Re Linknarf Management Services; Scarcella & Ors v Davies [2006] NSWSC 497 | Case summary

3999/05 IN THE MATTER OF LINKNARF MANAGEMENT SERVICES PTY LTD (IN LIQ); FRANCISCO SCARCELLA & ORS V RONALD GEORGE DAVIES JUDGMENT 1 HIS HONOUR: This is an appeal, brought under s 1321 of the Corporations Act 2001 (NSW), against a decision of a liquidator. The defendant is the liquidator of Linknarf Management Services Pty Ltd (in liq) ("Linknarf"). The plaintiffs seek an order reversing his decision to reject their proof of debt dated 20 April 2005 for $792,266.65, and an order requiring the liquidator to admit the plaintiffs as creditors of Linknarf for that amount in respect of the matters identified in the proof of debt. They also seek a declaration that they are entitled to prove as creditors of Linknarf for that amount. 2 The facts are not in dispute, and are the subject of a Statement of Agreed Facts (Exhibit A10) supplemented by evidence at the hearing. The plaintiffs were the lessors and Linknarf (formerly Franklins Management Services Pty Ltd) was the lessee of commercial premises in Bowral, used as a supermarket. The lease was dated 12 August 1994 and was for a period of 10 years, expiring on 11 August 2004. The monthly rent was $23,333.33, payable in advance. 3 From 1 March 2002, Linknarf ceased paying rent under the lease and consequently, on 12 April 2002, the plaintiffs commenced a proceeding by summons in this court, No 2235 of 2002 ("the Previous Proceeding"), seeking, inter alia: (1) judgment in the sum of $23,333.33; (2) a declaration that the lease was still in full force and effect; (3) an order that Linknarf specifically perform its obligation to pay rent and other money from time to time payable, as and when they became payable in accordance with the provisions of the lease; (4) an order restraining Linknarf from permitting its assets in New South Wales to fall below the total amount that would become due and payable for rent up to the expiration of the lease on 11 August 2004. 4 On 15 April 2002 the defendant was appointed liquidator of Linknarf. On 11 and 18 June 2002 the plaintiffs submitted a proof of debt to the liquidator, seeking to be admitted as a creditor in the liquidation of Linknarf for the "rental owing on the subject premises from 12 March 2002 to termination of the lease" (Exhibit A3). On 26 July 2002 the liquidator rejected the proof of debt on the ground that "the lease has been repudiated". In a separate proof of debt lodged at the same time, the plaintiffs claimed $400,000 for the "cost of making good the subject premises". 5 The plaintiffs filed a statement of claim in the Previous Proceeding on 20 August 2002, joining as defendants Linknarf and the liquidator. The statement of claim sought, amongst other things: (1) with respect to the "first cause of action": (a) a declaration that, as at 15 April 2002, Linknarf was liable to pay the plaintiffs all instalments of rent which fell due on the first day of each calendar month during the term of the lease from 1 March 2002 to 1 August 2004; (b) judgment for the total amount of rent due under the lease but not paid as at the date of judgment, commencing with the instalment of rent due on 1 March 2002; (2) with respect to the "second cause of action": (a) an order that the liquidator admit the plaintiffs' proof of debt in the winding up of Linknarf. 6 Neither the summons nor the statement of claim contained any claim for payment of damages. They reflected the central assertion by the plaintiffs that the lease remained on foot and Linknarf was bound to comply with its terms. 7 In their defence, filed 11 December 2002, Linknarf and the liquidator claimed that the rent was not payable because the plaintiffs had repudiated the lease in about January 2002, by unreasonably refusing to consent to the assignment of the lease, and that Linknarf had accepted that repudiation on or about 4 February 2002, and consequently the lease was terminated on that date. 8 The Previous Proceeding came before Hamilton J on 1, 2 and 23 April 2004, for hearing that part of it relating to the contentions by Linknarf and the liquidator that the plaintiffs had repudiated the lease by unreasonably withholding their consent to the proposed assignment, Linknarf had accepted that repudiation and the lease had been terminated. During that hearing, Linknarf obtained leave to amend their defence to plead, in the alternative, that if the plaintiffs had not repudiated the lease, Linknarf had done so (by ceasing to pay rent), and that the plaintiffs had accepted that repudiation by acting inconsistently with the lease being on foot, thus bringing the lease to an end. The plaintiffs denied that they had accepted Linknarf's repudiation of the lease prior to 23 April 2004, the last of the three days of the hearing. 9 On that day the plaintiffs served Linknarf with a document entitled "Notice of Acceptance of Repudiation of Lease" (Exhibit A4). The Notice recited that Linknarf had repudiated the lease by failing to pay rent and failing to keep the premises open for business, and gave notice that the lessors accepted that repudiation and thereby terminated the lease, without prejudice to their right to enforce the lease in respect of accrued obligations. 