PAR Recycling Services Pty Ltd v Shoebill Pty Ltd; Somersby Aust Pty Ltd v Gallagher

Medium Neutral Citation: PAR Recycling Services Pty Ltd v Shoebill Pty Ltd; Somersby Aust Pty Ltd v Gallagher [2025] NSWSC 274

Hearing dates: 2, 3, 4, 5, 8, 11 April 2024; 21 March 2025

Date of orders: 21 and 26 March 2025

Decision date: 26 March 2025

Jurisdiction: Equity

Before: Parker J

Decision: See [455]-[458]

Catchwords: LEASES AND TENANCIES — tenancies — agreement to grant a lease over a warehouse property — subject property was held on trust — lease was never registered pursuant to the agreement — whether subsequent owners were bound by the agreement — whether agreement gave rise to an equitable lease — whether a legal tenancy arose under s 127 Conveyancing Act 1919 — whether parties to the agreement repudiated — claims for unpaid rent — claims against individual guarantor for indemnity under the agreement
CONTRACTS — parties — privity — privity of estate — where a lease was never registered despite agreement to do so — whether a legal tenancy arose under s 127 Conveyancing Act 1919 — whether s 117 Conveyancing Act 1919 applies to unregistered legal tenancies
COSTS — party/party — orders when proceedings involve multiple parties — how parties liable — multiple claims in multiple matters, with mixed success by plaintiffs and cross-claimants — costs follow the event on a claim-by-claim basis — incidence of general costs

Legislation Cited: Civil Procedure Act 2005
Conveyancing Act 1919
Corporations Act 2001
Real Property Act 1900 s 53
Trustee Act 1925

Cases Cited: Akierman Holdings Pty Ltd v Akerman [2019] NSWSC 1486
Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137
Chan v Cresdon (1989) 168 CLR 242
Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72
Dockrill v Cavanagh (1944) 45 SR (NSW) 78
Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237
Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312
Leitz Leeholme Stud Pty Ltd v Robinson [1977] 2 NSWLR 544
Lemery v Reliance (2008) 74 NSWLR 550
Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407
Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd (2007) WASC 88
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171
Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 3) [2024] NSWSC 1483
Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141
Pertzel v Qld Paulownia Forests Ltd (2008) 2 Qd R 526
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (A/asia) Pty Ltd (1954) 90 CLR 235
Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd [2014] WASCA 28
Rosebanner Pty Ltd v Energy Australia (2009) 223 FLR 406
Secure Parking Pty Ltd v Woollahra Council [2016] NSWCA 154
Shun Sheng Pty Ltd v Lei (No 6) [2024] NSWSC 1613
State of New South Wales v Stevens (2012) 82 NSWLR 106
Walsh v Lonsdale (1882) 21 Ch D 9
WJ Green & Co (1984) Pty Limited as Trustee for the W J Green Family Trust v Wilden Pty Ltd as Trustee for the Baga Bazaar (1985) Unit Trust (Parker J, WASC, 24/4/1997, unreported)

Texts Cited: Butt’s Land Law (7th ed, 2017, Thomson Reuters
Scott and Fratcher, The Law of Trusts (4th ed, 1987, Little, Brown & Company)

Category: Principal judgment

Parties: 2020/39362
PAR Recycling Services Pty Limited (Plaintiff)
Shoebill Pty Limited (Defendant)
Shoebill Pty Limited (Cross-Claimant)
PAR Recycling Services Pty Limited (Cross-Defendant)
2020/244319
Somersby Aust Pty Limited (Plaintiff)
Danial Patrick Gallagher (First Defendant)
PAR Recycling Services Pty Limited (Second Defendant)
Danial Patrick Gallagher (First Cross-Claimant)
PAR Recycling Services Pty Limited (Second Cross-Claimant)
Shoebill Pty Limited (First Cross-Defendant)
Somersby Aust Pty Limited (Second Cross-Defendant)
Raphis Securities Pty Ltd (Third Cross-Defendant)
Marginata Securities Pty Ltd (Fourth Cross-Defendant)
Angelo Phillip Russo (Fifth Cross-Defendant)
Sam Peter Cassaniti (Sixth Cross-Defendant)

Representation: Counsel:
2020/39362
J V Gooley/ R M Higgins (Plaintiff/Cross-Defendant)
S Baron Levi (Defendant/Cross-Claimant)
2020/244319
M A Ashurst SC/ L D Corbett (Plaintiff/Second, Third, Fourth and Sixth Cross-Defendants) (2, 3, 4, 5, 8 and 11 April 2024)
L D Corbett (Plaintiff/Second, Third and Sixth Cross-Defendants) (21 March 2025)
J V Gooley/ R M Higgins (Defendants/Cross-Claimants)
S Baron Levi (First and Fifth Cross-Defendants)
A Blackie (Solicitor Advocate) (Fourth Cross-Defendant) (21 March 2025)
Solicitors:
2020/39362
RHR Legal (Plaintiff/Cross-Defendant)
Du & Associates Lawyers (Defendant/Cross-Claimant)
2020/244319 proceedings
Watson Webb Lawyers (Plaintiff/Second, Third, Fourth and Sixth Cross-Defendants) (2, 3, 4, 5, 8 and 11 April 2024)
Watson Webb Lawyers (Plaintiff/Second, Third and Sixth Cross-Defendants) (21 March 2025)
RHR Legal (Defendants/Cross-Claimants)
Du & Associates Lawyers (First and Fifth Cross-Defendants)
ERA Legal (Fourth Cross-Defendant) (21 March 2025)

File Number(s): 2020/39362; 2020/244319

Publication restriction: Nil

JUDGMENT

1. Before the Court are two sets of proceedings arising out of an agreement which provided, among other things, for the grant of a lease over a warehouse property. In each set of proceedings, the defendant or defendants have cross-claimed. Thus, there are four actions to be resolved: two plaintiffs’ actions and two defendants’ cross-actions.

2. The agreement in question was made in 2019 to settle previous proceedings in the Court, and I will refer to it as the “Settlement Agreement”. Although it provided for the execution and registration of a formal lease over the property, that never occurred.

3. It has been claimed (at various stages, by different parties) that the Settlement Agreement gave rise to a specifically enforceable obligation to grant a lease (an “equitable lease”) over the property. It is common ground between the parties that any such equitable lease was terminated, or otherwise came to an end, in 2020. No-one is now seeking specific performance. The claims by the parties are for damages.

4. The land in question is an allotment at Wisemans Ferry Road, Somersby. It is in an industrial area west of Gosford on the Central Coast of New South Wales. Its total area is about 2.75 hectares. Erected on the land is a large warehouse with an attached two-storey office. On the site is also a waste processing plant which was constructed by a previous occupier.

5. At the time the Agreement was made, the property was occupied by a company named PAR Recycling Services Pty Limited (“PAR”), which was using it (but not the waste processing plant) to sort and stockpile waste glass. PAR is an indirectly wholly-owned subsidiary of a company named Stop Waste Holdings Pty Limited (“SW Holdings”). I will refer to SW Holdings and its subsidiaries, including PAR, as the “SW Group”.

6. PAR’s operations at the Somersby property formed part of a larger waste recycling business carried out at several locations by various SW Group companies. Those companies apparently included PAR’s parent company, Stop Waste Pty Limited (“SWPL”), and SWPL’s parent company, iQ Renew Pty Limited (“iQ Renew”).

7. The activities of PAR were in 2019 being directed by Danial Patrick Gallagher, and that remains the case. Mr Gallagher is a businessman who has been involved in the waste and recycling industry for 20 years and bought into the SW Group business in 2016 or 2017. He has been the sole director of PAR since 2018.

8. At the time of the Settlement Agreement, the registered proprietor of the Somersby property was a company named Sommersby Investments Pty Limited (“SIPL”). SIPL had acquired the land in 2017, with finance from Westpac Banking Corporation (“Westpac”). It did so as trustee for a discretionary trust known as the Sommersby Investments Holding Trust (“SIH Trust”).

9. The sole director of SIPL at the time was Angelo Phillip Russo. Mr Russo is an accountant by profession but is also a businessman with interests in, among other things, recycling and waste management. The beneficiaries of the SIH Trust were members of his family and he was entitled to nominate the trustee of the Trust. He had previously been involved as an investor in the business venture which had resulted in the construction of the waste processing plant on the property.

Claims for determination

23. As already noted, PAR is the plaintiff in the first set of proceedings and Shoebill is the defendant. I will refer to the proceedings on PAR’s statement of claim as “PAR’s action”. Specific performance is no longer sought in the action. PAR now only claims damages against Shoebill for breach of the claimed equitable lease.

24. PAR has relocated its business to another site, at Kundle Kundle on the Mid- North Coast. The case for PAR is that, had it not been for the promise of the lease, PAR would have relocated, and re-established its business, at an earlier date. Damages are claimed for that alleged loss of opportunity.

25. Shoebill has cross-claimed against PAR in the proceedings. In its cross-claim, Shoebill claims payment of unpaid rent for the period up to the time Shoebill ceased to be the registered proprietor of the Somersby property in May 2020. I will refer to this as “Shoebill’s cross-action”.

26. In the second set of proceedings, SAPL is the plaintiff and Mr Gallagher and PAR are the defendants. I will refer to this as “SAPL’s action”. SAPL’s claims in the action are based on the contention that after SAPL became the registered proprietor of the land in May 2020, it became entitled to enforce PAR’s obligations under a claimed “equitable lease” (and Mr Gallagher’s obligations as guarantor).

27. SAPL initially claimed damages of $348,000 on the basis that PAR failed to comply with its make-good obligations under the “equitable lease”, but abandoned that part of the claim in final submissions. SAPL’s action is therefore confined to a claim for unpaid rent from May 2020 onwards ($157,500).

28. Mr Gallagher and PAR have cross-claimed in those proceedings. Their cross-claim was filed in February 2021. The cross-defendants are Shoebill, SAPL, Raphis, Marginata, Mr Russo and Mr Cassaniti. I will refer to this as “PAR’s cross-action”.

29. In the course of the dealings between the parties, PAR paid monies totalling $140,000 into a trust account held by its solicitor. The payments were made on account of obligations arising under the lease contemplated (on PAR’s interpretation) by the Settlement Agreement. Among the prayers for relief in PAR’s cross-action was an order for the release of these funds. But when the proceedings came before me for directions shortly before the beginning of the trial, it became clear that none of the other parties was asserting any proprietary interest in the funds. Accordingly, there was no obstacle to the monies being paid out, and the issue dropped out of the proceedings.

30. Another of the claims made in PAR’s cross-action was for damages for losses allegedly incurred by PAR as a result of restraining orders which had been made in the SIPL proceedings. Associated with that claim was a contention that PAR was entitled to a charge over the Somersby property, in priority to Marginata, for the amount due. But this claim was abandoned on the first day of the trial and does not need to be considered any further.

Summary and analysis of evidence

Documentary evidence

33. Previous occupation of property by PAR: According to Mr Gallagher, PAR’s occupation of the Somersby property began in about 2010. At that time, PAR’s affairs were being directed by a Mr Daniel Waddington. Tresstowe Pty Limited (“Tresstowe”), the then owner of the property, granted PAR a formal lease in 2011. The lease expired in 2014 but PAR remained in occupation of the property, or at least part of it, thereafter, right through until September 2020.

34. PAR used the Somersby property to operate a glass processing business. PAR received recyclable waste material from various sources including local government kerbside collection activities and commercial waste companies. It used the warehouse on the property to separate recyclable glass material from contaminated waste, and then sort the glass into different categories for sale. The saleable glass was then stored in stockpiles on the property until purchased. From 2014, the market for recyclable glass material had been in decline and, due to the decreased demand, the stockpile of crushed glass material on the property increased.

35. Occupation of property by Biocoal**:** In April 2016, a lease was registered over the Somersby property from Tresstowe to a company named Biocoal Group Pty Limited (“Biocoal”). The lease was for a 5-year term commencing on 1 June 2015 with a 5-year option and an option to purchase.

36. Biocoal had been incorporated in September 2014. The founding directors of the company were Mr Waddington and a Mr Darren Beale (who was also the secretary). One of the shareholders was another SW Group company, Yellow Bins Recycling Pty Ltd (“YBR”).

37. From December 2014, if not before, Biocoal appears to have been some sort of joint venture involving Mr Waddington, Mr Russo, and Ms Filomena Kyriacou. At that time Ms Kyriacou replaced Mr Beale as director and secretary of the company. At some point a company named Verona Group Pty Limited (“Verona”) became a shareholder. Both Ms Kyriacou and Mr Russo were directors of Verona.

38. Ms Kyriacou was at the time a business partner of Mr Russo’s. Both of them were also involved with an accounting and financial advisory business conducted by a company named Wentworth Williams & Associates Pty Limited (“Wentworth Williams”).

39. According to Mr Gallagher, he learned when he became involved with PAR that Biocoal had been established to develop and operate a business producing solid refuse fuel (“SRF”) from waste material. A waste processing plant was built at the Somersby property in 2015 for this purpose. For a fee, Biocoal collected and received deliveries of construction and demolition waste and other forms of commercial and industrial waste at the property. The waste was then processed through the plant, resulting in it being shredded, sorted and baled for export.

The stockpile of crushed glass had increased considerably over the years as the market for the product collapsed. It is claimed by the current operators to presently total 40,000 tonnes. Their operation does not generate any more glass waste, but as a side operation, they are screening and re-crushing the glass to be used as fill sand in order to eventually clear the stockpile.

Under instruction from the EPA, the stockpile is covered with very large tarpaulins costing $13,000 and run-off is treated and monitored. If the stockpile had to be moved immediately, the tip fees alone at the current … rate would be $1.3m plus loading and cartage. The current operator is reducing the stockpile by re-crushing and screening into a sand-like material, which has been approved for pipe bedding and fill sand. They also intend to put in a washer, which will increase the marketability.

43. Change in ownership of Biocoal**:** At some point in 2017 not precisely identified in the evidence, Mr Waddington’s ownership interest in Biocoal ceased. By May 2017, Verona had become the sole shareholder in the company. According to ASIC records, Mr Waddington ceased to be a director in September 2017, leaving Ms Kyriacou as sole director.

44. Establishment of SIH Trust: The SIH Trust was established by Trust Deed dated 11 July 2017. The Deed was in conventional form for a discretionary trust. The beneficiaries were family members of the “Appointor”. The Appointor was also empowered to remove and replace the trustee. The Deed named Mr Russo as the Appointor.

45. The initial trustee of the Trust, SIPL, had been incorporated on 5 July 2017, six days before the Trust was established. Upon incorporation, a Mr Mohammad Mustapha was the sole shareholder and director of SIPL. Mr Mustapha described himself in correspondence on the letterhead of Wentworth Williams as “Junior Partner”.

46. Purchase of property by SIH Trust: In December 2017 SIPL, as trustee for the SIH Trust, obtained finance to buy the Somersby property from its then owner, Tresstowe. The finance was obtained from Westpac in the form of a loan of $3.185 million, described by the Bank as a “bank bill business loan” with a two-year term. The loan offer was accepted on SIPL’s behalf by Mr Mustapha as its sole director.

47. The purchase price for the property was $5.2 million and, including stamp duties and fees, totalled approximately $5.523 million. According to Mr Russo, the remaining purchase monies (after the $3.185 million loan from Westpac) were provided by Verona (as to $2.108 million) and by an undisclosed company of Mr Russo’s (as to $230,000).

48. The Westpac loan arrangements were somewhat unusual. The letter of offer was addressed to SIPL as trustee for the Trust and required SIPL to execute a mortgage over the property to secure the loan. But for reasons which are not explained in the evidence, the purchase was actually effected through Biocoal in accordance with a trust deed under which Biocoal undertook to hold the property as “bare trustee” for SIPL. The Bank’s letter of offer required a guarantee and indemnity from Biocoal (among others) as well as execution by Biocoal of a mortgage to secure repayment of the loan.

49. The purchase contract is not in evidence, but the property was transferred by Tresstowe to Biocoal on 5 December 2017, making Biocoal the registered proprietor. The mortgage from Biocoal to Westpac was then registered on the title.

50. The transfer produced the unusual result that Biocoal was both the registered proprietor of the property and the tenant under a registered lease. Presumably, this was seen to be permissible because Biocoal held the lease in its own right whereas it held the title only as bare trustee. At all events, no point appears to have been taken about it by anyone concerned.

