Ruthol Pty Ltd v Tricon

1 By a Statement of Liquidated Claim filed in the District Court on 24 June 2004, the Plaintiff ("Ruthol") claimed an amount of $274,507 from the Defendant ("Tricon") in respect of unpaid rent said to be due by Tricon to Ruthol under a lease of certain premises in Manly Vale pursuant to a lease dated 6 May 1998 between Ruthol as lessor and Tricon as lessee. The rent was claimed to be due under a holding-over clause in that lease. 2 The proceedings are really part of a much larger dispute which was adjudicated in this Court in proceedings 2101 of 1999 and 4858 of 2001. Those proceedings were between Mr and Mrs Mills as Plaintiffs, seeking to enforce an option which they had been granted by Ruthol for the purchase of the subject property, and also involved an option granted by Ruthol in respect of the same property to Tricon. There was a dispute between Ruthol and Mr and Mrs Mills as to whether Mr and Mrs Mills had validly exercised the prior option which they had to purchase the property. There was a dispute between Mr and Mrs Mills and Tricon as to whether the Mills' option, which was prior in time, took priority over the interest in the property of Tricon, assuming that Mr and Mrs Mills had validly exercised their option. Tricon had itself purported to exercise an option which it had been granted, bringing into effect a contract between Tricon and Ruthol whereby Ruthol was obliged to sell and to transfer the property to Tricon. The contract for sale to Tricon stipulated the time for completion as 19 July 2001. 3 The proceedings in this Court were resolved ultimately in the Court of Appeal: Ruthol Pty Ltd v Mills [2003] NSWCA 56. It was held that Mr and Mrs Mills had validly exercised their option to purchase the property but had acquired thereby a mere equity; that Tricon had also validly exercised its option and had entered into a valid contract of sale, giving it an equitable interest in the property; that the Mills' equity, although prior in time, did not take priority over Tricon's equitable interest because Tricon had acquired that interest for value and without notice of the prior equity of Mr and Mrs Mills. Accordingly, it was held that Ruthol was obliged to perform the contract for sale with Tricon. That means, in effect, that Ruthol was obliged to transfer to Tricon the property on 19 July 2001. 4 However, the litigation between all parties did not resolve until well into 2004. Tricon has remained in possession of the property, in which it is carrying on its business, while that litigation has been in progress. It has not paid rent to Ruthol since 19 July 2001 under the lease or under the holding-over clause because it says that it was entitled to remain in possession of the property from 19 July onwards, not as tenant, but as owner. It says that if Ruthol had not committed a breach of the contract of sale by failing to complete on the stipulated date, it (Tricon) would never have been subjected to the claim for rent. 5 Because Ruthol's claim for rent in the District Court involved a great deal of the material which had arisen in the proceedings in the Supreme Court, Tricon moved to have the District Court proceedings transferred into the Supreme Court. I assented to that course of action and that is why I am now dealing with the claim originally made in the District Court. 6 The contentions of the parties may be summarised thus. Tricon says that Ruthol's claim for rent fails on three grounds. The first may be summarised under the principle that a party cannot take advantage of its own wrong. In this case, Tricon says that Ruthol is seeking to take advantage of its own breach of the contract for sale, which required completion by 19 July 2001, by claiming rent for the property after that date. 7 The second ground upon which Tricon relies is that Ruthol is defeated by the principle of circuity of action. Tricon says that it is entitled to damages for breach of the contract for sale, being the failure of Ruthol to complete on 19 July 2001, and its damages are the amount for which it may be liable in rent to Ruthol under the lease from 19 July 2001 onwards. Because the amount of damages for breach of contract is exactly the same as the amount of Ruthol's claim under the lease, so Tricon says, a defence of circuity of action arises. Tricon relies upon decisions such as the The Susan v Luckenbach [1951] P 197 and Andrews v Nominal Defendant [1963] NSWR 359. 8 The third ground upon which Tricon says that Ruthol's claim must fail is that, even if Ruthol recovers its claim for rent, the Court should then proceed to award Tricon damages in proceedings 4858 of 2001 in an amount equal to the amount awarded to Ruthol for rent, so that Ruthol thereby receives no net recovery against Tricon in respect of the rent. 9 There is no dispute between the parties as to the facts. Submissions have been made on the basis of the facts found in proceedings 2101 of 1999 and 4858 of 2001. No further evidence has been adduced. 10 Mr Angyal SC, who appears with Mr Andronos for Ruthol, submits that because Tricon did not complete the contract for sale of the property on 19 July 2001 - even though because of Ruthol's breach - nevertheless it has had the use since that date of the purchase money, viz $640,000, that it would otherwise have had to pay Ruthol. Alternatively, it has derived a benefit from non-completion of the contract in that it would have had to borrow the purchase money and has not had to pay interest on the purchase price since 19 July 2001. 