Workcare Management Pty Ltd v Gajic Holdings Pty Ltd [2010] NSWSC 479 (5 May 2010)

Last Updated: 21 May 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Workcare Management Pty Ltd v Gajic Holdings Pty Ltd [2010] NSWSC 479
This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION:
Equity

FILE NUMBER(S):
2010/95135

HEARING DATE(S):
5 May 2010

JUDGMENT DATE:
5 May 2010

EX TEMPORE DATE:
5 May 2010

PARTIES:
Plaintiff: Workcare Management Pty Ltd
Defendant: Gajic Holdings Pty Ltd

JUDGMENT OF:
White J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiff: W Washington
Defendant: A Rogers

SOLICITORS:
Plaintiff: Thomas Bray Pty Ltd
Defendant: Mitry Lawyers


CATCHWORDS:
INTERLOCUTORY INJUNCTIONS – where lessee’s alleged delay in occupying leased premises caused by lessor’s not providing essential services – whether lessor should be restrained from terminating lease and calling on bank guarantee for unpaid rent – seriously arguable that lessor in breach of express term by not providing essential services – seriously arguable that lessor in breach of implied term to do all things necessary on its part to enable lessee to occupy premises and proceed with fit-out and subleases – whether lessee may have right of set-off for damages against obligation to pay rent – balance of convenience – no question of principle

LEGISLATION CITED:



CASES CITED:
Citibank Pty Limited v Simon Fredericks Pty Ltd [1993] VicRp 66; [1993] 2 VR 168
Ory v Betamore Pty Ltd (in liq) [1993] SASC 3996; (1993) 60 SASR 393
Re Partnership Pacific Securities Limited [1994] 1 Qd R 410
Butt v M'Donald (1896) 7 QLJ 68

TEXTS CITED:


DECISION:
1. Discharge the parties from the undertakings given on 20 April 2010. 2. Upon the plaintiff by its counsel giving the usual undertaking as to damages, I make orders in accordance with paragraphs 2 and 3 of the amended summons until further order. 3. Order that costs of this application be costs in the cause.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


WHITE J

Wednesday, 5 May 2010

2010/95135 Workcare Management Pty Ltd v Gajic Holdings Pty Ltd

JUDGMENT

1 HIS HONOUR: By its summons filed on 19 April 2010, the plaintiff sought orders until further order that the defendant be restrained from terminating a lease dated 6 November 2009 between the plaintiff as lessee and the defendant as lessor, or otherwise retaking possession of the leased premises, and that the defendant be restrained from making any further call upon the Bank of Queensland on a bank guarantee in respect of the plaintiff's liability under the lease.

2 On 20 April 2010, the court noted undertakings given to the court by the defendant in substantially those terms. Those undertakings were given without admission and pending further order. The undertakings were given without a contested hearing. Today there has been a hearing as to whether the defendant should be discharged from the undertakings which it gave on 20 April or, to put it another way, whether the plaintiff should now obtain the orders sought in paragraphs 2 and 3 of the amended summons filed on 5 May 2010.

3 The proceedings concern land in Coward Street, Mascot. On 3 December 2008 the plaintiff entered into an agreement to lease those premises from the then owner, Devcon Group NSW Pty Ltd. In the agreement of 3 December 2008, Devcon Group NSW Pty Ltd was described as the lessor and the plaintiff as the lessee. The agreement recited that the lessor intended to construct a mixed use commercial building on the land, that the lessor had development consent for the construction of the building, and that when the construction of the building was complete, the lessee would lease the land from the lessor.

4 Clause 2.1(a) of the agreement for lease provided that the lessor would construct the building in accordance with certain plans and specifications. Clause 3.1 provided that the lessor would cause the “Lessor's Works” to be completed by the "Completion Date" in accordance with the plans and specifications, in a proper workmanlike manner and in accordance with all consents of, and in compliance with, the requirements of all local statutory or government authorities. There was provision for the completion date to be extended.

5 Clause 4.1 provided that the lessee was to prepare plans and specifications for the “Lessee's Works”. The "Lessee's Works" was defined to mean all work to be undertaken by or on behalf of the lessee in accordance with the lessee's plans and specifications. There were other provisions of the agreement to which it is not necessary to refer in relation to the preparation of plans and specifications for the Lessee's Works and in relation to the carrying out of those works.

6 Clause 5.1 of the agreement for lease provided that the lessor should grant, and the lessee should accept, the lease of the land commencing from the date on which "an occupation certificate issues for the Building on the Land".

