C & D Maxwell Holdings Pty Ltd v M & E Projects Pty Ltd & Anor [1995] QSC 62

TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director. State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION HELMAN J No 2053 of 1994 C & D MAXWELL HOLDINGS PTY LTD (ACN 057 408 787) and M & E PROJECTS PTY LTD (ACN 010 642 270) and WALKER CORPORATION LIMITED (ACN 001 022 117) BRISBANE .. DATE 29/03/95 .. ORDER j REVISED COPIES iSSUED I , State Reporting Bureau IDate 4- I Lj- / ? ) Plaintiff First Defendant Second Defendant 1 4th Floor. The Law Courts, George Street, Brisbane. Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 -- 1 of 12 -- 290395 (Helman J) HIS HONOUR: The plaintiff company in this action applies by way of notice of motion for an order that the second defendant by its servants, agents, or otherwise whosoever, be restrained by injunction until the trial of the action or other order from interfering with the plaintiff's possession of premises known as the Hotel Majestic at 402 - 414 George Street, Brisbane and for other ancillary relief. The land is described as lots 1 and 2 on registered plan number 796 being volume 1968 folio 6, County of Stanley, Parish of North Brisbane, and lot 3 on registered plan 796 being volume 1126 folio 48, County of Stanley, Parish of North Brisbane. The first defendant is the registered proprietor of an estate fee simple in the land and the second defendant is the mortgagee in possession. The plaintiff, until the middle of last month, occupied the hotel premises under a lease agreement dated 19 October 1993 between the defendant as lessor and itself as lessee, for a term beginning on 1 August 1993 and ending on 31 July 1996. Clause 16.1 provided for an option for renewal for a further three years. Under clause 3.2(b) the rent, which was $5,007 per week, was payable by weekly instalments each Friday in respect of the week beginning on the Sunday next following the Friday. Clause 20.1 was a demolition clause under which the lessee agreed to the determination of the lease and to vacate the premises three months after service upon it of a determination notice, and to execute a surrender of the lease forthwith upon being called upon by the lessor to do so. One dollar was agreed on as the lessee's compensation for the 2 ORDER 10 20 30 40 50 60 -- 2 of 12 -- 290395 (Helman J) determination and surrender of the lease under that clause. On 2 December 1994, the second defendant served on the plaintiff a Notice to Remedy Breach of Covenant dated the same day under section 124 of the Property Law Act 1974, the notice alleged arrears of rent of $25,208.85. On 18 December 1994, a representative of the second defendant told a director of the plaintiff, Mr Christopher Maxwell, that the second defendant had taken possession of the building and he was to move out. On 19 December 1994, the plaintiff began this action seeking relief for forfeiture and other relief. On the same day two motions, one on behalf of the plaintiff and the other on behalf of the second defendant, came before Derrington J., who made the following order, which was dated 19 December 1994: "1. That the plaintiff's notice of motion be adjourned to a date to be fixed. 2. That the second defendant's notice of motion be adjourned to a date to be fixed. 3. That pending trial of the action, the plaintiff have 10 20 30 possession of the premises the subject of the 40 plaintiff's action upon the following conditions:- (i) that the plaintiff forthwith pay the solicitors for the second defendant all moneys due and owing pursuant to the lease which is exhibit 'CMI' to the affidavit of Christopher Maxwell sworn 19 December 1994; (ii) that the plaintiff pay rent in the sum of $5,007.00 per week in accordance with the terms of the lease to the trust account of Robinson Robinson & Downing; (iii) that the plaintiff pay the second defendant's costs of an incidental to the plaintiff's notice of motion to be taxed; (iv) that the costs of an incidental to the second defendant's notice of motion be reserved; 3 ORDER 50 60 -- 3 of 12 -- 290395 (Helman J) (v) that the plaintiff pay the second defendant's costs of an incidental to the re-entry of the premises; (vi) that the plaintiff and the second defendant have liberty to apply; (vii) that the second defendant's costs of an incidental to the relisting of the second defendant's notice of motion and the appearance on 22 December 1994 be the second defendant's costs in the cause." By 23 December 1994 there were no