Retire One Day Pty Ltd v Sullivan Property Pty Ltd
[2017] VSC 243
•10 May 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2017 00657
| RETIRE ONE DAY PTY LTD | Plaintiff |
| v | |
| SULLIVAN PROPERTY PTY LTD | Defendant |
---
JUDGE: | JUDD J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 April 2017 | |
DATE OF JUDGMENT: | 10 May 2017 | |
CASE MAY BE CITED AS: | Retire One Day Pty Ltd v Sullivan Property Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VSC 243 | First revision: 5 June 2017 |
---
CONTRACT — Deed of Settlement — Term required performance of an order made by the Victorian Civil and Administrative Tribunal —Breach — Specific Performance — Damages.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Gallina | White and Mason Lawyers |
| For the Defendant | Mr M McKillop | MinterEllison |
HIS HONOUR:
The plaintiff, Retire One Day Pty Ltd, is the owner of a strata title lot within the building at 517 Flinders Lane, Melbourne. The defendant, Sullivan Property Pty Ltd, is also an owner of strata lots which include ground floor food outlets. In August 2014, the defendant sought approval from the owners corporation to install duct work to exhaust cooking fumes from the foot outlets. The proposed duct was to extend up the building façade and across the roof. As reasons for decision of the Victorian Civil and Administrative Tribunal[1] make clear, the approval process was inadequate. The Tribunal concluded that the owners corporation did not give effective consent. As a consequence, the Tribunal made the following order:
[The defendant] must remove from the Katherine Place façade and roof of the common property described in Plan of Strata Subdivision SP34396 and make good, the ducting and any associated works installed by the first respondent in or about 2014.
[1]Retire One Day Pty Ltd. v Sullivan Property Pty Ltd & Anor, 22 February 2016, R Buchanan Member.
The Court was informed that the defendant failed to comply with the order and contempt proceedings were commenced in the Tribunal. There was also a related proceeding brought by the owners corporation. In yet another related proceeding, commenced in this court, Mark David White, a director of the plaintiff, sought relief in respect of alleged defamation by Brendan Sullivan, a director of the defendant. Thus, within a few months of the order made by the Tribunal, there were four separate proceedings relating to the construction of the duct work.
By a Deed of Settlement dated 25 October 2016, all four proceedings were compromised. Terms included the payment of a sum to Mr White and the plaintiff (clause 3.1), the payment of costs (clause 4), an apology (clause 5), and importantly, the removal of the duct work. Clause 6 provided:
Within 90 days of the date of execution of this Deed [the defendant] shall complete the steps required by Order 1 of the orders made by VCAT in the VCAT proceedings.
The terms of ‘Order 1’ are set out above.
Clause 8.1 of the Deed dealt with the consequence of a failure by the defendant to pay the settlement sum mentioned in clause 3.1. Clause 8.3 provided:
Further Sum in respect of duct
If SP fails to comply with clause 6 of this Deed, ROD may give written notice of default to SP. At the expiration of 7 days after service of this notice, if the default remains unremedied, SP shall pay to ROD the further sum of $200,000 (Further Sum). If SP fails to pay the Further Sum, ROD shall be entitled to commence proceedings to obtain payment of the Further Sum and SP and Mr Sullivan consents to the issuing of such proceedings and to judgment against SP for the Further Sum, or, if any part of the Further Sum has been paid, then for such amount as remains unpaid, together with interest and the costs of entering such judgment (Further Judgment Debt).
Between the dates of the Deed of Settlement and 23 January 2017, the defendant removed most, but not all, of the 2014 duct work, and replaced it with another, slightly smaller duct. The new replacement duct followed the general line of old duct work that had been in place since around 1991. Photographs tendered in evidence disclosed that the duct work installed in 2014, had been constructed on top of the old (1991) duct. The 2014 duct work had been designed, and probably installed, by a company known as Cav-Air. In his reasons for decision, the Tribunal member said:
15.Kav-Air’s plans called for a large duct to run up the Katherine Place façade of 517 Flinders Lane and then run along the roof of the building, with a large extractor fan built into the ducting. The route which Kav-Air’s duct would follow was in close proximity to another, existing duct. The existing duct is 800 mm wide and 400 mm deep. The duct proposed by Kav-Air (and ultimately built) was 1 metre wide and 1 metre deep.
