David Vale and Susan Vale v Skygarden Pty Limited; Citibank Limited and Merlin International Property Management Pty Limited [1993] FCA 269 (4 June 1993)

FEDERAL COURT OF AUSTRALIA

DAVID VALE and SUSAN VALE v. SKYGARDEN PTY. LIMITED; CITIBANK LIMITED and
MERLIN INTERNATIONAL PROPERTY MANAGEMENT PTY. LIMITED
No. NG803 of 1992
FED No. 367
Number of pages - 7
Interlocutory injunction to restrain granting of new lease to third party and
to reinstate possession to the applicants

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beazley J(1)

CATCHWORDS

Interlocutory injunction to restrain granting of new lease to third party and to reinstate possession to the applicants - balance of convenience where dispute as to the likelihood of the prospects of applicants making a profit in the business so as to pay a fee for occupation based on net profits pending final hearing - likelihood of court varying terms of lease at final hearing.

Trade Practices Act s.52, s.53A, s.82, s.87

Industrial Arbitration Act s.275

Fair Trading Act

Martin Engineering Co. and Anor. v. Trison Holdings Pty. Limited and Anor 81 ALR 543.

Kolback Securities Limited v. Epoch Mining NL (1987) 8 NSWLR 533

David Vale and Anor. v. Skygarden Pty. Limited and Ors.

HEARING

SYDNEY, 31 May 1993
4:6:1993

Counsel for the Applicant: S.M.P. Reeves

Solicitors for the Applicant: Mourice Wermut and Co.

Counsel for the Respondent: S. Donaldson

Solicitors for the Respondent: Gadens Ridgeway

ORDER

Upon the applicants giving the usual undertaking as to damages:
The court orders that:

1. The respondents forthwith deliver up to the applicants possession
of the premises being shop SD5 of the building known as Skygarden,
77 Castlereagh Street, Sydney ("the premises").
2. Until the determination of these proceedings at first instance,
upon condition that the applicants:
(a) pay to the first respondent 50% of the weekly net profit of
the business "Oceania" conducted by them at the premises,
"net profit" to bear the meaning as used in paragraph 75 the
statement of the first applicant dated 28 May 1993, being
Exhibit A in the interlocutory application heard by me other
than for the inclusion of an amount of rent and outgoings
payable under the provisions of clauses 14 and 22 of the
lease.
(b) deliver to the first respondent by 12 noon on Friday of each
week a statement of takings and expenses of the business for the
week ending the previous Friday.
(c) the moneys payable under sub-paragraph (a) shall be paid 7
days in arrears.
(d) save for the provisions as to rent and outgoings referred to
in clauses 14 and 22 of the lease, otherwise comply with the
terms of the lease entered into between them and the first
respondent.
(e) that the applicant re-open for trading the premises
"Oceania" by Tuesday 8 June 1993 at 9.00am.
The respondents and each of them by themselves their agents or
otherwise whosoever be restrained from:
i. granting a lease of the premises to any person;
ii. entering into an agreement to lease the premises to
any person
iii. giving or permitting possession or occupation of the
premises to or by any person other than the
applicants.
3. I grant liberty to the first respondent to apply to the court
on 1 days notice for the vacation of these orders should the
applicants fail to comply with the conditions specified in paragraph
2 hereof and to strictly comply with the directions made by the
court as to the conduct of the matter.
4. I give liberty to the parties to forthwith approach the list
clerk for the appointment of a hearing date in the matter.
5. Costs of the notice of motion to be costs in the cause.
6. Grant the parties liberty to apply, including for the purpose of
making amended directions in the matter.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

BEAZLEY J The applicants David and Susan Vale are the lessees of premises, being shop SD5 in the Skygarden Centre, a shopping arcade in the central business district of Sydney, from which they conduct a take-away food outlet called "Oceania", specialising in seafood and Asian dishes. The term of the lease is 8 years, commencing on 9 December 1991. The rent was payable in accordance with clauses 2, 28 and the First Schedule. The precise terms of those provisions are not presently relevant, save to note that the minimum rent in the first year was $60,000 per annum, in the second year $90,000 per annum and in the third year $120,000 per annum. The applicants, as lessors, were also liable for rates, taxes, services, outgoings, operating expenses and other charges relating to the premises in accordance with the provisions of clause 14 of the Lease. Up to the present time, those expenses have been in an amount of approximately $60,000 per annum. The amount of rent and expenses outstanding at the moment is approximately $173,000.

2. The applicants sub-leased the premises to Skylic Pty. Limited, a subsidiary of the lessor, Skygarden Pty Limited (Skygarden). The applicants conducted the business from the premises pursuant to a management agreement with Skylic, entered into at the same time as the sub-lease. This arrangement was necessary having regard to the way Skygarden conducted this section of the shopping arcade, with the shops having a frontage to the common areas, and with seating being available in the common area to customers of the various shops, without any particular shop having a designated area for its customers.

