HIS HONOUR: By an amended statement of claim filed 11 July 2017, Medi-Aid Centre Foundation Ltd ("the plaintiff") brought proceedings for vacant possession of its property, being the ground floor, level 1 and level 2 of 60 Campbell Street, Parramatta ("the premises"), together with claims for rental arrears, mesne profits (pursuant to an express contractual right and at law) and damages against Joys Child Care Ltd ("the defendant"). The defendant operated a child care centre on the premises called "Joys Child Care" ("the centre"). The plaintiff also sought orders for rectification of the terms of the clause of an agreement to lease, interest and costs.
The relief was predicated upon two fundamental considerations. The first was that the plaintiff and defendant were parties to a valid registered lease for the premises (the lease relied upon was given registration number AJ578972 and hereafter called "the registered lease"). The second was that the defendant, as lessee, had committed breaches of the lease consisting of a failure to pay rent for more than two years, using the premises contrary to its permitted use as a childcare centre by allowing people to live at the premises and using the premises in a manner contrary to law, by operating a childcare centre without the relevant approvals and by failing to keep the approvals current.
By a cross-claim filed on 3 July 2017, the defendant sought a declaration that the lease had no legal force and effect and that rent was not owing or outstanding to the plaintiff. The defendant also sought that the plaintiff "remove from the [lease] register managed by Land and Property Information" registration of the lease, a declaration that the plaintiff had breached a contractual licence held by the defendant and had wrongly excluded the defendant from its lawful occupation of the premises.
On 22 October 2018, the court gave judgment in the matter: Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd [2018] NSWSC 1586 ("Medi-Aid No 1").
As to the existence of a validly registered lease, the Court made the following findings at [131]-[134]:
[131] The agreement to lease was an agreement between the plaintiff and the defendant to enter into a lease of the premises. Clause 2.6 of the agreement to lease provided that the defendant was to have access to the premises for fit-out purposes following the receipt of a development consent or as soon as practicable after that time subject to the provision of an insurance certificate of currency. There was no rent or licence payable under the agreement to lease whilst the defendant used the premises for fit-out purposes. That provision gave no right to the defendant to occupy the premises, as it did, for the purposes of conducting child care services. The only document that gave the defendant any such right was the lease.
[132] I have rejected the contention of the defendant that the parties' relationship was governed by the agreement to lease and not the lease itself. Upon the proper construction of the agreement to lease, the pre-conditions for the lease operating were met, albeit at a time after the lease was registered.
[133] For the reasons I have given, I consider that the lease operated from the date of its registration on 27 July 2015. It was unnecessary to consider the plaintiff's alternative submission that the lease would operate from 13 November 2015 when all pre-conditions were satisfied including an approval to carry out child care services.
[134] Hence, a lease was validly entered into on and from 27 July 2015 and, as discussed, was terminated upon the plaintiff's exercise of the power of entry on 23 March 2017.
The Court then turned to the question of breach of the lease and, in particular, the three claimed breaches of the lease: failure to pay rent; breaches of governance as to use; and the covenant to comply with all laws regulating the premises.
As to a failure to pay rent, the court found at [136]-[137] as follows:
[136] Under the lease the defendant covenanted to pay monthly rent to the plaintiff in the sum of $19,328.83 (including GST) per month, with fixed rental increases of 5% on each anniversary of the commencement date (see cl 5, item 13 of Annexure A, cl 5.7 and item 16 of Annexure A of the lease). By reason of an amendment to cl 5.2 of the lease, the defendant was entitled to a rent-free period of 6 months, with monthly rent scheduled to commence on 1 September 2015 (see additional cl 5.2.1 on page 5 in Annexure A of the lease).
[137] By cl 12.5 of the lease, the obligation to pay rent no later than 14 days after the due date was an essential term. The defendant did not pay rent after occupation of the premises and did so upon the aforementioned contention that there was no valid lease and a right to occupy the premises under the agreement to lease without rent. This was notwithstanding that the defendant sent a copy of the lease to the Department as part of its application for a service approval.
The Court also found that on the balance of probabilities, the defendant, contrary to cl 6.1.1 of the lease, permitted persons to reside at the premises (at [143]) and carry on certain services whilst relevant approvals were suspended or cancelled, which was also a breach of the lease (at [148]).
The court then turned to the plaintiff's entitlement to release dealing with possession (at [150]-[154]), rental arrears (at [155]-[160]), mesne profits (at [161]-[166]) and damages (at [167]-[169]). As to mesne profits, the court found as follows (at [161]-[166]):
[161] The plaintiff made the following submissions in regard to mesne profits:
23. As the Defendant has remained in unlawful occupation of the Premises since 24 March 2017 and has not paid any rent, the Plaintiff seeks mesne profits for that period of time between the date the Lease was terminated until the date that the Defendant gives up possession of the Premises.
24. Anthony Khoury, an experienced property leasing agent in Parramatta has given unchallenged evidence estimating that the current market rent for a premises of the same grade in Parramatta as the leased Premises would be in the vicinity of $336,350.00 to $384,400.00 per annum plus GST. That evidence should be accepted.
25. The Plaintiff claims mesne profits calculated on that basis.
[Footnotes omitted.]
