Faiz Rizvi and Teseen Pty Limited v Glen Hodgson and Vitala Pty Limited [1997] ACTSC 109 (19 December 1997)

SUPREME COURT OF THE ACT

FAIZ RIZVI and TESEEN PTY LIMITED v GLEN HODGSON and VITALA PTY LIMITED
No. SC 782 of 1997
Number of pages - 10
Contracts

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

HIGGINS J

CATCHWORDS

CONTRACTS - Deed of assignment between parties - Validity of - Whether entered into by one party under duress - Interpretation to be given to its provisions - Whether time was of the essence - Rule in Bain v Fothergill - Whether agreement repudiated or breached - Whether financial hardship to one party a relevant factor - Legal effect of certain actions by parties - Whether specific performance available.

R v Cunningham (1899) 1WALR91

Warner v Sampson [1959] 1 QB 297

Bain v Fothergill (1874) LR 7HL 158

HEARING

CANBERRA, 13 November 1997 (hearing), 19 December 1997 (decision)

19:12:1997

Appearances

Counsel for the Plaintiffs: I. Byrne

Solicitor for the Plaintiffs: Hanstein, Stacy & Nyman

Counsel for the Defendants: Self

Solicitor for the Defendants: Self

ORDER

Order:

1. The defendants deliver up possession of the premises at 96 Newcastle Street, Fyshwick in the ACT to the plaintiffs.

2. Judgment be entered for the plaintiffs against the defendants for damages to be assessed.

3. Accounts be taken between the parties and the balance due to any party be included in any assessment of damages.

4. The defendants are at liberty to plead any matter of counterclaim open to them by reason of the failure of Rizvi to complete the sale of the business to Hodgson on or before 30 September 1997.

DECISION

HIGGINS J

This is the final hearing of an original application made on 28 October 1997. The first plaintiff is the controlling interest behind the second plaintiff. The first defendant is the controlling interest behind the second defendant. For that reason, as nothing otherwise turns on it I will unless it is otherwise necessary refer to the plaintiffs as "Rizvi" and the defendants as "Hodgson".

On the same day, by notice of motion, Rizvi sought a restraining order against Hodgson. It sought to restrain Hodgson from entering or being upon premises known as 96 Newcastle Street, Fyshwick, ACT "except for the purpose of collecting personal property or his or its motor vehicles" and from "negotiating a lease" with the sublessor of the premises.

The originating application sought damages for breach of an agreement between Rizvi and Hodgson.

The allegations in the Statement of Claim upon which that cause of action was based were based upon a common substratum of fact.

The parties were each motor vehicle dealers. Rizvi about August 1997, came to an arrangement with Hodgson to share the premises. Each would conduct their separate dealerships from those premises.

Rizvi was the prior occupier of the premises as a tenant from month to month of Mirco & Silvana Pavan and Romeo & Rina Borella (the Landlords) Crown lessees of the premises. Rizvi was in the process of negotiating a formal long-term Sublease of the premises.

Hodgson contends that it was intended that Rizvi would, after perfecting the sublease, transfer it and the good-will attached to the site to Hodgson on terms yet to be agreed.

The status of that expectation is not presently relevant. I assume it was not legally binding. Similarly there is no evidence as to whether the landlords consented or not or could have objected or not to the Rizvi/Hodgson proposal. Fortunately, in the light of subsequent events, it is unnecessary further to consider those issues.

In anticipation of the agreement Hodgson did some work on the site to improve its presentation. He claims to have paid out about $12,600 up to 10 September 1997. It is not immediately apparent that all of those monies were spent for Rizvi's benefit.

In early September 1997 it is common ground that there was a serious falling out between Rizvi and Hodgson. Mr Hodgson approached the landlords to endeavour to persuade them to give Hodgson the sublease. They declined on the basis that Rizvi had an option to enter into a sublease which had yet to be exhausted.

In mid September 1997, Mr Rizvi and his secretary applied for restraining orders against Mr Hodgson in the ACT Magistrates Court. Hodgson complains that those proceedings were taken without reasonable and probable cause.

