ROBINSON v NISHTOM PTY LIMITED & ANOR

LEGISLATION CITED : Bankruptcy Act 1966 Real Property Act 1900

Austral Standard Cables Pty Limited v Walker Nominees Pty Limited (1992) NSW Conv R 55-619 Brimson v Rocla Concrete Pipes Limited (1982) 2 NSWLR 937 Cumberland Consolidated Holdings Limited v Ireland [1946] 1 All ER 284 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 CASES CITED : Nishtom Pty Limited & Ors v Robinson [2007] FCA 974 Perpetual Trustees Victoria Limited v Tsai [2004] NSWSC 745 PT Ltd v Maradona (1992) 25 NSWLR 643 Small v Tomassetti [2001] NSWSC 1112 Vella v Permanent Mortgages Pty Limited [2008] NSWSC 505 Waterhouse v Waugh [2003] NSWCA 139

PARTIES : Mark Julian ROBINSON v NISHTOM PTY LIMITED & ANOR

COUNSEL : P: B Skinner D: S R Donaldson SC/ R D Marshall

SOLICITORS : P: Sally Nash & Co D: Hicksons

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

The plaintiff's claim 1 The plaintiff is the trustee of the bankrupt estate of Jeffrey John Kinsella. He was appointed on 30 August 2006. He commenced proceedings by way of statement of claim filed on 21 July 2008 in which relief is claimed based on an alleged entitlement to possession of the land described below. In particular, an order is sought that a writ of possession issue forthwith and that judgment be entered in his favour in the amount of $400,000 together with interest. The plaintiff relies upon a registered mortgage transmitted to him pursuant to s.58 of the Bankruptcy Act 1966. 2 The first defendant, Nishtom Pty Limited ("Nishtom"), and the second defendants, Maxwell Ernest Aldrich and Pamela Joy Aldrich, purchased the properties in question from Mr Kinsella by Contract for Sale dated 26 March 2004 for the price of $850,000. Exhibit A is a copy of the contract. Pursuant to special condition 7 of the contract, Mr Kinsella, as vendor, agreed to provide vendor finance to the defendants as purchasers in the amount of $400,000 in order to complete the sale. Completion took place on 27 April 2004. The defendants agreed to grant a first mortgage over the property in favour of the vendor. Mr Kinsella remained as licensee of the land for the purpose of clearing and cleaning it up. The licence fee was agreed at $50 per week plus GST for the first six months and then $1,000 per week plus GST thereafter. 3 The present proceedings concern the following two notices of motion:-

(1) The defendants' notice of motion filed on 19 August 2008. An order is sought for the summary dismissal of a large part of the statement of claim. I will later in this judgment discuss the specific relief sought in that respect. It is confined to orders 1, 2 and 3 of the Statement of Claim and certain specified paragraphs of it concerning the plaintiff's alleged right to rely upon a mortgage as security for the debt in question.

(2) The plaintiff's notice of motion dated 26 August 2008 seeking summary judgment on the claim, in particular, the possession order referred to above and judgment in the amount of $400,000.

The evidence 4 The plaintiff relied upon the following affidavit evidence:-

• An affidavit sworn by him sworn on 9 October 2008.

• Affidavit of Brendan Giles, accountant, sworn on 12 November 2008. (Mr Giles has had the day to day control of the bankrupt estate under the plaintiff's supervision.)

• Affidavit of Jeffrey John Kinsella sworn on 27 August 2008.

• Affidavit of service of Daniella Fazio sworn 5 June 2008. 5 The defendant relied upon the affidavit of Terrence Ernest Aldrich sworn on 19 November 2008. 6 Tendered in the course of the hearing were a number of exhibits and I will refer to them as necessary below. These included Exhibit D, which is a series of photographs of the property and Exhibit 1, being correspondence between Hicksons Lawyers, to Sally Nash & Co. 7 Mr B Skinner of counsel appeared on behalf of the plaintiff. He relied upon written submissions lodged on 3 December 2008. 8 The defendants filed an "Outline of Submissions of Defendants" on 2 October 2008. At the hearing, Mr S R Donaldson SC appeared with Mr R D Marshall, of counsel, on behalf of the defendants. A further Outline of Submissions dated 4 December 2008 was relied upon by the defendants.

The statement of claim 9 The defendants initially did not file a defence to the statement of claim filed on 27 July 2008. In the Outline of Submissions of Defendants filed on 2 October 2008 (paragraph 3), the defendants stated that they awaited the determination of the defendants' notice of motion before filing a defence. However, subsequently, on 23 October 2008, a defence was filed.

The first cross-claim 10 The defendants filed a cross-claim on 23 October 2008. In it, Nishtom and Mr and Mrs Aldrich claim relief as follows:- "1. A declaration that mortgage registered no. AA626327X does not secure any debt owing by the cross-claimants to the cross-defendant. 2. An order that the cross-defendant procure the discharge of the mortgage registered no. AA626327X and deliver the Certificate of Title for the land in Folio Identifiers 1/787178 and 201/846998 to the cross-claimants." 11 In the cross-claim, it was contended that the mortgage does not, in its terms, secure any debt due or owing by the cross-claimant to the "bankrupt", Mr Kinsella. The particulars in the cross-claim record that on 30 August 2006, Mr Kinsella was declared bankrupt and the cross-defendant, Mark Julian Robinson, was appointed his trustee in bankruptcy. The cross-claimants also plead that Mr Robinson has caused the mortgage to be transmitted to him and he is now the registered owner of it. 12 Nishtom and Mr and Mrs Aldrich contend that no amount owing by them to Mr Robinson is secured by the mortgage. 13 The cross-claimants also plead the fact that they have demanded that the cross-defendant discharge the mortgage but that he has failed to do so.

