Bazos and Anor v Doman and Ors

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40160/00 DC 601/98

PRIESTLEY JA BEAZLEY JA STEIN JA Thursday, 4 October 2001 Peter BAZOS and Anor v Frederick Spencer Howe DOMAN and Ors

The appellants were the guarantors for rental payments under a lease entered into by their company with the respondents. The rental was not paid for a number of months prior to the company going into liquidation. Three sets of proceedings were commenced in the Local Court, being for the balance of rental payments due for 3 months plus interest, the water rates and land tax, and for the council rates. A further Statement of Claim was filed in the District Court seeking unpaid rental for a period of just under two years and interest. The Local Court proceedings for the rates and land tax were discontinued, and the remaining Local Court matter for unpaid rent submitted to arbitration. An award was made by the arbitrator in the sum of $40,000 for the respondents and a re-hearing was sought by the appellants. However, the parties settled on the day of the re-hearing. The settlement included a term by which the appellants had liberty to have the award of the arbitrator reinstated. They neither paid the settlement amount nor had the award reinstated. They then filed a Notice of Motion to have the District Court proceedings struck out or dismissed pursuant to s49(1) of the District Court Act 1973, or stayed pursuant to the principles established in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. They appeal by leave the dismissal of this Notice of Motion by Bowden ADCJ. Held:

Per Stein JA (Priestley and Beazley JJA agreeing):

1. s49 of the District Court Act 1973 does not arise for consideration. No judgment was ever entered up or given, nor was any final order made.
2. The cause of action in the first Local Court proceeding is not the same as that pursued in the District Court. The Local Court proceeding was confined to the recovery of rental arrears for three specific months, whereas the District Court proceedings relied upon the failure for the payment of monthly rental instalments for a separate time period. These were different sets of rights, the relief sought was different and different facts were relied upon.

• Boles v Esanda Finance Corporation (1989) 18 NSWLR 666 per Samuels JA at 673 applied 3) The appellants' submission based on Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 should be rejected. The causes of action were different and therefore no Anshun point arises. There was no likelihood of conflicting judgments between the two sets of proceedings.

• Boles v Esanda Finance Corporation (1989) 18 NSWLR 666 per Samuels JA at 673, Gibbs v Kinna [1999] 2 VR 19 applied.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40160/00 DC 601/98

PRIESTLEY JA BEAZLEY JA STEIN JA Thursday, 4 October 2001 Peter BAZOS and Anor v Frederick Spencer Howe DOMAN and Ors JUDGMENT

1 PRIESTLEY JA: I agree with Stein JA. 2 BEAZLEY JA: I agree with Stein JA. 3 STEIN JA: Introduction 4 The appellants, Peter and Susan Bazos, appeal with the leave of the Court from a judgment of Acting Judge Bowden given in the District Court on 25 February 2000. His Honour dismissed a Notice of Motion filed by the appellants seeking that the respondents' Statement of Claim be struck out or dismissed pursuant to s49 of the District Court Act 1973 or stayed pursuant to the principles established in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. 5 Before turning to the substantial issues agitated on the appeal it is necessary to recite some facts and chronology.

