The Amble Inn Pty Ltd v Ryan [2001] NSWSC 875 | Case summary

Judgment 1 His Honour: This is a case involving a relatively small amount of money which raises, at least at the periphery, some very interesting questions of law. I will endeavour to restrain myself as much as possible to the issues that really matter in the case. 2 Prior to 20 July 2001, the plaintiff was the lessee and the defendants were the sub-lessees of The Amble Inn at Corindi. The sub-lease expired on that day. 3 The defendants had become the sub-lessees by virtue of a deed of assignment bearing date 5 March 1999. Clause 13 of that deed is as follows: "The Lessor (the present plaintiff) agrees to purchase the Assignee's (the current defendants) plant and equipment at the end of the lease term at such figure as shall be agreed by the Lessor and the Assignee at that date or failing agreement at the figure determined by a Valuer appointed by the parties, the cost of such valuation be borne equally by the Lessor and the Assignee, PROVIDED THAT the plant and equipment which is to be purchased by the Lessor is in reasonable working order." 4 On 30 May 2001 the plaintiff's solicitors wrote to the defendants' solicitors: "Our client intends to take over the Lessor's plant, equipment and tenant's fittings. The deed of assignment of lease provides for a valuation to be carried out by a valuer appointed by the parties. As you are likely to have knowledge of local valuers we suggest that you nominate two or three names to us and we will put those to our client with a view to agreeing on the valuer to be appointed." 5 The letter was replied to on 8 June 2001, and it suggested a figure at which the plaintiff might like to purchase the property to save a further valuation. This disclosed that the defendants had recently had a valuation done by Mr Aylward. However, nothing came of that, but on 19 June 2001 the defendants' solicitors agreed that Mr Aylward could be the valuer. 6 On 20 June 2001 the plaintiff's solicitors wrote to Mr Aylward and informed him of clause 13 of the deed; they then went on to say: "We consider that the appropriate value to be assigned to the plant and equipment is current market value. We enclose a copy of a letter from the solicitors acting for Mr & Mrs Ryan which indicates their agreement to you being nominated as the valuer on behalf of the parties. We request you to provide to both parties your valuation of the plant and equipment." 7 The plaintiff's solicitors notified the defendants' solicitors that that had been done the same day. 8 On 25 June 2001 Mr Aylward produced a valuation of the plant and equipment as a going concern. He valued the property at $105,830. It is common ground that this was in addition to the value of the poker machines and stock in trade. 9 Immediately following receipt of that valuation, the plaintiff's solicitors wrote to Mr Aylward and said: "We refer to our letter dated 21 June 2001 and now advise that the appropriate value to be provided for the plant and machinery at the Amble Inn is the disposal price which would be realised if the plant and equipment was sold by private treaty or at auction." 10 Mr Aylward responded on 28 June 2001 with the following comments: "To dispose of the plant and equipment by way of on site auction and that the auction having been promoted in the normal manner through newspaper advertising and direct mail-outs to known and prospective buyers within our database, we believe an estimate of around $40,000 (forty thousand dollars) for the items could be realized on the day." 11 There was then further correspondence between the parties before these present proceedings were commenced on 17 July 2001. Before the proceedings were commenced the plaintiff offered to purchase the poker machines for $67,000, which the defendants accepted. The poker machines, accordingly, ceased to be a factor in the case, save and except that it has been put by the plaintiff as an aspect of part performance of the entire contract. 12 On 17 July 2001 the present proceedings were commenced by summons. The plaintiff principally sought a declaration that it was an implied term of the assignment that the valuer appointed by the parties would value the defendants' plant and equipment according to its market value at auction or by private treaty, and for an order that the agreement, including that term be specifically performed, and that, in the meantime, the defendants be restrained from removing the property from the hotel. 13 The matter came on before Palmer J as Duty Judge on 19 July 2001 at which time the defendants filed a cross-claim seeking a declaration that the valuer had duly determined the value of the property, judgment for $105,830, plus interest or, alternatively, a declaration that the defendants were entitled to remove the property from the hotel. His Honour continued an ex parte injunction that he had already given to hold the status quo, stood the matter into the short matter list from whence it came on for hearing before me. 14 I was greatly assisted by the submissions of Mr R Wilson for the plaintiff and Mr Charles for the defendants. 