The Contract for Sale, loan and Mortgage 14 The subject land consists of two adjoining lots in Soldiers Point Road, Salamander Bay ("the property"). As earlier noted, Mr Kinsella entered into a Contract for Sale of the property on 26 March 2004 in the amount of $850,000. By the contract, Nishtom purchased a one half share in the property and Maxwell Ernest Aldrich and Pamela Joy Aldrich purchased the other half as joint tenants. 15 The Contract for Sale contains special conditions which are central to the issues that arise in the present proceedings. They are examined below. 16 The relevant documents are:-

• The Contract for Sale of land dated 26 March 2004.

• The registered Mortgage. 17 The undated Loan Agreement (Exhibit C) was expressed to be an agreement between Nishtom Pty Limited, Maxwell and Pamela Aldrich and Mr Kinsella. The principal sum by way of loan is identified in the Fourth Schedule to the Loan Agreement, namely, $400,000. The term of the loan was six months and the interest rate specified was 10%. 18 The defendants disputed that any monies were advanced under the undated Loan Agreement, there being no evidence of the date upon which that agreement was made and there is no allegation that any advance was made on or before 21 April 2004 (the date upon which it is asserted in the Statement of Claim that the undated Loan Agreement was executed). 19 The defendants, in their submissions, relied upon the fact that the Statement of Claim asserted that the funds had, in fact, been advanced under the terms of the Contract for Sale. In addition, they contended that the terms of the advance under that contract are materially different to the terms under the undated agreement for loan. I accept that submission. 20 In the Mortgage, the mortgagors were identified as Nishtom Pty Limited and Mr and Mrs Aldrich. Mr Kinsella is recorded as the mortgagee. There is no reference to the date on which the mortgage was entered into. It was registered on 23 July 2004. A copy of the mortgage (Exhibit B) has an Office of State Revenue stamp on it indicating stamp duty in the amount of $1,541 was payable. Against the entry "assessment details" is the entry "PR $400,000". The mortgage does not state on its face the amount secured or the interest rate applicable. The defendants also relied upon the fact that the mortgage did not refer to either the Contract for Sale or the undated Loan Agreement. 21 The above amount of $400,000 has not been repaid. The defendants seek to set off occupation fees. 22 The defendants contend that the mortgage contains no charging clause and gives no security for any particular debt or for anything else. It makes no reference to any debt, agreement giving rise to a debt nor to any agreement. 23 In those circumstances, the defendants contend that the plaintiff cannot rely upon the mortgage to create an entitlement to an order for possession of the property as claimed. 24 It was also argued that, as the mortgage did not secure any debt and did not, in particular, secure the vendor finance, there can be no default. Accordingly, s.118(1)(a) of the Real Property Act 1900 is not enlivened.

Issues 25 The following were principal issues raised for determination:-

(1) Whether the agreement for the provision of vendor finance was wholly contained within the provisions of Special Condition 7 of the Contract for Sale.

(2) Whether the mortgage granted by the defendants to Mr Kinsella was capable of giving an interest in the land to secure the repayment of the vendor finance.

(3) Whether the plaintiff, as Mr Kinsella's trustee, is entitled to call in the vendor finance in circumstances where the defendants contend that, contrary to the provisions of Special Condition 7, vacant possession has not been given.

Factual matters 26 Particulars of the default and the money allegedly due as set out in Mr Robinson's affidavit (paragraph 18) are as follows:- Principal sum $400,000 Interest 10% p/a from 27 April - 10 October 2008 at $109.58/day x 1688 days $184,971.04