The Facts 6 On 2 September 1988 Elite Wood Products (Australia) Pty Limited (Elite) entered into a commercial lease with the respondents of premises at 62 Parramatta Road, Camperdown for a term of 5 years terminating on 1 September 1993. Under the lease the rental was payable monthly in advance. Pursuant to clause 10 the appellants (being directors of Elite) guaranteed the performance of the lessee's obligations under the lease, including the payment of rent. 7 In June 1991 the lessee began to experience financial difficulties and sought a reduction in rent. This offer was rejected in writing on 19 July 1991. By 5 September 1991 the appellants claimed to have been owed $25,947.93 rental for the months of July, August and September 1991, with respect to which only $12,000 had been paid each month. 8 A liquidator was appointed to Elite in January 1992. The liquidator vacated the demised premises in April 1992. 9 No action appears to have been taken by the respondents until December 1996 when they commenced three proceedings in the Local Court against the appellants (as guarantors under the lease). The evidence contains no explanation for the delay by the respondents. 10 Proceeding No. 13511 of 1996 in the Local Court sought to recover the balance of rental owed for the months of July, August and September 1991 ($25,947.93) together with interest under the lease totalling $20,571.10. A schedule attached to the Statement of Claim indicated that rental was also outstanding from October 1991 to August 1993. At the same time two other Statements of Claim were issued by the respondents in the Local Court against the appellants, one for water rates and land tax and the other for council rates, as due under the lease. 11 The monetary jurisdictional limit of the Local Court is $40,000 (s 12 Local Courts (Civil Claims) Act 1970, 'The Local Courts Act'). 12 On 16 January 1997 the appellants' solicitors wrote to the respondents' solicitors claiming that as the three claims all related to the same cause of action, the respondents were infringing the prohibition on splitting or dividing their causes of action in order to get within the jurisdictional limit in the Local Court. They argued that the proceedings should have been commenced in the District Court and that if the respondents did not remove the proceedings to the District Court, they would apply to do so. In the events which subsequently occurred, no such application was made. 13 By letter dated 4 February 1997 the respondents' solicitors took issue with the appellants' argument. They maintained that there were distinct breaches of the lease by the lessee and denied that they were splitting their case. 14 The appellants filed their defences in February 1997. Essentially they denied any indebtedness on the basis of an oral agreement, alleged to have been made in July 1991, whereby the respondents would accept a reduced rental of $12,000 per month until the lease terminated on 1 September 1993. The appellants claimed that the respondents were estopped from denying the oral agreement. In matter 13511 of 1996 the appellants, in the alternative, claimed that the respondents were not entitled to relief by reason of their commencing the two other proceedings in the Court. Reliance was placed on s13 of the Local Courts Act to the effect that actions should not be split or divided. 15 On 2 February 1998 the respondents filed a statement of liquidated claim in the District Court (No 601 of 1998). The claim against the respondents was in the sum of $699,042.66 for unpaid rental from October 1991 to August 1993 at the rate of $22,110.03 per month ($486,420.66), together with interest under the lease amounting to $212,622. The respondents chose not to serve this Statement of Claim on the appellants until January 1999. 16 On 30 March 1998 the respondents discontinued two of the Local Court matters leaving afoot only the 3 months' rental claim in No. 13511 of 1998. The parties then agreed to submit this matter to arbitration under s21H of the Local Courts Act. 17 On 25 May 1998 the Local Court Arbitrator made an award in favour of the respondents in the sum of $40,000, being the 3 months rental claimed in the Statement of Claim and an amount of interest which was reduced because of the jurisdictional limit of the Court. The Arbitrator gave handwritten reasons. He said, in part: The view I have come to is that I cannot accept the evidence of the defendant. She had, in my view, an extremely selective memory. She remembered conversations which she thought may assist her case but did not remember receiving letters that I accept were sent to her, other conversations or even instructing a firm of solicitors. If I accept that she instructed Mr Carbone in 1991 and if in July 1991 there was an agreement to reduce the rent, then it is inconceivable that she would not have raised that matter with him. I find that that did not happen because there never was such an agreement. 18 On 18 June 1998 the appellants sought a rehearing of the arbitration. However, on the day of the rehearing (19 October 1998) the parties settled. 19 The terms of settlement provide as follows: 1. The Defendants shall pay $31,000 as follows: (1) $5,500 before or on 19 November 1998; (2) $1,500 before or on 19 December, and thereafter (3) 24 instalments of $1,000 on or before the 19th of eachcalendar month in the period commencing 1 January 1999 and ending 19 January 2001 to the Plaintiffs c/- Lynch & Meyer, Solicitors, 2nd Floor, 190 Flinders Street, Adelaide. 2. In default of compliance with 1 above, the Plaintiffs shall be at liberty to file on behalf of the Defendants the Notice of Discontinuance attached, ie the Plaintiffs are to be entitled to have the award of the arbitrator dated 25.5.98 reinstated. 3. By consent the proceedings herein may (sic) stood over generally to be restored on 7 days notice. 20 There is no evidence, one way or another, as to whether the payments specified in paragraph 1 were made by the appellants. There is also no evidence that the matter was ever restored to the list or that the respondents obtained a judgment reinstating the award of the Arbitrator (see s71 of the Local Courts Act). 21 Turning to the proceedings in the District Court. Following service on the appellants of the Statement of Claim in January 1999, the appellants filed their defence. As before, the appellants alleged that by an oral agreement made in July 1991 the respondents had agreed to accept a reduced monthly rent of $12,000. 22 Paragraph 12 of the defence is as follows: In further answer to the whole of the Statement of Liquidated Claim the Defendants deny that the Plaintiffs were entitled to commence or pursue these proceedings as the matters complained of herein have already been dealt with in previous proceedings namely Local Court proceedings issued in the Local Court at Sydney No. 13511 of 1996. The Defendants claim that the Plaintiffs are barred from commencing or pursuing these proceedings as: (a) These proceedings are in contravention of s49 of the District Court Act which prohibits the splitting or dividing of causes of action; (b) These proceedings are an abuse of process and the defendants seek that they be struck out pursuant to Pt 9 rule 17 of the District Court Rules; (c) The plaintiffs are estopped from bringing these proceedings; (d) These proceedings are res judicata. 23 Thereafter the appellants took out a Notice of Motion seeking the dismissal of the proceedings. It was this motion which Bowden ADCJ dismissed and which is the subject matter of the appeal.

