R & J Lyons Family Settlement Pty Limited v 155 Macquarie Street Pty Limited

[2006] NSWSC 1187

CITATION:	R & J Lyons Family Settlement Pty Limited & Anor v 155 Macquarie Street Pty Limited & Anor [2006] NSWSC 1187 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	26/10/2006
JUDGMENT DATE :	13 November 2006
JURISDICTION:	EQUITY DIVISION
JUDGMENT OF:	Lloyd AJ
DECISION:	(1) The defendants/cross-claimants' notice of motion dated 8 August 2006 is dismissed. (2) The costs of the notice of motion shall be the plaintiffs/cross-defendants’ costs in the cause.
CATCHWORDS:	PRACTICE AND PROCEDURE: - separate determination of questions – defence to cross-claim – construction of release in settlement deed – just, quick and cheap resolution of proceedings – reference to and reliance upon settled matters
LEGISLATION CITED:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005 Pt 28, r 28.4
CASES CITED:	Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Perre v Apand Pty Ltd (1999) CLR 180 R&J Lyons Family Settlement Pty Limited v 155 Macquarie Street Pty Limited [2006] NSWSC 625 R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2006] NSWCA 177 R&J Lyons Family Settlement Pty Limited v 155 Macquarie Street Pty Limited, NSWSC, Windeyer J, 24 July 2006, unreported Secured Income Real Estate (Australia) Limited v St. Martins Investments Pty Limited (1979) 144 CLR 596 Tallglen Pty Limited v Pay TV Holdings Pty Limited (1996) ACSR 130 Tepko Pty Ltd v Water Board (2001) 206 CLR 1
PARTIES:	R & J Lyons Family Settlement Pty Limited ACN 093 825 515 - First Plaintiff/Cross Defendant Geoffrey Charles Talbot - Second Plaintiff/Cross Defendant 155 Macquarie Street Pty Limited ACN 079 669 953 - First Defendant/Cross Claimant Ranec Pty Limited - Second Defendant/Cross Claimant
FILE NUMBER(S):	SC 1652/06
COUNSEL:	M L D Einfeld QS and M J Cohen - Plaintiffs/Cross-Defendants M T McCulloch SC - Defendants/Cross-Claimants
SOLICITORS:	Henry David York - Plaintiffs/Cross-Defendants Wright Stell Lawyers - Defendants/Cross-Claimants

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Lloyd AJ

Monday, 13 November 2006

SC 1652/06

R & J LYONS FAMILY SETTLEMENT PTY LIMITED & ANOR v 155 MACQUARIE STREET PTY LIMITED & ANOR

JUDGMENT

1 HIS HONOUR: The defendants/cross-claimants, 155 Macquarie Street Pty Limited and Ranec Pty Limited, seek an order pursuant to Pt 28, r 28.4 of the Uniform Civil Procedure Rules 2005 for the separate determination of two questions:

(a) Are the Cross-defendants entitled to maintain by way of defence the matters pleaded in paragraphs 2 and 3 of their defence to cross-claim?

(b) Upon the proper construction of the Deed of Settlement dated 3 December 2005 did the Cross-defendants release the Cross-claimants in respect of matters raised in paragraphs 2 and 3 of the defence to the cross-claim, so as to disentitle them to rely on paragraphs 2 and 3 of the defence?

2 The defendants/cross-claimants are the lessees/sub-lessors of a commercial property. The plaintiffs/cross-defendants, R & J Lyons Family Settlement Pty Limited and Geoffrey Charles Talbot are the sub-lessees of the premises, from which they run a café/restaurant. The property consists of two levels of retail areas at the base of Macquarie Apartments at No. 155 Macquarie Street Sydney comprising: Shops P-10A, P-10B and P-10C on the lower ground level and shops M-01 and M-02 on the Macquarie Street level.

3 The questions raised by the cross-claimants arise from the defence to a cross-claim in which the cross-claimants are seeking an order for the payment of outstanding rent. They focus on the effect of a release given by the cross-defendants in a settlement deed which compromised the original claim brought by the cross-defendants. The release is at cl 2.3 of the settlement deed executed between the parties dated 3 December 2005:

Release by R & J Lyons, Lyons Brothers and Mr Talbot

Upon the execution of this Settlement deed, R & J Lyons, Lyons Brothers and Mr Talbot:

a) Release each of 155 Macquarie and Ranec from all claims, actions and causes of action (including any claim for costs), present and future, including and relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement.

b) agree that 155 Macquarie and Ranec may plead this Deed to bar any claim, action or cause of action (including any claim for costs) brought by R & J Lyons, Lyons Brothers and Mr Talbot relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement.

c) agree not to commence or maintain any claim, action or cause of action (including any claim for costs) against 155 Macquarie and Ranec relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement.

d) agree to indemnify 155 Macquarie and Ranec against any liability, loss or costs arising from a breach of paragraph (c); and
(e) agree to ensure that any person with whom it is associated in any way does not commence or maintain any claim, action or cause of action (including any claim for costs) against 155 Macquarie and Ranec relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement.