Total $584,971.04 Less s.86 Bankruptcy Act set-off (decision Federal Court of Australia Nishtom Pty Limited v Robinson (2007) FCA 978 $119,646.44 Total to be paid $465,324.60 27 Judgment is sought by the plaintiff in the latter amount. 28 In his affidavit, Mr Kinsella confirmed that he was the registered proprietor of the property and that he entered into a contract with the defendants in which he agreed to provide vendor finance to them in the amount of $400,000. 29 Completion of the Contract for Sale occurred on 27 April 2004. The contract had annexed to it 13 special conditions. It is only necessary for the purpose of the present case to reproduce here conditions 5, 7 and 12 of the Special Conditions. They are in the following terms:- "5. Following settlement, the purchaser hereby agrees to allow the Vendor to remain in possession for a period of six (6) months at a weekly rent of $50 plus GST. During this period, the purchaser has the right to enter onto the property at any time. If the Vendor does not vacate the property at the expiration of six months, the rental shall increase to $1,000 per week plus GST. … 7. The Vendor hereby agrees to Vendor finance on the following terms:- (a) Term - six (6) months from the date of settlement. (b) Principal amount - Four hundred thousand dollars ($400,000). (c) Interest rate - 10% p.a. provided however that should the purchaser repay the principal within the term of the loan, the Vendor will waive any interest accrued. (d) Repayment - At the later date of the Vendor vacating the period or the expiration of the term of the loan. (e) Mortgage - The purchase will grant a first Registered mortgage over the subject property. … 12. The Vendor is to vacate the property after 6 months of the date of completion and remove all stock, cars, tyres, the music shop and workshop." 30 In Mr Aldrich's affidavit, there is evidence that the property is zoned 4(a) - "Industrial General A". It is located in an industrial area of Salamander Bay. On the property, Mr Kinsella formerly conducted a business known as "Bay Auto Wreckers". 31 On Lot 1, was a large shed described in the contract as a "factory". The building area of the factory is 1,014 metres squared. 32 At the north-western end of the factory was located the "workshop" for the business. It was partitioned off by walls and a door. Its building area is 77 metres squared. 33 At the northern end of the entrance of the property from Soldiers Point Road was located an area referred to as "the music shop". That "shop" was the office for the factory. Its building area was 33 metres squared. 34 The workshop housed, amongst other things, hoists, tools, presses and electrical items. The music shop was a building detached from the factory. 35 The evidence indicates that Mr Kinsella stored a vast array of spare parts for motor vehicles on racks. 36 According to Mr Aldrich, he, as at 26 March 2004, estimated that Mr Kinsella stored adjacent to the buildings on the property, amongst other things, 600 car wrecks, hundreds of tyres, a boat and a caravan. 37 On 22 December 2005, the improvements on the land were burned down in a fire. The defendants contended that Mr Kinsella was still in occupation at that time. 38 On 11 August 2006, the defendants commenced proceedings No 3774 of 2006 in the Equity Division of this Court against Mr Kinsella and another in relation to fire damage and other matters. Those proceedings resulted in restraining orders on him in the following terms:- "… 1. The defendant by himself his servants or agents be restrained from demolishing, dismantling, moving or in any other way interfering with any part of the structure or building erected on the premises known as [full description set out in Order 1] . 2. The defendant by himself his servants or agents be restrained from selling or advertising the Property for sale as a mortgagee in possession or on any other basis. …" 39 As has been noted above, on 30 August 2006, the plaintiff was appointed a trustee of Mr Kinsella's sequestrated estate. 40 On 30 November 2006, a Proof of Debt was submitted by the defendants to the plaintiff, inter alia, for an occupation fee referable to Mr Kinsella up to 30 August 2006. The proof of debt was formally rejected on 29 January 2007. 41 On 20 February 2007, the defendants commenced proceedings in the Federal Court (proceedings MSD 247 of 2007). Those proceedings were in the nature of an appeal in respect of the plaintiff's decision to reject the Proof of Debt. 42 On 2 July 2007, the Federal Court (Edmonds J) in Nishtom Pty Limited & Ors v Robinson [2007] FCA 974 decided the proceedings and ordered the defendants' Proof of Debt lodged in Mr Kinsella's bankruptcy with the plaintiff for the occupation fee up to 30 August 2006 be accepted in the amount of $119,646.44. 43 In the course of the judgment given in those proceedings, Edmonds J stated:- "The background to the contract is that the property was used, in the course of the bankrupt's business, as storage of hundreds of car bodies and thousands of car parts. The improvements erected on the property were used, as well, for business purposes. While the substantial destruction of the structures erected on the property impacts on the bankrupt's business, it did not impede the storage use. Indeed, it was common ground that the bankrupt's obligations under special condition 12 of the contract, to vacate the property after 6 months, including the removal of all stock, cars, tyres etc, had not been complied with by the date of his bankruptcy (30 August 2006) and much of it - unaffected by the fire - is still there today." 44 On 4 May 2008, costs in the Federal Court proceedings were taxed. The plaintiff was ordered to pay the defendant's costs in the amount of $23,400. 45 The plaintiff alleges that on 15 April 2008, he gave vacant possession of the property. The defendants dispute that that was the case and contended that they have not had the benefit of vacant possession prior to the hearing in these proceedings. 46 The defendants tendered an amount of the debt less the set-off of $119,626.44 but not any amount for interest. The plaintiff requires the interest to be paid before providing a discharge of mortgage. 47 Two notices have been issued pursuant to s.57(2)(b) of the Real Property Act. The first was withdrawn as on 27 November 2007 after the defendants sent photographs of Mr Kinsella's chattels on the property. The plaintiff subsequently engaged a scrap metal merchant to clean up the property following which he issued the second notice. The second notice only claimed part of "the default amount" which the plaintiff claims is owing to him. In his affidavit, the plaintiff stated that he has always been prepared to set-off the amount of $119,626.44 as determined by the Federal Court.

Submissions for the plaintiff 48 The plaintiff relied upon the provisions of clause 7 of the Contract for Sale whereby the principal amount of $400,000 was to be paid within six months of settlement. Payment was to occur at the date of the vendor vacating the property or the expiration of the loan and the purchasers had agreed to grant a first mortgage over the property in favour of the vendor. 49 It was submitted for the plaintiff:-

(1) That where the findings of Edmonds J were not the subject of an appeal, the defendants are estopped from asserting a set-off to the claim for interest or maintaining they were not in possession from the date of the fire.

(2) It followed that the plaintiff is entitled to an order for possession against the defendants.

