Plaintiff v PITAL BUSINESS PTY LTD

Supreme Court of Victoria|2009-01-21|Before: ROBSON J

EQUITY - Defence of equitable set-off - Whether set-off sufficient to deny judgment - Whether clear cross-claims for debts or damages - Whether judgment would be positively unjust - Cross-claim contingent - Cross-claim uncertain - Equitable set-off not made out

PRACTICE & PROCEDURE - Summary judgment sought in the proceedings on terms of settlement - Whether summary procedure inappropriate for enforcing terms of settlement - Whether justice can be done under summary procedure - Summary judgment ordered

For the Firstnamed and Secondnamed Defendant by Counterclaim

Galambos v McIntyre (1974) 5 ACTR 10

Eagle Star Nominees Limited v Merril [1982] VicRp 57; [1982] VR 557

Indrisie v General Credits Ltd [1985] VicRp 20; [1985] VR 251

Rawson v Samuel (1841) Cr & Ph 161

Re Just Juice Corp Pty Ltd [1992] FCA 420; (1992) 37 FCR 445

Roberts v Gippsland Agricultural and Earthmoving Contracting Co Pty Ltd [1956] VicLawRp 86; [1956] VLR 555

Pital Business Pty Ltd ("Pital") seeks to enforce terms of settlement entered into with Seachange Management Pty Ltd ("Seachange") and Giuseppe De Simone, amongst others, under which proceedings in this matter relating to a joint venture were resolved.
The joint venture involves the development of a hotel and an adjacent residential development at Ocean Grove. The joint venture interests are held under various so-called "partnerships", which will be examined below.
Under the terms of settlement, on 4 July 2008, Seachange was to pay Pital $4.3m, for its interest in the joint venture. If that sum was not paid, Pital was entitled to enter judgment against Seachange and Mr De Simone for that sum and interest. Seachange and Mr De Simone agreed not to oppose judgment being entered.
Seachange and Mr De Simone have not paid the sum of $4.3m and Pital has moved for judgment in the proceedings in accordance with the terms of settlement.
For ease of reference I will refer to Seachange and Mr De Simone as the respondents.
The respondents oppose the application on two grounds: First; the respondents submit the summary procedure of moving for judgment in the proceedings on the terms of settlement is inappropriate in the circumstances. Secondly; the respondents submit they have an equitable defence as, so they contend, Pital may be in breach of warranties it made and the damages from such breach could be set-off against the liquidated claim. I should mention at this stage, the respondents affirm the terms of settlement and seek to enforce them.
Under the terms of settlement, Pital was said to be or claimed to be the beneficial owner of, amongst other things, 38 of 70 units of entitlement in the Interesting Developments Partnership. The Interesting Developments Partnership held 70 of the 150 units of entitlement in the Seachange Development Partnership. The Seachange Development Partnership effectively was the beneficial owner of the joint venture assets.
The Interesting Developments Partnership held its interest in the Seachange Development Partnership under the Seachange Development Partnership Deed of Agreement[1] of 1 April 2006. Under that deed there were three "partners": First, ZMB Australia Pty Ltd ("ZMB") which held 40 of 150 units of entitlement. ZMB was controlled by Mr Michael Brereton, the solicitor and an original promoter of the joint venture. Secondly, De Simone Nominees Pty Ltd ("DSN") held 40 of the 150 units of entitlement and, thirdly, Interesting Developments Pty Ltd as trustee for the Interesting Developments Partnership held 70 of the 150 units of entitlement. The "partners" to the Interesting Developments Partnership held their interests under the Interesting Developments Partnership Deed of Agreement of 1 April 2006. It had five so-called partners. As at the date of the terms settlement, there were three partners; DSN with 26 of the 70 units of entitlement, Pital with 38 of the 70 units of entitlement and Darkstar Pty Ltd with 6 of the 70 units of entitlement.
Under the terms of settlement, Pital ceased to be a partner in the Interesting Developments Partnership and thus surrendered its interest in the 38 units of entitlement in the partnership.
The respondents contend that 20 of the 38 units of entitlement Pital had acquired in the Interesting Developments Partnership may have been tainted and defective. They contend the alleged defective units were acquired from ZMB. I will call these the ZMB units. They contend that the ZMB units may not have comprised or conveyed or been entitled to any interest in the Seachange Development Partnership.
