Evans & Evans v Leslie Bann Marina Pty Ltd & Ors [1990] QSC 52

I IN THE SUPREME COURT OF QUEENSLAND \(},) 7:;i~ CIVIL JURISDICTION 10 20 40 50 BEFORE MR. JUSTICE DOWSETT CAIRNS, 19 FEBRUARY 1990 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Chief Court Reporter,Court Reporting Bureau.) BETWEEN: BERNARD FRANCIS EVANS and MYRNA GAY EVANS -and- LESLIE BANN MARINA PTY LTD -and- MOSTEKA PTY LTD -and- KLAUS URBAN and JUNELLE URBAN -and- MACDONNELL$ (a firm) JUDGMENT Plaintiff Defendant First Third Party Second Third Party Third Third Party HIS HONOUR: In November 1983 the defendant was the owner of certain premises in Cairns which comprised a Marina described as the Leslie Bann Marina. The business involved the letting of various parts of that complex, and in late 1983 the defendant was anxious to install a manager of the premises for the principal purpose of collecting rent and, , to a certain extent, dealing with the tenants. It seems likely that the reason for this wish was that Mr. Bann, who has given evidence before me, and who was a principal of the 0 ----------------------------- Govt. Printer, Qld. -1- 10 2::) 30 40 50 I 60 -- 1 of 14 -- 10 20 30 40 so defendant, was contemplating leaving Cairns. I find that at some time late in 1983, Mr. Bann invited the plaintiffs to his residence, which was a unit at the complex, and there raised with them the question of his finding a manager. Mr. Evans indicated that he and his wife would be interested, and they were provided with a document, which is Exhibit 14. This, with precision, set out the proposal that was then being made as to the terms of appointment of the manager and in a broad sense was the basis of the agreements which were subsequently reached between the plaintiffs and the defendant. Exhibit 3 is a management agreement, and Exhibit 4 is an agreement for tenancy relating to the unit at the complex. The agreements are not on their faces interdependent. However, it is pleaded by the plaintiffs in para.lo of the statement of claim that the tenancy agreement was intended to · be, "collateral to the management agreement". It is not entirely clear what this pleading means. Subjective intention. does not normally constitute one agreement collateral to the other. The well-recognised concept of a collateral agreement implies, as I understand it, that one agreement has been entered into in consideration of the parties entering into another. I think that what is meant is that the management agreement and the tenancy agreement were intended to evidence one agreement which perhaps goes beyond the terms of either, but which is constituted by the sum of the two. I do not think that the jurisprudential nature of the ! relationship between the parties is all that important in I! the events which have happened. I ! !I I am satisfied that prior to the agreements being EO -t ----------------------- Govt Printer, Q!d -2- 10 30 5Cl 60 -- 2 of 14 -- 10 2,J 40 executed, there had been no discussion between the parties as to the possibility of Mr. Bann selling the premises and that this was first raised some time in mid-1985, resulting in Mr. Evans causing his solicitors to write to Mr. Bann's solicitors the letter which is Exhibit 6. In the end, on 3 December 1985,Mr. Bann, on behalf of the defendant, agreed to sell the complex to a company called Mosteka Pty Ltd. A gentlemen called Urban seems to have been the principal thereof. I have gathered from the evidence that Mr. Urban was at all material times the person conducting! 'a restaurant business in the complex, which is well known in · Cairns, trading under the name of "Tawny's". I I Early in December, and probably after the execution of the agreement, Mr. Urban informed Mr. Evans of his agreement to purchase the premises and indicated to him generally that his, Mr. Evans', position would be protected. Some time l~ter in December, probably about the 10th or 11th, Mr. Urban produced to Mr. Evans a document which Mr. Urban apparently thought would achieve this result, namely Exhibit 7. That agreement is substantially in accordance with the management agreement between the plaintiffs and the defendant, save that the schedule of amounts payable by the defendant to the plaintiffs had been replaced by a new schedule of payments which simply omitted reference to payments during years which had already passed. There was one minor typographical error in one of the figures, but that appears to be of no importance. Paragraph 10 of the proposed agreement was in the following terms: - -, "In consideration of the sum of $130 per week, payable at all times weekly in advance, the managers shall have the sole and exclusive right to occupy the apartment or flat ---·----·--- Govt. Pnnter, Old. -3- II 