Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd; Hotray Pty Ltd v JKAM Investments Pty Ltd (JKAM Investments Pty Ltd v Karl Damien- First Cross Claim; Karl Damien v JKAM Investments Pty Ltd- Second Cross Claim)

These proceedings concern a property at Ironbark Avenue, Camden (“the Property”) owned by Mr Karl Damien (“Damien”). A number of different parties claimed interests in the Property and the disputes between those different entities as to which had priority over the other was heard and determined by Darke J (see [2014] NSWSC 952). His Honour split off for separate determination a cross claim brought by one of the caveators JKAM Pty Ltd (“JKAM”) and a cross claim brought by Damien against JKAM.

The other caveators were Champion Homes Sales Pty Ltd (“Champion”) and Hotray Pty Ltd (“Hotray”) and Darke J held that Champion had first priority Hotray the second priority and JKAM the third priority.

There was at all relevant times registered on the Property a mortgage to secure a debt given by Damien to the National Australian Bank (“NAB”). The NAB was not joined to these proceedings. There have been separate proceedings on foot brought by NAB against Damien and JKAM (as caveator) and in August last year NAB obtained, in separate judgment against Damien in the amount of $1.8 million approximately and obtained an order for possession of the Property and leave to issue a writ of possession. NAB’s claims against JKAM in respect of the caveat were stood over until 13 March 2015. JKAM’s caveat presents an obstacle to NAB proceeding to sell the property which it wishes to do, it being owed approximately $2.32 million and holding concerns about the true worth of the property.

Mr G. McDonald of counsel appears for JKAM and Mr J. Cohen of counsel for Damien.

On 11 March 2015 when the matter was called on Mr Bedrossian of counsel advised the Court of the fact that his client NAB has never been joined in the proceedings and had written to the solicitors for Damien and JKAM enquiring whether consideration had been given to NAB being joined.

When NAB’s matter was listed on Friday 13 March there was agreement as between NAB and JKAM resolving the dispute between JKAM and NAB.

There are, it was agreed, three key documents recording the arrangements between JKAM and Damien:

By its amended cross summons JKAM sought

By his amended cross claim Damien sought to recover payment for mortgage repayments and outgoings from JKAM said to be due under clause 2(d) of the Deed. There was also reference to clause 2(j) and an amount of $60,000 calculated as owing by JKAM to Damien under that clause but it was not claimed as a debt due by JKAM to Damien presumably because that amount is payable only on completion of the Contract.

Mr McDonald, before evidence was received on the hearing, advised the Court that his client would not be pressing [6](a), [6](d) (and later [6](b)). He sought to amend JKAM’s claim to include declaratory relief as to the amount that his client is required to pay, pursuant to clause 16.7 of the Contract for Sale on settlement, and JKAM abandoned its claim for specific performance. At that point the dispute between the parties was one which revolved around what amount had to be paid by JKAM to Damien on settlement of the Contract for Sale and what amounts were owed by JKAM and Damien to each other by reason of the Deed and Head Lease and by reason of an assigned debt. Neither side, on the pleadings or at the commencement of the hearing was contending that the Contract for Sale had, or should be held to have, come to an end, but the difficulty was that they could not agree on the amount to be paid by JKAM on settlement. The Contract for Sale described JKAM as having paid $528,000 as a deposit. Damien disputed that the $528,000 had been paid as a deposit contending that clause 2(q) of the Deed made it clear that, in effect, Damien was not required to give credit to JKAM for the $528,000 referred to in clause 13.1 of the Special Conditions to the Contract for Sale. I referred to the position at the commencement of the hearing. On the afternoon of the first day of the hearing (T 43.50 - T 46) Mr Cohen flagged the possibility that Damien would seek to terminate the Contract for Sale and I was informed on the second day that Damien had in fact, that day, sent a notice to that effect: T 98.7 - T 100.4.

Another major area of dispute was said to be clause 2(d) of the Deed which, on its face, required JKAM to pay Damien mortgage payments and outgoings under the lease from 1 January 2013. JKAM relied on clause 12.1 of the Special Conditions in the Contract for Sale to resist any obligation to make the payments under clause 2(d).

