Plaintiff v First Defendant

Supreme Court of Victoria|2013-05-07|Before: SIFRIS J

PRACTICE AND PROCEDURE - Application to re-open case - Fresh evidence - Reasons for decision on liability published - Damages still to be assessed.

1 On 14 December 2012 I published my reasons for concluding that the plaintiff ('Nicholson') had entered into a binding and enforceable agreement ('the Agreement') with the first defendant ('Hilldove') on 15 December 2011 in relation to the purchase by Nicholson of the Crown Hotel in Lilydale from Hilldove.[1]

2 I do not propose to rehearse the facts and I will assume familiarity with the Judgment. Definitions and terms used in these reasons are the same as those used in the Judgment.

3 Nicholson elected to pursue a claim for damages for breach or repudiation of the Agreement. Damages are to be assessed separately. The Judgment dealt with liability only.

4 The Agreement contemplated a ten year lease (with three further options of ten years each) at a starting rental of $680,000 per annum with market reviews. The landlord, Terrabridge, the second defendant in this proceeding, was not a party to the Agreement. It was not suggested by Nicholson that there was any obligation on the part of Terrabridge (whether promissory or representational) to grant a lease whether on the terms contemplated or at all. Rather it was pleaded and submitted that there was an implied term of the Agreement that Hilldove, - a related party to Terrabridge, - would procure the contemplated lease. It was further alleged that Hilldove had made representations to such effect.

5 It was held[2] that there was no such implied term and that Hilldove had not made any representations to the effect alleged.

6 In the final analysis the Agreement was subject to the execution of a lease on the terms contemplated. However there was no obligation on the part of Terrabridge or Hilldove to grant or procure such a lease. It was a matter for negotiation between the parties. Clearly Nicholson has lost the opportunity to negotiate such a lease. Without a lease he would not have gone ahead with the purchase of the Hotel.

7 Taking the view that there was no binding and enforceable Agreement, Hilldove sold the Crown Hotel to David John Tomsic ('Tomsic') or nominee on or about 7 February 2012. Terrabridge sold the freehold to interests associated with Tomsic. The agreements relating to the sale of the business and the freehold ('the Tomsic Agreements') were (unlike the Agreement) negotiated on the basis that there was an existing lease between Terrabridge and Hilldove that commenced on 1 May 2011.

8 By summons filed 4 March 2012, Nicholson applied to set aside the Judgment and re-open the liability phase of the trial. Nicholson submitted that there was fresh evidence of such importance that it would affect the quantum phase of the trial.

9 The fresh evidence is said to be a lease between Terrabridge and Hilldove dated or effective from 1 May 2011 ('the Lease'). Nicholson submitted that the evidence "supports an inference that such a lease exists". The existence of such a lease, it was submitted would have an effect on the damages claim. Hilldove denies the execution of the Lease. It contends that although draft leases were prepared in 2010 and 2011, for contemplated sales, they were not executed.

10 If there is no Lease, as submitted by Hilldove, there is no fresh evidence. However, the basis of the application to re-open was in order to assess and investigate whether in fact there was a Lease. The probable existence of such a lease was said to constitute fresh evidence.

11 Hilldove submitted that any assessment or investigation in relation to the existence of the Lease should have been done at the trial as all the relevant documentation, and in particular the Tomsic Agreements, had been discovered or was in the Court Book.

12 I am not satisfied that the Lease, or more particularly any assessment or investigation as to whether there was in fact a lease, constitutes fresh evidence in the sense understood by the authorities.

13 The draft lease was discovered by Hilldove and adequate reference to the Lease was contained in the Court Book. Its suggested existence was adequately referred to and its execution or otherwise and its precise status could easily have been the subject of cross-examination at the trial.

14 Hilldove's list of document, served on 15 May 2012 and well before the trial, included the Tomsic Agreements. Documents numbered 68 and 69 were respectively described as:

(a) "Business Sale Deed in respect of Crown Hotel"; and

(b) "Contract of Sale in respect of 267 Main St Lilydale".

15 The contract for the sale of the freehold, discovered as document 69, was expressed in its Particulars of Sale to be subject to lease. Schedule 1 to that contract was a copy of the (unexecuted) lease. General Condition 1 of the contract of sale referred to the lease attached at Schedule 1 to the contract as an encumbrance on the land. This document was not in the Court Book.