30 40 50 60 -- 3 of 14 -- 10 forming part of the said premises provided always that the managers shall pay all charges for power used or consumed in the said ·apartment or flat." This was not consistent with the tenancy agreement then in existence, which provided that for a period of five years and six months from 1 January 1984, the plaintiffs would be allowed to occupy the premises at a monthly rental of $130. Mr. Evans indicated his dissatisfaction with this to Mr. Urban. He was also dissatisfied with the fact that, at least on one view of the matter, he might be entitled, under his existing agreements, to continue in occupation pursuant to the tenancy agreement even if the management agreement were to be determined for some reason, which may not have been the case under the proposed agreement. I am satisfied that Mr. Evans indicated that this proposed agreement did not protect the plaintiffs' rights and that ,, 2.C 30 i 30 , Mr. Urban responded that if the situation was as Mr. Evans had outlined it to him, he could understarid v:hy Mr. Evans would not execute the agreement - at least that is what I take Mr. Urban' to have meant on Mr. Evans' account of the conversation. Thereafter, Mr. Evans had a number of conversations with 40 40 50 ------·---50 -- Mr. Bann. He was asked in January and February of 1986 to again collect the rental. Settlement of the contract occurred on 7 February and thereafter, apparently as a result of an agreement between Mr. and Mrs. Evans and Mr. Urban, the plaintiffs remained in occupation of the flat at $130 a month and continued to collect the rental and to receive the payments! which were due under the management agreement. However, in October of 1986, Mr. Urban indicated that the services of the [ Evans would no longer be required, and on 28 November, a notice to quit was given in respect of the unit. Subsequently, --- ____ , ________ _. Govt. Printer, Q!d -4- 50 G(1 -- 4 of 14 -- Mr. Evans negotiated with Mr. Urban for continued occupancy of the premises at a rental of $100 per week, and that continued until the end of January 1987. Thereafter, the Evans vacated the premises and moved to rented premises and now reside with their son. 10 The above are, in my view, the relevant facts for present, 10 purposes. However I should say something briefly about credibilitly generally. I formed an entirely favourable view of Mr. Evans in his evidence. I thought that he was frank and open in all respects. I thought, too, that the matter had been( 20 1 of great importance to him and that for that reason, he has 20 • been careful in his recollection of the details. Although I do not think that Mr. Bann was in any way l deliberately misleading, I thought that his recollection abouti J incidents was vague in many areas and that in some respects, i 30 : because his memory was vague, he tended towards circumlocution and perhaps on occasions, evasion. I am quite satisfied that the matter is of nothing like the same financial importance to him as it is to the Evans, and I think that he has not had the same reasons for trying to be specific in his recollection. 40 50 60 I accept Mr. Evans' evidence in full, and where it conflicts with that of Mr. Bann, I reject the latter's evidence. The question then is how the legal relationship between the parties should be characterised and the consequences which flow. It is beyond dispute that there were contracts in force between the parties prior to the execution of the agreement between the defendant and the company Mosteka. It is clear that by executing that agreement, the defendant seriously impaired its capacity to continue to allow the Evans the Govt. Printer, Old. -5- 30 40 50 60 -- 5 of 14 -- 10 benefit of the i'ease. The lease was for five years and had not 1 been registered. I am satisfied that Mosteka was aware that there was a lease, although I do not know whether that company was aware of all the terms thereof. Mr. Bann was aware of the need to protect the interests of the Evans, and I think it probable that he tried to do so, at least in the initial stages and through December and into January of 1986. However, the agreement as executed between his company and Mosteka failed to recognise those interests. Schedule 6 to that agreement, which concerned the 10 20 -J , arrangements with the Evans, made provision in terms similar b 30 40 : to those contained in Exhibit 7, including cl.10 relating : to a rental of $130 per week. Thereafter, the defendant had . been compromised in its capacity to protect the Evans' interests. Payment of the management fee pursuant to the management • agreement is not, on its face, conditional upon performance of all of the works undertaken by the Evans pursuant to the