arrears of rent, but it is common ground that the plaintiff soon fell into arrears again, and it made its last payment of rent on 3 February 1995. That was for the week beginning 5 February 1995. From 10 February 1995, then, the plaintiff has been in arrears in its payment of rent. There is also evidence before me that the plaintiff has failed to pay the second defendant's costs of and 10 20 incidental to the re-entry of the premises on 18 December 30 1994. On 15 January 1995, part of the hotel was damaged by fire. On 17 January 1995, an application was filed in this Court seeking an order winding up the plaintiff. Late in the afternoon of 15 February 1995, Mr Maxwell telephoned Mr Kevin David Wakerley, a real estate agent employed by Lewis & Partners, managing agents of the hotel employed by the second defendant. Mr Maxwell told Mr Wakerley that he had had- enough 40 of the hotel and that it would be vacated the same afternoon. so Mr Maxwell added, "You can have the bloody thing", and that he, Mr Wakerley, was welcome to the keys of the hotel. At Mr Wakerley's request the keys were delivered to his office that afternoon. Mr Wakerley then engaged locksmiths to change the locks on the hotel. All external locks were changed by 7 p.m. 60 4 ORDER -- 4 of 12 -- 290395 (Helman J) on 15 February 1995. On 16 February 1995 a Senior Deputy Registrar of this Court ordered that the plaintiff be wound up and that Mr Trevor John Schmierer be appointed liquidator for the purposes of the winding up. The plaintiff's creditors are owed about $300,000. The plaintiff's only assets known to the liquidator are the hotel business, the lease, and associated assets. The lastmentioned property was, Mr Schmierer conceded, of little value. Since 16 February the second defendant has refused to allow the liquidator to enter the hotel and it remains locked. The liquidator wishes to enter the premises to continue the hotel business pursuant to the terms of lease. He proposes to engage a company, Langscott Pty Ltd, to manage the hotel business under a management agreement dated 6 March 1995. Under that agreement there is no provision for any profits to flow back to the plaintiff, and all of the profits in the period of Langscott Pty Ltd' s management are, by clause 7, to go to that company; the only possible benefit to the creditors of the plaintiff under the management agreement would be from the sale of the leasehold interest in the hotel. The liquidator's proposal is, once the business has been re-established, to call for tenders on the sale of the plaintiff's interest in the demised premises, and then, with the consent of the second defendant, to sell it and proceed with the winding up of the plaintiff's affairs. On the evidence of a valuer with much experience in the 5 ORDER 10 20 30 40 50 60 -- 5 of 12 -- 290395 (Helman J) valuation of hotels, Mr Lionel Bruce Johnston, the lessee's interest with the option to renew and with the relevant liquor licence may, on his preliminary assessment, have a value in the range of $20,000 to $40,000. Those figures were, however, arrived at leaving out of account the risk of an incoming tenant's having to pay arrears and rent and the risk that the demolition clause could be invoked. Taking those matters into account Mr Johnston agreed that he could not conscientiously suggest that there is any value that could be put on the licence, by which I understood him to mean the hotel lessee's interest with the licence. Mr Ulrick, for the plaintiff, relied chiefly on Derrington J's order in support of the plaintiff's application. The order he said clearly conferred possession of the premises on the plaintiff until it was varied or discharged by a further order. It is arguable, he conceded, that the second defendant may have had grounds for seeking a variation or discharge of the order because of non~payment of the rent since 3 February 1995 in contravention of paragraph 3(ii) of the order, failure to pay the second defendant's costs of and incidental to the re-entry of 1 8 December 1994 in contravention of paragraph 3(v), and the purported surrender of the premises by Mr Maxwell on 15 February 1995. No such application has been made, however, and Mr Ulrick submitted that the order continue with full force and effect. Mr Morris QC, for the second defendant, argued that the plaintiff's right to possession of the premises pending the trial of the action was upon a proper construction of 6 ORDER 10 20 30 40 50 60 -- 6 of 12 -- .290395 (Helman