Rossi Recycling Pty Ltd v Buckland Valley Pty Ltd
[2019] VSC 825
•13 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2019 05638
| ROSSI RECYCLING PTY LTD (ACN 056 188 562) (As trustee for Rossignoli Property Trust) | Plaintiff |
| v | |
| BUCKLAND VALLEY PTY LTD (ACN 059 814 961) (As trustee for the Rossignoli Trust No 3 and the Heatherdale Property Trust) | First Defendant |
| PAUL ROSSIGNOLI | Second Defendant |
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JUDGE: | Macaulay J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 December 2019 |
DATE OF JUDGMENT: | 13 December 2019 |
CASE MAY BE CITED AS: | Rossi Recycling Pty Ltd v Buckland Valley Pty Ltd and Anor |
MEDIUM NEUTRAL CITATION: | [2019] VSC 825 |
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LEASE – Relief against forfeiture – Property Law Act1958 (Vic) s 146(2) – Whether exceptional circumstances exist to warrant departure from the usual rule that relief be granted if arrears of rent are paid – Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584.
EQUITY – Interim and interlocutory injunctions – Where proceeding for specific performance of a deed of settlement under which lessor to grant a fresh lease to lessee upon determination of market rental – Where tenant failed to pay rent under an existing lease and lessor took possession – Serious question to be tried – Balance of convenience.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr M Barrett | Dunemann Sutherland Pty |
| For the Defendants | Mr D Farrands | Slater & Gordon Limited |
HIS HONOUR:
On 6 September 2019, Glen Rossignoli, Paul Rossignoli, Rossi Recycling Proprietary Limited and Buckland Valley Proprietary Limited entered into a deed of settlement (deed) resolving two proceedings in this court to which they were parties. Evidently, the implementation of that deed has not gone well.
Rossi Recycling (Rossi) has filed a generally indorsed writ by which it commences a fresh proceeding against Buckland Valley (Buckland) and Paul Rossignoli, claiming they have each breached the deed. The relief Rossi seeks includes specific performance of the deed, under which it was entitled to a new five year lease over premises from which it conducts its waste management business, and interlocutory and interim injunctions to restrain the defendants from interfering with its occupancy of those premises. Evidently, the defendants maintain that Rossi has fundamentally breached the deed; that they have accepted its repudiation thus it is terminated; and that Rossi has forfeited a pre-existing lease by failing to pay rent.
Rossi has brought an interlocutory application as foreshadowed. The orders it seeks by summons filed 11 December 2019 are:
(a) The defendants forthwith give possession to the plaintiff of the properties referred to in the Deed of Settlement (as particularised in the summons);
(b) Interim and interlocutory injunctions restraining the defendants, until further order, but subject to the terms of any lease subsequently entered between the plaintiff and the first defendant, from interfering with the plaintiff’s possession and quiet enjoyment of those properties.
Glen is the son of Paul. Paul controls Buckland which owns land at the corner of Heatherdale and Palmerston Roads in Ringwood. On that land Rossi conducts its waste management business.
The deed provided that Paul would transfer his interests in Rossi to Glen, and that Buckland (which is controlled by Paul) would enter a commercial lease with Rossi over the land (or part of it), and permit Rossi to occupy some office space for six months without cost. Reference was made to the fact that an “existing lease over the property” would terminate upon entry into the new lease (clause 3), implying that the “existing lease” would continue to operate until that time. Rental under the new lease was to be determined by an independent valuer to be appointed by the parties by agreement or, if no agreement was reached, by the Australian Property Institute.
Since the deed was entered, Rossi has continued to operate its waste management business on the land. In September, letters were exchanged between solicitors for the parties regarding the preparation of a draft lease and the appointment of an independent valuer. Each side proposed different valuers, no draft lease was prepared and it seems nothing further happened until late November. No rent was paid in the meantime.
On 18 November, Buckland's solicitor sent a notice of breach to Rossi alleging that it was in breach of a lease dated 1 October 2019 for the premises on the “first floor office area factory 27, unit 38 and unit 39, 87-91 Heatherdale Road Ringwood and S3 industrial 1 area (with the exception of 800 meters in lots 13 and 14 on north side of the property)”, collectively referred to as “the premises”. Amounts of rent were claimed for the months of October and November in the sum of $27,909 per month.