4 In the original claim (the “Easement Proceedings”) the plaintiffs had sought relief in respect of what has been described as “easement issues”. In the Settlement deed, the “Easement Proceedings” are defined to be:

...proceedings No 20065 of 2003 (now 1652 of 2006) in which R & J Lyons and Mr Talbot are the Plaintiffs (not including the Cross-claim, which is defined above), and the matters the subject of order 1 of the Notice of Motion filed by the Plaintiff in the Easement Proceeding and dated 25.11.2005.

5 Paragraph 2 of the defence to the amended cross-claim states:

a) it was a precondition to the Cross-Claimants’ entitlement to receive rent and other moneys payable under the Lease Agreements (to be implied from the terms of the Lease Agreements themselves or by custom and usage) that such moneys would not become payable, or alternatively would abate, unless and until practical completion of the fitout works which the Cross-Claimants were obliged by the Lease Agreements to undertake;

b) the Cross-Claimants did not provide practical completion of the fitout works until 18 January 2003;

c) by reason thereof, the Cross-Claimants did not become entitled to receive moneys payable by the Lyons parties, or alternatively the obligation of the Lyons parties to pay such moneys abated, until 18 January 2003, whereby the Lyons parties are not now liable to pay such moneys to the Cross-Claimants.

6 In further or in the alternative par 3 of the defence to the amended cross-claim states:

a) it is an implied term of the Lease Agreements that the Cross-Claimants co-operate with and act in good faith towards the Lyons parties in procuring and completing with due diligence and expedition the said fitout works, so as to provide to the Lyons parties the timely occupation of the premises and the benefit for their part of the Lease Agreements;

b) in breach of such implied term, the Cross-Claimants did not provide to the Lyons parties timely occupation of the Premises nor the benefit of the Lease Agreements until 18 January 2003;

c) by reason thereof, the Cross-Claimants are not at liberty to take advantage of their own default so as to set up their claim propounded by the Amended Cross-Claim.

Background

7 It is convenient to detail the history of the dispute between the parties. On 25 July 2000 the first cross-claimant, 155 Macquarie Street Pty Limited, and Lend Lease Developments entered an agreement for the sublease of the property to the cross-defendants (Lyons). On 24 July 2001 the cross-claimants and the cross-defendants entered into a sublease for a term of five years commencing on 16 July 2001 with three five year option periods. On the same date the parties entered into a deed of variation of the sublease. During August 2002 a dispute arose between the parties concerning the non-payment of rent. In response to this the cross-defendants sought interlocutory relief in Supreme Court proceedings 5342/02 to restrain the cross-claimants from enforcing a bank guarantee provided by the cross-defendants under the sublease until resolution of the unpaid rent dispute. These proceedings were settled on 24 December 2002 by the parties entering into a deed of release requiring the cross-defendants commence proceedings in relation to the damages claimed under the sublease. Pursuant to the deed of release the cross-defendants commenced proceedings in the Supreme Court seeking declaratory relief, damages and relief from rent payable for the period 1 February 2002 until 18 January 2003 (“the Easement proceedings”). As part of those proceedings the defendants/cross-claimants brought a cross-claim against the cross-defendants for arrears in rent. On 2 December 2005 the disputes in the Easement proceedings and the Gaming proceedings were mediated and a settlement was reached (excluding the cross-claim and the cross-defendants’ purported exercise of the option to renew the lease). On 3 December 2005 a settlement deed was executed by the parties.