10 During the course of the hearing, counsel for Linknarf and the liquidator read an affidavit and report by an expert, Mr Malouf, as to the length of time it would have taken a reasonable person in the plaintiffs' position to find a new tenant after 1 March 2002. Counsel contended that this evidence was relevant to the mitigation of the plaintiffs' loss (if any). Counsel for the plaintiffs objected to admission of Mr Malouf's evidence on the ground of relevance, but Hamilton J said "if an issue doesn't arise the document will not be used", and counsel for the plaintiffs withdrew his objection on that basis. 11 On 30 April 2004 Hamilton J delivered judgment on the question whether the plaintiffs had repudiated the lease (Scarcella v Linknarf Management Services Pty Ltd (in liq) [2004] NSWSC 360). He held (at [10]) that the plaintiffs had unreasonably withheld their consent to the assignments of lease proposed by Linknarf (first, to a company called Interfrank, and then to Woolworths). However, he found as a matter of construction that the relevant provision in the lease, to the effect that approval of an assignment was not to be unreasonably withheld, was merely a proviso rather than a covenant by the lessors, with the result that the plaintiffs' unreasonable withholding of consent was not a breach of obligation and consequently, could not constitute repudiation of the lease (at [17]). 12 It was not in dispute that if the plaintiffs had not repudiated the lease, Linknarf had done so by ceasing to pay rent since March 2002. As part of the orders he made on 5 May 2004, consequent upon his judgment of 30 April 2004, Hamilton J made a declaration by consent that Linknarf repudiated the lease on 1 March 2002 and continued to do so at all times thereafter. His Honour ordered that there be a separate hearing in relation to the question whether the plaintiffs had accepted Linknarf's repudiation of the lease, and if they had done so, when such acceptance occurred. The hearing took place over a period of four days in September 2004. 13 On 3 December 2004 Hamilton J delivered judgment on that question (Scarcella v Linknarf Management Services Pty Ltd (in liq) [2004] NSWSC 1168). On 6 March 2003 the plaintiffs had instructed their managing agent to write to Linknarf to inform the company that it would have no access to the premises (in response to a request by Linknarf for access to remove fixtures and fittings). On 7 March 2003 the agents wrote to Linknarf saying that they had "no right of access to the site". His Honour held that by this letter, the plaintiffs had unequivocally accepted Linknarf 's repudiation of the lease, bringing it to an end at that date. He held (at [21]): "The plaintiffs are therefore entitled to judgment for the rent of the premises accrued up to, but not after, that time [7 March 2003]. Short minutes may be brought in to give effect to this decision." 14 On 24 February 2005, judgment was entered for the plaintiffs for $368,234.93, being the rent and outgoings (plus interest) for the period from 1 March 2002 to 7 March 2003. Linknarf subsequently paid that amount to the plaintiffs. 15 On 4 March 2005 the plaintiff lodged a second proof of debt with the liquidator in the sum of $792,266.65 ("the new proof of debt"). The claim comprised damages for loss of rent from 7 March 2003 until 11 August 2004, Linknarf's proportionate outgoings payable from 7 March 2003 to 11 August 2004, interest on money unpaid, the cost of making good the premises at the expiry or sooner termination of the lease (an obligation of the lessee under the lease), and architect fees, less a credit for the value of the lessee's chattels left in the premises and sold by the plaintiffs. 16 On 30 June 2005 the liquidator rejected the new proof of debt. According to the Notice of Rejection (Exhibit A8), the grounds for disallowance were: · "In relation to the claim for damages, whilst the plaintiffs in Proceedings No 2235 of 2002 sued in debt, the claim was for all lease payments for the unexpired term terminating on 11 August 2004. This position was maintained by the plaintiffs throughout the proceedings. As a consequence, the plaintiffs are estopped from now seeking damages. · Similarly, the plaintiffs could have made a claim for 'make good' in Proceedings No 2235 of 2002. Indeed, documents now relied on by the plaintiffs in support of such a claim were evidence in the proceedings but no such claim was made. Again, the plaintiffs are now estopped from seeking to claim such an amount." 17 That is the decision from which the plaintiffs now appeal. The liquidator seeks to support his decision on two grounds, relating to Anshun estoppel and abuse of process respectively. Before considering those grounds, it is necessary to make some observations about the plaintiffs' position when confronted with Linknarf's non-payment of rent, and the election then taken by the plaintiffs. 