Dib Group Pty Ltd v Cancian Nominees Pty Ltd

Background 5The following facts are either common ground or taken from the Presiding Magistrate's findings of fact. It is fair to describe the factual substratum of the case as convoluted. It reads somewhat like an out of control commercial law examination. I have left out those facts that concern Dib's fuel claim. 6At some point in the late 1990s Proven Properties Pty Ltd ("Proven") acquired ownership of the land upon which the service station was located (the "property"). Proven was associated with the Dib family. It later changed its name to Makhlouf Enterprises Pty Ltd ("Makhlouf"). 7In 2002 Proven borrowed $900,000 from Cancian. Both his Honour and the parties described this arrangement as constituting, or at least involving, an "old system mortgage" even though the property was Torrens title land. The effect of the arrangement was that Cancian became the registered proprietor of the property but Proven, and then later Makhlouf, acquired an equity enabling it to require the retransfer of the property if it fulfilled its obligations in respect of the loan. 8In any event in February 2003 Cancian leased the property to Dib (the "2003 lease"). Clause 3 of the 2003 lease recorded that Cancian leased the premises as well as the lessor's fixtures and chattels which were identified in item 5 of the "Reference Schedule" as follows: "Underground tanks Lessor's fixtures: Air conditioning, ... shelving, compressor. Lessor's chattels: Four (4) dual pumps, One (1) hoist, one (1) diesel pump, One (1) kerosene pump." 9Subclause 30(1) of the 2003 lease provided as follows: "The Lessee shall keep the Leased Premises and the Lessor's fixtures and chattels situated in the Leased Premises in good repair and working condition throughout this Lease and shall on expiry or termination of this Lease yield up the Leased Premises to the Lessor in the state of repair and condition as is specified in this clause." 10Subclause 30(4) of the 2003 lease imposed on the lessee, that is Dib, an obligation to, inter alia, carry out the "maintenance and repair of all above ground plant and equipment, including but not limited to pumps and fuel supply lines". Clause 34 empowered the lessee to remove all the fixtures that it had installed subject to its obligation to repair any damage caused. Subclause 34(3)(e) of the 2003 lease had the effect that, if the lessee did not remove its fixtures within fourteen days of ceasing to occupy the premises, then they "may at the Lessor's option, remain permanently affixed to the Leased Premises and be and remain the property of the Lessor". 11In February 2005 Dib replaced the petrol pumps at the service station. According to his Honour the old pumps were placed in storage. 12On 30 January 2010 Proven, now called Makhlouf, defaulted on the so-called "mortgage". On that day Makhlouf, Dib and Cancian entered into a deed (the "Deed of Surrender"). Pursuant to the Deed of Surrender Makhlouf agreed to surrender all its rights, title and interest "in the security described in the Deed of Mortgage" which was a reference to the property and any improvements thereon. By clause 5 of the Deed of Surrender Dib acknowledged that it occupied the "security" as a mere licensee and had no other interest in the "security". At least so far as Dib was concerned the term "security" referred to in this acknowledgement was described as being the real property upon which the service station was situated. 13From 1 February 2010 Cancian re-leased the service station to a new tenant, Lexielou. It was not in issue that by that stage Dib had given up occupation of the service station. Subject to what follows that fact would ordinarily engage the obligations in relation to the removal of its fixtures in the 2003 lease that I referred to earlier. 14Although Dib ceased to be a tenant of the property it then assumed a role as a petrol supplier to Lexielou. It entered into a "Fuel Reselling Deed of Agreement" with Lexielou around the same time (the "Fuel Reselling Agreement"). 15The interrelationship between the Fuel Reselling Agreement and the lease between Cancian and Lexielou (the "2010 lease") is somewhat opaque. 16By subclause 3(b) of the 2010 lease Cancian granted Lexielou use and enjoyment of the "Lessor's Fixtures and the chattels" listed in item 5 of the schedule to the lease. Item 5 of the schedule to the 2010 lease in turn referred to an inventory attached to the lease (the "Inventory"). The Inventory listed certain items as the "Lessor['s] Plant, Fittings and Fixtures". However, it also listed various items as the "Franchisor's Plant, Fittings and Fixtures". The letter included an item described as "Metro ID signs" and items bearing the numbers 2, 4, 6, 7 and 8, being "4 x 2 hose pumps, "shelving", an "air hose", an "air compressor" and a "fire extinguisher" respectively. 17By subclause 24A(5) of the 2010 lease Lexielou acknowledged that the 2010 lease was "interdependent" with the Fuel Reselling Agreement pursuant to which Dib was the franchisor, such that a breach of a term of the 2010 lease was deemed to be a breach of the Fuel Reselling Agreement). In addition, item 13 of the schedule to the Fuel Reselling Agreement provided that the plant, fittings and fixtures "set out in the attached inventory are, and remain the property of the Supplier", with the reference to the supplier being a reference to Dib. The Inventory attached to the Fuel Reselling Agreement was the same as the Inventory attached to the 2010 lease other than certain immaterial alterations. 18On 10 February 2012 Cancian re-entered the service station and thereby terminated the 2010 lease. It seems that on 12 February 2012 persons acting on behalf of Dib entered the service station and removed some signage and a support structure. I describe this further below but its actions in doing so form the basis for Cancian's cross claim.