7 On 16 December 2008 Devcon Group NSW Pty Ltd executed a memorandum of transfer in registrable form in favour of the defendant as transferee. The defendant is now the registered proprietor of the land. On 6 November 2009 Dix Gardner Pty Ltd issued an interim occupation certificate in respect of the land. On 23 November 2009 the plaintiff and the defendant executed a lease of the land commencing from 6 November 2009. The lease is for a period of five years, with two options for renewal of five years each.

8 Under clause 5.1.1 the plaintiff is required to pay rent. Rent payable is $652,498 per annum subject to adjustment in accordance with the provisions of the lease. The rent is payable by monthly instalments initially of $54,374.83. There was a rent-free period up to 5 March 2010 but rent became payable from 6 March 2010.

9 Pursuant to clause 6.1.1 the lessee is to use the property as a medical centre and for allied health services. Under special condition 4 the plaintiff is entitled to grant subleases or licences of the property.

10 Clause 7.1 of the lease provides:

“7.1 The lessor must -

7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs, and the floors of the property and must fix structural defects;

7.1.2 maintain the property in a structurally sound condition; and

7.1.3 maintain essential services.”

11 The lessee is required to provide a bank guarantee under clause 16. Under clause 16.3 the lessor is entitled to claim under the guarantee an amount equal to "any moneys due but unpaid by the lessee to the lessor under this lease."

12 At the time the lease commenced the building was not capable of being used for the stated purpose. The plaintiff complains that the lessor's works are unfinished. Its managing director, Mr Kevin Zammitt, deposed that notwithstanding the issue of the interim occupation certificate, as at 6 November 2009 the lift in the building had not been installed, the air conditioning plant had not been installed or commissioned, toilets, basins and taps had not been installed or commissioned, no hot water system had been installed or commissioned, and the fire protection system was not completed or commissioned.

13 The plaintiff says that the air conditioning for the building has not been installed. The building is a six-storey building with sealed windows. It is common ground that the air conditioning has not been installed. Mr Zammitt deposed that as at 19 April 2010 there was only one temporary toilet in the building, on the first level: otherwise toilets and hand basins had not been installed and there were no adequate toilet facilities and there is no hot water. He deposed that as at 19 April 2010 the fire doors to the electrical cupboards on five floors had been removed and they had not been replaced. He deposed that fire sprinklers in the basement are not connected to the sprinkler system, the fire sprinklers at the front of the building had not been correctly installed, the fire protection system has not been commissioned and no final certificate has been issued confirming that the fire protection system has been commissioned and complies with applicable codes and regulations.

14 When the lease was entered into, the lessee was to carry out a fit-out needed to put the premises in a state in which they can be occupied. The plaintiff has negotiated a number of subleases for the ground floor. On 1 February 2010 the defendant wrote to the plaintiff noting that the plaintiff's fit-out was yet to commence, but also noting that the plaintiff had not obtained construction certificate approval for the commencement of fit-out and that the lessee's fit-out plans were required to be submitted to the defendant for approval.

15 By its summons the plaintiff seeks a declaration that essential services, for the purposes of the lease, include installation and commissioning of an air conditioning service throughout the premises, the installation and commissioning of toilet facilities throughout the premises, installation and commissioning of hot water system, installation of fire doors to the electrical cupboards on the premises, installation and commissioning of the fire protection system in respect of the whole of the premises, and the obtaining of formal fire safety certification in relation to the whole of the premises.

16 On 19 March 2010 the defendant wrote to the plaintiff requiring it to stop work on its fit-out as no fit-out had been approved by the defendant and it required provision of DA approved plans and required the provision of a construction certificate for the lessee's work.

17 Although the plaintiff paid the first month's rent falling due on 6 March 2010, it did not pay the second month's rent which fell due on 6 April 2010. On 7 April 2010 the defendant called on the bank guarantee for that month's rent. The plaintiff says that the defendant has breached clause 7.1.3 of the lease, which requires the lessor to maintain essential services by not providing the services - the air conditioning, provision of toilet services, the provision of hot water system and the fire protection system for the premises. The plaintiff also says it is an implied term of the lease that the lessor would carry out the lessor's works which are required to enable the lessee to carry out its works of fit-out. The plaintiff says that the defendant has breached both the express requirement of clause 7.1.3 and an implied term that the defendant do all that is necessary to be done on its part to enable the plaintiff to proceed with its fit-out so that the plaintiff can enjoy its rights under the lease.

18 The plaintiff says it is entitled to damages for the defendant's breach, which it is entitled to set off against its obligation to pay rent.