16.As I observed on the view, the existing duct on the roof is a modest affair, running along the side of the roof. It is painted black and as it is only 300 mm high and is attached flat onto the roof, is not particularly noticeable. By contrast, the Kav-Air duct work on the roof straddles the existing duct and according to Mr Herniman, the architect who gave evidence on behalf of the applicant, is 1.8 metres high and runs some 17 metres along the roof.
17.The roof of 517 Flinders Lane is largely given over to recreational uses. It is dominated by a tennis court with an artificial grass surface and there is a seating cabana, as well as pot plants, creepers on the tennis court fence and a barbecue area. It is, in short, a surprising oasis in the CBD.
Fans are required to propel exhaust fumes through the duct work. They may be located at the origin of the fumes, and push, or towards the end, and extract fumes. Fans, wherever located, can be noisy. The evidence did not establish whether there was a fan in the 1991 duct work, and if there was, where it was located. There was no evidence that a fan located on the roof (if there was one) in the old duct work was operating, or whether the 1991 duct was functional at all. The installation of new duct work in 2014 would suggest that the old system was not functioning, or was in some way inadequate.
John Herniman, an architect called to give evidence on behalf of the plaintiff, said the fan installed as part of the 2014 duct was very noisy, and detrimental to the amenity of the rooftop recreational area. He also said that he did not observe a fan installed in the 1991 duct on the roof. Had the old 1991 duct utilised an operational rooftop fan, I would have expected the defendant to adduce evidence about it. While the 2014 duct work has been mostly removed, the new fan has been retained and fitted into replacement duct work located on the roof following the same general line as the 1991 system. Thus, much of the detriment to the amenity of the recreational area is continuing.
When considering the appropriate order to be made in the VCAT proceeding, the Tribunal member had regard to the significance and impact of the 2014 duct work to all other lot owners. He said:
The negative effects of the duct work are very significant and impact both the applicant and all other lot owners. Viewed through the prism of Shelfer’s ‘good working rule’, this is not a situation where damages would be an appropriate remedy. The injury to the applicant’s legal rights is large, not small. The injury is not capable of estimation in money terms, nor is it one which can be adequately compensated by a small money payment. The evidence given by the parties about the diminution in value of the applicant’s unit, caused by the presence of the duct work, only gives part of the picture and does not account for intangible, but important things, such as the degraded appearance of the Katherine Place façade and the diminished amenity of the rooftop area. Finally, while not without costs to Sullivan Property, an order that Sullivan Property remove the duct work would not be oppressive; there would be a cost, but not massive and an alternative solution to the problem of ventilating Sullivan Property’s ground floor lots is available.
...
Relief: finding
48.I am of a clear view that it is fair to require Sullivan Property to remove the offending duct work, rather than to order it to pay damages to the applicant. In coming to that conclusion, I am mindful that the duct work has a significant, material and adverse impact on the applicant (and on the other lot owners); that an alternative solution is available to Sullivan Property; and that this proceeding arose because of Sullivan Property’s failure to disclose the true nature of its plans for the roof and Katherine Place façade of 517 Flinders Lane. I will order accordingly. I will also reserve the question of costs, with liberty to the parties to file submissions prior to a determination in chambers.
The defendant did not suggest that any consent had been sought or obtained from the Body Corporate to install the replacement duct work in 2016, incorporating the fan from the 2014 system. It was common ground that any complaint by the plaintiff in relation to the most recent work would necessarily involve the Body Corporate, and if approval is not forthcoming, an application to VCAT. Nor did the evidence disclose what, if any, knowledge the plaintiff had, prior to 23 January 2017, of the installation of the replacement duct work. Suffice to say on that day, the plaintiff wrote to the defendant’s solicitor complaining about a breach of the Deed of Settlement. That letter is set out in full below:
Dear Ms Scott,
We refer to the Terms of Settlement of 25 October 2016 that was reached in this matter between our clients.
Clause 6 of the Terms of Settlement called upon your client to remove the ductwork pursuant to order 1 of the VCAT Orders of 22 February 2016.
Your client whilst purporting to remove the ductwork referred to in the VCAT order has now constructed modified ductwork in its place. This act clearly goes against what was intended by the orders of the VCAT and is against tenor, effect and spirit of the order and the settlement.
Clause 8 provides that if your client does not remove the ductwork including the new ductwork which is now being erected in place of the old ductwork, Sullivan Property Pty Ltd is to pay our client (Retire One Day Pty Ltd) $200,000 on or before next Monday, 30 January 2017. We confirm that your office already has details of our trust account and should you require those details again, please advise.