The respondents contend that ZMB purported to acquire the ZMB units from Lynpland Pty Ltd ("Lynpland"). Lynpland was a company controlled by David McLeod. He and Mr Brereton established the joint venture in 2000 and eventually held 50 per cent each in the joint venture through Lynpland and ZMB. In July 2004, Lynpland and ZMB assigned a one-third interest in the joint venture to DSN.
The possible defect in interest allegedly arises out of a transfer agreement of Lynpland of its one-third interest to ZMB and DSN.
The transfer agreement of 17 March 2006[2] is between Lynpland, ZMB and DSN. Under the agreement, Lynpland as beneficial owner transferred to ZMB and DSN, and ZMB and DSN acquired from Lynpland, Lynpland's interest in the joint venture for $2.46m.
The recitals to the transfer agreements state that ZMB, DSN and Lynpland were equal one-third venturers in the joint venture known as "Seachange Management Joint Venture".
After the transfer of Lynpland's joint venture interest, the two remaining joint venturers were equal one-half venturers in the joint venture, subject to any further arrangements they made. There was no reference to units of entitlement in the transfer agreement.
The units of entitlement did not arise until the equal joint venturers entered into the partnership agreements in September 2006, although dated 1 April 2006.
Nevertheless, the respondents contend the Interesting Developments Partnership Deed of Agreement provides in Item 2 to the schedule that the partnership business is to hold 70 partnership entitlements in the Seachange Development Partnership which consist of 40 entitlements originally acquired from Lynpland by ZMB and DSN. The respondents contend that 20 of the 38 units held by Pital, and surrendered under the terms of settlement, are sourced from the 40 units acquired by DSN and ZMB from Lynpland. Assuming it is possible to so divide, allocate and treat the joint venture assets (which I need not decide); the respondents contend that recent claims made by Lynpland throw doubt on whether in fact Pital acquired, by those 20 units allegedly sourced from Lynpland, any proprietary interest in the joint venture assets.
I now turn to the recent claims of Lynpland. Before I do so I should make clear that the respondents dispute Lynpland's claims and in fact contend that Pital did in fact have an interest in the joint venture assets represented by its 20 units and that the 20 units are not defective.
Under the transfer agreement, the title to the joint venture assets was to pass to ZMB and DSN on and from the payment of a deposit of $1m.
The respondents contend that by a further agreement the deposit was satisfied by the provision of a house for Mr McLeod and his wife to live in. Nevertheless, after the settlement deed was signed on 16 June 2008, Lynpland lodged a caveat over the joint venture land claiming an equitable interest in fee simple.[3] On 24 June 2008, the solicitor for Seachange lodged a certificate under s 89A of the Transfer of Land Act 1958 (Vic) asserting that Lynpland had no estate or interest in the land.
The caveat was allowed to lapse. The solicitors for Lynpland wrote on 18 August 2008 to Mr Peter Lustig, the solicitor for Seachange, asserting that Lynpland as a joint venturer had and has a caveatable interest in the joint venture land. Lynpland's solicitors made no reference to Lynpland's transfer to ZMB and DSN in 2006.
Earlier, on 27 June 2008, Lynpland commenced proceedings in the Supreme Court of New South Wales against DSN and ZMB under the 2006 Transfer Agreement and an alleged further agreement relating to the payment of the consideration payable under the Transfer Agreement.[4] The agreement relating to the payment of the consideration is alleged to have involved a company controlled by Mr De Simone, The Computer Supply Store (Australia) Pty Ltd, which was to buy a home for the use of Mr McLeod and his wife. The Amended Statement of Claim filed in the Supreme Court of New South Wales makes various claims but at no stage asserts that Lynpland is still the owner of the one third joint venture interest to be sold under the Transfer Agreement. Nevertheless, the respondents contend, contrary to what they say is the true position, that a finding could be made that the deposit was not paid, or has not otherwise been satisfied, and therefore title to the one third interest in the joint venture did not pass to the remaining joint venturers, ZMB and DSN, and thus a portion of the interest to Pital. The respondents then argue, that if that were the case, the warranty given by Pital would have been breached.
I now turn to the warranty given by Pital. It provides as follows:

"15. The Exiting Parties warrant to the Remaining Parties that:

(a) Pital has paid the Cash Consideration as that term was defined in the Purchase Deed;

(b) Subject only to any claim made by the Remaining Parties in the Proceeding, Pital had prior to the execution of this Deed the full legal and beneficial rights to the Vendor Assets as that term is defined in the Purchase Deed;

(c) They are unaware of any claim or proceeding or demand in respect of the Vendor Assets other than the Proceeding; and

(d) They have full beneficial and legal rights to the Vendor Assets and the Partnership Assets free of any encumbrance, charge or pledge."[5]

24. The respondents contend that there may have been a breach by Pital of clause 15(b) and 15(d) through the failure of Lynpland's interest in the joint venture passing to ZMB and DSN and therefore to the 20 units Pital acquired from ZMB. The Purchase Deed referred to in the warranty is a deed whereby Pital purchased from ZMB certain assets which relevantly included 17 Partnership Entitlements in the Interesting Developments partnership." Although the Vendor Assets only relate to 17 units, the respondents treat the definition to extend to the 20 units which they contend Pital received from Lynpland's interest in the joint venture and agreed to surrender under the deed of settlement.

25. Assuming for present purposes that ZMB's 17 units as referred to in the Purchase Deed were constituted from Lynpland's share in the joint venture, the respondents contend that if Lynpland's version of events is accepted in the New South Wales Supreme Court proceedings, Pital did not have full legal and beneficial rights to the Vendor Assets. Further, the respondents contend that in those circumstances, and on those assumptions, Pital did not, insofar as the 20 ZMB units were concerned, have full beneficial and legal rights to the Partnership Assets.

26. Under the Deed of Settlement, Partnership Assets were defined as follows:

"8. For the avoidance of any doubt it is the intention of the parties, and each of them, that the Exiting Parties shall, upon execution of this Deed cease to have any interest, whether beneficial or otherwise, in:

(a) the Partnerships or any of them and any assets of any of the Partnerships including, without limitation, any debts or liabilities or contributions (whether voluntary or mandatory) made to them or any of them, loans or advances;

(b) Seachange Management;

(c) Interesting Developments;

(d) Galambos;

(e) the land located at 135-175 Bonnyvale Road, Ocean Grove (the 'Land');

(f) the Development taking place on the Land;

(g) the Hotel erected on the Land and the business conducted by the said Hotel.

(Collectively the 'Partnership Assets')."

27. The respondents place emphasis on clause 8(e) that includes the joint venture Land.

28. Assuming the 20 ZMB units were to be (and could as a matter of analysis be) constituted by the interest in the joint venture to be acquired from Lynpland, and assuming in fact no such interest was acquired, then, it is contended by the respondents, 20 of the 38 units purportedly surrendered by Pital under the Deed of Settlement were not units that gave Pital "full beneficial and legal rights to the Vendor Assets and the Partnership Assets free of any encumbrance, charge or pledge as provided in the warranty."

29. For the purpose of assessing whether the respondents raise an equitable set-off sufficient to deny Pital judgment in the liquidated debt due, I will assume, without deciding, the correctness of the respondents' contentions.

30. A set-off is said to exist where a defendant, in answer to a plaintiff's claim, is able to plead successfully that a countervailing claim, which he has against the plaintiff, absolves him, wholly or partially, from liability to the plaintiff.[6] At common law, the right of set-off was unknown and was established by statute. At law, a claim can not ground a plea for set-off unless it is liquidated.[7] Equity, however, allows a set-off in certain circumstances as a defence to a legal or equitable claim. The authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies assert that it is tolerably clear that in equity a claim for an unliquidated amount is sufficient to establish an equitable set-off.[8] They say that in equity the set-off must go to the root of, be essentially bound up with and "impeach" the title of the plaintiff.[9] In Indrisie v General Credits Ltd,[10] the Full Court of the Supreme Court of Victoria comprising Young CJ, Crockett and Nicholson JJ held that:

"In order to rely upon a cross-claim as an equitable set-off, there must be such a nexus between the claim and cross-claim that the cross-claim can be said to impeach the plaintiff's claim."[11]

In Meagher, Gummow and Lehane's Equity Doctrines and Remedies, the authors say:

"The defendant, in order to make out an equitable set-off, had to establish that he possessed some equitable right to be protected from the plaintiff's claim."[12]