Rossi’s solicitors responded on 21 November denying the validity of the notice, claiming no invoice had ever been received for any rent and denying the existence of any lease of 1 October 2019. Rossi proposed that the parties agree to the nomination of a valuer by the President of the Law Institute of Victoria, suggested the market rental for the premises was “in the region of $200,000 per annum” and offered to pay rental at the rate of $16,666 per month until an appropriate rental was determined by a valuer. Rossi said it would pay arrears of rent at that rate for the past two months if Buckland was prepared to accept that arrangement.
Buckland’s response was to send a second notice of breach, dated 22 November, alleging failure to pay rent for the two months in the sums of $29,304.45 respectively. By covering letter from its solicitors, Buckland said that the first notice was premised on a lease commencing 1 October 2016, but if such a lease was not found to be in existence, it relied upon a “monthly tenancy” in which case the second notice was relied upon. No response was made to Rossi’s proposals put in its letter the previous day.
On 4 December, Rossi wrote to Buckland disputing any monthly tenancy or the “purported legitimacy of a lease dated 1 October 2016”. It referred again to its proposals for resolution of the impasse made in the letter of 21 November.
Both notices given by Buckland gave Rossi 14 days to remedy its alleged default in not paying rent. Both notices had expired by the weekend of 7/8 December without any rent having been paid.
Glen’s affidavit (sworn 10 December) describes events that occurred on Sunday 8 December, Monday 9 December and Tuesday 10 December. In substance, on Sunday, Paul (on behalf of Buckland) changed the locks at the premises preventing Rossi from conducting its business; on Monday, Glen removed the replacement locks so the business could be conducted; and on Tuesday, Paul again replaced locks on the premises and this time installed security officers to prevent Glen’s entrance to the premises. Police were called on both occasions but ultimately said they would take no action as it was a civil matter.
Rossi evidently employs 21 people. This time of the year is said to be a very important time for the business with trade of about $30,000-$40,000 per day. Rossi is concerned it will suffer reputational loss with its customers every day the lockout continues and, in the meantime, has to continue paying its employees.
Paul affirmed an affidavit in opposition to Rossi’s application. In substance, he asserts the existence of a 2016 lease which he contends has previously been acknowledged by Glen, albeit that it is unexecuted. Rent was paid under the terms of that unexecuted lease between 2016 until September 2019. Much is said about Paul’s belief that Rossi is an unsatisfactory tenant, that it is insolvent, that Glen has conducted himself in the past in certain underhanded ways, and that he, Paul, now wishes to sell the land and has instructed agents to do so.
The Court has jurisdiction to make orders both by way of relief against forfeiture pursuant to s 146(2) of the Property Law Act and in the exercise of its general equitable jurisdiction to grant an interlocutory injunction preserving the status quo pending the hearing and determination of a proceeding. In broad terms, such an injunction might be made, in the exercise of the court’s discretion, where there is a serious question to be tried as to the plaintiff’s entitlement to the relief it seeks in the proceeding, the balance of convenience favours making such an order and damages would not be an adequate remedy.
By its application, Rossi applies to the court for relief against the forfeiture of its leasehold estate in the property. In doing so Rossi implicitly acknowledges a lease and that, without relief against its forfeiture, its leasehold interest is at an end. Rossi openly offered in court to pay the arrears of rent at $29,304.45 per month for October, November and December and undertook to pay rent in the same monthly sum until the determination by an independent valuer of any different market rental, under a new lease in accordance with the deed of settlement.
Where a tenant undertakes to pay arrears of rent (and perform any other breached covenants), relief against forfeiture should be granted, usually as of course, and refused only in exceptional circumstances.[1] The defendants here contended that there are exceptional circumstances that warrant that refusal. I disagree.
[1]Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584, 590 and the cases there cited.
The defendants relied upon several grounds to attempt to justify its submission of exceptional circumstances: that is,
(a) the alleged insolvency of Rossi; and
(b) a reasonable likelihood Rossi that will not be able to pay rent in the future.
Additionally, the defendants submitted that the material established misconduct on the part of Paul such that it would be inequitable to grant him (and by extension, Rossi) the relief they seek.
It is imperative in this case to understand and keep steadily in mind the context in which this current dispute has occurred. As recently as September, the defendants agreed to resolve proceedings in which the alleged insolvency of Rossi – and the accuracy of the accounts of Rossi hitherto prepared by accountants engaged by Paul – were very much in dispute. It is to be assumed from the bargain reached that the defendants were prepared to have Rossi as its tenants at whatever market rental was determined by an independent valuer, whatever concerns they may have had about the alleged insolvency of Rossi.