18 It will be seen that the liquidator's reasons for rejecting the proof of debt deal separately with the claims for damages for loss of rent (and the associated loss of the lessee's contribution to outgoings, and interest), and the "make good" claim. Most of the argument before me was directed to the claim for damages for loss of rent, and these reasons for judgment will concentrate on that claim (proceeding on the assumption that the decision concerning the claim for damages for loss of rent covers the claims concerning contributions and interest). Having explained my decision on the rental claim, I shall then deal with the "make good" claim, necessarily more briefly. Lessor's election between remedies on lessee's failure to pay rent 19 Given Hamilton J's decision that the plaintiffs' unreasonable withholding of consent was not a repudiation, and consequently that Linknarf repudiated the lease on 1 March 2002 by non-payment, the plaintiffs were at that time lessors in the position of electing between remedies upon the lessee's repudiation. 20 The general rule, established by Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 (see at 47 per Brennan J) is that where the lessee's non-payment of rent is such as to amount to repudiation of the lease, the lessor may elect either to accept the repudiation and recover damages for the lessor's breach of its covenant to pay rent for the unexpired term (subject to its obligation to mitigate), or keep the lease on foot and sue for rent as and when due and payable. 21 Progressive Maling v Tabali holds that the ordinary principles of contract relating to termination for repudiation apply to leases, although the consequences of the application of those principles are affected by the character of the lease as a demise (see, for example, at 40 per Brennan J). Accordingly, the lessor's election becomes operative when it accepts the lessee's repudiation and thereupon the lease is terminated, even though the term has not expired. 22 If the lessor elects to accept the lessee's repudiation and the lease is thereby terminated, the term ceases to bind the lessee, and the lessee commits no breach of covenant by reason of non-payment of rent for the unexpired portion (although if the lessee remains in possession and the lessor takes steps for recovery of possession, the lessor may recover mesne profits equivalent to the rent for the period of occupation) (Progressive Mailing v Tabali, and 39 per Brennan J, citing Jones v Carter (1846) 15 M & W 718, at 726 [153 ER 1040, at 1043]). However, the lessor may claim anticipatory damages for breach of covenant, recovering, by immediate action, damages equivalent to "the full amount of the agreed rent for the whole term, less such sum as a jury may think he is likely to derive as profits from the use of the land during the residue of the term" (Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 4 CLR 672, at 684 per Griffith CJ, citing Buchanan v Byrnes (1906) 3 CLR 704). The action may loosely be described as an action to recover the rent for the entire term, but that description is misleading because the action, being an action for damages, is qualified by the obligation to mitigate. 23 In Progressive Mailing v Tabali Brennan J said that an election to bring the lease to an end is a condition of liability in damages and not simply a factor relevant to the measure and range of damages: "the promisee's acceptance of the repudiation is an essential element of the cause of action for damages for anticipatory breach". 24 If the lessor elects to keep the lease on foot, it may (as the plaintiffs did in this case) combine an action for accrued rent with a claim for a declaration that the lessee is obliged to perform its obligations under the lease (including payment of rent as and when it falls due and payable) and for specific performance of the lessee's obligations under the lease. Those claims are all based on the foundation that the lessor has not accepted the lessee's repudiation and so the lease remains on foot. 25 The lessor cannot, if it keeps the lease on foot by not accepting the lessee's repudiation, sue in debt for rental instalments not yet due and payable; that is, it cannot "accelerate the rent for the residue of the term because the rent is in default for a month or for a year" (New York Life Insurance Co v Viglas (1936) 297 US 672 at 680 per Cardozo J, cited with approval by Brennan J in Progressive Mailing v Tabali at 45). That proposition is subject to the terms of the lease (that contract being, in turn, subject to statutory and common law constraints concerning forfeiture and penalties, which need not be explored here). In Boles v Esanda Finance Corporation Ltd (1989) 18 NSWLR 666) the lease was a chattel lease containing a covenant by the lessee to pay the entire rent for the term forthwith upon commencement, subject to a proviso preventing the lessor from enforcing that obligation if the lessee paid each rent instalment on or within a stated period from the specified date for payment of the instalment. The Court of Appeal of New South Wales accepted that, although there may be some defences, the lessor had an action for recovery of the entire rent if the lessee failed to pay a single instalment. In the present case the provisions of the lease for calculation and payment of rent were complex, but they did not contain a clause of the kind addressed in Boles v Esanda Finance. 