Provident Capital Ltd v Hazaran Pty Ltd & Michael Petrovic Lenin

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

2355/02 PROVIDENT CAPITAL LTD v HAZARAN PTY LTD & MICHAEL PETROVIC LENIN JUDGMENT

1 This is an application referred to me by the Duty Judge on 7 November 2002 and heard by me on 7 and 8 November 2002. The second defendant, Michael Petrovic Lenin, as applicant in a Notice of Motion, seeks relief against the plaintiff, Provident Capital Ltd (Provident). The first defendant, Hazaran Pty Ltd (Hazaran), did not appear on 7 November but I was informed by counsel for the other parties that Ms Batiste, a director of Hazaran, was in Court throughout the hearing. On 8 November Mr L Aitken, of counsel, sought to appear for Hazaran, however I did not find it necessary to hear from him. 2 Mr M Walton SC leading Dr AS Bell, of counsel, appeared for the applicant and Mr FM Douglas QC leading Mr M Darke, of counsel, appeared for Provident. 3 The applicant and Provident have been involved in previous litigation, a relevant history of which is referred to on pages 7 to 10 of my judgment of 4 October 2002 in matter 4912/02 in which the applicant was the plaintiff and Richard Albarran and Geoffrey McDonald in their capacities as voluntary administrators of Hazaran were defendants. Provident had sought to be heard before Bryson J in proceedings in which Ms Batiste, Hazaran and Chrysalis Pty Ltd sued the applicant in relation to the premises known as the Great Northern Hotel in Newcastle (the Hotel). 4 The applicant had cross-claimed in those proceedings and such cross-claim was found to have constituted a re-entry of the Hotel on 5 December 2001. By Mortgage of Lease dated 5 March 1999 Provident became the mortgagee of Hazaran's lease of the Hotel. Hazaran covenanted to pay Provident the sum of $1.5 million or so much thereof as remained unpaid by 4 March 2001. Interest on the principal sum was agreed to be paid at the rate of 17.5 per cent. Clause 2.2 of the Memorandum of Mortgage defined the "secured moneys" as the balance of the loan under the loan contract and any future loan contract. 5 Provident's application to be heard in the proceedings before Bryson J was not made until after his Honour delivered judgment, but before the orders were taken out. Bryson J refused Provident's application to be heard and Provident sought leave to appeal against Bryson J's judgment refusing that application. Provident and the applicant reached agreement in respect of Provident's application for leave to appeal. By the time that agreement was reached Provident had commenced these proceedings seeking relief against forfeiture. The agreement reached between Provident and the applicant is evidenced in Orders made by the Court of Appeal on 5 September 2002 in matter CA 40337/02. Those orders provided as follows: By consent of the Claimant and the Second Opponent: 1. Upon: (a) The Second Opponent ( Lenin ) undertaking the Court, in the event, and from the date, of any dismissal of Hazaran Pty Ltd's appeal in proceedings CA 40335/2002 and pending the resolution of Equity Division proceedings No 2355 of 2002 ( the Equity proceedings ) or any appeal from any judgment in the Equity proceedings: (i) not to lease, sell or otherwise deal with the premises described in Lease No. 6201973K ( premises ) or otherwise in any way prejudice or affect their rights of the Claimant ( Provident ) as mortgagee of the leasehold estate; (ii) not to advance any argument, or otherwise contend, in the Equity proceedings, any appeal from any judgment in those proceedings, or any other proceedings, that Provident's entitlement, as at 19 April 2002, to relief against forfeiture as mortgagee of the leasehold estate has been lessened or extinguished by entry into physical possession of the premises by Lenin or any other person; (iii) to appoint Ferrier Hodgson as manager of any business operated from the premises; (iv) to maintain: (A) the present trading hours for the premises; (B) the liquor licence for the premises; and (v) to discontinue its application for summary dismissal of Provident's claim in the Equity proceedings, and not to make another such application in those proceedings; and (b) Provident agreeing to prosecute the Equity proceedings and any appeal by Provident from any judgment in those proceedings, with expedition; the Court orders that: (c) the application for leave to appeal be dismissed; and (d) the costs of the application for leave to appeal be costs in the Equity proceedings. 2. The court notes the agreement of Provident and Lenin that, in the event that the appeal in Court of Appeal proceedings No. 40335/2002 is dismissed, Provident consents to the dissolution of the stay granted by Order 1 of the Short Minutes of Order of 29 April 2002.

