Arys Health Pty Ltd v Le

Supreme Court of NSW|2020-03-06|Before: Henry J

Judgment

On 7 February 2020, I gave judgment on the plaintiff's (Arys Heath Pty Ltd) interlocutory application that the first defendant, David Le, provide access to parts of the ground floor of a building in Pitt Street from which Arys Health operates a medical centre: Arys Health Pty Ltd v Le [2020] NSWSC 45.
I granted interlocutory relief in favour of Ayrs Health, although in more limited terms than it had sought. I ordered that costs of the application be costs in the cause and gave leave to the parties to approach the Court if they considered a different costs order should be made.
Arys Health has approached the Court for a variation to the 7 February costs order. The parties have provided written submissions and agree that Arys Health's application to vary the 7 February costs order can be dealt by me on the papers.
Arys Health seeks an order that Mr Le pay Arys Health's costs of the interlocutory application assessed on an ordinary basis payable forthwith or, in the alternative, that Mr Le pay its costs on an ordinary basis. In relation to the costs of the second defendant (the Sydney Mechanics School of Arts), Arys Health seeks a variation so that there is no order for costs with the intention that SMSA would bear its own costs of the interlocutory application. In the alternative, Arys Health seeks an order that costs be its costs in the cause.
Mr Le submits that the costs order made on 7 February 2020 is appropriate and should not be displaced. SMSA submits that its costs should be costs in the cause as against either or both of Arys Health and Mr Le.
For the reasons that follow, I have concluded that the 7 February 2020 costs order should be varied and that the appropriate costs order is that the costs of the interlocutory application should be Arys Health's costs in the cause in relation to both Mr Le and SMSA.

Should Arys Health's costs be paid by Mr Le?

