Alamdo Holdings Pty Ltd v Australian Window Furnishings

LEGISLATION CITED : Civil Procedure Act 2005, ss.56, 58, 64

Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] NSWSC 487 Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2005] NSWSC 774 CASES CITED : Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224 Fexuto Pty Ltd v Lombe [2006] NSWSC 981 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125

Alamdo Holdings Pty Limited - Plaintiff PARTIES : Australian Window Furnishings (NSW) Pty Limited - First Defendant Hunter Douglas Limited - Second Defendant

COUNSEL : Mr R.G. McHugh - Plaintiff Mr J.A.C. Potts - Defendant

SOLICITORS : Speed and Stracey - Plaintiff Corrs Chambers Westgarth - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50135/99 ALAMDO HOLDINGS PTY LIMITED v AUSTRALIAN WINDOW FURNISHINGS (NSW) PTY LIMITED & ANOR JUDGMENT 1 I am dealing with an application by the plaintiff (lessor) for leave to amend by filing a further amended summons, which adds a claim that the first defendant (lessee) has failed to reimburse the plaintiff (lessor) upon reasonable demand for moneys paid by the plaintiff that the first defendant (lessee) covenanted to pay under either or both of clause 9.4 and clause 11.5 of the lease, but has not paid. 2 To say that the application to amend comes at a late stage in the proceedings would be an understatement. The plaintiff's summons was filed on 4 November 1999. The proceedings as whole were referred to the Honourable A.J. Rogers QC for inquiry and report. The reference was heard over thirteen days in November and December 2000. An interim report was delivered by the referee to the Commercial List Judge almost three years later, on 16 October 2003. The report described its scope as follows: "In the course of the hearing of the reference, the parties agreed that I should initially report on the question of liability and thereafter, if necessary, after a further hearing, report on quantum. This report is confined to questions of liability but, of necessity addresses damages generally as distinct from quantum." 3 On 29 and 30 March 2004, I heard applications by both parties concerning adoption of the referee's report and related matters. In a judgment delivered on 7 June 2004 ([2004] NSWSC 487), I determined certain questions left outstanding by the referee and dealt with in the parties' contentions concerning rejection of certain parts of the report and adoption of the balance. My judgment of 7 June 2004 addressed various questions of liability under the repair and maintenance provisions of the lease. The parties were directed to bring in short minutes. Certain further matters were dealt with in a judgment of 31 March 2005. On 1 April 2005, I directed that the parties confer in an attempt to agree quantification of those claims in respect of which the plaintiff had succeeded and there had not been any determination of quantum. 4 The parties thereafter engaged in discussions. To assist the process of discussion, the parties sought and I made an order for the determination of a separate question as follows: "Is the plaintiff entitled to recover interest pursuant to the terms of clause 9.4 of the lease dated 28 April 1999 between the plaintiff as lessor, and the first defendant as lessee, on the amounts claimed as damages in these proceedings for breaches of covenants in the said lease by the first defendant?" 5 In a judgment delivered on 2 August 2005 ([2005] NSWSC 774), I answered that question in the negative but added a rider: "The separate question, as it relates to unliquidated damages, must be answered in the negative but with a rider to the effect that there is implied into clause 9.4 the term I have described and that the plaintiff is entitled to recover interest pursuant to the terms of clause 9.4 on liquidated sums that become due by the lessee to the lessor under that implied term." 6 An appeal to the Court of Appeal on various matters related to the defendant's liability as lessee under the lease covenants was heard on 4 and 5 May 2006. The appeal was dismissed on 14 August 2006 ([2006] NSWCA 224). Leave to bring a cross-appeal was refused. I was informed in submissions that an application for special leave to appeal to the High Court on limited issues has been filed. 7 It is in this context that, almost seven years after the proceedings were commenced, I heard the plaintiff's application for leave to amend - an application, I might say, that is strenuously resisted by the defendant not only on the basis of the lateness of the application and the point that has been reached on the pleadings as they stand, but also because the defendant considers the amendment futile; added to which it is said that part of the new claim has been extinguished. 8 Curiously, it seems to me, the submissions made by the plaintiff in support of the application for leave to amend begin by contending that there is no need to add the claim outlined at paragraph [1] above (that is, the claim that the defendant has failed to reimburse the plaintiff on demand by reference to either or both of clause 9.4 and clause 11.5). I quote from the written submissions: "12. The plaintiff ('Alamdo') submits that in these proceedings it has always claimed, in addition to unliquidated damages for breach of covenant, a liquidated amount on account of reimbursement for the costs of the work which Alamdo carried out in making good the premises. 13. First, the relief claimed in the summons included: '1. Judgment in the sum of $928,955.46. 2. Damages. 3. Interest.' 