Re Persian Magic Carpets Pty Limited v Ipoh Garden (Aust) Pty Limited [1989] FCA 23 (21 February 1989)

FEDERAL COURT OF AUSTRALIA

Re: PERSIAN MAGIC CARPETS PTY LIMITED
And: IPOH GARDEN (AUST) PTY LIMITED
No. G1428 of 1988
Principles applicable to the Court's decision

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
M.L. Foster J.(1)

CATCHWORDS

Principles applicable to the Court's decision whether to grant an interlocutory injunction - interlocutory injunction sought by applicant lessee to restrain respondent lessor from interfering with the applicant's possession and use of premises - whether covenants in lease as to permitted use of premises constitute an unreasonable restraint of trade - whether covenants in the lease constitute an infringement of the requirements of s 45 (2)(b) and s 45 B(1) of the Trade Practices Act 1974 (Cth). by having the effect of substantially lessening competition in the market.

Trade Practices Act 1974 (Cth) ss 45 (2)(b) and s 45 B(1)

Epitoma Pty Ltd v Australasian Meat Industry Employees Union and Others (1984) 54 ALR 730

Wakefield v Duke of Buccleugh (1865) 12 LT 628

Dimbleby and Sons Ltd v National Union of Journalists (1984) 1 WLR 427

Appleton Paper Ins v Tomaseth Paper Pty Ltd (1983) 50 ALR 428

Quadramain Pty Ltd v Sevastapol Investments Pty Ltd and Another (1974 - [1976] HCA 10; 1975) 133 CLR 390

Mark Lyons Pty Ltd v Bursill Sports Gear Pty Ltd (1987) ATPR 40-809

HEARING

SYDNEY
21:2:1989

Counsel for the applicant: R.W. Hunt with D.J. Thorley
instructed by: S.D. Ratner & Co.

Counsel for the respondent: A.S. Meagher
instructed by: Clayton Utz

ORDER

1. That an injunction be granted as sought by the applicant in the application.

2. That the applicant undertakes to pay to the respondent and to any other person adversely affected by this order such compensation, if any, as the court thinks just in such manner as the court orders.

3. That the applicant will use its best endeavours to expedite the final hearing of the proceeding.

4. That costs be reserved for the final hearing.

DECISION

In this matter the applicant is the lessee from the respondent of certain shop premises in the Queen Victoria Building shopping complex. The lease in question is annexure B to the affidavit of Fariborz Moshfeghi Nejad sworn on 20 December 1988 and filed herein. The lease, by paragraph (3), deals with the permitted use of the shop premises. It provides that the lessee will not use, permit, suffer or allow the premises to be used for any purpose other than for the retail sale of Persian and oriental rugs and carpets and Persian style handmade leather goods, minatures, ornaments and other Persian styled decorative artifacts.

2. By a further document entitled a memorandum the contractual arrangements between the parties were further spelt out. This memorandum is annexure C to the same affidavit. By clause 6(1) of that document it is provided:

That the Lessee will not without the consent in writing

of the Lessor first had and obtained do or permit or suffer to be done any of the following:

(a) use the premises or any part
thereof otherwise than for the
purpose set out in the Lease.

3. The applicant lessee has commenced proceedings in this court by way of Application and accompanying Statement of Claim. The proceedings before me today are in relation to the claim for interlocutory relief in the application, namely for an injunction restraining the respondent from interfering with the applicant's possession of shops 205 and 207 Queen Victoria Buliding and their use for the sale of souvenirs, pending the determination of these proceedings. The application for the interlocutory injunction has been contested and I have heard not inconsiderable argument on the facts and the law relating to the matter.