J) Derrington J's order, conditional only. Since, on the evidence, condition 3 (ii) and condition 3(v) have been breached, the plaintiff is no longer entitled to possession of the premises and the second defendant's re-entry on 15 February was lawful . Mr Morris argued that the question of construction came down to this: Whether paragraph 3 of the order confers on the plaintiff an entitlement to remain in possession of the premises unconditionally, or only if the plaintiff satisfies the conditions stipulated in the order. Derrington J's order was clearly conditional, and therefore it is proper in construing it to have regard to Order 47 Rule 2 of the Rules of the Supreme Court, which applies to such orders: 11 2. When any person who has obtained any judgrnent or order upon condition does not perform or comply with such condition, he shall be considered to have waived or abandoned such judgment or order so far as the same is beneficial to himself; and any other person interested in the matter may, on breach or non-performance of the condition, take either such proceedings as the judgment or order may in such case warrant, or such proceedings as might have been taken if no such judgment or order had been made, unless the Court or a Judge otherwise directs." Because that rule would have had the effect of extinguishing the plaintiff's right to possession of the demised premises upon its breach of a condition of the order, Derrington J. should be taken, I think, to have intended to. confer 10 20 30 40 possession on the plaintiff only so long as it complied with so the conditions he imposed. If I am wrong in that conclusion, however, and Derrington J's order conferring possession on the plaintiff should be construed as continuing despite a breach of a condition, there 60 7 ORDER -- 7 of 12 -- 290395 (Helman J) is little comfort for the plaintiff. The rule would then apply and on a breach of a condition of the order the plaintiff must be considered to have waived or abandoned the order so far as it was beneficial to it. Upon the breach, the order fell to the ground: see Talbot v. Blindell & Ors [1908] 2 K.B. 114. The distinction between those two analyses is a fine one and whichever view is correct the result is the same: the plaintiff's right to possession of the premises under the order was extinguished at the latest on 10 February 1995 - earlier if a breach of condition 3(v) occurred. I therefore reject Mr Ulrick's contention that the plaintiff can rely on Derrington J's order in making the application. On my provisional assessment of the facts of the case, then, the second defendant is entitled to rely on its re-entry on 15 February 1995 following the plaintiff's abandonment of the premises on that day as constituting a surrender by operation of law: see Andrews v. Hogan (1952) 86 C.L.R. 223 at p.252 per Fullagar J., and Spinks and Mundy [1957] St.R.Qd. 234. That analysis would mean that the second defendant is lawfully in possession of the premises and what, in reality if not in form, the plaintiff is applying for is an interlocutory mandatory injunction. Mr Ulrick submitted that there was still a serious question to be tried in relation to the plaintiff's claim to relief from forfeiture of the lease. He also submitted that if there were 8 ORDER 10 20 30 40 50 60 -- 8 of 12 -- 290395 (Helman J) an effective surrender on 15 February 1995 that transaction could arguably be voidable under Di vision 2 of Part 5. 7B of the Corporations Law. It could, he said, be regarded either as an unfair preference as defined in section 588 FA(1) or as an uncommercial transaction as defined in section 588 FB ( 1 ) . A liquidator could then seek an order under section 588 FF(1), although no application has been made for such an order. Mr Morris accepted that the submissions made to Derrington J. in December 1994 on the matter of the forfeiture of the lease in December 1994, which the second defendant contends occurred on its re-entry, remain available to the plaintiff, but submitted that the surrender was neither an unfair preference nor an uncommercial transaction. Even assuming that there are proper bases for Mr Ulrick's submissions and therefore serious issues to be tried in relation to the forfeiture and the surrender, I conclude that the plaintiff's application should be refused. Whatever may have been the position when Derrington J. made his order, the fire and the surrender of the lease have changed the circumstances of the parties so that, as I have said, the plaintiff now asks for a restoration of the interlocutory regime established by Derrington J. by means of a mandatory injunction. The surrender in particular, made apparently on rational grounds to relieve an insolvent company of the burden of lease, makes the plaintiff's claim from relief of forfeiture less likely to succeed. I, therefore, conclude that if the injunction were granted I 9 ORDER 10 20 30 40 50 60 -- 9 of 12 -- 290395 (Helman J) should be unable to feel a high degree of assurance that at the trial it would appear that it was rightly granted: see Active Leisure (Sports) Pty Ltd and Sportsman's Australia Ltd [ 1 9 91 ] 1 Qd . R . 