Napiat Pty Ltd & Anor v Bema Gold

Background 4Under the lease dated 18 June 1998 Moorabbin Airport Corporation Pty Ltd (MAC) leased from the Commonwealth of Australia the site of the Moorabbin Airport (the site) including the structures thereon for a term of 50 years. In cl 2.1 the term "structures" was defined to mean all fixtures, including buildings and other improvements affixed to the airport site, whether constructed before or after the grant of the lease. 5On 11 July 2003 Bema was registered with Mr Rod Salfinger appointed as its director and secretary. 6On 15 December 2003 TPM was registered with Mr Rod Salfinger appointed its director and secretary. 7Under the sub-lease dated 1 March 2004 Bema leased from MAC the airport site for a term of 10 years. Under cl 1.2 the term "Airport" was defined to include all improvements on the site including plant, equipment and fixtures (other than the tenant's fittings). 8By the agreement made on 15 December 2005 Bema, as the owner, agreed to sell, and TPM agreed to purchase, for the sum of $1, certain assets located at the site. The relevant terms of the agreement are referred to later in these reasons. 9On 15 January 2006 Bema was deregistered. 10By letter of 20 March 2009 MAC submitted to Heli-Serv a proposal for a lease of the site for consideration. 11By agreement dated 9 May 2009 TPM agreed to sell, and Heli-Serv agreed to buy, the office and hangar buildings located at the site for the total sum of $209,000 of which $190,000 was the price, and $19,000 was for GST. The agreement was signed by Mr Ron Diamond, as a director of Heli-Serv, and Mr Rod Salfinger, as a director of TPM. Under cl 6 of the agreement TPM warranted that there were no claims to ownership of the buildings and that TPM purchased the buildings from Bema. Under cl 8, Heli-Serv acknowledged that the buildings were sold as structures and that the sale did not include the land upon which the buildings were located. Clause 13 provided that if Heli-Serv was unable to obtain a lease of the site within 60 days, TPM was entitled to take possession of the buildings and the site. Under cl 28, it was represented that Mr Rod Salfinger had the ability and right to bind TPM to the terms of the agreement. 12About 9 May 2009 MAC informed Heli-Serv that it was unwilling to assign to it the lease of the site. As a consequence, Heli-Serv did not take possession of the site, and the agreement with TPM did not proceed, and no payment was made under it. 13On 10 May 2009 TPM was deregistered. 14On 21 December 2009 MAC re-entered and took possession of the site. 15On 8 January 2010 Bema commenced proceedings in the Victorian Civil and Administrative Tribunal against MAC for relief against forfeiture of the lease. 16On 1 March 2010 Bema was reinstated. 17On 23 April 2010 Bema was granted relief against forfeiture upon various conditions. 18By agreement dated 3 February 2011 Bema agreed to sell the assets, and assign its interest under the lease, to Heli-Serv for a consideration of $190,000 plus GST. Clause 3.1 provided a schedule for payment of the sum, including the sum of $61,720.14 inclusive of GST on completion, and thereafter the balance by way of monthly instalments each in the amount of $10,000 plus GST. 19By the deed of assignment of 7 February 2011 the lease of the site was assigned by Bema to Heli-Serv with the consent of MAC to operate from 4 February 2011. Under cl 6.1 Bema, as the existing tenant, warranted to MAC, as the landlord, that it had transferred all of its right, title and interest to the buildings and improvements on the site to Heli-Serv as the new tenant. 20On 23 June 2011 it was ordered that TPM be reinstated, and wound up. 21On 7 July 2011 leave was granted to the first plaintiff to join TPM as a plaintiff and for the summons and statement of claim to be amended accordingly. 22By letter of 21 July 2011 to the plaintiffs' solicitors, Heli-Serv's solicitors confirmed that Heli-Serv was in occupation of the site and, pursuant to the agreement for the sale of assets and the assignment of the lease made with Bema on 3 February 2011, acquired title to the offices and hangar located at the site.

