Chamberlain Early Learning Centre Pty Limited v Chamberlain Group Pty Limited

Background Facts

1. At the outset, it should be mentioned that the evidence of the parties read on the application is likely to be incomplete; it is certainly untested; and, in a number of respects, it is conflicting. However, there are parts of that evidence, to which I shall now refer, that seem not to be the subject of dispute.
2. The application is part of a long running dispute between the parties about the Premises. There were earlier proceedings, determined by McDougall J, the medium neutral citation of which is Kids for Life v Chamberlain Group [2014] NSWSC 1561. I am informed that the Defendant has filed a Notice of Appeal from the orders made by McDougall J on 8 December 2014 and that the hearing of the appeal is to take place on 21 July 2015.
3. One of the orders made by McDougall J on 8 December 2014 was that the Defendant was to pay the Plaintiff's costs. (Although there was evidence read that those costs, calculated on the indemnity basis, were in the order of $145,000, the Defendant objected to the evidence of the likely costs calculated on the ordinary basis. Whilst I rejected the evidence objected to, I am able to infer that the costs, if, and when, assessed, on the ordinary basis, will be substantial, and are likely to exceed the Defendant's costs, even with senior counsel, of this interlocutory application.) I shall return to this topic later in these reasons.
4. The Defendant is the registered proprietor of the Premises. The Plaintiff is, or was, a lessee under a registered Lease, which commenced on 1 January 2010. Although the Lease identifies Kids for Life Academy Pty Limited as "the Lessee", the Plaintiff was identified as the tenant of the Premises (presumably as a result of an assignment.) The term of the Lease was five years, but there are four options, each for five years, for renewal contained in the Lease.
5. Although the Lease expired on 31 December 2014 (being the date of the end of the first 5-year term), McDougall J determined, and subsequently, on 8 December 2014, declared, that the Plaintiff had validly exercised the option to take up a further term of the Lease. Orders were also made compelling the Defendant to grant such a further lease term.
6. On 22 April 2015, large parts of Sydney experienced torrential rain and heavy winds. The Premises were affected by flooding. There is a real factual issue about the extent of the damage caused by the flooding to the Premises. The Plaintiff says that the Premises were severely damaged by water, mud and silt. The Defendant's evidence is that the damage was "only superficial in nature and required only minimal remedial work in order to get the centre back to being fully operational".
7. Following inspection of the Premises, the Plaintiff gave notice of the damage to the Defendant and closed the childcare centre which it conducted on the Premises. The Defendant refused to acknowledge that the Premises were then incapable of operation as a childcare centre.
8. The Plaintiff had paid rent until 30 April 2015. Rent was due on 1 May 2015, which rent the Plaintiff did not pay. As at the date of the interlocutory hearing, it was agreed that the total amount of the rent, if payable in whole, was $27,500 (no interest then being claimed by the Defendant).
9. On 22 May 2015, the Defendant locked the Plaintiff out of the premises on the purported basis of the non-payment of rent. In this way, the Defendant purported to terminate the Lease by physical re-entry on 22 May 2015.
10. The Plaintiff denied that the Defendant was entitled to terminate the Lease, asserting that the Plaintiff's conduct, as lessee, did not amount to breach of the covenant to pay rent in the Lease. The Plaintiff asserted that it was not liable to pay rent to the Defendant for the period on, and from, 22 April 2015, with the effect that the re-entry by the Defendant on 22 May 2015 was wrongful. It was submitted that the Plaintiff had, at the very least, as part of its alternative claim, a very strong case for a grant of relief against forfeiture.
11. There was no dispute that the Lease provided that the Plaintiff should pay the base rent of $150,000 per annum, plus GST in equal monthly instalments in advance, on the first day of each month, as well as percentage increases, a proportion of outgoings, as well as "other moneys" as defined, which amounts were payable on the same day rent was payable. The base rent was subject to automatic annual increases in the accordance with the Consumer Price Index. At the hearing, it seems to have been agreed that the total monthly amounts (identified as "rent") were $13,750.
12. The Lease also provided for a "Security Amount" being 3 months' rent including GST ($42,900) at the date of the commencement of the Lease. There was no suggestion that the amount had not been paid by the Plaintiff or that it had not been retained by the Defendant.
