement of claim then goes on to plead breaches of the 2008 sublease and of the 2010 sublease.  At par 42 the plaintiffs plead that, by notice in writing dated 5 January 2013, posted on 5 February 2013, they notified Gunbower and the Enyon's of the breaches and demanded they make good the damage which those breaches had caused to Pingarning Hills property.

8. The importance of the notice arises from par 6(c) of the 2008 and 2010 agreements.  That paragraph provides that the lessor, the Partnership, will be at liberty to regard the guarantors, the Eynons, in all respects as principal debtor and will not be obliged to take action first against the lessee, Gunbower, provided always that before taking any action against the guarantors, the lessor must give notice in writing to the guarantors, calling on the guarantors to remedy their default within 14 days of giving of the notice and if the guarantors fail to do so, the lessor may proceed against the guarantors.

9. At par 45 of the February 2016 statement of claim, the plaintiffs plead an allegation of voluntary waste or permissive waste and at par 47 plead a claim in estoppel.  The paragraphs in relation to waste and estoppel are the subject of a strikeout application and will be dealt with further in my reasons.

10. The Eynons have brought applications for summary judgment and to strike out the waste and estoppel paragraphs of the February 2016 statement of claim.

Summary judgment application

1. The arguments by Gunbower and the Eynons are based on the lack of a valid notice as required under par 6(c) of the 2008 and 2010 agreements, and the High Court decision of Chan v Cresdon Pty Ltd (1989) 168 CLR 242.

2. The purported notice to satisfy cl 6(c) of the agreements is dated 5 January 2013.  The letter addressed to the Eynons, as well as Gunbower, is headed 'Without Prejudice'.  The letter after reciting the background goes on to state that by written notice on 16 July 2010 and 12 February 2010 the Partnership detailed dissatisfaction with Gunbower's conduct in breach of the leases and states that the Partnership has sustained economic loss being the cost of rectifying the breaches.  The breaches are then detailed. 

3. Under the heading 'Loss Incurred' the Partnership quantifies its losses at $242,627 and then goes on, in order to prevent legal proceedings, to make an offer of settlement if a sum is paid in full within one month of the date of the letter.

4. Whilst the letter is dated 5 January 2013, the plaintiffs plead at par 42 that the notice was posted on 5 February 2013.

5. Communications that are marked 'Without Prejudice' are privileged communications.  Both as a matter of contract and public policy the contents cannot be divulged in proceedings without the consent of both parties.  The public policy aspect rests on encouraging parties to settle their disputes without resort to litigation: the contractual part rests on an implied agreement from the marking of a letter 'Without Prejudice' that it shall not be referred to at all:  Cutts v Head [1984] Ch 290, 306 ‑ 307.

6. Without prejudice communications enable parties to explore the possibility of settlement of a dispute between them, and to deal frankly with the other party, to the extent of making admissions without prejudice to their rights of proceeding with the dispute should negotiations fail.

7. Where the trial of the issues in the action is at an end and the matter of costs comes to be argued, the rule on public policy has no further applications.  The inadmissibility of the communication then rests upon the expressed or implied agreement of the parties which may be modified by a reservation as to the question of costs:  Nouvelle Homes t/as Wilson & Hart v Hatch [2009] WASC 63.

8. Whether the Partnership, by the 5 February 2013 Without Prejudice letter, was exploring the possibility of a settlement of a dispute is, in my opinion, a matter of fact.  That issue must be determined in the context of what has led to the 5 February 2013 Without Prejudice letter.  In my opinion it would be improper to determine that issue on a summary determination.  The question for the court is whether the 5 February 2013 Without Prejudice letter acts both as a notice within the meaning of cl 6(c), as well as making an offer in the hope of avoiding legal proceedings.  The issue is whether the notice, because it is contained within the 5 February 2013 Without Prejudice letter, is devoid of legal consequence.

9. The Enyon's submit that by reason of Chan v Cresdon the guarantee contained in the 2008 and 2010 agreements must fail.  In Chan v Cresdon the High Court considered the failure to register a lease where the guarantee obligations were 'under this lease'.  The High Court held that the words 'this lease' referred to a registered legal lease, not an unregistered equitable lease.  As a consequence the guarantees failed.

10. Similarly, the 2008 and 2010 agreements refer to guarantees being given 'in terms of this lease'.  Unlike Chan v Cresdon there was no obligation to register the lease – the leases being for a term of two years in each case.  Thus it is arguable, if it is found there is a lease, that the Enyons were guaranteeing Gunbowers obligations 'in terms of this lease'.

11. I note that the Partnership may, at the time of entering into the 2008 and 2010 agreements been a licensee.  There is authority to say that where a licensee grants exclusive possession then a lease is created; Radaich v Smith (1959) 101 CLR 209; Bruton v London & Quadrant Housing Trust [2000] 1 AC 406. This is still the case where the licensee had a lesser estate. The overriding criterion is whether there has been a grant of exclusive possession. Clause 2 (b) of the 2008 and 2010 agreements provides that, provided Gunbower pays the rent and observes the covenants, it has quiet possession without interruption from the Partnership.

