Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd (No 2)

1. [1]

   HIS HONOUR: By an amended statement of claim filed 11 July 2017, Medi-Aid Centre Foundation Ltd (“the plaintiff”) brought proceedings for vacant possession of its property, being the ground floor, level 1 and level 2 of 60 Campbell Street, Parramatta (“the premises”), together with claims for rental arrears, mesne profits (pursuant to an express contractual right and at law) and damages against Joys Child Care Ltd (“the defendant”). The defendant operated a child care centre on the premises called “Joys Child Care” (“the centre”). The plaintiff also sought orders for rectification of the terms of the clause of an agreement to lease, interest and costs.

2. [2]

   The relief was predicated upon two fundamental considerations. The first was that the plaintiff and defendant were parties to a valid registered lease for the premises (the lease relied upon was given registration number AJ578972 and hereafter called “the registered lease”). The second was that the defendant, as lessee, had committed breaches of the lease consisting of a failure to pay rent for more than two years, using the premises contrary to its permitted use as a childcare centre by allowing people to live at the premises and using the premises in a manner contrary to law, by operating a childcare centre without the relevant approvals and by failing to keep the approvals current.

3. [3]

   By a cross-claim filed on 3 July 2017, the defendant sought a declaration that the lease had no legal force and effect and that rent was not owing or outstanding to the plaintiff. The defendant also sought that the plaintiff “remove from the [lease] register managed by Land and Property Information” registration of the lease, a declaration that the plaintiff had breached a contractual licence held by the defendant and had wrongly excluded the defendant from its lawful occupation of the premises.

4. [4]

   On 22 October 2018, the court gave judgment in the matter: Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd [2018] NSWSC 1586 (“Medi-Aid No 1”).

5. [5]

   As to the existence of a validly registered lease, the Court made the following findings at [131]-[134]:

6. [6]

   The Court then turned to the question of breach of the lease and, in particular, the three claimed breaches of the lease: failure to pay rent; breaches of governance as to use; and the covenant to comply with all laws regulating the premises.

7. [7]

   As to a failure to pay rent, the court found at [136]-[137] as follows:

8. [8]

   The Court also found that on the balance of probabilities, the defendant, contrary to cl 6.1.1 of the lease, permitted persons to reside at the premises (at [143]) and carry on certain services whilst relevant approvals were suspended or cancelled, which was also a breach of the lease (at [148]).

9. [9]

   The court then turned to the plaintiff’s entitlement to release dealing with possession (at [150]-[154]), rental arrears (at [155]-[160]), mesne profits (at [161]-[166]) and damages (at [167]-[169]). As to mesne profits, the court found as follows (at [161]-[166]):

10. [10]

    As to the question of the claim by the plaintiff for damages, the court found (at [167]-[169]):

11. [11]

    The court then turned to the cross-claim concerning damages, fit-out and the nature of the centre and alternative solutions (at [170]-[179]) as follows:

12. [12]

    After briefly discussing costs, the court ultimately reached the following conclusion (at [182]-[185]):

13. [13]

    Orders and directions were made as follows (at [186]-[188]):

14. [14]

    On 24 October 2018, the court made orders responsive to short minutes of order filed by the plaintiff. The orders then made were as follows:

15. [15]

    On 5 November 2018, the plaintiff filed written submission in relation to the question of mesne profits and damages. By that submission, the plaintiff no longer sought damages but made submissions in support of its claim for mesne profits.

16. [16]

    The defendant filed a submission as to mesne profits and “damages” on 29 November 2018 and sought an oral hearing with regard to the same. The defendant sought an oral hearing on costs.

17. [17]

    Submissions were also filed by the plaintiff and the defendant on 12 and 27 November 2018 respectively on the question of costs.

18. [18]

    In the plaintiff’s written submissions on costs it sought an order for costs to be paid by the defendant and by Mr Shang personally, on a joint and several basis. Mr Shang appeared for the defendant at the hearing of this matter (see Medi-Aid No 1 at [5]).

19. [19]

    The plaintiff also sought an order that costs be paid on an indemnity basis. As will become apparent, it is no longer necessary to address the question of indemnity costs in this judgment. The plaintiff ultimately withdrew its application for costs on an indemnity basis and for personal liability in the case of Mr Shang.

20. [20]

    Returning to the issue of mesne profits, the written submission of counsel for the plaintiff of 5 November 2018 were as follows:

21. [21]

    The defendant written submissions on mesne profits (and damages) were as follows:

22. [22]

    It is useful to reiterate that the plaintiff did not seek damages in addition to mesne profits. The defendant did seek damages but that submission will require further discussion in the light of the course of the proceedings.

