Sze Tu v Jam Studios Pty Ltd; Jam Studios Pty Ltd v Sze Tu

MESNE PROFITS

The relevant principles as to the calculation of mesne profits was discussed by Kunc J in Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587 ("Macquarie International") as follows (at [152]): [152] The following propositions may be said to summarise fairly the areas of common ground between the parties: (1) An action for mesne profits is a species of the action for trespass (a tort). (2) Mesne profits represent the traditional measure of assessing damages where one party's possession or occupation of land has been wrongly interfered with. (3) Mesne profits are damages which compensate for the wrongful denial of property rights (i.e. the loss of use of those rights). (4) The "yardstick" or "normal measure" of mesne profits is an amount calculated by reference to the "reasonable letting value", "reasonable rent" or "market rental" of the land the subject of the trespass, which it would be reasonable for the trespasser to pay, and the party whose property rights have been wrongfully denied to accept, for the period of wrongful occupation. This yardstick is sometimes referred to as the user principle. (5) Whilst it is the interference with or infringement upon actual possession of the relevant property rights which provides the basis for an award of compensation, it is not necessary to establish actual financial loss, or a financial benefit to the trespasser, to recover damages. (6) There is some uncertainty in the authorities (both English and Australian) as to whether the "juridical underpinnings" of mesne profits are such that the assessment of damages is governed by principles of compensation or restitution, or elements of both. (7) This Court should follow the approach set out in Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] 82 NSWCA 342 ("Bunnings") at [177] per Allsop P (Macfarlan JA agreeing) (a case dealing with wrongful detention of chattels), namely that damages in accordance with the user principle for the wrongful interference or denial of property rights are compensatory in nature.
The judgment of the Court of Appeal to which his Honour referred is the judgment of Allsop P (with whom Macfarlan JA agreed) in Bunnings Group Ltd v CHEP Australia Ltd (2001) 82 NSWLR 420; [2001] NSWCA 324 ("Bunnings"). His Honour referred to [177]. It is relevant to refer to [177] and [178], extracted below: [177] Care needs to be exercised in any comparison between the principles attending the torts of conversion and detinue, on the one hand, and infringement of patents, on the other, and the lengths to which any such comparison is taken (cf Leman v Krentler-Arnold Hinge Last Co 284 US 448 (1932) at 456-457). Nevertheless, the analogy is of assistance in understanding the concepts involved in compensation and the law's proper response to the interference with property rights. Compensatory damages for conversion of goods and compensatory damages for patent infringement have some basal features in common. The former involves the denial of the property rights of the plaintiff, including the right to possession, through an act repugnant to those rights; the latter involves the denial of the plaintiff's statutory monopoly rights by infringement being the acts that the statute identifies as the denial of, or interference with, those rights. In each, if a property right has been invaded by a wrongful user, the law should and does provide a remedy for the wrong, compensatory in character in the broad sense, focusing on the interference with the right in question. Recompense is given to the wronged property owner that requires the wrong to be seen as righted, by requiring a price or hiring charge to be paid for the wrongful use. What is being compensated for is the wrongful denial of property rights, not merely the injured party's financial position analysed subjectively: see Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323; [2003] 1 All ER (Comm) 830 at [26] per Mance LJ. Essential to the notion of compensation here is the use by the wrongdoer that gives reality and content to the denial of, or interference with, the plaintiff's rights. So to say is not to transform damages into restitution; rather it is to set a practical limit to the principle based on the feature of the wrong (the wrongful use) which calls for the law's response to award damages for the denial or interference with the right. [178] Though only Denning LJ in Strand Electric expressly based his judgment on restitutionary principles, Somervell and Romer LJJ expressing the matter in terms of compensation, each of their Lordships included as an element in his reasoning use by the converter/detainer. This element of suit for the use of the chattel was a suggestion of Lord Mansfield in Hambly v Trott (1776) 1 Cowp 371 at 375; 98 ER 1136 at 1138. Thus the use of a sum for the hire of the chattel to inform the monetary remedy can be seen as referable to the capacity of the chattel to be hired by the owner (and the refusal to permit the wrongdoer to assert that he would or could not): Romer LJ at 256-257, or to the actual use by the wrongdoer: Denning LJ at 254-255 or to the user of the wrongdoer based on what he would have paid if he had been lawfully in possession: Somervell LJ at 252. The element of use by the wrongdoer was central to at least two of their Lordships and it was part of the action referred to by Lord Mansfield in Hambly v Trott. The element of use can be seen in the analogue of mesne profits and like cases: Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538 at 541-542; Hall & Co Ltd v Pearlberg [1956] 1 WLR 244; Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798; Bracewell v Appleby [1975] Ch 408; Jaggard v Sawyer [1995] 1 WLR 269; Swordheath Properties Ltd v Tabet [1979] 1 WLR 285; Inverugie; and in respect of a dock: Penarth Dock Engineering Co v Pounds [1963] 1 LlL Rep 359.