agreement. I should say that the terms of the management agreement involved the payment by the Evans to the defendant of the sum of $50,000 in consideration of their acquiring the management rights. In consideration of this, and of their performing certain duties, they were to be paid the sums specified in cl.11. The duties appear to have been in some respects nominal. They collected the rent, deposited it 30 40 50 50 ___ 60 to an account and seemed to do very little beyond this. On the other hand, I suppose they were also performing a caretaking facility, and it may be that this had some value too. Certain duties are spelled out in the agreement, but I accept the evidence of Mr. Evans that they were minimal and required the Govt Printer, Qld. -6- 6G -- 6 of 14 -- 10 20 30 40 50 devotion by him of only about three hours per month to their discharge. There can, I think, be little doubt that by selling the complex and putting it beyond the capacity of the plaintiffs to continue to discharge their duties and so earn their entitlement to payment of the moneys referred to in cl.11 (if this was a condition precedent to payment), the defendant was in breach of the contract. Alternatively, it may be that on the proper conclusion of cl.11, the amounts there stipulated fell due in any event. It probably matters little, as it would be impossible to put any significant value on the services provided by the Evans, they being little more than "recreational" in nature. As to the tenancy, it seems to me that the sale of the premises, without guaranteeing the continued occupancy upon the same terms for the Evans, was again a breach of the • tenancy. Although it is not quite the same, it seems to be very close in nature to a breach of a warranty for quiet enjoyment. The .measure of damage in such cases is discussed in McGregor, 15th edition at para.971, where it is described as, "the value of the unexpired term, which will be calculated as the rental value of the premises, less the contractual rent Jwhich would have fallen to be paid in the future." I It was submitted by Mr. Matthews for the defendant that the proper measure is the cost which has been incurred by the plaintiffs in renting other premises less the amount which they would otherwise have paid. This seems to me to fail to give proper recognition to the amenity of the premises as let pursuant to the agreement. The fact that a tenant may, lC 20 30 40 50 ___6_0_ i 60 Gcvt. Printer, Qld. -7- -- 7 of 14 -- when wrongfully excluded from his premises, take cheaper premises because he cannot afford to lease premises of a similar quality should not deprive him of his entitlement to recover the benefit of the bargain from the defaulting landlord, keeping in mind that the usual measure of damages ln 10 contract is designed to provide the innocent party with the i o benefit of the contract which he has lost as a result of the default of the other party. 2C 30 40 50 I should say that before me, the principal argument has been based upon what is alleged to have been the plaintiffs' failure to mitigate their loss. This, it is said, arises because at some time prior to the completion of the agreement between the defendant and Mosteka, Mr. Urban offered to the plaintiffs, as I have said, a new management agreement and i tenancy, the only difference, in effect, being that the two, ! : agreements were comprised in one I agreement and the rent was substantially different. Mr. Matthews has submitted that because the plaintiffs at that time had a substantial amount of cash which would have enabled them to pay the rent at the , higher rate, they should have done so in order to mitigate I their loss. I should say that the evidence indicates that the male plaintiff has at all material times been an invalid pensioner and that the female plaintiff has been able to derive only a small occasional income by working part-time at a picture theatre. They therefore cannot be seen as people of substantial means. To some extent, the question of the duty to mitigate in this case will depend upon the date at which the breach occurred. I accept the submission made on behalf of the 20 30 50 --~6_0-+ ___ ____ _____________________ GC Govt. Printer, Old. -8- -- 8 of 14 -- 10 plaintiffs that no duty to mitigate can arise until there has been a breach. The mere .fact that one party asserts an intention not to be bound does not amount to a breach, and I do not think that in general,an innocent party is obliged to accept such an assertion of future wrongdoing so that a duty to mitigate then falls upon him. It is, however, not quite as simple as that in the present case because it may be that the breach in fact occurred when ! the defendant put it beyond its power to