We refer to the judgment of Member Buchanan and the reasons he provided with respect to the removal of the ductwork on the roof. The placement of the modified ductwork on the roof as we have said is against the tenor, effect and spirit of the order and settlement and would appear to be yet again another instance of your client’s contempt of the orders that have been made.
We attach photographs taken this afternoon of the ductwork as it has been modified on the roof which is self-explanatory.
Should you wish to discuss this matter, please feel free to contact Kelvin Tay.
We await your communication.
The plaintiff’s letter was sent by email at 5.24 pm on Monday, 23 January 2017. The defendant suggested in oral submissions that the plaintiff ‘jumped the gun’, although such a complaint was not made in its points of defence or written submissions. In oral submissions the defendant argued that the plaintiff had failed to give the defendant the full benefit of the 90 day period within which to comply with its obligation under clause 6. There was a further complaint about the adequacy of the notice.
The defendant’s solicitor responded, on 30 January 2017, contending that the defendant had complied with clause 6, having removed the relevant ducting and all associated works installed in 2014. That was incorrect. The defendant contended that it had merely upgraded pre-existing duct work on the roof and that ‘[as] no part of the materials or works associated with or installed as part of the 2014 Ductwork were used by [the installer], that there is no impact on the pre-existing noise level and that the replacement parts are located in the same space as the pre-existing parts’.
It was common ground at trial that the fan unit installed in the 2014 duct work was not removed, but deployed and installed as part of the replacement duct work. It was also common ground that, as at 23 January 2017 the defendant had not completed its ‘make good’ obligation in some respects, including the installation of compliant hand rails, some finishing works and debris removal.
On 24 February 2017, the plaintiff commenced this proceeding by originating motion to enforce clause 8.3 of the deed. It sought an order that the defendant pay the sum of $200,000 and costs. During the course of the trial the plaintiff applied for and was granted leave, unopposed, to amend its claim to include a claim for specific performance of clause 6, and an alternative claim for damages for breach of the deed.
There were three questions for determination in this proceeding:
(1)whether the defendant had breached its obligation under clause 6;
(2)whether the plaintiff had complied with its obligation under clause 8.3 to give written notice of default to the defendant; and
(3)whether payment of the sum of $200,000 under clause 8.3 was an unenforceable penalty.
Breach
The defendant had agreed to comply with Order 1 within 90 days of the date of execution of the deed. It was common ground that not all of the 2014 duct work had been removed. It was also common ground that at least some of the ‘make good’ obligation had not been satisfied. While there was a dispute about the need to carry out some items of the work, and about the adequacy of the work that had been done, I am satisfied that the defendant had failed to comply with the terms of clause 6 within the prescribed period of 90 days. Its breach is continuing.
While the defendant’s conduct in replacing the 2014 duct, without first having obtained approval from the Body Corporate, was provocative, and may result in further disputation, such conduct did not, itself, constitute a breach of clause 6. But, by incorporating some of the 2014 duct work within the replacement system installed, following execution of the deed, the defendant failed to remove the whole of the 2014 duct system. There are also outstanding make good requirements, such as the installation of a new handrail.
Notice and Penalty
The defendant contended that the plaintiff failed to give the notice required under clause 8.3, and did not trigger the plaintiff’s entitlement to the ‘Further Sum’ of $200,000. It also contended that the agreed sum was an unenforceable penalty. It is convenient to deal with the notice and penalty questions together.
There were two limbs to the defendant’s challenge to the notice, which was constituted by the plaintiff’s letter of 27 January 2017. First, the defendant contended that the plaintiff had ‘jumped the gun’ by serving notice of non-compliance one day early; and second, the notice failed to provide sufficient detail of the breach to enable the defendant to respond within the time allowed.
The plaintiff’s notice, by letter dated 23 January 2017, identified the obligation (to remove the 2014 duct work) and alleged the defendant’s non-compliance, by words and photographs. The defendants complained that the letter failed to identify the ‘make good’ defects, thus failing to define, with sufficient precision, the work necessary to rectify the default. That complaint, however, overlooked the substantive non-compliance with the terms of clause 6, constituted by the defendant’s failure to remove the fan unit, and by reactivating it as part of the replacement duct work.
