New South Wales Court of Appeal CITATION: R & J LYONS FAMILY SETTLEMENT PTY LTD v 155 MACQUARIE STREET PTY LTD [2006] NSWCA 177 HEARING DATE(S): 29 June 2006 JUDGMENT DATE: 29 June 2006 JUDGMENT OF: Mason P at 1; Hodgson JA at 32; Tobias JA at 38 EX TEMPORE JUDGMENT DATE: 06/29/2006 DECISION: Appeal dismissed with costs. CATCHWORDS: LANDLORD AND TENANT – Covenants in lease – Not generally preconditions to performance – Rent usually payable notwithstanding demised premises unusable. - CONTRACTS – Construction and interpretation – Deed of settlement – Where precludes further action on issues joined by claimant – Whether precludes cross-claim by opponents. LEGISLATION CITED: Conveyancing Act 1919 Bishop v Moy [1963] 468 Macquarie Street Pty Ltd [2006] NSWSC 625 CASES CITED: McDonnell & East Ltd v McGregor (1936) 56 CLR 50 R & J Lyons Family Settlement Pty Ltd v 155 Woodfall on Landlord and Tennant 28th ed PARTIES: R & J LYONS FAMILY SETTLEMENT PTY LTD & ANOR v 155 MACQUARIE STREET PTY LTD & ANOR FILE NUMBER(S): CA 40388/06 COUNSEL: Claimants: M Einfeld QC/ M Cohen Opponents: M McCulloch SC / P McDonald SOLICITORS: Claimants: Wright Stell Opponents: Henry Davis York LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): SC 1652/06 LOWER COURT JUDICIAL OFFICER: Windeyer J LOWER COURT DATE OF DECISION: 22 June 2006 LOWER COURT MEDIUM NEUTRAL CITATION: [2006] NSWSC 625 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40388/06 MASON P HODGSON JA TOBIAS JA THURSDAY 29 JUNE 2006 R & J LYONS FAMILY TRUST SETTLEMENT PTY LTD & Anor v 155 MACQUARIE STREET PTY LTD & Anor JUDGMENT 1 MASON P: The claimants are the sub-lessees of part of commercial premises in Macquarie Street, Sydney. The opponents are their sublessors. 2 Proceedings were commenced in 2003, known as the "Easement proceedings", in which the claimants sought damages against the opponents and others. The claim against the opponents pleaded in paras 11-20 of the Amended Statement of Claim is for breach of an Agreement for Sub-Lease made on about 25 July 2000, approximately one year before the Sub-lease itself. The opponents were said to have failed to provide certain information and services necessary to enable the claimants to carry out fit-out works. The opponents were also said to have failed to make part of the premises available for the purpose of the fit-out works by failing to procure certain easements. The breaches are said to have delayed completion of the fit-out works until 18 January 2003. 3 The pleading was amended on 20 December 2004. A Further Amended Statement of Claim included new paras 16A and 16B as follows: 16A. It was an implied term of the Agreement for Sub-Lease that the first, second and third defendants would procure the necessary easements of way for the purposes of making penetration into and passing core holes through the strata lots in SP 62658 below the slab supporting the areas demised by the Sub-lease so as to enable timely completion of the Lessees' Fit Out Work in accordance with the provisions of Schedules 2 and 3 of the Agreement for Sub-Lease and commencement of trading in accordance with the Agreement for Sub-Lease generally. 16B. It was a further implied term of the Agreement for Sub-Lease that, in the event that the first, second and third defendants were not legally entitled to make penetrations into and pass core holes through the strata lots in SP 62658 below the slab supporting the areas demised by the Sub-lease, for the purposes of providing hydraulic and other services: (a) the rent reserved pursuant to the Agreement for Sub-Lease, and/or the Sub-Lease, thereby abated for the whole of the period of any and all delay suffered by the plaintiffs by reason of the inability to have the benefit of such hydraulic and other services; (b) alternatively, any and all rent paid by the plaintiffs during the whole of the period identified in (a) above constitute liquidated damages of the plaintiffs; (c) any and all costs, expenses, loss or damage arising from or consequential upon the absence of legal entitlement to make penetrations into and pass core holes through the strata lots in SP 62658 constituted liquidated damages, or alternatively general damages incurred by the plaintiff, payable by the first, second and third defendants, in the event of a breach of such implied term. 4 The damages claimed include "rent due and payable for the period from 1 February 2002 until 18 January 2003" and "abatement of rent" (sic). 5 The Sub-lease obliged the claimants to pay rent at approximately $49,500 per month from 1 February 2002. It would appear to be common ground that rent was unpaid in 2002 and for part of 2003. 