15 The principal exercise for the Court is to determine the proper construction of clause 13 of the deed of assignment. It can be seen that the clause does not explicitly determine the basis on which the valuer is to be asked to approach his or her task. All that the clause says is that the lessor, ie, the plaintiff, is to purchase at a figure determined by a valuer appointed by the parties. There is no doubt at all that the parties did appoint a valuer, Mr Aylward. 16 Mr Wilson says that the valuer's task is to be determined from the construction of the terms of the contract: Legal & General Life of Australia Limited v A Hudson Pty Limited (1985) 1 NSWLR 314, 331. That proposition is undoubtedly correct. The difficulty is to see what the contract means. 17 Although for the lay person the word "value" may connote that there is one and only one value on each piece of property, lawyers and valuers and other people who have run into problems in this area know that this is not correct. In many situations, the value of an article to a plaintiff may be quite different to its value to the defendant. 18 For instance, if there was a sale by a trustee in bankruptcy of a trophy that X's father had won at an athletic meeting, the trustee might think it only had a nominal value, but a relative of the person who won it might be prepared to pay far more than a nominal sum for the article. The value of that property to the potential purchaser would be affected by the sentimental history of the particular article. There are many other examples that can be given. 19 There are some situations, such as in family law cases, where one has to value shares in a proprietary company, all the shares of which are held by members of the family, where there is really only one possible purchaser of the shares. In such cases one has to put aside almost all of the notions of valuations which have been adopted for commercial purposes and look to the realities as to how much the leader of the family would be prepared to buy out the other members of the family without necessarily relating it to the value of the underlying assets; see Mordecai v Mordecai (1988) 12 NSWLR 58, 70. I examined this line of territory in Sapir v Sapir (No 2) (1989) 13 Fam LR 362, 365. 20 One can also have a different valuation arising where the purchaser knows that the vendor is compelled to part with the property quickly. There are other situations where property is able to be sold in a market where there are a number of people who will be bidding against each other. In that situation it is real to talk about a price which a reasonable but not over-anxious purchaser would be prepared to pay rather than risk the loss of buying the goods in question. This is what Mr Wilson says is the normal use of the word "value" and he supports that by reference to cases such as Strang Patrick Stevedoring Pty Limited v James Patrick & Co Pty Limited, Giles J, unreported, 3 March 1993 at p 16, and the later episode of that case which is reported in (1993) 32 NSWLR 583, 589; see also the decision of Santow J in Holt v Cox (1994) 15 ACSR 313, which was affirmed in the Court of Appeal (1996) 23 ACSR 590. 21 However, one must not be led astray by commercial cases talking about the normal use of the word. What the Court has to do is to look at the use of the word "value" by these parties in this context. 22 Mr Wilson says that it is significant that when one looks at the underlying buying of business equipment at the same time more or less as the deed of assignment, the goods seem to have been bought for $60,000 of the total price of $85,000. Mr Charles says this is quite irrelevant. I have some doubt as to its relevancy, but one knows as a matter of commonsense and experience that the sales of businesses with the apportionment of the price between goodwill and fixtures in the normal sale of business agreement is relatively artificial and does not give any real guide to anybody as to what is the considered value of any particular part of the purchase price. 23 On the other hand, one can look at the clause itself and see that what appears to be contemplated is one purchase of plant and equipment. One purchase of plant and equipment which is to be in reasonable working order. It is an agreement to purchase all or any of the individual items which make up plant and equipment. Why would anyone want to purchase the whole of the plant and equipment? The obvious answer is to use it in connection with the hotel. 24 One might also have thought that the most likely scenario was that when the sub-lease was ended, assuming it was going to be renewed, either the plaintiff would take over the hotel itself or, more likely, it would execute a new sub-lease to a third party and the lessor would be able to obtain a higher rent on that sub-lease if it had all the plant and equipment. Both these considerations tend away from the idea that there was to be what might be called a liquidation sale in which the plant and equipment was to be disassembled, taken to an auction room and auctioned bit by bit. 25 Accordingly, in my view, what was to be valued was the plant and equipment in association with the hotel. That is what Mr Aylward did. 26 However, even if one takes a step back from that and says that the parties left it up to the valuer to work out the most appropriate method of valuing it, then again it seems to me that Mr Aylward did not make an operative mistake which would vitiate the valuation. He was, in fact, told by the parties, and it seemed to be common ground among them at the time that the valuation was made the landlord would be taking over the hotel and he should value at market value. 