8 There was a difference of view between the parties as to the meaning and extent of the releases in the settlement deed and these were heard by Windeyer J. On 22 June 2006 Windeyer J delivered judgment finding in favour of the cross-claimants and striking out part of the cross-defendants’ defence: R&J Lyons Family Settlement Pty Limited v 155 Macquarie Street Pty Limited [2006] NSWSC 625. Windeyer J came to the conclusion that the cross-defendants were not allowed to maintain by way of defence the matters pleaded in paragraph 2(a)(i) of the cross-claim and that upon true construction of the settlement deed dated 3 December 2005 the cross-defendants released the cross-claimants of all matters in pars 2a(i) of the defence to cross-claim so as to prevent them from relying on par 2a(i) of the defence. Paragraph 2a(i) of the then defence stated:

In answer to pars 23 and 24 of the Cross-Claim the Cross-Defendants say as follows:

(a) As to the period 1 February 2002 to 31 January 2003 the Cross-Defendants:
(i) Refer to and rely on the matters pleaded at paragraphs 11-20 of the Amended Statement of Claim and say that by reason of those matters the Cross-Defendants are not indebted as alleged or at all in relation to the Cross-Claimants’ claim for rent for the period 1 February 2002 to 31 January 2003;

9 The cross-defendants appealed against the judgment of Windeyer J. The matter was heard by Mason P, Hodgson and Tobias JJA. By its judgment of 29 June 2006, the Court of Appeal dismissed the appeal and upheld the judgment of Windeyer J: R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2006] NSWCA 177. Mason P interpreted the Settlement deed as precluding a broad range of future claims stating at [25]:

In my view “claims” in this context included claims, however framed, to rely upon matters pleaded by the claimants in those proceedings as they stood at that time as the basis for some entitlement in their favour. The expression is not confined to existing claims or claims to a monetary remedy.

10 Hodgson and Tobias JJA did not agree with Mason P that the settlement deed precluded all possible claims or defences. Hodgson JA noted at [33] that the defences as are now before me were not initially debated before Windeyer J. However he further noted that these defences rely in part on facts alleged in paras 11 to 20 of the further amended statement of claim (disallowed by the judgment of Windeyer J). Hodgson JA stated at [34]:

I think it is likely that the deed precludes even that reliance on facts alleged in paras 11 to 20, and that in any event there would be great difficulties in making good the existence of such a precondition or entitlement to abatement, having regard to general principles of the law of leases.

His Honour, however, found it unnecessary to rule finally on these issues.

11 Tobias JA was more positive regarding the potential of an arguable defence not excluded by the Settlement deed, stating at [39]:

... I would not construe cl 2.3 of the Deed of Settlement as denying to the claimants the right to raise a true defence to the opponent’s cross-claim for rent which does not rely upon a defence by way of set off or the like. Any such defence to fall outside cl 2.3 of the Deed must be one which, if established, deprives the opponents of their legal right to claim rent for the relevant period.

And further at [41]:

... when cl 2.3(a) is read in the context of cl 2.3(b), (c) and (e), and given the exception with respect to the opponent’s cross-claim in the definition of “Easement Proceedings”, it seems to me that the release in cl 2.3 should be construed as only barring a claim, action or cause of action brought by the claimants against the opponents and not a defence by the claimants to a claim brought by the opponents against them.

12 Following the decision of the Court of Appeal there was a further hearing by Windeyer J, on 24 July 2006, of an application by the cross-defendants to amend their defence to the cross-claim: R&J Lyons Family Settlement Pty Limited v 155 Macquarie Street Pty Limited, NSWSC, Windeyer J, 24 July 2006, unreported. Windeyer J discusses at pars [6] to [8] the proposed defence raised in pars 3 and 4, which was same as pars 2 and 3 of the defence to the amended cross-claim before me now. With respect to the proposed par 2 of the current defence, being that there was a pre-condition of entitlement to rent that such moneys would not become payable until the completion of fitout works. Windeyer J states at [7]:

While I do not consider there is any strength in the proposed defence it seems to me that I cannot say that it is doomed to fail. ... I am unable to say that it could not succeed, in my view the cross-defendants must be allowed to plead accordingly.

13 Similarly in relation to the proposed par 3 of the current defence, being that there was an implied term that the parties would co-operate in procuring and completing due diligence and expedition of the fit-out works, Windeyer J states at [8]:

Once again I am unable to say that this implied term as a matter of certainty does not arise. ... as I cannot say there is no issue to be tried on it I should allow it to proceed.