(3) The defendants' assertion that they are not in possession is not sustainable in light of the purported tender of the principal sum less the amount of the admitted set-off. Implicit in the tender is an admission of vacant possession. 50 I note at this point that the alternative claim by the plaintiff for rectification of the mortgage was not pressed. 51 It was submitted in the written submissions of plaintiff (paragraph 5) that the Contract for Sale, the undated Loan Agreement and the mortgage were all executed at the same time and must be read together. The evidence relied upon for this submission is the affidavit evidence of Mr Kinsella. The extent of his evidence on that aspect in paragraph 6 was, "The mortgage and loan agreement were signed at the same time", (by inference at the same time as the Contract for Sale). 52 It is acknowledged in the written submissions that the mortgage does not, on its face, state the amount secured or the interest rate applicable. Reference was made to the stamp from the Land Titles Office referring to an amount of $400,000. However, as Mr Donaldson submitted for the defendants, this is not evidence of the amount secured by the instrument. 53 As observed in the plaintiff's submissions, Edmonds J found that Mr Kinsella remained in possession of the property beyond six months following completion and he was still in possession when the improvements erected on the properties were substantially destroyed by fire on 22 December 2005. 54 Edmonds J determined that Mr Kinsella's possession of the property beyond the completion of the contract was as a licensee of the defendants and not as a tenant. 55 As also observed in the plaintiff's written submissions (paragraph 12), Edmonds J accepted that any claim under the contract for "rent" after the fire was limited to a claim for damages only. Such a claim, it was noted in the submissions, is not provable in bankruptcy, being in the nature of unliquidated damages (s.82(2) of the Bankruptcy Act). 56 It was submitted for the plaintiff that the findings of the Federal Court meant that the fire brought an end to Mr Kinsella's license and he thereafter was no longer in possession. That submission was contested by the defendants. They submitted that there was no finding in the judgment of the Federal Court that resulted in or established the termination of the licence. In the defendants' submission, no estoppel in this respect arose out of the findings made by Edmonds, J.

Defendants' submissions 57 In the Statement of Claim, it is alleged that, on or about 21 April 2004, an "undated Loan Agreement" was executed "to secure the borrowing" (paragraph 6). It was noted by the defendants, however, that there did not appear to be any evidence that the document was, in fact, executed that day. In that respect, it was observed:-

(1) The agreement was stated to have been made on the date set out in the First Schedule but the parties had not, in fact, completed that Schedule.

(2) Although the agreement contains an acknowledgment of receipt of the "principal sum" , it is not alleged that any advance was, in fact, made on or about 21 April 2004.

(3) As the Statement of Claim makes clear, funds were, in fact, advanced under the conditions set out in the Contract for Sale.