16 The original form of document 68, as discovered, attached a copy of an unsigned draft lease. Document 68 formed part of the Court Book (CB 690). However although the draft lease was not included as an annexure, there was adequate and sufficient reference to the Lease. In clause 1.1 Assets was defined to include the Property Lease. In the same clause Property Lease is defined as "the property lease details of which are set out in Schedule 6". Schedule 6 at page 748 of the Court Book specifically refers to the Lease and the date of the Lease as 1 May 2011.

17 Nicholson submitted (as was the case) that the existence of the Lease was not an issue at trial and the description of the documents when discovered would not in the circumstances cause his advisors to consider or investigate the matter further. No such lease was referred to by Hilldove and it was only after the trial and indeed judgment that the real significance of the Lease became apparent.

18 The authorities establish that the existence or discovery of fresh evidence alone is not sufficient to re-open a case. If this were not so decisions would be "of a provisional character only". Rather, public policy requires a more "stringent rule". Accordingly a party seeking to re-open a case on the grounds of fresh evidence is required to show "that there was no lack of reasonable diligence on his part and that it is reasonably clear that the fresh evidence would have produced an opposite verdict".[3]

19 As pointed out, I do not, in the circumstances set out above, regard the existence or otherwise of the Lease as constituting fresh evidence. The evidence and relevant documentation was sufficiently disclosed and available at trial so far as it was considered by Nicholson to be relevant.[4] This is sufficient to dispose of the application.

20 Further, and in any event (and perhaps inevitably so) having heard all of the relevant evidence in relation to the existence or otherwise of the Lease, the very enquiry in respect of which leave was sought to re-open,[5] I conclude that it is more likely than not that there was no such Lease.

21 Although no signed lease has been produced, I was invited to infer the existence of the Lease. It was specifically referred to in the Business Sale Deed (discovered document 69) and Contract of Sale in relation to the freehold (discovered document 68 and CB690) and a transfer of lease document was prepared and executed. However, in my opinion and notwithstanding these documents, it is more probable than not that no such lease was executed, despite, yet again, some curious circumstances.

22 On 27 April 2012 and after execution of the Tomsic Agreements and despite not having sighted (notwithstanding repeated requests) the original or a copy of the executed lease - which he assumed and which was warranted to be in existence and enforceable - Nicolas Zervos ('Zervos'), a solicitor acting on behalf of the Tomsic interests, prepared a transfer of lease and sent it to Minter Ellison the solicitors acting on behalf of Hilldove and Terrabridge. Zervos indicated in the email that the document was prepared because his client, the purchaser was required, as part of its application for a transfer of the liquor licence, "to produce evidence of the right to occupy". Settlement of the acquisition of the freehold was only due to take place much later.

23 On 2 May 2012, Minter Ellison provided detailed comments on the transfer of lease. Further email correspondence between Zervos and Minter Ellison took place during May 2012 and on 31 May 2012 Zervos sent the final agreed version of the transfer of lease to Minter Ellison. It was returned on 12 June 2012 duly executed by Niall on behalf of both Terrabridge and Hilldove. The transfer of lease, which was in favour of Tomsic's nominee - Supreme Crown Pty Ltd, states that a lease was in existence with effect from 1 May 2011.

24 On 24 May 2012 and 12 July 2012, the Victorian Commission for Gambling and Liquor Regulations ('VCGLR') requested evidence of the right to occupy. A copy of the executed or proposed lease between Supreme Crown Pty Ltd as tenant and the landlord was required. However, despite the request, only a signed copy of the transfer of lease was provided to VCGLR.

25 On 18 December 2012 and prior to settlement in respect of both the sale of the business and the freehold, Zervos requested Minter Ellison to provide the original signed lease. Later that day Minter Ellison responded as follows:

We are instructed that our client does not have an original signed copy of the lease: we understand that our client will not be required to provide an original at Settlement.

26 In the final analysis all parties proceeded on the basis that there was a valid and enforceable lease. There is absolutely nothing to suggest that Zervos and his clients did not genuinely believe there was a lease. They told their bankers and the VCGLR that there was a lease. They requested a copy of the signed lease right up until settlement. However it was not forthcoming. The same may be said of Minter Ellison.

27 Not surprisingly therefore, Dr Hanscombe SC, on behalf of Nicholson, argued forcefully and understandably that there must be a lease. Everyone acted on this basis and their conduct and representations to third parties assumed the existence of a valid and enforceable lease. Niall, it seems, was the only relevant person that knew (so he says) there was no lease, a practical matter of little concern to him. He was not in the circumstances concerned about warranties and representations and gross distortions of the factual position. Bizarre as it may seem, and whatever the legal consequences and ramifications, I believe him.

