Royal Parade Hotel Pty Ltd v Calmot Pty Ltd
[2004] VSC 331
•24 August 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
No. 7623 of 2004
| ROYAL PARADE HOTEL PTY LTD | Plaintiff |
| v | |
| CALMOT PTY LTD | Defendant |
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JUDGE: | OSBORN J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 24 AUGUST 2004 | |
DATE OF RULING: | 24 AUGUST 2004 | |
CASE MAY BE CITED AS: | ROYAL PARADE HOTEL PTY LTD v CALMOT PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 331 | |
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Application for interlocutory injunction – Possession of a hotel – No bona fide set-off exceeding arrears of rent – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D. Bailey | Freehills |
| For the Defendant | Mr P. Hayes | Kliger Partners |
| Sheriff | Mr R Ellis a Solicitor |
HIS HONOUR:
I have before me two proceedings instituted respectively by Royal Parkville Hotel Pty Ltd, which I shall refer to as the hotel company, and Mr and Mrs Borg who are the persons who control the hotel company. In the first proceeding the hotel company seeks an interlocutory injunction restraining it's landlord from taking possession of the hotel situated at 441 Royal Parade, Parkville.
It is common ground a) that the tenant is in arrears with respect to the payment of rent in excess of $1 million; b) that the landlord served a notice terminating the lease in accordance with its conditions on 17 August 2004.
The plaintiffs however claim to be entitled to an equitable set off which would extinguish the arrears of rental. They rely upon the principles stated in British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd[1]. In that case the defendants admitted owing some ₤540,000 by way of arrears of rent, but claimed that amount was subject to a set off in respect of a counter claim relating to outstanding repairs to the premises.
[1](1979) 2 All ER 1063
It was held that an unliquidated demand could give rise to an equitable set off against a claim for a debt, and that as unliquidated damages by their nature remain unquantified until an award is made, there was no reason why a demand could not be used as a set off merely because it was unquantified. If the defendant claimed unliquidated damages and bona fide claimed that they would exceed the amount of the plaintiff's claim, he was entitled to assert a set off amounting to a complete defence.
The principle in issue was expressed by Forbes J at p.1073 of the report after a careful consideration of authority as follows:
"A consideration of all these cases leads me to the conclusion that except in cases of distress or replevin equity has never refused to interfere to protect a tenant whose landlord was bringing proceedings based on non-payment of rent, if the tenant had a bona fide cross-claim for unliquidated damages against the landlord, provided that he was not covered by an existing common law remedy and that the ordinary rules pertaining to equitable set off were obeyed. I refer to these earlier in this judgment and they were succinctly put by Parker J in The Teno:
‘Where the cross-claim not only arises out of the same contract as the claim but is so directly connected with it that it would be manifestly unjust to allow the claimant to recover without taking into account the cross-claim, there is a right of set-off in equity of an unliquidated claim.’"
The proviso to which I have just referred was the subject of consideration by the Full Court in Indrisie v General Credits Ltd[2] where the court examined the notion of equitable set off in the context of a claim under a guarantee. In the present case, the defendant's cross-claim is based upon allegations of a failure by the landlord to refurbish the premises in accordance with conditions of the lease. It is clear that the lease did require the landlord to undertake substantial refurbishment within the premises. But there is a dispute of fact as to whether the landlord has in fact failed to complete or substantially complete the refurbishment works contemplated by the terms of the lease.
[2][1985] VR 251
The plaintiff asserts that as a result of the failure to complete refurbishment works it has lost income. Nevertheless, I am not satisfied on the material before me that the plaintiff has a bona fide cross-claim which would extinguish or indeed substantially extinguish the defendant's claim to arrears of rent.
In this regard I note the following matters. Firstly, the defendant has an existing judgment for arrears of rent in excess of $700,000 which judgment was obtained in 2003. Secondly, the principal breaches of agreement alleged on behalf of the plaintiff relate to the period of occupation prior to this judgment. Thirdly, the principal continuing defects complained of relate to hot water supply to hotel rooms and serviceability of lifts. These are not matters which encourage a prima facie conclusion that the hotel was in a substantial state of disrepair.
Fourthly, the plaintiffs made an open offer of over $700,000 in attempted settlement of the defendant's claim to arrears of rent by way of letter delivered in July of this year. Lastly, the plaintiffs' claim is by way of set off based upon a bare estimate of loss of gross revenue which is not substantiated in any satisfactory way and is not quantified in a way which enables a sensible view to be reached as to net loss.
It follows that I do not accept that there is a sufficiently serious question to be tried to warrant the injunction sought.
The landlords’ claim, which is based on an existing judgement for substantial arrears of rent and admitted further arrears of rent coupled with a notice given in accordance with the lease, has not been impugned with credible evidence as to the existence of a bona fide set-off which would extinguish the arrears. Further the set-off has not been raised by way of claim to the Court until after the lease was on its face validly terminated.