13. Finally, the Lease relevantly provided, in Clause 17.1.1, that the Tenant would be in default if, inter alia, it "fails to pay rent or any other money payable to the Landlord, within 14 days after the due date", in which event, the Landlord may "re-enter and take possession of the Premises; terminate [the] Lease; recover from the Tenant any loss suffered by the Landlord as a result of the Tenant's default; demand payment under any Bank Guarantee to recover the whole or part of any loss suffered by the Landlord as a result of the Tenant's default; and exercise any of its other legal rights".
14. Before proceeding further, it is necessary to deal with what occurred when the matter came before Bergin CJ in Eq. on 28 May 2015. In written submissions before her Honour, counsel for the Plaintiff conceded that the Plaintiff was not in a position to pay for its legal expenses of these proceedings and the Court of Appeal proceedings, whilst also paying the Defendant rent for the Premises, which are currently unable to be used for any income-generating activity. Counsel reiterated the point during his oral submissions in answer to a question from her Honour.
15. The Defendant relied upon the Plaintiff's acknowledged financial difficulty in paying the rent that had not been paid. (However, it was not submitted that, whilst the childcare business was operating, there had been any history of default by the Plaintiff or that it had been consistently in arrears.)
16. After the hearing was underway before me, counsel for the Plaintiff, "under protest", tendered a bank cheque for $27,500, payable to the Defendant "which is accepted to be the outstanding rent and rent for the month of June 2015, which was payable on 1 June 2015". (Why the bank cheque, which was confirmed to be dated 1 June 2015, had not been proffered earlier was explained by reference to correspondence passing between solicitors and upon the basis of the demands being made, and the unlikelihood of the cheque being accepted, by the Defendant.)
17. Subsequently, counsel for the Plaintiff also stated that the Plaintiff was prepared to undertake to the court to make future payments of rent as and when they fell due. (The precise undertaking was later included in the agreed Short Minutes of Order to which reference has been made.)
18. Senior counsel for the Defendant stated that the Defendant refused to accept the cheque. In broad terms, he submitted that tendering the outstanding rent was not sufficient and that the Plaintiff was also required to tender "costs and the expenses" incurred by the Defendant.
19. (There was evidence contained in a letter dated 29 May 2015 from the Defendant's solicitors to the Plaintiff's solicitors that what should be paid included at least the rent ($27,500), costs associated with the repossession (including security guard costs, replacement of locks and the alarm system (as at 22 May 2015) ($9,460)), security guard costs for each day that the Plaintiff was not in possession from 22 May 2015 until 1 June 2015 calculated at $2,772 per day ($19,404) and legal costs ($6,000). In an affidavit relied upon by the Defendant at the hearing, it was asserted that the costs associated with the re-possession were between $42,280.50 and $47,280.50.)
20. In addition, it was said that "Senior Counsel's costs of preparation and attendance at the hearing… will be approximately $15,000".

Submissions

1. The basis of the Plaintiff's assertion that it was not in breach of the Lease entitling the Defendant to re-enter possession was Clause 10.2 of the Lease which provided that: "If the premises… are destroyed or damaged: (a) the Tenant will not be liable to pay Rent so long as the Premises cannot be used or are inaccessible due to that damage; or (b) if the Premises are only partly usable due to the damage, the Tenant's liability for Rent will be reduced, while the Premises are not fully usable, in proportion to the reduction in their usability caused by the damage."
2. The Plaintiff submitted, by reference to the affidavit evidence of its witnesses, and by reference to the copy photographic evidence, that it was seriously arguable that there was more than sufficient damage to the Premises on 22 April 2015 to trigger the operation of Clause 10.2 of the Lease. If that were correct, it was submitted that there was no default by the Plaintiff in respect of its obligation to pay rent, with the result that the re-entry by the Defendant on 22 May 2015 was unlawful. The alternative claim for relief was also identified.
3. It was not submitted by the Defendant, and nor could it be, that it was not open to the Plaintiff to deny the breach of the covenant to pay rent, but seek relief against forfeiture if its denial of the breach was not accepted: Water Wine & Juice Pty Ltd v Steve Konstantopoulos [2010] NSWSC 312, per White J, at [77] - [88].