28 Although Niall admitted execution of multiple copies of the transfer of lease, he emphatically denied execution of the Lease. When asked what was being transferred he said nothing was being transferred. He acknowledged that a lease was required by the VCGLR and would assist in relation to GST[6] but denied having executed the lease. To avoid further legal costs he suggested using the draft lease without ever having executed it. He said that it was a procedural matter of no great moment because both the business and the freehold were being sold to related parties. He also gave evidence that there was a binding executed lease in existence between Terrabridge and Hilldove for the period 19 October 2006 to 19 October 2011 ('the Operating Lease').

29 Ordinarily a document evidencing the transfer of a lease (specifically referred to in the document but not attached) would constitute compelling evidence of the existence of such a lease. However this is no ordinary case as a perusal of the Judgment suggests. Whatever the ramifications, it is more probable than not that no such lease was executed.

30 I have found Niall not to be a witness of truth. However it does not follow that all of his evidence should be rejected. Although extreme caution is required, I accept the evidence of Niall in this regard.

31 If there was a Lease there would be no reason for Niall not to say so. It was a favourable lease at a rental much higher than Nicholson was prepared to pay. If it was in existence at the time of the Agreement it would presumably have been in Hilldove's interest to refer to the lease as part of the bargaining process.

32 As events unfolded between Hilldove, Terrabridge and the Tomsic interests as purchasers of both the business and the freehold, it was in a sense perhaps understandable that proper and adequate consideration was not given to locating and verifying the existence of the Lease.

33 The real point however is that whatever the basis on which the parties proceeded, and whatever assumptions were made, this does not mean that the lease or any draft lease was actually executed. The likelihood is that it was not - despite the assumption made. Whether there was a lease by conduct or representation or estoppel (which is most unlikely) is not really relevant or to the point and such a lease was not suggested. However it would not assist Nicholson as, amongst other things,[7] it would only - if at all - have come into existence well after the execution of the Agreement.

34 The other matters raised by Nicholson do not cause me to change my view. The absence of the watermark "DRAFT" on part of the lease that was sent by Minter Ellison to Zervos acting on behalf of the Tomsic interests does not mean it was or was more likely to have been executed. Further, the email from Minter Ellison to Zervos dated 18 December 2012 to the effect that their client (Hilldove) did not have an original signed copy of the lease[8] is not sufficient - together with other suggested factors - to infer the execution of such a lease.

35 If contrary to my view, there was a Lease and the existence of such a lease does constitute fresh evidence, I am not persuaded that this would in any event assist Nicholson.

36 The bargain struck by the parties contemplated the negotiation of a lease on certain terms. Both parties proceeded on the assumption that there was no lease in existence. If there was a lease in existence they (or perhaps only Nicholson) proceeded on a wrong assumption.

37 The court cannot simply rewrite the Agreement between the parties and assume for the purposes of the damages claim a different contract to that executed by the parties because it represents the better loss of opportunity case. A different cause of action needs to be pleaded that has as its loss, the loss of opportunity to take an assignment of the Lease. However, all this is academic because there was no Lease.

38 In all of the circumstances I am not satisfied that the interests of justice require the re-opening of the case. Further, as will be apparent from these reasons, I have in any event proceeded on the basis that the case was effectively re-opened.

[1] Nicholson v Hilldove Pty Ltd & Ors [2012] VSC 598 ('the Judgment').

[3] References in this paragraph are to Commonwealth Bank of Australia v Quade & Ors [1991] 178 CLR 134, 141.

[4] As at the commencement of the trial Nicholson still maintained a claim for specific performance of the Agreement. The Tomsic Agreements, with specific reference to the Lease, were relevant to this issue. Of critical importance, however, is the fact that the information was available to be used (or not used) in any way that Nicholson saw fit.

[5] Leave was sought to re-open in order to cross-examine Niall and Richardson. Both Niall and Richardson swore affidavits and they were cross-examined. Mr Zervos a solicitor acting for the Tomsic interests was also cross-examined and produced numerous documents pursuant to a subpoena served on him.

[6] No GST would be payable if the business was sold as a going concern.

[7] It would probably not be open to Nicholson, a stranger to the conduct and representations to allege a lease by estoppel.

[8] The suggested implication being that there was a signed lease.

At a glance

Court

Decision date

Before

Source

Judgment (50 paragraphs)

Parties