I am not persuaded that service of the ‘notice’ by email at 5.24 pm on 23 January 2017 was short service for the notice for the purpose of clause 8.3. The defendant’s breach had occurred sometime before that date, and was continuing. The plaintiff would have been entitled to give notice under clause 8.3 once it became apparent that the defendant did not intend to comply with clause 6 within the prescribed time. I am satisfied that the plaintiff gave an effective notice under clause 8.3. But the matter does not end there. In my opinion, the obligation to pay $200,000 was a penalty, and unenforceable.
The plaintiff conceded that the obligation to pay the ‘Further Sum’ mentioned in clause 8.3 was a negative inducement to perform, but relied on a passage from the judgment of Gageler J in Paciocco v Australia and New Zealand Banking Group Ltd[2] to the effect that even a strong negative incentive to perform was not enough to justify the conclusion that the stipulation served only to punish.
[2][2016] HCA 28 at para 164.
This is not a case involving a negative incentive of the kind under consideration by the High Court in Paciocco.[3] It was not as if the Further Sum was intended as compensation for loss of amenity should the defendant fail to remove the 2014 duct. The defendant was obliged to remove it all. The plaintiff was not authorised to undertake the task if the defendant refused to do so. It retained a right to enforce clause 6. If the defendant failed to perform its obligations within the prescribed time, the plaintiff would be entitled to enforce compliance and recovery of the Further Sum. Another possibility was that the defendant had commenced but failed to complete the work, by failing in some aspect of its ‘make good’ obligation. In that event, the plaintiff would have succeeded in having the duct work removed, and the Further Sum recovered.
[3](2012) 247 CLR 205.
These examples point to a payment obligation disassociated from the consequences of breach.[4] The High Court has favourably considered the principles enunciated by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd[5] while accepting that they should not be understood as a limiting rule.[6]
[4]Lord Elphingstone v Monkland Iron and Coal Co Ltd (1886) 11 App Case 332, 342.
[5][1915] AC 79, 86–87; Paciocco [5]; Andrews v Australia and New Zealand Banking Group Limited (2012) 247 CLR 205.
[6]Paciocco [30].
The obligation to make the Further Payment bore no relationship to the potential loss suffered as a consequence of the breach. A breach may have involved the failure to act at all, or a failure to remove some part of the 2014 duct work, or a failure to make good.
The rights granted by strata owners to the Body Corporate seem inconsistent with any occasion for self-help in relation to or over common property. The duct belonged to the defendant. It was not suggested by the plaintiff that it would have been entitled to remove the duct work at its cost. The parties’ focus at trial, on the cost of remedial work, was deployed as a measure of the magnitude of the breach, although the plaintiff also sought to favourably compare the cost of removal and repair with the amount of the Further Payment. The plaintiff was not, however, exposed to any such cost. It is only if a court refused to require the defendant to perform its obligation under clause 6 that any long term harm would be suffered by the plaintiff in the form of loss of amenity to the rooftop leisure precinct. In that event, the plaintiff would be entitled to an award of damages, which may be more or less in the sum of $200,000.
The terms of the deed do not limit the plaintiff’s right to enforce clause 6 or seek compensation. The events that occurred demonstrate the complete disconnect between the amount payable under clause 8.3 and the consequence to the plaintiff of breach. As the plaintiff correctly conceded, the payment was a negative inducement. It was also so far out of proportion to the plaintiff’s possible interest in performance that it amounted to deterrence by threat of punishment.[7]
[7]Paciocco [164].
Conclusion
I am satisfied that the defendant is in material breach of clause 6 of the deed. There are relatively minor matters of repair works and the completion of a safety rail to be completed. The major breach is the defendant’s failure to remove the fan unit, the operation of which is injurious to the enjoyment of the rooftop leisure facility.
I was informed that there were other options available to the defendant to extract air from the food outlets. The Body Corporate has a role and responsibility in approving an appropriate system. It is not for this court to intrude on its role or responsibility, or that of the council or other agencies which have a legitimate interest in such additions to a building. The issue before this court is confined to the enforcement of the deed.
The plaintiff has foreshadowed an application for the alternative relief should the Further Payment be found to be a penalty. It will seek specific performance and/or damages. In my opinion this is an appropriate case for an order that the defendant fully perform its obligation under clause 6. That will require the removal of the offending fan unit. The plaintiff may, of course, elect to claim damages in which event an assessment will be required. I am satisfied that the plaintiff has and will continue to suffer some loss of amenity by the operation of the fan unit, deployed from the 2014 duct work, and installed into the replacement duct. If the plaintiff elects to claim damages, directions will be given to facilitate an assessment.
0
2
0