[162] I accept the submission of the plaintiff that mesne profits are payable to the plaintiff until the defendant has given possession having regard to the defendant's unlawful occupation of the premises.
[163] However, there was a tension between the quantum schedule, the pleadings and the plaintiff's written and oral closing submissions as to the calculation of mesne profits.
[164] The quantum schedule included two calculations as to the calculation of mesne profits. They were as follows:
the first was in relation to calculations to the same rate of rent payable under the lease at the date of termination - on page 5; and
the second was based on Mr Khoury's evidence on market rent - on page 6.
[165] The quantum schedule appeared to suggest that the calculation on page 5 should be used (see para 2 on page 5). However, the oral closing submissions by counsel for the plaintiff suggested that the calculation on page 6 should be used; that submission did not explain the apparently different positions as to calculations in the quantum schedule. The plaintiff's written submissions were, in this respect, also productive of some uncertainty as to what basis mesne profits should be calculated.
[166] It is appropriate that those issues be resolved, together with any further submissions being obtained from the defendant, before final orders are made awarding mesne profits in favour of the plaintiff.
As to the question of the claim by the plaintiff for damages, the court found (at [167]-[169]):
[167] The plaintiff made a claim for relief in the form of damages. No written submissions were made as to that point. Nor were oral submissions received. The only material before the Court on damages was included on page 7 of the quantum schedule which was as follows:
Pursuant to clause 12.6 of the Lease, if there is a breach of an essential term of the Lease (which has been submitted by the Plaintiff), the Plaintiff is entitled to recover damages for losses over the entire period of the Lease but must do every reasonable thing to mitigate those losses and try to lease to property to another tenant on reasonable terms. Such damages shall be calculated from the date that the Defendant returns possession of the premises to the earlier of the Lease Expiry date, being 29 February 2020, and the date that the Plaintiff leases the premises to another tenant.
The rental rates are calculated as follows:
[Table omitted.]
An order should be made for the Defendant to pay to the Plaintiff damages calculated in accordance with the abovementioned rental rates from the date that possession of the Premises is returned to the Plaintiff to the earlier of (i) the Lease Expiry date, being 29 February 2020, and (ii) the date that the Plaintiff leases the premises to another tenant. (See paragraph 8 of relief claimed of Amended Statement of Claim filed 11 July 2017).
[168] There are two problems that arise as a result of the above considerations. First, the plaintiff did not expand upon the basis on which a damages claim was payable by the defendant. Secondly, the quantum schedule was handed up on the final day of hearing which gives rise to a concern as to whether the defendant had an opportunity to respond to the plaintiff's submission in that respect.
[169] Hence, in addition to submissions on the calculation of mesne profits, the Court will require the parties to provide further submissions on the question of damages.
The court then turned to the cross-claim concerning damages, fit-out and the nature of the centre and alternative solutions (at [170]-[179]) as follows:
Damages
[170] For completeness, it should be noted that the defendant appeared to make a positive claim for damages for breaches of the agreement to lease. I accept the submission of the plaintiff that none of those alleged breaches relied upon by the defendant are supported by evidence nor is there evidence of loss or damage suffered as a result of those alleged breaches. It also follows from the aforementioned considerations that the defendant's cross-claim should be refused. In particular, I note that the application for declaratory relief is refused.
Fit-out
[171] At various points in the hearing, Mr Shang also sought to assert that the defendant should be compensated for money it spent on the premises. The same assertion was made at para 22 of his affidavit. The defendant did not plead a set-off and the evidence, in that respect, therefore, is not relevant to any pleaded issue in the proceedings.
[172] The defendant cannot properly raise a claim for set-off in circumstances where the evidence was first introduced after the hearing was part heard and in circumstances where the plaintiff was deprived of the opportunity of leading any evidence about the question.
[173] In any event, the evidence is irrelevant because cl 12.3 of the lease, a make-good provision, required the defendant to remove anything brought to or added to the premises. Further, the defendant led no evidence about the value of its contribution.
[174] I accept the submission that the defendant had a contractual right pursuant to cl 2.6 of the agreement to lease to fit-out the premises as required for a child care centre. The cost of that fit-out was at the risk of the defendant, especially having regard to the make-good provision in cl 12.3 of the lease.
Nature of the centre and alternative solution
[175] The defendant contended that the plaintiff should not be granted possession of the premises (and other relief) considering the nature of the centre. First, it was contended that the centre provided child care to children from low-income families who would otherwise not have equal access to a bilingual early childhood education program.
[176] Secondly, it was contended that the centre, as a community project, was funded by the community and if the defendant lost possession of the premises, that money generated by the community would be lost.
[177] The defendant proposed an alternative resolution to the proceedings. It was suggested that the defendant was willing to give up the 6 months' rent free period from the lease commencement date. It was contended that once the service approval for a centre-based service was granted, the defendants would enter into a lease and start paying the rent from the date of approval.
[178] The plaintiff was correct to submit that there was no evidence of the prospects of the defendant's application being approached and in any event, the prospect of approval does not affect the plaintiff's legal rights.
[179] However commendable that objective of the defendant may be, that does not afford it a right to occupy the premises for over two years without paying rent contrary to a lease (and an agreement to lease).