Determination 23Relevantly, the agreement of 15 December 2005 between Bema and TPM included the following provisions: "2 OWNERSHIP OF THE ASSETS 2.1 The Assets are located at a site (the 'Site') known as Site 28 Northern Ave Moorabbin Airport and individually referred to as Buildings 54, 71 and 104. The Site is also referred to as 71 Northern Ave, Moorabbin Airport, and the particular chattels and fixtures set out in Schedule 'A' to this Agreement. 2.2 the Vendor owns the Assets. 3 SALE OF ASSETS 3.1 Pursuant to the terms of this Agreement, the Vendor hereby sells, assigns and transfers full free and clear title of all interest in and to the Assets to the Purchaser for the deemed sum of $15,000 plus $1,500 goods and services tax ('GST') for a total consideration of $16,500 (the 'Consideration'). The payment of the Consideration will be made on or before the 'Settlement Date'. .... 5.1 The Vendor represents and warrant [sic] to the Purchaser as follows: ... (b) the Assets are free of any Indebtedness, Lien and Mortgage to any party and that the Assets can be delivered to the Purchaser with full free and clear title; ... (f) that they have the power and capacity to own and dispose of the Assets and to enter into this Agreement and carry out its terms to the full extent ..." Schedule A contained the list of assets located at the site, namely: "(a) Aircraft Hangar & Shed (b) Offices & Lounge Area (c) Air-conditioning Units located in the Office" 24The plaintiffs claim that, in breach of the abovementioned terms of the agreement, Bema did not own the assets and did not have the power and capacity to own and dispose of them since at all material times they were owned by the Commonwealth. They claim that the breach caused the loss of the value of assets in the amount of $209,000, and that the compensatory award of damages should be for that amount. 25The evidence establishes, and I find, that in breach of cl 2.2, cl 5.1(b) and (f), Bema was not the owner of the assets, and was incapable of disposing of them to TPM. The terms of the lease from the Commonwealth to MAC establish that ownership remained with the Commonwealth. Reference to the head lease from the Commonwealth was made in the introduction to the sublease of 1 March 2004 between MAC and Bema. It supports the inference that Bema, at all relevant times, was aware that the ownership of the property the subject of the sublease rested in the Commonwealth. In my opinion, it follows, and I find, that Bema deliberately entered into the agreement with TPM in the knowledge of, or recklessly indifferent to, its incapacity to deliver ownership of the assets to TPM. 26Bema's default through non-performance deprived TPM of the market value of the assets and, consistent with well-established principle, TPM is entitled to compensation for the loss of its bargain. In this case, the basic loss is the market value of the property which Bema was unable to transfer. For the plaintiffs, it was submitted that the price agreed upon by TPM and Heli-Serv in the agreement of 9 May 2009, namely $209,000 (inclusive of GST) is a fair indication of the reasonable market value of the assets at that time. It was put that as the agreement was an arm's length transaction, it provided sufficient evidence for the finding that this amount was one which a purchaser was willing to pay for the assets. 27The approach to be taken to the assessment of damages was explained in Vieira v O'Shea [2012] NSWCA 21 by Basten and Meagher JJA (Handley AJA agreeing): "44 ... The general rule is that damages for breach of contract are assessed at the date of breach. However, that rule will yield if "in the particular circumstances, some other date is necessary to provide adequate compensation": Johnson v Perez [1988] HCA 64; 166 CLR 351 at 367; see generally, 355-356, 371, 386; Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 266-267. The complaint by the respondent that the time for assessment could only have been the time of breach was not, in principle, supportable: see, eg, E Peel, Treitel, The Law of Contract (12 th ed, 2007) at 20-064. 45 The general rule must give way if, in the interests of justice, another approach is necessary to give the plaintiff an amount of damages which will compensate for the breach of contract. That may be the case where the plaintiff has acquired an asset which would not otherwise have been acquired and the asset is not readily marketable at the time of acquisition; or if the plaintiff does not discover until some time after acquisition, the matter which meant that the asset would not have been acquired; or if for some other reason the plaintiff is "locked in" to holding the asset. In each of these circumstances, the plaintiff may not have acted unreasonably in retaining the asset: see HTW Valuers, at [63] and [66]; Smith New Court Securities, at 265-266. 28In my opinion, in this case the issues of breach and loss did not crystallise until the agreement was made on 9 May 2009 for TPM to sell the assets to Heli-Serv. Had TPM been required by Heli-Serv to perform the agreement and deliver ownership of the assets, its incapacity to do so would have been revealed, a situation directly resulting from Bema's breach. It was at this point of time that a market value was fixed for assets which Bema had agreed to, but could not, deliver into TPM's ownership. 29In the circumstances, the amount of damages to adequately compensate TPM for loss occasioned by Bema's breach should be equivalent to the amount which Heli-Serv was willing to pay for them. To approach the task of assessment in any other way would be an exercise in speculation without evidentiary support. Accordingly, I find that, in the interests of justice, TPM is entitled to an award of damages in the amount of $209,000, with interest from 9 May 2009. I accept the plaintiffs' submissions on the issue of damages. 30Prima facie, Bema should be ordered to pay the plaintiffs' costs of the proceedings. Furthermore, absent consent, opportunity should be given to the second and third defendants to be heard on the question of costs. 31Accordingly, I direct the plaintiffs to bring in short minutes to give effect to these reasons. If necessary, arrangements should be made with my associate by 4pm 26 April 2012 to re-list the proceedings.

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