Palermo Seafoods Pty Ltd v Lunapas Pty Ltd

1. [1]

   SIMPSON JA and SACKVILLE AJA: By Amended Statement of Claim filed in the Equity Division of the Supreme Court on 20 May 2014 the appellant, Palermo Seafoods Pty Ltd, claimed a variety of declarations and orders arising out of its lease of premises owned by the first respondent. The proceedings came on for hearing before Young AJA (“the primary judge”) on 20 and 21 May 2014. All parties were legally represented.

2. [2]

   On 16 June 2014 the primary judge delivered a judgment: Palermo Seafoods Pty Ltd v Lunapas Pty Ltd [2014] NSWSC 792, in which he identified and answered certain questions (“the First Judgment”). He then identified further questions that he considered arose, but that had not been fully or properly addressed, and called for further submissions. Those submissions were duly provided and the primary judge proceeded to deliver a second judgment on 26 September 2014: Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (No 2) [2014] NSWSC 1323 (“the Second Judgment”). That judgment concluded as follows:

3. [3]

   The Second Judgment is the subject of the present appeal. On the appeal, the appellant was not legally represented. To the extent that it was necessary to do so, the Court granted leave to Mr Frank Palermo to represent the appellant, and permitted a Mr Michael Fern to accompany him at the bar table to assist.

4. [4]

   The issues identified for determination in the appeal are confined and will be referred to below.

Background

1. [5]

   The Amended Statement of Claim named Lunapas Pty Ltd as first defendant, and Mr Luciano Menniti as second defendant.

2. [6]

   Although there are few findings of fact in the judgments, the following appears to be uncontroversial. Mr Frank Palermo and his son Joseph Palermo are directors of the appellant. Mr Menniti is the sole director of the first respondent. In 2007 the appellant entered into an agreement with the first respondent for a lease of premises in Tweed Heads, operated as a seafood restaurant (and associated businesses), expiring on 1 July 2012. In January 2009 the appellant and Frank and Joseph Palermo (as guarantors), and both respondents agreed to revise the terms of the tenancy, so that it expired on 1 July 2012, with an option for a further term of three years, expiring on 1 July 2015.

3. [7]

   Disputes arose between the parties. On 28 March 2013 the first respondent re-entered the premises but, shortly after, permitted the appellant to resume occupation. On 8 May 2013 the first respondent again re-entered the premises. Plant, equipment and other property of the appellant remained in the premises. The first respondent thereafter conducted the seafood business from the premises. At a later stage it permitted another corporate entity to do so.

4. [8]

   The appellant commenced proceedings. In the Amended Statement of Claim the appellant claimed, inter alia:

5. [9]

   The pleadings relevantly included (but were not limited to) the following contentions of fact and law (we summarise and paraphrase):

6. [10]

   It was further asserted, in the Amended Statement of Claim that:

7. [11]

   The proceedings came on for hearing before the primary judge on 20 and 21 May 2014. Some days before the hearing both counsel provided outlines of submissions. Affidavits of Joseph Palermo, Joseph Gurciullo, and the second respondent were read. Joseph Palermo gave oral evidence (by videolink from Queensland, where he was in custody on criminal charges) as did the second respondent.

8. [12]

   At the conclusion of the hearing both parties provided further written submissions, as well as oral submissions.

9. [13]

   On 16 June 2014 the primary judge delivered the First Judgment. The findings of fact are not easy to follow as they tend to be subsumed in the discussion of other issues. However, the findings made by the primary judge include the following:

10. [14]

    The judgment identifies 11 questions raised in the proceedings, and gives answers to some of them. Question 11, which asked:

11. [15]

    The 11 questions do not include any concerning the appellant’s claim that the first and/or the second respondent had wrongfully taken possession of and used its assets and refused to return them.

12. [16]

    Both parties availed themselves of the opportunity to make further submissions, which they did in writing. Only a very brief hearing took place. During that hearing, counsel for the appellant expressly adverted to the claim for damages in relation to the appellant’s property. The primary judge said that he would “have another look at that”.