After briefly discussing costs, the court ultimately reached the following conclusion (at [182]-[185]):
[182] The registered lease was valid and operative from the date of registration, namely, 27 July 2015. The defendant was in breach of the lease by a failure to pay rent, a breach of covenants as to use and a breach of a covenant to comply with all laws regulating the premises.
[183] The first two of those breaches were breaches of essential terms of the lease.
[184] The plaintiff had a right to bring the lease to an end pursuant to cl 12 of the lease. The plaintiff served an effective notice upon the defendant on 9 March 2017 and, in the absence of rectification as required by the notice (by 23 March 2017), re-entered the premises and changed the locks. On 24 March 2017, the defendant nonetheless re-entered the premises and remained in unlawful occupation.
[185] The plaintiff is entitled to an order for possession together with rental arrears pursuant to an express contractual right and at law, and mesne profits. The Court shall make directions requiring the plaintiff to bring in short minutes of order reflecting this judgment, as well as providing for further submissions as to the quantification of mesne profits, damages and costs which shall be reserved.
Orders and directions were made as follows (at [186]-[188]):
[186] The Court makes the following directions as to possession, rental arrears, mesne profits and damages:
(1) The plaintiff shall file and serve short minutes of order reflecting this judgment within 7 days of the publication of this judgment;
(2) The plaintiff shall file and serve a submission in relation to the calculation of mesne profits and the plaintiff's entitlement to damages within 14 days of the publication of this judgment; and
(3) The defendant shall file and serve any submission in reply as to mesne profits and damages within 28 days of the publication of this judgment.
[187] The issue of mesne profits and damages shall be determined upon the papers (that is, without further oral hearing) unless either party seeks an oral hearing.
[188] As to costs, the Court makes the following order and directions:
(1) Costs are reserved.
(2) The plaintiff shall file and serve upon the defendant and Mr Shang a submission and further evidence in relation to costs including the order for costs sought by the plaintiff within 21 days of the publication of this judgment.
(3) The defendant and Mr Shang shall file and serve any submissions and further evidence in reply within 42 days of the publication of this judgment.
(4) The further disposition of the issue of costs will be assessed after receipt of the submissions of the respective interests and any evidence. The parties are at liberty to make submissions as to the procedure to be adopted in the resolution of any application for costs made by the plaintiff.
On 24 October 2018, the court made orders responsive to short minutes of order filed by the plaintiff. The orders then made were as follows:
1. Judgment for the Plaintiff for possession of the land described as Part Lot 100 of Deposited Plan 1152385, being the Ground Floor, Level 1 and 2 of 60 Campbell Street, Parramatta (the Premises).
2. Declares that the Plaintiff was entitled to forfeit the Lease and re-enter the Premises at all times from 23 March 2017.
3. Judgment for the Plaintiff against the Defendant in the amount of $325,440.46 (inclusive of GST) for arrears in rent and interest under the Lease to 23 March 2017.
4. Costs reserved.
5. The Plaintiff shall file and serve a submission in relation to the calculation of mesne profits and the Plaintiff's entitlement to damages by 5 November 2018.
6. The Plaintiff shall file and serve upon the Defendant and Mr Jan Shang by email, to his email address being [email address omitted], submissions and further evidence in relation to costs including the order for costs sought by 12 November 2018.
7. The Defendant shall file and serve any submissions in reply to the Plaintiff's submissions pursuant to order 5 by 19 November.
8. The Defendant and Mr Jan Shang shall file and serve any submissions and further evidence in reply to the plaintiff's submissions pursuant to order 6 by 26 November 2018.
9. The issue of mesne profits and damages shall be determined upon the papers, without further oral hearing, unless either party seeks an oral hearing.
10. The further disposition of the issues of cost shall be assessed after receipt of the submissions of the respective interest and any evidence pursuant to orders 6 and 8.
11. The parties are at liberty to make submissions as to the procedure to be adopted in the resolution of any application for costs made by the Plaintiff.
On 5 November 2018, the plaintiff filed written submission in relation to the question of mesne profits and damages. By that submission, the plaintiff no longer sought damages but made submissions in support of its claim for mesne profits.
The defendant filed a submission as to mesne profits and "damages" on 29 November 2018 and sought an oral hearing with regard to the same. The defendant sought an oral hearing on costs.
Submissions were also filed by the plaintiff and the defendant on 12 and 27 November 2018 respectively on the question of costs.
In the plaintiff's written submissions on costs it sought an order for costs to be paid by the defendant and by Mr Shang personally, on a joint and several basis. Mr Shang appeared for the defendant at the hearing of this matter (see Medi-Aid No 1 at [5]).
The plaintiff also sought an order that costs be paid on an indemnity basis. As will become apparent, it is no longer necessary to address the question of indemnity costs in this judgment. The plaintiff ultimately withdrew its application for costs on an indemnity basis and for personal liability in the case of Mr Shang.
Returning to the issue of mesne profits, the written submission of counsel for the plaintiff of 5 November 2018 were as follows:
1. These submissions are made pursuant to order 5 of the Court's Orders made on 24 October 2018 (Orders).These submissions are made pursuant to order 5 of the Court's Orders made on 24 October 2018 (Orders).
2. The Plaintiff does not seek a further oral hearing, given that the remaining damages and interest issues are matters of quantification on the basis of the evidence already before the Court.
