APPEAL AGAINST THE FIRST JUDGMENT
28The plaintiff is also entitled to judgment on its summary judgment claims if its appeal against the order giving effect to the first judgment is successful.
29Summary judgment is provided for in r 13.1(1) of the UCPR as follows:
13.1 Summary judgment
(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief:
(a) there is evidence of the facts on which the claim or part of the claim is based, and
(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,
the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires.
30In the first judgment at [6] - [8], [14] and [66], the primary judge set out findings on relevant facts and other matters that were not in dispute or were otherwise conceded during the hearing of the plaintiff's motion for summary relief:
6 The relevant facts are usefully set out in the parties' submissions. Even on this amended motion, the following facts are, in my view, established by admission, or on the unchallenged and undisputed evidence read on the application.
(a) The Defendant owns two properties relevant to these proceedings
(i) a property at Doyle Avenue, Unanderra, New South Wales ("the Doyle Avenue property"); and
(ii) a property at Sylvester Avenue, Unanderra, New South Wales ("the Sylvester Avenue property").
(b) The Plaintiff carries on a manufacturing business of producing refractory materials and occupies a factory site at Sandon Point, near Bulli, in New South Wales;
(c) Between May and September 2006, the Plaintiff and Defendant negotiated in connection with the lease of the Sylvester Avenue property;
(d) In about September 2006, the Plaintiff indicated that it wished to negotiate a lease of the Doyle Avenue property instead of the Sylvester Avenue property;
(e) There is situated on the Doyle Avenue property, an industrial factory building of approximately 4,500 square metres. A business or undertaking, known as Obnova Concrete is carried on at the property;
(f) Between September 2006 and October 2007, the parties conducted negotiations in connection with the lease of the Doyle Avenue property;
(g) On 8 October 2007, the Plaintiff and the Defendant entered into a Deed of Options for Lease ("the Deed");
(h) So far as is relevant, the Deed provided:
(i) by Clauses 2.1, 2.3 and 3, upon the exercise of an option for the Lease (as defined in the Deed), an Agreement for Lease would come into effect on the terms as set out in the Deed;
(ii) by Clause 4 and Item 12 of the Reference Schedule, the Defendant, with all due diligence and in a proper and workman-like manner, would carry out certain Works ("the Works") as specified in Item 3 of the Reference Schedule, which Works were to be completed within twelve months of the date of the Deed, namely by 8 October 2008;
(iii) The Works, included cladding the existing industrial factory building, constructing a new industrial factory building of approximately 2,000 square metres, constructing a new administration building and a fit-out of approximately 880 square metres, constructing a new amenities block with the new industrial building and also constructing car parking for approximately 80 cars;
(iv) by Clause 6, the Plaintiff was to attend to, and complete, at its own cost and expense, its fit-out, and the Defendant was to provide access to the Plaintiff for the purpose of its fit-out by 31 May 2008;
(v) by Clause 7, the Works were deemed to be completed upon the date of issue of the Occupation Certificate (as defined in Clause 1);
(vi) by Clause 9:
(a) in the event there was a failure on the part of the Defendant to complete the Works within twelve months of the date of the Deed, the Plaintiff, by written notice to the Defendant, could advise the Defendant of its default ("Default Notice"): see Clause 9.1(b);
(b) if within 14 days of the service by the Plaintiff of the Default Notice, the Defendant failed to rectify the default to the satisfaction of the Plaintiff, the Plaintiff was entitled to exercise any of its rights and remedies pursuant to Clause 9.3;
(c) if the Plaintiff was entitled to exercise its rights and remedies under Clause 9, then the Plaintiff, at its option, by written notice to the Defendant, could terminate the Deed, in which event the Deed was terminated and the Plaintiff would have no further obligations or liabilities under the Deed;
(vii) by Clauses 10 and 11, the Commencement Date and the Rent Commencement Date of the Lease was to be the date of the deemed completion of the Works (i.e. the date of the issue of the Occupation Certificate);
(viii) by Clause 12, the Plaintiff was to execute the Lease in duplicate, in the form annexed to the Deed and return it to the Defendant's solicitors to be held by them subject to the terms of the Deed;
(ix) Clause 13 of the Deed, entitled "Security Deposit", provided:
"Upon the signing of this Deed the Tenant must deposit with the Tenant's solicitors the sum of $560,000.04 plus GST to be paid to the Tenant's solicitors' trust account and then invested by the Tenant's solicitors into an interest bearing account with The Illawarra Credit Union Limited on behalf to the Landlord and the Tenant for the purposes of securing to the Landlord the performance of the terms and conditions of this Deed by the Tenant . The Tenant's solicitors are not to release any or all of the monies in such account without the joint authority of the Landlord and Tenant.