13. [17]

    On 26 September 2014 the primary judge delivered the Second Judgment. He noted that, in the supplementary submissions filed on behalf of the appellant, it had been contended that he had not adequately dealt with two identified issues. One was a question whether the appellant was entitled to damages for “confiscation of its chattels”. The primary judge said:

14. [18]

    The primary judge declined to deal with the question. That was not because little attention had been paid in the hearing to it, but because, in the Amended Statement of Claim, the claim had been identified as one of constructive trust. The primary judge said that this claim could not be correct, since the appellant retained legal title to the goods and the correct cause of action was in detinue or trover. He said:

15. [19]

    He proceeded to make the orders set out above. The verdict in favour of the appellant for $9,500 related to the appellant’s claims based on dishonoured cheques given by the second respondent.

The Notice of Appeal

1. [20]

   Four grounds are nominated in the Notice of Appeal which appears to have been framed by the appellant’s legal representatives. All relate to a single issue, the appellant’s claim with respect to the alleged use of and refusal to return its goods. Ground 1 is:

2. [21]

   In our opinion the appeal should be upheld. Before explaining why, it is appropriate to make the following observations.

3. [22]

   The appellant, as indicated above, was not legally represented on the appeal (although, in various interlocutory proceedings, it had had legal representation). The preparation of the appeal books was wholly deficient. No “Black Book” containing the transcript of the oral evidence was filed in accordance with the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) r 51.28. None of the affidavits was provided. Folders of material were provided, but it was impossible to discern any pattern in their contents. The Court, accordingly, made its own inquiries, and obtained transcripts, some affidavits, and the submissions that had been made at first instance. Not all relevant documentation could be located.

4. [23]

   We mention this because, until the day the appeal was listed for hearing, the Court was informed that the respondents also were not legally represented. On the day of the appeal, however, counsel (who had appeared at trial) appeared, although he had been briefed only shortly before the hearing. Since counsel’s involvement was not previously known to the Court he had not been provided with the material that the Court had assembled for itself. During the course of the day he, and the appellant, were provided with that material and an opportunity (although brief) to review it.

5. [24]

   We return now to the grounds of appeal. The essence of the appeal is that the primary judge was in error in declining to deal with the appellant’s claim with respect to the detention of its property on the basis that it had characterised its claim as in constructive trust, when the correct legal characterisation was detinue, conversion, or trover.

6. [25]

   To answer that, it is necessary to go, first to the Amended Statement of Claim, and second, to the various written submissions put before the primary judge.

7. [26]

   The relevant paragraphs of the Amended Statement of Claim are the following:

8. [27]

   In the appellant’s final outline of argument (at trial), provided on 21 May 2014, the following appeared:

9. [28]

   In the further written submissions, provided after the preliminary judgment (on 31 July 2014), appeared a section headed “Alternate damages claim”. There followed a series of submissions concerning the items of property said to have been retained by the respondents. (Reference was made in the submissions to a “Court Book”, and to the Schedule of property said to be attached to the Amended Statement of Claim, neither of which has been able to be located and neither of which has, in the circumstances outlined above, been provided by the parties.)

10. [29]

    On behalf of the respondents a response to the submission of 31 July 2014 was made. The submission raised factual and legal issues concerning the property identified. Nowhere was it suggested that the claim there made fell outside the appellant’s pleadings.

11. [30]

    Although it was only one aspect of a multi-faceted claim made by the appellant (which was largely directed to the exercise of the option, the asserted breaches of the lease by the first respondent, and the consequences of those breaches), the factual basis for a claim for damages by reason of the allegedly wrongful use of and denial of access to the appellant’s plant and equipment was adequately pleaded and made the subject of submissions. That, in the Amended Statement of Claim, the appellant mistakenly characterised the claim as referable to a constructive trust is immaterial. It was, therefore, erroneous for the primary judge to decline to deal with an issue that was properly before him. The appeal must therefore be allowed.

12. [31]

    This Court has power to order a new trial in appropriate circumstances (Supreme Court Act 1970 (NSW), s 75A(10); Waterways Authority v Fitzgibbon [2005] HCA 57; 221 ALR 402 at [15] (Gleeson CJ, McHugh and Gummow JJ agreeing); [88] (Kirby and Heydon JJ); [175]-[179] (Callinan J)). However, UCPR r 51.53 provides as follows:

13. [32]

    Since the primary judge was in error in failing to address the case pleaded and presented by the appellant, the appellant has clearly suffered a substantial wrong or miscarriage. While a new trial is always regrettable, it is necessary in the interests of justice that a new trial be ordered.