On 18 September 1997, the parties reached an agreement. On the basis of that agreement the application for restraining orders was, by consent, dismissed.

That agreement was embodied in a Deed dated 19 September 1997. It appears it was drawn by solicitors and executed by all the parties to this action.

In essence, Rizvi agreed to procure a registrable sublease for 3 years, assignable to Hodgson. He agreed, in consideration of the sum of $58,900 to be paid by Hodgson, to transfer to Hodgson the sublease, Rizvi's business name and all good-will attached to the premises.

Clause 3.1.14 provided,

"If settlement does not occur in accordance with this agreement Hodgson is to vacate the premises within 48 hours".

Clause 3.1.15 provided,

"Each party is to use their best endeavours to fulfill this agreement".

Clause 3.1.18 provided,

"Each party will not allow or procure any other person to take steps in breach of this agreement".

Clause 4 dealt with settlement. It provided that settlement was to occur on 30 September 1997. It was further provided that pending settlement Rizvi would allow Hodgson to enter into exclusive possession of the site.

Rizvi had the obligation, therefore, to obtain a transferable sublease conforming to the requirements of clause 3 of the Deed.

Rizvi received such a document on 29 September 1997 for approval and, if approved, for execution. It was returned duly executed by Rizvi on 1 October 1997.

However, before the landlords would agree to execute the sublease it appears that they required payment of all arrears of rent. Rizvi paid those on 7 October 1997.

In the meantime, Rizvi alleges that on 29 September, Hodgson approached the landlord and asked for the lease to issue directly to Hodgson. Hodgson denies that and says that no such approach was made till Rizvi had failed to settle on 30 September 1997.

Initially, the landlords seem to have favoured that proposal but, ultimately, did not accede to it. It is unnecessary for me to decide whether the landlords could legally have accepted it. That is because the landlords have now granted a sublease for 3 years to Rizvi in registrable form. It commences on 1 October 1997 and expires 30 September 2000. Had that sublease been available duly executed by the landlords on 30 September 1997, it would have compelled Hodgson to settle as agreed or face the consequences of breach of the Deed.

Clearly, since 1 October 1997 Hodgson has been in possession of premises to which Rizvi has title.

As at 19 September 1997 when the Deed was executed, Rizvi had yet to perfect the title which they contracted to convey. Of itself, that is no impediment to lawful performance of the Deed. See, for example, R v Cunningham (1899) 1WALR91.

However, as at 30 September 1997, Rizvi could not perform the terms of the Deed. There was no communication between the parties seeking to waive or re-negotiate the terms of the Deed.

Indeed, rather than to do so, Rizvi, on 28 October 1997 made application for damages. The Statement of Claim alleged a number of breaches by Hodgson of the Deed of 19 September 1997.

The allegations of breach were particularised as,

"(a) By failing to settle on the settlement day or at all. (b) By depreciating the name of "Newcastle Street Autos. (c) By failing to use their best endeavours to fulfill this agreement. (d) By procuring or taking steps to allow other persons to breach this agreement. (e) By failing to vacate the premises in accordance with the agreement or thereafter or after notice to vacate has been given."

Hodgson by their Defence dated 5 March 1997, denied any breach. They asserted that on the date appointed for settlement Rizvi failed to perform the agreement and that, as a result, time being of the essence, the agreement was thereby discharged.

They further assert that,

"... the Plaintiff is estopped from assenting (sic - "asserting") an entitlement to possession to the exclusion of the Defendants by virtue of the representations which brought the First Defendant to the site, and which led the First Defendant to invest in the relocation to the site of his business generally and invest in the initiation and development of the business on the site".

There is a counterclaim for accounts to be taken arising out of the businesses conducted on the site before 19 September 1997 and alleged mutual dealings and payment of debts arising. The estoppel relied on as a defence is also asserted as a counterclaim.

THE FAILURE TO SETTLE ON 30 SEPTEMBER 1997

Settlement on 30 September 1997 was not possible unless, by then, Rizvi had procured a duly executed and transferable sublease from the landlords.

