The Stuart Park Reserve Trust v Peedoms Lawyers [2009] NSWSC 1369 (18 December 2009)

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The Stuart Park Reserve Trust v Peedoms Lawyers [2009] NSWSC 1369 (18 December 2009)

Last Updated: 21 December 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
The Stuart Park Reserve Trust v Peedoms Lawyers [2009] NSWSC 1369


JURISDICTION:


FILE NUMBER(S):
20058/09

HEARING DATE(S):
7 December 2009

JUDGMENT DATE:
18 December 2009

PARTIES:
The Stuart Park (D580060) Reserve Trust - First Plaintiff
Wollongong City Council - Second Plaintiff
Peedoms Lawyers Pty Ltd - Defendant

JUDGMENT OF:
James J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
J P Gormly SC / D Shoebridge - Plaintiffs
N J Owens - Defendant

SOLICITORS:
Fisher Cartwright Berriman Pty Ltd - Plaintiffs
Yeldham Price O'Brien Lusk - Defendant


CATCHWORDS:


LEGISLATION CITED:
Crown Lands Act 1989
Uniform Civil Procedure Rules


CASES CITED:
The Stuart Park (D580060) Reserve Trust v Emibarb Pty Ltd [2006] NSWSC 603

TEXTS CITED:


DECISION:
I dismiss the application for summary judgment and the application that the defence be struck out.



JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

JAMES J

FRIDAY 18 DECEMBER 2009

20058/09 THE STUART PARK (D580060) RESERVE TRUST & ANOR v PEEDOMS LAWYERS PTY LTD

JUDGMENT

1 HIS HONOUR: This application, in proceedings by The Stuart Park (D580060) Reserve Trust and Wollongong City Council as the plaintiffs against Peedoms Lawyers Pty Ltd as the defendant, is primarily an application for summary judgment pursuant to Pt 13 r 13.1 of the Uniform Civil Procedure Rules. The application is supported by an affidavit by a solicitor who has the day-to-day carriage of the proceedings for the plaintiffs. Exhibited to this affidavit are two large volumes of documents.

2 The background to the proceedings is complex. The account of the background I am about to give, which is necessarily a simplified account, is based on an outline given by counsel for the plaintiffs at the hearing of the application, which was not challenged by counsel for the defendant, and on the documents in the exhibits to the solicitor’s affidavit. I have also had some regard to a judgment given by Bergin J (as her Honour then was) in The Stuart Park (D580060) Reserve Trust v Emibarb Pty Ltd [2006] NSWSC 603.

3 The first plaintiff is the trustee of a reserve of Crown land in North Wollongong known as the Stuart Park Reserve. The second plaintiff is the manager of the Reserve pursuant to s 95 of the Crown Lands Act 1989.

4 In 1986 a lease was granted over part of the Reserve to a company called Emibarb Pty Ltd (“Emibarb”). Emibarb conducted a restaurant business in a building on the land leased to it. In 1996 an option to renew the lease for a further term of 10 years was exercised. The restaurant business prospered and the restaurant became a significant tourist attraction.

5 In January 2001 the building in which the restaurant was being conducted was destroyed by fire. The building had been insured and Emibarb received the insurance moneys.

6 It was the wish of both of the plaintiffs and of Emibarb, that Emibarb, using the insurance moneys and other moneys contributed by it, should have a new building constructed in which the restaurant business would be continued. Negotiations for a new lease, which would not commence until 2006, began at least as early as 2002.

7 The defendant, an incorporated law practice, had in the past provided legal services for the Council. By a letter dated 15 July 2002 the defendant submitted a proposal to the Council that it continue to provide legal services to the Council on the terms set out in the letter. It was stated in the letter that Mr JD Peedom would have the primary responsibility for providing legal services. By a letter dated 19 July 2002 from Mr D Williams the Legal and Risk Branch Manager of the Council, the Council accepted the defendant’s proposal to provide legal services. Subsequently, the defendant acted as solicitor for the Council in connection with the proposed new lease and especially in communicating with Emibarb’s solicitors Messrs Watkins Tapsell (and particularly Mr Rusbourne of that firm).