1. Lease of Premises

(a) The Parties agree that:

(i) PAR leases the entirety of the Premises from Sommersby, including but not limited to the facility office, factory floor and the back yard on the following terms:

(A) commencing on 10 August 2019 for a period of 5 years (the Period);

(B) for the purpose of Recycling Operations;

(C) PAR has two options as follows:

(I) the lease will be extended by two further 5-year terms at the option of PAR;

(II) the rent for the first year of each renewed period will be at market rate verified by an independent valuer and thereafter at annual CPI increases;

(D) with PAR to pay:

(I) Sommersby rent during the first term of $35,000 (including GST) per month, payable monthly in advance,

(II) The following outgoings from commencement of the lease:

i. Electricity;

ii. Water;

iii. Land tax; and

iv. Council rates;

…

(F) upon vacating the Premises, PAR will return the Premises to a state equivalent to:

(I) the state as at the date the EPA issues a licence to PAR or its nominee; or

(II) in the event no such licence is issued, the dilapidation report prepared on or about the date the Premises was purchased by Biocoal Group Pty Ltd from Tresstowe Pty Ltd [apparently a reference to the September 2016 report; see [42] above], or to any state improved by Sommersby after commencement of the Lease;

(G) Sommersby agrees to make reasonable repairs to the Building reasonably required:

(I) by the EPA to have the Prevention Notice removed and obtain an Environment Protection Licence;

(II) by the Council for fire and safety permit;

…

(J) Daniel Gallagher guarantees the performance of PAR’s obligations under the Lease;

…

(ii) the Commonwealth Bank of Australia (CBA) own the plant and equipment set out in Slattery’s Report of 29 January 2019 and set out in the finance lease agreements (CBA loans C# ADSL000160, ABU000049). CBA has agreed to sell that equipment to PAR under the Sale and Purchase Agreement. In the event that the Sale and Purchase Agreement is not completed then CBA will be granted access to remove the Plant and Equipment.

80. Clause 1(b) of the Settlement Agreement dealt with the EPA licence. It provided:

(b) in respect of the Environmental Protection Authority (EPA):

(i) PAR, or its nominee, will have authority to communicate with the EPA regarding the Premises;

(ii) PAR, or its nominee, will exclusively negotiate with the EPA regarding the remediation of the site;

(iii) Sommersby and PAR will include each other in all communications with the EPA regarding the Premises; and

(iv) PAR (or its nominee) has the exclusive right to, and will apply to the EPA for an environmental protection licence upon the Premises;

(v) Sommersby will cooperate with PAR, or its nominee, in applying for and obtaining that licence;

(vi) PAR agrees to provide the access to live and stored video to the EPA from all the security cameras installed on the Premises during the period that the Prevention Notice is in place.

81. Clause 1(c) granted PAR a first right of refusal to purchase the Sommersby property. It stated:

(c) PAR has a first right of refusal to purchase the Premises on the following terms:

(i) where the Land Owner has a bona fide offer from any competitor that is undertaking Recycling Operations (or similar activity or any related entity) then the Land Owner agrees that PAR (or related entity) may purchase the Premises under its first and last right;

(ii) during the Period, the price PAR will be equivalent to the offer made from a competitor reduced by remediation costs incurred by PAR from Commencement Date, such reduction to be complete costs of remediation in the first month of the Period, and thereafter reducing from complete costs by 1/60th for each month of the Period.

82. Clause 2 was headed “release and waiver” and provided (emphasis added):

(a) The Parties agree that they will not disparage any other party to this agreement, their officers, servants or agents.

(b) The Parties agree that upon execution of this agreement, each party releases each other Party from any and all present or future, contingent or accrued, claims, causes of action, liabilities or demands that either Party may have, but for this [Agreement], had against the other arising from or relating to matters the subject of the [SIPL Proceedings];

(c) the Parties will take such steps and sign such documents as are reasonably necessary to dismiss the Proceedings, by consent, with no order as to costs.

(d) PAR and Sommersby agree that they will enter into a registered lease which substantively contains the terms set out in this document, together with usual commercial lease terms substantively consistent with the terms set out in this document.

(e) This agreement is immediately binding upon execution.

83. Further corporate changes at SIPL: In August and September, ASIC was notified of two further ownership and directorship changes for SIPL. On 16 August, notice was given that on that day Mr Russo had replaced Mr Psaroudis as the sole shareholder and director. On 26 September notice was given that this had been reversed, with Mr Psaroudis becoming SIPL’s sole shareholder and director again.

84. Although lodged after the mediation, the notice recorded the change as having occurred on 1 September, almost three weeks before the mediation took place. If correct, this meant that Mr Psaroudis, not Mr Russo, was the sole shareholder and director of SIPL when the Settlement Agreement was signed.

85. Negotiations concerning grant of lease**:** Negotiations between the parties for the lease contemplated in cl 2(d) of the Settlement Agreement began on 2 October. Mr Wu sent a proposed lease for the property to Mr Hocking. The proposed lease contained provisions which were to prove contentious. These included provisions which:

86. obliged PAR to remove all waste from the property within three months of commencement of the lease;

87. increased the rent to $48,000 per month, although once PAR had removed all waste from the property, PAR would receive a rent rebate of $13,000 per month for the first five years of the lease (which would bring the net rent back down to $35,000 per month);

88. obliged PAR, upon vacating the property, to remediate it to a state equivalent to the state it was in when PAR had reinstated the EPA licence, or if that had not happened, the state of the property as recorded in the dilapidation report; and

89. required PAR to provide a bank guarantee equal to three months’ net rent, in the amount of $105,000.

90. Mr Hocking rejected Mr Wu’s proposal on 8 October on the basis that it contained terms inconsistent with the Agreement. On 18 October he provided Mr Wu with an amended draft of his own. That draft removed the obligations for PAR to clean up the property at the beginning of the lease and to remediate the property when vacating, and amended the rental figure to $35,000 per month, deleting the $13,000 rebate.

91. Two weeks passed without any response from Mr Wu and on 30 October Mr Hocking wrote a follow-up letter. The letter also referred to the provisions in the Settlement Agreement concerning the bank guarantee. Mr Hocking stated:

Our client needs contractual certainty to start work remediating the site so that it can communicate effectively with the EPA, remove the prevention notice on the site and apply for the Environmental Protection Licence. The Lease needs to be registered as soon as possible to allow that to occur. Until the lease is registered and work is done, our client cannot utilise the site due to the prevention notice currently imposed by the EPA and our client is paying rent for a site that has no value.

Given the difficulty this is causing our client, until our client's obligations under the tease are known such that the bank guarantee to secure those obligations can be provided, as an interim measure and as a show of good faith, our client proposes to pay the equivalent of 3 months' rent into our trust account to be held by us, as stakeholder for all parties as security for its performance under the settlement agreement, until 30 November 2019 or such time as the Lease can be registered (whichever is sooner).

88. On the following day, 31 October, Mr Wu responded to Mr Hocking’s email of 16 October, rejecting Mr Hocking’s draft lease and proposing a further amended draft lease of his own. Mr Wu’s draft reinstated PAR’s obligations to clean up the property and remediate it upon vacating. The rent reduction from $48,000 to $35,000 was accepted, but the draft retained an acknowledgement that the rental figure had been reduced by $13,000 per month in part consideration for PAR’s obligation to remove the waste.

89. In his covering email to Mr Hocking, Mr Wu stated that he was seeking instructions on the proposal to pay the security money into Mr Hocking’s trust account. But he continued:

There does not appear to be any disagreement between the parties about the requirements in relation to the bank guarantee, including as to the quantum of the bank guarantee, the person whom the bank guarantee is to be in favour of and the purpose of the bank guarantee

…

Based on the above, it would appear to us that, should your client fail to provide the bank guarantee in accordance with the Heads of Agreement, your client would be in default of both the Heads of Agreement and any lease at general law between our respective clients.

Please advise when your client will be in a position to provide the bank guarantee.

90. So far as the draft lease was concerned, the same pattern continued. On 1 November, Mr Hocking rejected Mr Wu’s 31 October draft and provided a further draft which was, for present purposes, the same as his 18 October draft. On 15 November Mr Wu responded rejecting Mr Hocking’s changes and effectively resubmitting his draft of 31 October, although without the acknowledgement concerning the $35,000 rent figure. This in turn was rejected by Mr Hocking on 21 November.

91. Meanwhile, so far as the bank guarantee proposal was concerned, Mr Hocking replied to Mr Wu’s email of 31 October later the same day, stating that PAR’s intention was to deposit the sum of $105,000 into his trust account “as security for its performance under the lease constituted under the Settlement Agreement until finalisation of the registerable lease, which is to occur by 30 November 2019”. The funds were eventually paid on 16 November. Despite the reference in Mr Hocking’s correspondence to the lease having to be completed by 30 November, the money remained in the account after that date.

92. On 12 December Mr Hocking wrote to Mr Wu:

On 2 December 2019, we advised you that we were instructed to apply to Court if the lease was not finalised and signed very soon. Since then, other than your stated belief that you would have instructions by 6 December 2019, there has been no response from your client.

We are instructed that our client considers your client’s ongoing failure to finalise and sign the terms of the lease without reasonable (or any) excuse to be a repudiation of the settlement agreement reached on 20 September 2019. Our client reserves all of its rights in relation to that repudiation.

93. On 17 December 2019, Mr Wu responded:

We are instructed that our client does not agree to any of your proposed amendments and presses each of our proposed amendments save for the amendment outlined below.

We are also now instructed to seek that a clause be inserted to the effect that there is a $13,000 rebate in rent in favour of the Lessee which is relation [sic] to your client’s obligation to remediate the premises. We note that this can be expressed to be without prejudice to any of your client’s rights as between our client and your client, including as to any future dispute between the parties.

94. Between 20 September and 10 December, SIPL issued five monthly rental invoices to PAR for the five months commencing on 10 August. Each invoice comprised $35,000 for rent and $4,020.77 for outgoings. Despite the ongoing disagreement between the parties as to the terms of the lease, PAR paid the rental component of all five invoices, but did not pay the outgoings component.

95. On 19 December, SIPL issued a sixth rental invoice to PAR for the period from 10 January to 9 February. It comprised $35,000 for rent and $18,358.86 for outgoings (covering the earlier unpaid amounts). Again PAR paid $35,000 towards the invoice for the rental component, but did not pay the outgoings component. The payment was made on 11 January.

96. Each of the invoices was printed on a “Sommersby Investments” letterhead, which in fine print in the footer identified the sender as SIPL as trustee for the SIH Trust. PAR was directed to make payment to a trust account of Accolade.

97. Appointment of Shoebill as trustee of SIH Trust: Meanwhile, on 6 November 2019, a Deed of Appointment of Trustee for the SIH Trust (“Appointment Deed”) was registered in the Register of Deeds. The lodgement application form was signed by a Ms Fordham of Accolade, which was identified as the lodging party.

98. The Deed itself was dated 3 May 2019, six months earlier. The parties were Ms Kyriacou, Mr Russo and Shoebill. The signatures of Ms Kyriacou and Mr Russo were both witnessed by Mr Cassaniti. Mr Russo signed the deed on behalf of Shoebill as “sole director/ company secretary”.

99. The Deed recited that Ms Kyriacou and Mr Russo were “co-appointors” under the SIH Trust Deed, and provided for them, as co-appointors, to remove SIPL as trustee of the Trust and replace it with Shoebill. The Deed also provided for the immediate vesting of all property of the Trust in Shoebill as the new trustee, except “where there is a legal requirement that cannot be contracted out of”, in which event the property in question would vest “in equity” immediately in Shoebill, and Shoebill would have an immediate “enforceable right” to call for the legal vesting of that property.

100. Clause 5 provided:

Kyriacou, Russo and the New Trustee agree that Trust’ property is subject to all liabilities created by the Old Trustee (by its director, Bill Psaroudis) up to the date of this deed in favour of each of [Accolade] and [Reliance].

101. In treating Ms Kyriacou as an appointor under the Trust Deed, the Appointment Deed was in error. As already noted, the sole appointor under the Trust Deed was Mr Russo. How this error came to be made is not explained in the evidence.

102. Liquidation of SIPL: On 10 January 2020, a shareholders’ resolution was passed that SIPL be wound up. The liquidator appointed was Mr Brendan Nixon of SM Solvency Accountants. The resolution is not in evidence, but was presumably passed by Mr Psaroudis as the sole shareholder of SIPL.

103. Four days later, on 14 January, Mr Cassaniti wrote to Mr Nixon on the letterhead of Accolade. Mr Cassaniti stated that he had been “instructed” to provide Mr Nixon with certain information. Mr Cassaniti did not say who had given him the instructions. The information included:

1. Sommersby [SIPL] was the trustee of the [SIH Trust]. Please find enclosed a copy of the Trust [Deed].

...

3. On 3 May 2019, [Shoebill] (“New Trustee”) was appointed as the new trustee of the Trust. As such, the trust property vests in the New Trustee.

4. On 6 November 2019, the Deed of Appointment of Trustee was registered with NSW Land Registry Services. Please find enclosed a copy of the [Appointment Deed].

5. Sommersby is the registered proprietor of [the Property]. …

6. The current value of this property is estimated to be about $2,900,000.00 in its current state due to contamination of the land and EPA issues. Please find enclosed Valuation Report from MDA Property.

…

10. [PAR] currently occupy the Property. Following a dispute between Sommersby and [PAR] (amongst others), on 20 September 2019 Sommersby and PAR agreed to resolve the dispute by entering into a binding Heads of Agreement whereby, amongst other things, Sommersby would grant a lease to PAR. To date, the lease particulars have not been agreed upon and there is no formal lease registered.

11. The New Trustee is applying for insurance on the Property and has applied to be registered proprietor on title.

104. Westpac loan default: The collapse of Biocoal had left the various Westpac facilities associated with Ms Kyriacou and Mr Russo, including the loan to SIPL, to deal with. Up until the beginning of January, the loans appear to have been managed out of a Westpac regional banking office in Queensland. Mr Paul Gray, a Senior Solicitor at McEvoy Legal, was acting for the borrowers and guarantors in the negotiations with the Bank. Mr Cassaniti, through Accolade, was also involved in the negotiations, apparently also in an advisory capacity.

105. Following the appointment of a liquidator to SIPL on 10 January, the position changed. Management of the loans was transferred to the Credit Risk department at the Bank’s headquarters at Sydney, presumably on the basis that the loans were impaired (and as a prelude to enforcement action). On 29 January, Mr James Reilly, a Senior Accountant Manager in the Credit Risk department, wrote to Mr Gray and Mr Cassaniti advising of the transfer. Discussion with Mr Cassaniti followed.

106. On 4 February, Mr Reilly wrote to Mr Russo and Ms Kyriacou concerning the relevant facilities. There were four of them. Details of the facilities and the then current position were set out by Mr Reilly in the course of his letter:

…

1. Always Recycling Equipment Pty Ltd (In Liquidation) (Recycling) – Westpac equipment finance facilities for 3 contracts totalling approximately $66,725.00 plus interest and costs.

2. [SIPL] (Sommersby) – Bank Bill Business Loan $2,912,320.97 plus interest and costs.

3. [Verona] – Bank Bill Business loan $434,785.14 plus interest and costs.

4. VHM Asset Holdings Pty Ltd (VHM) - $2,769,121.01 plus interest and costs.

…

The Bank currently understands that:-

1. The equipment was allegedly stolen some years ago and payments have ceased in the last 3 months.

2. Sommersby owns a property at 95 Wisemans Ferry Road as trustee for the [SIH Trust]. The Bank is aware that Mr Cassaniti wishes to refinance this facility with a facility from [Raphis]. The Liquidator is currently assessing its position and has not disclaimed its rights in relation to this property. The Liquidator has advised that it is not prepared to instruct the Bank to refinance this facility. The Bank requires this instruction from the Liquidator (as mortgagor) to achieve a mortgage transfer under Sec 94(1) of the Conveyancing Act NSW.

3. Verona owns a property at 6/15 Emeri Street Stapylton Qld. The Bank is aware that Mr Cassaniti wishes to refinance this facility with a facility from [Raphis].

