Toliver Pty Ltd v Denz Wolman Services Pty Ltd - [2000] WADC 125

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: TOLIVER PTY LTD -v- DENZ WOLMAN SERVICES PTY LTD & ANOR [2000] WADC 125

CORAM: DEPUTY REGISTRAR HEWITT

HEARD: 4 MAY 2000

DELIVERED : 18 MAY 2000

FILE NO/S: CIV 2545 of 1999

BETWEEN: TOLIVER PTY LTD (ACN 009 077 212)
Plaintiff
AND
DENZ WOLMAN SERVICES PTY LTD (ACN 009 355 337)
First Defendant
CHRISTOPHER ROBIN DENZ
Second Defendant

Catchwords:

Practice - Western Australia - Summary judgment - Whether the words "without deduction or set-off" preclude a defendant from raising an equitable set-off in a claim for outstanding rent under a lease

Legislation:

Supreme Court Rules, O 14

Trade Practices Act, s 52, s 87

Result:

Application dismissed

Representation:

Counsel:

Plaintiff:     Mr R A S Rowick
First Defendant             :     Mr P Clifford
Second Defendant         :     Mr P Clifford

Solicitors:

Plaintiff:     Bennett & Co
First Defendant             :     G Porter & Associates
Second Defendant         :     G Porter & Associates

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

City Bank Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168
Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 4 All ER 834

Case(s) also cited:

Nil

DEPUTY REGISTRAR HEWITT: In this matter the plaintiff applies pursuant to the provisions O 14 of the Supreme Court Rules for a summary judgment against the defendants. The plaintiff's claim is in its essence for the arrears of rent and outgoings said to be due from the first defendant to the plaintiff under the terms of a sub-lease between those parties dated 24 October 1995 in which the second defendant was joined as a guarantor of the first defendant's obligations.
Some criticisms have been made of the statement of claim however I intend to put those to one side. The facts made it clear that during the period for which the claim is made the first defendant was in possession of the relevant property and during that time did not pay the full amount of rental and outgoings which according to the lease were payable.
In my view the plaintiff has made out a prima facie claim to judgment and I now turn to the matters which are raised by the defendants by way of defence.
Although I shall deal with them in detail at a later stage in this judgment, I think it is appropriate to generally categorise some of the matters raised by the defendants as being matters which give rise to a counterclaim or set-off. So characterised the plaintiff contends that these matters cannot give rise to a defence by virtue of the provisions of the sub-lease itself and in particular para 3 thereof. In para 3 it is provided that the sub-lessee shall pay to the sub-lessor the rent "… without deduction or set-off …".
The first point to make is that para 3 contains a number of provisions including a covenant to pay rent but also covenants in respect of outgoings, rates and taxes and the like. It is only in respect of the provisions concerning rent that there is any mention of the words "… without deduction or set-off …".
The plaintiff contends those words properly construed do not allow the Court to deny a judgment if the defence raised by the defendants might be described as a set-off. In making those propositions the plaintiff relies on the decision of the Supreme Court of Victoria in City Bank Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168. In that case the defendant was the lessee of a property of which the lessor had previously been Jam Factory Pty Ltd. At the relevant time City Bank Pty Ltd was the mortgagee in possession exercising rights under s 78 of the Victorian Transfer of Land Act.
The defendant had previously arbitrated a claim against Jam Factory Pty Ltd and had obtained an award against that company of approximately $91,000. The defendant contended that it could set-off that amount against the rental claimed from it by City Bank Pty Ltd in respect of its current occupation of the premises. In deciding the case a single Judge of the Court concluded:
(a)That there was no debt existing between the defendant and the plaintiff which was capable of being set-off, and
(b)In any event the terms of the lease precluded a set-off against the rent.
His Honour concluded in that case that the words "all rent and money payable by the tenant to the landlord hereunder shall be paid without any deductions whatsoever …" were sufficient to preclude any entitlement of the defendant to set-off the amount of its award against current rental.
In analysing that decision I note that his Honour's comments in regard to the right of set-off are obiter, since it was his conclusion that there was no debt owing by the plaintiff to the defendant capable of being set-off.
A further case quoted to me in the course of argument is Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 4 All ER 834. That is a decision of the Court of Appeal and in my view it must rank as a stronger precedent than the decision of a single Victorian Judge. In that case it was held by the Court that clear words were required to exclude a tenant's right of an equitable set-off and the use of the word "deduction" was not sufficiently clear to achieve that purpose. The issue has not been referred to any case decided within our own jurisdiction and my personal view is that the words used within the lease are not sufficient to deprive the defendants of a defence of an equitable set-off which for the purposes of this analysis I take to be a cross-claim that impeaches or goes to the root of the claim made by the plaintiff. Therefore, insofar as the plaintiff argues that the terms of the lease itself shuts out any prospect of the defendants relying upon an equitable set-off, I consider that it be an open issue and certainly not a proposition of sufficient force to determine a summary judgment application. In addition I make the point that insofar as the argument has been advanced it can only apply to rent and cannot be relevant to the component of the plaintiff's claim which relates to outgoings. On that score the statement of claim does not permit a full analysis to determine which proportion of the claim relates to outgoings which relates to rent and which presents a difficulty for the plaintiff relying upon the submission it advances.
The relationship between the plaintiff and the defendants is a complex one and it appears to be as follows:
(a)The plaintiff is a company which is effectively an incorporated alter ego of Mr Alexander Negoescu.
(b)The plaintiff is the lessee of the premises which it originally leased from NML Ltd but which is now owned by Perpetual Trustees.
(c)The defendant is a company which at the commencement of the relationship between the plaintiff and the defendant was known as the Prowse Denz Services Pty Ltd and was the effectively the alter ego of the second defendant and one Prowse. Prowse has now been replaced by Wolman and the name of the company has been changed to reflect that fact.
(d)Mr Negoescu is a dentist and Denz and Wolman are doctors and at the material time they occupied an area within the Forrest Chase complex known as the Forrest Chase Medical Centre.
(e)The plaintiff has sub-let a proportion of the area to the first defendant.
(f)In addition to that arrangement the parties collaborated to fit out the Forrest Chase Medical Centre for a considerable sum in excess of $400,000 and entered particular arrangements in order to service the debt incurred in that fitting out procedure. They did so by the formation of a company called Forrest Chase Medical Centre Pty Ltd which effectively became responsible for the administration of the debt incurred in the fitting out process and the payments of the monies due under the sub-leasing arrangements.
(g)Each of the parties agreed that it would divert its income stream to Forrest Chase Medical Centre Pty Ltd which would make identified payments in respect of the expense of fitting out and so forth, certain payments to the parties which stood behind the company, and hold the balance at the direction of the plaintiff and the first defendant respectively.
These arrangements were entered into by the parties or their predecessors in 1988 and 1989, specifically the plaintiff entered an agreement to lease a portion of the Forrest Chase complex (which was then incomplete) on 23 June 1988, and a formal lease which was executed on 8 December 1989 but is expressed to operate from 8 February 1989. It is clear, I think on the materials which had been provided to me, that there was a significant level of collaboration and an intention between these parties that the costs of establishing the medical centre should be shared between them in a negotiated manner.