12. It is, in my opinion, arguable that the Enyon's have given a guarantee 'in terms of this lease'.

13. For these reasons I am of the opinion the defendants' summary judgment application must fail.

Waste

1. The plaintiffs plead a claim in waste against the Enyons.  The Enyons seek to strike that plea.

2. Waste denotes any act that permanently alters the land.  Generally waste implies an element of deterioration, but in some circumstances may include alterations that improve the land.

3. In this matter the Patterson's plead that Gunbower committed permissive waste and voluntary waste.  Permissive waste involves passively allowing a property to fall into disrepair.  It is a failure to keep in repair or good working order.  Voluntary waste denotes some positive act of injury to the property diminishing its value.  It is a deliberate and active change to the property.

4. Marsden v Edward Heyes Ltd [1927] 2 KB 1 is authority for the proposition that a tenant must not commit voluntary waste, unless allowed by statute or agreement with the landlord.

5. The 2008 and 2010 agreements provide covenants at par 1(b), (c) and (o) which appear to fall within what would be regarded as permissive or voluntary waste.  The plaintiffs have already pleaded breach of the covenants under the 2008 and 2010 agreements.  Thus the plaintiffs' seek to now plead a tortious claim.

6. The plea against the Eynons is that they, as directors of Gunbower, wrongfully directed or procured the commission of voluntary and permissive waste on Pingarning Hills.  In this plea the Pattersons seek to hold the Eynons directly liable for the acts of Gunbower. 

7. The Pattersons plead that by reason of the permissive and voluntary waste, they, as registered proprietors were unable to lease the land.  The Pattersons are not privies to the 2008 and 2010 agreements with Gunbower.  The Pattersons must plead how it is Gunbower owes a duty to them such that a tortious liability can arise.

8. Usually directors are not personally liable for the torts committed by a corporation merely because they have general control of the corporation's business.  Merely by reason of their position as director, they cannot be held liable for the torts of the employees and agents of the corporation, unless the director ordered or procured the acts to be done.  Where a company commits a tort, there is a presumption that this is a corporate act, and a director is not personally liable as a joint tortfeasor.  However, the presumption is rebuttable.  The presumption is rebutted by evidence that the director exercised personal control by directing or procuring the act in question; Rainham Chemical Works Ltd (in liq) v Belvedere Fish Guano Co Ltd [1921] 2 AC 465; Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd (1985) 84 FLR 101.

9. For the imposition of some liability on a director for the tortious act of a corporation, there must be some act, express or implied, that constitutes the direction or procurement: Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19 [68] ‑ [73].

10. For the Eynons to understand their case, the Partnership, must plead material facts as to how it is the Eynons wrongfully directed or procured the voluntary and permissive waste by Gunbower at Pingarning Hills. 

11. In my opinion the pleading under the heading 'Waste' does not lay the foundation for a proper plea in tort.  In my opinion the pleading under the heading of 'Waste' ought to be struck.

The plea of estoppel

1. Trying to distil the essence of the plea, it would appear the Partnership pleads that, by entering into the 2008 and 2010 agreements, by paying the annual rental, and having uninterrupted enjoyment of Pingarning Hills, that is consistent with the recognition and assertion by Gunbower of the validity of a relationship between the Partnership as sub‑lessor and Gunbower as sub‑lessee.

2. The confusion in this plea manifests itself in par 49 where the Partnership variously describes itself as:

   1.A lessor, or as

   2.A sub-lessor, or as

   3.A grantor.

3. The estoppel appears to be an acknowledgment by Gunbower that the Partnership had capacity to lease, or sublease, and the Enyon's proceeded, on the assumption that the Partnership had good title, to guarantee Gunbower's covenants under the agreements.

4. An estoppel can arise where a promise, representation, or conduct by one party leads another party to assume that the first party will abide by that course of conduct, or that a certain legal relationship exists.  The other party acts on that assumption or course of conduct to their detriment, such that it would be unconscionable for the first party to now renege.

5. The statement or conduct to give rise to the estoppel must be reasonably clear and unambiguous.  The statements or conduct relied on must be unqualified, firm and specific, so as to induce an assumption that a particular legal relationship would be established or an interest granted; Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198.

6. The Enyon's submit that whilst an estoppel could arise as between Gunbower and the Partnership, a guarantee cannot arise by estoppel.  In my opinion it is arguable that guarantee could be established.

7. Since Walton Stores (Interstate) Pty Ltd v Maher (1988) 162 CLR 387 it is arguable that a party who has induced an assumption that a contract of guarantee will exist will be estopped from denying the guarantee, particularly where the other party has acted on the assumption.

8. The Partnership and Gunbower assume that a certain legal relationship exists between them; that as landlord and tenant.  In inducing the Partnership to enter into that relationship the Enyon's guaranteed the performance by Gunbower of its covenants.  It is arguable the Enyon's should not be permitted to resile from that inducement.

9. However the plea seeking to establish the estoppel is vague, confused, and unsupported by any particulars.  That confusion is evident in para. 49.  I will strike the pleading under the heading Estoppel.

10. I will hear Counsel on the form of orders, and on costs.