19 I think it is seriously arguable that the defendant is in breach of the lease in not having provided essential services and in not doing what is necessary to be done on its part to enable the plaintiff to proceed with its fit-out. I think it is seriously arguable that the defendant is in breach of the lease in the ways in which the plaintiff contends, and that the lessor's works should be completed to put the lessee in the position in which it is able to complete the plans and be provided with statements of compliance for the design and provision of the fire service elements so that it can obtain a construction certificate. I think it is seriously arguable that the plaintiff is entitled to damages arising from the delay in being able to proceed with its fit-out and thereby being delayed in its ability to occupy the building and sublet the building.

20 The lessor's consent is required by clause 7.6 of the lease to the lessee's works. It appears that the plaintiff has not submitted the plans which the lessor is reasonably entitled to receive in order to consider whether to approve of the plans. There may well be a question at the hearing as to whether any breach of the lease by the defendant has been causative of the delays of which the plaintiff complains.

21 This is a case, it seems to me, in which questions of balance of convenience are fairly evenly balanced. On the one hand the defendant says that if it is not entitled to enforce the bank guarantee and if the plaintiff does not pay rent, it will be unable to service its debt to its mortgagee with the result that the mortgagee might seek to enforce its security. On the other hand, the plaintiff says that if the bank guarantee is called on or if it is required to pay rent without setting off a claim for damages, then the moneys it pays to the defendant, which it might be found it should not have had to pay, could be irrecoverable. Against this it might be said that if the plaintiff is found at a final hearing (which will be held in early June) to be entitled to damages and to set off those damages against rent, then it would be entitled to exercise that right of set-off against future instalments of rent which would become payable after judgment is given after a final hearing.

22 If those were the only issues the balance of convenience would favour the defendant. But one cannot exclude the possibility that if the plaintiff succeeds in the final hearing and seeks then to set off its claim for damages against future instalments of rent, it might face a contest, not against the defendant, but against the defendant's mortgagee as mortgagee in possession.

23 The right of a lessee to set off claims for damages against its obligation to pay rent against a mortgagee in possession is far from clear (compare Citibank Pty Limited v Simon Fredericks Pty Ltd [1993] VicRp 66; [1993] 2 VR 168 and Ory v Betamore Pty Ltd (in liq) [1993] SASC 3996; (1993) 60 SASR 393 with Re Partnership Pacific Securities Limited [1994] 1 Qd R 410). I cannot assume that the plaintiff would not find itself out of pocket if it were forced to a contest with a mortgagee in possession.

24 As issues going to the balance of convenience are otherwise evenly balanced, I think that issues as to the strength the plaintiff's prima facie case are of particular significance. I take into account that there can be a final hearing of the matter in the near future. It seems to me that there is some prima facie strength in the plaintiff's contention that clause 7.1.3 of the lease, which requires the lessor to maintain essential services, extends to supplying the essential services that are to be maintained. In that regard it is legitimate to have regard to the fact that when the lease was entered into, the construction of the building was incomplete.

25 I also think there is prima facie strength in the plaintiff's contention that essential services extend to the provision of fire protection systems and air conditioning, hot water and toilet facilities. I also think there is prima facie strength in the plaintiff's argument that the term implied on the principles of Butt v M'Donald (1896) 7 QLJ 68 at 70-71 extend to the defendant being required to do all that was necessary on its part in constructing the building to enable the plaintiff to proceed with its fit-out.

26 I think it less clear whether or not such prima facie breaches have been causative of the delays the plaintiff asserts. Nonetheless I think that the strength of the plaintiff's case is sufficient to warrant holding the present position pending final hearing and that the defendant not be entitled to have recourse to the bank guarantee.

27 I do not think much turns on the question whether I should vary the terms on which the defendant is presently restrained from purporting to terminate the lease. There is something to be said for permitting the defendant to terminate the lease if he considers that an appropriate course but to be restrained from acting on any such purported termination.

28 On the other hand, if that course were taken and if the defendant succeeded at a final hearing, there would be an overwhelming prospect that the plaintiff would be entitled to relief against forfeiture if it paid rent, interest and perhaps costs. It seems to me those questions can be debated whether the defendant is restrained from serving a notice of termination, or only restrained from seeking to give effect to a notice of termination.

29 I think it appropriate that the present undertakings be discharged as a person should not be required to give an undertaking if they do not proffer it voluntarily. Accordingly, I discharge the parties from the undertakings given on 20 April 2010. Upon the plaintiff by its counsel giving the usual undertaking as to damages, I make orders in accordance with paragraphs 2 and 3 of the amended summons until further order.

[Parties addressed on costs.]

30 The appropriate costs order is that costs of this application be costs in the cause.

******

AMENDMENTS:


20/05/2010 - Insertion of file number on coversheet - Paragraph(s) 0


LAST UPDATED:
20 May 2010