On 29 September 1997, the solicitor for Rizvi wrote to Hodgson's solicitor in the following terms, repeating relevant parts only,

"We expect to settle this matter on the 30th September in accordance with the Deed dated 29 September 1997.

We propose that the lease will be executed tomorrow as will the transfer. We will return the lease to the owners Solicitor.

Please advise a time for settlement."

Had all that occurred, of course, Rizvi would have been not only willing but also ready and able to settle the agreement on the due date.

On 30 September 1997, the solicitor for Hodgson wrote to the solicitors for Rizvi, rejecting their assertion that they were in a position to settle on that day. He stated,

"... Mr Graham Findlayson (sic), solicitor for the Crown Lessee, (sic), advised me at approximately 3.30pm that the situation was that:

1. No agreement had been reached as to the terms of the lease.

2. He had written to you, advising that two terms that his client (sic) required were as follows:

(a) Teseen maintains its personal covenants under the lease. (b) Mr Rizvi maintains his guarantee

3. Thus the lease had not in fact been executed by his client.

Thus it seems clear that you are not in fact in a position today to complete. If you are, please provide documentary evidence to this effect immediately".

The time of receipt, according to the facsimile imprint was 4.48pm.

Rizvi's solicitors did not reply until 9 October 1997. It therefore must be concluded that Rizvi had not been in a position to provide the executed sublease and transfer to Hodgson on 30 September 1997.

By letter dated 9 October 1997, Rizvi's solicitors stated,

"We are instructed that there are moves afoot for your client or his company to sign a lease for 96 Newcastle Street, Fyshwick with the current owners in breach of the parties agreement. We have a letter from the owner's (sic) solicitor to that effect.

Our client has done everything required of him to procure a lease of the premises in his name and assign that lease to your client, whereas your client's currents (sic) actions put him in breach of the deed dated 19 September particularly 3.1.15 and 3.1.18. We require your confirmation that settlement will take place this afternoon or tomorrow.

Please be advised that if we haven't heard from you by 3pm today of a settlement time and date that our client can only presume that your client is (sic) undermining the agreement and that our client will be forced to take suitable steps to protect his position in respect of his rights in relation to 96 Newcastle Street, Fyshwick, which may entail otherwise unnecessary costs to all concerned."

As it happens, there is no evidence of any approach to the landlords after 19 September 1997 and on or before 30 September 1997 by or on behalf of Hodgson to procure a sublease direct to them. I cannot conclude that there was any such approach until after 30 September 1997.

Although there is evidence that after 30 September 1997, Hodgson did seek a direct grant of a long-term sublease, that approach was ultimately unsuccessful. There is no evidence that it delayed the grant to Rizvi of the sublease they now have.

Whether or not the failure of Rizvi to gain a registrable and transferable sublease was the result of the landlords' default, it was not due to any default which I can find on the part of Hodgson. The landlords were not parties to the Deed of Settlement and could not by virtue of its terms, have been obliged to facilitate its completion.

On 13 October 1997, Hodgsons's solicitors wrote asserting that, far from breach by his clients of the terms of the Deeds, Rizvi was in default thereunder having failed to complete on 30 September 1997.

The letter stated, relevantly,

"1. Your client was not in a position to settle on 30 September 1997. You advised me that he was. However, my enquires (sic) to the solicitor for the landlord, Mr Finlayson, was to the effect that there were certain conditions to the landlord agreeing to a lease with your client which had not been satisfied as at 30 September 1997.

I understand that only over the last few days have arrears of rent been paid by your client.

2. Thus your client was in breach of his obligation pursuant to the agreement. It is my submission that time was of the essence.

3. Thus my client has no subsisting obligations to your client. He has in fact been granted a lease for this month by the landlord, on the basis that he has paid rent for the month."

The letter concluded with an offer to settle the matter on the same terms as if the matter had completed on 30 September 1997 but on payment of the sum of only $10,000 rather than the $58,900 provided for in cl. 3.1.2 of the Deed.