I adopt, with respect, the principles as stated in Macquarie International and Bunnings in the disposition of this matter.
As Bunnings makes clear, if a property right has been invaded by a wrongful user, the law should and does provide a remedy for the wrong, compensatory in character in a broad sense, focussing on the interference with the right in question. As Allsop P observed, recompense is given to the wronged property owner that requires the wrong to be seen as righted, by requiring the price or hiring charge to be paid for the wrongful use (it may be noted the case related to the wrongful detention of chattels). The use of a sum for the hire of the chattel to inform monetary compensation may be seen as referrable to the capacity of the chattel to be hired by the owner (or the actual use by the wrongdoer). The plaintiff was correct to submit that damages may be calculated on the basis of these principles having regard to the market rent for the property or what Jam would have paid had its continued occupation of the premises been lawful.
It is upon this basis that the plaintiffs made the following submissions as to mesne profits: 12. Whilst expert evidence as to market rent over the period from termination of Jam's tenancy to date has not been adduced, the plaintiffs submit that the best evidence of the market rent payable at the time of termination of that tenancy, was the rent that was in fact agreed some months earlier and that would, as a minimum have been payable had the tenancy continued or had the other terms of a lease ultimately been agreed, i.e. $3,750 per month. 13. Such an approach was adopted in similar circumstances by Harrison AsJ in Le v Tran [[2016] NSWSC 632 at [106]]. 14. The plaintiffs calculate mesne profits due, on that basis, for the period between 29 March 2014 and the date of these submissions, to be $190,765.95. That calculation has been made as follows: (a) for the period between 29 March 2014 and 28 May 2018 - $187,500: (being $3,750 x 50 months); and (b) for the period between 29 May 2018 and 25 June 2018 - $3,265.92: (being $120.96 x 27 days). 15. Against that, Jam is entitled to credit for: (a) the balance of the April 2014 payment - $1,455.30; and (b) the amount of the security deposit still held by the plaintiffs' agent - $4,125. 16. On that basis, the plaintiffs calculate the total amount of mesne profits payable by Jam as at the date of these submissions, to be $185,185.62.
No submissions were made by Jam in that respect.
This Court found at [218] of Jam Studios No 1 that the plaintiffs where entitled to mesne profits. That conclusion was made because the plaintiff is entitled to damages for the loss of a use of their rights to the possession of the premises as a result of the wrongful interference with by Jam: see Macquarie International at [152(2)]-[152(3)].
On the evidence, I am satisfied that the rent agreed to by the parties in the Lease Advice Sheet is an appropriate amount to be awarded as mesne profits to the plaintiffs and that amount is the "reasonable rent" of the premises. Further, it is reasonable for Jam, as the trespasser, to pay that amount to the plaintiffs: see Macquarie International at [152(4)]. (Naturally this is exclusive of period for which rent was paid).

COSTS

In its very brief submission, Jam sought that costs be assessed.