3. At paragraph 162 of the Judgment ([2018] NSWSC 1586), the Court found that, having regard to the Defendant's unlawful occupation of the premises, mesne profits are payable to the Plaintiff until the defendant gives possession. The Plaintiff re-entered the Premises on 26 October 2018. On that basis, the Plaintiff is entitled to mesne profits until 25 October 2018.
4. The law provides that where a tenancy has been lawfully terminated, a tenant who refuses to vacate the premises is a trespasser and the landlord is entitled to mesne profits, which is generally calculated by the Court at the rate of market rent that could have been obtained absent the trespass.
5. At paragraphs 23 to 25 of the Plaintiffs written submissions filed 22 January 2018, the Plaintiff pointed to the unchallenged evidence of Mr Khoury that established that the market rent for the Premises was between $336,350 and $384,400 per annum plus GST, or $369,985 to $422,840 (inc. GST). The table on page 6 of the Plaintiffs quantum schedule calculated mesne profits on that basis. The calculations in that table should be applied. For convenience, the table from page 6 has been extracted in full below (See Figure 1):
Figure 1: Mesne profits calculations as per filed quantum evidence
Date From Date to Mesne Profit Installment (inclusive of GST)
24/03/2017 31/03/2017 $7,956.67 - $9,093.33
1/04/2017 30/04/2017 $30,832.08 - $35,236.67
1/05/2017 31/05/2017 $30,832.08 - $35,236.67
1/06/2017 30/06/2017 $30,832.08 - $35,236.67
1/07/2017 31/07/2017 $30,832.08 - $35,236.67
1/08/2017 31/08/2017 $30,832.08 - $35,236.67
1/09/2017 30/09/2017 $30,832.08 - $35,236.67
1/10/2017 31/10/2017 $30,832.08 - $35,236.67
1/11/2017 30/11/2017 $30,832.08 - $35,236.67
1/12/2017 31/12/2017 $30,832.08 - $35,236.67
1/1/2018 31/1/2018 $30,832.08 - $35,236.67
1/2/2018 28/02/2018 $30,832.08 - $35,236.67
1/3/2018 7/3/2018 $6,962.08 - $7,956.67
Total $354,071.63 - $404,653.37
[3]
Erring on the side of caution, the Court should adopt the lower end of the range given by Mr Khoury ($369,985 inc GST per annum). That is the most favourable number for the Defendant.
7. On that basis, judgment should be given for the Plaintiff in the amount of $588,275.61 (inc GST), being the $354,071.63 shown in the table at Figure 1 (mesne profits to 7 March 2018) plus $234,203,98 being the additional amount of mesne profits from 8 March 2018 to 25 October 2018 (the date prior to re-entry) (see Figure 2 below).
Figure 2: Mesne profits calculations from 8 March 2018 to date of Judgment
Date From Date to Mesne Profit Installment (inclusive of GST)
8/03/2018 31/03/2018 $23,870.00
1/04/2018 30/04/2018 $30,832.08
1/05/2018 31/05/2018 $30,832.08
1/06/2018 30/06/2018 $30,832.08
1/07/2018 31/07/2018 $30,832.08
1/08/2018 31/08/2018 $30,832.08
1/09/2018 30/09/2018 $30,832.08
1/10/2018 25/10/2018 $25,341.50
Total $234,203.98
[4]
Figure 3: Calculation of daily rate of mesne profits (only to show basis of calculation from 1/10/2018 to 25/10/2018)
Accepted Annual Market Rental (inclusive of GST) % 365 = Daily Rate of Mesne Profits (inclusive of GST)
$369,985 % 365 = $1,013.66
[5]
Therefore, the appropriate order is judgment for the Plaintiff in the amount of $588,275.61 for mesne profits from 24 March 2017 to 25 October 2018.
9. For the avoidance of doubt, the table on page 5 of the plaintiffs quantum schedule (although confusingly placed first in the document) should be ignored. That rate was an alternative rate included for abundant caution in the event Mr Khoury's evidence was challenged and not accepted.
10. In addition, the plaintiff is entitled to interest. As recorded at paragraph 157 of the Judgment, the Court already accounted for interest on the overdue rent in accordance with an express term in the Lease. Therefore, interest is only payable on the mesne profits for the period 24 March 2017 to 25 October 2018.
11. Interest has been calculated at the pre-judgment interest rate (5.5% p.a simple) on the mesne profit starting from the first day of each month, being the time when the cause of action for damages for the previous month accrued. The Court should order that there be judgment for the plaintiff against the defendant in the amount of $27,060.14 for interest on the mesne profits. Annexed to these submissions is a print out of an excel spreadsheet showing how the interest was calculated.
[Footnotes omitted.]
The defendant written submissions on mesne profits (and damages) were as follows:
2.. The Defendant seeks a further oral hearing, given that the evidences presented by the Plaintiff are factually incorrect.