That brings me to the first of the issues which is raised by the defendants. They contend that the plaintiff entered these negotiations and made these arrangements with them, failing to disclose that especially advantageous terms had been negotiated with the original lessor NML Ltd. In particular, they allege, and produce a deed to support the proposition, that the plaintiff received a seven month rent free holiday in respect of the premises by way of this collateral deed and a lump sum of $150,000 to assist in the fit out of the premises. They say that the failure of the plaintiff to disclose those matters constitutes a misrepresentation of a sufficiently serious nature to permit them to resile from the arrangements and the sub-lease agreement which they entered. They have now purported by a virtue of a notice issued subsequent to the commencement of these proceedings, to rescind the sub-lease upon which the plaintiff sues. Of course, if such a proposition is a sound one then questions of set-off and so forth cease to be of any interest in the case since the very basis upon which the plaintiff's claim rests would evaporate as the notice purports to rescind the sub-lease ab initio.
Unfortunately, there is very little in the way of information which would allow me to accurately assess when the defendants became aware of these matters. There is mention in the affidavit of the second defendant that he entertained suspicions that this might have been the case towards the end of 1997. However, his suspicions were not confirmed until he obtained a copy of the deed to which I have referred. I think it is important that a defendant purporting to rescind a sub-lease agreement some one and a half or thereabouts years after it has left the relevant property, and after, I would have thought on any reckoning, the lease had terminated might have some difficulties in establishing that rescission to be effective. Furthermore, the defendants rely in part in its defence on the proposition that the plaintiff unreasonably refused to consent to its proposed sub-lease of a portion of the premises at the time which I infer that it was aware of the matters upon which it now relies to support the rescission. It is clear that the defendants remained in occupation of the property subsequent to it learning of the matters relating to the payment of $150,000 and the rent holiday. Indeed, some two years have passed without any attempt by the defendants to rely upon these matters to support a contention of its entitlement to rescind. I would have thought in those circumstances that an argument that the sub-lease was successfully rescinded in December 1999 was doomed to fail and that such claim as the defendants may have from those matters would be by way of a claim for damages rather than a right of rescission. It might be, however, that such a claim for damages is sufficient to avail it of a defence.
That argument may be developed along the lines that the whole of the arrangements which were entered between the plaintiff and the defendants were obviously to share the occupation of the relevant premises, to fit the relevant premises out as required to operate as a medical centre and to share the expenses of so doing in a predetermined way. I would have thought it an essential to reach a fair arrangement in respect of those matters for the plaintiff to have given proper information about the costs to which he was exposed by that process and therefore the costs to be shared between the parties. In my view, the whole process of negotiation between the parties is likely to have been tainted by the failure to reveal these matters and I would categorise the defendants' complaints in regard to them as going to the root of the dealings between them. Therefore, on that point I would categorise the defendants as having raised an issue which potentially at least could be argued as an equitable set-off.
The defendants also seek to rely upon the same matters by way of s 52 and s 87 of the Trade Practices Act. However, for the purposes of determination of this application it is not necessary for me to consider those aspects.
It is also argued by the defendants that the plaintiff was under a fiduciary duty to the defendants to disclose these matters and that his failure to do so is a breach of that duty giving rise to a cause of action in relation to that breach.
In my view these parties have intermingled their affairs to an extent that some level of fiduciary duty must have arisen between them. However, the breach appears to me to have taken place before the arrangements were entered into and therefore, to the extent that there was breach it was not of a then, existing fiduciary duty. But rather, a misrepresentation as I have earlier categorised it.
The next matter raised is that the rental being charged by the plaintiff to the first defendant is excessive and does not accord with the agreement which was struck between the parties as to the amount of that rent. The defendant has quantified the amount which he says is the proper calculation of rent according to those agreements and as I understand the plaintiff concedes that to the extent that its claim exceeds the amount of the calculation of the defendant, there is a triable issue. In any event were the plaintiff not to concede that point I would so find.
The next matter raised by the defendants is that in some respects the plaintiff was in breach of its entitlement to quiet possession of the demised premises. In that regard a number of issues are raised which in my view would not entitle the defendants to withhold rent. As a general proposition I take the view that unless the breach effectively deprives the injured party from the benefit of the contract it raises to no more than a claim for damages and not a basis to refuse to pay rent.
The next matter raised by the defendants is an allegation that the delay and procrastination of the plaintiff in allowing the first defendant to further sublet a portion of the area tenanted by it amounted to a refusal to permit the sub-sublease and is a breach of the sublease. On that score I am of the view that the argument advanced by the defendants is weak, and it appears to me that the proposed sub-sublease arrangements had not crystallised to the extent that the proposed sub-sublessee could be said to have committed himself to taking the tenancy.
It is, however, not fruitful to further explore this area since I am of the view that the application should fail on other grounds.
A final matter which has been canvassed is the fact that it is alleged that the Mr Negoescu is a man with a criminal past which he failed to disclose and in doing so was guilty of a misrepresentation or alternatively a breach of a fiduciary duty. In regard to the latter of those propositions I take the view that no fiduciary duty had arisen at the time of the representation or non-representation was made and there is no such breach. Insofar as it is said that there was a misrepresentation I doubt that misrepresentation could entitle the defendants to resile from the terms of the sub-lease and offer a defence for its failure to pay rent. There is nothing disclosed which would in my view show that any damage was suffered by the defendants by the failure to disclose and in my view if there was such a failure it is not relevant to any defence available to these defendants.
My conclusion is therefore that the defendants have raised an arguable defence and that this summary judgment application should be dismissed and this matter should proceed to trial for determination.