Grounds 5 and 6: Rejection of Dib's conversion claim in respect of its fixtures and chattels 19Dib pleaded that, when it re-entered the service station in 2002, Cancian converted the items listed as "Franchisor's Plant, Fittings and Fixtures" in the inventories to the 2010 lease and the Fuel Reselling Agreement that I have described. Cancian's defence denied that Dib had any title, interest and specifically any right to possession of those items. His Honour upheld Cancian's contention in that regard. Grounds 5 and 6 of the appeal allege that his Honour erred in law in doing so. To consider these grounds it is necessary to explain his Honour's reasoning in respect of this part of Dib's claim in more detail. 20His Honour considered that there was something of a conflict between the four contractual documents that I have described, namely the 2003 lease, the Deed of Surrender, the 2010 lease and the Fuel Reselling Agreement. His Honour considered that the effect of the 2003 lease was that any fixtures placed on the service station by Dib became the property of Cancian, at least from a point after Dib ceased to occupy the premises. His Honour also found that by placing four pumps on the service station in 2005 Dib was only giving effect to its obligation to repair and, if necessary, replace the lessor's fixtures and chattels. 21His Honour then addressed the interrelationship between the 2010 lease, the Fuel Reselling Agreement and the Deed of Surrender as follows: "[T]he Fuel agreement and the lease to Lexielou are cognate documents and must relevantly be treated as one for the purposes of construction. They each provide that the pumps and other items are the property of Dib Group. They contradict the much earlier lease from Cancian to Dib Group, which provides that they are the property of Cancian. The much later deed of release and surrender acknowledges that Dib Group had no interest in 'the security' (which must mean the real estate and fixtures), and it therefore brings one back again to the position that Cancian owns the fixtures, which must include the pumps. As a matter of construction, a later provision in a document, or in a later document, will often override an earlier provision." (emphasis added) 22His Honour then referred to the decisions in Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 and National Bank of Australasia Ltd v J. Falkingham & Sons [1902] AC 585 in support of the suggested principle of construction to which his Honour referred. His Honour then continued: "In my view, therefore, if it is not possible to arrive at the parties' intention as a whole, the later surrender deed will have the effect of negating the earlier Fuel agreement and also the lease to Lexielou, and will be regarded as correctly noting the property in the pumps and other fixtures in Cancian. Loose chattels, of course, are in a different category, but because I think effect was not properly given to the parties' intention so far as the (very valuable) pumps are concerned, I infer that a similar mistake was made in respect of those other items, and they too should be seen as the property of Cancian. It follows that Dib Group fails in respect of the fire extinguisher, shelving and air-conditioner, air hose and compressor." (emphasis added) 23I will return to consider this reasoning shortly but at this point I note two other aspects of his Honour's reasoning. First, after this point in the judgment his Honour analysed the approach adopted at common law in relation to tenants' removable fixtures and chattels, namely, that with the former the tenant can remove them during the lease and shortly after the tenancy terminates but if the tenant does not they become the property of the lessor. In the course of stating that his Honour appears to have accepted that each of the items the subject of this aspect of the case was either a chattel or a tenant's removable fixture capable of being removed without damaging the premises. It is true that, in the case of the pumps, his Honour found that they were installed on the property by Dib pursuant to its obligation to repair the lessor's pumps but in the end result, given the view I take of the primacy of the 2010 lease and the Fuel Reselling Agreement, this is of no moment. Otherwise his Honour accepted that, at common law, chattels always remain the property of the tenant. 