Michael Petrovic Lenin v Richard Albarran & Geoffrey McDonald in their Capacity as Voluntary Administrators of Hazaran Pty Ltd

• 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4912/02 MICHAEL PETROVIC LENIN v RICHARD ALBARRAN & GEOFFREY McDONALD IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF HAZARAN PTY LTD JUDGMENT 1 This is an application by the plaintiff, Michael Petrovic Lenin, for a declaration that he is entitled to take possession of the premises known as The Great Northern Hotel in Newcastle (the Hotel) pursuant to s 441F of the Corporations Act 2001. In the alternative he seeks an order granting him leave to take possession of the premises forthwith pursuant to s 440C of the Corporations Act 2001 and seeks an order granting him leave to have a writ of possession issued forthwith. 2 The defendants, Richard Albarran and Geoffrey McDonald, are the voluntary administrators of Hazaran Pty Limited. They were appointed on 26 September 2002. 3 The plaintiff and Donna Batiste, Hazaran Pty Limited (Hazaran) and Chrysalis Holdings Pty Limited (Chrysalis) have been in litigious mode for quite some time. Ms Batiste and Hazaran and Chrysalis sued the plaintiff in 2001. Justice Bryson heard those proceedings, in which the plaintiff, as defendant, filed a cross claim. That cross claim was filed on 5 December 2001 and sought possession of the Hotel, of which the plaintiff is the registered proprietor. Hazaran sought relief against forfeiture in respect of a lease of the Hotel. 4 Justice Bryson made a number of findings which are relevant for the purpose of setting the background to this application. In reference to the cross claim his Honour said that notice of the cross claim for possession was given to the occupier by delivery by a process server on 7 December 2001 but that no occupier had sought to appear or otherwise take part in the proceedings. Those proceedings were heard on 11, 15 and 18 March 2002. Judgment was delivered on 12 April 2002. 5 His Honour entered judgment for possession for the plaintiff on the cross claim. His Honour granted leave to issue a writ of possession and gave judgment for arrears of rent and outgoings to 5 December 2001, the date of the cross claim, which his Honour found, "effected re-entry". There were various other orders made. 6 In respect of the relief against forfeiture claim made by Hazaran, his Honour noted that it had not offered to pay arrears of rent or otherwise make good breaches of covenant in support of its claim. His Honour also noted that the breaches of covenant extended far beyond failures to pay money and that Hazaran had not expressed any readiness to comply with the covenant relating to the fire stair but maintained that it was impossible and had never departed from that position. 7 His Honour also referred to the relationship between the parties as a poor one, finding that it was highly combative, characterised by habitual and continued lateness in paying rent and that no rent at all had been paid since proceedings were commenced in July 2001, apparently in respect of the then current occupation. 8 His Honour described the way in which the parties' relationship had proceeded in paragraph 108: Ms Batiste has beset Mr Lenin for years with requests and claims for him to make contributions which were not, on any reasonable view, based on any obligation he actually had. Hazaran and Ms Batiste have brought an elaborate and groundless claim asserting misleading and deceptive conduct of Mr Lenin himself in these proceedings. The relationship of the parties to the lease is such an extremely poor one that I am of the view that it should not be continued by a discretionary decision of the Court of Equity.

His Honour concluded that the lessee had repudiated the lease and that the repudiation was accepted by the plaintiff initiating the cross claim in those proceedings. 9 Ms Batiste appealed from Justice Bryson's judgment. That appeal was heard on 5 September 2002 and judgment was delivered on 27 September 2002. In that judgment Justice Sheller said at paragraph 52: Bryson J concluded that this important part of the lessee's obligations had been entirely repudiated and there was no real prospect of the lessor ever obtaining compliance. None of these findings of fact on which his Honour's conclusions were based and which were open on the evidence and hence unappealable on ordinary principles, was challenged. To the extent that these conclusions turn upon the findings about the parties' obligations which have been challenged, those challenges have failed.