4. In approaching the resolution of this interlocutory question I am guided by what the Full Court of this court said in Epitoma Pty Limited v Australasian Meat Industry Employees Union and Others (No 2)(1984) 54 ALR 730, particularly at page 734 where the Full Court indicated in a comprehensive manner the principles that were to be applied. The Full Court said as follows:-

"In an application for an interlocutory injunction,
the court must inquire first whether there is a
serious question to be tried ( see Australian
Coarse Grain Pool Pty Ltd v Barley Marketing Board
of Queensland (1982) 46 ALR 398; 57 ALJR 425;
Tableland Peanuts Pty Ltd v Peanut Marketing Board
(1984) 52 ALR 651; 58 ALJR 283, per Brennan J at
284). In the Barley case, Gibbs CJ said (57 ALJR
at 425) that he inclined to the view taken by the
House of Lords in American Cyanamid v Ethicon Ltd
[1975] UKHL 1; (1975) AC 396 rather than to some of those
expressed obiter in Beecham Group Ltd v Bristol
Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618; (1968)
ALR 469. It would seem that the Chief Justice had
in mind the following statement of principle in
the opinion of Lord Diplock, concurred in by the
other members of the House, in American Cyanamid
(at p 407): "The use of such expressions as 'a
probability,''a prima facie case', or 'a strong
prima facie case' in the context of the exercise
of a discretionary power to grant an interlocutory
injunction leads to confusion as to the object
sought to be achieved by this form of temporary
relief. The court no doubt must be satisfied that
the claim is not frivolous or vexatious; in other
words, 'that there is a serious question to be
tried'."
Lord Diplock went on (at p 407) to explain the
practical considerations underlying this approach:
'It is no part of the court's function at this
stage of the litigation to try to resolve
conflicts of evidence on affidavit as to facts on
which the claims of either party may ultimately
depend, not to decide difficult questions of law
which call for detailed argument and mature
considerations. These are matters to be dealt
with at the trial. One of the reasons for the
introduction of the practice of requiring an
undertaking as to damages upon the grant of an
interlocutory injunction was that 'it aided the
court in doing that which was its great object,
viz abstaining from expressing any opinion upon
the merits of the case until the hearing':
Wakefield v Duke of Buccleugh (1865) 12 LT 628 at
629. So unless the material available to the
court at the hearing of the application for an
interlocutory injunction fails to disclose that
the plaintiff has any real prospect of succeeding
in his claim for a permanent injunction at the
trial, the court should go on to consider whether
the balance of convenience lies in favour of
granting or refusing the interlocutory relief that
is sought' (cf Dimbleby and Sons Ltd v National
Union of Journalists (1984) 1 WLR 427; Appleton
Papers Inc V Tomasetti Paper Pty Ltd (1983) 50 ALR
428; (1983) 3 NSWLR 208 at 214-5)."

5. The application arises in a situation where the respondent has indicated that if after 31 December 1988 the applicant persists in its current use of the shop premises, it will regard that use as a breach of the covenant of the lease to which I have referred and will take action under the lease to bring about the applicant's eviction from the premises.

6. The proceedings therefore have a degree of urgency which has warranted their being heard as a vacation matter in this court.

7. The applicant puts its claim for relief on a number of grounds with which I shall deal briefly in these reasons. It appears from the evidence so far before the court that the use by the applicant of the leased shop premises through 1987 and into 1988 was resulting in losses. There were discussions between the representatives of the applicant and representatives of the respondent as to whether the applicant might not be permitted to alter the use of the premises so that it might sell goods and merchandise other than those referred to in the clause which I have quoted above.

8. An agreement was obviously reached that it be permitted to do so at least as set out in paragraph 8 of the Statement of Claim.

9. I am informed in argument this morning that the applicant in fact contends that the permitted use which resulted from the negotiations between the parties in 1988 was of unlimited duration. It is clear from the course of correspondence between the parties which forms annexures to the affidavit of Mr Nejad that the respondent has adopted the clear attitude that the permitted change of use was only to endure until 31 December 1988 after which there was to be a reversion to the sole use permitted by the terms of the lease.

10. There would appear to be a contest between the parties on this subject. Reliance is placed by the applicant upon one of the letters to which I have made reference, namely a letter of 21 December 1987 from the representative of the respondent to the applicant in relation to the permitted alteration in use of the shops. That letter refers to the use being changed to "that of a Bicentennial souvenir shop which is to say a shop selling only those goods marketed by the Bicentennial Authority and bearing the appropriate logo or trademark". That letter does not in terms refer to any duration of alteration of use although there is clear reference to the concept of the Bicentennial.