4. VHM owns a property at 12/70 Pitt Street which is currently being marketed for sale at approximately $4.5m. ...

107. Mr Reilly’s letter stated:

… approximately $6,182,952.12 is outstanding in relation to the below facilities. You have each provided the Bank with personal guarantees in relation to the repayment of these facilities. The Bank notes that all facilities (except VHM) are in Default and are now due and payable. The Bank notes that the property security for VHM (12/70 Pitt Street) is currently being marketed for sale but the Bank has no further details on the progress of this sale.

…

You were copied on my correspondence to Mr Cassaniti of yesterday and I will follow up with Mr Cassaniti on his return from overseas on Thursday.

Prior to my discussions with Mr Cassaniti I would be grateful if you could please provide your consent for me to discuss each of the above companies’ interests with Mr Cassaniti. Please also clarify whether Mr Cassaniti is acting on your behalf.

In addition I would appreciate it if you could advise your intentions and understanding in relation to the repayment of the above facilities.

…

108. A week later, Mr Reilly wrote to Mr Cassaniti. He noted (presumably as a result of information from Mr Cassaniti) that Mr Cassaniti would be speaking to the liquidator in two days’ time, on 13 February. Mr Cassaniti had apparently told Mr Reilly that the liquidator had agreed to provide, on behalf of SIPL as mortgagor, an “instruction” to transfer the mortgage for the purpose of the proposed refinance to Raphis. Mr Reilly sought confirmation from Mr C13assaniti that this agreement had been given.

109. There is no independent documentary evidence that the liquidator had given any such agreement, and there is no evidence that he did so. Nor is there any documentary evidence of any further response of Mr Russo and Ms Kyriacou to Mr Reilly’s queries about Mr Cassaniti’s role.

110. Commencement of PAR’s action and further lease negotiations**:** On 15 January 2020, Mr Gray, who had apparently taken over the correspondence with PAR from Mr Wu, wrote to Mr Hocking. He stated:

We advise that we no longer act for [SIPL] (Sommersby).

In response to your questions raised in your letter, given that a liquidator appears to have been appointed and we no longer act for Sommersby, it is appropriate for your questions to be directed to the liquidator.

Mr Gray then enclosed a copy of Mr Cassaniti’s letter to the liquidator of SIPL of the previous day.

111. On 21 January, Mr Gray wrote to the EPA, copying in Mr Hocking, as follows:

We act for [Shoebill] in its capacity as trustee of the [SIH Trust].

We are instructed that the subject Property is an asset of the Trust and Shoebill is in the process of taking steps to have the Property registered in its name. A copy of the Deed of Appointment of Trustee is enclosed.

We understand that you have previously raised concerns about:

(a) the fire suppression system;

(b) the thousands of litres of various chemicals which may not have been appropriately stored on the premises; and

(c) the state of the land.

We request that you please advise whether the above concerns have been addressed by the occupier of the premises, [PAR], and whether all other requirements of the EPA have now been complied with.

112. The letter was a not-very-subtle attempt to use the EPA to put pressure on PAR over the environmental state of the property. On 23 January, Mr Hocking wrote to Mr Gray about it, referring also to the Settlement Agreement (emphasis added):

Shoebill

While we acknowledge that Shoebill was not a named party to the Agreement, to the extent it was apparently trustee of the [SIH Trust] at the time, it is bound by the Agreement.

As you are aware, Angelo Russo is the sole director and shareholder of Shoebill. Mr Russo is also a former director of Sommersby [SIPL] and has given evidence in the Supreme Court of New South Wales to the effect that he was at all times one of two controllers of Sommersby; the other being Filomena Kyriacou.

[Mr Hocking referred to Mr Russo’s involvement in the SIPL proceedings and the Settlement Agreement, and to the lease negotiations with McEvoy Legal].

Given Mr Russo’s position as director or controller of both Sommersby and Shoebill, and on the assumption that the trustee was lawfully changed. Mr Russo and Sommersby plainly had Shoebill’s authority, although undisclosed, to:

(a) charge the Land pursuant to the undertaking given to the Court; and

(b) enter into the Agreement with our client on behalf of the trustee.

Alternatively, Shoebill has otherwise ratified or adopted the Agreement by allowing Sommersby to continue to represent itself as the owner of the Land and the lessor under the Agreement.

In any event, our client will seek to enforce the Agreement against Shoebill as trustee of the Trust.

EPA Letter

We are unsure why you did not simply ask us about these matters the subject of your letter to the EPA.

In relation to your queries, we note the following:

(a) as specifically noted in the Agreement, Sommersby (and thereby your client) was to carry out the repairs to the building required:

(i) by the EPA to have the prevention notice removed and to obtain an environmental protection licence; and

(ii) by the local council for fire and safety.

(b) the chemicals referred to by the EPA have been removed from the Land;

(c) as you should be aware from your firm’s conduct of the proceedings on behalf of Sommersby:

(i) there is no obligation under the Agreement for our client to remediate the Land;

(ii) our client required certainty of tenure on the Land before it would expose itself to any obligation to incur what is expected to be very significant costs (potentially in the order of $1,000,000) remediating the damage to the Land caused by the previous tenant, [Biocoal] (which will likely be a condition, precedent or subsequent, sought by the EPA as part of any environmental protection licence). As you are aware, the requirement for a registered lease before it would carry out any remediation work and apply for a licence, amongst other things, was fundamental to our client in entering into the Agreement for this reason;

Breach

Our client has been, and continues to be, delayed in or prevented from using the Land for the agreed purpose because of Sommersby’s (and Mr Russo’s) refusal to execute a lease in registrable form and failure to carry out necessary repair works ...

… Sommersby’s failure to finalise and sign the terms of the lease without reasonable (or any) excuse is a repudiation of the Agreement.

As recently as 17 December 2019, your firm wrote to us stating Sommersby’s instructions in relation to the terms of the registrable lease to be executed by it. For the avoidance of doubt, and as previously advised on several occasions, a term to the effect that there is a $13,000 rent rebate in return for an obligation on our client to remediate the site is inconsistent with the Agreement. Your client (Sommersby or Shoebill) cannot insist on the inclusion of this term as a condition of executing a registrable lase.

In light of the above, this demand must have been with the knowledge and consent of Mr Russo and Shoebill as trustee or otherwise on Shoebill’s behalf.

As previously foreshadowed, we are instructed to apply to Court for orders that the terms of Agreement be specifically performed by Shoebill.

…

Please advise if you have instructions to accept service of these proceedings as a matter of urgency.

Given the above conduct, we assume there is no dispute Shoebill is bound by the Agreement. If this is not the case, or if it is somehow asserted Mr Russo did not authorise himself to engage in this conduct on behalf of Shoebill, please advise if you also hold instructions to accept service on Behalf of Mr Russo personally. In this eventuality, we would also question your ability to act for any of the parties given your involvement in the previous proceedings and the facts outlined above.

…

113. On 4 February, PAR received a seventh rental invoice for the Somersby property, covering the month from 10 February. The invoice claimed $35,000 in rent. There was no outgoings component. The invoice was printed on the same “Sommersby Investments” letterhead as the previous ones, including the footer which identified the sender as SIPL as trustee for the SIH Trust. At the date of this invoice, SIPL had been in liquidation for 25 days.

114. On 6 February, PAR commenced the first proceedings the subject of this judgment. PAR sought a declaration that Shoebill was bound to perform the obligations of SIPL under the Settlement Agreement, which included execution and registration of a lease in the terms specified, and orders for specific performance accordingly. Alternatively, damages were claimed for breach of the Agreement. Mr Hocking was the solicitor on record for PAR. A return date of 6 March appears to have been allocated.

115. The February rent remained unpaid. On 11 February, a letter purportedly signed by Mr Russo on behalf of Shoebill was sent to PAR which stated (emphasis added):

As you aware:

1. The Property is an asset of [the SIH Trust]; and

2. [Shoebill] is the current trustee of the Trust, having succeeded [SIPL] (“Sommersby”).

Indeed, the Tenant [PAR] has commenced proceedings in the Supreme Court of NSW on this basis.

Accordingly, Shoebill is vested with the Trust property and rights, which includes the right to call for, and receive payment of, rent. This is consistent with the liquidator of the former trustee, [SIPL], notifying you that he has no interest in the Property.

Shoebill, as current trustee, is entitled to issue the Tenant with a tax invoice for rent, and a copy of a tax invoice for rent for the period 10 February 2020 to 9 March 2020 is enclosed.

The payment of rent is the fundamental basis on which the Tenant occupies the Property. If the rent is not paid, Shoebill will have no alternative but to treat that as a fundamental breach and repudiation of the Tenant’s obligations, entitling it to terminate the Tenant’s occupation of the Property.

116. The letter was printed on a letterhead whose header bore the legend “Sommersby Investments” underneath a stylised tree. The footer bore the legend “Shoebill Pty Limited” with an ACN and “The Sommersby Investment Holding Trust” with an ABN.

117. The invoice enclosed with the letter was a replacement for the invoice issued on 4 February ([113] above). It was printed on the same “Sommersby Investments” letterhead as the letter itself.

118. The letter apparently resulted in a response from Mr Ewart, on behalf of PAR, to Accolade, which seems not to be in evidence. Later on the same day, a Mr Al Maruf of Accolade emailed Mr Ewart a further letter. The letter stated (emphasis added):

…

a. A tax invoice is a demand for the payment of money.

b. Our letter of 11 February 2020 was a demand for the payment of money.

c. Our letter of 11 February 2020, which also enclosed our tax invoice, was correspondence from, and a demand by, us, rather than [SIPL] (“Sommersby”) (now in liquidation).

d. Accordingly:

a. Whether or not an invoice issued by Sommersby is valid is neither here nor there; and

b. Despite your suggestion to the contrary, Shoebill has given [PAR] notice that it is the current trustee of [the SIH Trust] (“Trust”) and is calling for payment.

...

f. ... The whole premise of the Proceedings is that Shoebill is the current trustee of the Trust and that, as such, it is bound by an agreement entered into by Sommersby whilst trustee of the Trust. Given PAR’s own claim, it is frankly astonishing that it would:

a. Rely on the change of trustee of the Trust in order to make its claim;

b. Assert rights as against Shoebill (as current trustee of the Trust); yet

c. Apparently balk at the suggestion that Shoebill (as current trustee of the Trust) has correlative entitlements.

g. The assets of the Trust include the Property, and all entitlements to receive revenues from the occupation by any person of the Property (“Monetary Entitlements”). The Trust assets (in particular the Monetary Entitlements) are vested in the trustee of the Trust, which (as the Proceedings acknowledge) is Shoebill. If rights that were vested in one party are transferred to another party, then of course it is correct to say that, with respect to the exercise of those rights, the second party has stepped into the shoes of the first.

h. The obligation of PAR to pay for its occupation of the Property is independent of any entitlement that PAR has to the relief sought in the Proceedings, in particular execution of a lease in its proposed form. It is independent because irrespective of whether PAR is entitled to that relief, the fact of the matter is that PAR is in occupation of the Property and that it would have no right whatsoever and however characterised to retain that occupation in the absence of paying for that occupation.

i. This is not an instance where PAR does not know whether to pay Sommersby or Shoebill, each of whom are making demands for payment related to PAR’s occupation of the Property. If that were the case, it would be appropriate that PAR pays money relating to its occupation into Court for Sommersby and Shoebill to interplead as regards their entitlements. On the contrary, Sommersby (by its liquidator) expressly acknowledges no such entitlement.

We now look forward to payment as set out in our letter of earlier today.

119. The letter was printed on the same “Sommersby Investments” letterhead as had been used for the earlier letter and invoice. It was purportedly signed by Mr Russo, although the signature block did not refer to Shoebill.

120. The second letter resulted in a continued chain of emails between Mr Ewart, Mr Maruf and Mr Cassaniti. Mr Ewart sought confirmation of the validity of Mr Russo’s signature, and of his authority. It is unnecessary to go into this correspondence, as there was no suggestion from Shoebill at the hearing that the letters were unauthorised.

121. Eventually, on the afternoon of 12 February, Mr Cassaniti forwarded the email chain to Mr Gray. Mr Gray then forwarded the chain to Mr Hocking and wrote:

As you are aware, we act for Shoebill Pty Ltd and Angelo Russo, among others.

Our clients have instructed us to ask that all communications regarding the above property be between solicitors. They have asked us to pass on to you that they do not wish to hear from your clients directly.

122. On the following day, 13 February, Mr Hocking responded (emphasis added):

…

We have now read the letters from your client, [Shoebill], attached to your email. ...

In relation to the content of those letters, it would appear your client has not understood our client’s concern.

Rights as trustee

It is not disputed that a new trustee ordinarily has a right to call for trust assets. That right would ordinarily include the right to receive from the former trustee income under any contracts entered into as trustee.

If your client is merely asserting a right to receive trust assets, but is not bound by the [Settlement Agreement] (howsoever that Agreement might be interpreted by the Court), then on your client’s case, presumably the Agreement is still with [SIPL] (Sommersby).

Shoebill’s right, in that instance, would be to receive from Sommersby the income that Sommersby as the contracting party receives. However, the liquidator of Sommersby has clearly stated that he will not adopt any contract between our client and Sommersby, including the Agreement.

While this is denied by our client, on that basis no rent would be payable under the Agreement and consequently, there would be no rent to be received by your client.

If that is your client’s position, the “demand for payment” referred to in its letter of 11 February 2020 would presumably be a demand for some form of occupation fee simply for being on the land, not an invoice for rent payable under the Agreement.

Despite our letter of 23 January 2020 and the summons, your client has not stated that this its position. However, your client’s letters speak of rent payable for “occupation” and of its ability to enforce rights. There is no direct mention of the Agreement, and no mention of your client’s obligations.

While our client would deny this state of affairs**, if the Court was to make such a finding, our client would dispute any ‘occupation fee’ is payable in any event, whether at the rate of $35,000 per month or otherwise**, for the same reasons that it seeks damages for failing to perform the Agreement to date.

So, while it may not be the case that both Sommersby and Shoebill are claiming payment, it would be the case that your client is claiming an amount for which our client would deny liability.

The summons

…

On 29 August 2019 while Mr Russo was its sole director, Sommersby gave an undertaking to the Court granting PAR an interest in the land to support an undertaking as to damages. Upon giving those undertakings, PAR was restrained from removing the equipment purchased from Commonwealth Bank of Australia, which subsequently lead to entry into the Agreement.

Sommersby did not inform the Court at that time (or ever) that it was no longer trustee of the trust, or to the best of our recollection that it even owned the land as trustee in the first instance; this was not its pleaded position. Nor were the equitable mortgages apparently already granted to Accolade Advisory and Reliance, or the apparent obligation on Sommersby to transfer title to Shoebill, mentioned when Sommersby’s equity in the land and the value of the undertakings were the subject of submission to the Court.

…

For a period of 3 months following entry in the Agreement, Sommersby as lessor then purported to negotiate the form of registrable lease with our client, through your firm, until the liquidator was appointed.

It is our client’s case that, given this conduct and the commonality of controllers, Sommersby was acting on behalf of Shoebill or otherwise with Shoebill’s authority such that the Agreement was made on behalf of Shoebill and is enforceable against Shoebill; Shoebill is bound by the Agreement as if a reference to Sommersby was a reference to Shoebill in the nature of a novation.

Despite our letter of 23 January 2020 setting this out, and despite the filing of the summons, your client has not stated its position.

Apart from the question of payment of rent, pursuant to practice direction SC EQ 12, on 6 March 2020 our respective firms must both be in a position to clearly identify to the Court the real issues in dispute and to provide an agreed regime for preparing the matter for trial.

Again, if this is to be denied, then our client will seek to rejoin Mr Russo as the person who caused our client to act in reliance on the undertakings given to the Court and the Agreement. This must be identified before the directions hearing. Identification of other issues to be determined, and the manner of any ongoing performance by our client under the Agreement, will depend in large part on the answer to this question.

As a first step, please advise as a matter of urgency whether you client disputes that the Agreement was entered into on its behalf, or otherwise with its authority, such that a reference to Sommersby is a reference to Shoebill.

123. On 14 February, Mr Gray replied (emphasis added):

Heads of Agreement

As the trustee of the [Trust]****, Shoebill's position is that it is bound by the [Settlement Agreement]****.

Pursuant to the [Settlement Agreement]****, Shoebill is to provide your client with a lease of the [Somersby property] (Land). The only outstanding issue in respect of the terms of the lease is the disagreement between the parties as summarised in your letter dated 21 November 2019. Shoebill does not agree that those clauses should form part of the lease.