On the other hand, the plaintiff's made a submission as to costs, partly on an indemnity basis. That submission was as follows: 20. The plaintiffs have been entirely successful in the proceedings. The claim for possession has been successful, and they have established an entitlement to mesne profits. 21. The plaintiffs submit that costs should follow the event. 22. Further, a "Calderbank" offer was made on the plaintiffs' behalf on 29 August 2017. A copy of that offer is annexed to these submissions. The offer was made at a time when Jam was legally represented and was addressed to Jam's then solicitor. 23. On the assumption that the Court accepts the above calculation of the claim for mesne profits, the monetary judgment for the plaintiffs will be significantly in excess of that offer. 24. The plaintiffs seek an order that Jam pay their costs on the ordinary basis up until 29 August 2017 (the date of the attached offer) and on an indemnity basis thereafter.
The plaintiffs attached to its submissions a copy of a letter dated 29 August 2017 from the plaintiffs' solicitor to Jam's former solicitors, Robert Watson Lawyers ("Robert Watson") which included a "Calderbank offer" ("the letter"). The offer remained open until 8 September 2017.
I note that the courts are generally reluctant to order costs on an indemnity basis against self-represented litigants although the authorities suggest that from time to time the courts found it appropriate to make such orders: Spalla v St George Motor Finance Ltd (No 8) [2006] FCA 1537 (at [26]) and Bhagat v Global Custodians Ltd [2002] FCAFC 51 (at [57] and [60]).
The consequences upon costs as a result of a Calderbank offer are a matter for the discretion of the Court: see Love v Victoria (No 2) [2009] VSC 531 at [22].
In Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 ("Miwa"), Basten JA (with whom McColl and Campbell JJA agreed) held that the approach to considering a "without prejudice" offer of settlement in this jurisdiction was that (at [8]): (a) there was a genuine offer of compromise, and (b) it was unreasonable for the offeree not to accept it.
His Honour went to consider the principles relating to the second limb, namely, whether it was unreasonable for the offeree not to accept the offer (at [10]-[16]): [10] Most cases will turn on the second element, namely whether there has been an unreasonable refusal by the offeree. This in turn involves a number of considerations. (a) timing [11] It is not in doubt that the response of the offeree must be assessed at the time it was made, and not with the benefit of hindsight resulting from a known outcome, recorded in a judgment: Regency Media at [33]. However, that factor should not entail a detailed investigation into the state of preparation or knowledge of the offeree as at the date of the offer. The expense and use of resources which settlement is intended to avoid include those involved in the assessment and preparation of a case. (b) relevant factors [12] In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 the Court of Appeal (Warren CJ, Maxwell P and Harper AJA) identified the factors relevant to determining whether the rejection of an offer was unreasonable as including the following: "(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it." [13] The Court rejected the suggestion that an offer need set out with specificity the bases upon which it was said that the offeree should accept the compromise proffered. The relevance of such material would depend upon the extent to which the issues had already been canvassed, for example by way of pre-litigation correspondence, and whether there were circumstances with which the offeror might reasonably expect the offeree not to be conversant. In some circumstances greater leniency may be accorded to a defendant offeree at an early stage of proceedings, than to a plaintiff offeree. [14] The extent of the compromise offered will always be a relevant factor in determining the reasonableness of the offeree's rejection. In Robb Evans & Associates an offer in compliance with the UCPR, r 20.26, involved an effective amount (after deducting a sum as to which there was no dispute) of less than $2,000 to settle a claim in excess of $800,000. The Court stated: "[20] ... If the offer were based on a legal assessment of the likelihood of success in an amount in excess of $800,000, the claim should have been struck out as frivolous and vexatious. It ultimately failed in this Court, but could not, on any view, be so categorized. It is implausible that the appellant so categorized it in quantifying his offer. [21] If the appellant had carried out a commercial evaluation, rather than a pure legal assessment of the likelihood of success, he would undoubtedly have concluded that, even if ultimately successful, he would be unlikely to recover many thousands of dollars of costs incurred if the litigation proceeded. A commercially based