The evidence

14 The cross-claimants rely upon a number of affidavits in the proceedings. Of particular relevance to the issue of determination of separate questions is the affidavit of Margaret Anne Pavey sworn 16 August 2006. Ms Pavey is a special counsel at Henry Davis York, the solicitors retained by the Cross-claimants. Based upon her experience with the matter she has deposed to the anticipated length of trial if pars 2 and 3 of the defence are allowed to proceed to the full trial. She estimates that this will take approximately ten sitting days and will involve expert evidence. She indicates, however, that if the trial were to proceed with pars 2 and 3 excluded, it would take approximately one day consisting primarily of legal submissions. She further deposes that if the trial proceeds on the basis of the issues pleaded in pars 2 and 3 then the proceedings will not be ready to be set down for trial for another three months as the cross-claimants have not yet had the opportunity to file any evidence in relation to those issues.

15 The cross-defendants have not adduced evidence to counter this. Mr M L D Einfeld QC, appearing with Mr M J Cohen for the cross-defendants, contends, however, that the estimates made by Ms Pavey in purporting to give expert evidence fall short of the requirements of the Makita test as they do not identify the bases upon which the estimates were given: see Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705. I agree with Mr Einfeld’s submission. The evidence given by Ms Pavey does not explain the assumptions and facts upon which the estimates are based and I therefore I give them little weight. That is, Ms Pavey states conclusions but does not set out the basis for these conclusions.

16 The cross-claimants also rely upon affidavits of Katrina Anne Umlauff sworn 20 September 2006 and Margaret Anne Pavey sworn 19 October 2006, both of which provide their notes made during the hearing by Windeyer J on 24 July 2006, there being no transcript from those proceedings. I do not find these to be of relevance to my determination of the notice of motion before me. Another affidavit of Margaret Anne Pavey sworn 8 August 2006 is also relied upon, and with it was a folder of documents marked exhibit “MAP1” to that affidavit. I have considered these documents in arriving at my judgment.

Submissions

17 Mr M T McCulloch SC, appearing for the cross-claimants, in asking the Court to exercise its power to determine the two questions raised separately, submits that in doing so the court will be giving effect to the overriding purpose of the Civil Procedure Act 2005 being to facilitate “the just, quick and cheap” resolution of the proceedings. Referring to Tallglen Pty Limited v Pay TV Holdings Pty Limited (1996) ACSR 130, Mr McCulloch accepts that generally all issues in a proceeding are determined at one time, but in certain circumstances it is appropriate to determine issues as separate questions. One such circumstance is where the decision will obviate unnecessary and expensive hearing of other questions. He argues that the circumstances of the cross-claimants’ application clearly come within this category, contending that they are legal questions with restricted documentary evidence and would primarily involve the interpretation of the settlement deed. In his submission allowing pars 2 and 3 of the defence to the cross-claim to go to trial would result in a much longer hearing and additional costs.

18 Mr McCulloch contends that pars 2 and 3 of the defence to the cross-claim cannot be maintained as they are covered by the release given by the cross-defendants to the cross-claimants in the settlement deed. Relying upon the judgment of Mason P in the Court of Appeal, he submits that par 2 seeks to commence claims against the cross-claimants which were contained in pars 11 to 20 of the further amended statement of claim. Similarly, Mr McCulloch argues that par 3 of the defence relies upon allegations of the cross-claimants’ lack of co-operation and failure to act in good faith in procuring and completing the “fitout work” and therefore refers to and relies upon issues raised in the Easement proceedings.

19 Mr McCulloch further contends that the claim made by the cross-defendants is without merit, submitting that the views of Mason P and Hodgson JA in the Court of Appeal hearing and Windeyer J in the hearing of 24 July 2006 support this. In his submission, the lack of merit of this claim is a significant reason to determine it separately from the other remaining issues which he contends are simple.

20 Mr Einfeld submits that the cross-claimant’s application before me raises the same question as was decided in the judgment of Windeyer J delivered on 24 July 2006. Arguing that in those previous proceedings the cross-claimants opposed leave being granted to the cross-defendants to plead the defence now objected to in the hearing before me, Mr Einfeld submits that the interlocutory question has been determined conclusively.

21 In answer to Mr McCulloch’s submission that the separate determination of the questions would reduce hearing time and costs, Mr Einfeld submits that the bifurcation of the case will lead to greater expense and delay. He argues that there is no evidence to disclose an appropriate basis for separate determination nor that this would be dispositive of the proceedings.

22 Mr Einfeld submits that, as noted in the Court of Appeal, there was an important exception to the definition of what was meant by the “Easement proceedings” in the settlement deed. That is, the release given by the cross-defendants excluded the cross-claim, being the cross-claimants’ claim to arrears in rent.