Rent and outgoings outstanding under the [Settlement Agreement]

Pursuant to the [Settlement Agreement]:

(a) Your client is entitled to possession of the Land from 10 August 2019;

(b) Your client is to pay rent of $35,000 per month; and

(c) Your client is to pay the following outgoings: electricity, water, land tax and council rates.

Your client has not paid rent for the month commencing 10 February 2020 and has not paid for the water, land tax and council rates. We note that our client has already paid these outgoings on the property and is entitled to be reimbursed from your client. [Mr Gray enclosed copies of supporting documents].

Your client is therefore in breach of the [Settlement Agreement].

Our client demands that your client pay the total amount in rent and outgoings outstanding, being $80,355.17 by 21 February 2020.

If your client fails to pay the amount outstanding by 21 February 2020, our client will apply to the court seeking appropriate relief, including interest and costs.

124. Mr Hocking responded to Mr Gray by letter on 20 February 2020. The letter stated:

…

We disagree that the “only outstanding issue” is the disagreement summarised in our letter dated 21 November 2019. The disagreement is that your client is refusing to sign a lease in registrable form that complies with the terms of the agreement of 20 September 2019.

The only thing that needed to happen was to finalise a document incorporating the express terms of the agreement and standard commercial terms consistent with that agreement. It has now been 5 months since the agreement was made and your client is still refusing to sign a lease in registrable form unless our client agrees to terms that are inconsistent with the agreement.

We are unsure what you mean when referring to Shoebill not agreeing that “those clauses should form part of the lease.” Our email of 21 November 2019 did not propose clauses in a lease but was largely commenting on amendments that had been proposed by your client.

Further, this comment does not address your email of 17 December 2019 in which you stated that your client sought a clause to the effect that “there is a $13,000 rebate in rent in favour of the Lessee which is in relation to [our] client’s obligation to remediate the premises.”

This had been repeatedly demanded by your client in the months before this letter and, as was stated on each such occasion, is inconsistent with the agreement of 20 September 2019. The rent was expressly agreed at $35,000 per month; there is no rebate and there is no obligation under the 20 September 2019 agreement to remediate the premises.

Our client has already paid $175,000 under the agreement while your client continues to refuse to perform its fundamental obligations, thereby preventing our client’s use of the land.

Our client now seeks execution of the document in the form exhibited to Mr Gallagher’s affidavit, but also damages for your client’s ongoing breach equivalent to the $175,000 already paid.

Further, our client holds grave concerns about your client’s ability to pay this amount given:

(a) neither Shoebill nor the trust appear to have any assets other than the land, and the value of the land is exceeded or at least matched by the debt owed to the first mortgagee (ignoring the other mortgages the subject of caveats);

(b) the liquidation of [SIPL] and any recourse creditors or the liquidator may have directly to the trust assets.

In the circumstances, our client is entitled to set-off its liability under the agreement of 20 September 2019 against your client’s liability for failing to perform the agreement.

However, we are instructed that our client has in any event paid the rent that would otherwise have been payable on 10 February 2020 into our trust account pending resolution of these matters.

…

125. As mentioned in the letter, on the same day PAR made a payment of $35,000 on account of rent into Ready Hocking’s trust account.

126. Disclaimer of Somersby property by SIPL**:** Meanwhile, on 19 February, Mr Nixon issued a formal notice as liquidator of SIPL disclaiming the Somersby property. A later report to creditors explained the reasons for the disclaimer:

In order to avoid potential liabilities and responsibilities associated with the Company being noted on the title of the property, l issued a disclaimer of the property …. Other reasons for issuing the disclaimer were that the Liquidation lacked the resources to fund a rehabilitation of the property in speculation of a viable increase in the property's market value, the Company formally only had a right of indemnity against the property and lacked controlling rights associated with ownership, and the net realisable equity was assessed as negative.

127. Mr Nixon reported that, according to Mr Psaroudis, SIPL had had no other assets apart from the Somersby property. SIPL’s liabilities were estimated at $14 million (comprising $5 million owing to five unsecured creditors and $9 million owing to three secured creditors). The secured creditors were Westpac ($3 million); Reliance ($1 million, for “finance for legal fees”); and Accolade ($5 million, for “accounting services”).

128. Westpac loan refinance: In evidence is a deed of loan dealing with the refinancing of SIPL’s loan facility with Westpac and the associated mortgage (“Raphis Loan Deed”). The Deed was dated 29 February. The parties were: Shoebill (in its own capacity and as Trustee for SIH Trust); Raphis; VHM and two other companies described in the deed as the “Guarantors”; Mr Russo; Reliance; and Accolade. It was signed by Mr Russo on behalf of Shoebill and by Mr Cassaniti on behalf of Raphis.

129. The recitals to the Raphis Loan Deed stated that the liquidator had obtained a valuation of the Somersby property of $2.8 million. This was less than the debt owed to Westpac, which was $2.94 million. The Deed provided for Raphis to lend the amount of the Westpac debt to Shoebill (this was to be satisfied by the direct payment from Raphis to Westpac to discharge the debt). The loan was to be repayable within twelve months, and Shoebill was to pay interest. In return, Shoebill undertook to pay Raphis a fee (described as the “Risk Fee”) of $150,000 and legal costs of $8,000. These amounts were to be payable on 30 September (or earlier repayment of the loan).

130. Also in evidence is a further deed concerning the trusteeship of the SIH Trust. The deed (which I will refer to as the “Ratification Deed”) was designed to correct the error which had been made in the Appointment Deed by the inclusion of Ms Kyriacou. It provided, or purported to provide, for the Appointment Deed to be effective as between Mr Russo and Shoebill notwithstanding the reference to Ms Kyriacou from the date of that Deed.

131. The Ratification Deed is dated 26 February, three days before the Raphis Loan Deed. It appears likely that the error in the Appointment Deed was discovered in the process of preparing the Raphis Loan Deed.

132. On 6 March 2020, the refinance was completed and Westpac transferred the registered mortgage over the Somersby property to Raphis .

133. With Shoebill replacing it as the registered proprietor of the Somersby property and the discharge of its borrowing obligations to Westpac, SIPL dropped out of the picture. It was deregistered seven months later, in November 2020.

134. Continuation of PAR’s action and further lease negotiations: Meanwhile, on 5 March, Mr Angelo Bilias of Bilias & Associates replaced Mr Gray of McEvoy Legal as the solicitor for Shoebill in PAR’s action.

…

The basis upon which we propose to defend the matter relates to the fact that at no time had the director of [Shoebill] agreed to the terms ultimately incorrectly documented in the mediation agreement. In essence we will be arguing that a mistake has occurred and your client is not entitled to benefit from such a mistake.

We will shortly prepare affidavits supporting our assertion.

In the meantime, we note that the affidavit of Mr Gallagher contains an exhibit of a lease he would be prepared to sign. We note that the draft lease was prepared by your firm and is based upon your interpretation of the alleged mediation agreement.

We have recently taken the liberty of submitting the draft lease contained in Mr Gallagher's affidavit to [Raphis] and requested its advice as to whether it would consent to the registration of same.

Please note the response received was that consent would not be forthcoming.

...

Given the fact that the Mortgagee does not accept the lease terms upon the grounds identified in its response, we respectfully request that you withdraw your application for specific performance at the next return date.

The basis of our request is that a proposed lease for a term greater than 3 years must be registered in order to be given effect. It is a precondition of any such registration occurring that the Mortgagee consent to the terms of the lease. In the absence of consent, on the best interpretation of your client's position, your client occupies the subject property as a tenant at will on a monthly basis.

Our client requires your client to vacate the subject property by no later than 20 April 2020.

139. In referring to lack of agreement on the part of the “the director” of Shoebill, Mr Bilias was presumably referring to Mr Russo having left the mediation before the Settlement Agreement was signed, purportedly on his and SIPL’s behalf, by Mr Cassaniti. The foreshadowed affidavits to support the allegation of lack of authority do not seem to have ever eventuated. In any case no such allegation was pursued at the hearing before me.

140. PAR did not withdraw its application for specific performance or take any steps to vacate the property in accordance with Shoebill’s request. Then, on 16 April, Mr Bilias wrote again to Mr Hocking:

I refer to our previous discussions between the parties and confirm our client has always been willing to enter into a lease with your client. Many attempts have been made by both parties to bring this to fruition. Final clear terms have never been agreed.

My Instructions

In order to resolve the dispute, our client is willing to execute the PAR version of the proposed lease provided it is varied as follows:

1. An additional special condition is inserted in the Par version of the lease:

“The Lessor and Lessee acknowledge and agree that the terms of this lease have been agreed, in part as a compromise of a commercial dispute and do not necessarily reflect the market value.” I note this clause was originally proposed by Mr Hocking of your office.

2. Clause 20.3 is amended to provide the Lessor and Lessee with reciprocal rights.

3. All rent and outgoings for the period from the commencement date of the lease to the date of execution of the lease is to be paid by the Lessee to the Lessor's solicitors trust account upon exchange of our respective counterpart leases.

Kindly provide us with evidence that you are holding the rent from the date of commencement to the present date.

Irrespective of my client’s position, unless the parties agree to terms that are commercially acceptable to the Mortgagee, we will be unable to effect registration.

Consent to registration of the Lease

As you are aware, we have received correspondence from the Mortgagee dated 12 March 2020 outlining the position of the Mortgagee as it pertains to the draft version of the lease Mr Gallagher is willing to sign.

The Mortgagee is unwilling to consent to the registration of the PAR version of the lease in its current form.

Please seek instructions and revert back to me as regards to whether your client is willing to amend the PAR version of the lease to address the Mortgagee’s concerns as expressed in points 1, 2 and 3 of the Mortgagee’s letter of 12 March 2020.

141. There was no response to this letter from PAR and the proceedings continued.

142. While these manoeuvres were taking place, PAR received three further rent invoices for the monthly periods beginning 10 March, 10 April and 10 May. Each was for rent only and followed the same format as the replacement invoice issued on 11 February ([115] above). None of the invoices was paid by PAR.

143. Transfer of Somersby property to SAPL: Meanwhile, on 13 April, Shoebill and Raphis had entered an agreement described as a ‘Consent to Possession and Sale’ under which Shoebill acknowledged that it was in default of its obligations under the mortgage, and Raphis was entitled to take possession of, and exercise its power of sale over, the Somersby property.

144. On 27 April, Shoebill finally became the registered proprietor of the property. But on 1 May, SAPL entered a contract for the purchase of the property from Raphis in its capacity as mortgagee in possession. The contract price was $1.9 million.

145. SAPL had been incorporated seven weeks before, on 10 March. Its sole shareholder and director upon incorporation was a Mr Teddy Panella.

146. On 19 May, the sale was completed and Raphis transferred title in the Somersby property from Shoebill to SAPL. Shoebill was the registered proprietor of the Somersby property for only 22 days.

147. Corporate c****hanges at Shoebill: As stated at [62] above, upon Shoebill’s incorporation on 24 April 2019, its sole shareholder and director was Mr Russo. According to filings with ASIC, there was then a series of temporary changes between February and April 2020.

148. The directorship changes notified were: Mr Russo was replaced by Mr Cassaniti as sole director on 12 February, and then replaced Mr Cassaniti on the same day; Mr Russo was replaced as sole director by a Mr Mark Wehbe on 25 February, replaced him again, and then was replaced by him again, all on the same day; Mr Wehbe was replaced by Mr Psaroudis on 10 March; and Mr Psaroudis was replaced by Mr Russo again on 15 April. Over the same period, Mr Wehbe and Mr Psaroudis (but not Mr Cassaniti) were recorded as having temporarily replaced Mr Russo as sole shareholder as well, although the dates are not specified in the evidence.

149. PAR’s reaction to SAPL’s purchase of property from Raphis**:** Mr Hocking had become aware of the sale of the Somersby property by 21 May, two days after the sale took place on 19 May, and advised Mr Gallagher of it. For the moment, however, he took no further action on PAR’s behalf. For its part, SAPL made no demands for rent.

150. Then, on 3 July, Mr Hocking wrote to Mr Cassaniti at Raphis. The letter stated, relevantly:

We are advised by the lawyers for Shoebill that:

(a) you have sold the Land as mortgagee to [SAPL];

(b) the sale, and your intention to sell, was concluded without notice to Shoebill as owner, whether pursuant to section 57 of the Real Property Act 1900 (NSW), section 111 of the Conveyancing Act 1919 (NSW), or otherwise;

(c) the sale was for significantly less than the value of the mortgage transferred to you.

We understand that it is Shoebill’s position that Shoebill cannot now perform the agreement the subject of the Proceedings, or pay damages, even if it had been liable to do so but for the sale.

We are instructed that:

(a) our client, as caveator and chargee, was not served with a copy of any notice as required by sections 57(2)(b1) and 111(2)(b1) of the Real Property Act and Conveyancing Act respectively;

(b) you have not accounted to our client, as caveator and chargee, for the proceeds of any sale;

(c) the sale price indicated by Shoebill’s lawyers was significantly less than the valuation previously obtained by the parties.

151. The letter requested production of documents concerning the sale. Similar requests were made to others, including Accolade and SAPL. The requests were all refused or ignored.

152. Offer of lease from SAPL: According to ASIC filings, Mr Russo had temporarily replaced Mr Panella as sole director (but not shareholder) of SAPL on two occasions: between 1 and 2 June and again between 1 and 2 July. Then, on 15 July, Mr Panella wrote on behalf of SAPL to Mr Hocking, offering a lease to PAR over the Somersby property. The letter stated that SAPL “would generally be prepared to grant a lease to a proposed lessee” on terms set out in the letter. At Mr Hocking’s request, PAR was given until 31 July to respond, but did not in the end do so.

153. By this stage, Mr Rob Webb of MDW Law had begun to act for SAPL. On 4 August, Mr Webb sent a letter to Mr Hocking which stated:

We are instructed that our client is prepared, on a without admissions basis, to grant your client a lease in the form which your client seeks in the Proceedings [by PAR against Shoebill] on the following basis:

1. Your client provides us with the following documents within 14 days:

(a) Duly executed lease in duplicate;

(b) Bank guarantee in the amount of 3 months' rent, being $105,000.00;

(c) Cheque in the amount of $146.40 being the fee for registration of the lease; and

(d) Certificate of currency in relation to the Lessee's insurance as required under the lease.

2. Within 28 days, your client pays an occupation fee in the amount of $89,833.33, calculated by reference to the monthly rent of $35,000.00 multiplied by 77 days / 30 days per month;

3 . Your client, our client and Angelo Russo enter into a Deed of Settlement mutually releasing each other from all claims arising out of this matter.

154. The offer was expressed to expire on 11 August. It was not accepted.

155. Continuation of PAR’s action: Meanwhile, it seems that Mr Bilias had foreshadowed an application to have PAR’s action against Shoebill struck out. On 11 August, Mr Hocking responded to Mr Bilias:

Our client does not presently intend discontinuing proceedings.

Even if the sale of the property was a genuine sale by the mortgagee to a third-party purchaser for value such that specific performance is no longer available, our client would still be entitled to pursue your client, and possibly others, for damages. We note in this regard that damages are already claimed, both in addition and as an alternative to specific performance. We also note that following commencement of these proceedings, your clients further repudiated the agreement as referred to in our email dated 20 March 2020.

However, our client disputes that the sale was a genuine sale by the mortgagee to an independent third party, and your clients are clearly involved in or have control over the property.

[Mr Hocking set out a history of the events surrounding, and following, the sale of the property to SAPL, including allegations that Ms Kyriacou had told Mr Gallagher that its purpose had been to protect it from claims by her arising out of a falling -out between her and Mr Russo]

It is our client’s position that the sale to [SAPL] was a sham to defeat our client’s interests and perhaps other creditors, and that the mortgagee never in fact exercised a power of sale but rather knowingly participated in a purported sale by mortgagee to bypass our client’s caveat.

Given the significant change in the nature of the proceeding, our client will seek directions for the filing of a statement of claim setting out these allegations and updating the relief sought, and for the filing of a defence. We also expect that we will receive instructions to join [Raphis], [SAPL] and Angelo Russo, at least, as parties involved.

If your clients still intend applying to have the matter struck out, please advise a timeframe for putting on a motion and affidavit material and we shall take instructions on appropriate directions to attempt to avoid an appearance.