8 The negotiations for a new lease were protracted and complicated and I will refer to only some aspects of the negotiations.

9 In October 2002 a draft agreement for lease and a draft lease prepared by the defendant were submitted to Emibarb. A clause in the draft agreement for lease provided that the rent payable under the lease should be the current market rent as at the commencement of the lease determined in accordance with clauses 5.12 to 5.20 of an annexure to the draft lease. It was provided in the draft lease that it should incorporate the Law Society’s standard form of lease, including cl 5.12, which was in the following terms:-

“5.12 In this case the rent is to be the current market rent. This can be higher or lower than the rent payable at the rent review date and is the rent that would reasonably be expected to be paid for the property determined on an effective rent basis, having regard to the following matters:

5.12.1 the provisions of this lease;

5.12.2 the rent that would reasonably be expected to be paid for the property if it were unoccupied and offered for renting for the same or a substantially similar use to which the property may be put under this lease;

5.12.3 the gross rent, less the landlord’s outgoings payable by the tenant;

5.12.4 where the property is a retail shop, rent concessions and other benefits that are frequently or generally offered to prospective tenants of unoccupied retail shops; and

5.12.5 the value of goodwill created by the tenant’s occupation and the value of tenant’s fixtures and fittings are to be ignored.”

10 In a letter dated 5 February 2003, which was faxed to the Council on 12 February 2003, Watkins Tapsell commented on the draft documents. In a paragraph in the letter which Watkins Tapsell numbered 2.14 Watkins Tapsell commented on cl 5.12 in the standard form lease.

11 In a fax of 19 February 2003 to the defendant Watkins Tapsell, using the same paragraph numbering as they had in their letter of 5 February 2003, said, with reference to par 2.14:-

“2.14 Clause 5.12: We note that you have requested that we provide a proposed clause and we suggest the following:

5.12.6 the valuer is to value the Property and to make no deduction for any additional improvements carried out by the Tenant in reinstating the building that had previously been destroyed by fire on 9 January 2001.

5.12.7 the valuer will take into account the following table of Tenant’s fixtures and fittings and landlord’s fixtures and fittings (such table not exhaustive):

Tenant’s Fixtures and Fittings:

All kitchen fit out including benches, stoves, shelves, cooking plant and equipment, refrigeration and cool room plant and equipment, exhaust equipment, air conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fit out and display cabinets, fridges, shelves, cooking plant and all barbeque stoves.

Landlord’s Fixtures and Fittings:

All of the structure of the building, internal walls, bathroom and toilet fit outs, entry fit out (but not including decorations hanging on the walls) and fixed tiles, bars (excluding fridges) and a barbeque area including fixed floored tiles.”

12 Mr Peedom prepared a draft response to Watkins Tapsell’s letters of 5 February 2003 and 19 February 2003. In the draft response he adopted the same paragraph numbering as Watkins Tapsell had used. In the draft response par 2.14 provided in part as follows:-

“Clause 5.12: Add:

Despite clause 5.12.5 the current market rent is to have regard to the following fixtures and fittings

5.12.6 tenant’s fixture and fittings comprising all kitchen fitout (including benches, stoves, shelves, cooking, plant and equipment), refrigeration, coolroom, exhaust and air conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fitout (including display cabinets, refrigerators, shelves and cooking plant and equipment) and all barbeque stoves; and

5.12.7 landlord’s fixtures and fittings including all of the structure of the building (sic) including all of the structure of the building, internal walls, bathroom, toilet and entry fitouts (excluding decorations hanging on walls), fixed tiles, bars (excluding refrigerators) and the barbeque area including fixed floor tiles.”

13 In the draft letter containing the draft response the terms of cl 5.12.6 happened to be set out at the foot of one page and the terms of cl 5.12.7 happened to be set out, not on the same page, but at the top of the following page.

14 On 21 February 2003 Mr Peedom discussed the draft response with the Council officer Mr Williams. Mr Williams advised Mr Peedom that the tenant’s fixtures and fittings were not to be taken into account in the determination of the current market rent. Nothing was said between Mr Williams and Mr Peedom about the landlord’s fixtures and fittings.