6 In their Defence dated 1 July 2003 the opponents denied the breaches alleged. They also claimed outstanding rent in paras 23-24 of the accompanying Cross-Claim. (This cross-claim is now found in pars 35 and 36 of an Amended Cross-Claim.) The cross-claim was also pleaded by way of set off in the Defence itself (para 17). 7 The opponents allege that $524,900 rent was outstanding as at end of June 2003. 8 On about 14 October 2003 the claimants filed a Defence to Cross-Claim that included the following: 2 In answer to paragraphs 23 and 24 of the Cross-Claim the Cross-Defendants say as follows: (a) As to the period 1 February 2002 to 31 January 2003 the Cross-Defendants: (i) Refer to and rely on the matters pleaded at paragraphs 11-20 of the Amended Statement of Claim and say that by reason of those matters the Cross-Defendants are not indebted as alleged or at all in relation to the Cross-Claimants' claim for rent for the period 1 February 2002 to 31 January 2003; 9 It is common ground that the reference to paragraphs 11-20 of the Amended Statement of Claim are to be treated as including paras 16A and 16B added in the Further Amended Statement of Claim. 10 On 2 and 3 December 2005 the parties mediated these and other disputes before the Hon GE Fitzgerald QC. A Settlement Deed was executed on 3 December 2005. Its parties include the claimants, the opponents, Lend Lease Development Pty Ltd (the head lessor) and Freehills solicitors. Lend Lease is a party to the Agreement for Sub-Lease and a defendant in the Easement proceedings. The solicitors are defendants in the Easement proceedings, having been sued on the allegation of having given negligent advice to the claimants. 11 The Settlement Deed provides for payment by the opponents, Lend Lease and Freehills of $1.1million inclusive of costs and interest to the claimants without admission of liability. There are mutual releases with respect to a range of topics. The releases in favour of Lend Lease and Freehills are expressed in very broad terms. As regards the opponents, the relevant release is found in clause 2.3 which provides: Upon the execution of this Settlement deed, R&J Lyons, Lyons Brothers and Mr Talbot: (a) Release each of 155 Macquarie and Ranec of all claims, actions and causes of action (including any claims for costs), present and future, including relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement. (b) agree that 155 Macquarie and Ranec may plead this Deed to bar any claim, action or cause of action (including any claim for costs) brought by R&J Lyons, Lyons Brothers and Mr Talbot relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement. (c) agree not to commence or maintain any claim, action or cause of action (including any claim for costs) against 155 Macquarie and Ranec relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement. (d) agree to indemnify 155 Macquarie and Ranec against any liability, loss or costs arising from a breach of paragraph (c); and (e) agree to ensure that any person with whom it is associated in any way does not commence or maintain any claim, action or cause of action (including any claim for costs) against 155 Macquarie and Ranec relating to the Easement Proceedings, the Gaming Proceedings and the Heads of Agreement. 12 Clause 7 of the Settlement Deed defined Easement Proceedings to mean: … proceedings No 20065 of 2003 in which R & J Lyons and Mr Talbot are the plaintiffs (not including the cross-claim which is defined above); and the matter the content of order 1 of the notice of motion filed by the plaintiff in the easement proceedings and dated 25.11.2005. 13 The "cross-claim … defined above" is defined as the cross-claim commenced by the opponents against the claimants in the Easement proceedings. 14 A Reply was filed in the Easement proceedings on 19 June 2006. In effect, it pleads the Settlement Deed as a bar to para 2(a) of the Defence to Cross-Claim. 15 There is now a dispute as to the viability of para 2(a) and the scope of clause 2.3 of the Settlement Deed with reference to the Easement proceedings. That dispute needs urgent resolution given the imminence of the trial as between the parties to this summons in relation to the cross-claim in the Easement proceedings. The parties agree that the cross-claim may encompass what is known as the "kiosk dispute" as well as a foreshadowed application under s133F of the Conveyancing Act 1919. The parties do not agree on whether the cross-claim proceedings may include a dispute as to whether or not the withholding of rent was justified. The opponents contend that any such dispute was resolved in the Settlement Deed. They certainly object to having to litigate the issue tendered in para 2(a) of the Defence to Cross Claim. 