Arys Health contends that its costs should be paid by Mr Le assessed on an ordinary basis payable forthwith because it succeeded on its interlocutory application and there is no reason why costs should not follow the event, in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW).
Arys Health also submits that a forthwith costs order should be made, arguing that the circumstances referred to by Barrett J at [11] - [13] in Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 apply in this case. It argues the interlocutory application can be viewed as the completion of a discrete aspect of the case, Mr Le has acted unreasonably and there will be a fairly long time before the proceedings are disposed of.
While Arys Health achieved some success on its interlocutory application, I am not persuaded by its submissions that this is a case where it is appropriate to make an order for Mr Le to pay Arys Health's costs in relation to the interlocutory application on an ordinary or forthwith basis.
The guiding principles which are applicable to the determination of costs in respect of an interlocutory injunction application establish that, ordinarily, where an interlocutory injunction has been granted and the defendant did not concede that relief, the costs of the application will be costs in the cause or the successful plaintiff's cause, rather than being paid by the defendant on an ordinary basis: His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142 at [23], [26] - [27] (Macedonian Church); Baller Industries Pty Ltd v Mero Mero Leasing Pty Ltd [2019] NSWSC 1067 at [18]; Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (Supreme Court (NSW), 24 July 1985, unrep).
The rationale for the usual approach is that, at the stage of an interlocutory injunction, the Court is not usually in a position to adjudicate upon the ultimate outcome of the proceedings and, accordingly, decides the question of the injunctive relief by reference to other considerations, such as the balance of convenience: Macedonian Church [2007] NSWCA 142, at [21].
In my view, that rationale is particularly apt in this case and justifies an order consistent with the ordinary approach to the costs of an interlocutory injunction, rather than an order for Mr Le to pay Arys Health's costs because it succeeded with its interlocutory application, in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW).
The grant of interlocutory relief in favour of Arys Health was based on a finding that there is a serious question to be tried that Mr Le's conduct on 6 and 7 January 2020 (of placing the metal structure much closer to the Medical Centre reception desk, installing the high makeshift wall/divider between the Pharmacy and the Medical Centre, removing the Equipment from the back-right medical rooms to the corridor outside the back-left medical rooms and the refusal to provide access to the back-right medical rooms for storage purposes) was in breach of the Sub-lease.
That finding was made in the context where it was apparent there will be a significant dispute at the final hearing as to whether the asserted Sub-lease is valid and enforceable. It was also made having not had an opportunity to test Mr Le's evidence in support of his claim that the Sub-lease was entered into under duress and as a result of misrepresentations, and that Arys Health has failed to meet its rental and outgoings obligations under what he asserts is the applicable licence arrangement.
The conflict between the evidence of Mr Le and Dr Baig in respect of those matters and the parties' claims as to the enforceability of the Sub-lease will need to be resolved at the final hearing. That resolution may have the consequence that Arys Health ultimately fails with its claims, in which case it should not expect to recover its costs of making the interlocutory injunction: Baller Industries Pty Ltd v Mero Mero Leasing Pty Ltd [2019] NSWSC 1067 at [49].
In support of a costs order being made in its favour, Arys Health submits that it acted reasonably in seeking interlocutory relief. I accept that submission. It gave Mr Le an opportunity to avoid the application by first sending a letter asking him to provide Arys Health with access to the back-right medical rooms and to remove the obstruction to the back-left corridor. Mr Le's refusal to do so prompted the urgent interlocutory application being made.
That said, Arys Health's interlocutory application went beyond the matters raised in the pre-action letter sent. The application raised a series of allegations about Mr Le's conduct over an extended period and sought relief in terms which I found went beyond what was reasonable or warranted in this case.
Mr Le contested the interlocutory application on several grounds. One of them was Arys Health's delay in bringing the application. That ground was significant and decisive in respect of the instances of interference that Arys Health alleged to have taken place in relation to the restriction on its access to the back-right medical rooms in April 2019 and the placement of the metal structure in the Medical Centre corridor on 16 July 2019. As a result, I expressly declined to grant relief in relation to those and other matters that had been pressed: see Arys Health Pty Ltd v Le [2020] NSWSC 45 at [93] - [95] and [100].
Arys Health also submits that Mr Le acted unreasonably as his refusal to give access sought by Arys Health was inconsistent with the terms of his pleaded defence and had the result that Arys Health had to cancel medical appointments and close the Medical Practice.
Mr Le's points of defence could be read as an admission that the Medical Practice occupies an area greater than that which Mr Le advanced at the interlocutory hearing. It is also open to be read, as his counsel submitted at the interlocutory hearing, that the admission is limited only to the temporary arrangement which Mr Le contends was on foot from early in 2017 and not in respect of the Sub-lease. I also note that Arys Health's pleadings did not reflect the case it advanced at the interlocutory hearing.
I accept there is evidence that Mr Le's actions in early January had a significant detrimental impact on the operation of Arys Health's Medical Practice. Those actions were relevant to my findings that there was a seriously arguable and prima facie case that Mr Le was in breach of the Sub-lease and the balance of convenience favoured the grant of some interlocutory relief. Those actions were, on Mr Le's case, consistent with the terms of the temporary arrangement he asserts is on foot.
In that context, Mr Le's refusal to comply with Arys Health's initial demand and his stance in contesting the application, on which he succeeded in part, are not matters which I consider to be out of the ordinary such as to warrant departure from the usual approach to costs orders in interlocutory applications.
Arys Health also argues that the interlocutory application ought to be viewed as a separately identifiable and discrete aspect of proceedings which are in their infancy. As a consequence, it submits that it will be some time before Arys Health will be in a position to recover the costs of the application if so ordered.
Assuming it is ultimately successful, it seems inevitable that Arys Health will have to wait for some period before it can recover its costs. Pleadings are yet to close and the parties have not served their evidence in relation to any final hearing. However, that position is no different to most interlocutory injunction applications, which are brought at an early time prior to the main steps in the proceedings having been completed.
I also do not accept Arys Health's characterisation that the application involved the determination of a separately identifiable and discrete aspect of the case.
As Mr Le submits, the issues raised by the application relate to matters which are at the heart of the dispute in the main proceedings, being the validity of the Sub-lease and, assuming it is valid, whether Mr Le's conduct involves a breach of the covenant of quiet enjoyment. Those issues are not "detached or detachable" from the rest of the proceedings which are yet to be heard and cannot, in my view, be viewed as completed or resolved: Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 at [11]; Horrobin v Australia & New Zealand Banking Group Ltd (Court of Appeal (NSW), 6 June 1997, unrep) at 9.
Having regard to all of the above, in my view, there is nothing which distinguishes this case from a typical contested interlocutory injunction such as to warrant the exercise of my discretion to order something other than the usual order that costs be in the cause or in the plaintiff's cause: Macedonian Church [2007] NSWCA 142, at [27].
Having had the benefit of the written submissions on costs and considered the issue further, I have concluded that it is appropriate to exercise my discretion and vary the order I made on 7 February 2020 and order that the costs of the interlocutory application be Arys Health's costs in the cause. I do so because I consider that such an order best reflects the outcome in this case, which is that Arys Health achieved success against an opponent who chose to contest the application on all issues. It also recognises that Arys Health's success was limited and that the interlocutory application should be regarded as part of the substantive proceedings which are yet to be determined.