15 Mr Peedom altered the preamble to what was to be added to cl 5.12 by deleting words and adding words, so that the preamble read:-

“For the removal of doubt the value of the following fixtures and fittings are to be ignored.”

16 Mr Peedom did not notice that the preamble as altered would apply, not only to the new cl 5.12.6, but also to the new cl 5.12.7, which was over the page in the draft letter.

17 The effect of the alteration to the preamble was that both the tenant’s fixtures and fittings and the landlord’s fixtures and fittings were to be ignored in the determination of the current market rent. The consequence of ignoring the landlord’s fixtures and fittings, which would include the new building, would be that the rent determined would be very much lower.

18 On 21 February 2003 a letter was sent by the defendant to Watkins Tapsell, replying to Watkins Tapsell’s letters of 5 February and 19 February. In accordance with the alteration Mr Peedom had made to the preamble, cl 2.14 provided in part as follows:-

“Clause 5.12: Add:

“For the removal of doubt the value of the following fixtures and fittings are to be ignored:

5.12.7 tenant’s fixtures and fittings comprising all kitchen fitout (including benches, stoves, shelves, cooking, plant and equipment), refrigeration, coolroom, exhaust and air conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fitout (including display cabinets, refrigerators, shelves and cooking plant and equipment) and all barbeque stoves; and

5.12.7 landlord’s fixtures and fittings including all of the structure of the building (sic) including all of the structure of the building, internal walls, bathroom, toilet and entry fitouts (excluding decorations hanging on walls), fixed tiles, bars (excluding refrigerators) and the barbeque area including fixed floor tiles.”

19 In March 2003 an agreement for lease and a deed of lease were executed by Emibarb.

20 The Deed of Lease (apart from the annexures to it) was a very short document. There were only two recitals and four short operative clauses. One operative clause provided that the lease incorporated the provisions set out in annexures A and B to the lease. Annexure B was the standard Law Society form of lease, containing cl 5.12, but only cls 5.12.1 to 5.12.5.

21 Annexure A to the Deed of Lease contained amendments and additions to annexure B.

22 Part of annexure A provided with respect to cl 5.12, in accordance with the letter of 21 February 2003 which the defendant had sent to Watkins Tapsell:-

“Clause 5.12: Add:

“For the removal of doubt the value of the following fixtures and fittings are to be ignored:

5.12.8 tenant’s fixtures and fittings comprising all kitchen fitout (including benches, stoves, shelves, cooking, plant and equipment), refrigeration, coolroom, exhaust and air conditioning plant and equipment, carpets and floor coverings, decorations, kiosk and bistro fitout (including display cabinets, refrigerators, shelves and cooking plant and equipment) and all barbeque stoves; and

5.12.7 landlord’s fixtures and fittings including all of the structure of the building, internal walls, bathroom, toilet and entry fitouts (excluding decorations hanging on walls), fixed tiles, bars (excluding refrigerators) and the barbeque area including fixed floor tiles.”

23 As already preshadowed by me, a consequence of the lease being executed in that form was that the rent which would be determined would be a ground rent, based only on the land value of the land leased and not a premises rent, taking into account the landlord’s fixtures which would include the new building.

24 In 2004 a firm of valuers who had been instructed by the Council to calculate the amount of rent payable under the new lease informed the Council that, under the terms of the lease as executed, the rent payable would be limited to a vacant land rent. The Council then communicated with Mr Peedom. In a letter to the Council of 27 May 2004 Mr Peedom described the alteration which had been made on 21 February 2003 to cl 5.12 as a “mistake”; it had been intended to refer only to the tenant’s fixtures and fittings which were specified in cl 5.12.6.

25 On 2 August 2004 Mr Peedom wrote a letter to Watkins Tapsell asserting that the lease documents contained a mistake which had been overlooked by both parties at the time the documents were executed and enclosing amended documents for execution. Watkins Tapsell did not concede that a mistake had been made and the amended documents were not executed.