4. The written submissions of the Defendant provided to the court stated: "The Abatement argument 8. Firstly, the plaintiff claims that it should not be liable to pay rent because of the operation of clause 10.2 of the lease that allows for the abatement of rent in some circumstances. 9. The defendant does not accept the abatement claim. If the Plaintiff wants to establish it is entitled to an abatement of rent it will have to bring proceedings and have the Court determine that claim in due course. That is the Plaintiff's legal entitlement. If the Plaintiff succeeds, the Defendant would be required to refund the rental paid equivalent to the amount of any abatement. But before this occurs the Court will need to adjudicate this dispute as it has done before in cases such as Cakirgoz v Crouch [2008] NSWSC 1124 per Palmer J. 10. Professor Butt observes that it is generally unwise for a tenant to withhold rent in an effort to force the landlord to perform the landlord's obligations under the lease. Such an act may entitle the landlord to enter and forfeit the lease for non-payment of rent, because the tenant's obligation to pay rent is generally independent of the landlord's obligation under the lease. The tenant's proper remedy is to cross-claim for damages for the landlord's breach, or seek specific performance of the landlord's obligations… 11. An allegation of an entitlement to a rental abatement is nothing more than a mere assertion. A tenant is not entitled to reward itself with a rent holiday because it asserts an entitlement to a rental abatement. That is the height of the Plaintiff's submissions. It is patently absurd." [Footnotes Omitted]
5. (I note that in Cakirgoz v Crouch [2008] NSWSC 1124, the term of the Lease was different from the clause relied upon by the Plaintiff in this case. In that case, the term of the lease was "Upon the happening of any such damage or destruction… the rent hereby reserved or proportionate part thereof according to the nature and extent of the damage sustained or part resumed shall abate". It did not provide that "the Tenant will not be liable to pay Rent". Also, in that case, Palmer J found, in the final hearing, that the non-payment of rent was not justified either under the terms of the lease or under the terms of the Retail Leases Act 1994 (NSW). It followed that the tenant had been in continuing breach of the lease in failing to pay rent with the result that the termination of the lease was valid.)
6. Almost as a mantra, senior counsel for the Defendant submitted that the rent had not been paid, and that "so far as any reported or unreported case is concerned [this Court has not] granted relief against forfeiture, when the tenant was locked out for non-payment of rent, without the tender by the tenant of the full amount of rent outstanding, together with expenses and legal costs".
7. Despite the court suggesting to senior counsel for the Defendant, more than once during oral submissions, that it would be assisted by submissions on the question whether, before one arrived at the issue of the terms upon which relief from forfeiture (which was sought in the alternative) could be granted, the court should first consider whether there was a serious question to be tried on the applicability of the clause in the Lease relating to whether the Plaintiff was liable to pay rent, senior counsel was not prepared to engage with the court on this question. He was not prepared to accept that the court may need to consider, at the final hearing, the Defendant's entitlement to enter into possession, and that it may be necessary for the Defendant to justify the entry into possession by establishing a then present right to possession: Riddington v Pye (1989) 9 BPR 16,643. If the Defendant had no entitlement to forfeit the Plaintiff's lease, the Plaintiff has no need of a grant of relief from forfeiture.
8. Almost all of the written submissions of the Defendant related to the question of relief from forfeiture (despite the fact that this was an application for an interlocutory injunction). Neither party referred to the decision of White J in Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837; (2005) 12 BPR 23,143, in which his Honour, at [35], stated: "The power to grant an interlocutory injunction under s 66(4) of the Supreme Court Act is a power to grant such an injunction where it appears to the Court to be just or convenient so to do. There is no reason that that power cannot be used, in an appropriate case, in aid of a lessee's prima facie right to be relieved from forfeiture of his estate, by protecting his possession in the meantime. It would be strange that the Court's power to protect a lessee in his possession of the premises should depend upon whether the injunction was sought immediately before or immediately after the lessor terminated the lease."
9. On the question of the terms that might be ordered in granting such relief from forfeiture, senior counsel for the Defendant, steadfastly maintained that there was no exercise of discretion involved, and that all the authorities provided that the tenant should be ordered to pay the full amount of rent outstanding, together with expenses (whatever they were and whether or not they were reasonable) and legal costs if it were to be granted relief from forfeiture. (He referred to Clause 5.4 of the Lease which dealt with the payment of legal costs if the tenant was in default.)