In the event that neither the Landlord nor the Tenant exercises its option pursuant to clause 2 hereof within the time provided therein then the Landlord must immediately allow the refund to the Tenant of the full sum of money contained in the said account plus all accrued interest.
Upon the commencement date of the Lease or upon the Tenant becoming entitled to exercise its rights under clause 9 or if the lease is not otherwise to proceed, then the Landlord must immediately allow the refund to the Tenant of the full sum of money contained in the said account plus all accrued interest.
The above provision relating to the full refund of the security bond to the Tenant upon commencement of the Lease is subject to the Tenant paying to the Landlord the first year's rent plus GST under the Lease in advance.
In the event however that the Tenant becomes bound hereunder to forfeit to the Landlord the said security deposit then in that event then all accrued interest earned thereon shall be paid to the Landlord." [My emphasis]
(i) Pursuant to Clause 13 of the Deed:
(i) on 11 October 2007, the Plaintiff transferred to the trust account of its solicitors, $616,000.04; and
(ii) on 7 November 2007, the Plaintiff's solicitors transferred the security deposit into an interest bearing cash management account with The Illawarra Credit Union Limited;
(j) On 8 January 2008, pursuant to Clause 2.1 of the Deed, the Plaintiff exercised the option for the Lease referred to in that Clause in respect of the Doyle Avenue property;
(k) The Plaintiff, subsequently, executed the Lease in duplicate and returned it to the Defendant's solicitors;
(l) The Works were not completed within the time required, or at all;
(m) The time for the Plaintiff to perform its obligations to carry out its fit-out never arose.
(n) Obnova Concrete has continued to carry on business at the Doyle Avenue Property;
(o) No Lease ever commenced operation;
(p) The security deposit is still held in the Credit Union account.
7 On, or about, 22 October 2009, the Plaintiff served on the Defendant a Default Notice in respect of the Defendant's failure to complete the Works.
8 On, or about, 19 November 2009, the Plaintiff served on the Defendant, a Termination Notice dated 19 November 2009.
...
14 At the hearing of the amended notice of motion, the Defendant accepted that:
(a) the only binding agreement(s) between the Plaintiff and the Defendant were the Deed and the Lease of the Doyle Avenue Property;
(b) the Deed and the Lease were terminated; in this regard, whilst the Defendant denied the Plaintiff's right to terminate the Deed, it asserted that the Plaintiff's purported termination amounted to a repudiation of the Lease and the Deed, which entitled it (the Defendant) to terminate the Lease (and Deed), which it had done; and
(c) despite there having been lengthy negotiations for, and steps taken towards, the parties entering into a lease for the Sylvester Avenue property, no binding agreement between the parties for lease in relation to the Sylvester Avenue property had ever come into effect.
31The critical clause of the deed relating to release of the security deposit is cl 13. It is set out, with appropriate emphasis by the primary judge, in the above quotation from the first judgment.
32The summary relief claims do not involve any claim or demand for payment by the plaintiff against the defendant for any debt, damages, liquidated or unliquidated, or other monetary amount.