26 On 10 June 2005 the Trust and the Council commenced proceedings against Emibarb in the Equity Division of this Court claiming rectification of the lease documents. The relief claimed included a declaration that it had been the common intention of the parties that any rent review by reference to the current market rent to determine the rent payable on the commencement of the lease would ignore the tenant’s fixtures but have regard to the landlord’s fixtures.

27 At the hearing of the proceedings in 2006 before Bergin J evidence was given by a number of members of the Council who at a Council meeting on 24 March 2003 had voted in favour of a resolution, in effect providing for the execution by the Council of the agreement for lease and the deed of lease. Some of these witnesses were called by the plaintiffs and some were called by the defendant Emibarb.

28 Some of the Councillors who were called as witnesses by the defendant gave evidence to the effect that they had read the agreement for lease and the lease before the Council meeting on 24 March 2003 and had understood that the basis on which Emibarb was to pay rent was the market rent of the land only.

29 After surveying the evidence of the Councillors in pars 117 to 139 of her judgment Bergin J concluded at par 139:-

“The evidence of the Councillors does not prove, let alone prove convincingly, that the Council was under the mistaken belief at the time it passed the resolution on 24 March 2003 that the lease documents contained a clause whereby the valuation method excluded the tenant’s fixtures and fittings and included the landlord’s fixtures and fittings. On the other hand, if it is the Council officers whose states of mind are relevant, the plaintiffs have established convincingly that they mistakenly apprehended that the lease that was before the Council for approval and execution contained a provision for the determination of rental excluding the tenant’s fixtures and fittings but including the landlord’s fixtures and fittings with the stepped rental reduction.”

30 In her judgment her Honour then proceeded to a consideration of the evidence of the witnesses for the defendant.

31 In par 222 of her judgment her Honour concluded:-

“There is little doubt that up until the receipt of Mr Peedom’s letter of 21 February 2003 the parties had proceeded upon the basis that the valuation method would exclude the tenant’s fixtures and fitting and include the landlord’s fixtures and fittings...However, the plaintiffs have the onus of establishing by “convincing proof” that the defendants did not notice the change in the letter and proceeded on the same mistaken belief as the plaintiffs at the time the lease was executed. I am not satisfied that the plaintiffs have discharged that onus in the circumstances of this case.”

32 Bergin J refused to grant the relief sought by the plaintiffs and dismissed the proceedings.

33 The present proceedings were commenced by a statement of claim filed on 20 February 2009. The statement of claim is a lengthy document. In very broad summary, it is alleged that the Council retained the defendant to provide legal services; that Mr Peedom on behalf of the defendant was instructed to provide legal services for the Council in relation to the negotiation, preparation and execution of an agreement for lease and a deed of lease (“the lease documents”); that it was an implied term of the contract of retainer and/or a duty of the defendant to perform the legal work with due care and skill; that the effect of Mr Peedom’s drafting of the preamble had been to exclude both the tenant’s and the landlord’s fixtures and fittings from the determination of the initial current market rent and subsequent reviews, resulting in a “ground” rent, contrary to Council’s instructions and was an “error”; that the agreement for lease and the deed of lease had been executed, without the error being discovered; that Mr Peedom had alleged that a common mistake had been made by the defendant and Watkins Tapsell; and that proceedings seeking rectification of the lease documents on the basis of common mistake had been brought and had been dismissed.

34 It was alleged in the statement of claim that the Trust and the Council had suffered loss and damage by reason of breach by the defendant of the terms of the contract of retainer and/or its duty of care. The damages claimed included the difference between (taking into account the landlord’s fixtures) the market rental and a ground rental over the term of the lease and expenses incurred in mitigating loss and wasted expenditure.

35 The defence, which was filed on 28 July 2009, is also a lengthy document.

36 In many of the paragraphs of the defence a method of pleading was adopted, whereby, in answer to a paragraph in the statement of claim, the defendant in a number of sub-paragraphs says that certain matters are facts and then in a concluding sub-paragraph says that it otherwise does not admit the paragraph in the statement of claim. The matters which the defendant says are facts are sometimes not in the same language as that of any allegation made in the paragraph of the statement of claim. At the hearing counsel for the plaintiff complained that it is difficult to determine just what admissions the defendant has made in its defence.