Another matter in dispute was JKAM’s claim to enforce a debt of $555,000 said to be owed by Damien to Architectural Collections Pty Ltd (“ACPL”), which JKAM claimed had been assigned to it by ACPL and of which assignment notice had been given to Damien.

On the second morning of the hearing Mr McDonald advised the Court that JKAM was abandoning its claim that the $528,000 should be treated as a deposit. He also indicated that JKAM would not be pursuing its claim for rental under clause 2(l) of the Deed.

The case proceeded with affidavit evidence from Mr Joseph Elia (“Elia”) an authorised representative (but not director or secretary) of JKAM (affidavits of 5 May 2014, 10 October 2014 and 6 November 2014) and an affidavit of Mr Johni Elia of 10 October 2014, who was not required for cross examination. Much of the affidavits of Elia were not read. There was a very brief cross examination of Elia, followed by evidence from Damien (affidavits dated 18 March 2014, 10 April 2014, 30 May 2014 and 10 October 2014) followed by cross examination.

At the end of re-examination of Damien, Mr Cohen tendered email correspondence that had not been included in any of the Court Books that had been provided for the hearing of the cross claim, going he said to the identity of ACPL and JKAM, but also relevant to another matter which he did not at that point identify (see T 91.25). It became apparent (See T 91 - 99) that Mr Cohen wished to rely on the emails to support an argument to defeat JKAM’s case that ACPL (and hence JKAM as assignee) was entitled to recover the ACPL claimed debt. The argument was one which had not been pleaded, and had not been referred to by Mr Cohen in his written outline of his case or in his oral submissions at the commencement of the case. The new argument was to the effect that ACPL had, in 2012, implicitly assigned to JKAM from Damien its claims to the debt and that the debt had been subsumed into the agreements of December 2012.

Mr McDonald resisted the introduction of this new case on the basis that it had not been pleaded or previously referred to, that his client had abandoned the ‘deposit’ argument having regard to Damien’s contention that the $528,000 could not be treated as a deposit and was not available on the settlement and that he had embarked on his cross examination of Damien unaware that this new argument would be launched. He also maintained after due reflection that he could not now comfortably cross examine Damien to defeat Damien’s new contentions and on the topic of the deposit. In the light of the problems identified by Mr McDonald and accepting his assertions as to the predicament in which he would be placed by allowing Damien to run the new argument I rejected Mr Cohen’s attempt to advance it, and rejected the tender of documents that had previously been admitted.

I should note that Mr Cohen did contend that he was in a similar position to Mr McDonald because he had taken the view that JKAM could not prove the ACPL debt there being, he said, no evidence of that debt in the Court Book (Exh C1, C2 and C3), and as he told me on the first morning of the hearing JKAM could not, without evidence, establish the ACPL debt. What Mr Cohen had omitted to consider was that his client might make admissions during cross examination which alone, or together with documents in one or other of the Court Books, would establish that ACPL was owed $555,000, or, as it turned out, the slightly lower figure of $528,000. I do not accept that the failure to appreciate direct evidence might be obtained from a barrister’s own witness can be equated to the effect that a failure to plead or advance a case has on the other party to a case.

Mr Damien admitted that he had agreed to pay $480,000 plus GST for the works identified at pp 19 - 36 of Exh C1. He admitted that the agreement made was made with a company allied to Elia. There was no dispute that ACPL was a company allied with Elia: see T 60.21 - 29. Damien admitted that the work the subject of the agreement had been performed. What he did not admit, in fact denied (see T 64.19 - 36 although see T 60.26 - 29), was that the agreement he had made was one with ACPL. Mr McDonald drew attention to material which in his submission established that the company with which Damien contracted was ACPL namely:

The Notice of Assignment of the debt is in evidence: see Exh C1 p 350. That Notice refers to that fact that ACPL had, by a Deed of Assignment of the same date, assigned the debt to JKAM. The Deed of Assignment was not itself in evidence but no point was taken about its absence, Damein’s contention being that he had not entered into an agreement with ACPL, but rather some other entity controlled by Elia but which Damien does not specify. I proceed on the basis that there was no issue between the parties that Mr Johni Elia the sole director of ACPL did assign the debt to JKAM as the notice signed by him says he did. Mr Johni Elia was not required for cross examination, although it should be noted that he did not in his affidavit address the question of assignment by ACPL to JKAM.

