FEDERAL COURT OF AUSTRALIA

Shipman v Overton Investments Pty Ltd [2001] FCA 410

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RICHARD JOHN SHIPMAN & CHERYL ANN PATRICK v OVERTON INVESTMENTS PTY LIMITED

NG 871 OF 1999

EMMETT J

28 MARCH 2001

SYDNEY

THE COURT ORDERS THAT:

1. Cheryl Ann Patrick be joined as an applicant.

2. The amended notice of motion be dismissed.

3. The applicants pay the respondent’s costs of the motion.

4. The question of whether an order should be made under Order 62 rule 3(3) be reserved.

5. The applicant have leave to file a notice of motion seeking leave to file either:

·        a cross claim in proceeding N 878 of 1999; or,

·        a further amended application and further amended statement of claim in this proceeding,

as the case may be, seeking relief against Overton Investments Pty Limited and Cuzeno RVM Pty Limited in relation to the fund held by the solicitors for Cuzeno RVM Pty Limited in respect of the consideration for the proposed grant of a new lease.

6. Any notice of motion filed be returnable before Emmett J for hearing on 30 April.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This proceeding is one of many proceedings connected with Murphy v Overton Investments Pty Limited [2000] FCA 801 in which I have already given judgment (“the Murphy Proceeding”).  The orders that I made in that proceeding are the subject of an appeal to the Full Court which has been argued, but the Full Court’s decision has been reserved. 

2                     This proceeding arises out of the grant to the predecessors in title of the applicants of a lease (“the Lease”) of a unit in the Heritage Retirement Village (“the Village”).  The grantee of the Lease was Mr Frank Shipman (“the deceased”) who has since died.  The proceeding before me was commenced in the name of “the Estate of Frank Shipman” as applicant. 

3                     On 3 December 1999 an amended application and an amended statement of claim were filed in which the applicant was named as Richard John Shipman.  The statement of claim contains an assertion that Richard John Shipman is the executor of the estate of the deceased, probate of his will having been granted on 4 November 1998. 

4                     In fact, probate was granted to Richard John Shipman and Cheryl Ann Patrick (“the executors”), who were appointed executors by the will of the deceased which is dated 18 April 1974.  On 9 March 2001 notice of motion was filed on behalf of the then applicant, seeking orders as follows:

“1.       Cuzeno RVM Pty Limited to release to the applicant three-quarters of the lease price paid by the incoming lessee of unit 62 of the Heritage Retirement Village minus the amount allegedly owed by the applicant to the respondent which is disputed by the applicant being the sum of $34,473.63 together with $10.62 interest per day from 2 March 2001 (hereinafter referred to as the “disputed amount”) and minus any amount owed to Dennison Investments Pty Limited and minus the amount of capital gain which Cuzeno RVM Pty Limited is entitled, under the lease, to retain.

2.         The disputed amount to be paid by Cuzeno RVM Pty Limited into Court pending the final determination of these proceedings.”

5                     The respondents to the motion were shown as Overton Investments Pty Limited (“Overton”) and Cuzeno RVM Pty Limited (“Cuzeno”).  The motion was fixed for hearing today.  When the matter was called on, counsel for the applicant sought, and was granted without objection, leave to file an amended notice of motion.  The amendments related to the addition of Cheryl Ann Patrick as an applicant and an adjustment in the amounts claimed in the prayer for relief involving Cuzeno.  In addition, prayer 2 was expanded to include an alternative claim that in lieu of payment into court, the disputed amount be paid either to Perpetual Trustee or into an interest bearing deposit account in the name of the parties’ solicitors.

6                     In order to explain the nature of the relief presently sought, it is necessary to say something more about the circumstances concerning the grant of the Lease.  Upon the grant of the Lease to the deceased, 75 per cent of the consideration payable was to be paid to Perpetual Trustee by way of “lease deposit”.  The balance of 25 per cent, described as “total rent”, was to be paid to Overton over a period of five years.  Under the terms of the trust deed that regulates in part the relationship between Overton and all lessees of units in the Village, a refund was to be payable by Overton on the termination of the Lease.

7                     Clause 10 of the Lease itself provides that the deceased was to be entitled to request Overton to terminate and accept a surrender of the Lease at any time during the term, subject to certain provisos.  The relevant provisos are as follows:

“1.       The lessee will deal with any other lessee or lawful occupier who offers to take a lease on terms which are not less favourable to the lessee than the terms of the proposed surrender.