Should another costs order be made in relation to SMSA?

Arys Health submits that there should be no order as to costs as against SMSA. It submits that, as no relief was sought against SMSA, there was no reason for it to be represented at the hearing and no event between Arys Health and SMSA which would entitle either party to their costs.
In support of its position, Arys Health draws an analogy from Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, which stands for the principle that, where there has been no hearing on the merits, the starting position is that each party should bear their own costs unless a party can demonstrate that the other party's conduct has been so unreasonable as to warrant a departure from that position or there has been, in effect, a capitulation. It argues that there has been no unreasonable conduct on the part of Arys Health and no relief sought in respect of SMSA, so there is no action to give rise to a costs order.
SMSA contends that its costs of the interlocutory application should be costs in the cause as against either or both of Arys Health and Mr Le but need not be the subject of any further costs order at this time as such an order is within the ambit of the costs in the cause order made on 7 February and Dr Baig's undertaking as to damages.
SMSA argues that its costs ought to be so reserved because it was not in a position to properly determine the extent of its right to recover its costs against Mr Le under the Lease, the interlocutory applications were served on the SMSA on relatively short notice and its appearance by counsel was not objected to by any of the parties. As a necessary party to the proceedings, SMSA submits that it was appropriate to attend the hearing, reserve its position and only intervene to provide clarity to the Court as to the position between it, as head lessor, and Mr Le as the lessee of the Premises.
The question of whether SMSA has an entitlement to recover its costs against Mr Le under the Lease does not seem to me to be relevant on the question of whether the Court should make orders in respect of SMSA's attendance at the interlocutory application made by Arys Health.
I am also not persuaded that SMSA's costs of appearing should be at the risk of Arys Health because SMSA's presence at the interlocutory application was not objected to, it was served on short notice or because it is a party to the overall proceedings.
SMSA chose to appear by counsel at the hearing. It did so, by its own submission, as an interested party in a capacity akin to an intervenor, not as a party against whom any relief was sought on the application. There was no apparent interest of SMSA's that needed protection by its attendance at the hearing. Nor did the evidence that was relied on by Arys Health raise issues on which SMSA needed to respond. It also seems to me that it would have been consistent with case management principles for SMSA to have sought to be excused from attending the hearing (assuming it needed to do so), rather than attending and expecting its costs of doing so might be met by Arys Health.
In those circumstances, and as Arys Health was the successful party on a contested interlocutory application, I accept Arys Health's submission that it should not be on risk on having to pay SMSA's costs of the interlocutory application in the event that Arys Health ultimately fails at the final hearing.
While there is force to Arys Health's submission that there should be no order as to costs as to SMSA, I consider the better approach is to make one order for costs in relation to the interlocutory application, being that costs be Arys Health's costs in the cause. In doing so, I consider there is likely to be little (if any) practical difference to the outcome for Arys Health and SMSA if I had made the orders sought by Arys Health.

Orders

For these reasons, I make the following order: 1. Pursuant to r 36.16(1) of the Uniform Civil Procedure Rules 2005 (NSW), order (2) of the orders made in these proceedings on 7 February 2020 be varied to provide that the costs of the plaintiff's application for interlocutory relief be the plaintiff's costs in the cause.

Amendments 09 March 2020 - Para 31, the word "submission" removed from line 1. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 March 2020

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