offer would have taken that matter into account. This offer clearly did not. ... [23] ... The amount offered, beyond that amount which was not in dispute, is properly characterized as trivial or contemptuous. It does not engage the costs consequences provided by r 42.15." [15] A similar approach was applied in Regency Media, where an offer of $10,000 was made in response to a claim of approximately $600,000: at [16]. The Court noted at [32]: "If a derisory offer, of the kind made in these proceedings, could result in an order for indemnity costs, then it is likely that many, perhaps most, contract interpretation disputes would result in an indemnity costs order, if the formality of an offer in accordance with the rules had been made at an early stage. If the appellant were to succeed in the present case, it is quite likely that such an offer would accompany most statements of claim as a matter of commercial practice. The purpose of the special order - to encourage settlement - would no longer be served. An order for indemnity costs could, in our opinion, become the normal order in many commercial disputes." (c) onus of proof [16] The general rule is that costs payable under an order of the court are to be assessed on the ordinary basis: UCPR, r 42.2. The court may otherwise order, but the burden of persuading the court will lie with the offeror: Black v Lipovac [1998] FCA 699; 217 ALR 386 at [217] (Miles, Heerey and Madgwick JJ), which has been regularly followed in the Full Court - see, eg, CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75] (Moore, Finn and Jessup JJ). Again, however, the reference to onus of proof is not intended to suggest that an application for indemnity costs be turned into a mini-trial. Generally, such applications are dealt with on the papers, a practice which should be maintained. It is nevertheless correct, as a matter of principle, to say that it is the offeror which must persuade the court that the rejection of the offer was, in the circumstances at the relevant time, unreasonable.
The approach in Miwa has been applied in circumstances where a Calderbank offer was made to a self-represented litigant: see Thomas v Holmes (No 3) [2017] NSWLEC 156 ("Thomas v Holmes") per Moore J at [109]-[117].
The "Calderbank offer" in this case was constituted by the letter. It was not adduced as evidence and was simply attached to an email. Questions may arise as to the availability of that course, particularly where Jam does not have legal representation. More significantly, without taking some further step in the proceedings, it is unlikely that Jam understood at the close of these proceedings the implications of the letter and the orders for indemnity costs sought by the plaintiffs in reliance upon it. This is evident from Jam's very brief submission on costs (simply one line that costs be assessed) and its non-engagement with the issue of indemnity costs.
However, given the conclusions I will reach, it is unnecessary to turn to further consider those issues. Even if the Court were to accept the letter as evidence of the fact of a Calderbank offer and that Jam was sufficiently appraised of the nature of the application, the Court will apply the approach as set out in Miwa, as applied in Thomas v Holmes, which, in my view, should result in a rejection of the plaintiffs' application for indemnity costs based upon a Calderbank offer.
At the outset, I would accept the letter represented a genuine offer of compromise. The offer represented only 20% of the outstanding rent at the time of the offer, required Jam to make good the premises and vacate within 14 days and proposed that each party bear their own costs of the proceedings "to date".
However, as to the second limb, there was no evidence adduced to suggest that it was unreasonable for Jam to not accept that offer. The letter was sent in circumstances where Robert Watson was recently instructed by Jam (a notice of appointment or change of solicitor was filed on 24 August 2017, appointing Robert Watson as the solicitor for Jam in these proceedings in place of another solicitor on record).
There was no evidence of the circumstances in which the offer was made, or any other factors, other than the fact of the compromise within the letter, to suggest that Jam's lack of acceptance of the offer was unreasonable. I note, in this respect, the lack of evidence on whether requiring Jam to vacate and make good the premises in 14 days was a reasonable term considering the premises had been fitted out and operated as a music store.
In the result, the plaintiffs failed to discharge the onus upon them that it was unreasonable for Jam to not accept the offer in the circumstances at the relevant time: see Miwa at [16]. The plaintiffs shall have their costs on an ordinary basis as effectively sought by Jam.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (9 paragraphs)

Cases Cited (14)

Cited By (1)