The Judgment of Bowden ADCJ 24 In giving his decision dismissing the Notice of Motion his Honour said: In the first proceeding the question was as to a liability for three months rent. In that action a claim for any subsequent payments could not have been raised. It is true however, that the plaintiffs could have widened the scope of their action and sued for everything.

and later: The question is again as stated, was it unreasonable for the plaintiff not to raise the question of the subsequent rent? It is clear it could not raise that subsequent rent in the first action but it could most certainly have widened the scope of its action to include that. 25 Later his Honour posed and answered the question as follows: Was it unreasonable of the plaintiffs not to raise the question of the subsequent rent? It certainly could not have raised it in the action as it was constituted but it could have widened its action. I do think that under the Anshun principle they were obliged to bring forward the whole of their case in respect of the cause of action for which they had sued, namely three months rent. They were not obliged to widen the scope of the cause of action and bring forward other breaches. 26 The Notice of Appeal raises two issues maintained to be errors by his Honour. First, it is said that his Honour ought to have applied the principles in Anshun and found that it was unreasonable for the respondents to proceed in the District Court having first brought a claim in the Local Court. Secondly, it is submitted that his Honour erred in failing to apply s49(1) of the District Court Act. This section provides as follows: Where a person splits or divides any cause of action against another person

(a) so as to bring an action for part of the amount for which an action may be brought on that cause; or (b) so as to plead a cross-claim for part of the amount for which an action may be brought on that cause, and judgment is given or entered up, or a final order is made, on that action or cross-claim, that other person is entitled to judgment in any other action brought or cross-claim pleaded on that cause (whether brought or pleaded in the Court or brought, taken or pleaded in any other court).

The s49 defence 27 In my opinion, there are two answers to the submission of the appellants with respect to s49. The first is that s49 simply does not arise for consideration. The evidence, in particular the terms of settlement in the Local Court, makes it plain that no judgment was given or entered up, nor was any final order made. The Local Court proceedings have been stood over generally with liberty to the respondents to restore. If the terms of payment in paragraph 1 are not complied with, then the respondents are at liberty to reinstate the Arbitrator's award (paragraph 2). In that event, the respondents could obtain a judgment. However, there is no evidence of any breach of paragraph 1 of the terms of settlement. Even in the event of default, it would still be a matter of choice for the respondents to seek to obtain judgment. It is not a self-executing order. 28 Accordingly, in my view there is no room for s49 to operate. There was plainly no merger of the cause of action into the judgment. 29 The further reason for rejection of this submission is that the cause of action in the first proceeding in the Local Court is not the same cause of action as that being pursued in the District Court. The Local Court proceeding was confined to the recovery of rental arrears for the months of July, August and September 1991. It relied on the three breaches of the lease in not paying the full rental for each of the months in accordance with the lease. 30 The rental was payable in advance and if a monthly rental instalment was not paid by the end of the month, a cause of action arose with respect to that month of arrears. 31 The District Court proceedings relied on the failure to pay the monthly rental instalments due under the lease for each of the months between October 1991 and August 1993. 32 These are different rights and it cannot be said that the facts will be the same. The factual issues in the District Court proceedings were outside the ambit of the first proceeding in the Local Court, and vice versa. 33 The right to relief in the two proceedings arose and was complete at different points of time. In the Local Court the right to relief arose at the end of each of the months of July, August and September 1991. The District Court proceedings were different in that the right to relief with respect to the rent did not accrue until the end of each month after October 1991. 34 In Boles v Esanda Finance Corporation (1989) 18 NSWLR 666 at 673 Samuels JA said: It cannot be said that the right to recover an instalment of rent, which was denied in the proceeding before Rogers J, is the same as a right to recover the entire rent. Nor can these two different rights be regarded as different remedies supported by the same facts. 35 So here. The two sets of different rights cannot be regarded as different remedies supported by the same facts. To repeat, the relief sought in each proceeding was different and depended upon the resolution of different facts relating to different breaches. They cannot be said to be in substance an endeavour by the respondents to litigate the same cause of action in the separate proceedings. 36 These conclusions (as to s49) have implications for the alternative argument based on Anshun which is advanced on behalf of the appellants.