The authors assert that the most famous exposition of this doctrine is that of Lord Cottenham LC in Rawson v Samuel.[13] This case is relied upon by the respondents in support of their equitable set-off defence. In that case, the defendant to a suit of law sought to restrain the plaintiff at law from executing on an action for damages until an account of complicated dealings between the parties had been taken. It was uncertain whether, on the taking of that account, the plaintiff at law would end up owing any money to the defendant at law or rather the defendant at law would end up owing money to the plaintiff. The Lord Chancellor said:

"It was said that the subjects of the suit in this Court, and of the action at law, arise out of the same contract; but the one is for an account of transactions under the contract, and the other for damages for the breach of it. The object and subject-matters are, therefore, totally distinct; and the fact that the agreement was the origin of both does not form any bond of union for the purpose of supporting an injunction.

The question then comes to this: Is the Defendant, in a suit in this Court for an account, the balance of which I will suppose to be uncertain, to be restrained from taking out execution in an action for damages against the other party to the account until after the account shall have been taken, and it shall thereby have been ascertained that he does not owe to the Defendant at law, upon the balance of the account, a sum equal to the amount of the damages? If so, it cannot be open upon the ground of set-off, because there is not at present any balance against which the damages can be set off; nor can it be because the damages are involved in the account, for certainly they can form no part of it.

We speak familiarly of equitable set-off, as distinguished from the set-off at law; but it will be found that this equitable set-off exists in cases where the party seeking the benefit of it can shew some equitable ground for being protected against his adversary's demand. The mere existence of cross-demands is not sufficient; Whyte v O'Brien [(1824) [1824] EngR 258; 1 Sim & St 551; 57 ER 218]; although it is difficult to find any other ground for the order in William v Davies [(1829) [1825] EngR 587; 2 Sim 461; 57 ER 860], as reported. In the present case, there are not even cross-demands, as it cannot be assumed that the balance of the account will be found to be in favour of the Defendants at law. Is there, then, any equity in preventing a party who has recovered damages at law from receiving them, because he may be found to be indebted, upon the balance of an unsettled account, to the party against whom the damages have been recovered? Suppose the balance should be found to be due to the plaintiff at law, what compensation can be made to him for the injury he must have sustained by the delay? The jury assess the damages as the compensation due at the time of their verdict. Their verdict may be no compensation for the additional injury which the delay in payment may occasion. What equity have the Plaintiffs in the suit for an account to be protected against the damages awarded against them? If they have no such equity, there can be no good ground for the injunction."[14]

The applicability of this test was affirmed by Gummow J in Re Just Juice Corp Pty Ltd.[15] See also the observations of Tadgell J in Eagle Star Nominees Limited v Merril.[16] In Galambos v McIntyre,[17] Woodward J, sitting as a judge of the Supreme Court of the Australian Capital Territory, examined this principle of equitable set-off and in particular the decision in Rawson v Samuel. Woodward J concluded the prerequisites of an equitable set-off to be:

"(i) Clear cross-claims for debts or damages, which

(ii) were so closely related as to the subject-matter that the claim sought to be set-off impeached the other in the sense that it made it positively unjust that there should be recovery without deduction."[18]

Turning to the facts of this case, as in Rawson v Samuel,[19] it is uncertain whether or not the respondents will be able to mount a claim for damages for breach of warranty. Whether or not they may be able to make a claim depends on the success of claims in the Supreme Court of New South Wales which they dispute. In Rawson v Samuel,[20] it was uncertain whether, on the taking of account between the plaintiff at law and the defendant at law, any moneys would be found owing by the plaintiff at law to the defendant at law. Similarly to the question raised by the Lord Chancellor, why should Pital be delayed in receipt of the moneys due under the Deed of Settlement while it is ascertained whether a claim may or might not be made. Using the language of Woodward J, it is, in my opinion, not positively unjust that there should be recovery by Pital of the sale price without deduction or delay by reason of the possible claim for breach of warranty.
In summary, in the sense the term is used in equity, the purported set-off does not impeach Pital's claim. The purported set-off provides no defence or answer to Pital's claim for judgment.
In Dr Derham's work, The Law of Set-off,[21] the author says that a court of equity will only provide relief by way of set-off if the person claiming relief can show some equitable ground for being protected from his adversary's demands. He goes on to say therefore, an equitable set-off may be denied, notwithstanding that the demands are otherwise sufficiently closely connected, if in the circumstances it would be unjust that a set-off should occur. Thus, the conduct of the parties may be relevant to the question of the availability of equitable relief by way of set-off. He cited Galambos v McIntyre[22] where Woodward J indicated that:

"The general conduct of the respective parties will, as always be relevant in the granting of such equitable relief: Young v Kitchin;[23] Newfoundland Government v Newfoundland Railway Co;[24] Bankes v Jarvis;[25] Hanak v Green"[26]

37. Reference was made during submissions to the conduct of the respondents. In the circumstances it is unnecessary for me to consider whether any conduct of the respondents should disentitle them to the relief sought as I have found against them on the assertion that they have a cross-claim sufficient to establish an equitable set-off.

38. There is another ground raised by Pital in answer to the equitable defence raised by the respondents. Pital says that the Exiting Parties as defined in the Deed of Settlement did not in fact warrant that they had full beneficial and legal rights to the Partnership Assets free of any encumbrance, charge or pledge. It points out that such a warranty would be nonsensical as the assets of the Seachange Development partnership may well be subject to charges and mortgages in favour of legitimate third parties. Pital says the warranty in fact was directed to the bundle of rights it surrendered under the Deed of Settlement and not directed to the bundle of rights constituted by the Partnership Assets which were not affected by the surrender.

39. As I have already found that the equitable defence raised by the respondents is not open to deny the claim for the judgment debt, it is not necessary for me to decide this issue of construction. The respondents contend that the warranty should be construed having regard to the surrounding circumstances and the purpose and object of the Deed of Settlement. In particular, the respondents seek to rely on those matters to meet the criticism of their construction that it does not make commercial sense.

40. As the respondents may wish to rely on the warranty clause in some proceedings if circumstances arise where it is able to allege, on its construction, a breach of the warranty clause, it is not appropriate that I decide on the construction of the clause in this case, particularly as it is not necessary for me to do so. As indicated above, in deciding the equitable set-off point, I have proceeded on the construction most favourable to the respondents.

41. I now turn to the issue of whether the summary proceeding is appropriate in obtaining judgment on the Deed of Settlement. In my opinion it is. The matter did not require oral evidence to be heard. The issues were legal and suitable to be dealt with in a summary way. In my opinion, the application falls within the procedure approved in Roberts v Gippsland Agricultural and Earthmoving Contracting Co Pty Ltd.[27] In that case, Smith J said as follows:

"In relation to the former class of actions the resulting position would appear to be as follows:-

(i) The Court will now enforce the agreement of compromise upon motion in the action whenever the circumstances are such that it would have been enforced in a corresponding manner in the old Court of Chancery.

(ii) In addition, the agreement may be so enforced notwithstanding the fact that it involves matters extraneous to the action, and notwithstanding that there is a substantial question raised as to the terms or validity or enforceability of the agreement, provided that the Court is clearly satisfied that justice can be done under the summary procedure. At least this is so where all that the Court needs to order for the purpose of enforcing performance upon just terms is a stay of proceedings or a dismissal of the action or some relief claimed in the action.

In deciding whether justice can be done under the summary procedure the Court, of course, needs to consider a variety of matters involving questions of degree. These, I think, must include the extent to which extraneous matters are involved, how substantial are the questions to be determined, to what extent questions of credibility are likely to arise, and whether pleadings and discovery may be desirable."[28]

42. I am satisfied that justice can be done under the summary procedure. In my opinion, justice has not been compromised by the absence of pleadings or the failure to provide further discovery. The issues raised, as indicated above, were questions of law capable of being properly dealt with under a summary proceeding. I therefore dismiss the second ground of objection to the plaintiff's motion for judgment.

43. I will therefore order that there be judgment for the firstnamed plaintiff by counterclaim against the respondents as sought in its summons. I invite the parties to bring in short minutes of orders.

[6] R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002) [37 - 005]

[12] R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002) Ibid [37 - 045 (h)]

[21] S R Derham, The Law of Set-off (3rd ed, 2003) [4.44]

[22] (1974) 5 ACTR 10 per Woodward J at 26

At a glance

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Before

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Judgment (52 paragraphs)

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Cases Cited (1)