156. Commencement of SAPL’s action**:** On 21 August, the second proceedings currently before the Court were commenced in the name of SAPL as plaintiff. PAR and Mr Gallagher were named as the defendants. SAPL sought a declaration that it was entitled to enforce PAR’s obligations under the Agreement and orders for specific performance against PAR, including for the execution by PAR of a lease in accordance with the terms of the Agreement.

157. Vacation of property by PAR: On 4 September, PAR vacated the Somersby property. Some at least of the glass stockpile was left behind. The amount remaining was later estimated at 5,200 tonnes.

Witness evidence: negotiations between Mr Gallagher and Mr Cassaniti in April-May 2020

158. Both Mr Gallagher and Mr Cassaniti gave affidavit evidence of conversations with one another in which Mr Gallagher expressed PAR’s intention to purchase, rather than lease, the Somersby property.

159. In Mr Gallagher’s affidavits, he deposed that:

160. on 9 April 2020, Mr Gallagher and Mr Cassaniti had a conversation during which Mr Gallagher offered to purchase the Somersby property for $4 million “as-is where-is” and offered to rent the property for two years as part of the sale;

161. on 16 April 2020, Mr Gallagher and Mr Cassaniti had a further conversation by telephone in which Mr Cassaniti informed Mr Gallagher that he was experiencing difficulty convincing Mr Russo to sell the Somersby property, and was only able to offer a lease on Raphis’ terms; and

162. on 8 May 2020, Mr Gallagher and Mr Cassaniti had a conversation in which Mr Cassaniti repeated that the Somersby property was not for sale without first being rented. Mr Gallagher restated his earlier offer to rent the property for two years as a condition of the sale and thereafter paying $4 million for the purchase.

163. Mr Cassaniti deposed that:

164. in the period from April to May 2020, he had approximately five conversations with Mr Gallagher;

165. in one such conversation, Mr Cassaniti informed Mr Gallagher that Mr Russo does not want to sell the Somersby property, and that it was not for sale. Mr Gallagher said that PAR would not rent the property without buying it; and

166. there was never an agreement between him and Mr Gallagher to sell the property to PAR.

167. In cross-examination, Mr Gallagher accepted that his change of position from wanting to lease the Somersby property to wanting to buy it only occurred after he was advised that SAPL had become the registered proprietor. SAPL became the registered proprietor on 19 May 2020 and he was informed of that fact on 21 May. Mr Gallagher accepted that, from 19 May, he no longer wished to enter into any lease over the property.

168. Mr Gallagher was also shown the letter of 4 August 2020 in which SAPL made an offer to grant PAR a lease in the form which it had sought in the Shoebill proceedings. Mr Gallagher said that he instructed Mr Hocking to refuse the offer because, by that point, he was no longer interested in leasing the Somersby property.

169. During his cross-examination, Mr Cassaniti denied having been informed by Mr Gallagher that PAR wished to buy the land for a purchase price of $4 million. He said that Mr Gallagher’s offer was only an offer to purchase the mortgage from Raphis. Mr Cassaniti could not recall whether he had a conversation with Mr Gallagher in which he told Mr Gallagher that he was having difficulty convincing Mr Russo to sell the land to PAR.

Witness evidence: involvement of Mr Russo and Mr Cassaniti with performance of Settlement Agreement

164. Mr Russo: Mr Russo’s recollection of the dates upon which he became, and ceased to be, a director of Shoebill, SIPL and SAPL was poor.

165. Mr Russo, during cross-examination, told the Court that he did not consent to being appointed as the director of SAPL on 1 July 2020. Mr Russo also denied having consented to his appointment as director of SAPL on 1 June 2020. Mr Russo denied having ever seen any ASIC forms which were filed with ASIC to update SAPL’s directorship.

166. With respect to Shoebill, Mr Russo gave evidence that he consented to being appointed a director for various periods throughout 2020. He gave evidence to the Court that he “believed [he] was a director of Shoebill all the way through”.

167. In relation to the numerous changes in Shoebill’s directorship on 25 February 2020, Mr Russo had no recollection as to why his appointment and cessation as director occurred on the same day.

168. Mr Russo gave oral evidence that he recalled signing the Appointment Deed as the sole director of Shoebill and understood that doing so removed SIPL and appointed Shoebill as trustee of the SIH Trust.

169. With respect to SIPL, Mr Russo could not recall whether the dates of his appointment and cessation as director were accurately recorded on ASIC’s records as he was not responsible for preparing or lodging the forms.

170. On 20 September 2019 (the day of the mediation), Mr Russo signed a handwritten document entitled ‘Authority to Act’ by which he authorised Mr Cassaniti to act on his behalf in the SIPL proceedings. In the document, Mr Russo described himself as a director of SIPL. In cross-examination, Mr Russo accepted that ASIC’s records indicate that he was not a director of SIPL at that time. He stated that ASIC’s records were incorrect. Mr Russo said that, at the time of signing the document, he believed that he was the sole director of SIPL.

171. Mr Russo gave evidence that he did not recall instructing SIPL’s solicitors to send the letter dated 14 February 2020. He did, however, accept that, during the period of October 2019 to April 2020, he was involved in giving instructions to SIPL’s solicitors concerning the negotiation and giving of a lease to PAR.

172. The Deed of Loan dated 29 February 2020 by which Raphis paid Westpac the debt the subject of Westpac’s mortgage over the Somersby property and became the registered proprietor was signed by Mr Russo on behalf of Shoebill. In cross-examination, Mr Russo accepted that ASIC’s records indicate that he was not a director of Shoebill at the date of the Deed of Loan, but again suggested that there was an error in ASIC’s records.

173. Mr Russo told the Court that, when he was going to become a director, he would ask Accolade to prepare a consent to act form. When asked how he became aware he was going to become a director, he gave evidence that Mr Cassaniti would tell him so.

First proceedings: PAR’s action

181. PAR’s action involves claims for breach of contract against Shoebill. Three issues arise for decision: whether Shoebill had any relevant contractual obligations to PAR; whether it breached those obligations; and whether PAR has established any claim for substantial damages resulting from any such breaches.

Contractual liability of Shoebill

182. Counsel for PAR contended that it was entitled to enforce the provisions of the Settlement Agreement contractually against Shoebill as if Shoebill had been named as a party to that Agreement. The obligations so enforceable were said to include both the obligations under the lease in cl 1(a)(i) and the obligation to grant a registered lease in cl 2(d).

183. Counsel made it clear that PAR’s contention was that Shoebill was directly liable at law for breach of contract. The alleged liability did not involve any reliance on the rule in Walsh v Lonsdale (1882) 21 Ch D 9 (see [302]-[328] below). PAR’s alleged entitlement thus did not depend on whether specific performance of the relevant obligations in the Agreement was, or had ever been, available.

184. Shoebill’s defence made some admissions on this subject. Counsel for Shoebill accepted that, consistently with the claims made in Shoebill’s cross-action, Shoebill had admitted that SIPL’s obligations under the Settlement Agreement, or at least its obligations under cll 1(a)(i) and 2(d), were contractually enforceable against it from 27 April 2020, the date upon which Shoebill became the registered proprietor of the Somersby property. But counsel did not accept that Shoebill’s defence, properly interpreted, contained any admission of any such contractual liability before that date.

185. Counsel for PAR contended that the admissions went further than this. In counsel’s submission, on their proper interpretation, they amounted to admissions of contractual liability from the inception of the Settlement Agreement. But if they did not, counsel contended that Shoebill was so liable on the facts and the law anyway.

186. In this regard, Counsel’s first contention was that Shoebill became liable under the Settlement Agreement because SIPL acted as its agent. Counsel argued that in making the Agreement, SIPL was acting with the actual, or at least the ostensible, authority of Shoebill, which was the then trustee of the SIH Trust. Alternatively, Shoebill was said to be liable on the footing that it was an undisclosed principal of SIPL and had later ratified SIPL’s conduct.

187. Counsel next contended that if Shoebill was not liable as a party to the Settlement Agreement from its inception, by its subsequent conduct it had made itself so. Counsel relied on the subsequent negotiations between the parties and, in particular, the statement in the letter of 14 February 2020 from Mr Gray, Shoebill’s solicitor, that Shoebill was “bound by” the Agreement (see [123] above). Counsel submitted that this statement, and the subsequent conduct of the parties, made Shoebill directly contractually liable under the Agreement.

188. Counsel emphasised that PAR’s primary contention was the one which relied on the pleadings, and made it unnecessary to go into any underlying legal or factual analysis. But in view of the dispute about the interpretation of the pleadings, it is convenient to deal with the underlying analysis first.

This position of the undisclosed principal arises only where the agent was in truth his agent at the time of the transaction; a person claiming as principal cannot purport to ratify as the act of his agent a transaction entered into without his authority by one who purports at the time to be a principal, and does not disclose that he is an agent.

195. Counsel for PAR accepted that agency and trust are two different types of legal relationship. But counsel pointed out that it has long been accepted that they may, in some circumstances, coexist. Counsel quoted the following passage from Scott and Fratcher, The Law of Trusts (4th ed, 1987, Little, Brown & Company), vol 1 at 95:

A person may be both agent of and trustee for another. If he undertakes to act on behalf of the other and subject to his control he is an agent; but if he is vested with a title to property that he holds for his principal, he is also a trustee. In such a case, however, it is the agency relationship that predominates, and the principles of agency, rather than the principles of trust, are applicable …

196. Counsel submitted that this statement was directly applicable to SIPL as “an agent who holds as a bare trustee.”

197. There is no contemporaneous documentary evidence which corroborates the date of 3 May 2019 on the Appointment Deed. The earliest evidence before me which demonstrates that the document was in existence is the evidence of its lodgement in November 2019. But no party to these proceedings called the 3 May date into question.

198. I must therefore proceed on the assumption that the Appointment Deed was in fact executed on the date which it bears. It does not, however, follow that Shoebill should be seen as having become the “real” or “effective” owner of the Somersby property while it was still registered in SIPL’s name.

199. It may be accepted that, upon the removal and replacement of a trustee of a trust, the new trustee is entitled in equity to require the former trustee to hand over the trust property. The former trustee retains a right of indemnity for liabilities incurred as trustee, and that right of indemnity is secured by a lien over the trust assets. But the lien is only enforceable by judicial sale or appointment of a receiver. As such, it is not of itself an answer to a demand to transfer the trust property to the new trustee: Lemery v Reliance (2008) 74 NSWLR 550 at [12]-[50]. If the removal is effected by deed and the deed is registered, then, as from the date of registration, the former trustee’s obligation to transfer the trust property is reinforced by s 9 of the Trustee Act 1925: Lemery at [52]-[53].

200. But where the trust property has been made security for liabilities of the trust, other considerations intrude. The former trustee may be required to co-operate in the transfer of the property to the new trustee. But that cannot extend to paying off trust liabilities secured on the property out of the former trustee’s own pocket so. The former trustee retains a right of exoneration, not merely of indemnity (Chief Commissioner of Stamp Duties *(*NSW) v Buckle (1998) 192 CLR 226 at [47]-[49]). For practical purposes, the new trustee must discharge the liability or otherwise procure the release of the former trustee before a transfer of the property can be effected.

201. Such was the position here. At the time of the Settlement Agreement, SIPL had obligations to Westpac which it had incurred as trustee of the SIH Trust and which were secured on the Somersby property. The property was also subject to the secured liability under the undertakings in the SIPL proceedings and the allegedly secured liabilities to Reliance and Accolade. Shoebill would not have been able to require SIPL to transfer the property without first discharging or otherwise obtaining the release of those secured liabilities.

202. But this is not the only problem with the agency contention. In my view, PAR’s whole argument is fundamentally unsound. There is simply nothing in the Settlement Agreement which would justify the conclusion that SIPL’s obligations in it were being undertaken on behalf of Shoebill.

4. The defendant (Shoebill):

…

(e) was from 3 May 2019:

(i) the beneficial owner of the Land until it became registered owner on or about 27 April 2020;

(ii) entitled to call for SIPL to transfer legal title to the Land.

…

13. On 20 September 2019:

…

(d) the parties that had entered an appearance settled the SIPL Proceeding by entry into:

(i) a written agreement between SIPL, the plaintiff, Yellow Bins, IQ Renew Pty Ltd (IQ Renew), Mr Gallagher and Mr Russo (the Lease Agreement);

…

15. On the proper interpretation of the Lease Agreement:

(a) the plaintiff leased the Land from SIPL on the terms set out in the Lease Agreement and usual commercial lease terms substantively consistent with the Lease Agreement;

(b) the plaintiff and SIPL were obligated to execute and register a lease document on the terms in subparagraph (a) above within a reasonable time.

…

22. In the premises pleaded in paragraphs 4 and 7 to 21 above:

…

(b) SIPL and Mr Cassaniti had express, or alternatively implied authority to bind Shoebill to the Lease Agreement and CBA Agreement;

…

(c) Shoebill is bound by the Lease Agreement and the CBA Agreement in the place of SIPL or alternatively ratified or otherwise adopted the Lease Agreement and CBA Agreement;

Particulars

The plaintiff relies upon:

…

B. Shoebill's admission in correspondence from its lawyers to the plaintiff's lawyers dated 14 February 2020 that as trustee of the Sommersby Trust, it was bound the Lease Agreement.

…

…

25. On 14 February 2020, Shoebill:

(a) confirmed that it was bound by the Lease Agreement;

(b) demanded payment of $80,355.17 by 21 February 2020 for rent and outgoings.

Particulars

The confirmation and demand was in writing by email from Shoebill's then lawyers, McEvoy Legal, to the plaintiff's lawyers dated 14 February 2020.

224. The relevant paragraphs of Shoebill’s defence are:

4. In answer to paragraph 4, the defendant says that:

…

(e) in answer to subparagraph (e):

(i) the instrument by which the defendant was so appointed as new trustee was entitled Deed of Appointment of Trustee The Sommersby Investment Holding Trust dated 3 May 2019 (Deed of Appointment);

(ii) upon execution of the Deed of Appointment, the defendant in its capacity as trustee for the Sommersby Investment Holding Trust, acquired an equitable interest in the Land;

(iii) New South Wales Land Registry Services accepted the Deed of Appointment for registration in the general register of deeds on 6 November 2019 and allocated it to Book 4767 number 592;

(iv) by operation of subsection 9(7) of the Trustee Act 1925 (NSW), upon registration of the Deed of Appointment on 6 November 2019. the defendant became entitled to call for a transfer of the Land from SIPL;

(v) by operation of subsection 9(3)(a) of the Trustee Act 1925 (NSW), title to the Land vested in the defendant from SIPL upon the execution and registration of the appropriate Transfer;

(vi) New South Wales Land Registry Services accepted the appropriate Transfer for registration on 27 April 2020, when the defendant in its said trustee capacity became the registered proprietor of the Land;

and the defendant otherwise denies subparagraph (e) as if each and every allegation in it was specifically traversed.

…

15. In answer to paragraph 15, the defendant says that:

(a) after the Lease Agreement was brought into existence, SIPL and the plaintiff conducted themselves as if there was a lease between them;

(b) by clause 2(d) of the Lease Agreement, the plaintiff and SIPL agreed that they would enter into a registered lease which substantively contained the terms of the Lease Agreement, together with usual commercial lease terms substantively consistent with the terms set out in the Lease Agreement;

(c) SIPL and the plaintiff, although acting reasonably, were unable to agree on the precise terms of a lease in registrable form … ;

(d) the plaintiff failed to furnish a bank guarantee to SIPL as security for the plaintiffs performance under a lease in registrable form equivalent to three months rent at $35,000 including GST per month in accordance with clause 1 (a)(K) of the Lease Agreement; and

(e) in the premises, there was an equitable lease between SIPL and the plaintiff which was binding upon and enured for the benefit of the defendant

and the defendant otherwise denies paragraph 15 as if each and every allegation in it was specifically traversed.