continue to honour i · both agreements by executing the agreement with Mosteka. This, 20 . of course, in respect of the management agreement, would depend :upon the proper construction of cl.11; that is, as to whether or not the amounts continue to be payable thereunder even in the absence of the performance of the duties prescribed 30 40 50 60 ' '1 i thereby. In the end, I do not think it matters in this case because · the duty to mitigate is always only a duty to act reasonably. I do not think that it would have been reasonable to require of the Evans that they take steps to mitigate until such time as they were aware that the defendant had failed in its obligation to them to the extent that it was no longer possible for the defendant to enable them to perform their contract in accordance with its terms. This would imply that they knew the terms upon which the defendant had sold to Mosteka and that there was no prospect of the defendant escaping the terms of that bargain. Although from December 1985, the plaintiffs may be taken to have been aware that there had been a sale, and that Mr. Urban was asserting that the terms of their agreement were in a particular form, they knew and told Mr. Urban at I that time that those terms were incorrect. I do not think that Govt. Printer, Old. -9- JC 30 40 50 60 -- 9 of 14 -- they were reasonably obliged to infer that Mr. Bann had failed in his duty to them or had failed to cause his company to give effect to that duty, given that he, on numerous occasions, asserted that they would be protected. They were entitled to infer, and I find that they did infer, that their position 10 would be protected. It was not until after settlement, I would ,o infer, that they finally became aware that the defendant was not going to protect them and was no longer able to do so, and: also that the new purchaser was not bound by their agreement.! Thus I do not think that there was anything unreasonable about their failing to accept the offer made to them by Mr. Urban. There is, I think, another flaw in the argument on behalf of the defendant as to mitigation. It is this: in order that the plaintiffs, as the defendant submits, might mitigate their loss in this way, it was necessary that they 30 • undertake an obligation to pay a rental of $130 per week in • lieu of the previous rental of $130 a month. The difference ' 40 50 -~60 in financial commitment is obvious, and I do not think that the plaintiffs were obliged, acting reasonably, to do so. It must be kept in mind that they had paid a very substantial premium for the rights which they had acquired under these agreements, and I do not think it would be reasonable to expect them to pay approximately $400 extra per month in order to maintain the rights which they had bargained for. Strictly speaking, on the pleading, the obligation to mitigate is only said to have been to accept this offer prior to the completion of the agreement on 7 February, but even if the alleged failure to mitigate continued thereafter, I think that for the same , i reason, there was no obligation upon the plaintiffs to so act. In the circumstances I think that the plaintiffs have --------------------------~ Go,t Printer, Old. -10- 20 30 40 50 GO -- 10 of 14 -- 10 made out a case in respect of the management agreement either for damages for breach to be measured by the amounts payable pursuant thereto from the date when payment ceased on the part of Mosteka, which I think is 30 November 1986, or for a sum due under that agreement. As I have said, I do not think that any allowance ought be made in respect of the duties which they have not had to ' fulfil because they are so minimal that I do not think that any realistic value can be placed on them. Alternatively, it may be that the proper measure is simply the amount payable under 10 20 i cl.11 of Exhibit 3 on the basis that it is an obligation to pay 20 : amounts not dependent upon the performance of the works. It 3C· 40 so i does not matter which view is taken in the circumstances, but I I ! think the better view is that the payment under cl. 11 is I !conditional upon the duties being performed. As to the tenancy agreement, I think that the proper ;measure must be the difference between the rental value of the, premises and the contractual rental payable. I accept the evidence of the witness Millis that the !premises could have been rented for $200 as commercial rental at the relevant time, conservative figure. and my suspicion is that It was pointed out to Mr. this is Millis a1 I in l cross-examination that there were restrictions upon the use which could be made of the unit. It could only be used in connection with the management of the complex, but nonetheless it seems to