26 While the lessor cannot recover rent for the remaining term of the lease after it has accepted the lessee's repudiation, acceptance of the repudiation does not prevent the lessor from recovering rent up to the time when the acceptance took place. That is, the lessor may recover: · rent for the period up to acceptance of the repudiation, on the ground that the lease is on foot until that time; and · damages, subject to the obligation to mitigate, for loss of the benefit of the lessee's covenant to pay rent for the period from acceptance of the repudiation until the expiration of the term of the lease. 27 In the present case Linknarf ceased to pay rent, and was held thereby to have repudiated the lease, from 1 March 2002. Contrary to their submissions, the plaintiffs were held to have accepted that repudiation, and thereby brought the lease to an end, on 7 March 2003. Consequently the plaintiffs were entitled to recover rent to that date, and after that date they became entitled to damages for loss of the benefit of Linknarf's covenant to pay rent for the remaining term of the lease (from 7 March 2003 to 11 August 2004), subject to their duty to mitigate. There is nothing inconsistent with these two entitlements, operating as they do in respect of different periods of time. 28 The question posed by the liquidator's rejection of the plaintiffs' new proof of debt is whether anything has happened, in the nature of estoppel or abuse of process, to deprive the plaintiffs of that entitlement. The Anshun case 29 In Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, the owner of a crane hired it under an agreement by which the hirer agreed to indemnify the owner against claims arising out of the use of the crane. A workman suffered injury arising out of the hirer's use of the crane, and he sued the hirer and the owner for damages. The hirer and the owner served notices of contribution on each other, but the owner did not claim an indemnity from the hirer under the contract. Damages were awarded against both defendants, and it was ordered that, as between the defendants, the owner pay 90% of the damages. Subsequently the owner brought a separate action against the hirer seeking indemnity in respect of the amount it had been required to pay under the judgment. The High Court held unanimously that the owner was estopped from suing on the indemnity contract and therefore its action against the hirer should be stayed. Somewhat different principles emerge from the joint judgment of Gibbs CJ, Mason and Aickin JJ (with whom Murphy J generally agreed) and the judgment of Brennan J. 30 The judgments of the High Court recognised two principles, as Samuels JA later pointed out in Boles v Esanda Finance Corporation Ltd (1989) 18 NSWLR 666, at 672. The first is the conventional doctrine of res judicata, where "the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence" (Blair v Curran (1939) 62 CLR 464, at 532 per Dixon J; Anshun at 597). In England this is called "cause of action estoppel" (Anshun at 597), a description adopted by Samuels JA (Boles at 672). In the joint judgment a distinction was drawn between res judicata and issue estoppel. Issue estoppel arises where, "for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order" (Blair v Curran at 532 per Dixon J; Anshun at 597). 31 It is not contended that the present plaintiffs are prevented by res judicata from asserting their claim for damages. Nor could it be - the causes of action in the first case related to specific enforcement and recovery of accrued rental as a debt, on the footing that the lease remained in place; whereas the cause of action asserted in the new proof of debt is for damages for loss caused by Linknarf's wrongful repudiation of the lease, on the footing that the repudiation has been accepted and the lease is at an end. Nor is it contended that there is any issue estoppel in the present case. As I understand their case, the plaintiffs accept Hamilton J's determinations of fact and law (indeed, they have received the proceeds of the judgment entered as a result of Hamilton J's determinations) and do not seek to depart from those determinations. 