6 I understand that these proceedings have been expedited and are listed before Palmer J, the Expedition List Judge, on 22 November 2002 for the purpose of obtaining a hearing date. 7 The applicant seeks the following relief in paragraphs 5 and 6 of the Further Amended Notice of Motion (the Motion) filed in Court on 7 November 2002: 5. That the Applicant be released from that part of his undertaking to the Court set out in paragraph 1(a)(i) of the orders made in proceedings no CA 40337 of 2002 on 6 September 2002, on the following condition: 5.1 in the event that the Plaintiff obtains a declaration as to an entitlement to relief against forfeiture in Supreme Court Equity Division Proceedings No.2355 of 2002 or any appeal from any judgment in those proceedings (the Second Defendant undertaking not to advance any argument in those Proceedings that a declaration to that effect should not be given by reason of the sale or other dealing by him with the property), the Second Defendant further undertakes to pay such monies as are owing under mortgage of lease no. 6201974 dated 5 March 1999, but not exceeding $1,762,500 being $1,500,000 plus interest thereon at the rate of 17.5% pa for one year. 6. That the Applicant be released forthwith from that part of his undertaking to the Court set out in paragraphs 1(a)(iii) and (iv) of the orders made in proceedings no. CA 40337 of 2002 on 6 September 2002, upon: 6.1 the Applicant undertaking to the Court, pending the resolution of the Equity proceedings or any appeal from any judgment in the Equity proceedings: (i) to maintain: (A) insurance cover for the Hotel; (B) security of the Hotel; (C) the liquor licence for the premises. 8 At the outset Provident raised a question as to whether a judge of the Equity Division could entertain this application. It was submitted that the application should have been made to the Court of Appeal because that was the Court to which the undertaking referred to in the Orders was made. It was submitted that as some uncertainty existed in relation to the question of jurisdiction the appropriate course was to require the applicant, at least in the first instance, to make application to the Court of Appeal.

9 Although a deal of debate occurred in respect of that preliminary question I proceeded to hear the matter. Mr Douglas QC indicated yesterday that he did not wish to have reasons at the time but expected I would deliver my reasons in this judgment. To meet that expectation I should say that it seems to me that s 51 of the Supreme Court Act 1970 (NSW) (the Act) is a basis upon which I was able to proceed to hear the application. That section provides that where proceedings are commenced in a Division of the Court but are under the Act or any other Act or under the Rules assigned to the Court of Appeal, the proceedings shall be for all purposes well commenced on the date of the commencement in the Division. There is capacity for either the Court of Appeal or a judge of the Division in which the proceedings are commenced to exercise a discretion to remove the proceedings to the Court of Appeal, but subject to that the proceedings may be continued and disposed of in the Division. 10 Other arguments were raised in respect of the Court's power generally to deal with matters and in all the circumstances I took the view, even if s 51 is not the appropriate vehicle by which to hear the application, that it was appropriate for me to hear it. The uncertainty that surrounded the question of jurisdiction may have been triggered by the applicant making his claim by way of Motion in these proceedings rather than by commencing separate proceedings. 11 The applicant relied upon the affidavits of Charalambos Hatzipavlidis, solicitor, sworn 1 November 2002; Elizabeth Anne Weisske, solicitor, sworn 7 November 2002; David Russell Yeo Porter, architect, sworn 6 November 2002; and James Shaw, a partner of Ferrier Hodgson, sworn 6 November 2002. The applicant was called to give oral evidence and was cross-examined. He did not swear an affidavit. Mr Shaw was also cross-examined. 12 The writ of possession in respect of the Hotel was executed on 1 November 2002. There are in evidence photographs which show the present state of the Hotel. After the writ was executed Mr Shaw allowed Ms Batiste, as an agent for Hazaran and it appears possibly in her own right, access to the Hotel for the purpose of removing certain items. 