16 Windeyer J formulated and decided two separate questions on the issue (R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Sreet Pty Ltd [2006] NSWSC 625). His Honour relevantly found that, in light of the release, the claimants are not entitled to maintain by way of defence to cross-claim the matters pleaded in para 2(a)(i) above. That part of the Defence to Cross-claim was ordered to be struck out and the claimants were ordered to pay the costs of the separate issues. 17 This application was expedited and has been considered by the Court as a rolled up matter. The matter is significant and there should be a grant of leave. 18 The subject matter of the release, relevantly speaking, is the claimants' claims in the Easement proceedings. This is made clear by the definition of "Easement proceedings"; the fact that the cl 2.3 release is given by the claimants; the reference in cl 2.3(b) to claims etc "brought by" the claimants; and the agreement not to commence or maintain claims etc "against" the opponents found in cl 2.3(c). 19 Examination of clause 2 as a whole discloses no release of the claimants by the opponents except in cl 2.4. That subclause contains releases by the opponents in favour of the claimants relating among others to the "Easement proceedings". But, as indicated already, that term is defined to exclude the Cross-Claim. Neither party placed reliance on cl 2.4. 20 The Settlement Deed put an end to certain rights and provided expressly that the Deed may be pleaded in bar to any claim, action or cause of action (including any claim for costs) brought by the claimants relating to the Easement proceedings (para 2(a)). For more abundant caution the claimants agreed not to commence or maintain any such claim etc. 21 In my opinion, the retention of the issue propounded by the claimants in para 2(a) (whatever it is) contravenes these promises. Accordingly, Windeyer J was correct to strike out para 2(a) in light of his interpretation of clause 2.3. 22 This does not mean that claims in the Cross-Claim are "at large", as contended. Rather, it means that they are to be litigated untrammelled by an inappropriate issue purporting to rely on a right put to rest by the Settlement Deed. In making this observation I am of course addressing the present state of the pleadings. 23 The claimants submit that Windeyer J overlooked the restrictive definition of "Easement proceedings" in that it does not include the cross-claim in those proceedings. I do not agree. The definition is noted in par [15] of his Honour's reasons. His Honour correctly approached the matter by considering the scope of the release as regards the claimant's "claims, actions and causes of action … present and future including and relating to the Easement proceedings". This language clearly goes beyond the claims propounded in the statement of claim in those proceedings. Furthermore, the very fact that clause 2.3 speaks of "any claim, action or cause of action" and precludes the commencing of any such claim etc shows that the release did not restrict itself to the strict terms of the existing Statement of Claim. 24 It is not to the point that a claim and cross-claim are for many purposes independent actions (McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 60-1). The true issue to be resolved is the scope of release. Once that is determined, any pleading by way of claim, cross-claim or defence to cross-claim that is inconsistent with it may be regarded as abuse of process if it flies in the face of the clear meaning of the Settlement Deed. 25 The Settlement Deed was executed in the context of the imminent trial of the whole proceedings. It did not purport to lay to rest every conceivable difference between the parties, but its obvious intent was to end claims by the present claimants relating to the Easement proceedings they had launched. In my view "claims" in this context included claims, however framed, to rely upon the matters pleaded by the claimants in those proceedings as they stood at that time as the basis for some entitlement in their favour. The expression is not confined to existing claims or claims to a monetary remedy. 26 The rather inaptly framed claim to damages in the nature of "abatement of rent", when read with paras 16A and 16B, show that the claimants were seeking monetary recompense for having been kept out of enjoyment of the premises in consequence of the breaches of the Agreement for Sub-Lease pleaded. To permit the claimants to rely on the same paragraphs as an "answer" to the claim for rent otherwise due and unpaid would obviously frustrate the spirit and the letter of the release. That release precluded the claimants from maintaining any entitlement stemming from breach of the Agreement for Sub-Lease. In view of the settlement, such entitlement could no longer be maintained, whether in the cross-claim proceedings or by some fresh proceedings raised by the claimants. 