32 It is the second principle that the liquidator invokes in the present case. The principle flows from some observations by Sir James Wigram V-C in Henderson v Henderson (1843) 3 Hare 100 [67 ER 313]. The principle applies where there is no res judicata or issue estoppel, but the court concludes, by the application of an appropriate test, that a litigant seeking to raise a claim in a second proceeding should have raised it in the first proceeding and should not now permitted to do so. In Henderson's case the Vice-Chancellor articulated a broad test (3 Hare at 115 [67 ER at 319]), enquiring whether the matter might have been brought forward as "properly belonging to" a subject of litigation, if "reasonable diligence" had been exercised. The judgments in Anshun have modified and narrowed Wigram V-C's test, putting forward three tests for determining whether an estoppel has arisen, which I shall call "the reasonable expectations test", "the conflicting judgements test" and "the election between remedies test". These are not alternatives to one another. They are propositions, emerging from Henderson v Henderson, that are not universally applicable but are capable of being applied cumulatively. 33 In the joint judgment in Anshun, their Honours (at 602) considered that a statement by Lord Kilbrandon in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581, at 590, where his Lordship based the Henderson principle on the concept of abuse of process. Lord Kilbrandon said it had become "an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings". Their Honours held that this statement not supported by authority, and they declined to follow it. They referred to a narrower formulation based on abuse of process, namely that the estoppel arises for "issues or facts which are so clearly part of the subject-matter of the litigation and so clearly could have been raised that it would be an abuse of process of the court to allow a new proceeding to be started in respect of them" (Greenhalgh v Mallard [1947] 2 All ER 255, at 257 per Somervell LJ; Brisbane City Council v Attorney-General (Q) [1979] AC 411). They observed that this formulation was "not one of great utility" (at 602), whether applied to a plaintiff seeking to bring a new action after dismissal of an earlier action, or a plaintiff in a new action who has omitted to plead a defence in an earlier action. The reasonable expectations test 34 Having rejected formulations based on abuse of process, their Honours articulated two tests for deciding whether the estoppel has arisen. First, they said (at 602-3): "In this situation [where the plaintiff in a new action raises a matter which it omitted to plead as a defence in an earlier action] we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter, it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wished to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motivations extraneous to the actual litigation, to mention but a few." 35 In circumstances where the owner had not given evidence at the trial to show why it had failed to raise the indemnity issue in the first action, their Honours decided that the owner's claim for indemnity was so closely connected with the hirer's claim for contribution that it was to be expected that it would be relied upon as a defence to that claim and as a basis for recovery by the owner from the hirer (at 603-4). It was unreasonable for the owner to refrain from raising its case of indemnity for disposition in the first action (at 604). The conflicting judgments test 36 Their Honours said (at 603): "It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment." In their Honours' view, the concept of conflicting judgments extended to "judgments which are contradictory, though they may not be pronounced on the same cause of action". They said (at 604): "It is enough that they appear to declare rights which are inconsistent with the same transaction." 37 In the case before the High Court, a judgment granting full indemnity to the owner would conflict with the previous judgment that had required the owner to contribute 90% of the damages payable by the owner and the hirer (at 596, 604). The election between remedies test 38 The Anshun case was one involving a defendant bringing a subsequent proceeding in which it sought to raise a matter not raised in the first proceeding; whereas the present case is one where the same facts support alternative remedies between which the aggrieved party is required to elect. The joint judgment did not expressly deal with this situation. However, Brennan J made some observations relevant to this kind of case (at 611-612): " When the same facts support rights to different remedies against the same defendant, the plaintiff cannot recover a judgment giving a remedy in respect of more than one right ( United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Mahesan v Malaysia Housing Society [1979] AC 374). He may pursue his remedies concurrently in the same action, but he is put to his election before judgment as to which remedy he shall have. And when judgment is entered, all the rights which he might have claimed in that litigation are merged in the judgment. Lord Atkin in United Australia Ltd v Barclays Bank Ltd [1941] AC at p 30 defined the effect of a judgment upon alternative remedies: 'Up to that stage the plaintiff may pursue both remedies together, or pursuing one may amend and pursue the other: but he can take judgment only for the one, and his cause of action on both will then be merged into the one.' The party entitled to relief cannot improve his position by bringing separate actions. Though he may elect between inconsistent remedies pursued in the one action, or between the actions to be pursued in order to recover a judgment giving the remedy he chooses, the merger in the judgment first recovered of a right to another remedy takes effect by operation of law. When those rights (or causes of action) are extinguished, no further litigation may be pursued to recover a second judgment upon them. Accordingly, inconsistency between judgments against the same defendant is avoided by the merger in the judgment first recovered of the right to the remedy thereby given and of all other rights which arise on the same facts." 