13 Mr Porter gave evidence of what he referred to as a considerable amount of "damage" that had been caused to the Hotel. This included the disconnection of compressors in the basement; the removal of one of the compressors; the cutting of most of the bar service piping from the basement to the bar above; the cutting of effluent piping in the basement and the removal of pumps; and, in the main bar area and kitchen, the cutting of the bar piping and removal of the beer servicing equipment. It is also apparent that all under-bar equipment and island benching have been removed, all pipes to the refrigeration units in the kitchen have been cut and cooking and refrigeration items have been removed. It is also apparent that the external mechanical ventilation compressor connections adjacent to the nearby club have been cut. 14 Mr Shaw was either present when Ms Batiste removed, or became aware that Ms Batiste had removed, two historic prints and four original art deco light fittings from the foyer of the Hotel. It is apparent that light fittings were in boxes at the Hotel at the time that Mr Shaw attended. It is also apparent that no steps were taken, at least by him, to prevent the removal of those items. I say immediately that Mr Shaw was under instructions from the applicant's solicitors and, as I understand his evidence, he was not instructed to prevent such an occurrence. 15 The applicant gave evidence that at the time that he reached the agreement with Provident he understood that the renovation and refurbishment of the Hotel by Hazaran had been done with appropriate approvals. The applicant attended the Hotel with his family in the year 2000, although it is a unclear as to whether that was 2001. In any event, on that occasion he had lunch at the Hotel, played the poker machines and was of the view that the Hotel was operating reasonably well. He said he did not return to the Hotel again until mid October 2002. 16 At the time the agreement was reached with Provident the applicant had not returned to the Hotel for at least a year and possibly two years. He gave evidence that he could "never imagine" that the removal of the items, the cutting of the pipes and the like, could have happened. He said in his evidence that he was expecting to get the Hotel and put Ferrier Hodgson in to operate it straight away (tr. 4). As has been put on his behalf, he understood that this would be "a seamless process" of moving into the Hotel and operating the business as left by the tenant, Hazaran. In those circumstances he seeks the relief outlined above. 17 The applicant submitted that the Court should approach this application on the basis outlined by the High Court in Adam P. Brown Male Fashion Pty Ltd v Philip Morris Incorporated & Anor (1981) 148 CLR 170, in particular at page 177-178: We mention these matters in order to clarify and confine the matters that are in issue between the parties. Considerable argument was directed to the question whether a Court has power, otherwise than in the case of mistake operative at the time of giving it to release a party from an undertaking, at least in the absence of the consent of the other party. But in our opinion a court undoubtedly has such a power. Just as an interlocutory injunction continues "until further order", so must an interlocutory order based on an undertaking. A Court must remain in control of its interlocutory orders. A further order will be appropriate whenever, inter alia, new facts come into existence or are discovered which render its enforcement unjust: cf. Woods v Sheriff of Queensland (35); Hutchinson v Nominal Defendant (36); Chanel Ltd v F. W. Woolworth & Co Ltd (37). Of course, the changed circumstances must be established by evidence: Cutler v Wandsworth Stadium Ltd (38). 18 The applicant also relied upon the Court of Appeal's decisions in Morgan v 45 Flers Avenue Pty Ltd (1987) 11 NSWLR 573 and Paino v Hofbauer (1988) 13 NSWLR 193. The former case is authority for the proposition that the discretion to be exercised, without debating whether this is a final or interlocutory order, is to be exercised wisely and cautiously. The latter case is authority for the proposition that the discretion is to be exercised only if it is an exceptional case. Further reliance was placed upon Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 28 FLR 195 and Hutchinson v Nominal Defendant [1972] 1 NSWLR 443. 19 Mr Walton SC submitted that the changed circumstances, that is, the "damage" caused to the Hotel as outlined earlier, are established and that I would be satisfied that such changes render the agreement unjust. The applicant also submitted that I would be satisfied that I have the power to exercise my discretion to grant the orders sought in the Motion and that the circumstances established by the evidence renders it impossible for the applicant to comply with or effect the agreement that was reached. There was also reference to the prospect of the applicant being held in contempt for not operating the business immediately. 20 I should turn to the evidence of the applicant that he could not have imagined that the "damage" would happen. It is clear beyond any doubt that the applicant and Hazaran have been locked in litigation all year and it is also clear from Bryson J's judgment that they have had a fairly uncomfortable relationship. In his cross-examination the applicant accepted, after some resistance, that he had instructed his solicitors to write to Hazaran's solicitors prior to the execution of the writ of possession. That correspondence is of some significance. 