24Second, his Honour referred to evidence that he had heard from a Mr Basil Macree, who was the sole director of Cancian and also had acted as the solicitor for Dib in relation to at least the preparation of the 2010 lease and the Fuel Reselling Agreement. Apparently Mr Macree had stated that the inclusion of at least some of the items in the Inventory attached to both was a mistake. He stated that it was intended that the pumps and presumably other items were intended to be listed or referred to as Cancian's property. His Honour accepted Mr Macree's evidence. His Honour found that: "Against a backdrop of a mortgage on which Makhlouf had defaulted and a settlement by which the remaining debt was forgiven, it seems to me to be likely that the parties intended that Cancian should take the whole of the property including fixtures such as pumps and other things. They were effectively described in the earlier lease to Dib Group as the property of Cancian." 25Although his Honour referred to the "parties" in this extract it is notable that nowhere in his judgment did his Honour make any finding that any director or other officer of Dib shared the mistake stated by Mr Macree or was aware that Mr Macree was labouring under it. It may be that his Honour has equated Mr Macree's state of mind with that of Dib, presumably because he was Dib's solicitor at the time of the transaction. If that is what his Honour did then his Honour erred in law in doing so. In the circumstances in which Mr Macree was acting his state of mind could not be equated to that of Dib for the purposes of the application of any common law or equitable doctrine of mistake. 26In any event, his Honour appeared to accept that these findings were of no significance in that his Honour noted the Local Court did not have an equitable jurisdiction to order the rectification of the 2010 lease or the Fuel Reselling Agreement to accord with what Mr Macree stated was its original intent. Leaving aside equity, it could not be suggested that any "mistake" in this respect warranted the agreements being rendered void at common law assuming that is still the position (see Cheshire and Fifoot's Law of Contract, 9th Australian edition (2012) at 641). Of course the existence of a mistake by a party to a contract shared or known to the other party may entitle the Local Court to intervene under the Contracts Review Act 1980 or such source of power it has to intervene on unconscionability grounds. However, it is not necessary to consider this further. Before me neither party suggested that his Honour's conclusion about the ownership of the items relevant to this claim rested upon anything other than the approach to the construction of the four agreements I have set out above (at [8], [12] and [16]). In that respect it should be noted that the proper construction of those agreements was always, and still remains, a question of law. 27The bulk of Dib's written submissions in respect of these grounds seeks to have the court revisit various aspects of the evidence. In that respect they do not raise any questions of law but only questions of fact. However, Dib's written submissions did identify two potential areas of construction which its counsel, Mr Tyndall, focused upon in oral argument. I will deal with each in turn. 28The first is an alleged error in the extracts that I have set out above (at [21] to [22]) as to the relative timing of the 2010 lease and the Fuel Reselling Agreement on the one hand and the Deed of Surrender on the other. In the passage set out at [21] his Honour accepted that the clear effect of the 2010 lease and the Fuel Reselling Agreement was that they recognised Dib's ownership of items 2, 4, 6, 7 and 8 in the Inventory. Mr Tyndall submitted that his Honour only found that that effect was negated by erroneously treating the Deed of Surrender as being executed "much later" and then applying a rule of construction that gave pre-eminence to the later in time of the two sets of agreements. Counsel for Cancian, Mr Darvall, submitted that, in context, his Honour was only referring to the Deed of Surrender being executed much later than the 2003 lease and not the 2010 lease and the Fuel Reselling Agreement. I do not agree. The passages clearly indicate that his Honour treated the Deed of Surrender as the last of the relevant contractual documents and gave it pre-eminence in resolving the question of construction that his Honour posed. His Honour was clearly in error in doing so. It was common ground that the Deed of Surrender was executed before the 2010 lease and the Fuel Reselling Agreement. 