Unsurprisingly, Rizvi was not moved to accept that proposal, instead invoking cl 3.1.14 ie that,

"If settlement does not occur in accordance with this agreement Hodgson is to vacate the premises within 48 hours".

The question which each party raises against the other is not simply that settlement failed to occur. That must have been a risk each party accepted. Hodgson asserts that in some fashion Rizvi failed to comply with cl 3.1.15 ie,

"Each party is to use their best endeavours to fulfill this agreement.".

Alternatively, Rizvi contends that Hodgson breached the agreement by failing to comply with that clause or with cl 3.1.18, by approaching the landlords to procure a sublease directly to them to the exclusion of Rizvi. Cl 3.1.18 provides,

"Each party will not allow or procure any other person to take steps in breach of this agreement".

There is an assertion supported by Mr Rizvi's affidavit of 28 October 1997 that he had spoken to one of the landlords who, in turn, alleged that Mr Hodgson had asked for such a lease on 29 September 1997.

However, Mr Hodgson denies that conversation occurred. The allegation that it did occur remains no more than that. Even accepting the conversation between Mr Rizvi and the landlord occurred it affords no admissible evidence of the truth of the landlord's assertion.

Whether the plaintiffs had failed to use their "best endeavours" to procure a registrable sublease by 30 September 1997 depends on whether they had failed to meet the landlords' apparently reasonable demands as asserted in Mr Helman's letter of 30 September 1997.

That letter of itself does no more than recount a conversation with the landlords' solicitor. Even accepting that the conversation occurred, it is not admissible evidence of the truth of the allegations made. Of course, had Rizvi's solicitors conceded the truth of those matters they may have been taken as admitted. However, they have not done so.

The same comment applies to the assertion of non-payment of rental arrears, as at the date of settlement, subsequently made by Hodgson's solicitor.

Mr Hodgson also relied upon an affidavit sworn by him on 31 October 1997. That affidavit made a number of points.

* That Hodgson located to the Newcastle Street premises expecting that Rizvi would transfer the sublease and good-will of the site to them.

* In early September 1997, that expectation broke down but the landlords were not then prepared to give a long term sublease to Hodgson on the basis that Rizvi had some kind of option for the same which was yet to expire.

* Hodgson had agreed to compromise the apprehended violence order proceedings under duress. That duress Mr Hodgson identified as the difficulty in otherwise maintaining possession of the site and gaining transfer of title to the premises.

* Hodgson presently regard the terms of the Deed as representing an unfair and unfavourable bargain.

* Hodgson have not done anything contrary to cl 3.1.12 ("depreciating" the business name of the plaintiffs)

* Hodgson paid rent to the landlords for the month of October 1997.

* There were various monetary claims between Rizvi and Hodgson which could warrant an account being taken between them, or, alternatively, constitute a set off against any sum due (for damages or otherwise) to Rizvi.

* For Hodgson to vacate the premises would cause financial hardship to Mr Hodgson, and his family, employees and subcontractors of Hodgson, including the liabilities into which Hodgson entered in anticipation of settlement and/or continued occupation of the site.

Subsequently, on 13 November 1997, when this matter was heard, Mr Hodgson submitted a statement on behalf of Hodgson reiterating some of the above points. The statement also made disparaging comments concerning Mr Rizvi's business practices and ethics. However, those comments are not relevant for present purposes and I expressly make no finding in relation to them.

As to the points made by Mr Hodgson iterated above, I would comment as follows,

* The entry into possession by Hodgson was in the expectation of a long term agreement for transfer of the business and site good-will to them. There was no agreement to do so. There was an interim joint venture or site sharing arrangement, similar to a licensing arrangement whereby two separate businesses share the same premises splitting costs but otherwise meeting separate expenses and retaining separate profits.

* I can find no evidence that Hodgson have "depreciated" the business or good-will of Rizvi in any way contrary to cl 3.1.12. Insofar as their occupation since 19 September 1997 has itself done so that possession was consented to by Rizvi at least until they purported to terminate Hodgson's permissive occupancy.