Further Course of the Proceedings

1. [23]

   Notwithstanding the plaintiff’s contention that it did not desire a hearing on the question of mesne profits its application in that respect was listed for hearing as a result of the request made by the defendant in its written submissions.

2. [24]

   The matter was fixed for hearing by the Court on 17 April 2019. The parties variously sought alternative dates to that hearing but it was determined by the Court that the matter would remain fixed for hearing on that date. No further application for variation of the date was received by the Court.

3. [25]

   On the morning of the listing, a communication was sent my email by Mr Wayne W. Pan, who described himself as PA to the Public Officer of the National Executive Office of the Chinese Community Centre. Given what then followed, it is convenient to set out the content of that email:

4. [26]

   Also received by email was a document described as a notice of motion. That notice of motion was not filed or served. It was said to be issued by the defendant. The following orders were sought by the defendant in the notice of motion:

5. [27]

   When the matter resumed on 17 April 2019 at the appointed time there was no appearance for the defendant. After making calls, the Court determined that it had received, in essence, an application for an adjournment from the defendant. The plaintiff was heard in that respect and the Court ruled for reasons that are set out in the record of the proceedings, to refuse the adjournment application and hear the question of mesne profits and costs without appearance by the defendant.

6. [28]

   After hearing the plaintiff on the question of mesne profits, it was indicated that the Court intended to make orders in that respect. After hearing the plaintiff on the question of costs it was indicated that further written submissions would be required from the plaintiff particularly having regard to the application for personal liability.

7. [29]

   At 10.35am, Mr Shang, who continued his appearance for the defendant, appeared in the proceedings.

8. [30]

   Upon Mr Shang appearing, the course of the proceedings to that point were explained to him. He was given an opportunity to develop submissions. The Court revoked its earlier intimation with respect to the determination of mesne profits and proceeded to hear Mr Shang as to any procedural application he wished to bring on that question.

9. [31]

   At that juncture, Mr Shang made submissions essentially bearing upon the unfiled notice of motion and made an oral application to the effect that the Court should reopen the proceedings with respect to the issue of mesne profits and the defendant’s cross-claim so far as it sought damages and, in the event of such a reopening, sought the Court adjourn for a further hearing of the primary proceedings concerning mesne profits and damages (costs would be adjourned to a further date fixed for hearing of the reopened primary and cross-claim proceedings).

10. [32]

    The actual terms of that application require clarification. What the defendant sought to do was to bring evidence as to the safety of the premises in order to demonstrate that they were not capable of occupation, presumably (but not stated) for a period corresponding that which the plaintiff sought mesne profits, namely, between 24 March 2017 and 1 October 2018). The defendant made it clear that it was not seeking to reopen the proceedings with respect to the Court’s determination as to the validity of the lease or orders with respect to arrears of rent.

11. [33]

    The procedure proposed by the defendant was that the proceedings would be adjourned for 28 days to permit the defendant to seek penalty or infringement notices from NSW Fire and Rescue and Parramatta City Council with respect to the premises.

12. [34]

    Mr Shang had been (recently) in contact with those bodies in order to initiate investigations to that end. Mr Shang then proposed that subpoenas would be issued to the proper officers of those bodies, as to their, it would appear, investigations, conclusions and the notices issued by them.

13. [35]

    The defendant offered no evidence in support of the application, save for a video of the premises said to have been taken in 2016 and an intimation that documentation was available to show that steps had been taken to engage NSW Fire and Rescue and Parramatta City Council (it was indicated that a telephone conversation had occurred that morning with the Chief of Staff of the Commissioner of NSW Fire and Rescue). I was prepared to proceed on the basis that such communications were made with NSW Fire and Rescue and Parramatta City Council albeit that on the submissions on Mr Shang, those communications must have been made significantly after the judgment issued by the Court in Medi-Aid No 1 and in relatively recent times.

14. [36]

    On 17 April 2019, the Court rejected the application to reopen the proceedings and the corresponding application for an adjournment. Reasons were given on that occasion, but it was indicated that short additional reasons may be given in that respect. Those additional reasons are as follows:

    1. (1)

       Whilst the Court determined the application for mesne profits under the originating process of the amended summons, save for the question of quantification of mesne profits and rejected the cross-claim, the application to reopen was available, in law, as neither the determination of mesne profits (due to the outstanding issue of quantification) nor the determination of the court with respect to the cross-claim had been perfected by means of the entry of the judgment or resultant orders on the court’s computerised record system: see as to the effect of r 36.11 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”); Gabriel v Grech [2018] NSWSC 1652 at [79] (although this is not a case where r 9.10 operated because there was no ruling under r 9.8 for a separate trial of the cross claim - also see as to reopening, r 36.16(1)).

