Chamberlain Early Learning Centre Pty Limited v Precious 1 Pty Limited in its own right and as trustee for The 4 Chamberlain Holdings Family Trust (No 2) [2017] NSWSC 520

Supreme Court New South Wales

Medium Neutral Citation: Chamberlain Early Learning Centre Pty Limited v Precious 1 Pty Limited in its own right and as trustee for The 4 Chamberlain Holdings Family Trust (No 2) [2017] NSWSC 520 Hearing dates: On the papers Decision date: 05 May 2017 Jurisdiction: Equity Before: Emmett AJA Decision: See attached Schedule Catchwords: COSTS – set-off – whether plaintiff (tenant) is entitled to set off its rent obligations to defendant (landlord) under a lease against costs awarded to plaintiff in court proceedings – whether set-off would be inequitable – whether defendant's conduct was unreasonable so as to justify an order that defendant pay plaintiff's costs Cases Cited: Chamberlain Early Learning Centre Pty Limited v Precious 1 Pty Limited in its own right and as trustee for The 4 Chamberlain Holdings Family Trust [2017] NSWSC 189 Category: Costs Parties: Chamberlain Early Learning Centre Pty Ltd (Plaintiff / Cross-Defendant) Precious 1 Pty Ltd in its own right and as trustee for The 4 Chamberlain Holdings Family (Defendant / Cross-Claimant) 4 Chamberlain Pty Ltd (Second Defendant) Representation: Counsel: V Bedrossian / D Turner (Plaintiff / Cross-Defendant) FM Douglas QC / AJ Macauley (Defendant / Cross-Claimant)

Solicitors: Etheringtons Solicitors (Plaintiff / Cross-Defendant) David Legal (Defendant / Cross-Claimant; Second Defendant) File Number(s): 2016/210312 Publication restriction: Nil