The appeal against his Honour's judgment was dismissed. 10 On 29 April 2002 a stay in respect of the orders made by Justice Bryson was granted. The effect of the Court of Appeal decision is that the stay is no longer in place. The day before the judgment was delivered was the day upon which Hazaran went into voluntary administration. In that respect Hazaran relies upon s 440C of the Corporations Act 2001 which provides: Owner or lessor cannot recover property used by company

440C During the administration of a company, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it, except:

(a) with the administrator's written consent; or (b) with the leave of the court. 11 The plaintiff submits that s 440C does not apply because of the provisions of s 441F of the Act which provides: Where recovery of property begins before administration

441F(1)[Application ] This section applies if, before the beginning of the administration of a company, a receiver or other person: (a) entered into possession, or assumed control, of property used or occupied by, or in the possession of, the company; or (b) exercised any other power in relation to such property;

for the purpose of enforcing a right of the owner or lessor of the property to take possession of the property or otherwise recover it. 441F(2)[Section 437C or 440C not to affect receiver's functions or powers] Nothing in s 437C or 440C prevents the receiver or other person from performing a function, or exercising a power, in relation to the property. 12 Mr L Aitken, of counsel, who appears for the defendants, submitted that the provisions of section 441F are not applicable. He has relied on a line of authority, in particular he has referred to the judgment of Scholl J in Rosa Investments Pty Limited v Spencer Shier Pty Limited (1965) VR 97 and to the judgment of Santow J, as he then was, in MI Design Pty Ltd v Dunecar Pty Limited (2000) 10 BPR 18,387. 13 Ms J Needham, of counsel, who appears for the plaintiff, submitted that by reason of the filing of the cross claim the plaintiff re-entered the premises as at 5 December 2001. 14 Mr Aitken does not take issue with the finding of re-entry by the filing of the cross claim on 5 December 2001 but submits that what is necessary under s 441F is a physical re-entry. Mr Aitken placed particular emphasis upon s 435A of the Act which provides that the object of the Part in which s 441F is found, is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible its business, to continue in existence, or if it is not possible for the company or its business to continue in existence, to obtain a better return for the company's creditors than would result from an immediate winding-up of the company. 15 Mr Aitken submitted that if a physical entry is necessary then the plaintiff cannot rely upon the re-entry by way of filing a cross claim to come within the term "any other power" in subparagraph (b) of s 441F. He submitted that the plaintiff is required to obtain leave under s 440C and in the circumstances of this case leave should not be granted. 16 Much will depend upon whether I accept what Mr Aitken has submitted in respect of s 441F. There is a great deal of history to the parties' relationship; there is also affidavit evidence from the plaintiff's solicitors and from Ms Batiste. Ms Batiste has carefully set out the operation of the business in the Hotel and the associated night club operated by Chrysalis. Reference has been made to the number of employees and the amounts of money that have to be paid by way of wages. There is also reference to an application for an independent license to operate the night club that is next door to the Hotel. 17 There is another feature to this case and that is the position of the company Provident Capital Limited, the mortgagee under a registered mortgage dated November 1996. I am informed by the parties that Provident made application to intervene, or to be heard, in the proceedings before Justice Bryson and that such application was dismissed. Provident then appealed from Justice Bryson's dismissal of its application. It is apparent that during the appeal something may have been said that triggered a settlement of Provident's appeal. In any event, Provident and the plaintiff entered into an agreement which was noted in Short Minutes of Order dated 5 September 2002. 18 Provident has commenced proceedings at first instance for relief against forfeiture and those proceedings together with others are before Justice Palmer sitting as the Expedition List judge. It is apparent that Provident is seeking relief against forfeiture of the lease and has an application for relief against forfeiture of an option under the lease for a further 6 year term pursuant to s 173F of the Conveyancing Act 1919 (NSW). 19 The Short Minutes of Order dated 5 September 2002 record the plaintiff's undertaking to the court that in the event of and from the date of any dismissal of Hazaran's proceedings, which of course occurred on 27 September 2002, and pending the resolution of the proceedings before Justice Palmer, or any appeal from the judgment in those proceedings, not to lease, sell or otherwise deal with the premises described in the lease, which is the relevant lease, or otherwise in any way prejudice or effect the rights of Provident as mortgagee of the lease. 20 The plaintiff also agreed not to advance any argument or otherwise contend in any equity proceedings, any appeal from any judgment in those proceedings or any other proceedings, that Provident's entitlement as at 19 April 2002 to relief against forfeiture as mortgagee of the leasehold had been lessened or extinguished by entry into physical possession of the premises by the plaintiff or any other person. 21 The plaintiff also agreed to appoint a manager of any business operated on the premises and to maintain the present trading license for the premises, the liquor license for the premises and to discontinue his application for summary dismissal of Provident's claim in the equity proceedings and not to make any such application in those proceedings. Provident agreed to prosecute the equity proceedings and any appeal with expedition. 22 In the circumstances of those agreements the court ordered that the appeal that Provident brought from Justice Bryson's dismissal of its application was dismissed. It was also noted that Provident consented to the dissolution of the stay to which I have already referred, in the circumstances where the Court of Appeal proceedings were dismissed, which they were on 27 September. 23 Provident had, during the course of that appeal, relied upon an affidavit which is now before me, of Mr O'Sullivan in which he states that Provident was in a position to comply, on condition that Hazaran had obtained relief against forfeiture of the lease, and "only in so far as is necessary for Hazaran to obtain that relief" to make payment of all outstanding rent, costs, interest and other expenses incurred by the plaintiff arising out of any breaches by Hazaran of any conditions of the lease and secondly, to make good any breaches by Hazaran of any conditions or covenants of the lease. 24 Mr O'Sullivan has written a letter to the administrator two days ago in which he stated that in the event that the administrators remain in possession of the leased premises and are obliged to pay rent under the lease, Provident undertook to indemnify the administrator to the extent of the rent paid and that such "indemnity is limited to a maximum of one month's rent". Mr O'Sullivan then stated that Provident agreed to consider making further payments on a month by month basis. 25 Mr Aitken submitted that if I am against Ms Needham's submissions in relation to s 441F of the Corporations Act and leave is sought under s 440C, I would not in the circumstances of the possible detriment to Provident and the proffering of the undertakings or indemnity by Provident, grant leave in any event. 26 I should now turn to the interpretation of s 441F of the Corporations Act. This case has been brought on urgently with short service being granted on 2 October, the matter returnable today before me, in what has been an unsatisfactorily interrupted process because there have been numerous cases in the duty list. Counsel have advised me that in the short time available to them they have only been able to find one case referring to s 441F, which was a decision of Acting Justice Brownie in Telaro Pty Limited v Burns [2000] NSWSC 26, 4 February 2000, unreported. In Telaro, Justice Brownie AJ said at paragraph 12: At common law the plaintiff had no right to take possession of the property before the expiry of the notice to quit so that it seems to me that the plaintiff can only now rely upon so much of section 441F as speaks of otherwise recovering the property. 27 The action taken by the plaintiff in that case purportedly pursuant to s 441F(1)(b) was not a power because the plaintiff did not have a right to take possession of the property and thus the commencement of the proceedings was not validly within the meaning of "power" in s 441F(1)(b). 28 Ms Needham has provided the Explanatory Memorandum in relation to s 441F which provides: The section will have the effect that an owner or lessor of property used by the company will not be prevented from enforcing their rights to take possession of the property where they had commenced to do so before the appointment of an administrator.