33The defendant pleads that to the extent that the plaintiff is found to be entitled to a refund of the security deposit or any part of it (which is denied) the defendant is entitled to offset the whole of the security deposit against the damages sought in the amended cross-claim.
34Relevantly, cl 13 of the Deed provides that an event that triggers the plaintiff's entitlement to a refund of the security deposit is that the lease is not otherwise to proceed. This event does not, and on the facts of this case did not, concern any failure or default by the defendant to pay any money to the plaintiff or any other monetary claim or demand by the plaintiff against the defendant.
35The primary judge found that the lease is not to proceed and that this was an event, without more, that immediately entitled the plaintiff to a refund of the security deposit plus interest in the account pursuant to clause 13: [66] to [68] of the first judgment.
36Subject to the set-off issue the subject of this appeal, the primary judge found that there was no triable issue in respect of the summary relief claims: [59] - [74] of the first judgment.
37In the first judgment at [75] - [77], the primary judge said ( the set-off finding ):
75 Finally, I turn to whether reliance upon a set-off should prevent the Plaintiff succeeding on its claim. In answer to the set-off claim, the Plaintiff submits that there is no money claim made by it, but simply claims for a declaration and consequential orders in accordance with the provision of the Deed.
76 In light of the conclusion reached in Lean v Tumut River Orchard Management Ltd , and the authorities referred to in the case, namely that it is reasonably arguable that rights under a contract (the Deed) could be set-off against misleading or deceptive conduct, or unconscionable conduct amounting to a contravention of the Trade Practices Act , keeping in mind the strong reluctance of the court to give summary judgment, and exercising the extreme caution which must be exercised in making such a determination, I have, hesitatingly, come to the conclusion that the case advanced by the Defendant on the Plaintiff's claim for the return of the security deposit should proceed.
77 I stress that I do not, necessarily, accept as correct, the argument of set-off, and I do not intend suggest that, at the trial of the proceedings, the argument would succeed. It is, however, sufficient, for the purpose of the summary judgment application, that the Defendant raises a triable issue.
38Accordingly, the set-off finding was the sole basis in the first judgment upon which the primary judge refused the plaintiff's application for summary relief. However, as indicated at [80] - [82] of the primary judgment (quoted above at [10]), his Honour was also moved to require the defendant to give an undertaking as to damages, and by the fact that the parties had indicated they could be ready for hearing reasonably promptly, to which end his Honour made directions for service of evidence.
39The set-off finding was based on the proposition that set-off is available as a defence where, as is the case here, there are no cross-demands for money or damages between the parties. The plaintiff submits that that is a misapprehension of the law. I accept the submission. In my opinion, all set-off, including equitable set-off, is concerned with cross demands for money or damages between the parties and setting one off one against the other so as to produce a balance: P W Young; C Croft; M Smith, On Equity (2009) Lawbook Co at [15.360]; R Derham, The Law of Set-Off , 4 th ed (2003) Oxford University Press at [1.01], [3.02] and [9.01]. Ultimately, all cases of set-off require the court to (a) make a finding in monetary terms in relation to a claim or demand by the plaintiff against the defendant; (b) make a finding in monetary terms in relation to a claim or demand by the defendant against the plaintiff; (c) to set-off one against the other; and (d) to give a judgment for the plaintiff for the difference (if any) between the two amounts: Meagher, Gummow and Lehane's Equity Doctrines and Remedies , 4th ed (2002) LexisNexis Butterworths at [37-005].
40The defendant has a monetary claim against the plaintiff for damages for misleading or deceptive conduct or unconscionable conduct. However, in respect of the summary relief claims, the plaintiff makes no monetary or damages claim against the defendant. Rather, it seeks a declaration and mandatory injunction that the defendant do those things it promised under cl 13 of the deed to enable the plaintiff to have its money (the security deposit) released to it from a third party, the plaintiff's solicitor. The plaintiff's entitlement to the summary relief claimed is not consequent upon the non-payment of a debt or other money from the defendant. It is simply consequent upon the fact that the lease is not to proceed.