(4) The conditions applicable to the advance referred to in the Contract for Sale are materially different to the terms under the alleged Loan Agreement (as to which, see paragraphs [116] and [117]. 58 It was submitted that the only conclusion sensibly available in the light of the pleading and the terms of the document is that the agreement reached and recorded in the Contract for Sale is the agreement between the parties and that no monies were advanced or are payable under the terms of the alleged (undated) Loan Agreement. 59 It was further submitted that the special conditions in the Contract for Sale had been the subject of the determination in the Federal Court by Edmonds J. Particular reference was made to the fact that his Honour described the bankrupt's obligation to vacate the property as "including the removal of all stock, cars, tyres etc". 60 In the Outline of Submissions of Defendants, it was submitted:- "9. There is a factual dispute as to whether that, in fact occurred (referring to the giving of vacant possession). It seems that the plaintiff engaged a scrap metal merchant to remove items from the premises and, apparently, assumed that all of the bankrupt's property had been removed as required by the Contract for Sale. There is clear evidence that the plaintiff was mistaken in that regard. The photographic and other evidence indicate:- (a) on 9 October 2008, the bankrupt was removing his possessions from the property; and (b) on 13 November 2008, a substantial quantity of personal property, including metal racks, tyres and various car parks remained on the property." 61 The submission on behalf of the defendants was that Mr Kinsella had not vacated the property and, in particular, had not, as required, removed "all stock, cars, tyres…" in accordance with Special Condition 12. 62 On that basis, it was contended the obligation sued upon had not arisen and that, accordingly, the claim should be dismissed. 63 It was also contended that the mortgage furnished to the defendants was defective. As earlier noted, it did not identify any debt or other obligation the performance of which was secured by it. Whilst the plaintiff had acquired title under the mortgage, it was said that the title under it secured nothing. Reliance, in that respect, was placed upon the decisions in Perpetual Trustees Victoria Limited v Tsai [2004] NSWSC 745; Vella v Permanent Mortgages Pty Limited [2008] NSWSC 505 at [309] ff. 64 Those cases concerned the question as to whether registered mortgages operated to secure monies under loan agreements where the agreement in question had been forged. It was held that no money had been secured by the indefeasible mortgage in each case. The respective mortgagors were not liable despite indefeasibility. 65 Accordingly, in those cases, notwithstanding the conferral of indefeasibility by registration conferred on the mortgagee, the question was, as Campbell J (as his Honour then was) observed in Small v Tomassetti [2001] NSWSC 1112 at [9] "indefeasibility for what?". 66 In the present case, it was incumbent upon the plaintiff to establish that the mortgage which fails to express on its face or by reference to any document the loan secured by it that, as a matter of fact and law, it operated upon the loan given by way of vendor finance. In Small (supra), Campbell J referred to the case of PT Limited v Maradona (1992) 25 NSWLR 643 as an illustration of the way that one needs to look at the terms of the particular mortgage that is the subject of litigation to work out the scope of any estate or interest in the land which is created indefeasibly by the registration of that mortgage (at [12]). 67 The only evidence on the execution of the Mortgage and Loan Agreement was that of Mr Kinsella (affidavit, paragraph 6) to the effect that they were signed at the same time. That evidence was objected to and admitted as evidence that Mr Kinsella signed the documents at the same time. That, however, does not establish that the loan secured was the vendor finance provided by the special conditions in the Contract for Sale. Mr Kinsella's reference to the Loan Agreement was to the undated Loan Agreement (Exhibit C) executed on an unknown date. Accordingly, it is not open to construe the mortgage as in fact securing monies under a different and earlier agreement, namely, the Contract for Sale. Mr Skinner properly acknowledged in submissions the shortcomings in the drafting of the mortgage and undated Loan Agreement. 68 The defendants, accordingly, contended, in my view correctly, that, at best, the plaintiff was only an unsecured creditor and that Order 1 as sought in his notice of motion ought not be granted and the proceedings should be removed from the Possession List. 69 The defendants additionally contended that there was no provision under the Contract for Sale requiring payment of interest in advance of repayment of the principal loan. Accordingly, it was argued, no judgment should be entered if, as the defendants contended, the principal is not yet repayable. 70 In relation to the licence, it was submitted that the Federal Court proceedings did not involve the proposition that the license ceased when the property was destroyed by fire. Indeed, it was contended that that proposition had been advanced on behalf of the plaintiff and had been rejected. 71 Mr Kinsella was cross-examined in some detail upon the photographs identified as TEA 6 and TEA 7 (marked as MFI 1 and MFI 2 and which were exhibited to Mr Aldrich's affidavit). These were said to depict the condition of the premises as at October 2008. On the occasion in question (suggested in cross-examination to have been 9 October 2008), Mr Kinsella attended the premises. Certain photographs in TEA 6 show Mr Kinsella on site. He claimed he attended the site in response to his adjoining neighbours' request to secure roofing material which had become detached in high wind conditions and was alleged to have presented a risk. 72 In summary, Mr Kinsella accepted that many of the photographs depicted car parts, tyres, racks and other equipment on the premises and which he had formerly used in the course of his business. The photographic evidence and Mr Kinsella's cross-examination in relation to them established that, notwithstanding the fact that the property had been largely cleared, as at the last-mentioned date, there remained a number of objects on the property including car parts, rubbish and equipment. 73 Although the obligation on Mr Kinsella as vendor under the Contract for Sale, Special Condition 12, required him to vacate after six months of completion, the evidence, in my opinion, established that, for a lengthy period after the expiration of that six month period, the use of the property by the defendants was impaired due to the stock, car parts and other rubbish and objects on the property. 74 The relevant case law has considered the question as to whether it can be said that vacant possession of a property has been given when the use of the property is impeded by objects remaining on it that obstructs its use. It is only necessary to briefly refer to them. 75 In Cumberland Consolidated Holdings Limited v Ireland [1946] 1 All ER 284, Lord Greene MR, who delivered judgment on behalf of the Court, remarked that the expression "vacant possession" had not been the subject of substantial judicial explication. In that case, he found that the right to vacant possession included the right to actual unimpeded physical enjoyment of the premises and further, that the interference of this right by the existence of a physical impediment on the premises should be treated no differently to that interference caused by the presence of a trespasser: at 287. 76 Lord Greene MR observed that it was not merely the existence of a physical impediment on the premises that could give rise to a breach by the vendor of the obligation to give vacant possession. Rather, "it must be an impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property": Cumberland Consolidated (supra) at 287. 77 In that case, the vendor had failed to give vacant possession in not removing from the cellar of the warehouse some 200 drums of cement. These occupied about two-thirds of the height of the cellar: Cumberland Consolidated (supra) at 285-286. 78 Lord Greene noted that, subject to the rule de minimis, the vendor, by leaving property of his or her own on the land, was claiming a right to use the premises as a place of deposit for his goods. Such a claim of right was inconsistent with the purchaser's right to undisturbed enjoyment. 79 The above principles were discussed and applied by Waddell CJ in Eq in Austral Standard Cables Pty Limited v Walker Nominees Pty Limited (1992) NSW Conv R ¶55-619, reversed on appeal, but not relevant only the point concerning vacant possession: (1992) 26 NSWLR 524 and more recently, by the Court of Appeal in Waterhouse v Waugh [2003] NSWCA 139. 80 In Austral Standard Cables Pty Limited (supra), Waddell CJ in Eq looked to the nature of the items left on the site and the proportion of the site occupied by them in order to determine whether the physical items amounted to a breach by the vendor to give vacant possession (at 59-529). His Honour determined that the majority of items left by the vendor were of such size as to require removal by machinery and that the items constituted about 15% of the site. On that basis, his Honour held that the vendor had not given vacant possession of the relevant area. 81 In Waterhouse (supra), Handley JA affirmed the principles expounded in Cumberland Consolidated (supra). Young CJ in Eq whilst agreeing with the judgment of Handley JA observed that "a tenant does not deliver up vacant possession if he or she leaves rubbish on the premises at the end of the lease other than an amount of rubbish which might be termed minimal": at [62].

