PLAINTIFF SUES DEFENDANT FOR BREACHING CONTRACTUAL AGREEMENT IN FAVOR OF ANOTHER CREDITOR

JKAM Investments Pty Ltd ACN 159 084 018  v Damien [2021] NSWSC 70 (19 February 2021)

This case involves the plaintiff alleging that the defendant breached the express covenant for quiet enjoyment in favor of the creditor-bank.

Facts:

Mr Karl Damien, the defendant, was the registered proprietor of land in Camden (“the Camden property”) and in Denham Court (“the Denham Court property”). A gymnasium business and related businesses operated from the Camden property from until 2016 where there was a mortgagee sale by the National Australia Bank (“the NAB”). The Denham Court property is Mr Damien’s private residence.

Commencing in about 2011/2012, Mr Damien engaged builders, Champion Homes Sales Pty Limited (“Champion”) and later Architectural Collections Pty Limited (“Architectural Collections”) to undertake construction works on the Camden property.

Mr Damien accrued substantial debts to both builders. Architectural Collections assigned Mr Damien’s debt to it to the plaintiff, JKAM Investments Pty Limited ("JKAM”). JKAM gave Mr Damien notice of the assignment of the debt. In July 2012 JKAM itself commenced building work on the Camden property.

JKAM contends that, in breach of the lease, clause 9.1, on or about 23 May 2015 Mr Damien deprived JKAM of its quiet enjoyment of the property. The NAB as first registered mortgagee of the property obtained an order for possession of the Camden property on 13 May 2015, dispossessing JKAM on 23 May 2015, thereby causing JKAM to suffer loss and damage.

Clause 9.1 of the agreement states that “The Lessor covenants that the Lessee paying the rent hereby reserved and observing and performing the covenants, conditions and restrictions in its part herein contained shall and may peaceably hold and enjoy the Premises during the term without any interruption by the Lessor or by an person rightfully claiming through, under or in trust for its subject always to the rights, powers and remedies of and reservations to the Lessor”

Issue: Was there a breach in the agreement committed by the defendant?

Held:

JKAM’s argument of breach is not persuasive. Many factors indicate that Mr Damien’s consent to judgment for possession in favour of the NAB was well justified. Mr Damien was in long-standing default to the NAB, which held a registered first mortgage, which had priority over JKAM’s equitable interest as lessee. It is common ground that no mortgage payments to the NAB had been made since January 2013. And in apparent recognition of the futility of a contest with the NAB, JKAM, which was a second defendant in the NAB’s proceedings, itself later consented to judgment.

Mr Damien did not breach the agreement by giving possession of the Camden property to the NAB. The NAB’s exercise of its power of sale occurred pursuant to the NAB’s entitlement under the existing first mortgage and a Court order recognising the NAB’s superior title.

Conclusion: The Court orders the dismissal of the plaintiff’s claim for breach of the covenant for quiet enjoyment.

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