21 There have been numerous appearances in this Court over the last month, including appearances before me in early October and another in late October, to extend the time for Hazaran to vacate the premises. There has also been application for a stay of the Court of Appeal's judgment upholding Bryson J's judgment pending an application for leave to be made to the High Court. In the application for a stay in the Court of Appeal on 28 October 2002, Ms Batiste gave evidence. A transcript of that evidence is in evidence before me annexed to Mr Hatzipavlidis' affidavit. In that evidence Ms Batiste was asked some questions about the fixtures and fittings in the Hotel. She claimed in her evidence that the fixtures and fittings were owned by Hazaran and that some were her personal goods. Ms Batiste's evidence was that she was going to remove the fixtures and fittings. 22 On 29 October 2002 the applicant's solicitors wrote to Hazaran's solicitors drawing attention to the relevant provisions of the lease, in particular articles 3.01, 10.02, 13.03, 14 and 22. That letter stated: In the recent affidavits of Donna Batiste relied upon by your client in its applications, Ms Batiste has stated that your client and possibly other parties propose to remove fixtures, fittings, chattels and other possessions from the hotel in the process of your client vacating the Hotel. Your client also relied upon a letter of Simon Visser dated 5 October 2002 which refers to the 'removal of all fixtures and fittings' from the Hotel. 23 The applicant's solicitors had apparently written previously to Hazaran's solicitors asking for an itemization of the fixtures and fittings. In the letter of 29 October the applicant's solicitors stated that Hazaran was not entitled to remove any property from the Hotel which fell within the relevant articles referred to and required the solicitors to provide by 11am on 30 October firstly, a list identifying the items; secondly, the basis on which Hazaran or some other entity claimed to be entitled to remove the items from the Hotel; thirdly, and importantly, an undertaking from Hazaran, or any related entity or person, that they would not remove any property from the Hotel or sell, damage or destroy any property in the Hotel which fell within the particular articles of the lease; and fourthly, a further undertaking not to damage or destroy the Hotel or any part of the Hotel and to make good any damage arising from the removal of any items. The applicant's solicitors also sought detail of any renovations and/or repairs being carried out at the Hotel. Finally, the solicitors stated that if they did not receive the information and the undertakings by 11 o'clock on the 30 October they were instructed to approach the Duty Judge at 2 o'clock that day for urgent orders. 24 By letter dated 30 October 2002 Hazaran's solicitors complained about the unreasonableness of the 11 o'clock deadline and stated that they had only received the applicant's solicitors' facsimile at 7.30pm on 29 October. They stated they were attempting to contact Hazaran, and then asked a number of questions. The letter concluded by stating that the applicant's solicitors and the applicant had been aware of Hazaran's intentions for some time. 25 It appears that between 28 and 30 October discussion was taking place between a Mr Robertson, who on the evidence could reasonably be described as the applicant's agent in respect of the Hotel, and Ms Batiste about which Ms Weisske gave some evidence. In the annexures to her affidavit Ms Weisske included some correspondence from Ms Batiste to Mr Robertson in which Ms Batiste claimed that she and Mr Robertson had reached an agreement that Ms Batiste, or her company, would be allowed to remain in possession of the Hotel until the end of February 2003 and that she would pay rent weekly in advance at the current rate and that if she failed to do so she would vacate within seven days. It appears from the facsimile sent by Ms Batiste to Mr Robertson that she claimed agreement had been reached in respect of outgoings and that her occupancy would not be subject to the hearing or the result of Provident's case. 26 On 30 October Hazaran's solicitors wrote to the applicant's solicitors and advised that they had received instructions that an agreement had been reached in the terms of Ms Batiste's facsimile, and that they assumed therefore that the applicant's solicitors would not be approaching the Duty Judge but that if they did they would bring the correspondence to the attention of the Duty Judge. On 30 October 2002 the applicant's solicitors wrote to Hazaran's solicitors and advised that no agreement had been reached between the applicant and Ms Batiste in respect of Hazaran's occupation of the Hotel, nor had any offer been made by or on behalf of the applicant. On the same day the applicant's solicitors wrote a further letter stating that the applicant relied upon the Orders in the Court of Appeal, the subject of this Motion, and that pursuant to the undertaking given by the applicant that he would not lease, sell or otherwise deal with the Hotel pending the resolution of the proceedings, he could not therefore enter into any agreement with Hazaran in relation to the occupation of the Hotel. 