10. The court, by way of example, referred senior counsel to the decision of Robb J in Kofoo Sussex Pty Ltd v Commerce Building Pty Ltd [2014] NSWSC 1079; (2014) 17 BPR 33,147, a case in which conditions upon which relief from forfeiture would be granted was discussed. (Whilst there are a number of cases which deal with the question of the terms upon which relief from forfeiture may be granted (see, for example, the leading case of Pioneer Quarries (Sydney) Pty Limited v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562), the court, in this application, was not dealing with that issue on the application).
11. Senior counsel may not have considered s 73 of the Supreme Court Act 1970 (NSW), which provides that, in proceedings for a forfeiture for non-payment of rent, the Court may, on terms, give relief. It can hardly be doubted that the word "may", in the section, confers a discretion on the court, not only on whether to grant relief from forfeiture but also on the terms, if any, upon which relief from forfeiture would be granted.

Determination

1. Section 66(4) of the Supreme Court Act 1970 (NSW) confers upon the court a discretionary power, at any stage of proceedings, on terms, to grant an interlocutory injunction "in any case in which it appears to the Court to be just or convenient so to do". It is an unfettered, wide, and general, power.
2. Ultimately, the Court's jurisdiction to grant interlocutory relief is tailored to the individual circumstances of any particular case and is exercised according to principles applied to those circumstances. As recognised by the sub-section, the fundamental purpose of an injunction, in the context of the underlying cause of action, is to prevent injustice or inconvenience. It can be in the form of an order requiring a party to do (a mandatory injunction), or to refrain from doing (a prohibitory injunction), a specified act. The sub-section makes no distinction between the two types of injunction.
3. There was no dispute that in assessing the interlocutory application, the court must consider whether the Plaintiff has shown that there is a prima facie case, in the sense of a serious question to be tried, and whether the balance of convenience favours its interlocutory claim. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed: Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57, at [19].
4. As to the question of whether there is a serious issue to be tried, the High Court made it plain that it is sufficient that the Plaintiff show a sufficient likelihood of success to justify, in the circumstances, the grant of the injunction pending the trial: Australian Broadcasting Corporation v O'Neill (Gummow and Hayne JJ), at [65]; (Gleeson CJ and Crennan J) at [19].
5. It was accepted that, often, the court will examine the strength of the Plaintiff's case for an interlocutory injunction, but will not normally "undertake a preliminary trial": Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618, at 622 (Kitto, Taylor, Menzies, and Owen JJ).
6. But, as was pointed out by White J in 1st Fleet Pty Ltd v Australian Cooperative Foods Ltd [2006] NSWSC 881, at [5] (and referred to with approval more recently in Attorney-General v Knight [2014] VSC 549, per T Forrest J, at [18]): "[The court] does not seek to resolve conflicts of evidence. The parties have not had the benefit of cross-examination or been able to deploy all other relevant evidence that may be available at a final hearing. The evidence adduced by the defendant is to be taken into account in determining whether on all the evidence the plaintiff has demonstrated that there is a serious question to be tried. That formulation of the question mandates that any conflict between the evidence of the plaintiff's witnesses and the defendant's witnesses is not to be resolved, but rather it is to be assumed that any such conflict would be resolved in the plaintiff's favour (Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729 at 724)."
7. Ultimately, however, as Gummow J wrote in Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499, at 503: "...it has long been the case that interlocutory mandatory injunctions would be more likely to issue where the defendant was compelled, not to embark upon a fresh course of conduct, but, as here, to revert to a course of conduct pursued before the occurrence of the acts or omissions that provoked the litigation."
8. (Neither party made any submissions on whether the general approach applied by the courts in considering whether to grant an interlocutory mandatory injunction was whether there is a "high degree of assurance" that at the trial it will appear the injunction was rightly granted: Businessworld Computers Pty Ltd v Australian Telecommunications Commission, at 501-503, or whether the courts have adopted the course at the interlocutory stage that appears to "carry the lower risk of injustice": Films Rover International Limited v Cannon Film Sales Limited [1986] 3 All ER 722; [1987] 1 WLR 670, at 680.)
9. The balance of convenience includes a consideration of whether the refusal of the injunction would have the effect that the Plaintiff will suffer irreparable injury for which damages will not be adequate compensation. It is relevant to the balance of convenience that the Plaintiff seeks a mandatory order. I note in that regard that it has been held that damages will rarely be an adequate remedy for the invasion of proprietary or possessory rights: Beswicke v Alner [1926] VicLawRp 10; [1926] VLR 72, at 77; Stageman v St John Ambulance Association in Western Australia Incorporated [2010] WASC 203, per Hall J, at [29].