11. It is not the function of the court at this stage of proceedings to form any clear or final view as to what the factual decision should be as to whether or not the consent to the alteration of use was one limited in duration or not. There are obviously strong arguments available on the evidence placed before me to the effect that it was one of limited duration. I do not regard, however, the situation as being so entirely clear as to render the proposition advanced by the applicant as being one frivolous, vexatious or unarguable.

12. I need, perhaps, to indicate that the matter sought to be raised in this regard is not really spelt out with adequate precision in the Statement of Claim and that an amendment would be appropriate. In this application, however, I consider that I should take into account what has been put to me from the bar table as to the intention of the pleading, in the context that it must necessarily be amended to give effect to that intention.

13. A factual issue is, apparently, also to be raised based upon the concept of promissory estoppel. There is some evidence placed before me to the effect that at least during oral negotiations in relation to the alteration of the permitted use some representation was made by the representative of the respondent to the representative of the applicant that the question of what use should occur in 1989 was one that was still being looked at. The applicant would seek to rely upon this as an indication that there was no hard and fast understanding even if the permitted change of use were to expire on 31 December 1988 that there would be a necessary reversion to a use of the shops restricted to the sale of the goods referred to in the clause cited. Again this is a matter, in my view, inappropriate for the decision of the court at this stage. Again, although these matters have been put this morning by way of argument as being contentions that the applicant would seek to raise at the final hearing of these proceedings, I must make the comment that they are insufficiently spelt out in the Statement of Claim as it stands.

14. The Statement of Claim attacks the covenants to which I have already made reference. In the first place it is said that the provision for the consent being given to the alteration of permitted uses coupled with the restricted uses set out in the clause of the lease constitute in themselves an unreasonable restraint of trade bearing in mind that the clause relating to permitted use has no provision for permission for alteration not being unreasonably withheld.

15. I must say that in light of the exposition of matters relating to restraints of trade by way of covenants in connection with the use of land that are set out extensively in Quadramain Pty Limited v Sevastapol Investments Pty Limited and Another [1976] HCA 10; (1974-1975) 133 CLR 390, I feel some grave doubt as to whether this argument could be made good at the trial.

16. In view of the decision that I have come to in the whole of this application, however, I do not think that I should take any steps which might exclude from ultimate consideration at the trial all the matters sought to be raised in this regard. Indeed, I doubt whether I would have power to do so.

17. The other attacks mounted in the Statement of Claim and sought to be supported at this interlocutory level by the affidavit evidence that has been placed before me relate to claims under s 45(2)(b) and s 45B(1) of the Trade Practices Act. These sections are in effect alternative sources of relief insofar as the legislation provides that s 45(2)(b) is not to be available in circumstances where s 45B applies. They are, however, pleaded in the alternative in the Statement of Claim as providing grounds upon which the applicant can seek the substantive relief sought in the application and also the interlocutory relief sought at this time.

18. It has been put to me forcefully on behalf of the respondent, that in this regard the applicant has failed to put material before the court at this point of time which would bring it within the principles enunciated in Epitoma. The applicant's basic contention is that the covenants to which I have made reference constitute an infringement of the requirements of the sections. In effect, it is put that if the respondent holds the applicant to the wording of the lease restricting the applicant's business to the sale of the various Persian and oriental merchandise set out therein and thereby prevents it from engaging in what can broadly be described as the Australian souvenir trade related to the Bicentennial, then it will be in breach of one or either of the sections because its reliance upon the covenants and its seeking to give effect to them will have the effect of substantially lessening competition in the souvenir market in the Queen Victoria Building.

19. Primarily that claim is contested on the basis that the evidence is incapable of indicating that there is a market so defined, in other words that it would be impossible for a court to hold that there exists within the confines of that shopping complex a market that could be properly so described. As to that I consider again that this is a matter for ultimate resolution at the trial. The shopping complex is undoubtedly a large one and it is clear on the evidence that there are a very large number of shops in that complex engaged in a trade which is capable of being so described. The question of whether those shops through their operations can constiute such a market is in my view a sufficiently viable question to require its resolution at trial and not at this point of time.