14. [33]

    The respondents have not challenged any of the findings of fact made in the First Judgment, whether by way of cross-appeal or notice of contention. In effect, the only issues raised by the Notice of Appeal is that the primary judge should have addressed the appellant’s claim for damages in respect of the plant and equipment identified in the Schedule. The Notice of Appeal proceeds on the basis that the appellant accepts the findings in the First Judgment.

15. [34]

    In these circumstances, it is appropriate to direct that the new trial be limited to determining the appellant’s claim for damages by reason of the respondents’ alleged wrongful use of and refusal to return the appellant’s plant and equipment as pleaded in the Amended Statement of Claim. Since neither the appellant nor the respondents challenge the findings of fact in the First Judgment relevant to the appellant’s claim for damages, a direction should be given that in the new trial the appellant’s claim be dealt with on the basis that the parties do not challenge the findings of fact made in the First Judgment relevant to that claim. A direction in these terms is authorised by the wide powers conferred by UCPR r 51.53(2), (3), (4), (5)(a).

16. [35]

    We propose the following orders:

    1. (1)

       Appeal allowed;

    2. (2)

       Set aside the orders made by Young AJA on 26 September 2014 dismissing the proceedings with costs;

    3. (3)

       Direct that there be a new trial limited to the appellant’s claim for damages by reason of the respondents’ use of and failure to return the appellant’s plant and equipment (“the appellant’s claim”);

    4. (4)

       Further direct that the new trial be conducted on the basis that the parties do not challenge the findings of fact made in the judgment of Young AJA delivered on 16 June 2014, insofar as those findings are relevant to the appellant’s claim;

    5. (5)

       The respondents pay the appellant’s costs of the appeal;

    6. (6)

       The respondents, if otherwise qualified, have a certificate under the Suitors’ Fund Act 1951 (NSW).

17. [36]

    EMMETT AJA: This appeal concerns a claim by the appellant, Palermo Seafoods Pty Limited (Palermo), that it suffered loss when the first respondent, Lunapas Pty Limited (Lunapas), wrongfully prevented it from gaining access to premises that was the subject of a Tenancy Agreement between Lunapas, as landlord, and Palermo, as tenant (the Demised Premises). Palermo sought to recover plant, equipment and stock and other chattels owned by it after the tenancy was terminated. Palermo commenced proceedings against Lunapas and its director, Mr Luciano Menniti, in relation to alleged wrongful termination of the tenancy. A Judge of the Equity Division (the primary judge) dealt with a number of issues raised by the proceedings in reasons published on 16 June 2014. [1] Having done so, the primary judge stood the matter over for further submissions.

18. [37]

    In further written submissions dated 31 July 2014, Palermo dealt with its “alternate damages claim”, complaining that Lunapas impermissibly refused permission for it to collect its plant, equipment and stock from the Demised Premises. Palermo submitted that, even in the case of forfeiture of a tenancy, a tenant is entitled to sufficient time to remove its plant, equipment and chattels, such that, where the landlord retains control of such property, the landlord becomes a bailee of the property. Palermo complained that the period given to it by Lunapas to collect its property was unreasonably short.

19. [38]

    In its written submissions in response dated 15 August 2014, Lunapas submitted that the property in question could have been removed in the 24 hour period limited by it and that, if it could not have been removed, extensions might well have been negotiated. Lunapas also relied on the provisions of the Tenancy Agreement that purported to authorise it to keep any property of the tenant if it was not removed before the tenancy came to an end. Lunapas also asserted that Palermo did not mitigate its alleged loss by enforcing its common law rights and that, despite that it was told that it had until 5:00 pm on the next business day to remove its property, it did not pursue its rights other than to assert that the time allowed to it was not reasonable. Significantly, Lunapas made no complaint that such a claim was not open to Palermo under the pleadings filed in the proceedings.