10. The Plaintiff's entitlement to ultimate relief is necessarily uncertain at the interlocutory stage. It follows that the Court, in deciding to grant or refuse relief, considers 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, ultimately, may be held not to be entitled, and the consequences to the Plaintiff of the refusal of the injunction in support of relief to which the Plaintiff, ultimately, may be held to be entitled: Idoport Pty Ltd v National Australia Bank Limited [1999] NSWSC 828, per Einstein J, at [44]. This is an assessment in which, as Lord Diplock wrote in American Cyanamid Co v Ethicon Ltd [1975] AC 396, at 408: "It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them."
11. In the consideration of the matter, the court does not lose sight of the practical realities of the situation to which the injunction will apply: see NWL Limited v Woods [1979] 1 WLR 1294, per Lord Diplock, at 1306.
12. On the available evidence, the Plaintiff occupied the Premises prior to 22 April 2015, and enjoyed an exclusive right to occupy the Premises. It carried on its business there. In the absence of any breach of the term of the Lease for the payment of rent by the Plaintiff, the entry by, or on behalf of, the Defendant on the Premises, on 22 May 2015, would constitute interference with the Plaintiff's right to possession of the premises, in breach of the Lease with the result that the Plaintiff was prevented from carrying on its business there.
13. When I made the orders, I was satisfied that there was a serious question to be tried as to whether the Defendant can rely upon the clause of the Lease entitling it to re-enter possession and terminate the Lease for the alleged breach of the obligation to pay rent and outgoings on the stipulated monthly intervals, or whether Clause 10 relieved the Plaintiff from its obligation to pay the rent, or only to pay part of it. In other words, was the effect of Clause 10, in the circumstances of the case, to vitiate the Plaintiff's contractual obligation to pay rent in accordance with the covenant for rent?
14. This question will require the consideration, in due course, whether the Premises were wholly or partly "destroyed or damaged" and whether it could not "be used or are inaccessible due to that damage". It will also require consideration of whether the Premises were "fully usable" or if they were not the "proportion to the reduction in their usability caused by the damage". The latter question, if needed to be determined, raises difficult questions also.
15. Similarly, but in the alternative, there was a serious question concerning whether, in the event that the Lease was validly terminated by re-entry (it being agreed by counsel that there was no written document terminating the lease: T16.41-T17.10), the Plaintiff is entitled to relief from forfeiture, and if so, upon what terms. On the materials presently before me, the Plaintiff would have a strong case for relief against forfeiture, since it has paid what is due by way of rent and proffered the undertaking to continue to do so. Whether it has an obligation to pay additional amounts, will be determined at the final hearing. In this regard, subject to what happens in the appeal, the Lease is for a further term of 4.5 years with 3 five year options for renewal.
16. Neither party submitted, in my view, correctly, that the court should construe the terms of the Lease relied upon. It appears to have been accepted that it was best left to the trial of the proceeding for a final determination.
17. Nor did the Defendant submit that damages would be an adequate remedy.
18. On the balance of convenience, when I made the orders, I was satisfied that the prejudice to the Plaintiff that will arise if an interlocutory mandatory injunction is not granted is substantial. As was submitted by counsel, the Plaintiff needs access to the Premises so that it can push forward, insofar as it is able, with returning the Premises to a state fit for occupation as a childcare centre. Although many of the repair obligations may be for the Defendant to undertake, there is still a lot of work for the Plaintiff to do as well. Children, who were attending at the Plaintiff's business, have been temporarily placed at other childcare centres, although it is also possible that some are without a place to attend.
19. There is also an increasing risk of damage to the Plaintiff's business. The longer the Plaintiff is out of business, the harder it may be to re-commence.
20. It is said also, that the Premises also contain the business records of the Plaintiff, including records relating to ongoing disputes and litigation with the Defendant.
21. The Defendant has some security (the Security Amount) for any outstanding moneys that may be due. In addition, depending on the result of the appeal, the Plaintiff has a costs order in its favour.
22. In all the circumstances, I was satisfied that it was appropriate to grant an interlocutory mandatory injunction in favour of the Plaintiffs. I have made the agreed orders and directions.

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