82 In determining whether the defendants have been provided with vacant possession of the property, it is necessary to take account of the terms of the contract, including the special conditions, together with the evidence as to the physical condition of the property following clearing work undertaken by the scrap metal merchant engaged by the plaintiff. 83 In determining whether or not the remaining objects on the property as at October 2008 constituted a physical impairment or impediment to the physical enjoyment of the premises, it is necessary to have regard to the total area of the property, the condition in which it was left following the fire and the number and nature of the objects remaining on the property as at that time. Although the bankrupt as vendor was subject to a specific obligation under special condition 12 to "… remove all stock, cars, tyres, the music shop and workshop", the question remains as to whether or not the physical facts to which I have referred concerning the condition of the property were such as to interfere with the defendants' right to unimpeded enjoyment of the property. 84 The plaintiff engaged a scrap metal merchant to remove items from the premises. Mr Giles said that person was engaged in January 2008. According to particulars supplied by the plaintiff's solicitors (Exhibit 1), the items were removed on 15 April 2008. 85 The defendants subsequently tendered a cheque on 16 June 2008 which the plaintiff did not accept. 86 As is apparent from the above discussion, the factual dispute between the parties is whether, as at 9 October 2008, there still remained chattels and objects of the bankrupt on the premises and, if so, whether, nonetheless, vacant possession had been given. The plaintiff relied upon the photographs in Exhibit D, copies of which were annexed to Mr Giles' affidavit. 87 On 9 October 2008, Mr Kinsella was seen on the premises removing objects by loading them into his utility. However, Mr Kinsella's evidence, which I accept, was that a section of the front wall of a building on the premises including a large section of roof had blown over the fence onto a neighbouring property. On 9 October 2008, he was removing the debris including sheets of roofing. 88 Mr Kinsella was cross-examined about other objects or materials still on site as at 13 November 2008 (transcript, 4 December 2008, at pp.20 to 24). In summary, Mr Kinsella conceded that, as at that date, there was still present on site the following items:-

(11) a car seat. 89 I have examined the photographs in Exhibit D. They establish that, in the locations identified, substantial clearing and removal of objects has occurred. 90 The defendants contended that, as all the bankrupt's property had not been removed as required by the Contract for Sale, the latter had not complied with the obligation to remove "all stock, cars, tyres". Until that occurred:-

(1) A licence fee was payable in an amount initially of $50 per week and, after six months, $1,000 per week.

(2) The $400,000 vendor finance was not repayable. 91 The defendants further contended that, as the obligation sued upon has not arisen, the claim should be dismissed. 92 Turning to the facts as disclosed in the evidence, it is clear that the items referred to in paragraph [88] above mean that the site was not cleared of all the bankrupt's property as at 13 November 2008. However, the question remains whether, despite the clearing work undertaken in or about April 2008, the presence of those remaining objects leads to the conclusion that vacant possession had still not be granted as at that time. 93 Whilst the bankrupt was by virtue of special condition 12 subject to an obligation to "remove all stock, cars, tyres; the music shop and workshop", not every breach, including every minor breach, will support a conclusion that the purchasers have been deprived of their right of possession. In other words, not every breach will necessarily constitute a substantial impediment or interference with the enjoyment of the property. 94 In the present case, the number and nature of the objects referred to in the evidence including the abovementioned photographs, the fact that the property was after 22 December 2005 in a fire damaged condition and could not, on the evidence, be usefully put to any specific use, together with the evidence as to the clearing of the property by the scrap metal merchant engaged by the plaintiff, leads, in my opinion, to the conclusion that the remaining objects on the property as at 9 October 2008 could not be said to constitute a substantial impediment to the use of such a large industrial site. 95 On the basis of the evidence, including all of the photographic evidence, I am of the opinion that the presence of the residual items to which I have referred as at 13 November 2008 did not, in any practical or significant way impede or interfere with the defendants' enjoyment of their right to possession and use of the property. Accordingly, I am of the opinion that vacant possession was given to the defendants following the clearing of the site by the scrap metal merchant engaged by the plaintiff. I will return to the question as to the precise date upon which this occurred (see paragraph [120].

(1) Special Condition 5 96 This special condition recorded an agreement reached between Mr Kinsella and the defendants whereby he was granted an entitlement to remain in possession of the premises for a fixed period, namely, six months at a weekly rent of $50 per week plus GST. 97 In accordance with the terms of the contract, in the event that Mr Kinsella did not vacate the property at the expiration of the period of six months, it was agreed that the "rental" would increase to $1,000 per week plus GST. 98 The six month period for which Special Condition 5 provided was, by reference to the date of completion, the period from 27 April 2004 to 26 October 2004. 99 Accordingly, upon a finding being made and which I do make that Mr Kinsella did not vacate the property on or after 26 October 2004, he thereupon became subject to a liability to "rental" of $1,000 per week plus GST. That liability continued until the date of the vendor's bankruptcy (30 August 2006). The position thereafter remains to be determined. 100 Additionally, in accordance with Special Condition 6, Mr Kinsella was responsible for all outgoings on the property in respect of that period, that is, the period he was "… in occupation of the premises".