3. Paragraph 3 to 4 of the Submission on Mesne Profits and Damages (Submission) are denied:
a. as the Premises at Ground Floor, Level 1 and Level 2 of 60 Campbell Street, Parramatta (Premises) have been assessed as unsafe to use by NSW Fire and Rescue as well as Parramatta City Council for fire safety and other related safety concerns.
b. and the Defendant has kept a record of the emergency 000 incidents and on-site safety inspections from NSW Fire and Rescue as well as Parramatta City Council from 13 October 2014 to 19 November 2018.
c. and the Defendant will present the official reports of the findings from NSW Fire and Rescue as well as Parramatta City Council to the Court before the oral hearing date.
4. Paragraph 5 of the Submission is denied:
a. as the Plaintiff has used the leasing agent Anthony KHOURY's unsubstantiated claims for market rent.
b. and Anthony KHOURY has leased the Premises to the Defendant for $19,328.83 per month inclusive of GST.
c. and Anthony KHOURY's unethical conducts have been investigated by NSW Office of Fair Trading for knowingly giving misleading information on leasing the unsafe Premises with fire safety and other related safety concerns.
5. Paragraph 6 to 12 of the Submission are denied:
a. for the reasons pleaded in paragraph 3 ad 4 of the Submission.
6. The Defendant claims as follows:
a. A declaration that rent was not, and is not, owing or outstanding to the Plaintiff due to the fact that the Premises were not, and are not safe to use, following the findings from NSW Fire and Rescue as well as Parramatta City Council.
b. An inquiry as to damages and losses suffered by the Defendant to be conducted and held by an Associate Justice of the Court, following which entry of judgement in favour of the Defendant.
It is useful to reiterate that the plaintiff did not seek damages in addition to mesne profits. The defendant did seek damages but that submission will require further discussion in the light of the course of the proceedings.
[6]
Further Course of the Proceedings
Notwithstanding the plaintiff's contention that it did not desire a hearing on the question of mesne profits its application in that respect was listed for hearing as a result of the request made by the defendant in its written submissions.
The matter was fixed for hearing by the Court on 17 April 2019. The parties variously sought alternative dates to that hearing but it was determined by the Court that the matter would remain fixed for hearing on that date. No further application for variation of the date was received by the Court.
On the morning of the listing, a communication was sent my email by Mr Wayne W. Pan, who described himself as PA to the Public Officer of the National Executive Office of the Chinese Community Centre. Given what then followed, it is convenient to set out the content of that email:
Dear Justice WALTON
Mr SHANG is taking a day off to attend your court from his pre-arranged travel arrangements on behalf of the Chinese Community Centre for the upcoming Federal Election.
2019 marks the 10th anniversary of our National Safety Program which was launched at NSW Parliament House on 1 May 2009.
In light of the new video evidence of the "death trap" on the premises, we just put in a Notice of Motion to vacate the hearing today to a future date pending further findings from NSW Fire and Rescue and Parramatta City Council in relation to the premises at 60 Campbell Street, Paramatta being defined as unsafe to occupy under the Building Code of Australia.
Mr SHANG met with the Lord Mayor Andrew WILSON of Parramatta City Council already. The incidents were brought to the attention of NSW Fire and Rescue Commissioner Paul BAXTER through his Chief of Staff Dave FELTON who can be subpoenaed to attend your court as a witness to give evidence.
For confirmation, please contact Mr SHANG directly at [phone number omitted].
Thank you for your attention.
Regards.
PAN W. Wayne
PA to Public Officer
Also received by email was a document described as a notice of motion. That notice of motion was not filed or served. It was said to be issued by the defendant. The following orders were sought by the defendant in the notice of motion:
To vacate the hearing at 10am on 17 April 2019 to a future date pending further findings from NSW Fire and Rescue and Parramatta City Council in relation to the premises at 60 Campbell Street, Parramatta being defined as unsafe to occupy under the Building Code of Australia.
When the matter resumed on 17 April 2019 at the appointed time there was no appearance for the defendant. After making calls, the Court determined that it had received, in essence, an application for an adjournment from the defendant. The plaintiff was heard in that respect and the Court ruled for reasons that are set out in the record of the proceedings, to refuse the adjournment application and hear the question of mesne profits and costs without appearance by the defendant.
After hearing the plaintiff on the question of mesne profits, it was indicated that the Court intended to make orders in that respect. After hearing the plaintiff on the question of costs it was indicated that further written submissions would be required from the plaintiff particularly having regard to the application for personal liability.
At 10.35am, Mr Shang, who continued his appearance for the defendant, appeared in the proceedings.
Upon Mr Shang appearing, the course of the proceedings to that point were explained to him. He was given an opportunity to develop submissions. The Court revoked its earlier intimation with respect to the determination of mesne profits and proceeded to hear Mr Shang as to any procedural application he wished to bring on that question.
At that juncture, Mr Shang made submissions essentially bearing upon the unfiled notice of motion and made an oral application to the effect that the Court should reopen the proceedings with respect to the issue of mesne profits and the defendant's cross-claim so far as it sought damages and, in the event of such a reopening, sought the Court adjourn for a further hearing of the primary proceedings concerning mesne profits and damages (costs would be adjourned to a further date fixed for hearing of the reopened primary and cross-claim proceedings).
The actual terms of that application require clarification. What the defendant sought to do was to bring evidence as to the safety of the premises in order to demonstrate that they were not capable of occupation, presumably (but not stated) for a period corresponding that which the plaintiff sought mesne profits, namely, between 24 March 2017 and 1 October 2018). The defendant made it clear that it was not seeking to reopen the proceedings with respect to the Court's determination as to the validity of the lease or orders with respect to arrears of rent.
