Coles Supermarkets Australia Pty Ltd v Stateland Developments Pty Ltd

Antar v Fairchild Development Pty Ltd (R&M App) [2008] NSWSC 638 Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Death v The Railway Commissioners for NSW (1927) 27 SR (NSW) 187 CASES CITED : GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-676 Lets We Forget Pty Ltd v Westpac Banking Corporation [2005] 56 ACSR 126 R v Nixon; Ex parte Protean Holdings Ltd (1982) 43 ALR 460 Street v Luna Park Sydney Pty Limited [2009] NSWSC 1

TEXTS CITED : Spry on Equitable Remedies (6th ed, 2001) 493 - 494

PARTIES : Coles Supermarkets Australia Pty Ltd (P) Stateland Developments Pty Limited (D)

COUNSEL : J C Giles (P) P A Beale (D)

SOLICITORS : Deacons (P) McGrath Dicembre & Co (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5915/08 COLES SUPERMARKETS AUSTRALIA PTY LTD v STATELAND DEVELOPMENTS PTY LTD JUDGMENT 1 HIS HONOUR: This is an application for the extension of a caveat and for the granting of an interlocutory injunction to restrain the sale by an owner of land otherwise than in accordance with a provision contained in an agreement for lease which it is alleged that it has entered into with the plaintiff. The alleged agreement for lease is between the plaintiff, Coles Supermarkets Pty Ltd, and the defendant, Stateland Developments Pty Ltd, in respect of a shopping centre site at Middleton Grange. 2 The agreement said to be a firm agreement, as it at present exists, is embodied in a letter of 20 July 2007 from the plaintiff to the defendant. It provides for the grant of a lease of a supermarket in the proposed shopping centre from the defendant to the plaintiff for a term of 20 years with two options to extend for 10 years each. 3 Clause 21 contained in the letter is as follows: "This offer is made on the basis that the Centre will be constructed by the Lessor and will remain under the Lessor's ownership. If without the prior written approval of the Lessee the Lessor sells or disposes of its interest or estate in the Centre or any part thereof or if there is any change in the legal or beneficial shareholding in the Lessor as at the date of this letter so that the shareholders in the Lessor together beneficially have or control less than 51% of the voting, income or capital participation rights in the Lessor, the Lessee reserves the right to terminate any agreement resulting from acceptance of this offer at any time prior to commencement of the Lease and the Lessor will be liable for any loss, expense or damage incurred by the Lessee as a result of the Lessor's failure to comply with its obligations in this paragraph. The Lessor may only seek approval to assign the benefits of the agreement for lease or sell or dispose of its interest or estate in the Centre where the purchaser or assignee is: (a) respectable and financially secure; (b) capable of carrying out the Lessor Works for the Premises and the Centre in a manner which meets the Key Dates in paragraph 14; and (c) prepared to enter into a deed in a form approved by the Lessee which requires the purchaser or assignee to perform the Lessor's obligations under the agreement for lease and grant a lease to the Lessee."