37 However, the defence does appear to me to contain a number of admissions, including that the Council retained the defendant; that the defendant was instructed to act in the negotiation and preparation of an agreement for lease and a deed of lease of part of The Stuart Park Reserve; that it was an implied term of the retainer and a duty of the defendant that the defendant would carry out the work the subject of the retainer with due care and skill; that in the conversation on 21 February 2003 with Mr Williams Mr Peedom had said “how about we change the preamble to read ‘for the removal of doubt the values of the following fixtures and fittings are to be ignored’”; that Mr Peedom amended the draft preamble to cls 5.12.6 and 5.12.7 contained in par 2.14 of the draft letter to Watkins Tapsell; and that the amendment made by Mr Peedom was not consistent with the instructions Mr Williams had given to Mr Peedom.

38 Paragraph 46 of the defence was in the following terms:-

“46 In answer to the whole of the statement of claim, the defendant says the loss claimed (which is denied) was not caused by any conduct on the part of the defendant but was caused by:

46.1 the failure of the officer of the second plaintiff to obtain accurate instructions from the controlling mind of the second plaintiff as to the position of the plaintiffs in respect of the lease documents which, had those instructions been obtained, would have avoided the dispute with the tenant and guarantors;

Particulars

(a) paragraphs 17 to 139 of the judgment;

46.2 a decision by the plaintiffs to commence and maintain the rectification proceedings and to incur the costs and expenses associated with the rectification proceedings and the liability to pay the tenant’s and guarantor’s costs in circumstances where the rectification proceedings had poor or very limited prospects of success and without ensuring that the necessary factual enquiries were made so as to determine the evidence of the controlling mind of the second plaintiff;

Particulars

(a) paragraphs 117 to 139 of the judgment

(b) at all relevant times, the position of the tenant and guarantors was that they rejected that any mutual or common mistake occurred;

(c) at all relevant times, the plaintiffs did not have access to convincing evidence that a mutual or common mistake had occurred and commenced and pursued the rectification proceedings on an expectation they could establish such evidence by discrediting witnesses for the tenant and guarantors in cross-examination.”

39 As already noted, pars 117 to 139 in the judgment of Bergin J which are referred to in the particulars of par 46 of the defence were the paragraphs in which her Honour considered the evidence of the Councillors in the proceedings before her.

The Submissions of the Parties

40 Counsel for the plaintiffs submitted that the plaintiffs were entitled to summary judgment on liability. It was conceded that there might be arguable issues about some of the damages claimed by the plaintiffs, for example the costs of the rectification proceedings. However, it was submitted that it was clear beyond argument that the defendant had been retained by the plaintiffs as their solicitor, that Mr Peedom had been negligent and that the plaintiffs had suffered at least some damage by reason of Mr Peedom’s negligence.

41 Counsel for the defendant stated that a number of matters were not disputed by the defendant, including that the draft response to Watkins Tapsell’s letters of 5 February 2003 and 19 February 2003, before the draft was altered by Mr Peedom, provided that regard was to be had, in determining the rent, to both the landlord’s and the tenant’s fixtures; that the effect of the alteration made by Mr Peedom was that both the landlord’s fixtures and the tenant’s fixtures were to be ignored in the determination of the rent; and “no dispute that it was a mistake by Mr Peedom to remove both landlord and tenant’s fixtures. He was instructed to remove tenant’s fixtures”.

42 However, counsel for the defendant submitted that there remained real issues of causation and that it was arguable that no loss or damage to the plaintiffs had flowed from Mr Peedom’s mistake. In support of this submission counsel referred to the rectification proceedings and particularly to some of the evidence given by members of the Council.

43 Counsel for the defendant submitted:-

“As your Honour has heard that was a case seeking rectification and it was therefore necessary for the Council to prove that at the time it executed the document, its intention was different to the terms of the document as recorded in writing.