The procedure proposed by the defendant was that the proceedings would be adjourned for 28 days to permit the defendant to seek penalty or infringement notices from NSW Fire and Rescue and Parramatta City Council with respect to the premises.
Mr Shang had been (recently) in contact with those bodies in order to initiate investigations to that end. Mr Shang then proposed that subpoenas would be issued to the proper officers of those bodies, as to their, it would appear, investigations, conclusions and the notices issued by them.
The defendant offered no evidence in support of the application, save for a video of the premises said to have been taken in 2016 and an intimation that documentation was available to show that steps had been taken to engage NSW Fire and Rescue and Parramatta City Council (it was indicated that a telephone conversation had occurred that morning with the Chief of Staff of the Commissioner of NSW Fire and Rescue). I was prepared to proceed on the basis that such communications were made with NSW Fire and Rescue and Parramatta City Council albeit that on the submissions on Mr Shang, those communications must have been made significantly after the judgment issued by the Court in Medi-Aid No 1 and in relatively recent times.
On 17 April 2019, the Court rejected the application to reopen the proceedings and the corresponding application for an adjournment. Reasons were given on that occasion, but it was indicated that short additional reasons may be given in that respect. Those additional reasons are as follows:
1. Whilst the Court determined the application for mesne profits under the originating process of the amended summons, save for the question of quantification of mesne profits and rejected the cross-claim, the application to reopen was available, in law, as neither the determination of mesne profits (due to the outstanding issue of quantification) nor the determination of the court with respect to the cross-claim had been perfected by means of the entry of the judgment or resultant orders on the court's computerised record system: see as to the effect of r 36.11 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"); Gabriel v Grech [2018] NSWSC 1652 at [79] (although this is not a case where r 9.10 operated because there was no ruling under r 9.8 for a separate trial of the cross claim - also see as to reopening, r 36.16(1)).
2. The power to reopen proceedings must be exercised with great caution in view of the public interest in the finality of legal proceedings: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; [1993] HCA 6 ("Autodesk No 2") at 301-303 (per Mason CJ), 308 (per Brennan J), 317 (per Dawson). The power may be exercised where, through no fault of the party seeking to reopen, parties have not been heard on a matter being decided by the court: Autodesk No 2 at 302 (per Mason), 308 (per Brennan), 317 (per Dawson J).
3. The application to reopen was made very late in the proceedings, a considerable time after judgment was delivered with respect to both the primary proceedings and the cross-claim and in circumstances where the basis for reopening was ill-defined and the evidentiary foundation was entirely uncertain, so much so that the key evidentiary basis for the reopening, namely, entreaties made to NSW Fire and Rescue and Parramatta City Council had only commenced recently, with no known or finite outcome and the video relied upon related to a period which was unconnected to the period for which mesne profits were sought by the plaintiff.
4. The grant of the reopening would not permit a hearing within 28 days as proposed by the defendant. Rather, that was a date upon which the defendant expected to receive a conclusion to the apparently uncommenced investigations by the two agencies he contacted with some unfounded expectation of an affirmative outcome. Mr Shang himself envisaged that subpoenas would be required to be issued to bring evidence in of that kind. It may be expected that the additional evidence, if admitted, would result in a significant evidentiary contest substantially elongating the period required to determine proceedings which are otherwise concluded save for two confined areas, namely, the quantification of mesne profits and an application for ordinary costs.
5. Further, it would appear the investigation was to occur after the plaintiff resumed occupation of the premises.
6. In any event, assuming that the "safety" issue is relevant to both the cross-claim and mesne profits, there are significant difficulties with the defendant raising that issue either in that broad way or in relation to fire risk having regard to the conduct of the proceedings by the defendant. Those difficulties are as follows:
1. There was no pleading in the cross-claim of the kind ventilated by the defendant in seeking to reopen the proceedings. The cross-claim was concerned with, inter alia, the agreement to lease and a question of estoppel;
2. The Court found in Medi-Aid No 1 that none of the breaches pleaded in the cross-claim were supported by the evidence and there was no evidence of loss or damage in that respect (see at [170]). The conclusions reached in Medi-Aid No 1 were overwhelmingly inconsistent with the successful prosecution of the cross-claim.
3. The Court found that a valid lease was entered which operated from 27 July 2015. The defendant conducted childcare services at the premises. Evidence was given of work at the premises between February 2016 to February 2017 in that respect and again in August 2017 (see Medi-Aid No 1 at [139] and [140]). The plaintiff took possession of the premises on 23 March 2017 but the defendant re-entered and remained in unlawful possession until the plaintiff received an order for possession. There was no correlation between the occupancy of the premises by the defendant in that way and the issues now sought to be raised by the defendant.