23 As to pars 3 of the defence to the cross-claim, Mr Einfeld submits that where preliminary fitout works are necessary to achieve practical completion before the lessor can go into possession there is a duty to co-operate on the part of the lessee. He relies upon Secured Income Real Estate (Australia) Limited v St. Martins Investments Pty Limited (1979) 144 CLR 596 as authority for that proposition in which Mason J, quoting Lord Blackburn in Mackay v Dick (1881) 6 AC 251 at 263, stated the principle as follows (at 607):

as a general rule...where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.

24 Mr Einfeld thus submits that the cross-claimants breached their duty to co-operate as they delayed a year in the fitout works, which they were obliged to undertake, and therefore they cannot claim rent for that period as it was a result of their own conduct.

25 Mr Einfeld submits that this issue raises a substantive case which will involve the consideration of the contractual documents and evidence, both lay and expert. He submits that the application before me now is a veiled request for summary judgment and the order sought for the determination of separate questions should be refused. Mr Einfeld drew my attention to a passage from Callinan J’s judgment in Perre v Apand Pty Ltd (1999) CLR 180 (at 332):

Care does need to be taken in deciding whether to conduct separate trials of different issues. It sometimes happens that they may turn out to be productive of the disadvantages of delay, extra expense, appeals and uncertainty of outcome which they are intended to avoid.

26 Mr Einfeld submits that due to the history of the litigation between the parties there will inevitably be an appeal on the decision as to the determination of the separate questions resulting in further delay of the full hearing between the parties. In line with the statement of Callinan J quoted above Mr Einfeld submits that this should be avoided by the court’s refusal to exercise it’s discretion to order the determination of separate questions. Mr Einfeld cites Tepko Pty Ltd v Water Board (2001) 206 CLR 1 as further authority for this principle, the judgment addressing particularly the avoidance of separate trials where this raises additional potential for further appeals, which he submits would occur in this dispute, which he submits

27 Mr Einfeld notes that there is no submission by Mr McCulloch that the determination of these questions will be determinative of the proceedings. Arguing that they are determinative of only one part of the proceedings Mr Einfeld contends that, regardless of the outcome if the separate trial is allowed, the case must still go to trial on the two remaining issues, one of which is interrelated with the issues raised as separate questions.

28 Mr Einfeld finally submits that by severing the questions requested the court is asked to consider them in a vacuum of what the relevant evidence is to those issues. As, in his submission, this case is not a clear cut question of construction, and the issues are not entirely severable from the other questions in issue between the parties, Mr Einfeld argues that the proper course is to hear the whole proceedings at the same time.

Conclusion

29 The principles to be applied when applications are made for the separate determination of questions before trial are settled. The guiding principle is explained by Callinan J in Perre v Apand Pty Ltd, quoted in par [25] above. That case was referred to with approval in Tepko Pty Ltd v Water Board, in which the observation was made in the joint judgment of Kitto and Callinan JJ at [170] that there is an additional potential for further appeals to which the course of a trial on separate issues may give rise, noting that single-issue trials should only be embarked upon when their utility, economy and fairness to the parties are beyond question. In Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 the Court (Kirby J dissenting) said at [49]:

Courts have traditionally declined to state - let alone answer – preliminary questions when the answers will neither determine the rights of the parties nor necessarily lead to the final determination of their rights.

30 With these principles in mind I accept the submissions of Mr Einfeld. The separate determination of the questions will not be determinative of the proceedings, which will in any event continue on the cross-claim. And rather than shorten the proceedings the determination of the separate questions may, on the contrary, lengthen the proceedings since, as Mr Einfeld has noted, there is likely to be an appeal from any judgment on the separate question. In other words, there is the risk of delay and extra expense, which would be avoided if all issues went to trial together, from which there would lie only one appeal.

31 Tobias JA in the Court of Appeal expressed his view that the matters raised in pars 2 and 3 disclose an arguable defence to the cross-claim. It seems to me that the evidence is too intertwined to enable those questions to be properly isolated. I thus see no reason to bifurcate what is already a long drawn out litigation. The whole matter should proceed to finality in one trial hearing.

32 The orders of the Court are:

(1) The defendants/cross-claimants’ notice of motion dated 8 August 2006 is dismissed.

(2) The costs of the notice of motion shall be the plaintiffs/cross-defendants’ costs in the cause.

I hereby certify that the preceding 32 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd.

Associate

Dated: 13 November 2006

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14/11/2006 - File number on the coversheet - Paragraph(s) N/A