27 True it is one must construe clause 13 as at the date of the deed rather than the date when the valuation is made, but it seems to me for the reasons I have already given that the two slot in together. 28 It seems to me that the valuer did what he was asked to do and if it be the case that he did not direct his mind to the auction value, the problem was that no-one, until after he gave his valuation, directed his mind to that particular consideration. 29 Accordingly, in my view the defendants are entitled to succeed on their primary cross-claim for the price of the goods plus interest. 30 The interest, in the way this case is run, is not only to compensate for the delayed payment of the money, but is also to take the place of any damage that might have flowed from the interim injunction that was granted. 31 If I had not come to that view I would have thought the case was an extremely difficult one technically, even though the amount of money is relatively small. I promised that I would not go too deeply into these problems and I won't, but I think they should be at least flagged. 32 The plaintiff's main case was specific performance. The contract involved goods and ordinarily equity does not grant specific performance unless unique chattels are involved. The expression "unique chattel" usually connotes the chattel that one cannot just go back into the market place and buy. Mr Wilson rightly submits that does not strictly apply to this case as new equipment or the replacement equipment would have had to be manufactured. It would seem to me, however, that if one can go out and have the equipment manufactured and installed within a reasonable time, the case is ordinarily one of damages. 33 The outer limit of what is a unique chattel seems to be laid down by the High Court in Dougan v Ley (1946) 71 CLR 142, 151 and Doulton Potteries Limited v Bronotte [1971] 1 NSWLR 591, 599. This case falls outside that. 34 Mr Wilson endeavoured to save the situation by referring to paragraph 21 of the affidavit of the controlling director of the plaintiff, which said that the plaintiff wishes to preserve the plant and equipment at the hotel; that if it was removed it would cost about $300,000 to purchase alternate equipment. I do not think that is sufficient. That is just again a matter of damages. I agree with Mr Charles that the real significance of that statement is that it shows that the argument, commercially at least - and I think legally as well - that this equipment only had a value of $40,000 is risable. 35 The other problem is that raised by Hall v Busst (1960) 104 CLR 206 where the High Court by a three to two majority held that where one has a contract at a price to be determined by a third party, and the machinery breaks down, equity does not supply the machinery. Although that case has been attacked and is no longer the law in England, it is still binding here. 36 In South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478, for some extraordinary reason not reported, the Chief Justice said at [13]: "In the case of sale of land this Court would be constrained to follow Hall v Busst which, although doubted, has never been overruled." 37 However, his Honour said that in a case of a rent review clause, Hall v Busst did not govern the situation. The judgment suggests to me that modern courts will confine the operation of Hall v Busst and would not apply it in a case involving the sale of chattels. 38 The other argument is based on my decision in Kymbo Pty Limited v Paxton Management Pty Limited [2001] NSWSC 792, that where one has an executed contract and one party has received a fair amount of what he or she bargained for, it would be unconscionable for that party to take a point such as the Hall v Busst point and the Court must use its machinery in order to bring about a fair price to be paid for the goods in question. Both those escape routes, if I can use the expression from Hall v Busst, are available in this case, however, it is not necessary for me to apply them. 39 Mr Wilson also sought to apply the extended doctrine of part performance referred to in Kymbo to say that if the valuation was invalid, in view of the sale of the poker machines (which were part of the chattels referred to as the whole of the fittings and fixtures that were to be sold), it would be unconscionable for the former sub-lessees now to remove them or bargain for a greenmail price for them. Again, that submission has a lot of weight in it, but it is not necessary for me to decide it. 40 Accordingly, I think all I need do is dismiss the summons with costs and give judgment for the cross-claimants for $107,648 (which includes interest). For abundant caution the interim injunction granted by Palmer J is to be dissolved, there being no inquiries as to damages. The exhibits should be returned. This judgment is given on the common understanding that the property in question becomes the property of the plaintiff.

The Amble Inn Pty Ltd v Ryan

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Judgment (8 paragraphs)

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Cases Cited (8)

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