(2) Special Condition 7 101 The plaintiff, in the Statement of Claim filed on 21 July 2008, expressly pleaded reliance upon Special Condition 7 (see paragraph 4 of the Statement of Claim) and particularised the agreement arising under that condition. 102 The provisions of the vendor finance clause in special condition 7, as earlier noted, provided for a loan back in respect of the principal amount ($400,000) for the term (the six month period from 27 April 2004 to 26 October 2004) at an interest rate of 10% per annum. 103 The obligation upon the purchasers to repay the "principal amount" of $400,000 was either at the expiration of the term of the loan, namely, 26 October 2004 or "… the later date of the Vendor vacating the property …". 104 The defendants, as the purchasers, contend in the present proceedings, that the obligation for repayment has not arisen by reason of the fact that Mr Kinsella had not vacated the property, within the meaning of Special Condition 7(d) to the Contract for Sale. I have, as earlier stated, found to the contrary. I will refer to the consequence of that finding below.

(1) Principles 105 The defendants' moved under Rule 13.4 of the Uniform Civil Procedure Rules 2005. Rule 13.4 makes provision that, in the event that no reasonable cause of action for a claim is disclosed, then the Court may order that the proceedings be dismissed in relation to the claim made. It was acknowledged in the written submissions for the defendants (paragraph 6) that the plaintiff's claim must, in effect, be proven to be hopeless. Reference was made to the well-known decisions in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; Brimson v Rocla Concrete Pipes Limited (1982) 2 NSWLR 937, 944. 106 The defendants contended that the application for dismissal may be determined not only by reference to the pleadings but also by reference to documents referred to in the pleadings.

(2) Date upon which vacant possession was given 107 Mr Kinsella's occupation was determined by Edmonds J to have been pursuant to a licence. Mr Skinner contended that vacant possession was given as at the date of the fire (22 December 2005) or, alternatively, on 21 July 2006, the date of orders made in Supreme Court proceedings No 3774 of 2006 on which date Mr Kinsella was subject to restraining orders. 108 The plaintiff's "fall back" position was that vacant possession had been given by 16 July 2008. 109 Mr Donaldson relied upon the fact that Edmonds J allowed licence fees to be claimed to the date of the vendor's bankruptcy, which post-dated the fire. On that basis, it is not correct or open to find that the licence was terminated by the fire. 110 The orders made on 21 July 2006, Mr Donaldson observed, did not prevent Mr Kinsella from entering the premises and he was permitted the opportunity of leaving his goods and chattels there pending arrangements to remove them.

(3) The basis for the plaintiff's contractual entitlement 111 A primary issue is whether the contractual rights and obligations of the bankrupt vendor and the defendants arose under the special provisions of the Contract for Sale (Exhibit A) or whether they arise or are to be ascertained by the terms of the undated Loan Agreement and mortgage. The resolution of that issue will determine the plaintiff's right to claim upon the basis that the bankrupt was a secured creditor of the defendants. 112 The Contract for Sale was, as noted previously, exchanged on 26 March 2004. Special conditions 5 to 7 contained an agreement for vendor finance which was complete in itself. It was not expressed to be subject to any Loan Agreement to be entered into on any subsequent date. 113 It has not been established that either the undated Loan Agreement or the mortgage were contemporaneous with the Contract for Sale. The matter was argued upon the basis that they were drawn up and executed on a later date or dates. The plaintiff did not contend that the undated Loan Agreement should be construed as impliedly varying the terms of the above special conditions in the Contract for Sale. 114 On the evidence, the vendor (the bankrupt) and purchasers agreed on the vendor financing on the basis of special condition 7. The undated Loan Agreement does not refer to any advance having been made under it subsequent to completion of the contract on 21 April 2004. The Statement of Claim (paragraphs 3 and 4), as earlier noted, pleads and relies upon the terms of the Contract for Sale and, in particular, special condition 7. The fact of this pleading and the plaintiff's reliance upon the above contract terms was emphasised in the submissions for the defendants. The pleading in fact proceeds upon the basis that funding for the purchase was advanced under the terms of the Contract for Sale. 115 I have previously recorded Mr Skinner's submission on behalf of the plaintiff to the effect that the Contract for Sale, the undated Loan Agreement and the mortgage should be read together. In that way, it was contended, the obligation to pay the loan of $400,000 can be seen as arising under the terms of the undated Loan Agreement. 116 Mr Donaldson, however, in my opinion correctly, observed that there was no evidence that supported the contention that the undated Loan Agreement had contractual operation in relation to the abovementioned loan. On the proper view of the matter, he contended the loan had been agreed to under the terms of the Contract for Sale and it was advanced through the settlement of the Contract for Sale proceedings without the full payment of the purchase price. Mr Donaldson relied upon the inconsistency between special condition 7 of the Contract for Sale and clause 5 in the Seventh Schedule to the undated Loan Agreement. Special Condition 7(d) provided:- "(d) Repayment - At the later date of the Vendor vacating the property or the expiration of the term of the loan …" 117 The term of the loan was six months from the date of settlement. Under the alleged undated loan, however, the principal sum and interest was said to be payable "… on the sale of the property or within (six months), whichever is the earlier". 118 I consider that the defendants' submissions correctly identify the applicable contractual terms. In reaching that conclusion, the following are relevant:-

(1) The evidence establishes that the advance by way of vendor financing was made by and under the terms of the Contract for Sale and not under or pursuant to any later transaction. The agreement for vendor finance as set out in the Contract for Sale was, in other words, a complete agreement in itself.