27 The applicant agreed in cross-examination that he had instructed his solicitors to write to Hazaran's solicitors to seek the undertaking not to remove the fixtures and fittings from the Hotel. He said that his lawyer asked him to give permission to write the letters and he agreed that he did not receive any undertaking. He agreed that Ms Batiste did not say that she would not take the fixtures and fittings away and he agreed that he did not approach the Court to try to stop her (tr. 7). 28 At the time that the applicant entered into the agreement with Provident he did so in the knowledge of his then uncomfortable relationship with Ms Batiste and Hazaran. He has in fact relied upon the agreement in the Orders on a number of occasions in this Court. Firstly, on 4 October it is apparent from the judgment that I delivered that the undertakings noted in the agreement were relevant to the exercise of my discretion not to allow an extension of time for the writ of possession to lie in the office of the Registry. These proceedings have been expedited in the circumstances where these Orders are in place. The parties have agreed to do the things set out in the Orders and steps have been taken in reliance upon them. 29 Provident relied upon Fylas Pty Ltd v Vynal Pty Ltd (1992) 2 Qd R 593, in which, after reviewing the authorities McPherson S.P.J., as his Honour then was, said at page 599: The position is more complex where the order is made or the undertaking is given in consequence of an agreement between the parties or as an element in such an agreement. For a long time the rule has been that "the contract of the parties is not the less a contract, and subject to the incidents of a contract, because there is superadded the command of a Judge". See Wentworth v Bullen (1829) 9 B. & C. 841, 850; 109 ER 313, 316, per Parke J, which was adopted and applied by Chitty J in Conolan v Leyland (1884) 17 Ch D 632, 638. Such an order is capable of being set aside or varied, but essentially only on grounds or for reasons, such as mistake or misrepresentation, that would enable a contract to be invalidated or varied: cf Mullins v Howell (1879) 11 Ch D 763; Harvey v Phillips (1956) 95 CLR 235, 243-244; Rayner v Rayner [1968] QWN 42; Purcell v FC Trigell Ltd [1971] 1 QB 358; General Credits Limited v Ebsworth [1986] 2 Qd R 162.

His Honour also said at p 601: A Court has no general power to release a party from a contract or to vary its terms. It does not acquire any such power because the parties have elected to incorporate their promises in the form of undertakings tendered to the Court. The principal advantages to the parties in taking that course lie in facilitating proof and enforcement of their agreement. The terms of their promises are formally set out in the public records of the Court and are capable of being summarily enforced by attachment or other processes of the Court. In addition, if the order or undertaking is of a character that requires working out, the Court may be applied to for its assistance in elucidating its terms so as to render it efficacious in matters of detail. None of this, however, invests the Court with a power to vary or determine the agreement of the parties. 30 Provident also relied upon a decision of the Court of Appeal in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd (No 2) [2001] NSWCA 455, unreported, 13 December 2001 in which Giles JA, with whom Priestley and Meagher JJA agreed, said at par [24]: However, the Court did not frame the undertaking to conform with one or other, or any, of the provisions of the agreement, or to reflect obligations under the agreement. The parties were responsible for its terms. It was part of the arrangement by which, in return for giving the undertaking and consenting to restrictions on the manufacture of their friction bolts, the appellants were left free to manufacture friction bolts to fulfil existing contracts. 31 In this case, and in reply, Mr Walton SC submitted that I would be satisfied that the applicant has established that there was a mutual mistake at the time that this contract was made. He submitted that I would conclude that the mutual mistake was that the parties had assumed that the applicant would be able to proceed in a seamless fashion, as claimed, to move into the Hotel and appoint a manager and operate it on the day it took physical possession. 