…

22. In answer to:

(a) subparagraph 22(c), the defendant:

(i) repeats subparagraphs 4(e) and 15(e) and says that upon the Land vesting in it as trustee for the Sommersby Investment Holding Trust, it became bound by the Lease Agreement and the CBA Agreement and had the benefit of those agreements to the same extent as SIPL …

…

25. The defendant admits paragraph 25.

225. Counsel for Shoebill argued, somewhat faintly, that Shoebill had not in its defence made any relevant admission. In the first place, Shoebill’s pleading concerned the benefit of the Agreement but did not address the burden. Furthermore, the pleading did not rise above an assertion of a legal principle; it did not operate to bind Shoebill because a party making an admission in a pleading is “bound by facts that are admitted rather than legal propositions”. Counsel also submitted that, even if this was incorrect, any admission only covered the period after Shoebill was registered as the proprietor of the Somersby property on 27 April 2020.

226. I have already explained why I think it is unrealistic to read the correspondence sent on behalf of Shoebill in a way which compartmentalises contractual obligations and liabilities under the Settlement Agreement from each other. I consider that the same applies to Shoebill’s defence. In any event, the statement that Shoebill was “bound by” the Agreement in [22(a)] of the defence uses the language of obligation rather than benefit.

227. Nor do I accept that the defence can be treated merely as a series of assertions, now said to be incorrect, about the law. An admission as to a legal state of affairs may be made in a pleading just as an admission as to a factual state of affairs may be: Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317 at [69] per Gummow J. In my view the wording of [22(a)] and [25] of the defence, which stated that Shoebill was “bound by” the Agreement, do indeed amount to admissions that the Agreement was enforceable against Shoebill.

228. As to counsel’s second argument, it is true that [22(a)] spoke of Shoebill becoming bound by the Agreement when the land vested in it, and, strictly speaking, no vesting took place until 27 April 2020. On its own, then, [22(a)] can only be interpreted as an admission that the Agreement was binding on Shoebill from that date. But counsel did not refer to [25]. That, in my view, was a plain admission that the Agreement was binding on Shoebill as a result of the letter of 14 February 2020. Had I not already concluded that this was the case, I would have held Shoebill to that date by virtue of its admission.

229. But I do not think that, properly interpreted, the admission goes any further back than that. The defence at [15(e)] states that an “equitable lease” “enured for the benefit” of Shoebill. The reference to an “equitable lease” would appear to be a reference to the lease immediately granted to PAR by cl 1(a)(i). But in any event, [15(e)] does not say when it did enure to Shoebill’s benefit. Elsewhere in [15], Shoebill makes it quite clear that it is denying the proposition that it was bound to the Agreement as a matter of agency, as PAR was alleging. In my view, no sufficiently clear admission can be extracted from the defence that Shoebill was bound from the inception of the Settlement Agreement.

Breach and termination

230. Counsel for PAR, in their submissions, made two distinct allegations of breach of contract against Shoebill. The first was that Shoebill had failed to grant PAR a registered lease of the Somersby property in accordance with cl 2(d) of the Settlement Agreement. The second was that, in selling the property to SAPL, Shoebill had failed to comply with the obligation in cl 1(c) of the Agreement to give PAR a first right of refusal.

231. Counsel submitted that these breaches were, in themselves, repudiatory, and Shoebill had also expressly repudiated its obligations under the Agreement. Counsel submitted that the repudiation had been accepted, thus entitling PAR to loss-of-bargain damages as well as damages for the specific breaches alleged.

232. Failure to grant lease of property: Counsel’s submissions began with the negotiations between Mr Wu on behalf of SIPL (and, it was contended, Shoebill) and Mr Hocking on behalf of PAR from October to December 2019. Counsel submitted that, in seeking to increase the rent to $48,000 per month and to impose an obligation on PAR to remediate the Somersby property, SIPL/Shoebill was going beyond what was permissible under cl 2(d) of the Agreement.

233. Counsel noted that, in Mr Gray’s letter of 14 February 2020 ([123] above), Shoebill maintained the same position as had been taken in the 2019 correspondence. Then, in Mr Bilias’ letter of 17 March ([138] above), Shoebill denied that the Settlement Agreement was binding on it at all. The letter also made it clear that the lease could not be granted without Raphis’ consent, and Raphis would require it to contain terms which were not consistent with the terms specified in the Settlement Agreement.

234. Counsel acknowledged that, in Mr Bilias’ 16 April letter, Shoebill had professed itself willing to enter into a lease in the terms sought by PAR. But it also made it clear that Raphis’ position had not changed. Moreover, Shoebill had by then (although this was not known to PAR) consented to the possession and sale of the land by Raphis. And once the sale to SAPL took place on 19 May, it became impossible for Shoebill to grant a registered lease. Thereafter the breach continued until the Agreement was terminated when Shoebill’s repudiation was accepted by PAR in its letter of 11 August (see below).

235. Counsel for Shoebill contended that, at least to some extent, these submissions went beyond PAR’s pleaded case. Counsel submitted that, although it was squarely alleged in the pleading that SIPL, by its conduct of the negotiations, had breached the obligation in cl 2(d), that allegation was not pleaded against Shoebill. All that was pleaded against Shoebill, in counsel’s submission, was anticipatory repudiation. This was not the same as breach.

236. On the merits, counsel began by pointing out that the obligation on the parties in cl 2(d) of the Agreement was not simply to enter into a lease in the terms specified in cl 1(a)(i). It was to enter into a lease “substantively” containing those terms. Furthermore, the lease was to include “usual commercial lease terms substantively consistent with” those terms.

Damages

275. In their written closing submissions, counsel for PAR advanced PAR’s claim for damages for breach of contract under three heads. The first was the $210,000 in rental payments for the six months which began on 10 August 2019 (see [94]-[95] above). The second was a sum of $47,000 said to have been incurred in removing unspecified plant and equipment from the property when PAR vacated. The third was the loss of profits which, it was claimed, PAR would have made from recycling operations (including reinstatement of the SRF recycling business) on the property had the promised lease been granted to it. This figure was not precisely quantified but was said to exceed $3 million.

276. But following a response from counsel for SAPL which exposed the evidentiary difficulties with the claim for loss of profits, it was abandoned by counsel for PAR, except for a single component. This was the value of the glass stockpile which PAR left on the property when it vacated the property. The sale value of the glass waste in the stockpile at that point was said to be $17,000.

277. Counsel’s submissions in support of this claim were brief. Counsel argued that PAR was entitled to recover the full amount of the rent paid on the grounds that, owing to the state of the premises without the security provided by a registered lease, it was impractical for PAR to undertake the expenditure required to remediate the property and reinstate the EPA licence so that it could proceed with reactivating the waste processing plant for the production of RTF (which, it was said, had been PAR’s intention).

278. The plant removal costs were claimed as a consequence of PAR vacating the land. It was said that PAR “had to remove” the plant. Counsel acknowledged that the invoices for removal had all been issued to, and paid by, another SW Group company, SWPL (see [6] above). But counsel submitted that I should infer that the costs had been passed back to PAR through intercompany accounting entries.

279. The claim for the remaining crushed glass was likewise put, so it appeared, as a consequence of PAR vacating the land. The submissions did not directly address why it was that the glass had been left behind, apart from asserting that PAR had vacated the site rapidly and “pursuant to Court order”.

280. These components of the damages claim were addressed by counsel for SAPL in the context of the claims made against SAPL and related parties in PAR’s cross-action. For the purposes of PAR’s action against Shoebill for breach of contract, counsel for Shoebill adopted SAPL’s submissions. Counsel further submitted that there was no causative link between the damages claimed and the breaches alleged against Shoebill.

281. In their submissions, counsel for SAPL challenged the idea that the rental payments should, in the light of the failure ever to grant a registered lease of the property, be seen as a total loss to PAR. While the parties might have contemplated that a registered lease would be necessary for PAR to reactivate the SRF recycling business, it would have been obvious that a registered lease would not be granted immediately.

Second proceedings: SAPL’s action

297. SAPL’s action sought to enforce obligations in the lease provided for by the Settlement Agreement, against both PAR as lessee and Mr Gallagher as guarantor. The action was not based on SAPL having been a party to the Agreement. It was accepted that there was no privity of contract between SAPL and PAR. Rather, the action was based on SAPL’s ownership of the Somersby property from 19 May 2020 onwards. The basic contention for SAPL was that its ownership of the property created privity of estate between itself and PAR which allowed SAPL to enforce obligations running with the land against both PAR and Mr Gallagher.

298. Counsel for SAPL accepted that the obligation in cl 2(d) to enter into a registered lease over the property was personal to the parties to the Agreement, namely PAR and SIPL (and perhaps as between PAR and Shoebill as well, pursuant to some separate agreement). It could not be enforced as between PAR and SAPL.

299. But cl 1(a)(i) was said to be different. The clause provided for the immediate grant of a lease. Because the term of that lease was more than three years, it could not be effective at law without registration (Real Property Act 1900 (NSW) s 53). The contention however was that the clause created an immediate leasehold interest enforceable in equity. Counsel for SAPL (and the other counsel involved in the case) referred to this as an “equitable lease”. In counsel’s submission, the obligations under this “equitable lease” could be enforced by way of privity of estate.

300. SAPL’s privity of estate claim was founded on s 117 of the Conveyancing Act 1919 (“CA”). That enactment relevantly provides:

117 Rent and benefit of lessees' covenants to run with reversion

(1) Rent reserved by a lease and the benefit of every covenant or provision therein contained having reference to the subject-matter thereof and on the lessee's part to be observed or performed, and every condition of re-entry and other condition therein contained shall be annexed and incident to, and shall go with the reversionary estate in the land or in any part thereof immediately expectant on the term granted by the lease, notwithstanding severance of that reversionary estate, and shall be capable of being recovered, received, enforced, and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part as the case may require of the land leased. ….

…

301. CA s 118 deals with landlords’ obligations under leases in an equivalent way. It relevantly provides:

118 Obligation of lessors' covenants to run with reversion

(1) The obligation of a covenant entered into by a lessor with reference to the subject-matter of the lease shall, if and as far as the lessor has power to bind the reversionary estate immediately expectant on the term granted by the lease, be annexed and incident to, and shall go with that reversionary estate, or the several parts thereof, notwithstanding severance of that reversionary estate, and may be taken advantage of and enforced by the person in whom the term is from time to time vested by conveyance, devolution in law, or otherwise, and if and as far as the lessor has power to bind the person from time to time entitled to that reversionary estate, the obligation aforesaid may be taken advantage of and enforced against any person so entitled.

…

302. Counsel for SAPL argued that the word “lease” in s 117 includes an equitable lease. SAPL relied on the decision of Austin J in Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312. At [55] and [58], his Honour stated:

The position in this State is, in my opinion, governed by some English cases, which have decided that the words “the obligation of a covenant” should be construed so as to take into account the rule in Walsh v Lonsdale (1882) 21 Ch D 9, under which equity will treat a lessee in occupation under a written lease or written agreement for lease as equivalent to a legal lessee, where specific performance is available.

…

I see no reason for declining to follow the English cases in the construction of s 118 of the New South Wales Act. The principles reflected in the cases were established before the enactment of the Conveyancing Act, and may be taken to have been before the draughtsmen of the New South Wales legislation.

303. These remarks were of course made in the context of a claim by a tenant under s 118. But counsel submitted that the same logic applied to s 117. It followed, in their submission, that the obligations under the “equitable lease” were, from 19 May onwards, enforceable by SAPL against PAR.

Claim against PAR

304. Initially, SAPL made two separate claims under the “equitable lease”. SAPL first claimed unpaid rent under cl 1(a)(i)(D). SAPL also alleged, secondly, that when PAR left the site, the glass stockpile was bigger than it had been at the time of the dilapidation report referred to in the make-good obligation in cl 1(a)(i)(F). SAPL claimed the cost of removing that excess glass waste. But this claim was abandoned in final submissions, apparently due to difficulties of proof. Only the rent claim remains for determination.

305. Strictly speaking, any right that SAPL had to claim rent under cl 1(a)(i) of the Settlement Agreement applied to all unpaid rent going back to 10 February 2020. But cl 24.1 of the contract under which SAPL purchased the property from Shoebill provided:

24.1 If a tenant has not made a payment for a period preceding or current at the adjustment date

…

24.1.2 the purchaser assigns the debt to the vendor on completion and will if required give a further assignment at the vendor’s expense.

306. It was common ground between SAPL and Shoebill (and not disputed by PAR) that the effect of this clause was to nullify the effect of CA s 117 so far as the rent had accrued up to the date of the transfer to SAPL, or, perhaps more accurately, to effect an assignment back to Shoebill of SAPL’s right under s 117 to recover unpaid rent for that period. SAPL’s rent claim was thus confined to the period from 19 May onwards.

307. SAPL claimed the rent attributable to the period from 19 May to 9 June 2020 ($24,850), together with the three monthly rental payments of $35,000 falling due on 10 June, 10 July and 10 August. The total claimed was thus $129,850. No claim was made for outgoings.

308. Counsel for PAR submitted that CA s 117 did not apply. This was said to be for three main reasons.

309. First, counsel argued that the “rent” payable under cl 1(a)(i)(D) was not, strictly speaking, rent at all. Rather, it was a sum paid on account of rent, in anticipation of the grant of a formal lease. This meant that s 117, which enables recovery of “rent reserved” by a lease, did not apply.

310. Counsel’s second point picked up the reference by Austin J in Heggies to the rule in Walsh v Lonsdale. Counsel pointed out the rule only applies to agreements for lease which are specifically enforceable. Counsel submitted that specific performance of the “equitable lease” could not have been obtained by PAR, and accordingly, that the “equitable lease” was not a “lease” for the purposes of s 117.

311. Counsel’s third point was based on indefeasibility. The contention was that the “equitable lease” ceased to be enforceable once SAPL had been registered as the proprietor of the property. The “lease” had thus been “destroyed” or “extinguished”: Heggies at [79]; See also Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407; Lighting by Design *(*Aust) Pty Ltd v Cannington Nominees Pty Ltd (2007) WASC 88 at [15] to [32]; Primewest *(*Mandurah) Pty Ltd v Ryom Pty Ltd [2014] WASCA 28; Butt’s Land Law (7th ed, 2017, Thomson Reuters) at [7.1400].

312. Effect of cl 1**(a)(i):** Before considering the parties’ arguments in more detail, I think it is necessary to consider the nature of the rights and obligations conferred by the “equitable lease” under cl 1(a)(i) of the Agreement.

313. As already noted, where a memorandum of lease over Torrens title land is executed but is not registered, and the lease provides for a term of more than three years, no valid lease is created at law. But the memorandum is (or at least may be, depending on its interpretation) treated as embodying an agreement to grant a registered lease, which can then be enforced by way of specific performance.

No tenancy from year to year shall, after the commencement of this Act, be implied by payment of rent; if there is a tenancy, and no agreement as to its duration, then such tenancy shall be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time.

315. The consequence is that a month-to-month lease is presumed to arise under s 127. The lease incorporates such terms of the memorandum as are appropriate to a lease of that duration: Dockrill v Cavanagh (1944) 45 SR (NSW) 78 at 83-84.

316. The two consequences are independent. That is shown by the decision of the Court of Appeal in Leitz Leeholme Stud Pty Ltd v Robinson [1977] 2 NSWLR 544.

317. In that case, a landlord and a tenant entered into a memorandum granting the tenant a lease for a term of six years. The memorandum of lease was signed but never registered. After three years, the tenant, claiming that he was unable to pay the rent anymore, informed the landlord that he would vacate the property. The plaintiff responded by accepting the tenant’s repudiation and obtained a judgment against him for breach of contract with damages to be assessed.

318. It was argued for the tenant that the effect of the notice had been to terminate not only the implied lease under s 127 but also any further obligation with respect to the unexpired portion of the memorandum of lease. This argument was rejected by the Court of Appeal. Glass JA, with whom Hope JA agreed, said (at 547, citations omitted):

The agreement and the tenancy at will are independent sources of rights. At no stage do they merge, so that the termination of the estate automatically extinguishes the agreement. ... A lease of land under the Real Property Act for a term exceeding three years creates no legal term unless it is both registrable and registered. But the informal instrument may be treated as evidencing an agreement for a formal lease […] The unregistered memorandum of lease operates merely as an agreement specifically enforceable in equity, but not itself creating a legal term in the land […] Entry into possession and payment of rent bring into existence a common law tenancy upon such terms of the unregistered memorandum as are applicable to the tenancy at will […] But, in so far as the memorandum operates as an agreement, it retains a separate identity as the repository of the substantial rights of the parties […] The doctrine relevant for present purposes had been previously worked out in relation to demises which were void at law, not having been made by deed as required by the statute. The purported lease, nevertheless, took effect as an executory agreement for a lease enforceable in equity, and there entitling the lessee to a formal lease […] The existence or otherwise of a contract is determined exclusively by common law principle […] Accordingly, when these decisions allude to an informal lease operating as an agreement for a lease enforceable in equity, they affirm, not only the availability of equitable relief, but also the existence of a contract at law. If the innocent party deems damages to be adequate, there is no reason why the contract may not be enforced at law. But, in any event, the actionability at law of the executory agreement is supported by authority.