 2.        The lessee complies with provisions of clause 9 of the lease relating to sub-letting.”

Clause 10(b) of the Lease provides:

“On and from the date of any surrender and payment of Refund [as defined], the Lessee shall release the Lessor from all duties and obligations under this Lease and the Trust Deed and the Lessor shall release the Lessee and any Guarantor from all liability which would otherwise arise under this Lease and the Trust Deed subsequent to such date.”

Clause 10(e) provides:

“The Lessor’s obligation to accept a surrender and termination of a Lease and to pay the Refund to the Lessee shall be subject to compliance by the Lessee with the provisions of the Trust Deed.”

Clause 16(a) provides:

“The Lessee or the Lessee’s executors of administrators will upon termination or surrender of the Lease be entitled to payment of the Refund pursuant to and always in accordance with the Trust Deed and this Lease.”

            “Refund” is defined in Clause 1 relevantly as:

“…the amount of the Lease Deposit adjusted pursuant to and in accordance with the Trust Deed”.

            Clause 13.5 of the Trust Deed provides that:

“All Lease Deposits, upon termination of their respective Leases shall be adjusted in either of the following ways as the case may require –

(a) by the addition of the Lessee’s Capital Gain; or

(b) by the subtraction of the Lessee’s Capital Depreciation,

PROVIDED HOWEVER that if a Lessee has failed to pay to the Manager its contributions towards the outgoings as and when they fall due and payable then the aggregate of such accrued Outgoings (together with any interest due thereon) in arrears at the time of the said termination shall also be deducted from the amount of the Lease Deposit.

8                     Under the terms of the Lease and the trust deed, the amount of the lease deposit paid to Perpetual Trustee was advanced as to 97.5 per cent to Overton.  That amount becomes repayable on the surrender of the Lease. 

9                     There is currently a dispute between lessees and Overton concerning the liability of lessees to pay outgoings.  Some aspects of that dispute are adverted to in my reasons for judgment in the Murphy proceeding.  In another proceeding brought in this Court by another lessee, N 878 of 1999 (“the Brasington Proceeding”), Overton has filed a cross-claim in which it has joined virtually all the lessees of units in the Village as cross-respondents.  In the cross-claim, Overton seeks to recover the amounts that it claims are outgoings, which the cross-respondents have failed to pay under their respective leases. Included among the cross-respondents is Richard John Shipman, apparently on the assumption that he was the sole executor of the estate of the deceased. 

10                  Counsel for the executors has indicated that a number of matters will be raised by way of defence to Overton’s cross-claim as follows:

(a)    part of the claimed outgoings have already been paid;

(b)   part of the claimed outgoings are not payable because they were not incurred reasonably;

(c)    part or all of the claimed outgoings will not be payable because of relief to which they claimed to be entitled under the Contracts Review Act;

(d)   an aspect of the outgoings, consisting of Overton’s interest payments in respect of borrowings, are not properly recoverable;

(e)    the executors have an equitable set-off in respect of their claim for damages in this proceeding.

11                  After the commencement of this proceeding, Overton sold the Village to Cuzeno.  Dennison Investment Pty Limited has been appointed as manager of the Village.  The executors assert that they are or will be entitled to have repaid to them the amount of the lease deposit, adjusted in accordance with clause 13.5 of the Trust Deed.  They accept that if they are liable to pay outgoings as claimed by Overton, then the amount of those outgoings should be deducted from the amount of the lease deposit. 

12                  However, as I have indicated, the executors dispute Overton’s claim that they have a liability in respect of unpaid outgoings.  They wish, therefore, to be paid the amount of the lease deposit less the amount of the claimed outgoings immediately.  They are content for the amount claimed by Overton to be retained so long as it is not paid to Overton.  The relief set out in the amended notice of motion was designed to achieve that end. 

13                  I have been informed by counsel for the executors that Cuzeno does not oppose the orders sought in the amended notice of motion.  On one view, the amended notice of motion seeks no relief against Overton.  However, it is clear from the way in which the matter has been presented to me by way of opening, that Overton has been joined as a party to the amended notice of motion on the basis that, if the orders were made, it would affect the rights of Overton.  Overton, of course, contends that there should be paid to it from the lease deposit the amount of the outgoings claimed to be outstanding, as provided for in clause 13(5).  The real dispute, therefore, is between Overton and the executors.  That dispute is raised by the defence to the cross-claim. 