39 These observations are dicta, which his Honour did not seek to apply to the facts before that High Court. He illustrated their application as follows (at 612): "Thus, a plaintiff who recovers a judgment for damages in assumpsit is precluded from recovering a judgment for damages in tort arising out of the same facts (per Lord Atkin in United Australia Ltd v Barclays Bank Ltd [1941] AC at 28); a principal who recovers a judgment for damages in fraud against his bribed agent is precluded from recovering a judgment in the amount of the bribe as monies had and received his use ( Mahasan v Malaysia Housing Society [1979] AC 374); and a party whose goods have been wrongfully seized and who recovers in replevin, is precluded from recovering a judgment for damages in trespass to goods ( Gibbs v Cruikshank (1873) LR 8 CP 454)." 40 Brennan J's observations were considered by the Court of Law appeal of New South Wales in Boles v Esanda Finance Corporation (1989) 18 NSWLR 666. A lessor brought a proceeding against the lessee to recover an instalment of rent under a chattel lease. The court held that, as a matter of construction, the lease did not oblige the lessee to pay an instalment; its only obligation was to pay the entire rent. The lessor then commenced a fresh proceeding to recover the entire rent. The lessee claimed that the lessor was estopped under the Anshun principle. But the Court of Appeal held that there was no estoppel. Samuels JA (with whom Priestley and Meagher JJA agreed) said (at 673): "It cannot be said that the right to recover an instalment of rent, which was denied in the proceeding before Rogers J, is the same as a right to recover the entire rent. Nor can these two different rights be regarded as different remedies supported by the same facts: see Port of Melbourne Authority v Anshun (at 611) per Brennan J." Application of the Anshun tests to the present case The reasonable expectations test 41 In the present case the plaintiffs' attitude to the lease, when they commenced the Previous Proceeding, was that the lease remained on foot and Linknarf should be held to its obligations under the lease, including the obligation to pay rent, for the remainder of the term. Consistently with their general attitude, they objected to the liquidator's expert evidence going to mitigation of loss on the ground of relevance. The principal matter of contention between the parties, prior to Hamilton J's judgment of 30 April 2004, was whether the plaintiffs had repudiated the lease by unreasonably withholding their consent to the assignment. The plaintiffs vigorously denied that they had done so, maintaining the position, until 23 April 2004, that the lease remained operative and binding. On 23 April 2004 they modified their position only to the extent of purporting to accept Linknarf's repudiation on that date. 42 The question whether the plaintiffs had accepted Linknarf's repudiation at an earlier time was raised during the first hearing, when Linknarf obtained leave to amend its defence, but the issue was not addressed in the first hearing and the plaintiffs continued to assert that the lease remained in force (until they served their notice on 23 April 2004) until that assertion was rejected in Hamilton J's second judgment, delivered on 3 December 2004. According to Hamilton J's findings, the termination of the lease (and hence the basis of the claim for damages) had not occurred when the Previous Proceeding was instituted, and did not occur until a substantially later time. 43 The liquidator drew attention to the fact that the plaintiffs commenced the Previous Proceeding after he had rejected their claim for rent for the unexpired period of the lease on the basis of the lease had been repudiated. According to this submission, that fact made it unreasonable for the plaintiffs not to claim, at least in the alternative, that if the lease had been repudiated they were entitled to damages for loss of the benefit of the lease. That in my opinion, this submission does not take into account the law as to a lessor's rights and the plaintiffs' forensic position in the Previous Proceeding. 