3. Save for the first few weeks of trading, the applicants' business has not been successful. The applicants have not paid rent since at least April 1992. On 28 October 1992, the applicants commenced proceedings in this Court alleging that they had entered into the lease in reliance upon representations made by officers of Citibank Pty. Limited, who it is alleged were acting at that time as agents for Skygarden. Relevantly for the purposes of this application those representations were:

"(a) The food level of the centre was going very well.
(c) The two shops, "La Provence" and "Trattoria" were
doing about $13,000-$16,000 per week in turnover and
averaging about $13,000-$15,000 per week.
(d) The turnover of the shop "Oceania" was slightly less
than the turnover of the other two shops "La Provence"
and "Trattoria".
(e) The tenant of the shop "Oceania" wanted a lease of
those premises.
(i) The business of "Oceania" was a viable business.
(l) The first applicant as an experienced owner/operator
would find the business of "Oceania" very viable.
(m) Figures on the food level had shown a steady continued increase.
(n) The food level was always busy as it was during the
lunch period of 27 September.
(o) The food level was busy all the time.
(v) The applicants could not go wrong."

4. It is said that these representations were misleading and deceptive in contravention of s.52 of the Trade Practices Act. Breaches of the corresponding provisions of the Fair Trading Act 1987 (NSW) are also alleged. The applicants further allege a breach of fiduciary duty and breach of duty of care by the second respondent, Citibank. The applicants seek relief pursuant to the provisions of s.82 and s.87 of the Trade Practices Act, damages, interest and costs. The relief sought under s.87 of the Trade Practices Act is a declaration that the lease is void or alternatively that its terms be varied in such manner as the Court thinks fit. The applicants also seek relief under the provisions of s.275 of the Industrial Relations Act 1991 (NSW). The first and second respondents deny the various breaches which are alleged. The first respondent has filed a cross-claim to recover the outstanding rent and charges.

5. The applicants tendered material which clearly showed that for a consistent period of time during the occupancy of the former owners of "Oceania" the takings were substantially and often more than 50% less than those of the two shops, "La Provence" and "Trattoria".

6. Unbeknown to the applicants, on 14 May 1993, Skygarden offered a lease of the subject premises to a third party, for a term of 3 years, with an option to renew for 3 years, at an annual minimum rent in the first year of $75,000, increasing to $95,000 and $120,000 in the second and third years. This proposed rent is less than that payable under the applicants' lease. I was informed that no lease has yet been executed with the proposed new lessee, although they were to have taken occupation of the premises on Monday 31 May 1993, and preparatory steps to enable them to do so had been undertaken, such that most of a $15,000 fit-up allowance provided for in the offer has been expended.

7. By letter dated 27 May 1993, Skygarden advised the applicants that it had exercised its right to re-enter the premises and that they were excluded from access thereto. Skygarden boarded up the shop and prevented access to the applicants' employees when they arrived at work on Thursday morning, 27 May 1993. On Friday afternoon, 28 May 1993, the applicants approached the Court seeking:

"1. An order that the respondents forthwith deliver up to the
applicants possession of the premises being shop SD5 of the
building known as Skygarden, 77 Castlereagh Street, Sydney
("the premises").
2. An order that until the determination of these proceedings
at first instance the respondents and each of them by
themselves their agents or otherwise whosoever be restrained from:
i. granting a lease of the premises to any person;
ii. entering into an agreement to lease the premises to any person
iii. giving or permitting possession or occupation of the
premises to or by any person other than the applicants."

8. An injunction was granted until 12 noon, 31 May 1993 restraining the respondents from granting a lease of the premises to any person or from entering into any agreement to lease the premises to any person or giving or permitting possession or occupation of the premises to any person other than the applicants. That injunction has been extended to enable proper consideration to be given to the application for interlocutory relief.

9. The applicants have stated to the Court that, if the injunction is granted, they are prepared to pay up to 50% of the net takings of the business into an account controlled jointly by their solicitor and the solicitor for the first respondent pending determination of the proceedings. This offer derives in concept from the arrangement which the applicants understand existed between Skygarden and the former occupant of the premises.

10. Counsel for the respondents conceded that there was a serious issue to be tried. Therefore, the success of the applicants' application for interlocutory relief is to be determined on the balance of convenience. The applicants relied upon two matters in support of their submission that the balance of convenience lay in their favour. The first and indeed fundamental submission was that unless the applicants were granted the interlocutory relief sought, they would be deprived of one of the remedies which they seek under s.87 of the Trade Practices Act and under s.275 of the Industrial Relations Act, namely that the terms of the lease be varied.

11. The second argument is that the applicants' liability to Skygarden may be increased if any new tenant pays, by way of rental, an amount which is less than the net return to the applicants before the payment of rent. An argument was also raised as to the financial viability of Skygarden, such that its ability to meet any order for damages was suspect. This argument was based upon the fact that Citibank Limited was in effective control of the premises.