14                  In the course of opening, it appeared to me that the claims made in the amended notice of motion are misconceived.  At this stage, there has been no surrender of the Lease, although I am informed that the correspondence between the parties may well amount to a request such as is contemplated by clause 10(a) of the lease.  In any event, there has been no formal tender of a surrender and since there has been no termination of surrender of the Lease, the entitlement to payment of a refund, as is contemplated by clause 16(a) of the Lease, has not yet arisen. 

15                  In those circumstances, it seems to me that there is no basis upon which the executors are yet entitled to be paid any amount by Cuzeno.  I have been informed that there has, in fact, been a proposal for the grant of a new lease to a proposed new lessee and that the consideration payable on the grant of such a lease has been paid.  The proposed lessees have entered into occupation of the unit that is the subject of the hearing.  The consideration payable by the new lessees is presently held by Cuzeno's solicitors, and it is in respect of that fund that this dispute arises.

16                  I indicated to counsel that my provisional view is that it is inappropriate, and probably incompetent, for the relief sought in the amended notice of motion to be granted in ancillary proceedings in this proceeding.  It may well be that the executors will be entitled to be paid some sum of money out of the fund held by Cuzeno’s solicitors.  However that entitlement, as I have said, has not yet arisen.  Whether or not they will be entitled to payment of the whole of the lease deposit, or whether there will be a deduction of outgoings, will depend upon the outcome of the cross-claim.  I intimated to counsel that my provisional view is that, because the relief sought is substantive relief, it should be sought in a substantive proceeding, by way of amendment of the present proceeding, by further cross-claim in the cross-claim proceedings in the Brasington proceeding, or by the commencement of completely fresh proceedings. 

17                  The first course may have an impediment, in the sense that it would involve making claims in this proceeding based on causes of action that arose after the commencement of the proceeding. The second course, of filing a cross-claim in the cross-claim, may be objectionable because of the unnecessary complexity that is involved in having a cross-claim in a cross-claim.  Against that, of course, is the fact that the issue that seems to be raised by the proposed claim is very much similar to the issues that are already raised in the cross-claim.  The possible difficulty with the third course is that, by itself, such a claim may well not be within the jurisdiction of this Court. 

18                  In the light of the difficulties that I raised, on a provisional basis, with the claim made in the amended notice of motion, counsel for the applicants indicated that he wished to seek leave to adopt one or other of the three courses that I have just foreshadowed, probably the second course, namely the filing of a cross-claim in the Brasington proceeding.  That will involve making a substantive claim against Cuzeno and probably against Overton as well. 

19                  I have been informed from the bar table that Overton has the benefit of a mortgage over the Heritage Retirement Village.  I assume that is to secure the unpaid balance of the purchase price upon the sale to Cuzeno.  I am also informed that in some way Overton’s consent is required for the grant of a new lease to the proposed new lessees of the unit and that such consent has been withheld pending payment of the disputed amount and pending the grant of releases by the executors.  I do not at the present time have any material that enables me to give any consideration to the basis of any such claim that Overton makes to be entitled to withhold any consent or the basis upon which any such consent is required.  Cuzeno is not presently represented before me and Overton, through its counsel, indicates that it is not in a position today to consent to any leave such as is sought by the executors.

In the circumstances, it seems to me I have no alternative but to order that the further amended notice of motion be dismissed with costs.  However, I will grant the executors leave to file either:

·        a cross claim in the Brasington proceeding; or,

·        a further amended application and further amended statement of claim in this proceeding,

as the case may be, seeking relief against Overton Investments Pty Limited and Cuzeno RVM Pty Limited in relation to the fund held by the solicitors for Cuzeno RVM Pty Limited in respect of the consideration for the proposed grant of a new lease. I will order the applicants to pay the costs of the respondent of the amended notice of motion. 

20                  Overton seeks an order under Order 62 rule 33, which provides that an order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded, or further order. Overton requests the Court to order otherwise, on the basis that the amended notice of motion was always doomed to failure.  The applicants oppose making such an order on the basis that it is not yet established that the effect of the amended notice of motion has had any delaying consequence in the final determination of the matter.  It seems to me that the appropriate course is to defer hearing of the application under Order 62 rule 3(3) until I have disposed of any motion filed pursuant to the leave is now granted.  If, having investigated the nature of the dispute between the parties, it is apparent that there is a substantive issue, albeit that it may not have been brought in a competent fashion, then it will be easier to determine whether or not a case for making an order under Order 62 rule 3(3) is made out.

Associate:

Dated:              9 April 2001