44 In my opinion there can have been no reasonable expectation, until the judgment of 3 December 2004, that the plaintiffs should have included in the Previous Proceeding a claim for damages for loss of the benefit of the lease for the remainder of the term. Such a claim would have been fundamentally inconsistent with the foundation of their case. In the joint judgment in Anshun (at 603), their Honours acknowledged that, in a variety of circumstances, a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate it in another proceeding. The present case is a very clear example of such circumstances. Denying, as they did, that anything had happened to bring the lease to an end, the plaintiffs would have undermined their own case if they had pleaded, in the alternative, that the lease had come to an end and they were accordingly entitled to damages. Further, to do so would have added to the cost of the Previous Proceeding in a way that may well have been regarded as "forensic extravagance", as the plaintiffs submitted to me. 45 Such a pleading would have required them to commit to a theory as to when the lease came to an end. But what theory should they have adopted, given their primary position that the lease remained on foot? As the plaintiffs submitted, Linknarf contended in the Previous Proceeding that the plaintiffs had accepted its repudiation of the lease as at six different dates. Which should the plaintiffs have preferred? It cannot reasonably be contended that they should have anticipated Hamilton J's decision by asserting, as an alternative to their main case, that the lease came to an end on 7 March 2003. It would be manifestly unfair to expect them to have asserted, contrary to their main case, that the lease came to an end earlier than 7 March 2003. The conflicting judgments test 46 It cannot plausibly be asserted that the judgment entered for the plaintiffs in the Previous Proceeding on 24 February 2005, for rent for the period from 1 March 2002 to 7 March 2003, conflicts with the plaintiffs' claim in the new proof of debt. True it is that the judgment implies rejection of the plaintiffs' claim to specific performance of the lease obligation for the remainder of the term. Moreover, the judgment is referable to the finding that the plaintiffs accepted Linknarf 's repudiation on 7 March 2003, because the amount of the judgment is calculated by reference to the rent payable until that day. But the foundation of the claim for damages in the new proof of debt, by reference to the remaining term of the lease, is the very same proposition. The lessor's entitlement to damages is conditioned on termination of the lease by acceptance of the lessee's repudiation, as Brennan J pointed out in Progressive Mailing v Tabali (157 CLR at 48). There is no inconsistency. The new claim is an orthodox assertion, in light of Progressive Mailing v Tabali, of the lessor's rights after acceptance of the lessee's repudiation, which (as I have pointed out) is wholly compatible with the assertion of a claim to recover rent for the period up until acceptance of the repudiation occurs. The election between remedies test 47 The proposition asserted by Brennan J is that in some cases the law offers a plaintiff alternative remedies arising out of the same facts, and requires him or her to elect between the alternatives. Thus, in the United Australia case the plaintiff was not permitted to have a judgment for damages in assumpsit and then seek a judgment for damages in tort arising out of the same facts. According to Brennan J, the plaintiff is put to his or her election before judgment, and when judgment is entered, all the rights that may have been claimed in the proceeding are merged in the judgment. 48 In my opinion, the present case does not fall within the election between remedies test. This is because, properly understood, the law does not offer a plaintiff in the position of the plaintiffs in this case alternative remedies arising out of the same facts. If the lease has been terminated by the lessor's acceptance of the lessee's repudiation, the only remedies available to the lessor are remedies based on the facts constituting of termination. If the lease has not been terminated, the only remedies available to the lessor are remedies based on the fact that the lease remains on foot. Either the lessor has accepted the lessee's repudiation, or that there has been no such acceptance. 49 In some circumstances acceptance of the repudiation might occur after the commencement of a proceeding (as in this case) or even after the commencement of the hearing (as would have been the case if the plaintiffs' notice given on 23 April 2004 had been effective). This makes it appear that the plaintiff is electing between alternative remedies available on the same facts. But the facts upon which the alternative remedies are based are crucially different from one another, because of the presence or absence of acceptance of repudiation. 