It then also needed to prove that the lessee was similarly of a different intention but I can put that to one side. At the very least it had to prove it had an intention different to that recorded in the document.

Justice Bergin found, and found correctly, that the controlling mind of the Council was the Councillors who passed a resolution authorising the execution of the documents.

Justice Bergin heard evidence from those Councillors and found that, with one or two exceptions, they were all aware of the effect of the clause in issue. They understood what it was that they were agreeing to, and the short point was they all thought that they were authorising the execution of a lease in the terms that it in fact contained.

There was evidence that was accepted by Justice Bergin that this particular clause had been discussed both in a Labour Party Caucus before the Council meeting and during the meeting itself.

The short point is then that, even if there had been negligence by Mr Peedom at this earlier stage, it was of no continuing effect at the time the lease was executed and, in fact, the lease as executed accorded with the intentions of the Council.

It may well be the case that it did not accord with the intentions of the Council officer who had instructed Mr Peedom but, as Justice Bergin found, his is not the relevant mind. The relevant mind is the Council.

That is obviously one way in which we say that, at least for the purposes of summary judgment, there is a real arguable issue there and that should be allowed to go to trial.”

44 It was submitted by counsel for the defendant that these issues had been raised in par 46 of the defence.

45 Counsel for the defendant also referred to possible issues about the quantum of any damages but, as I have already noted, counsel for the plaintiffs accepted that there could be arguable issues about the quantum of any damages.

46 In submissions in reply counsel for the plaintiffs submitted that what members of the Council might have though at the time they voted in favour of a resolution authorising execution by the Council of the lease documents, while relevant to the rectification proceedings, was irrelevant to the present proceedings for professional negligence, in which it was unarguably clear that Mr Peedom had not complied with the instructions he had been given and that Mr Peedom’s failure to comply with the instructions had caused rent to be calculated on a basis which was clearly unfavourable to the clients.

Decision

47 The principles governing summary disposal of proceedings under Pt 13 r 13.1 of the Uniform Civil Procedure Rules are well known and are summarised in Ritchie’s Uniform Civil Procedure NSW.

48 The commentary in Ritchie says at par 13.1.5 (omitting citation of authority):-

“A party will not be denied a contested merits hearing unless the absence of a cause of action or defence is clearly demonstrated...If it is demonstrated that there is a real question to be determined, it is inappropriate for the court to determine the matter summarily...The test to be applied has been variously described as whether the matter is “so obviously untenable that it can’t possibly succeed”, “manifestly groundless”, “so manifestly faulty that it does not admit of argument”, one which “the court is satisfied cannot succeed”...All of these expressions point to the requirement of a high degree of certainty before a party is deprived of the opportunity to have their claim determined in usual way...This requirement is “demanding”...and emphasises that “exceptional caution” is required...”

49 At par 13.1.35 Ritchie states that “the court has a general discretion as to the circumstances in which an order for summary judgment will be appropriate and always retains a discretion to refuse to make such an order...”

50 I have doubts whether there is any substance in the defendant’s claimed defence of absence of causation. However, applying the principles governing summary disposal of proceedings as stated in Ritchie, I am not satisfied that the claimed defence is so obviously untenable that it cannot possibly succeed. I also consider that the general complexity of the background to the proceedings and of the proceedings themselves tends to make it inappropriate for me to exercise my discretion in favour of making an order for summary disposal of the proceedings.

51 I refuse the application for summary judgment.

52 At the hearing I said that I would not accede to a secondary application made by the plaintiffs that the defendant’s defence be struck out. As I said at the hearing, I accept that the defence is a rather convoluted document and it is not a simple matter to work out to what extent allegations made in the statement of claim are admitted or disputed in the defence. However, I am satisfied that it is possible by a careful examination of the defence to determine what admissions are made and what allegations made in the statement of claim are disputed. I do not consider that the defence is liable to be struck out.

53 I dismiss the application for summary judgment and the application that the defence be struck out. I will hear any argument about the costs of the application.

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LAST UPDATED:
18 December 2009