    2. (2)

       The power to reopen proceedings must be exercised with great caution in view of the public interest in the finality of legal proceedings: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; [1993] HCA 6 (“Autodesk No 2”) at 301-303 (per Mason CJ), 308 (per Brennan J), 317 (per Dawson). The power may be exercised where, through no fault of the party seeking to reopen, parties have not been heard on a matter being decided by the court: Autodesk No 2 at 302 (per Mason), 308 (per Brennan), 317 (per Dawson J).

    3. (3)

       The application to reopen was made very late in the proceedings, a considerable time after judgment was delivered with respect to both the primary proceedings and the cross-claim and in circumstances where the basis for reopening was ill-defined and the evidentiary foundation was entirely uncertain, so much so that the key evidentiary basis for the reopening, namely, entreaties made to NSW Fire and Rescue and Parramatta City Council had only commenced recently, with no known or finite outcome and the video relied upon related to a period which was unconnected to the period for which mesne profits were sought by the plaintiff.

    4. (4)

       The grant of the reopening would not permit a hearing within 28 days as proposed by the defendant. Rather, that was a date upon which the defendant expected to receive a conclusion to the apparently uncommenced investigations by the two agencies he contacted with some unfounded expectation of an affirmative outcome. Mr Shang himself envisaged that subpoenas would be required to be issued to bring evidence in of that kind. It may be expected that the additional evidence, if admitted, would result in a significant evidentiary contest substantially elongating the period required to determine proceedings which are otherwise concluded save for two confined areas, namely, the quantification of mesne profits and an application for ordinary costs.

    5. (5)

       Further, it would appear the investigation was to occur after the plaintiff resumed occupation of the premises.

    6. (6)

       In any event, assuming that the “safety” issue is relevant to both the cross-claim and mesne profits, there are significant difficulties with the defendant raising that issue either in that broad way or in relation to fire risk having regard to the conduct of the proceedings by the defendant. Those difficulties are as follows:

Mesne Profits

1. [37]

   In the circumstances, and noting that a program has been fixed with respect to costs, the remaining issue is the question of quantification vis-à-vis mesne profits.

Further Submissions by the Defendant

1. [38]

   It is apparent from the defendant’s written submissions in reply to paragraph 3 and 4 of the plaintiff’s submissions that the contentions were directed to the same issues addressed in the reopening application save for a submission that the defendant had kept records of emergency 000 incidents and onsite safety inspections by NSW Fire and Rescue about which submissions were not made and no evidence was produced or proposed to be produced to the Court.

2. [39]

   In oral submissions the defendant did not traverse the findings of the Court vis-à-vis a valid lease or rent in arrears. Paras 4(a) and (b) of the defendant’s response to paras 5 and 6 of the plaintiff’s written submissions were expanded upon by Mr Shang in the manner that now follows:

   1. (1)

      The calculations in figure 1 appearing in para 5 of the plaintiff’s written submissions should be calculated on the rent specified on the lease of around $19,000 per month. There can be no amounts owing under the lease after 7 March 2018 as the lease was terminated and possession taken from 7 March 2018;

   2. (2)

      When calculated as amounts due under the lease, the total sum owing is approximately $200,000, not the amount calculated by the plaintiff. As to para 7 and the further amounts claimed from 3 March 2018, these payments cannot be due as mesne profits as the lease had been terminated by 7 March.

   3. (3)

      The defendant is a charity and there is no income derived from the operation;

   4. (4)

      The defendant repeated submissions that the premises were unsafe to occupy.

3. [40]

   The plaintiff advanced the following additional oral submissions:

   1. (1)

      The defendant confused rent and mesne profits. The court dealt with the question of arrears of rent at [160] of Medi-Aid No 1. Mesne profits are not rent; they equal the market rent that could have been obtained: Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 (“Lamru”) at 439B;

   2. (2)

      The lease was terminated on 23 March 2017 having been validly entered into from 27 July 2015 (see Medi-Aid No 1 at [134]). The calculations by the applicant in its written submissions extend from that date.

   3. (3)

      Figure 2 in para 7 of the plaintiff’s submissions concerned a similar calculation to the written submissions advanced by the plaintiff during the hearing up until the point of re-entry.

   4. (4)

      The affidavit of Anthony Khoury of 16 August 2017 at paras [25]-[27] dealt with mesne profits. That evidence was unchallenged by the defendant.