50 At no stage until 23 April 2004 did the plaintiffs abandon their pursuit of remedies based on the contention that the lease remained on foot. On and from 23 April 2004 they modified their case only to the extent of asserting that the lease came to an end on that day, I continuing to claim that it remained in force until that day. By the time judgment was entered, it had been established as a fact, contrary to the plaintiffs' assertion, that they had accepted Linknarf 's repudiation and the lease had accordingly been terminated on 7 March 2003. The judgment entered on 23 February 2005 was based upon that finding; that is, it was not based on the facts asserted by the plaintiff in the course of making out their unsuccessful claim to entitlement to rent for the entire term. 51 Therefore the plaintiffs are not estopped, under the election between remedies test, from making a claim after the entry of judgment of the damages measured by their loss of rent for the remainder of the term of the lease. Abuse of process 52 The liquidator submits that "the present proceeding" (by which I take him to mean the plaintiffs' new proof of debt) constitutes an abuse of process, on the principles stated by Hunt CJ at CL in the Haines v Australian Broadcasting Commission (1995) 43 NSWLR 404 at 414: "There obviously limitations to striking out pleadings or causes of action as an abuse of process upon the basis stated in Reichel v Macgrath … [T]he issue to be determined in the earlier case which is sought to be litigated in the later case must be one which the party propounding it in the latter will lost in the former … It must be an issue which was necessarily determined in the earlier case, and one of importance to the final result. It must have been properly argued - by which I mean that … the tribunal which decided it was an appropriate one to do so, that the parties were appropriate contradictors and that the issue was regarded by them as one of importance." 53 That principle is supported by Rippon v Chilton Pty Ltd (2001) 53 NSWLR 198 at 204 (per Handley JA) and Sea Culture International Pty Ltd v Scoles (1991) 32 FCR 275 at 279. 54 My findings with respect to Anshun estoppel are also applicable to the abuse of process claim. For the reasons I have explained, the issue to be determined in responding to the plaintiffs' new proof of debt is different from the issue they sought, unsuccessfully, to litigate in the Previous Proceeding, though it is entirely consistent with the judgment in the Previous Proceeding. The difference, to reiterate, is that the plaintiffs' contentions in the Previous Proceeding were made on the foundation that the lease remained on foot (at least until 23 April 2004), while the judgment in the Previous Proceeding and the new proof of debt rest on the foundation that the lease was terminated by the plaintiffs' acceptance of Linknarf 's repudiation on 7 March 2003. Consequently no abuse of process would arise out of the plaintiffs' assertion of their entitlement to recover damages in the new proof of debt. The "make good" claim 55 I have noted that part of the new proof of debt relates to damages for Linknarf's alleged breach of the lessee's obligation under the lease to make good the premises at the expiry or sooner termination of the lease. The liquidator's Notice of Rejection purported to reject this claim on the same grounds as the rental claim was rejected, pointing out that the documents relied on by the plaintiffs to support such a claim were in evidence in the Previous Proceeding but no such claim was made. 56 In my view there is no foundation for rejection of the "make good" claim on the grounds of Anshun estoppel or abuse of process. The Previous Proceeding was brought by the plaintiffs on the foundation that the lease remained on foot. The mere fact that the evidence included the documents upon which the "make good" claim may have been advanced (if it be true) would not be enough, in my view, to create a reasonable expectation that the claim, founded in damages, would be advanced as an alternative to the primary claim. It cannot be said that the judgment entered on 23 February 2005 is in any way in conflict with the subsequent assertion of the "make good" claim. There is no estoppel arising out of election between remedies, to prevent the assertion of the "make good" claim now. For the same reasons, the advancement of that claim cannot be treated as an abuse of process. Conclusions 57 Both of the grounds for the liquidator's decision to reject the plaintiffs' new proof of debt are unsuccessful. The plaintiffs are entitled to prove in respect of their claim to damages for loss of the benefit of the lease for the period from 7 March 2003 to 11 August 2004, subject to their duty to mitigate. I shall make orders reflecting these conclusions. I shall direct the plaintiffs to bring in draft short minutes of orders. I shall hear the submissions of the parties on the question of costs when the matter returns for the making of orders.

Re Linknarf Management Services; Scarcella & Ors v Davies

At a glance

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Decision date

Before

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Judgment (10 paragraphs)

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Legislation Cited (2)

Cases Cited (11)