4. Propositions were put by Mr Shang on behalf of the defendant to the plaintiff's witnesses in cross-examination during the trial concerning fire safety, although, in that respect, the propositions were almost exclusively directed to there being a single fire exit (an issue of a narrower dimension than was now ostensibly ventilated). The witnesses cross-examined variously had no knowledge of the issues; had knowledge that the Parramatta City Council consulted the plaintiff and the defendant (and the NSW Fire Service) and attended the premises as to that issue but had no knowledge of the steps taken by the parties or the agencies thereafter; or, had knowledge the discussions undertaken with the Council resulted in the issue being rectified. It is not clear when exactly the issue of the fire exit arose from the questions asked in cross-examination, although apparently there was some discussion with Mr Gough (from his cross-examination) around the time of the issuing of a letter of demand by him on 9 March 2017 (see as to the letter of demand referred to, [60] of Medi-Aid No 1).
5. Either in the light of that cross-examination or for another reason applicable to his case, Mr Shang, on behalf of the defendant, sought to call witnesses from Parramatta City Council, if necessary by subpoena, on the fire safety issues he had raised during the trial. He was given an opportunity to file that evidence or seek leave to issue subpoenas. Those steps were not taken. Nor was his own evidence revised to deal with those issues. No issue was raised about fire safety either with respect to mesne profits, the cross claim or otherwise in the final written submissions of the defendant or in his oral submissions. The oral submissions fixed upon the validity of the renovations conducted by the defendant, the alleged verbal agreement to not pay rent and broader issues concerning the nature of the defendant and its operations but did not traverse fire safety issues (which in any event seemed to be principally directed to the expenditure incurred by the defendant to engage persons to assist in the rectification of any problems).
6. The defendant certainly had an opportunity to raise the issue now sought to be ventilated (in the reopening application) during the course of the trial but did not do so. It is not clear how the defendant might have employed the evidence he sought to obtain in cross-examination as that matter was not fully developed by him, but such as there was evidence on the issue of fire safety (vis-à-vis the number of exit doors), it would not seem to have fallen in his favour.
[7]
Mesne Profits
In the circumstances, and noting that a program has been fixed with respect to costs, the remaining issue is the question of quantification vis-à-vis mesne profits.
[8]
Further Submissions by the Defendant
It is apparent from the defendant's written submissions in reply to paragraph 3 and 4 of the plaintiff's submissions that the contentions were directed to the same issues addressed in the reopening application save for a submission that the defendant had kept records of emergency 000 incidents and onsite safety inspections by NSW Fire and Rescue about which submissions were not made and no evidence was produced or proposed to be produced to the Court.
In oral submissions the defendant did not traverse the findings of the Court vis-à-vis a valid lease or rent in arrears. Paras 4(a) and (b) of the defendant's response to paras 5 and 6 of the plaintiff's written submissions were expanded upon by Mr Shang in the manner that now follows:
1. The calculations in figure 1 appearing in para 5 of the plaintiff's written submissions should be calculated on the rent specified on the lease of around $19,000 per month. There can be no amounts owing under the lease after 7 March 2018 as the lease was terminated and possession taken from 7 March 2018;
2. When calculated as amounts due under the lease, the total sum owing is approximately $200,000, not the amount calculated by the plaintiff. As to para 7 and the further amounts claimed from 3 March 2018, these payments cannot be due as mesne profits as the lease had been terminated by 7 March.
3. The defendant is a charity and there is no income derived from the operation;
4. The defendant repeated submissions that the premises were unsafe to occupy.
The plaintiff advanced the following additional oral submissions:
1. The defendant confused rent and mesne profits. The court dealt with the question of arrears of rent at [160] of Medi-Aid No 1. Mesne profits are not rent; they equal the market rent that could have been obtained: Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 ("Lamru") at 439B;
2. The lease was terminated on 23 March 2017 having been validly entered into from 27 July 2015 (see Medi-Aid No 1 at [134]). The calculations by the applicant in its written submissions extend from that date.
3. Figure 2 in para 7 of the plaintiff's submissions concerned a similar calculation to the written submissions advanced by the plaintiff during the hearing up until the point of re-entry.
4. The affidavit of Anthony Khoury of 16 August 2017 at paras [25]-[27] dealt with mesne profits. That evidence was unchallenged by the defendant.
5. Figures 1 and 2 of the written submissions of the plaintiff refer to a period of time following the termination of the lease up until possession was obtained by the plaintiff, namely, from 24 March 2017 to 25 October 2018.
6. Mr Gough conceded that Mr Khoury's estimates of market value do not extend to the amount shown in figure 2 for the time period 8 March 2018 to 25 October 2018.
7. The plaintiff also pointed to the fact that on 24 March 2017, Mr Shang damaged the locks of the premises and re-entered and remained in unlawful occupation until possession.
The defendant submitted in reply:
1. The Court needs to take into account that Mr Khoury is a real estate agent acting for the plaintiff. The space on the ground and second floors of the premises had not been leased for 10 years prior to the lease taken up by the defendant. The premises remained vacant during that time.
2. The evidence given by Mr Khoury as to market rental should be entirely rejected. The rental sum would be the most appropriate basis for calculation.
3. As there was no lease from 23 March 2017, nothing should be awarded from that time.
The evidence of Mr Khoury in his affidavit of 16 August 2017 at paras [25]-[27] was as follows:
[25] I have over 30 years of experience in the Parramatta area, manage over 400 properties, including 200 offices, have negotiated rent for over 500 leases and regularly advise owners on rental determinations across the Sydney metropolitan area for retail and commercial property. In the year 2000, I won the Real Estate Institute Award for excellence in commercial real estate.