20. It is also put that there is simply no evidence to indicate that should the applicant be prevented from carrying on the operations currently described in the affidavits of the selling of souvenir material that that fact would substantially lessen competition or be likely to lessen it within the meaning of the sections. There is not very much material before the court on this topic. There is no indication of price ranges for particular items, nor indeed whether there is any differences in pricing between the various shops selling these items which would indicate the existence of relevant competition.

21. This has caused me some concern but I feel that at this point of time one cannot ignore the fact that, as a matter of commonsense, it not being alleged in any way that these shops are combining to maintain prices, there would exist in relation to the type of goods offered for sale in such shops relevant competition as defined in the authorities, Mark Lyons Pty Limited v Bursill Sports Gear Pty Limited, (1987) ATPR 40-809 being an example.

22. I have come to the conclusion in all the circumstances that there is sufficient indication in the material placed before me of serious issues to be tried to warrant my entering upon a consideration of the question of balance of convenience. As to that, it is very clear that for a substantial period of time there has been disputation between the parties as to whether the applicant is to be prevented from continuing with its present style of business in the relevant shops, or whether it is to be required and indeed compelled under threat of eviction to revert to the type of business stipulated for in the lease.

23. Whilst I take this into account as indicating that for a significant period of time the applicant must have been aware of these particular problems, I do not think that in the ultimate this has any significant effect upon where the balance of convenience presently lies. No evidence has been put before me of any specific detriment that would be suffered by the respondent should an interlocutory injunction be granted. I have been informed by evidence today that the litigation between the parties and the issues that are involved have, as one might well expect, caused interest and perhaps concern amongst lessees in the building. It is of course most desirable that the proceedings be disposed of as quickly as possible and that there be no hindrance put in the way of that occurring by the applicant, or indeed by either party.

24. I consider that there is quite considerable detriment displayed so far as the applicant is concerned if this interlocutory injunction be not granted. It is frankly conceded that proceedings will be taken to evict it from the shops upon which, as the evidence currently indicates, not inconsiderable money has been expended in relation to refitting and the like. There are a number of employees currently employed. The applicant is able to make apparently a reasonable profit from its current business conducted in the shops, whereas there seems at this stage no dispute that the business as previously conducted involved it in losses.

25. From the respondent's point of view an interlocutory injunction will prevent it giving effect to its policy as to the way in which the shops in the building should be occupied and used. On balance, however, I feel that there would be considerably more inconvenience occasioned to the applicant if this injunction be not granted that would be occasioned to the respondent if it be granted. I think it reasonable that the granting of it be subject to conditions not only as to the giving of an appropriate undertaking as to damages but also as to making endeavours to expedite the final hearing. The argument has been put to me as to whether the injunction should be in a more limited form than that sought and, in particular. bear a relation to the wording appearing in the letter of 21 December 1987, annexure H, to the affidavit of Mr Nejad. I have been very tempted to restrict the wording as submitted on behalf of the applicant. However, having regard to the width of factual matters which are likely to be argued in this matter at the trial and having regard to the fact that a particular use has been continuing in the shop on the evidence before me for some time which extends beyond the precise wording of that letter, I think in all the circumstances as a matter of discretion, I should not alter the terms of the injunction as sought, espcially bearing in mind that there will be added to those terms a requirement that particular programmes for the hearing of this matter be strictly adhered to resulting in, it is to be hoped, an early final disposal of the matter.

26. Accordingly, I grant the injunction as sought in the application. I grant it upon the appellant giving the following undertakings to the court ie:

That it will pay to the respondent and to any
other person adversely affected by this order such
compensation, if any, as the court thinks just in
such manner as the court orders.
That it will use its best endeavours to expedite
the final hearing of the proceeding.
I further give directions in relation to that
further hearing as set out in the short minutes
dated today's date and handed to the court.

27. I think that this is a matter where the costs should be reserved for the final hearing and I so reserve them.

28. I will strike out those dates which have been added on the right hand side and the directions that I give incorporate the dates as originally appearing.