The plaintiff says that that clause has a double effect. It obliges the defendant to build the shopping centre and to retain it in its ownership. It prevents the defendant from selling the centre without the prior written approval of the plaintiff. 4 I should add that the letter at the end contains the following provision: "Legally Binding: It is the intention of the Lessor and the Lessee that upon the Lessor's acceptance of this offer the Lessor will be legally bound and the terms and conditions of this letter will amount to an enforceable agreement between the parties subject only to the approvals." 5 The application is bi-partite. The plaintiff says that by reason of the agreement for lease it is established that the plaintiff's estate or interest propounded in the caveat "has or may have substance" and that the operation of the caveat should therefore be extended pending further order, so that the subjacent issues between the parties may be tried. In addition, it claims an injunction based upon clause 21 restraining the defendant from selling the centre without the plaintiff's approval, which it is plain that the defendant is at present attempting to do. The plaintiff has been negotiating with the defendant itself to buy the land, but agreement has not been come to. It is perhaps not surprising that, among the other suitors for this land are Woolworths Ltd and various other people interested in acquiring what it seems is regarded as a desirable site for a shopping centre. Both the claim for an extension of the caveat and the claim for an interlocutory injunction depend upon the establishment of a prima facie case that there is an agreement for lease as alleged. 6 The first basis on which the defendant objects to this proposition is that there is no agreement for lease, because important terms of the lease were not agreed, so that there could not be said to be any concluded agreement between the plaintiff and the defendant. The defendant relies in support of this on the absence of documents referred to in clauses 10 and 11 of the letter. 7 I am of the view that it is certainly not clear that there is any omission from the terms agreed between the parties that would prevent there being a binding agreement. I say this particularly in the light of the material appearing in the letter under the heading "Legally Binding". I refer in this regard to what was said by McHugh JA in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634. I am of the view that there is certainly a serious question to be tried that there came into force between the parties a binding agreement for lease. 8 The second basis on which the defendant objects to a finding of the existence of a contract for lease between the parties arises from the doctrine of frustration. It says that the evidence shows that it is simply unable in the present financial circumstances to raise the considerable finance necessary for it to carry out the contract by building the shopping centre, which it says would cost some $35 million. It relies on the decision as to frustration in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337, in which the contract for the construction of the railway was held to be frustrated because continuous working was prevented in an unforeseen way by injunctions obtained by residents on the ground of nuisance by noise. The defendant says that the occurrence of a financial slump that could not have been foreseen is analogous to the intervention of the injunction in the Codelfa case and that the contract ought be held to be frustrated by its inability to raise finance caused by this unforeseen financial crisis. 9 Whilst I understand the defendant's argument, I am far from clear that the doctrine of frustration would operate to bring the agreement to an end in these circumstances. I think a court cannot lightly hold so on an interlocutory application, particularly bearing in mind the generality of the difficulties caused by the present financial situation. But in any event, whilst there may be a serious question to be tried as to whether or not the contract has been frustrated, this cannot, on an interlocutory basis, destroy the serious question that the plaintiff has raised that the contract came into existence and continues to exist. 10 This being so, it seems to me that it is established that the plaintiff's claim protected by caveat "has or may have substance" and that the caveat ought be extended until further order. In this regard I have been referred to the decision of Palmer J in Antar v Fairchild Development Pty Ltd (R&M App) [2008] NSWSC 638, where his Honour held that an agreement for lease created an interest in land apt to be protected by caveat. 11 Wider considerations apply in relation to the injunction application arising from the question as to whether or not damages provide an adequate remedy and whether or not the balance of convenience favours or does not favour the grant of relief. 12 So far as the adequacy of damages is concerned, I bear in mind the fact that the interest here created is an equitable right to the grant of a lease of a substantial property for 20 years with two options to renew of 10 years each. I bear in mind that it is, without going into detail, clear on the face of the material that the defendant is in a poor financial situation. I am far from satisfied that there would be any prospect of it meeting a substantial damages award which may flow if the rights that the plaintiff claims in these proceedings are vindicated. In these circumstances damages are not an adequate remedy. 13 It is obvious from what I have already said that the plaintiff would suffer a severe inconvenience if deprived - in a practical way - of its right to obtain the lease to which it claims to be entitled. It is put on the defendant's part that the defendant would suffer severe inconvenience from the injunction being granted, because it would be prevented from negotiating a sale of the property without the plaintiff's approval, which sale may be its only way of escaping from or ameliorating its present financial problems. Those financial problems include the fact that the Bank, to which the property is mortgaged, is threatening to take possession. 14 What is said to flow from this is not only an extreme disadvantage to the defendant, but the creation of an inutile injunction, because if the bank takes possession, the utility of the injunction will be destroyed. A court of equity will not grant an inutile injunction: see Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-676 where Toohey J said as follows: "Relying on decisions mentioned in Spry's Equitable Remedies 3rd ed pp 388-390, counsel for the respondents argued that any injunction would be futile and that accordingly it should be refused by the Court. In one sense the injunction sought would not be futile. In so far as it seeks to restrain the respondents from doing anything to interfere with the applicant's eligibility, it would prevent the WACA or Cricket Council from taking any further action having any consequences for the applicant's eligibility. But there is no suggestion that this is likely to happen; the first and fourth respondents take their stand very firmly on the position that they say now exists. I am persuaded to refuse an injunction until trial because I do not think it would achieve anything. It would make no difference to whatever situation in law now exists and would give the applicant no protection that he does not already have. But there is a danger that the grant of an injunction would be seen by many as being not futile and as reflecting some concluded view by the Court regarding the merits of the substantive application. This is something I have sought to dispel more than once during the course of argument before me but I am not persuaded that the risk does not still exist. There are very good reasons for not adding to the position of the parties the further complication of an interlocutory injunction."

See also Death v The Railway Commissioners for NSW (1927) 27 SR (NSW) 187 per Long Innes J at 197; R v Nixon; Ex parte Protean Holdings Ltd (1982) 43 ALR 460 per Dawson J at 463; Lets We Forget Pty Ltd v Westpac Banking Corporation [2005] 56 ACSR 126 per Barrett J at [20]; Street v Luna Park Sydney Pty Limited [2009] NSWSC 1 per Brereton J at [271] - [273]; and see generally Spry on Equitable Remedies (6th ed, 2001) 493 - 494. There are a number of things to be said about this submission. So far as the defendant is in a financial impasse, that is not the doing of the plaintiff. The plaintiff is in no way responsible for it. It flows from the defendant's own financial dealings which appear - with the benefit of the blinding light of hindsight - to have been improvident and to the operations of Australian and, indeed, world financial markets, which are not of the plaintiff's doing. 15 So far as the utility of the injunction is concerned, whilst I understand the submissions that are put to me, I think it is quite impossible to say at this stage that the injunction will have no utility. Whilst threats have been made, it is far from certain that the Bank will choose to take possession. Even if it does, the effect on the injunction will depend upon the manner in which the Bank takes possession. In any event, the injunction will not totally prevent the sale of the property, but require the approval of the plaintiff or the meeting of the other conditions set out in clause 21, which I have quoted above. 16 The plaintiff is itself in the market for the property and it is not by any means entirely plain that there may not be other possible purchasers of the property which could conceivably purchase it in a fashion which the injunction would not prevent. I am of the view that it cannot be said that the grant of an injunction is totally lacking in utility. 17 In my view, the balance of convenience favours the grant of the injunction. I propose to grant injunctive relief accordingly upon the Court being proffered the appropriate undertakings as to damages. 18 I should add that one of the factors that I have taken into account in coming to these conclusions is that both parties wish the matter to go immediately to the Expedition List and I shall place the matter in this Friday's Expedition List. The defendant has spoken of the property being tied up indefinitely by reason of the injunction. It will not be tied up indefinitely by this interlocutory injunction since an early hearing should be available through the usual facility offered in this Court. 19 I shall direct that the proceedings continue on pleadings and that the plaintiff file and serve a statement of claim on or before Friday. Short minutes of order should be brought in and will be dealt with in chambers.

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