(2) There is no evidence as to when the undated Loan Agreement was drafted and executed. No date was inserted in the First Schedule to it. The recital referred prospectively to a loan to be accepted on terms set out in the document.

(3) The mortgage is also undated. There is no evidence of the date upon which it was executed or the circumstances in which it came into existence. It was accepted in argument that it post-dated the agreement for vendor finance recorded in Special Conditions 7 and 9 of the Contract for Sale.

(4) The mortgage does not refer to or identify the loan secured and there is no annexure as envisaged in "D" , page 1 of the mortgage document.

(5) The terms of the advance under the Contract for Sale were, as discussed above, materially different from those in the undated Loan Agreement (see paragraph [116] above).

(6) The undated Loan Agreement was not, on the evidence, an operative agreement in relation to the vendor finance and was not one that applied to any other loan advance.

(7) The three instruments, the Contract for Sale, the undated loan and the Mortgage cannot, therefore, be construed together as submitted for the plaintiff. 119 The conclusion, accordingly, is that the advance by way of vendor finance was made and only made in accordance with the Contract for Sale on 26 March 2004.

Has the loan become repayable? 120 On the evidence to which I will shortly refer, the answer in my opinion is in the affirmative. The loan became repayable on the date following the clearing of the site by the scrap metal merchant, that is, the date upon which, on my assessment of the evidence, vacant possession was given by the plaintiff. That date may have been 16 April 2008. However, I will permit the parties the opportunity of agreeing on the relevant date given that the evidence is somewhat unclear on that point.

The Mortgage did not secure the debt 121 It follows from the above findings and conclusions that the Mortgage did not secure the vendor finance. Accordingly, the breach alleged and relied upon by the plaintiff has not been established. 122 The plaintiff, accordingly, has not established an entitlement under the Mortgage and the relief claimed under it must be refused. 123 Although the plaintiff is not entitled to the order for possession sought, the finding I have made concerning vacant possession is directly relevant to the plaintiff's entitlement to an order for repayment of the loan monies and interest. That is a separate claim on the Statement of Claim and raises issues as to offsets for the licence fee of $119,646.44 determined by Edmonds J, the costs order on the amount of $23,400 and any other amount that may be established as owing up to the date of vacant possession. Given that such issues remain to be tried, I propose to give directions for the final disposition of the plaintiff's claim.

Conclusions 124 In relation to the defendants' notice of motion dated 18 August 2008, and on the basis of the evidence in support of the application, the following have been established:-

(1) That by and in accordance with the special conditions of the Contract for Sale, the vendor, Mr Kinsella, provided to the defendants by way of vendor finance the amount of $400,000.

(2) That in accordance with special condition 7(d), the defendants are liable to repay the principal amount of $400,000 upon the date Mr Kinsella, as vendor, vacated the property being the later date for repayment in accordance with that provision.

(3) That vacant possession was given by Mr Kinsella on and from the date the property was cleared by the scrap metal merchant engaged by the plaintiff. That date may have been 16 April 2008. I, however, grant leave to the parties to adduce further evidence in the event that agreement as to the date upon which that occurred cannot be reached.

(4) The determination of the obligation sued upon by the plaintiff for repayment of the principal amount is subject to a determination of the defendants' contentions as to any matters of set off.

(5) The registered Mortgage on the title to the property granted in favour of Mr Kinsella by the defendants did not secure any specific debt or obligation. In particular, it has not been established that the mortgage secured the advance made by way of vendor finance in accordance with the special conditions of the Contract for Sale.

(a) The defendants' notice of motion 125 In accordance with the provisions of Part 13 Rule 13.4(1)(b) of the Uniform Civil Procedure Rules 2005 and in accordance with the principles to which I have referred in paragraph [105], I am satisfied that no reasonable cause of action is disclosed insofar as the plaintiff's claim relies upon the undated Loan Agreement and the Memorandum of Mortgage particularised in the Statement of Claim. 126 Accordingly, the plaintiff's claim to relief as set out in paragraphs 1, 2 and 3 of the Statement of Claim are not maintainable and are dismissed. Accordingly, paragraphs 5, 6, 7, 11, 12, 13, 14 (in regard to "Mortgage, Memorandum of Mortgage"), 15, 16, 17, 24, 25, 26, 28, 29, 31 and 32 of the Statement of Claim and particulars therein are struck out. 127 The proceedings be removed from the Possession List.

(b) The plaintiff's notice of motion 128 It follows from paragraphs [125] and [126] that the plaintiff is not entitled to the relief sought in his notice of motion dated 26 August 2008 in terms of paragraph 1 of the notice of motion. The notice of motion in that respect is dismissed. 129 In relation to the plaintiff's claim in the amount of $400,000 together with interest, I propose that the proceedings be re-listed for directions in relation to that claim as pleaded in the Statement of Claim. In particular, issues concerning the defendants' claim to the right of set-off and consequential orders in relation to the first cross-claim are to be subject to directions as required. 130 I request the parties to bring in short minutes of order to give effect to this judgment. 131 I reserve all questions of costs. The parties have leave to deal with costs on a date to be fixed. 132 The proceedings may be re-listed on a date and at a time by arrangement with my associate. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.