14. Secondly, paragraph C4 of Alamdo's Contentions in the original summons expressly referred to the effect of clauses 9.4 and 11.5 of the Lease (see subparas (k) and (m)). Clause 9.4 of the Lease relevantly provides: 'If the Lessee omits or neglects to pay any money or to do or effect anything which the Lessee has herein covenanted to pay do or effect then on each and every such occasion it shall be lawful for but not obligatory upon the Lessor to pay such money or to do or effect such thing by itself as if it were the Lessee … The Lessee will pay to the Lessor interest at the rate of twenty per centum (20%) per annum on any moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this Lease but unpaid for seven (7) days …' Clause 11.5 of the Lease relevantly provides: 'The Lessee will pay (or reimburse the Lessor for) the Lessor's reasonable legal costs and all duties fees charges and expenses … of or incidental to any and every breach or default by the Lessee hereunder and in or incidental to the exercise or attempted exercise of any right power privilege authority or remedy of the Lessor under or by virtue of this Lease …' 15. Already in these proceedings clause 9.4 has been interpreted by Barrett J (in the judgment of 2 August) as carrying within it a requirement by necessary implication, as follows: '14. … In a case where the lessor pays money as contemplated by the first part of clause 9.4, the implied term requires the lessee to pay to the lessor a sum equivalent to that paid by the lessor. And where the lessor does or causes to be done some other thing as contemplated by the first part of clause 9.4 and, in so doing, pays out money that it is reasonably necessary to outlay in order to do the thing or to cause it to be done, the implied term requires the lessee to pay to the lessor a sum equivalent to that so paid by the lessor. 15. The implied term must, of course, be seen as fixing some time for payment by the lessee. Given the nature of the context (in which the lessor may pay money without the knowledge of the lessee), it must be the case that the lessee's obligation to reimburse does not become due for performance before the lessor gives to the lessee information sufficient to show that the money in question has been paid by the lessor in circumstances attracting the operation of the implied term. Another pre-condition must be that the lessor demands payment by reference to that information and the right of reimbursement arising under the lease. Once both pre-conditions had been satisfied, the law would imply a reasonable time for the lessee to pay, so that the due date for payment (as contemplated by the part of clause 9.4 dealing with interest) would arrive only upon the expiry of that reasonable time after satisfaction of the pre-conditions.' 16. Clauses 9.4 and 11.5 have further been interpreted in the proceedings by Hodgson JA in the Court of Appeal as follows: ' 107. On the second issue, I accept that cl.7.1(c)(i), cl.11.5, and indeed cl.11.12, can give rise to moneys being due by the lessor to the lessee pursuant to this lease, for which there could be a due date for payment and which could then bear interest at 20% if they are not paid within 7 days of that due date, pursuant to cl.9.4. However, in my opinion there would not be moneys due by the lessee to the lessor on any particular date in consequence of those clauses unless and until a proper demand had been made; and in my opinion that demand must sufficiently identify the amount payable, and must also sufficiently identify the basis on which it is payable, by sufficiently adverting to the relevant provision of the lease and the facts and circumstances that engage that provision." 17. Thirdly, the amended summons (filed in court on 1 April 2005) also referred to the effect of clause 7.1 (see subpara.(o)). That clause provided for an indemnity in certain circumstances - in other words, a liquidated sum. 18. Fourthly, Barrett J appears to have proceeded on the footing, when answering the separate question in the way in which he did, that the question whether Alamdo was entitled to claim a liquidated sum was already at issue in the proceedings. It was not suggested that it was necessary for Alamdo to amend. 19. Alamdo also submits that in these proceedings it has always claimed interest on its claim for reimbursement in a fixed sum, and not merely on the claim for damages for breach of covenant. a. Prayer 3 of the relief claimed clearly makes a claim for interest, both on the liquidated sum in prayer 1 and on the damages in prayer 2. b. And paragraph 4(k) of Alamdo's contentions claimed interest pursuant to clause 9.4 of the Lease 'at the rate of 20% pa on any monies due by the Lessee to the Lessor on any account whatsoever pursuant to the Lease'." 9 It is clear from the summons as it stands that both clause 9.4 and clause 11.5 were referred to in paragraph 4 under the heading "Plaintiff's contentions". That paragraph began, "The Lease contained terms and conditions to the following effect ('the Covenants')". In sub-paragraphs (k) and (m) there are condensed paraphrases of clauses 9.4 and 11.5 respectively. In the particulars to paragraph 8 (which paragraph begins, "as a consequence of the Breaches the plaintiff has suffered loss and damage"), appears a sub-paragraph (f): "Interest pursuant to clause 9.4 of the Lease." 10 It is against this background that the plaintiff says, in effect, that amendment is unnecessary and that the application for leave to amend is made out of an abundance of caution. That being so, the plaintiff contends, the matter should be put on to a more explicit footing particularly since the amendment sought will not fail any of the applicable tests derived from ss.56, 58 and 64 of the Civil Procedure Act 2005 (as summarised at [s.64.10] of Ritchie's "Uniform Civil Procedure (NSW)"): (a) that the amendment is so obviously futile that it would be liable to be struck out if it had appeared in the original pleading; (b) that the application for leave to amend is made for an improper purpose; (c) that the amendment causes prejudice to the other party that cannot be compensated by appropriate consequential orders, including costs orders; (d) the amendment is contrary to the interests of justice. 11 As to the first of these matters (futility), it was submitted on behalf of the plaintiff (and I accept) that the question to be addressed is whether the added claim is of the character stated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at p.129: "The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense'." 12 The question of futility was addressed in an indirect way by two members of the Court of Appeal. Hodgson JA said at [109] - [110]:

"[109] … It seems clear from the documents before this Court that the documents relied on as demands do not clearly show the amount properly claimed, the provisions of the lease relied on and the facts and circumstances giving rise to the liability. If the documents in question are to be adequate demands, it is likely that there would need to be a quite close examination of the facts and circumstances surrounding those demands.

[110] Plainly, Alamdo's pleadings have never included a claim for interest on this basis; and the argument before the primary judge on the separate question did not involve any determination of either such a claim or whether such a claim should be permitted at this late stage. In my opinion, the appropriate course for the primary judge would have been simply to answer the question no, this being a correct answer to the question, and one that could not be considered misleading when considered in the light of the claims that were actually before the Court. The rider that the primary judge gave in par.[17] could be considered as suggesting that Alamdo can pursue a claim on that basis in these proceedings, and that is a further reason for thinking the rider should not have been added: if, as seems to be the case, pursuit of this claim would require further factual investigation, the amendment now sought may not be permitted." 13 Basten JA said at [125]: "In relation to the claim for interest under the contract (issue (5)), I am not inclined to grant leave to appeal. I agree with Hodgson JA that the primary judge answered the question correctly, and in the negative. Both parties challenge the addition of the rider. Alamdo does so because it sees it as unduly restrictive; AWF does so because it sees in it an invitation to Alamdo to expand the grounds of its claim. Whilst AWF may be correct in saying that Alamdo should not be invited to reformulate its claim at this late stage, it seems unlikely that Alamdo would succeed on the basis of the rider, a view which presumably triggered its own challenge to the rider. In any event, I do not see the addition of the rider as providing an invitation to Alamdo which is likely to bear fruit." 14 The plaintiff says, however, that these observations were made by reference to only one of twenty-four relevant documents, being the only one before the Court of Appeal. The plaintiff's contention is that, when that one document is put together with the twenty-three others, it is seen that the plaintiff did, at various stages of the parties' relationship, make demands and gave explanations sufficient to satisfy the requirements outlined at paragraphs 15 and 16 of the extract from submissions set out at [8] above. The defendant's contention is that none of the twenty-four documents communicates any message even capable of constituting a demand sufficient to satisfy the requirements mentioned. 15 It can be said at once that none of the twenty-four documents (of which no less than twelve are, in any event, documents emanating from the defendants, not the plaintiff) contains in simple and forthright terms any demand identified as based on clause 9.4 or clause 11.2. There is, rather, a chain of correspondence over a considerable period many items of which take their meaning in part from other items. I refer to four documents (or groups of documents) upon which the plaintiff places particular reliance.

16 The first is a letter of 3 February 1999 from the plaintiff reminding the defendants of the things to be done by them before expiry of the lease and enclosing a list of particular items of work running to about 150 entries. The letter concluded: "I also remind you that should you not carry out your obligations, Alamdo will carry out and complete the work and then recover the costs from you." 17 The second document is a letter of 20 April 1999 from the plaintiff conveying "some short comments" and running to seventeen pages plus a two page enclosure. This letter set out the plaintiff's understanding of the position reached on numerous aspects. It is sufficient to quote the last two paragraphs: "I attach a list of additional work required under AWF's lease obligations. Some of the items serve as further definition of previous items and others are items of work not previously included on the list.

Alamdo has commenced carrying out all of the above work which remains outstanding and will claim from AWF the costs of that work, together with project management, supervision fees and other losses which Alamdo may suffer as a consequence." 18 The third document relied on by the plaintiff is a letter from the plaintiff dated 20 May 1999 which reads as follows: "Further to my letter to you dated 20 April 1999, I wish to bring to your attention my preliminary estimate of the costs of the make good work that Alamdo is undertaking on behalf of AWF, and other losses.

The attached bill comprises of the costs of work actually carried out, works contracted and works to be contracted. I have estimated the costs of the latter, based on verbal communications with contractors. The bill also includes rent and interest.