Judgment 1. EMMETT AJA: On 9 March 2017, I published my reasons for the conclusions that I reached in these proceedings and gave directions for the parties to bring in short minutes of orders to be made in consequence, together with submissions on the question of costs. [1] The parties have now submitted alternative proposed orders together with submissions on costs. In these reasons I shall use the terms as defined in my earlier reasons. 2. The first difference between the parties in relation to proposed orders concerns the making of declarations. First, the Tenant asks the Court to make declarations that it is entitled to set off its obligations to the Landlord under the Lease in respect of the calendar months of March, April, May and June 2016 and is not entitled to such a set off in respect of the rent owing for the calendar month of July 2016. Second, the Tenant seeks a declaration that the Default Notice is not valid or effective and is not capable of being relied upon by the Landlord. The Tenant also seeks an order restraining the Landlord from acting upon or taking any steps in furtherance of the Default Notice. 3. The declarations and orders would follow from the conclusions that I have reached. The only question is whether they are necessary or desirable. The Landlord resists the making of those declarations and orders and says that orders for money judgments and for the payment out of the monies paid into Court by the Tenant, including as to the apportionment of interest accrued on the monies in court, would suffice. 4. In addition, the Tenant seeks a declaration that it would be entitled to set off against its obligations under the Lease to the Landlord any costs that may be ordered in these proceedings to be paid by the Landlord to the Tenant. That question was not addressed in my earlier reasons and is tied up with the question of costs. I shall deal with it below. 5. Ordinarily, the orders proposed by the Landlord would suffice. However, the proceedings involve questions of some complexity and, while my earlier reasons indicate the conclusions I have reached and the reasoning that led me to those conclusions, it is not inappropriate that the conclusions be reflected in the orders actually made by the Court. 6. In the events that happened, it was accepted by the Landlord that the Default Notice would not be relied upon, having regard to the payment into Court by the Tenant. The Tenant originally proposed that the monies claimed by the Landlord be held in a solicitors' trust account pending resolution of the dispute and that the Default Notice be withdrawn. The Landlord rejected that proposal, asserting that it would take such steps as it may be advised to obtain possession of the Property in the event that the Tenant failed to remedy its default. That prompted the Tenant to commence the proceedings urgently and seek interlocutory relief. As at 31 August 2016, the Tenant had caused money to be paid in Court representing the full amount claimed under the Default Notice. On that basis, it was unnecessary for the Landlord to file its cross-claim seeking possession. In the circumstances, the stance adopted by the Tenant in that regard has been vindicated. It is therefore not inappropriate that the conclusions be reflected in the Court's orders. 7. There is a substantive dispute between the parties concerning the costs of the proceedings. The Landlord proposes that there be no order as to costs, with the intention that each party bear its own costs of the proceedings. The Tenant, on the other hand, proposes that the Landlord and the Assignor be ordered to pay 80 per cent of the Tenant's costs of and incidental to the proceedings, including the Landlord's cross-claim up to the date of the publication of my reasons and that the Landlord and the Assignor pay 100 per cent of the Tenant's costs of and incidental to the proceedings in respect of the period after 9 March 2017. 8. The proportion of 80 per cent proposed by the Tenant is based, somewhat arbitrarily, on the measure of its success in terms of the amounts for which it claimed a right of set-off. That is to say, the question of set-off was live in relation to five month's rent and the Tenant was successful in relation to the rent for four months. The Tenant contends that the Landlord has acted unreasonably since the publication of my earlier reasons in resisting the orders proposed by the Tenant and that that justifies an order that all of the costs after 9 March 2017 be borne by the Landlord and the Assignor. 9. The parties were invited to bring in short minutes and to make submissions on costs following the publication of my reasons. I do not regard the conduct of the Landlord as unreasonable. Further, as I indicated in my earlier reasons, [2] the Tenant also sought a declaration that such costs as may be ordered in the proceedings to be paid by either the Landlord or the Assignor should be set off by the Tenant against part of the Rent otherwise due by the Tenant to the Landlord under the Lease. That question still remains. 10. The Tenant contends that the application of the principles and reasoning contained in my earlier reasons leads to the conclusion that the Tenant should be entitled to set off against part of the Rent otherwise due by the Tenant to the Landlord under the Lease such costs as may be ordered in the proceedings to be paid by either the Landlord or the Assignor. 11. Any order for costs against the Landlord would be made against it both in its own right and as trustee of the Family Trust. While the Landlord is the registered proprietor of an estate in fee simple in the Property, the Property is held by it on the terms of the Family Trust. Therefore, there is a proper basis for a legal set-off, once the order for costs is quantified by agreement or assessment. There would be nothing inequitable in such a set-off. 12. The proceedings have been concerned with the subject matter of the Lease and the payment of Rent under the Lease. There is, therefore, a strong connection between the costs incurred in relation to these proceedings and the Rent payable under the Lease. It would therefore be equitable for a set-off in equity to be permitted as between the costs in the proceedings and the obligation on the part of the Tenant to pay rent under the Lease. The orders proposed by the Tenant provide a regime whereby its entitlement to such a set-off would be protected but without releasing the monies in Court to the Tenant until such time as the costs have been quantified by agreement or assessment. 13. There is no dispute that the Tenant is entitled to the release from the money in Court of at least the sum of $69,870.37, together with the interest accrued on that proportion of the money in court. There is, however, disagreement as to the destination of the remainder of the money in Court, namely, the sum of $26,871.89 plus interest on that proportion. I consider that it would be inappropriate for that second portion to be disbursed in circumstances where, under the set-off, the Tenant would be entitled to the funds. The steps that the Tenant had to take in order to resist the Default Notice and the somewhat curious way in which legal title of the Property was dealt with, as indicated in my earlier reasons, involving changes of trustees without any real explanation suggest that justice will be done between the parties by the funds being retained pending the assessment of costs. 14. In monetary terms, it is correct to say that the Tenant has been substantially successful. Further, costs were incurred in relation to the threat made by the Landlord by the service of the Default Notice, necessitating the urgent commencement of the proceedings. However, there is no justification for distinguishing between costs incurred before and after the publication of my reasons. 15. In the circumstances, I consider that the appropriate order is that the Landlord and the Assignor should be ordered to pay 80 per cent of the Tenant's costs of the proceedings, and that those costs should be set off against the Tenant's liability for rent under the Lease, including the cross-claim. Orders should be made as proposed on behalf of the Tenant, as set out in the schedule to these reasons.