11 I should observe at this point that there is no evidence at all that Tricon would have been compelled to borrow the whole of the purchase price of $640,000 in order to complete the contract or, indeed, that it would have had to borrow any part of the purchase price. There is simply no evidence at all as to how Tricon would have provided the purchase price of the property. 12 Mr Angyal submits that while the principle that a party may not take advantage of its own wrong certainly applies in the present case, nevertheless, the principle has to be adapted to the particular facts of the case so that an innocent party is protected only to the extent that it would actually suffer damage if the wrongdoer were able to take advantage of its wrong. He submits, therefore, that against the damage that Tricon would suffer if it were compelled to pay the whole of the rent due under the holding over clause in the lease, there should be offset the benefit derived by Tricon in not having had to pay interest on the loan of the purchase price from 19 July 2001 onwards. Putting it another way: Tricon should have to give an allowance for the interest it would itself have been able to earn on the purchase price of $640,000 since 19 July 2001 because it has, in a sense, been able to keep that purchase price in its own pocket from that time onwards. The amount of the damage suffered by Tricon is therefore, says Mr Angyal, less than the amount of the rent claimed by Ruthol, and Ruthol should have judgment for the difference. 13 I think that, as a matter of common sense, the principle that a party cannot take advantage of its own wrong must be applied so as to give no greater protection than is necessary to an innocent party. In each case, what is necessary to protect the innocent party depends upon the particular facts of the case. 14 In this case, I am not satisfied that there should be any deduction made from the damages that Tricon would be able to establish for breach of the contract for sale by Ruthol, whether in the form of an allowance of interest notionally saved or in the form of interest notionally earned. 15 As I have said, there is no evidence that Tricon would have had to borrow any amount in order to complete the purchase from Ruthol. The fact that Tricon has in a certain sense kept the purchase price in its own pocket is, in my view, neutral. If the contract had been performed, Tricon would have been the owner of the property since 19 July 2001. It would then have had an appreciating asset, as the valuation evidence shows. It may have been able to sell that asset at a profit a short time thereafter or it may have been able to use the asset for other profit-making endeavours. I do not think that it is permissible for a wrongdoer in the position of Ruthol to compel an innocent party in the position of Tricon, as it were, to notionally invest or notionally borrow in order to mitigate a loss occasioned by the wrongdoer's breach of contract. 16 It seems to me that this is a classic case in which the claim of a wrong doer, namely Ruthol, is defeated by recourse either to the principle that a party may not be permitted to take advantage of its own wrong or else by recourse to the principle of circuity of action. Ruthol is in the position in which it has now found itself, that is, that it has been out of possession of the property since 19 July 2001 without any compensation for use of the property in the form of rent, entirely as a result of its own breach of the contract for sale and the litigation between itself, Mr and Mrs Mills and Tricon arising from the fraud which it perpetrated on Mr and Mrs Mills. Further, I think that the damages to which Tricon is entitled for breach of the contract for sale is precisely the amount which it would otherwise have to pay Ruthol under the holding-over clause of the lease. By recourse to either of those principles, therefore, the claim of Ruthol in the District Court proceedings must fail. There will be judgment on the Statement of Claim for the Defendant accordingly. 17 I should clarify for the record that the result of this decision, i.e. in proceedings 5102 of 2004 which are the proceedings transferred from the District Court, also concludes proceedings 4858 of 2001 in the Supreme Court. In those proceedings, Tricon sought damages from Ruthol for breach of the contract for sale and that matter was left to be determined either by a reference to the Master or to be referred back to me. 18 In the result, I have found that the damages which Ruthol would have to pay Tricon in proceedings 4858 of 2001 would amount to the same amount as Ruthol is claiming in proceedings 5102 of 2004. This finding, therefore brings to an end not only proceedings 5102 of 2004 but also proceedings 4858 of 2001. After discussion with Counsel, I think the appropriate orders to make in both proceedings are as follows. 19 In proceedings 5102 of 2004, there will be judgment for the Defendant. 20 In proceedings 4858 of 2001, the damages payable by the First Defendant to the Plaintiff are assessed at nil by reason of the judgment in proceedings 5102 of 2004. 21 Ruthol will pay Tricon's costs of the assessment of damages in proceedings 4858 of 2001. Ruthol will also pay Tricon's costs in proceedings 5102 of 2004, there being one set of costs for both proceedings on the question of assessment of damages or entitlement to damages for breach of contract. ~ oOo ~

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