me that the figure remains uncontradicted. A third claim was made for certain removal expenses 1 I I incurred by the plaintiffs in moving from the unit to other \ i premises. I do not think that those amounts are recoverable. \ It seems to me that the plaintiff would have had to move at the! 30 40 50 _ _____c6.cc.0-1- 60 Govt Printer, Old. -11- -- 11 of 14 -- 10 20 end of the term in any event. If it were the case that they! had been compelled to move on short notice to other temporary premises, and that thereafter they moved into permanent premises, the position would be otherwise, and it may be that,I I one set of removal expenses would be recoverable. However that is not the case here. They moved into new premises and stayed there for some two years and eventually vacated them only• because the rent was increased, and then they moved into' premises with their son. I think that those items, $175 for. :removal ! expenses and $30 for cartons, are simply noti! recoverable. Exhibit 2 sets out the amended claim and I think that , on the findings which I have made, the amounts there are not in: dispute. I That shows that in respect of the management ! : agreement, the amounts payable totalled $39,484.41, which ! 10 30 i amounts would have been received from December 1986 until June 30 1 of 1989. In respect of the tenancy agreement the loss shown is. 40 so 60 a total of $21,347.86, which loss was incurred again from 1 December 1986 until June 1989. I consider that for the period from December 1986 until June 1989 the amounts should bear interest at half the usual rate, this being upon the basis that the loss was an accruing one. That is a period of approximately two and a half years. I will allow interest at six per cent per annum for two and a half years on each of those two sums, which is a total of $60,832.27. I think, too, that the total of $60,832.27 should bear interest at 12 per cent per annum for a period of seven 1 months, representing the period from 30 June 1989 to the date of judgment. There will be judgment for the plaintiffs against the -----------------------~ Gsvt. Printer, Old -12- 40 50 60 -- 12 of 14 -- 10 20 30 40 50 60 defendant in the sum of $74,215.36, which includes interest. I order the defendant to pay the plaintiffs' costs of the action. The plaintiffs also seek an order that the defendant indemnify the plaintiffs in respect of the stamp duty payable on the management agreement. The relief claimed in this: 10 respect is too wide in that cl.13 of the management agreement! places the obligation to pay stamp duty upon the owner, that is the defendant, in respect of the consideration of $50,000 and: also, "all stamp duty on the option referred to herein and thei I stamp duty on the acquisition of the house property should the. 20 option hereinmentioned be exercised". It was apparently : contemplated that the plaintiffs should obtain the sum of i $50,000 from the sale of their home and to assist in the financing, I suppose, the defendant took an option to buy the property in the event that the plaintiffs were not otherwise l able to sell it. This is the option referred to in cl .13. , i ; However, apart from these matters, the agreement provided that i th le the plaintiffs should pay all stamp duty payable in respect of II I payments referred to in cl.11, that is the monthly 30 payments to them as manager. I suspect that there are going ' 40 to be some difficulties in determining what stamp duty is attributable to the $50,000 and what stamp duty is attributable! to the monthly payments, but they need not concern me for the moment. I will declare in accordance with para.13 of the agreement that the plaintiffs are entitled to an indemnity as against the defendant in respect of any stamp duty payable in respect of the consideration of $50,000 and in respect of any stamp duty payable on the option referred to in para.lo of the 50 I 6C Govt. Printer, Old. -13- -- 13 of 14 -- 10 I 20 30 40 so 60 management agreement. As the option was not exercised, it is not necessary to otherwise deal with this matter. The formal orders will therefore be that there will be judgment for the plaintiffs against the defendant in the sum of $74,215.36. I declare that the plaintiffs are entitled to an indemnity from the defendant in respect of any stamp duty payable on the consideration of $50,000 payable pursuant to the management agreement, Exhibit 3 ,· and also in respect of any stamp duty on the option ref erred to in para .10 of the said agreement. I order the defendant to pay the plaintiffs' costs of the action. In the circumstances I consider that it would be appropriate to tax the costs on the Supreme Court Scale. Govt. Printer, Old. -14- 10 20 30 40 50 60 -- 14 of 14 --