Although I do not have final quotes for some of the work, because of the large amount involved I thought it best to let you know now, the likely total costs.

I shall present to you the final bill for payment when I have firm quotes for the works that I have estimated." 19 The schedule enclosed with this letter set out accounts for twenty seven types of work (designated by trade, such as "bricklayer" and "carpenter"), with a sub-total of these designated "Total Direct Costs" ($613,606.00). Then there were "indirect costs" of $90,000.00, giving "Total works cost" of $703,606.00. There were then "Additional costs" of $260,000.00 for four months rent and $32,000.00 for "Interest at 20% per annum to 30 June 1999, estimated". 20 The fourth document is a letter of 7 September 1999 from the plaintiff as follows: "As promised I now present to you the final bill for payment. Much of the work is now completed or contracted and, for the remainder, I have firm quotes that I am prepared to accept.

Our claim including lost rental and interest to date is for $970,494.04.

We hold your company liable and indebted to us for the whole amount.

Please send a cheque for that amount within seven (7) days in full and final settlement.

I attach a break-up of the claim." 21 Enclosed with this letter was a revised version of the schedule sent with the letter of 20 May 1999. It included a figure of $29,164.57 for "Interest at 20% per annum to date". 22 It is the defendants' contention that none of these letters (and none of the remainder of the twenty-four documents identified by the plaintiff) conveys anything capable of constituting a demand sufficient to trigger a right to reimbursement under either the implied part of clause 9.4 or clause 11.5. In the defendants' submission, only the letter of 7 September 1999 comes even close to constituting a demand. But, it is said, the document is not sufficient to enliven either or both of clause 9.4 and clause 11.5. It does not give the lessee sufficient information to show that money has been paid by the plaintiff in circumstances attracting the operation of the implied term in clause 9.4. It does not demand payment by reference to that information and the right of reimbursement arising under clause 9.4 of the lease. The letter describes the schedule as "the final bill for payment". The letter and the schedule do not identify the basis on which the amounts are said to be payable, by sufficiently adverting to the relevant provision of the lease and the facts and circumstances to engage the provision. 23 In addition, the defendants point out, it is plain that the schedule enclosed with the letter of 7 September 1999 includes numerous items on which there had been no actual expenditure. This is made clear in the letter which, in explicit terms, refers to three categories of work, namely, work already completed, work already contracted and work for which the plaintiff had firm quotes that it was prepared to accept. In the detailed schedule, there are particular items (with amounts) labelled "expended", others (again with amounts) designated "part expended", "contracted", "estimate", "quote" and "no cost". In addition and as the defendants point out, many of the items labelled "expended" or "part expended" have now been paid by the plaintiff and others are items which the defendants were found to have no liability or responsibility for under the lease. 24 In summary, the defendants' submission is that the letter and the accompanying schedule, even where they refer to amounts "expended" do not provide the basic information necessary to activate the implied part of clause 9.4 or clause 11.5. 25 I accept the defendants' submissions on this matter. Applying paragraph 15 of my judgment of 2 August 2005 and paragraph 107 of Hodgson JA's judgment in the Court of Appeal, it is necessary that any demand provide a clear basis upon which it can be seen precisely how much the lessor has paid for a particular item of work and precisely why it is that the doing of that work was the responsibility of the lessee under the lease. Having given that information with respect to particular work done, the lessor must make demand "by reference to that information and the right of reimbursement arising under the lease" (to quote from my judgment) or "by adverting to the relevant provision of the lease and circumstances that engage that provision" (to use the words in Hodgson JA's judgment). The letter of 7 September 1999, even read in the light of the earlier correspondence, does not provide these essential particulars. It contains no analysis from which the recipient could discern that the lessor was intending to assert and rely upon the particular contractual right in respect of any particular item made by the lease the responsibility of the lessee, as distinct from making an ambit claim for everything the lessor thought needed attention. The particularity necessary to constitute a demand grounded in one or other of the clauses is plainly lacking. 26 The remainder of the twenty-four documents does not advance the plaintiff's case. The application thus fails the test of futility referred to at paragraph (a) of [10] above and the plaintiff will not be permitted to amend. 27 I would add that I also accept the defendants' submission that part of any such new claim has been extinguished by payments already made by them. 28 I would also add that I am not satisfied that it would, in any event, have been conducive to the just, quick and cheap determination of these proceedings to allow them to be extended and reformulated after having been on foot for almost seven years and having reached the point they have reached on the basis of the existing pleadings. As Campbell J recently observed in Fexuto Pty Ltd v Lombe [2006] NSWSC 981, the Civil Procedure Act has given the Court a power to give greater weight than previously to considerations of case management. 29 The matter should proceed on the present basis. The plaintiff's application for leave to amend is dismissed with costs. **********

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