The Anshun contention 37 There are a number of reasons why I believe that the appellants' submission, based on Anshun, should be rejected. 38 First, on the analysis referred to earlier, no Anshun point arises. The cause of action in the District Court proceedings could not have been raised in the Local Court proceedings. See Priestley JA in Rahme v Commonwealth Bank of Australia, Unreported, Court of Appeal, 20 December 1991 at 8, cited with approval by the Full Federal Court in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 at 297. 39 The two proceedings must also involve the same or substantially the same facts, Rahme at 7 applied in Bryant at 297. As mentioned earlier, the facts necessary to establish the breaches in the District Court proceeding would not have been relevant to the first proceeding in the Local Court. The facts in the second proceeding cannot be said to be substantially the same as those in the first proceeding. 40 Nor can there be any likelihood of conflicting judgments between the Local Court and District Court proceedings. First, because there was no judgment in the Local Court proceeding, which is still technically before that court with no final order having been made. Secondly, because the success or failure of the District Court proceeding, alleging a failure to pay rent from October 1991 to August 1993, cannot be inconsistent with any earlier judgment (if there was one) with respect to a failure to pay the rental between July and September 1991. 41 In Boles (at 673) Samuels JA said: In a case such as the present, where a second claim is in question, the plaintiff will be estopped from maintaining it if it would, if successful, result in a judgment conflicting with the earlier judgment. That cannot happen here. A judgment recording either success or failure in a claim for the entire rent cannot conflict with (or, is not inconsistent with Brewer v Brewer (at 6 and 15) per Dixon CJ and Fullagar J) a judgment rejecting a claim for an instalment of rent. 42 His Honour regarded this as the critical test. See also Phillips JA (at 21) and Kenny JA (at 27 - 28) in Gibbs v Kinna [1999] 2 VR 19. 43 The above statement of Samuels JA appears to be apposite to the facts of this case also. It is impossible to see how there can be a conflicting judgment in the District Court even assuming, for the purposes of argument, that there was a relevant judgment in the Local Court. 44 There are further obstacles in the appellants' way on the Anshun argument. As Clarke JA said in Macquarie Bank Ltd v National Mutual Life Association (1996) 40 NSWLR 543 at 558, a strict approach is necessary to the inquiry whether there exists the requisite identity between the proceedings. The mere fact that the proceedings are closely related is insufficient (Securum Finance Ltd v Ashton [2001] Ch 291). Many authorities have emphasised that a technical approach is not helpful and that the doctrine is concerned with substance and not form. See, for example, Clarke JA in Macquarie Bank at 558 - 559, Giles J (as he then was) in Onerati v Phillips Constructions Pty Ltd (1989) 16 NSWLR 730 at 738 and Gummow J in Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 108 ALR 335 at 347. 45 In Ling v Commonwealth (1996) 139 ALR 159 at 160 Wilcox J referred to the application of the Anshun principle as a serious step and a power not to be exercised except 'after a scrupulous examination of all the circumstances', (Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 (PC) at 590). It has been said that the doctrine does not apply where the court has never gone into the merits, Jelson (Estates) Ltd v Harvey [1983] 1 WLR 1401. 46 In Macquarie Bank it was found that there was more than one breach, issues raised in the second action were not litigated in the first, the relief claimed differed, different factual issues arose and different omissions were relied upon. Accordingly, Clarke JA concluded that in substance it could not be said that Macquarie was endeavouring to again litigate the same cause of action. Most of the factors referred to by Clarke JA (at 561) are present here. 47 In the circumstances, it is unnecessary to explore the issue of whether the respondents' conduct was unreasonable in not relying on all of their causes of action in the first proceeding. Suffice it to say that Bowden ADCJ's decision on this aspect was a discretionary one and contains no error in principle. Indeed, it is one with which I agree. It was not unreasonable for the respondents to advance the claim they did in the Local Court proceeding. They may well have taken the view, for tactical considerations, to proceed first for the three months rental (July - September 1991). One may assume that proceeding in the Local Court would be more expeditious and cheaper than the District Court. It might also enable the respondents to assess the merits of any defence and the material worth of the appellants, bearing in mind that they were being sued as guarantors. 48 Some of these types of considerations were mentioned by Samuels JA in Boles at 674. See also Clarke JA in Macquarie Bank at 561 - 562. 49 The forensic tactics adopted by the respondents may (and I underline may) have costs implications at the trial. However, this is irrelevant to the res judicata and Anshun submissions relied on by the appellants to ground their motion for dismissal of the District Court proceedings. 50 The appeal should be dismissed with costs. oOo

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