[26] The Premises rates as a B Grade office. An office is graded and rated as a B Grade office depending on its usability and condition. A B Grade office is considered a new/modern office condition. Current rentals for B Grade offices are in the range of $350.00 to $400.00 per square metre gross plus GST. This rate would also apply to the ground floor of the Premises.
[27] Having regard to the size of the leased Premises being a total of 961m2 the current market rent for the Premises would be in the vicinity of $336,350.00 per annum plus GST to $384,400.00 per annum plus GST.
[9]
CONSIDERATION
The Court found in Medi-Aid No 1 that the lease had been validly entered into and was terminated upon the plaintiff's exercise of power of entry on 23 March 2014. On 24 March 2017, the defendant damaged the locks of the premises, re-entered and remained in unlawful possession from that date until the date of the hearing of the matter before the Court (at [152]).
The Court therefore accepted the submission of the plaintiff that it was entitled to mesne profits until the defendant had given possession (at [162]), subject to evidence and submissions as to quantification and the receipt of submissions from the defendant. Possession was obtained on 25 October 2018.
In terms of the calculation of mesne profits, the learned author of Butt's Land Law (Thomson Reuters, 7th ed, 2017), Professor Brendan Edgeworth, stated:
[7.1570] Where the tenancy has been lawfully terminated, a tenant who refuses to vacate the premises is a trespasser. The landlord is then entitled to "mesne profits". These are damages for the rent that would have been obtained on a re-letting but for the tenant's continued occupation. Because the lease has been terminated, mesne profits are not "rent"; nevertheless, generally they equal the market rent that could have been obtained. In special circumstances they may be calculated not on the basis of market rent but rather on the basis of the value to the (former) tenant of remaining in possession rather than vacating; depending on the circumstances, this value may be more than the market rent or be less than it. But these "special" circumstances will be rare, and even more rare (perhaps never at all in New South Wales) will be the result that the damages exceed the market rent.
The landlord may claim mesne profits for the period from the date of service on the tenant of the court process claiming possession (for service of the process constitutes a notional re-entry by the landlord), up to the date when physical possession is recovered. It is not necessary for the landlord to prove that the premises would have been leased to someone else in the trespasser's absence.
[Footnotes omitted.]
The plaintiff referred to Lamru at 439B. In that passage of the judgment, Cohen J stated:
Mesne profits are in effect damages for trespass. The authorities now seem to be clear that the usual measure is the value of the market rent for the premises which the trespasser should have paid for the period of its occupation. It will not depend on whether the plaintiff would have been able or willing to let the premises to someone else during the relevant period: Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd's Rep 359; Swordheath Properties v Tabet [1979] 1 WLR 285; [1979] 1 All ER 240; Inverugie Investments Ltd v Hackett [1995] 1 WLR 713; [1995] 3 All ER 841.
The evidence established that the plaintiff should receive mesne profits calculated in accordance with figure 1 of the plaintiff's written submissions but modified upon the concession appropriately made by counsel for the plaintiff, namely, the Court should adopt the lower end of the range given by Mr Khoury, $369,985 inclusive of GST.
However, as conceded by the solicitor for the plaintiff, there is no evidence before the Court supportive of the calculation of mesne profits in the period 8 March 2018 to 25 October 2018 (see Figure 2 of the written submissions of the plaintiff). In accordance with the judgment in Medi-Aid No 1, there is, therefore, no proper basis to make an order for mesne profits for that period.
[10]
Costs
On 15 May 2015, the plaintiff filed a further written submission on costs. By that submission, the plaintiff sought costs on the ordinary basis as against the defendant. The plaintiff confirmed that it no longer sought costs against Mr Shang personally and it withdrew its application for costs on an indemnity basis.
The plaintiff submitted that those costs, as is ordinary, should include the whole proceedings, including the costs of all submissions and appearances after judgment necessary to deal with any residual issues, being issues that follow from the plaintiff's success in the proceedings.
The defendant did not file any submission in reply to the plaintiff's further written submission on costs. It may also be noted that an earlier written submission, filed by the defendant on 27 November 2018, consisted of a rejection of the relief as to costs sought by the plaintiff and an absence of any developed submissions or submissions relevant to the issue of costs.
The general principles as to costs orders were set out in Moseley v AB (No 2) [2017] NSWSC 1812 at [65]-[79] (see also, Gaetani v Schiliro (No 2) [2019] NSWSC 533 at [18]). I adopt those principles.
The plaintiff was wholly successful at the hearing, save for a relatively confined issue as to the quantification of costs. In the circumstances of this case, I find there is no reason to depart from the general rule that costs follow the event: r 42.1 of the UCPR.
[11]
Conclusion
The plaintiff should receive an award of mesne profits in accordance with this judgment.
Having regard to my determination as to the defendant's application for reopening and an adjournment, the determination as to the cross-claim in Medi-Aid No 1 will stand. However, formal orders should be made to that effect.
The plaintiff is awarded costs on the ordinary basis as against the defendant as sought by the plaintiff.
[12]
Orders
The plaintiff shall bring in short minutes of order reflecting this judgment within 7 days of the publication of this judgment.
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: 05 December 2019