* It is understandable that Hodgson felt under some pressure to compromise the apprehended violence order proceedings. That is not inconsistent with a genuine belief by Mr Hodgson that there were no reasonable grounds for the making of such an order. However, both parties were legally represented in relation not only to the proceedings but also with respect to the Deed. I do not accept that any pressure placed on Hodgson amounted to coercion, misrepresentation or any factor which would invalidate their assent to the terms of the Deed.

* The payment of rent for October 1997, or, indeed, subsequently, is a matter to be adjusted between the parties whether or not the occupation of the premises by Hodgson since 30 September 1997 was, or has subsequently become, unlawful.

* The various monetary claims by Hodgson may well be legitimate and would warrant a taking of accounts between the parties including but not confined to those specific matters. Hodgson may well have some claim for damages in view of Rizvi's failure to perfect his title on or before 30 September 1997 - but that is subject to the effect, if any, of the Rule in Bain v Fothergill (1874) LR 7HL 158.

* It is no answer to a claim for possession by a party entitled thereto that to yield to that claim would cause hardship to the occupant and others but that hardship may be relevant to the terms upon which execution of an order for possession is framed.

The terms of the Deed are entitled to their full force and effect. They required that settlement take place on 30 September 1997. At that date, the plaintiffs were required to hand over transfer of a registrable sublease as described. The defendants were to pay $58,900.

In the event settlement could not take place as agreed, Hodgson was to vacate the premises within 48 hours (cl 13.1.14). That obligation was not limited to cases where the failure to settle was in consequence of an unlawful failure or refusal to settle on the part of Hodgson.

It is clear also that, pending settlement and subject to cl 13.1.14, Hodgson had lawful possession of the site.

The first question is whether the requirement that settlement take place on or before 30 September 1997 was "of the essence".

Initially Rizvi asserted that it was not. Thus, according to them they could still insist on settlement according to the Deed if they later became ready and able to settle.

However, they resiled from that assertion on 22 October 1997 by seeking to activate the terms of cl 3.1.14.

Hodgson asserted that time was always of the essence in relation to settlement. They contended that if on that date, Rizvi was not ready willing and able to complete they could either,

* Declare the agreement at an end and seek damages, if any, for breach; or

* Seek specific performance of the agreement.

However, Hodgson actually adopted neither course. They sought to gain title to the exclusion of Rizvi.

That course was consistent only with their repudiation of further obligations of the Deed. It was certainly inconsistent with an intent to seek specific performance. If they were repudiating the Deed, declaring the agreement thereunder to be at an end, they lost the right to exclusive possession conferred under it.

In essence, their contention seems to be that as a purchaser in possession they were entitled both to refuse to carry out the terms of the original Deed and to remain in possession of the premises.

That contention is plainly not tenable. Further, whether or not the right of occupation was ended by force of cl 3.1.14 of the Deed alone, or by notice to quit relying on cl 3.1.14, Hodgson by setting up the contention in question thereby disclaimed any right to hold possession of Rizvi - see eg Warner v Sampson [1959] 1 QB 297.

It follows that, as at the date of commencement of these proceedings Rizvi, having good title to exclusive possession could, once Hodgson's right to occupy the premises as against them was terminated, assert that title against Hodgson. That right has not been invalidated as, arguably, it could have been if the landlords had granted title to Hodgson. I say arguably only because it may be that there had been a validly exercised option which would have given superior title to Rizvi in any event.

Whether or not Rizvi after 30 September 1997, had discussed or lost any right to specific performance by them, against Hodgson, is not presently relevant, though the date upon which Hodgson's possession of the premises became wrongful will be relevant to damages.

For the above reasons it is ordered that Hodgson deliver up possession of the premises at 96 Newcastle Street, Fyshwick in the ACT to Rizvi.

There will be judgment for Rizvi against Hodgson for damages to be assessed.

I direct that accounts be taken between the parties and direct that the balance due to any party be included in any assessment of damages. Hodgson is at liberty to plead any matter of counterclaim open to them by reason of the failure of Rizvi to complete the sale of the business to Hodgson on or before 30 September 1997.

I will further hear the parties as to ancillary orders and costs.