Although there is a reference in the Memorandum to s 440B, I am satisfied by reason of the content of s 441F(2) that more probably than not 440C was intended. 29 Ms Needham also relied upon the following extract in Professor Butt's book, Land Law, 4th ed, Lawbook Co, Sydney, 2002, paragraph [15144]: The power to forfeit may be exercised by peaceably re-entering (subject to statutory limitations) or by issuing and serving a summons for possession of the land. Both methods have the same legal effect. 30 I am not satisfied that s 441F should be read as requiring only physical re-entry or physical possession. It seems to me that s 441F contemplates the alternative of re-entering by the issuing or serving of process. As Professor Butt notes the re-entry by service of process has the same legal effect as physical re-entry. The term "assume control" in subparagraph (a) also supports such an interpretation. If Mr Aitken's submission were correct, one might have expected the term "takes control" as opposed to "assumes control". Even then, I am not satisfied that Mr Aitken's interpretation of the implication that it means only physical re-entry can be justified. In all of the circumstances I am satisfied that s 441F does apply and that the plaintiff does not require leave under s 440C. 31 Even if that is wrong I am not of the view that leave ought be refused under s 440C. In reaching this conclusion I have had regard to the Short Minutes of Order filed with this court whereby Provident and the plaintiff entered into an agreement to protect Provident's position, notwithstanding the views expressed by Kenny J in Canberra International Airport Pty Ltd v Ansett Australia Ltd (Administrators Appointed) (2002) 41 ACSR 309 at 321. I am satisfied that leave should be granted, if that were necessary. 32 In all the circumstances I make a declaration that: (1) The plaintiff is entitled to take possession of the premises known as The Great Northern Hotel situated at the corner of Scott and Watt Streets, Newcastle, being all the land identified in folio identifier 100/834251; (2) I order that the plaintiff have leave to have a writ of possession issued forthwith pursuant to the orders made by the court on 12 April 2002 in proceedings 3548/01 in the Supreme Court of New South Wales; (3) I order that the defendant's should pay the plaintiff's costs; (4) I order that the writ of possession lie in the office of the Registry until 31 October 2002. oOo

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