   5. (5)

      Figures 1 and 2 of the written submissions of the plaintiff refer to a period of time following the termination of the lease up until possession was obtained by the plaintiff, namely, from 24 March 2017 to 25 October 2018.

   6. (6)

      Mr Gough conceded that Mr Khoury’s estimates of market value do not extend to the amount shown in figure 2 for the time period 8 March 2018 to 25 October 2018.

   7. (7)

      The plaintiff also pointed to the fact that on 24 March 2017, Mr Shang damaged the locks of the premises and re-entered and remained in unlawful occupation until possession.

4. [41]

   The defendant submitted in reply:

   1. (1)

      The Court needs to take into account that Mr Khoury is a real estate agent acting for the plaintiff. The space on the ground and second floors of the premises had not been leased for 10 years prior to the lease taken up by the defendant. The premises remained vacant during that time.

   2. (2)

      The evidence given by Mr Khoury as to market rental should be entirely rejected. The rental sum would be the most appropriate basis for calculation.

   3. (3)

      As there was no lease from 23 March 2017, nothing should be awarded from that time.

5. [42]

   The evidence of Mr Khoury in his affidavit of 16 August 2017 at paras [25]-[27] was as follows:

CONSIDERATION

1. [43]

   The Court found in Medi-Aid No 1 that the lease had been validly entered into and was terminated upon the plaintiff’s exercise of power of entry on 23 March 2014. On 24 March 2017, the defendant damaged the locks of the premises, re-entered and remained in unlawful possession from that date until the date of the hearing of the matter before the Court (at [152]).

2. [44]

   The Court therefore accepted the submission of the plaintiff that it was entitled to mesne profits until the defendant had given possession (at [162]), subject to evidence and submissions as to quantification and the receipt of submissions from the defendant. Possession was obtained on 25 October 2018.

3. [45]

   In terms of the calculation of mesne profits, the learned author of Butt’s Land Law (Thomson Reuters, 7th ed, 2017), Professor Brendan Edgeworth, stated:

4. [46]

   The plaintiff referred to Lamru at 439B. In that passage of the judgment, Cohen J stated:

5. [47]

   The evidence established that the plaintiff should receive mesne profits calculated in accordance with figure 1 of the plaintiff’s written submissions but modified upon the concession appropriately made by counsel for the plaintiff, namely, the Court should adopt the lower end of the range given by Mr Khoury, $369,985 inclusive of GST.

6. [48]

   However, as conceded by the solicitor for the plaintiff, there is no evidence before the Court supportive of the calculation of mesne profits in the period 8 March 2018 to 25 October 2018 (see Figure 2 of the written submissions of the plaintiff). In accordance with the judgment in Medi-Aid No 1, there is, therefore, no proper basis to make an order for mesne profits for that period.

Costs

1. [49]

   On 15 May 2015, the plaintiff filed a further written submission on costs. By that submission, the plaintiff sought costs on the ordinary basis as against the defendant. The plaintiff confirmed that it no longer sought costs against Mr Shang personally and it withdrew its application for costs on an indemnity basis.

2. [50]

   The plaintiff submitted that those costs, as is ordinary, should include the whole proceedings, including the costs of all submissions and appearances after judgment necessary to deal with any residual issues, being issues that follow from the plaintiff’s success in the proceedings.

3. [51]

   The defendant did not file any submission in reply to the plaintiff’s further written submission on costs. It may also be noted that an earlier written submission, filed by the defendant on 27 November 2018, consisted of a rejection of the relief as to costs sought by the plaintiff and an absence of any developed submissions or submissions relevant to the issue of costs.

4. [52]

   The general principles as to costs orders were set out in Moseley v AB (No 2) [2017] NSWSC 1812 at [65]-[79] (see also, Gaetani v Schiliro (No 2) [2019] NSWSC 533 at [18]). I adopt those principles.

5. [53]

   The plaintiff was wholly successful at the hearing, save for a relatively confined issue as to the quantification of costs. In the circumstances of this case, I find there is no reason to depart from the general rule that costs follow the event: r 42.1 of the UCPR.

Conclusion

1. [54]

   The plaintiff should receive an award of mesne profits in accordance with this judgment.

2. [55]

   Having regard to my determination as to the defendant’s application for reopening and an adjournment, the determination as to the cross-claim in Medi-Aid No 1 will stand. However, formal orders should be made to that effect.

3. [56]

   The plaintiff is awarded costs on the ordinary basis as against the defendant as sought by the plaintiff.

Orders

1. [57]

   The plaintiff shall bring in short minutes of order reflecting this judgment within 7 days of the publication of this judgment.