Since then, each side has taken decisions which I assume they thought were to their respective advantage. Paul took no step to prepare a lease, as he was bound to do, and allowed a stand-off to continue in the appointment of an independent valuer to determine a market rental; Glen similarly allowed that stand-off to continue and meanwhile thought it appropriate not to pay any rental until he belatedly offered to pay a sum in line with his view of the true market value. In any event, he will now pay the arrears for the past three months at the ‘full’ rate as stipulated by the terms of the unexecuted 2016 lease.
I accept that the accounts of Rossi for the financial years ending 30 June 2017, 2018 and 2019 do not paint a particularly healthy picture, showing trading losses and negative equity. But those accounts are disputed and whatever the true position is about the company, since September probably little has occurred to change the position from that which the defendants knew or would have anticipated. Given that the defendants were prepared to enter a lease with Rossi in September, claiming that exceptional circumstances exist in December that warrant denying relief against forfeiture on the basis of insolvency or an uncertain capacity to pay future rent is rather hollow.
As for the arguments about alleged misconduct, some of the conduct relied upon preceded the settlement and is not new; other matters are, in my view, likely to be contestable, relatively minor and mainly reflect the terrible personal relations between the two men. On the present material, I would not regard the alleged misconduct of Glen as making it inequitable for Rossi to obtain relief against forfeiture.
Accordingly, I am not persuaded that exceptional circumstances exist to warrant a departure from the usual rule that relief against forfeiture be granted when the arrears of rent will be paid. Nonetheless, I require the actual payment of the rent before granting the interlocutory injunctions sought in support of that relief, with interim orders having been put in place for 24 hours to enable proof of the payment to be produced.
Apart from granting the relief against forfeiture on the basis of the usual rule, other equitable considerations provide additional positive reasons for granting the injunctions sought. There is a serious question to be tried in the proceeding whether the defendants have breached the deed of settlement and Rossi is entitled to an order for specific performance of the deed which would entitle it to the execution of a new lease at market rental. In my view the balance of convenience strongly favours the maintenance of the status quo, by which I mean Rossi’s continued occupancy of the premises. Damages would not be an adequate remedy for Rossi should it ultimately succeed in the proceeding, nor was it contended they would be.
Rossi’s business depends on its occupancy of the property; it employs 21 people whose livelihoods, presumably, depend at least to some degree on the continued conduct of that business; currently, in its traditional pre-Christmas busy-time, the business is losing takings of around $30,000 a day while it is held out of the premises; and, not being able to conduct its business is likely to jeopardise Rossi’s continued existence.
On the other hand, there is no evidence of any significant financial detriment facing either defendant should Rossi continue in occupation of the premises. The defendants apparently wish to sell the land, which is said to be very valuable. Selling the land will enable repayment of a large sum to Paul. But there is no evidence of his need for that money at this time, and to the extent that having Rossi as a tenant is any impediment to selling the land or getting the best return, again, only three months ago the defendants agreed to Rossi having a five year lease over the land with four five‑year renewals. In making the deed, Paul must have factored in, to a very large degree, the matters he now claims would be his prejudice in not being able to take possession of the land clear of Rossi’s tenancy. I do not regard it as equitable that he should be able to take advantage of Rossi’s failure to pay three month’s rent, which Rossi now undertakes to pay, as the grounds for being able to secure a radically different outcome to the one he agreed to three months ago, to the substantial detriment to Rossi.
Upon proof of payment of the arrears before the expiry of the interim orders I announced at the conclusion of oral argument, I will order, pending the hearing and determination of this proceeding or until further order, that:
(a) The defendants give possession to the plaintiff of the properties referred to in the Deed of Settlement dated 6 September 2019 identified as:
(i) The top floor of Unit 27, 89 Palmerston Road Ringwood;
(ii) That part of the plan attached to the Deed of Settlement dated 6 September 2019 marked yellow.
(b) The defendants are restrained until further order, but subject to the terms of any lease that may subsequently be entered between the plaintiff and first defendant, from interfering with the plaintiff’s possession and quiet enjoyment of:
(i) The top floor of Unit 27, 89 Palmerston Road Ringwood;
(ii) That part of the plan attached to the Deed of Settlement marked yellow.
When finalising these orders, additional directions will be given concerning the further conduct of this proceeding.
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