There is one matter which might be seen to undermine JKAM’s contention that the contract was with ACPL and not it and it was not referred to by either Mr McDonald or Mr Cohen. Clause 2 of the Deed provides:

JKAM as I have noted initially propounded the claim that the $480,000 plus GST was agreed to have been paid by it as a deposit and hence that it should be given credit for that ‘payment’ but Damien firmly resisted such a contention. Of course JKAM could not recover $528,000 from Damien as a debt (whether assigned or direct) and also obtain the benefit of the $528,000 as a deposit and by abandoning any claim to the $528,000 as a deposit it eschewed the assertion that it could in effect recover the $528,000 twice.

I accept that the evidence identified by Mr McDonald establishes on the balance of probabilities Damien contracted with ACPL.

It follows that Damien is liable to ACPL and that JKAM as assignee of the debt is entitled to be paid that amount subject to any right of set off having regard to Damien’s entitlement to monies from JKAM.

The following clause of the Contract for Sale is relevant:

The following clauses/subclauses of the Deed are relevant:

In relation to the Head Lease it can be noted that what is required to be paid by JKAM is rent and outgoings but not mortgage payments due by Damien to NAB, see clause 4.1 and 21.1 of the Head Lease (part of Exh A).

In my view clause 12.1 does not assist JKAM in relation to mortgage payments, since by its terms it only deals

A further argument advanced by Mr McDonald is that if liable to reimburse the mortgage payments made by Damien to NAB the liability should cease as at the time that Damien failed to provide a payout figure to JKAM as JKAM through its lawyers had requested (see T 79.36 - T 80.18) an argument which was not advanced previously and not found in JKAM’s defence to Damien’s amended cross claim.

The Contract requires JKAM to reimburse Damien. JKAM did not issue a Notice to Complete and has not pressured Damien to settle. There is nothing to indicate that the operation of clause 2(d) has been suspended and JKAM has agreed to indemnify Damien for the amount paid to the NAB.

I am not satisfied that clause 2(d) can be read down in the manner for which JKAM contends and accordingly I find JKAM liable to Damien for $411,000.

This leaves the question of the outgoings for the property including the council rates, water rates and land tax. First I should note that the only outgoings for which JKAM established by the evidence and for which JKAM could be liable is the amount of council rate of $16,000 (see Damien’s affidavit of 10 October 2014 Exh C3). Mr McDonald pointed out that a portion of it (approximately $2,300) is not yet due and payable.

Since the water rates are expressly the subject of the Head Lease there is some ambiguity in whether 12.1 is to be taken as suspending the operation of the obligation pending registration of the Head Lease, even though the obligation also arises under the Deed. When it is recognised that the Deed, the Contract for Sale and the Lease were all part of the one package I think this leads to construing clause 12.1 as applying to the obligation to pay outgoings even though clause 12.1 does not expressly refer to the Deed under which the obligation also arises. I therefore conclude that as a matter of construction the obligation of JKAM to pay outgoings did not commence until registration of the Head Lease.

Damien agreed that JKAM had completed works to a value of $21,000 (see T 76.33 - 39) and JKAM claims that by virtue of clause 2(g) of the Deed Damien owes that amount to JKAM. I understand that Damien resisted JKAM’s claim to $71,000 but given the implicit abandonment of the differential I do not understand the $21,000 to be in dispute. Hence this is an amount owing from Damien to JKAM to be offset.

Thus Damien is liable to JKAM for $528,000 plus $21,000 ie $549,000 on the JKAM cross claim but JKAM is liable to Damien for $411,000 on the Damien cross claim. It was agreed that such debts as were established could be set off against any debt owed to the other. There is thus produced a net difference of $138,000 in favour of JKAM.

In my view given that the Contract by its terms calls for payment of $2,081,000 plus GST leaving aside the usual adjustments for rates, utilities and the like, and since no argument is now advanced by JKAM that the amount described as a deposit is to be deducted and given that the other amounts with which I have dealt are not amounts due under the Contract for Sale I do not think there is any need or utility in declaring what amount is payable under the Contract.

There should accordingly be judgment for JKAM against Damien in the amount of $138,000 having regard to the amount to be set off. I will hear the parties on the question of costs.