12. On behalf of the respondents, it was argued that the balance of convenience was overwhelmingly in favour of the respondents. It was submitted that the only factor in favour of the applicants was the possibility that they would be shut out of relief by way of a variation of the terms of the lease, should the injunction not be granted. The prospects of such relief being granted, it was argued, were remote. It was said that it was highly unlikely that the court would impose some different commercial arrangement on the parties which they had not agreed to between themselves. Against that remote possibility were the factors in favour of Skygarden, namely that it was liable to suffer substantial losses by way of lost rental from its prospective tenant, as well as the costs involved in the substantial efforts which had been put into locating a suitable alternative tenant.

13. In support of this submission, counsel for Skygarden referred to the decision of Martin Engineering Co. and Anor. v. Trison Holdings Pty. Limited and Anor. (1988) 81 ALR 543. In that case Gummow J relied, inter alia, upon the statement of McLelland J in Kolback Securities Limited v. Epoch Mining NL (1987) 8 NSWLR 533 at 535 that:

"Where a plaintiff's entitlement to ultimate relief is uncertain,
the Court, in deciding to grant or refuse an interlocutory
injunction, must consider what course is best calculated to
achieve justice between the parties in the circumstances of the
particular case, pending the resolution of the uncertainty bearing
in mind the consequences to the defendant of the grant of an
injunction in support of relief to which the plaintiff may
ultimately be held not to be entitled, and the consequences to the
plaintiff of the refusal of an injunction in support of relief to
which the plaintiff may ultimately be held to be entitled."

14. It was submitted that the offer made to pay up to half the net takings was effectively an offer without substance, as the evidence indicated that the applicants had not been able to make a profit even without having paid rent for almost the whole of the period it had been in occupation. It is necessary to look at the evidence to consider the competing arguments in this regard. Exhibit DV44 to the statement of the first applicant (Exhibit A in this application) showed that since February 1992, if an allowance for rent and outgoings in an amount of $2,400 per week was made, the business made a loss in all but 11 weeks. In those weeks the net profit was relatively small, ranging from $79 to $2140. The latter figure was reached on a single occasion only. Except for one other week when the net profit was $1343, the net profit was otherwise under $1000, and was often substantially below that figure. For the balance of the time there was loss ranging from $12 to just over $2000. It was argued for the applicants that if rent and outgoings were not payable, the history of trading indicated that a net profit would be made each week. On this argument, the evidence revealed that the net profit would range from something in the order of $200 to $4000 per week. Counsel for Skygarden argued that even if this approach was adopted the appropriate allowance to make was for rent only in the amount of $1150, as the applicants ought to remain liable for the outgoings on the premises, they being as much a usual expense of operating the business as were expenses for food, wages and the like. If this approach was adopted, it was submitted that there would be few occasions, on the trading history, when the business would achieve a net profit.

15. There was also evidence that the state of the premises was filthy when inspected by Skygarden on Friday morning. Specific allegations were made by an officer of Skygarden which were denied or explanations given in respect of the allegation, by the first applicant. It is not possible to resolve that issue between the parties on this application. Counsel for Skygarden submitted that whilst the matter was relevant to be taken into account in the balance of convenience it had perhaps loomed as a larger issue in the course of the hearing than was perhaps warranted.

16. The core representations alleged to have been made, namely that the business being conducted from the premises immediately prior to the applicants entering into the lease was a little less than $13,000 to $16,000 per week, and that the business was viable, if made out, appear, on the material before me to be serious misrepresentations. In those circumstances, it is possible that a Court will grant relief by way of variation of the terms of the lease as sought. Unless the injunction is granted, that remedy will be forever closed to the applicants. The applicants have offered an undertaking as to damages and have made an offer which has a likelihood of some payment for the occupation of the premises. In this regard, I should indicate that the applicants' argument that the whole of the rent and outgoings should be deducted for determining what the net profit is, is not an unreasonable approach.

17. It is relevant that the rent which Skygarden can obtain for the premises is currently substantially less than that which was required to be paid by the applicants under the terms of the lease, and that if anything it may be even lower in the future. It was said that this was a serious matter to be taken into consideration on behalf of Skygarden, as any undertaking as to damages which might be given by the applicants was effectively worthless. I have no material before me to determine whether this is so or not, and accordingly I consider I should accept the undertaking as to damages on its face.

18. In all of the circumstances, I consider that it is appropriate to grant the interlocutory relief which is sought. However, it should be on condition that the one half of the net profit earned by the applicants in the conduct of the business be payable to Skygarden. In addition, the applicants must comply strictly with all directions of the court in relation to the conduct of the matter. Should they fail to do so I propose to give leave to Skygarden to relist the matter on 24 hours notice for the purpose of considering whether the injunction should be discharged. I also propose to give the parties liberty to approach the list clerk forthwith for a hearing date.