29The other suggested error of law concerns his Honour's analysis of the effect of the Deed of Surrender. Mr Tyndall submitted that his Honour erred in concluding that because, in the Deed of Surrender, Dib disclaimed any interest in the "security" that meant that it thereby disclaimed any title or rights to the tenant's removable fixtures on the premises. I accept this contention. As I have stated, at one point in the judgment his Honour analysed whether the "fixtures and fittings" the subject of this part of the claim, such as the pumps, were fixtures removable by the tenant or became part of the property. His Honour concluded that the former was the case. That conclusion was necessarily inconsistent with his Honour's conclusion that the effect of Dib's acknowledgement in the Deed of Surrender that it had no interest in the "security" meant that it disclaimed any interest in the tenant's removable fixtures. The true position was that it did no such thing. 30As at 30 January 2010 Dib's rights in relation to the tenant's removable fixtures were governed by the terms of the 2003 lease which I have described. Absent further agreement it would have been deprived of them if they were not removed within 14 days of ceasing occupation. In respect of the pumps it arguably had been deprived of them if effect is given to his Honour's finding that they were only placed on the property to comply with Dib's repair obligation. However, there was further agreement, namely the interdependent 2010 lease and the Fuel Reselling Agreement, in which Dib asserted and Cancian acknowledged the former's ongoing ownership of those items. This was not affected by the Deed of Surrender irrespective of when it was executed. The disclaimer of an interest in the "security" simply did not extend to those items. 31It follows that I consider that his Honour erred in law in finding that those items in the Inventory that I have referred to which were tenant's removable fixtures were the property of Cancian as at 2012. The remaining items in the Inventory were all chattels. It also follows that his Honour's conclusion in relation to them was also erroneous in law. His Honour's finding as to the presumed intention of the parties concerning those items was only based upon an extension of the reasoning concerning the construction of the agreements which I consider was erroneous. 32It was implicit in his Honour's judgment that if Dib had established its ownership, or more accurately its right to possession, of the items listed as 2, 4, 6, 7 and 8 of the Inventory then Cancian had in fact converted them to its own use. However, his Honour did not make any findings concerning the value of those items which is the amount that would be payable to Dib had it proved its case. 33Ground 6 of the appeal invites the court to make the necessary findings to complete Dib's cause of action. The written submissions refer to various items of evidence which were said to quantify the balance of its claim. However, in Lesley-Swan v Owners Strata Plan 32735 [2013] NSWSC 1635 at [70] to [75] I concluded that, on an appeal on a question of law under s 39(1) of the Local Court Act 2007, this court does not have the power to engage in fresh fact finding (citing Thaina Town (On Goulburn) Pty Ltd v City of Sydney Council [2007] NSWCA 300; 71 NSWLR 230). I adhere to that view. Instead, the matter will have to be remitted to the Local Court for a further hearing to ascertain the quantum of damages that Dib may recover in respect of this claim. Accordingly, it follows that I uphold ground 5 of Dib's appeal but I reject ground 6.