27 In my view, the appeal should be dismissed because para 2(a) as framed involves a claim that relates to the Easement proceedings (as defined). It does so, notwithstanding that it is framed by way of an "answer" to the cross-claim. The terms of para 2(a) refer and rely on matters pleaded in paras 11-20 of the (Amended) Statement of Claim. It does so either by way of a reminder or some type of set-off. Either way, the critical point is that those matters earlier pleaded are said to answer the cross-claim in whole or in part. 28 This is to invoke the claim and/or cause of action pleaded in the Further Amended Statement of Claim as an answer to the claim asserted in the Cross-Claim. Such invocation is an abuse of process because the claimant's right to maintain such a claim was given up by the plain terms of the Settlement Deed. 29 This interpretation of the issue tendered in para 2(a) does not involve overlooking the restricted definition of "Easement proceedings" in the Deed as not including the Cross-Claim. Rather, it recognises, as the pleader of para 2(a) did, that the matter raised in para 2(a) is really the same as the matter raised in the identified paragraphs of the Amended Statement of Claim. The claimants gave up their right to commence or maintain any such claim by the clear words of clause 2.3. 30 During the hearing the claimants' senior counsel responded to questions from the Bench by indicating that one way in which the claimants seek to meet the cross-claim for outstanding rent is to propound that the obligation in the Sub-Lease to pay rent is itself in some way conditioned upon the opponents' due performance of the obligations stemming from the Agreement for Sub-Lease said to have been breached. This is a difficult matter to establish because covenants in a lease are usually construed independently (Bishop v Moy [1963] NSWR 468; Woodfall on Landlord and Tenant 28th ed 1-1090). More to the point, this is not how the pleading was framed. I observe that the pleading does not assert any contractual right of abatement in the sub-lease or refer to any clause in the sub-lease that treats the obligation to pay rent as conditioned upon the sub-lessor performing some obligation. It is common ground that the claimants became the sub-lessees of the land on 24 July 2001. Paragraphs 11-20 of the claimants' pleading, including paras 16A and 16B, go no further than asserting some claim arising out of the Agreement for Sub-Lease. 31 In my view, the appeal should be dismissed with costs. 32 HODGSON JA: I agree, except to the extent which I will now indicate. 33 The debate before the primary judge did not include debate on the question whether the defence to the cross claim could possibly be amended so as to rely on a defence to the effect that there was a precondition to the opponent's entitlement to rent that had not been satisfied or that there was an abatement of rent, relying in part on facts alleged in paras 11 to 20 of the further amended statement of claim. 34 I think it is likely that the deed precludes even that reliance on facts alleged in paras 11 to 20, and that in any event there would be great difficulties in making good the existence of such a precondition or entitlement to abatement, having regard to general principles of the law of leases. 35 For example, it is asserted in Halsbury's Laws of Australia as at 1999 that, as the liability to pay rent arises pursuant to the grant of a title in the demised premises, it is generally irrelevant that the premises may not be useable: see para [245-3065]. It is also asserted that, in general, liability to pay rent does not cease merely because the lessor has breached a covenant, unless reliance can be placed on a statutory or explicit contractual entitlement to abatement, or some other specific contractual provision that makes the obligation to pay rent conditional on some performance by the lessor: see para [245-3090]. 36 Similar principles are also referred to in Lang Leases and Tenancies in New South Wales 1976 edition, paras [907] and [916] and cases cited there. 37 However, because these matters were not raised by the existing para 2(a)(i) of the defence to the cross claim and were not debated before the primary judge, it is not necessary for this Court to rule finally on them in disposing of this appeal, and I would prefer not to do so. 38 TOBIAS JA: I agree with the orders proposed by the President that the appeal should be dismissed and, subject to one matter, with his Honour's reasons. The section of his Honour's reasons with which I have some difficulty is in the following terms. "In my view, 'claims' in this context included claims, however framed, to rely upon the matters pleaded by the claimants in those proceedings as they stood at that time as the basis for some entitlement in their favour. The expression is not confined to existing claims or claims to a monetary remedy." 