3 0 1 , at p . 3 0 4 . I think that in any event the balance of convenience favours the maintenance of the present state of affairs until the trial. In the first place, in the present circumstances of the parties and in view of the liquidator's stated intention as to how he will deal with the lease should possession of the premises be restored to the plaintiff, I conclude that damages will adequately compensate the plaintiff should it succeed in this action. In addition to any damages to which the plaintiff may be entitled arising from the second defendant's re-entry in February 1995 it would be open to the liquidator to apply for an order under section 588 FF(1) (c) of the Corporations Law requiring payment to the plaintiff of an amount that in the Court's opinion fairly represents some or all of the benefits that the second defendant has received because of the allegedly voidable transaction. Secondly - and quite as important as the other considerations, the usual undertaking as to damages offered on behalf of the plaintiff appears to me quite unsatisfactory in the light of Mr Johnston's evidence, and indeed that of Mr Schmierer when questioned on this subject. The plaintiff's application will therefore be dismissed. 1 0 ORDER 10 20 30 40 50 60 -- 10 of 12 -- 290395 (Helman J) HIS HONOUR: The second defendant asks for an order for the costs of this application against the liquidator personally, and, in the alternative, an order for costs against the plaintiff. Mr Ulrick on behalf of the plaintiff did not seek to make any submissions on the alternative order for costs sought, but submitted that I should not make the first order for costs applied for. The application for an order for costs against the liquidator of the plaintiff is made under Order 91 Rule 1 of the Rules of the Supreme Court, and fallowing the decision of the High Court in Knight & Anor v. FP Special Assets Limited & Ors (1992) 174 C.L.R. 178, it is clear that the Court has power to make such an order, but, as Dawson J. said at p. 203 such an order would be confined to exceptional cases. In support of the application Mr Crowe, for the second defendant, referred me to Forest Pty Ltd (Rees and Mgrs apptd) v. Keen Bay Pty Ltd & Ors (1991) 4 A.C.S.R. 107, in which an appeal against two decisions to award costs against receivers and managers of companies was dismissed. In that case the receivers and managers had been appointed out of Court by secured creditors of the companies and, as Ryan J. said at p.119, it was clearly established that the costs "were incurred by the receivers primarily for the benefit of a non-party, the banks, and with their support". 1 1 ORDER 10 20 30 40 50 60 -- 11 of 12 -- 290395 (Helman J) In this case the liquidator was appointed by an order of the Court and made the application, in the name of the company, on proper grounds in discharging his duty as liquidator. Although Mr Crowe made a submission to the contrary, it appears to me there is a valid distinction to be made between this case and the case of Forest Pty Ltd, in which it was, as I have mentioned, clear that the receivers and managers had brought the proceedings primarily for the benefit of£ non-party. In those circumstances I conclude that there is no proper basis upon which I should depart from the usual practice by making an order for costs against a person not a party to the proceedings. The second defendant is, however, in my view entitled to an order for costs of the app·lication against the plaintiff, applying the usual rule that costs should follow the event. The plaintiff's application is therefore dismissed. I refuse an order for costs against the liquidator personally. I order that the plaintiff pay to the second defendant its costs of and incidental to the application to be taxed. 12 ORDER , , r 10 20 30 40 50 60 -- 12 of 12 --