Ground 3 - Cancian's cross claim 34Ground 3 of Dib's appeal contends that his Honour erred in law "in his finding of conversion in relation to the removal of the sign board and its supporting structure" by Dib. It seems that, at the time of the re-entry in 2012, there was present at the service station a "Metro" sign sitting on top of some metal pylons. Also attached to the pylons was a "price board" which displayed the price of petrol from time to time. At around this point Mr George Dib arranged for the removal of this structure from the service station. Cancian accepted that the Metro sign was the property of Dib. However, it contended that the price board was its property. Thus, by its cross claim it sought damages for the cost of temporarily and then permanently replacing the price board. 35In its defence to the cross claim Dib denied that Cancian owned the price board and instead asserted that it did. At the hearing in the Local Court there was only some brief evidence as to how the support pylons were attached to the property. This evidence was given by one of Dib's witnesses, Mr Mintilakis, who was asked and answered as follows: "Q. Appearing above the top of the Commodore there is a Metro sign. Do you see that? A. Yes. Q. You're aware that that metro sign was on a frame below which there was a price board? A. Yes. Q. And that the frame of that price board was set in concrete? A. Yes. There's a footing for it and then it's bolted to it." 36His Honour found that by removing the signboard and the supporting structure Dib had converted Cancian's property. Dib alleges his Honour erred in law in doing so. In particular, Dib contends that his Honour erred in finding that Cancian owned the price board and the supporting structure. It also contends that his Honour erred in awarding damages to Cancian in circumstances where the cost of replacing these items was borne, at least initially, by the new tenant of the service station and not Cancian itself. Cancian disputed that this latter contention was embraced by Dib's ground of appeal. 37For reasons that I will explain it is not necessary to address the latter argument although it appears to have force. In any event the second complaint of Dib appears to have little substance. If Cancian had proven its ownership of the price board and supporting structure then the mere fact of the removal of those items coupled with their non-return of itself constituted damage. The amount incurred by the new tenant in replacing them may have simply assisted in quantifying the amount of Cancian's loss. Further, Mr Darvall pointed to the evidence that the tenant had in fact come to an arrangement with Cancian by which it would be reimbursed for its expenditure. 38In relation to the first contention the only part of his Honour's judgment that explains the basis of the finding that the price board and supporting structure belonged to Cancian was the following: "Whether fixtures can be removed without damaging them or the structure will help to determine whether they are lessor's or tenant's fixtures ... While on this test the shelving might be seen as able to be removed, the structure for the price board was so substantial that it seems likely removal damaged the premises. There could not but have been damage to the concrete apron base. A tenant may remove his fixtures during the lease, or within a reasonable time from the end of the lease. ... The support structure for the price board was removed afterwards, and on this test would not be authorised for removal. There is no evidence whether their removal damaged the premises, nor is there any express provision in the lease to Dib Group allowing their removal. I conclude that as solidly affixed structures they were lessor's fixtures, and that they should not have been removed." 39In the first part of this passage his Honour regarded it as significant that the removal of the support structure was likely to damage the premises, especially the "concrete apron base". With respect to his Honour there was no evidence to support that assessment. The only evidence concerning the attachment of the pylons to the property was that given by Mr Mintilakis to which I have referred. His evidence appeared to suggest the support structure for the price board was capable of being removed by unbolting it and without doing any damage to the concrete apron base. Certainly the contrary was not shown or indicated. This is in fact borne out by the passage in which his Honour accepted that there was no evidence that the premises were in fact damaged when the support structure was removed. That was a matter that suggested that they were not "solidly affixed structures". Nevertheless his Honour's erroneous finding that it was likely that removal of the support structure for the price board would damage the premises appears to have informed his Honour's conclusion that they were fixtures to the premises and thereby became Cancian's property. In so reasoning his Honour erred in law because his Honour's conclusion was affected by a finding of fact in respect of which there was no evidence. 40After oral argument had concluded Mr Darvall provided short written submissions pointing out that, pursuant to the provisions of the 2003 lease to which I have already referred, the price board and the pylons supporting it would, even if they were tenant's removable fixtures, have reverted to the ownership of Cancian as Dib did not remove them within fourteen days of ceasing occupation in late 2010. Just prior to giving judgment Mr Darvall then referred me to the following part of his Honour's judgment which comes immediately after the passage that I have extracted above (at [38]): "Once a tenant leaves without removing fixtures he will be taken to have abandoned them. The shelving, and for that matter the support for the price board, fall into this category. The support for the price board was removed when the plaintiff's Metro sign was removed, and replaced by Cancian. Subject to express provisions in the lease dealing with Dib Group's right to remove them, they too must be taken to have become or remain[n] the property of Cancian." 