39 However, I would not construe cl 2.3 of the Deed of Settlement as denying to the claimants the right to raise a true defence to the opponent's cross claim for rent which does not rely upon a defence by way of set off or the like. Any such defence to fall outside cl 2.3 of the Deed must be one which, if established, deprives the opponents of their legal right to claim rent for the relevant period. 40 Para 16B(a) of the Further Amended Statement of Claim may fall into this category; so also a defence which establishes that the right of the opponents to claim the rent in question was subject to an unfulfilled condition precedent or some other defence which directly negatives any liability on the part of the claimants to pay the rent claimed. 41 There is no doubt that cl 2.3 releases the opponents from all claims, actions and causes of action relating to the Easement Proceedings as that expression is defined. As a consequence, it operates to release the opponents from the claim for damages for breach of contract as pleaded in the Further Amended Statement of Claim. However, when cl 2.3(a) is read in the context of cl 2.3(b), (c) and (e), and given the exception with respect to the opponent's cross claim in the definition of "Easement Proceedings", it seems to me that the release in cl 2.3 should be construed as only barring a claim, action or cause of action brought by the claimants against the opponents and not a defence by the claimants to a claim brought by the opponents against them. 42 Thus I would not construe cl 2.3 as preventing the claimants in any defence to the cross claim relying upon the facts pleaded in support of the claim or cause of action alleged in the Further Amended Statement of Claim notwithstanding that the claim or cause of action based on those facts has been released. 43 Although it was submitted that a claim by the opponents means an asserted right to something, in its context I do not regard cl 2.3 as purporting to release the opponents from the assertion by the claimants of a defence to the cross claim which, if established, would have the legal effect of extinguishing the right or cause of action asserted by the opponents as entitling them to recover the relevant rent. 44 In the foregoing context the Court was referred to the statement of Devlin J in West Wake Price and Co v Ching [1956] All ER 821 where at 829 his Lordship said, "I think that the primary meaning of the word 'claim' – whether used in a popular sense or in a strict legal sense – is such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the ground on which it may be based. In the Oxford Dictionary 'claim' is defined as first, 'A demand for something as due; an assertion of a right to something'; secondly, 'Right of claiming; right or title (to something or to have, be, or do something; also on, upon the person, etc., that the thing is claimed from).' All the examples given under these two heads are examples of claims made to an object or on a person. Under the verb 'to claim' it is observed that it is 'often loosely used, especially in the United States, for: contend, maintain, assert.' I do not doubt that the word is frequently used in this looser meaning of 'contention', or that it is often used by lawyers as if it meant the same thing as a cause of action." 45 Although it might be said that any defence of the nature that I have suggested asserts a claim in the sense of a right to avoid a liability to pay rent, I do not accept that the term "claim" is used in cl 2.3 other than in the sense of a right of the claimants to gain something (or an advantage) from the opponents. In particular, in my view, it is not used in the sense of a right of the claimants to deny liability in relation to a claim made against it by the opponents. 46 However, I note and agree with the comments made by the President and by Hodgson JA as to the problems that would clearly be associated with the type of defence which, if properly pleaded, would not in my opinion be barred by cl 2.3 of the Deed of Settlement. Subject to the foregoing matters, I agree with the orders proposed by the president. 47 MASON P: The orders of the Court will therefore be: 1. Grant leave to appeal. 2. Direct the filing of the notice of appeal tomorrow. 3. Appeal dismissed with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.