319. As Glass JA noted, a lease which arises under CA s 127, being for a term of less than three years, does not require registration and is valid at law. For this reason, the “equitable lease” terminology used by the parties in the present case is misleading. There was an agreement for lease under cl 2(d), which, if specifically enforceable, was to be treated as a lease in equity. That was an “equitable lease” in the relevant sense. But the tenancy arising under CA s 127 from cl 1(a)(i) was in fact a legal tenancy taking immediate effect from 10 August 2019, albeit terminable on one month’s notice.

320. Owner’s e****ntitlement to re****nt under CA s 117: The first point taken by counsel for PAR was based on the construction of the Agreement. Counsel submitted that a registered lease was critical to the parties’ bargain. Unless the land could be reinstated and the EPA licence restored, it was not worth anything to PAR.

321. Counsel submitted that, in those circumstances, the obligation to pay rent should be seen as conditional upon the grant of a registered lease. Strictly speaking, the payments made under cl 3(a)(i)(D) were not payments of rent as such, but payments on account of rent, which would become rent payments only when the lease was registered. Thus, so the submission ran, the payments did not fall within the term “rent reserved under a lease” for the purposes of CA s 117.

322. Initially, I found this argument attractive, and counsel for Shoebill appeared to accept it. But on reflection, I do not think it is correct. I have already rejected the proposition that the obligation to pay rent should be seen as somehow conditional on the grant of a registered lease. The argument would also create a lacuna in the Agreement, which made no provision for refunding the “rent” if a registered lease was not later granted. For reasons already given, the payments could not be recovered on the ground of total failure of consideration.

323. As counsel for SAPL pointed out, the evident intention of the parties was to create a lease with immediate effect. This was the language of cl 1(a)(i) itself (“PAR leases the entirety of the premises from [SIPL]”). Such a lease must correspondingly have created an immediately enforceable (indeed, backdated) liability for rent. As the lease could be terminated by giving only one month’s notice, there was no problem of commercial fairness from PAR’s point of view.

324. For these reasons, I think the obligation to pay rent under cl 1(a)(i)(D) of the Agreement was an obligation to pay rent (on a month-to-month basis) in the strict sense of that term. The first point raised by counsel for PAR fails.

325. As to the second point, counsel for SAPL contended that it was not open on the pleadings for PAR to allege, for the first time in closing submissions (as counsel asserted), that SAPL was not entitled to specific performance. But counsel argued that, in any event, SAPL was so entitled.

Claim against Mr Gallagher

331. SAPL’s claim against Mr Gallagher as guarantor was based on the legal rule considered by the High Court in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market *(*Campbelltown) Pty Ltd (2008) 234 CLR 237 at [96]-[107]. The rule is that the assignee of land which is the subject of a lease may enforce a covenant contained in the lease, provided that the covenant “touches and concerns” the land.

332. This rule operates independently of CA s 117. That provision only applies to covenants by lessees. The rule applied by the High Court is a wider common law rule which applies to any covenant which touches and concerns land, whether given by the lessee or anyone else.

333. In Gumland, the High Court held (at [96]-[102]) that the covenant by a guarantor to procure the payment of the rent by the lessee is a covenant which “touches and concerns” the land for the purposes of the rule. Counsel for SAPL submitted that the same applied to Mr Gallagher’s covenant in cl 1(a)(i)(J) of the Agreement.

334. In response, counsel for PAR raised a point of construction arising out of the earlier High Court decision of Chan v Cresdon (1989) 168 CLR 242. In that case, a landlord and a tenant entered into an agreement for lease on terms set out in an annexed Torrens title form of lease. The lease contained a guarantee by two sureties. The form was executed by the lessee and sureties but never registered. The lessee, however, went into possession and paid rent, thus creating a lease under the Queensland equivalent of CA s 127. The sureties undertook to guarantee the obligations of the lessee “under this Lease”.

335. The High Court held that the landlord’s claim against the sureties failed, on the ground that the lessee’s liability was a liability under the Queensland equivalent of s 127 and was not a “liability under this lease”. The sureties’ obligation was confined to obligations “created by, in accordance with, pursuant to or under the authority of, the annexure, and only when registered”. Liability under what the Court described as the “common law tenancy” did not answer this description (at page 249).

336. Counsel for PAR submitted that the guarantee given by Mr Gallagher, which referred to liabilities “under the Lease” was in the same position. The wording of Mr Gallagher’ guarantee was indistinguishable from that in Chan v Cresdon.

337. Counsel for SAPL submitted that the decision in Chan was distinguishable on the facts. Counsel argued:

The guarantee in this equitable lease is a term of the agreement recorded in the Heads of Agreement, which was clearly on its terms something different from the registered lease that the Heads of Agreement contemplated would be created in the future, and Mr Gallagher’s obligation arose immediately. That is to say, the promise to guarantee PAR’s obligations was a term of the equitable lease, whereas in Chan it was merely a term of the instrument that was intended to (but did not) create a legal lease.

338. I do not accept this submission. In referring to the “equitable lease”, counsel were referring to an equitable tenancy which, on counsel’s submission, arose from the terms of the Agreement. It may be accepted that this “equitable lease” was distinct from the “common law tenancy” arising under CA s 127. However, an interest of that sort was advanced as an alternative basis for liability in Chan v Cresdon but rejected by the High Court. The Court stated:

… even if it be assumed that specific performance would be awarded in favour of the respondent, that is not enough, in our opinion, to establish liability on the part of the appellants as guarantors. What they guaranteed was the "obligations [of Sarcourt] under this lease", that is, the instrument of lease in its character as a lease. In our view, only a lease at law would meet this description for the purposes of the guarantee.

339. The same reasoning applies in the present case. It is therefore unnecessary to decide whether SAPL could have obtained specific performance against PAR and Mr Gallagher. The guarantee claim fails.

First proceedings: Shoebill’s cross-action

340. In its cross-action, Shoebill claims unpaid rent and unpaid outgoings for the period up to 19 May 2020, when SAPL became the registered proprietor of the Somersby property. The claim is calculated at $35,000 per month for rent together with $4,020.77 per month for outgoings, which was the monthly amount invoiced by SIPL for outgoings but left unpaid by PAR. Shoebill allows a credit for the $210,000 in rent which was paid to SIPL. The net amount claimed is $154,000.

341. Counsel for Shoebill supported this claim on three bases, contending that:

342. PAR had admitted liability (although claiming a set-off against its claim for damages the subject of its action);

343. SIPL’s entitlements to receive the rent and outgoings payable by PAR under the Settlement Agreement, considered as separate choses in action, had vested in it when it became the registered trustee of the SIH Trust; and

344. upon becoming registered proprietor, Shoebill became entitled to recover outstanding, and ongoing, rent and outgoings by operation of CA s 117 (as already noted, strictly speaking, this was as assignee of SAPL).

345. The response from counsel for PAR may be summarised as follows:

346. PAR had not accepted liability independently of the damages set-off;

347. the appointment of Shoebill as trustee for the SIH Trust in place of SIPL did not give Shoebill a stand-alone right to sue for instalments of rent;

348. CA s 117 did not apply because the “lease” created by cl 1(a)(i) Agreement was not a “lease” for the purposes of that provision, nor was “rent” payable under that Agreement “rent reserved”; and

349. any obligation to pay outgoings, as distinct from rent, was limited to reimbursement of outgoings in fact incurred, which had not been proved.

350. It is convenient to deal with these contentions in a somewhat different order.

351. Proof of outgoings: Counsel for Shoebill acknowledged that PAR had objected to paying the outgoings in SIPL’s invoices on the ground that there was no obligation to pay outgoings in advance. Counsel submitted that, even if this objection were valid (which counsel argued it was not), it was no longer relevant, and payment therefore had to be made.

352. But the objection made by counsel for PAR is more fundamental than this. The point being taken is that the obligation was to reimburse outgoings to the extent actually incurred, and there is no evidence as to that.

353. This point seems to me to be consistent with the usual understanding of an obligation to pay outgoings of the type found in cl 1(a)(i). Counsel for Shoebill did not, in response, refer me to any evidence of what the outgoings in fact were for the relevant period. Indeed, so far as I could tell, counsel for Shoebill did not respond to the point at all.

Second proceedings: PAR’s cross-action

351. By its cross-action, PAR made claims for damages for contraventions of the Australian Consumer Law (“ACL”), the contraventions being that the cross-defendants had allegedly engaged in misleading and deceptive conduct (ACL s 18). Both contravention and damages were in issue.

352. The claims against the various cross-defendants overlap, which resulted in an overlap between the responses from counsel for Shoebill and SAPL. For instance, counsel for SAPL addressed the allegation of misleading and deceptive conduct against SIPL and Shoebill, because Mr Cassaniti was alleged to have been knowingly concerned in, and therefore liable for, those contraventions by SIPL and Shoebill. In recording the arguments presented by counsel for SAPL and counsel for Shoebill, I have not in every instance distinguished between them. Where I have not, I have referred to them collectively as counsel for the cross-defendants.

Contravention

353. PAR’s pleaded case was founded on what was described in its statement of cross-claim as the “performance representation”. This was a representation said to have been made by SIPL, Mr Russo personally and Shoebill “that SIPL intended to and would perform its obligations under the [Settlement Agreement]”.

354. Initially, it was alleged by PAR that this representation had been made at the mediation. A further allegation was then made that it was a “continuing” representation.

355. In their opening submissions, counsel for Shoebill foreshadowed a submission that no claim could be founded on any representation allegedly made at the mediation, because such conduct would not have been conduct “in trade or commerce” for the purposes of the ACL: WJ Green & Co *(*1984) Pty Limited as Trustee for the W J Green Family Trust v Wilden Pty Ltd as Trustee for the Baga Bazaar *(*1985) Unit Trust (Parker J, WASC, 24/4/1997, unreported); Pertzel v Qld Paulownia Forests Ltd (2008) 2 Qd R 526; Rosebanner Pty Ltd v Energy Australia (2009) 223 FLR 406. Counsel also foreshadowed an objection, pursuant to ss 29 and 30 of the Civil Procedure Act 2005 to evidence being given of the events at the mediation.

356. This resulted in a change in PAR’s position. Counsel indicated that PAR would no longer press any allegation of misleading or deceptive conduct at the mediation. But counsel maintained that PAR could continue to maintain its claim to the extent that it was based on the “continuing” nature of the “performance representation”. In this regard, counsel relied on the subsequent negotiations between the parties, both concerning the terms of the proposed lease between October and December 2019, and concerning the payment of rent in January and February 2020.

357. Counsel submitted that the “performance representation” was misleading or deceptive because there was no intention on the part of SIPL/Shoebill to perform the obligation under the Agreement to grant a registered lease to PAR or to afford PAR a first right of refusal in the event of a sale of the property. Counsel submitted that this lack of intention could be inferred from the conduct of SIPL/Shoebill from 2019 onwards.

358. Counsel characterised the conduct as a series of shabby manoeuvres designed to extricate the Somersby property from the obligations to which it had been subjected by the Agreement. As already noted, as well as alleging direct contravention by Mr Russo personally, PAR alleged that he had been knowingly concerned in the conduct of SIPL and Shoebill. Similarly, it was alleged that Mr Cassaniti had been knowingly concerned in those companies’ conduct and, through Mr Cassaniti, claims of knowing participation were also made against Raphis, Marginata and SAPL.

359. Counsel for Shoebill took a preliminary objection that the case as presented by counsel for PAR in closing submissions went beyond the pleadings. Two main points were taken. First, counsel submitted that, as a matter of substance, the claim was not based on a “continuing representation” at all, but rather upon fresh representations made as a result of subsequent conduct which had not been identified, or at least adequately pleaded, in PAR’s statement of claim in the cross-action. Second, counsel pointed out that the pleading of the “performance representation” was confined to SIPL’s intention, and there was no reference to Shoebill’s intention from February 2020 onwards.

… When a party enters into a contract, it does not necessarily make any representation as to its subjective understanding of the content of any of the obligations that it has undertaken. Secure's acknowledgement that it understood and accepted the terms and conditions of the tender said nothing about its understanding of the scope and content of the obligations which in law it was undertaking. It may or may not have had a correct or complete appreciation of the content of those obligations and how they were to be performed. It was not necessary, from the Council's perspective, that it have such an appreciation in order that it be bound to any contract: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22].

368. Counsel submitted that the reference to ambiguity was particularly apposite in the present case, given the uncertainty and room for disagreement about the terms of the lease required by cl 2(d). The versions of the lease proposed by SIPL might have been contrary to the requirements of the Agreement, on the true interpretation of that Agreement. But this said nothing about how SIPL subjectively understood what its obligations under the Agreement were.

369. These submissions have force. The question is not whether a party represented that it intended, in a general sense, to perform the contract. It is whether the party represented that it intended to perform the contract in the particular manner which the contract, on its true interpretation, required.

370. And I think there is another point to bear in mind. Any implicit representation arises from entry into the relevant contract. Falsifying the representation therefore requires proof that the relevant intention was lacking at that time. There are obvious difficulties in using subsequent conduct, which may be informed by subsequent advice about the interpretation of the contract, or even just a change of mind, to establish an earlier lack of intention.

371. So far as contravention by SIPL is concerned in the present case, there is an even more fundamental problem. PAR has foresworn any claim based on entry into the Settlement Agreement itself. If PAR is to succeed, it must do so by establishing some fresh representation in the subsequent conduct of SIPL, through its solicitor Mr Wu, that it would perform the Agreement in the manner in which the Agreement, on its true interpretation, should have been performed.

372. The position taken by SIPL in the lease negotiations, which involved repeatedly insisting on the inclusion of a clean-up obligation, was inconsistent with its obligation under cl 2(d), as I have interpreted that clause (and also as Mr Hocking understood it). That position may have been unreasonable, or lacking in good faith. But it was not a representation that SIPL intended to grant the lease to PAR without the clean-up obligation. In fact SIPL was saying the opposite.

373. If one ignores the pleading point taken by counsel, PAR’s case against Shoebill does allow for an actionable representation to have been made by Shoebill when, through the letter of 14 February 2020, it entered into contractual relations with PAR. But the problem is that in the very same letter Shoebill adopted the same negotiating position concerning the terms of the proposed lease as had been adopted by SIPL.

374. Taken as a whole, and in its context, the letter was quite inconsistent with any representation that Shoebill intended to grant PAR a lease in the terms it had been seeking. The later conduct by Shoebill in repudiating its obligations was even more clearly inconsistent with the representation alleged.

Damages

385. PAR’s damages contention was that, if the performance representation had not been made, PAR would have cut its losses and vacated the premises at an earlier time.

386. No particular hypothetical vacation date was proffered. There was no suggestion that there was an obligation to disclose the alleged intention not to perform the Agreement. It therefore cannot have occurred before it came manifest. That cannot have been before late November 2019 at the earliest. It was at that point that SIPL’s solicitors, having been told that there was no provision in the Agreement for remediation by SIPL, nevertheless continued to include such a provision in the draft lease.

387. Even after this date, the contention which underpins PAR’s claim is difficult to reconcile with PAR’s actual conduct. Through its solicitor, Mr Hocking, PAR made repeated and determined efforts, in the face of denial and obfuscation from SIPL and then Shoebill, to proceed with the grant of the lease. On my findings, SIPL, and then Shoebill, had continuously failed to comply with their contractual obligations from October 2019 onwards, and Shoebill had gone so far as to repudiate its obligations expressly in March 2020. PAR had ample opportunity to terminate the contract for breach, but did not do so.

388. It is therefore questionable whether the reliance element of causation is established at all. But for the moment, I will pass over this in order to deal with the damages which are claimed.

389. PAR’s damages claim was confined to two of the three heads of contractual damages originally claimed, namely the rent for the six months from 10 August 2019 onwards and the value of the glass stockpile.