20. [39]

    At a further brief hearing on 28 August 2014, following the further submissions, the primary judge said that he had given his preliminary decision and had then given counsel the opportunity to make further submissions, which they had done. Counsel appearing for Palermo then said, somewhat cryptically, “The chattels remain”, that the evidence adduced by Palermo provided a valuation for the chattels and that Palermo sought damages in relation to them. Counsel said that Palermo did not know what was happening in relation to that matter, since it was not dealt with in the earlier judgment. His Honour said that he would “have another look at that”. Counsel for Lunapas made no further comment in relation to the matter of “the chattels”.

21. [40]

    In his further reasons of 26 September 2014, [2] the primary judge dealt with the question of whether Palermo was entitled to damages for confiscation of its chattels. His Honour observed that Lunapas took possession of the Demised Premises on 8 May 2013 and that that was premature, as one month’s notice was required and Lunapas gave only 14 days’ notice. Nevertheless, his Honour said, both parties accepted that the notice put an end to any tenancy. His Honour then referred to the fact that, on that day, Lunapas gave Palermo until 5:00 pm on the following day “to remove its goods and chattels and stock”. His Honour then referred to evidence as to the property in question, being refrigerators, display cabinets, benches, shelving, sinks, wash basins, a cooking apparatus, tables and chairs, trays, tubs and prawn bins, a photocopier, cutlery, a television set, a fork lift truck, cameras and a “heterogeneous list of chattels”. His Honour referred to Palermo’s claim that the total value on a replacement basis of the plant and equipment was $521,025.90 and that it claimed $60,000 worth of stock.

22. [41]

    The primary judge then referred to the reliance by Lunapas on provisions of the Tenancy Agreement, which provided that the tenant must remove any goods prior to termination and that anything not removed became the property of the landlord, who could keep it, remove or dispose of it. His Honour referred to the principle that, if there is a tenancy at will of demised premises and the landlord takes possession, the tenant has an implied licence, for a reasonable time, to enter the demised premises and remove chattels. His Honour considered that, in the circumstances of the case before him, one day was insufficient time to remove the property in question. His Honour then referred to the principle that, if a person’s goods lawfully come on to land owned by another person and a demand is made for the return of those goods, the landlord must not prevent the owner of those goods from reclaiming them.

23. [42]

    However, his Honour then referred to the pleadings and, in particular, the prayer in the Amended Statement of Claim filed by Palermo for a declaration that the property in question was held on constructive trust. His Honour observed that the property still belonged to Palermo and concluded that there could therefore be no constructive trust. Rather, his Honour said, the proper cause of action was in detinue or trover and that neither detinue nor trover was actually pleaded. Accordingly, his Honour said, although the issue of the Statement of Claim may be considered a demand, it was difficult to maintain a case of both detinue and conversion in the one pleading. His Honour concluded that he could only decide the issues that were raised in the pleadings and that, as neither detinue nor conversion was pleaded, he could not consider them.

24. [43]

    That conclusion was reached without any contention to that effect on behalf of Lunapas. Further, no opportunity was afforded to Palermo to deal with the contention. Examination of the Amended Statement of Claim indicates that it is by no means clear that a claim in conversion was not made.

25. [44]

    The Amended Statement of Claim relevantly made the following allegations:

26. [45]

    On a fair reading of the Amended Statement of Claim, it is tolerably clear that Palermo was complaining that it had suffered loss and damage as a consequence of Lunapas refusing reasonable access to it to enable it to remove its plant, equipment and stock. Certainly, the pleading does not refer to conversion or detinue. Nevertheless, it makes allegations of fact that could fairly amount to conversion or detinue. More importantly, in its supplementary submissions, Palermo clearly made a claim for damages in respect of the loss of its plant, equipment and stock. Lunapas responded to the merits of that claim and made no complaint that it was not open to Palermo to make such a claim on the pleadings.

27. [46]

    In its Notice of Appeal filed on 19 December 2014, Palermo raised the following grounds:

28. [47]

    I have had the advantage of reading in draft form the proposed reasons of Simpson JA and Sackville AJA. I agree with their Honours that the appeal should be allowed. The order of the primary judge made on 26 September 2014 that the proceedings be dismissed with costs should be set aside. The matter should be remitted to the Equity Division for further hearing of the question of Palermo’s entitlement to damages in respect of the wrongful denial to Palermo of reasonable access to the Demised Premises for the purpose of retrieving the property in question, and the loss of that property. Lunapas should pay Palermo’s costs of the appeal.