32 Although the applicant gave evidence that he could not imagine what had happened, I must view that evidence in the light of the correspondence and the applicant's evidence in respect of the correspondence to which I have referred. It is obvious to me that the applicant well knew that he was at risk of what has happened. He knew that Ms Batiste intended to take fixtures and fittings. He knew that she had not promised that she would not take the fixtures and fittings and he did not seek to stop her. The mistake relied upon includes an alleged mistake that the applicant thought that everything had been done with council approval and the like and in those circumstances it is submitted I would exercise my discretion to grant the orders sought. 33 The Order in the Court of Appeal records the applicant's undertaking to appoint Ferrier Hodgson as manager of "any business" operated from the premises and to maintain the liquor licence for the premises and the present trading hours for the premises. I do not know whether it is possible to operate any business in any part of the premises that are either unaffected by a lack of approval from Council or the Heritage Council or the Liquor Licensing Board. It has not been demonstrated to me on the evidence that a mutual mistake was in existence at the time this agreement was reached. Certainly, although Mr Walton SC did not put this argument strongly, or perhaps at all, I could not be satisfied that Provident knew of relevant matters in respect of the premises and induced the applicant into the agreement by its silence. 34 The evidence does not establish that it is, as claimed, impossible to operate "any business" from the Hotel. Indeed, the applicant has instructed others to obtain quotes for the reconnection of pipes and the like, presumably for the operation of a bar and presumably for the operation of a bar from some or perhaps all of the premises. 35 The next point raised by Mr Walton SC was that the applicant could find himself in Court for alleged contempt. That seems to me to be a little far fetched in the circumstances of this case. The applicant has obligations under the agreement, an agreement that he reached on 5 September 2002 with the assistance of lawyers. To be prosecuted for contempt in circumstances of this case would seem to me to be a very unlikely event. Steps are being taken, as I say, to obtain some quotes and no doubt other aspects of the agreement can be fulfilled in due course. I am not satisfied that it is clear on the terms of the agreement that the applicant has the obligation to immediately operate a business from the premises. In those circumstances I am of the view that the fact the business is not operating as of today could hardly be held to be a contempt. But that is not a matter that is of great significance in reaching the views that I have reached. 36 For the applicant to be successful I would have to find that the enforcement of this agreement would cause an injustice. The applicant wants to abandon the agreement that he reached, recorded in the Orders of the Court of Appeal, and to simply undertake without any security whatsoever to pay moneys if Provident's application for relief against forfeiture is successful. That is a vastly different position to that reached in the agreement between the applicant and Provident. 37 Provident's solicitors, Hunt & Hunt, wrote to the applicant's solicitors on 21 October 2002 asking what was being done by way of arrangements for taking over the premises in an orderly fashion. There appears to have been no response to that letter. Provident was not requested to assist in ensuring that the transfer or repossession was in fact seamless. It is quite clear that it was, at least on one view of it, chaotic. What has happened is that Hazaran with the assistance of Ms Batiste, has behaved in a fashion that would entitle the applicant to proceed most promptly against her for relief, including in relation to what has been alleged by Mr Shaw of the removal of items that, on one view, Hazaran was not entitled to remove. 38 It seems to me that it would be unjust to grant orders 5 and 6 in the Motion in the circumstances of this case. It is agreed between the parties that at the time of the trial, to be fixed by Palmer J in a fortnight, there will be argument as to the extent of Provident's entitlements as a mortgagee seeking relief against forfeiture. I am of the view that to order that the terms of this agreement be either abandoned or varied, even if I accept that I have the power so to do, would be very unwise and lacking in caution, inconsistently with what the authorities require. I am also satisfied that the circumstances of this case do not amount to an exceptional circumstance, or even one that is less than exceptional, to warrant the intervention of the Court. 39 I refuse to make the orders in the Motion. The applicant is to pay Provident's costs of the Motion. I make no order as to costs as between Hazaran and the applicant.

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