In the alternative to its claim for an injunction the plaintiff has sought relief against forfeiture. This claim is made in the writ although it does not form the subject matter of a summons before me. Such a claim can be made despite lawful re entry.[3] The plaintiff's claim is made on the basis that although the plaintiff does not offer to pay the arrears of rent, the circumstances of the case are special. I do not accept that the circumstances of the case are sufficiently special to warrant relief against forfeiture in the absence of the payment of arrears of rent, for the same reasons that I do not accept the plaintiffs have a bona fide claim to a set off which exceeds the arrears of rent. The special circumstances which are relied on are essentially the existence of this alleged set off.
[3]Direct Food Supplies (Vic.) Pty Ltd v DLV Pty Ltd [1975] VR 358.
I turn then to the second proceeding. In that proceeding Mr and Mrs Borg seek an order that a warrant for seizure and sale, obtained by the landlord in the proceeding in which it has obtained judgment for arrears of rent, be removed from the plaintiff's title. They further seek an order that the Sheriff be restrained from proceeding with the sale of the property, the subject of the notice of intended sale dated 28 July 2004, which sale is proposed on 25 August 2004.
The summons is put forward on the basis that the court should be satisfied of the matters identified by Dodds Streeton J in the case of Capital Finance Australia Ltd v O'Bryan Group Pty Ltd and Ors[4]. At paragraph 36 of her judgment, Her Honour stated the opinion that if a plaintiff were to establish the futility of a warrant of sale and seizure that would depend in a case of the type here in issue, firstly upon there being no reasonable likelihood that the judgment creditor would recover any payment from the sale because the value of the land was such that the deduction of the proceeds necessary to satisfy priority interests would leave a nil amount, and secondly that the maintenance of the warrant would not be effective to result in payment of the judgment creditor’s claim by the judgment debtor from other resources.
[4][2003] VSC 355
In the present case, the Commonwealth Bank of Australia has a first mortgage over the property in issue. There is evidence that the amount due under that mortgage exceeds $1 million and that the property has already been sold, subject to the warrant for a price of some $950,000. The difficulty which confronts the plaintiffs is that the Commonwealth Bank of Australia is also the holder of security over other assets, including fittings and chattels at the hotel.
There is evidence that these chattels are of some substantial value and the judgment creditor has in fact made an offer of some $240,000 for them pursuant to an option contained in the lease. In my opinion, the evidence before the court is not sufficient to establish that there is no reasonable likelihood of the judgment creditor recovering any payment from the sale of the land pursuant to warrant. The situation is one where this fact cannot be conclusively established at this point in time.
Having said this, Mr Hayes of counsel who appears for the judgment creditor has drawn to the court's attention the existence of a procedural difficulty confronting the sale by the Sheriff. Rule 69.06 of Chapter 1 of the Rules of the Supreme Court provides by sub-rule 4 "that the creditor shall serve personally on the debtor a copy of the advertisement not less than 14 days before the date of the intended sale." The advertisement referred to is the advertisement required by sub-rules 1-3.
Mr Bailey, who appears for the judgment debtors, contends that the requirement of sub-rule 4 is quite clear and that is that personal service be effected as a pre-condition to sale by the sheriff. Mr Hayes seeks a dispensation with respect to that requirement pursuant to sub-rule 5 which provides, "the court may dispense with service under paragraph 4".
By affidavit sworn 21 August 2004 the judgment debtors’ solicitor Mr John deposes as follows: "On or about 28 July 2004 Anthony and Brenda Borg were informed of the sheriff's intended sale of the property scheduled for 25 August 2004. Now produced and shown to me and marked JLD6 is a copy of the notice of intended sale.” Exhibit JLD6 is a photocopy of the advertisement constituting the advertisement given of the sale pursuant to Rule 69.06 sub-rules 1, 2 and 3.
In my view, the affidavit evidence demonstrates not only that the judgment debtors were informed of the proposed sale more than 14 days prior to it's intended occurrence, but also that they in fact received a copy of the advertisement. In my view, the obvious intention of the sub-rule is that the debtor should be provided with notice of the intended sale and with a copy of the advertisement prior to sale. This has occurred within the time frame contemplated by the rule.
It would be very strange if the circumstances deposed to by Mr John could arise and that the judgment debtors could have within their possession a copy of the advertisement for the requisite period, but nevertheless, no dispensation of the service could be obtained. In my view, the court should dispense with service under paragraph 4 of Rule 69.06 and although the judgment creditor has not instituted proceedings seeking that relief, it seems to me that in the interests of justice I should make that order in the proceeding relating to the warrant for seizure and sale pursuant to the application by summons which seeks such further or other relief as the Court deems fit.
Having said that, the fact that the judgment creditor has, in my view, obtained a material indulgence with respect to the proposed sale is necessarily relevant to the question of costs.
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