390. The arguments by the parties tended to treat the question of recovery of these damages in PAR’s misleading and deceptive conduct claim as giving rise to the same considerations as arose in the breach of contract claim. Strictly speaking, I do not think that is correct. The measure of damages is different.

391. Under the ACL, PAR would be entitled to damages representing the difference between its actual financial position as a result of remaining in occupation of the Somersby property up to September 2020, on the one hand, and the financial position it would have been in if it had vacated early, on the other. In other words, PAR would have been entitled to recover the expenses incurred by it in remaining on the property, less any income derived for that period.

392. Seen in this way, it is valid for PAR to claim the rent it paid, but only for the period after the date of its notional vacation. As PAR did not in fact pay any rent after 11 January, a hypothetical vacation date before then would have to be established before PAR could claim anything.

393. In my view, there can be no claim at all for the loss of opportunity to sell the glass. As already explained, there was nothing to prevent PAR from taking the glass with it, and presumably the reason why PAR did not do so was because it would not have been economically worthwhile. In those circumstances, PAR could only have exploited the glass by remaining in occupation.

Conclusions on parties’ claims

396. I have concluded that:

397. in PAR’s action, its claim of breach of contract on the part of Shoebill in failing to grant a registered lease of the Somersby property in the terms specified in the Settlement Agreement succeeds, as does its claim for wrongful repudiation, but in each case for nominal damages only;

398. in Shoebill’s cross-action, Shoebill’s claim against PAR for rent for the period from 10 February to 18 May 2020 succeeds, but the claim for outgoings fails;

399. in SAPL’s action, its claim for rent for the period from 19 May to 9 September 2020 succeeds against PAR but fails against Mr Gallagher, with the other claims in the action being abandoned; and

400. in PAR’s cross-action, its claims fail against all cross-defendants.

401. On 20 December last year, I circulated to the parties a draft version of the judgment to this point. I invited them to agree, if possible, on the form of orders required to reflect my conclusions, and also on costs. I also invited them to identify any errors or omissions in the draft that could readily be corrected.

402. A further hearing to deal with these matters took place on 21 March. At the hearing, I learned for the first time that proceedings had been brought in the Federal Court for the winding up of Marginata, and on 19 February this year provisional liquidators had been appointed to that company. The company was represented at the hearing by Mr Blackie, solicitor, who was acting on the instructions of the provisional liquidators.

403. The appointment of provisional liquidators meant that, from the date of their appointment, the proceedings so far as they concerned Marginata had been stayed by force of s 471B of the Corporations Act 2001. But the provisional liquidators agreed on behalf of Marginata that the Court should give leave to proceed. I made consent orders accordingly, and the hearing went ahead. Mr Blackie was content to rely on the submissions made by counsel for SAPL.

404. The parties agreed on the form of orders to be made disposing of the claims made in the proceedings. I made consent orders for that purpose on the day. There was some disagreement about costs, on which I reserved my decision, and with which I will now deal.

Costs

401. As already noted, the parties to the proceedings fell into three camps, the first consisted of PAR and Mr Gallagher. I will refer to them as the “PAR parties”. The second camp consisted of Shoebill and Mr Russo (“the Shoebill parties”). The third consisted of SAPL, Raphis, Marginata and Mr Cassaniti (“the SAPL parties”). In what follows I will continue, for convenience, to refer to PAR, Shoebill and SAPL without referring to their co-defendants except when necessary.

402. In advance of the hearing on 21 March, I drew the parties’ attention to some of my previous decisions on costs in multi-party and multi-claim litigation, starting with Akierman Holdings Pty Ltd v Akerman [2019] NSWSC 1486. I indicated, subject of course to any submissions the parties may make, that I would take the approach which I had followed in those earlier decisions as a starting point.

403. In Shun Sheng Pty Ltd v Lei *(*No 6) [2024] NSWSC 1613 at [26] I outlined my general approach as follows:

The approach involves a two-stage analysis. The first is to identify the claims in the proceedings and to apply the rule that costs follow the event on a claim-by-claim basis. That is distinct from an issue-by-issue basis, as I explained in Akierman at [60]-[86]. The second stage is to determine which claim the general costs of the proceedings should follow.

404. I understood that all parties accepted this general approach, at least as a starting point for analysis.

Costs as between SAPL parties and PAR parties

405. The SAPL parties were only involved in the second proceedings which are before the Court (and which consist of SAPL’s action and PAR’s cross-action). It is convenient to deal with the costs issues so far as they are concerned first.

406. As between the SAPL parties and the PAR parties, the proceedings involved the following claims (including claims which were abandoned or dealt with before or in the course of trial but which are relevant to costs):

In SAPL’s action:

1. SAPL’s make-good claim; and
2. SAPL’s rent claim;

In PAR’s (and Mr Gallagher’s) cross-action:

3. The ACL claims against the SAPL parties;

4. The undertaking claims; and

5. The trust account money claims.

6. SAPL’s rent claim**:** SAPL’s claim was made against both PAR, as the principal obligor, and Mr Gallagher, as guarantor. The claim succeeded against PAR but failed against Mr Gallagher. The parties agreed that SAPL should receive an order for costs in its favour against PAR, but should pay any costs incurred by Mr Gallagher in resisting the claim against him.

7. SAPL’s make-good claim**:** This claim was effectively abandoned in final submissions and was dismissed. It was agreed that the costs of the claim should follow the event, so that both PAR and Mr Gallagher should receive a costs order in their favour against SAPL.

8. Undertaking claim**:** The undertaking which was the subject of this claim was given in favour of both PAR and Mr Gallagher personally. They were effectively co-plaintiffs in the claim, which was so pleaded. The relief claimed included a declaration that the liability under the undertaking was secured and took priority over Marginata’s registered mortgage. The only SAPL parties affected by the claim were therefore Marginata and SAPL itself (as registered proprietor).

9. As already mentioned, the claim was not pursued. Formally, it was caught up by the order dismissing PAR’s cross-action. In the end, counsel for PAR accepted that any costs incurred by Marginata or SAPL which were solely referable to this claim (although it seems unlikely that there would be any) should be paid by PAR and Mr Gallagher.

10. ACL claim**:** ACL claims were pursued against each of the SAPL parties as defendants. Claims were made on behalf of both PAR and Mr Gallagher. Both PAR’s claims and Mr Gallagher’s claims were dismissed.

11. There was no dispute that as between PAR and the SAPL parties, the claims had failed and PAR should pay the SAPL parties’ costs. But there was a dispute about whether Mr Gallagher should be liable for costs.

12. Counsel for PAR pointed out that while PAR claimed substantial damages under the ACL claim, Mr Gallagher did not. His claim was limited to damages by way of an indemnity against any liability to SAPL he had under SAPL’s action as guarantor.

13. Counsel acknowledged that Ms Gallagher’s claim had been dismissed but submitted that this had followed inevitably from the failure of SAPL’s action against him. The claim should be seen as defensive one which it had not been necessary to decide on the merits. In those circumstances, there should be no order as to costs of the claim as between Mr Gallagher and the SAPL parties.

14. I do not accept this submission. That is for two reasons.

If there is one predominant claim, or there are a number of claims on which one party has succeeded, which together are predominant, then usually the general costs will follow the outcome of those claims.

430. Counsel’s submissions focused on comparing the rent claim with the make-good claim. The amount claimed by SAPL for rent (excluding interest) was $158,000. Counsel pointed out that in the evidence filed in support of the make-good claim (which included an expert report, a building dilapidation report and a report on rectification works, the total cost of rectification was put at $3.2 million). The claim extended far beyond the costs of removing the surplus glass in the stockpile and extended to alleged damage to buildings and the like. In the week before the trial revised evidence was served which limited the claim to the stockpile and put the cost of removing it at $348,000, still almost double the amount of the rent claimed. Counsel submitted, as a result, that the preponderant claim was therefore the make-good claim and the general costs of the proceedings should follow that claim.

431. Counsel acknowledged that in Martinus Rail Pty Ltd v Qube RE Services *(*No 2) Pty Ltd *(*No 3) [2024] NSWSC 1483 at [174] I stated:

I usually take the view that where a plaintiff brings two claims, and succeeds on one but fails on the other, if the successful claim was itself sufficiently substantial to justify the bringing of proceedings, the costs order in favour of the plaintiff should cover the general costs of the proceedings as well as the costs specifically attributable to the successful claim. The result is that the plaintiff should only have to pay the defendant’s costs solely referable to the unsuccessful claim (see Akierman at [57]-[59]).

432. Counsel submitted that what I had said in Shun Sheng was preferable in the present case. Counsel further submitted that even using the terms I stated in Martinus the rent claim was insufficiently substantial to attract the general costs “both in terms of quantum and complexity”.

433. In a case where there is a claim and a cross-claim, and both claim and cross-claim succeed (or fail), it is necessary to allocate the general costs according to the outcome of either the claim or of the cross-claim. In such a situation, question of the relative value of the claim (as well as other considerations such as which claim came first) may be a relevant factor, and that is what I had in mind in the passage counsel quoted from Shun Sheng.

434. But the argument I am dealing with at present is a different one. It is an argument about allocating the general costs of one party between two separate claims. In such a case, the general costs are costs which, of their nature, would have been incurred by the successful plaintiff whether or not the unsuccessful claim had been included. For example, costs of directions hearing or the filing fee. That is the type of case I was addressing in Martinus.

435. In such a case, the Court is not concerned with the additional costs which have been incurred by the defendant in resisting the unsuccessful claim (as, for example, here the costs of dealing with the expert reports to which counsel for PAR referred in his submissions). Those costs will be covered by the order in favour of PAR for the costs referable to the cross-claim. The general costs are costs which were incurred by the successful party, SAPL, in bringing its claim. The focus should be on the justification for coming to court.

436. Frequently a plaintiff will bring a case and succeed, but recover less damages than had initially been claimed. If there are costs which can be identified as solely referable to the unsuccessful part of the damages claim, it may be proper to order the plaintiff to pay those costs. If the plaintiff’s success overall is so trivial as not to justify the bringing of proceedings, it may be appropriate for the plaintiff to be ordered to pay the costs of the proceedings. But if the plaintiff succeeds for an amount which of itself would have justified the bringing of the proceedings, then there is no justification for depriving the plaintiff of the costs of a successful visit to the court. In my opinion, the current situation is analogous. The plaintiff has come to Court and obtained something of value. I therefore consider that what I said in Martinus represents an appropriate starting point in the present case.

437. Nor do I accept the submission that the claim was insubstantial. The rent claimed, although less than the amount ultimately claimed in the make-good claim, was a significant sum, and the argument required the Court to consider legal issues of some complexity. In my view, SAPL’s success on the rent claim cannot be seen as trivial or insubstantial.

Costs as between PAR and Shoebill parties

441. The claims between the parties (including claims disposed of before or during the hearing) were as follows:

In PAR’s action in the first proceedings:

1. PAR’s claim for damages for breach of contract.

In Shoebill’s cross-action in the first proceedings:

2. Shoebill’s rent claim.

In PAR’s cross-action in the second proceedings:

3. PAR’s ACL claim;

4. the trust moneys claim (also pleaded against Shoebill in the statement of claim in PAR’s action in the first proceedings); and

5. the undertaking claim.

6. PAR’s breach of contract claim**:** PAR recovered only nominal damages on its breach of contract claim. Initially, counsel for PAR suggested that PAR had not been completely unsuccessful on the relevant “event”, and this should be acknowledged, at least by declining to award Shoebill its costs. But after counsel for Shoebill cited authority to the effect that, in general, in commercial litigation of this type, success on the event requires the recovery of substantial damages (Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service *(*No 2) [2011] NSWCA 171 at [14]; State of New South Wales v Stevens (2012) 82 NSWLR 106 at [22]), counsel for PAR did not press this argument. PAR will therefore pay Shoebill’s cost of the claim.

7. Shoebill’s rent claim**:** Shoebill’s claim succeeded, but counsel for PAR submitted that the usual consequence of costs should not follow for the period up to 9 April last year. This was the date on which Shoebill’s cross-claim was amended so as to introduce the contention that PAR was liable to pay the rent pursuant to RPA s 117 on which it ultimately succeeded. Counsel relied on the principles stated by the Court of Appeal for England and Wales in Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137 at 154:

As a general rule, where a plaintiff makes a late amendment … which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to costs of the action down to the date of the amendment.

444. In my opinion, this principle does not assist PAR in these proceedings. The change to Shoebill’s case, although it was expressed in an amendment, was only an alternative legal contention to support the claim which Shoebill was already making. The contention was already in the case, as it had been advanced by SAPL, and was being vigorously opposed by PAR. It is unrealistic to suppose that if the amendment had been made earlier it would have made any difference to the conduct of the proceedings.

445. Furthermore, the amendment might not have been necessary. Counsel for Shoebill continued to press the other pleaded bases for the claim, and, as he pointed out, I expressed the tentative view that even if Shoebill had not succeeded under s 117 it would have succeeded on a contractual basis.

446. In the present case, Shoebill was not a plaintiff but a defendant making a cross-claim. I am not sure that the Beoco principle would necessarily apply, or apply in the same way, in such a case. But it is unnecessary to consider this question any further.

447. The result is that Shoebill should receive an order in its favour for all of the costs in this cross-claim, both before and after 9 April last year.

448. ACL claim: As with the claims made against the SAPL parties, the claims made by PAR (and Mr Gallagher) against Shoebill and Mr Russo were both dismissed. It was accepted that PAR should pay the costs of its claims against the defendants. For reasons given above, Mr Gallagher should pay any additional costs which those parties may have incurred as a result of his personal claim against them.

449. Undertaking claim: This was a claim against Shoebill and did not involve Mr Russo. For reasons given above, if Shoebill incurred any additional costs as a result of this claim, those costs should be paid by PAR.

450. Trust moneys claims: Again, this was a claim against Shoebill which did not involve Mr Russo. For reasons given above, no order should be made in favour of PAR for any additional costs it may have incurred in prosecuting this “claim”. Any such additional costs incurred by either party will be left to fall under the general costs of the relevant proceedings.

451. General costs: Again, both parties proceeded on the basis that the general costs of the proceedings should be dealt with as between the principal protagonists, PAR and Shoebill.

452. In the light of the conclusions which I have reached, PAR did not achieve success in any event in the proceedings as between itself and Shoebill. Usually that would mean that PAR should pay Shoebill’s general costs of the proceedings.

453. At one point in the argument it occurred to me that there might arguably be some qualification to this on account of the costs incurred while PAR was in occupation of the property and calling for specific performance. On my findings, PAR would have been entitled to such an order against Shoebill, although whether that could in practice have been enforced is another question. I wondered whether I should decline to award Shoebill its costs of the proceedings for that period.

Orders

455. The orders made in the first proceedings (2020/39362) on 21 March 2025 were:

456. Judgment for the Plaintiff for nominal damages on its claim in the amount of $1.

457. Judgment for the Defendant on its cross-claim for rent for the period from 10 February 2020 to 18 May 2020 in the amount of $144,990.11 (including pre-judgment interest of $29,828.82).

458. The orders I now make on costs in the first proceedings are:

459. Order that the Plaintiff pay the Defendant’s costs of the proceedings, including the cross-claim.

460. The orders made in the second proceedings (2020/244319) on 21 March 2025 were:

461. Judgment for the Plaintiff against the Second Defendant on its claim for unpaid rent for the period from 19 May 202 to 9 September 2020 in the amount of $164,924.96 (including pre-judgment interest in the amount of $35,760.58).

462. The Plaintiff’s claim otherwise be dismissed.

463. The Defendants’/Cross-Claimants’ cross-claim is dismissed.

464. The orders I now make on costs in the second proceedings are:

465. Order that:

(a) the Plaintiff pay the costs of the First Defendant solely referable to the defence of the Plaintiff’s claim against him; (b) the Plaintiff pay the costs of the Second Defendant solely referable to the defence of the Plaintiff’s claim against it for damages for failure to remove waste from, remediate, or repair the property the subject of the proceedings; (c) the First Defendant/Cross-Claimant pay the Cross-Defendant’s costs solely referable to his cross-claim against them; (d) the Second Defendant/Cross-Claimant otherwise pay the costs of the Cross-Defendants to the cross-claim; (e) the Second Defendant/Cross-Claimant pay the costs of the Plaintiff/Second Cross-defendant of the proceedings, including the cross-claim.

**********

Amendments

28 March 2025

correction to orders