41It is not clear whether these passages represent an independent basis for his Honour having found that the price board and the supporting structure became the property of Cancian and ceased to be the property of Dib. However, even if they did there is another difficulty with this aspect of his Honour's reasoning. Mr Tyndall referred the Court to clause 21 of the 2010 lease which, as I have stated, was "interdependent" with the Fuel Reselling Agreement and clearly superseded the 2003 lease. It provided: "21. SIGNS Business Name Product and Price Sign (1) The Lessor acknowledges that all signs relating to business name, product and product price are the property of the Lessee or one of its related companies collectively referred to as the Dib Groups. Repair and Maintenance of Signs (2) The Lessee shall throughout the terms of this Lease be responsible for the repair and maintenance of all signs and pylons referred to in (1) hereof." 42This clause appears to represent a significant hurdle to Cancian's cross claim and was a matter that was not addressed in his Honour's judgment. Even if the further passages to which I was taken by Mr Darvall provide an independent basis for his client establishing ownership of the price board and support structure it was still necessary for his Honour to address the effect of clause 21 of the 2010 lease upon Cancian's assertion that it was the owner of the price board and its support. 43Finally I note that there was a further argument raised on behalf of Dib that the reference to "Metro ID signs" as referred to in the Inventory was a concept that embraced at the very least the pylons and arguably the price board. There was some support in the evidence for the proposition that the signs embraced the support, especially when one has regard to the 2003 lease. However, it is not entirely clear to me that that argument was agitated with any degree of clarity before his Honour. 44In the end result I am satisfied that his Honour erred in law for the reasons I have identified earlier in so far as his Honour found that the price board and support structure were so-called "solidly affixed structures" such that they became Cancian's property. Further, I am not persuaded that there was any other basis that his Honour found supported Cancian's right to ownership of the price board and support structure but, even if there was, it would have been necessary for his Honour to address the term of the 2010 lease to which I have referred, namely clause 21. 45None of the arguments before me were developed to the point that I could positively conclude that Cancian's cross claim was bound to fail. However, I am satisfied that to the extent that his Honour did find that Cancian was entitled to ownership or possession of the price board and its supporting structure that his Honour's reasons reveal an error of law. 46Accordingly, I uphold ground 3 of Dib's appeal. This conclusion renders it unnecessary to consider the arguments concerning the qualification of the amount that his Honour awarded in respect of the cross claim.

Ground 7 - Costs 47By a separate ground of appeal Dib also challenged his Honour's costs order. His Honour did not provide separate reasons for ordering Dib to pay Cancian's costs and it is clear from the transcript of the submissions that the debate turned, as it had to, on an assessment of the success achieved by the parties. As two of the three substantive claims that were agitated will now have to be reconsidered it must follow that his Honour's costs order cannot survive.

Relief 48It follows from Dib's success and the limited role of this Court in terms of fact finding that the matter will need to be remitted to the Local Court. Pursuant to s 41(1)(c) of the Local Court Act I will direct that the court determine the matter in a manner consistent with this judgment. 49It is appropriate that I note some aspects of that requirement. The direction will mean the parties will not be able to re-agitate his Honour's previous assessment of Dib's fuel claim. That matter has been determined and no appeal has been brought from it. Further, the court will have to determine Dib's claim that Cancian converted items 2, 4, 6, 7 and 8 in the Inventory to its own use but it must do so on the basis that Dib has established its ownership and right to possession of those items upon the termination of the 2010 lease. Cancian's cross claim will remain to be determined but that must be undertaken in a manner consistent with the construction of the various agreements enunciated in this judgment. 50Finally, the cost of the proceedings in the Local Court prior to the commencement of this appeal will be a matter for that court and must await its re-determination of the matter. 51Accordingly the Court orders that: (1)The orders of the Local Court made 3 May 2013 in proceedings 2012/103905 be set aside. (2)The matter be remitted to the Local Court for determination in accordance with a direction that it do so in a manner consistent with this Court's judgment. [The parties addressed on costs.] 52Mr Tyndall relies on a Calderbank letter sent on 24 May 2013. Understandably the Calderbank letter sought to resolve the entire proceedings. Given the conclusions that I have come to it is simply not possible at this stage to predict that the outcome would mean that his client has beaten its own offer. Accordingly, the circumstances in which the Calderbank offer could give rise to an order for indemnity costs have not arisen. 53Accordingly, I order: (3)The defendant pay the costs of these proceedings on the ordinary basis. (4)Grant leave to the defendant to have a certificate under the Suitors' Fund Act 1951 if otherwise qualified.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 December 2013