41In Re Dalco; Ex parte Dalco v Deputy Commissioner of Taxation (1986) 67 ALR 605 at 612, an authority cited in On Equity on this point, Neaves J in the Federal Court said:
The essential nature of a set-off is that it is a countervailing claim: the debtor, in effect, admits the existence of the creditor's debt but sets up a countervailing claim as excusing him from paying the creditor's debt either wholly or in part depending upon the amount of the countervailing claim.
42In Tony Lee Motors Ltd v M S MacDonald & Son (1974) Ltd [1981] 2 NZLR 281 at 288, an authority cited in both On Equity and The Law of Set-Off on this point, Bisson J in the High Court of New Zealand stated:
...there can be no set-off in law or equity of any part of the equitable debt of $9900.56 against the plaintiff's claim for the possession of parts, plant and equipment. The Statutes of Set-off do not apply to goods or other specific things wrongfully detained and in equity set-off is likewise only concerned with debts or money demands. (See Story on Equity pp 601 and 602)...
43In Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County Borough Council [2002] 1 AC 336 at [36], another authority cited in The Law of Set-Off on this point, Lord Hoffman said:
Similarly, equitable set-off depends upon showing some equitable reason for protection against the plaintiff's demand: see Hanak v Green [1958] 2 QB 9. In my opinion a defendant could not, in the absence of a lien or other security, claim to retain an asset belonging to a plaintiff by way of set-off against a monetary cross-claim. If this were not the case, everyone would in effect have a lien over any property of his debtor which happened to be in his possession. It follows, in my opinion, that he cannot improve his security in equity by wrongfully converting the debtor's property.
44In the first judgment at [76] the primary judge said that he hesitatingly relied on the Carr J's decision in Lean v Tumut River Orchard Management Ltd [2003] FCA 269. In my view, that case is distinguishable. Lean concerned an application by the second respondent in those proceedings that the applicant's statement of claim be struck out. The applicant claimed (among other things) that it was entitled to damages against the first respondent for its misleading or deceptive or unconscionable conduct under the Trade Practices Act 1974, which allegedly caused it to enter into various agreements including Investor Loan Agreements. Those Investor Loan Agreements were later assigned to the second respondent. The second respondent had commenced proceedings against the applicant in the Local Court for moneys allegedly owing under the Investor Loan Agreements. In the Local Court proceedings and in its statement of claim in Lean , the applicant sought inter alia a declaration that the applicant was entitled to an equitable set-off against the first respondent. The applicant also sought a declaration that the second respondent took its rights under the alleged assignments from the first respondent subject to the applicant's equitable set-off against the first respondent.
45On the second respondent's strike out application, the issues identified by Carr J at [56] of Lean were: first, whether it was reasonably arguable that the applicant was entitled to an equitable set-off against the first respondent (in respect of moneys owing under the Investor Loan Agreements) of its damages for misleading or deceptive or unconscionable conduct; and secondly, whether it was reasonably arguable that the second respondent took its rights (under the Investor Loan Agreements) as assignee from the first respondent subject to the applicant's equitable set-off against the first respondent. In respect of the first issue, the court in Lean (in the passages cited at [57] of the first judgment) found for the applicant. In respect of the second issue, the court in Lean also found for the applicant: at [62] and following, especially [79].
46Hence, Lean was a case that involved cross demands of money or damages. The present case is distinguishable from Lean because the summary relief claims do not involve any monetary claims or demands against the defendant. And the plaintiff's entitlement to those summary relief claims is not consequent upon the non-payment of a debt or other money by the defendant.
47In my opinion, the primary judge ought to have found that set-off was inapplicable on the facts of this case in relation to the summary relief claims and that there was no triable issue in that regard. Consequently, in the first judgment the primary judge ought to have given summary relief to the plaintiff and made the orders sought in the amended notice of motion filed on 24 September 2010. Therefore the appeal against the order giving effect to the first judgment should be allowed.