J Family Motel Group Pty Ltd v Baset Super Pty Ltd

Supreme Court of NSW|2024-07-01|Before: Pike J

JUDGMENT

The plaintiff is the operator of a motel business, known as "Motel 359" (Motel Business), at 359-361 Goonoo Goonoo Road, Hillvue, NSW (Property). The Property is owned by the defendant and leased to the plaintiff pursuant to lease AH235519 (Lease).
By summons filed before the Equity Duty Judge on 19 June 2024 (Summons), the plaintiff seeks: 1. Orders that the defendant specifically performs its obligations pursuant to a contract for the sale of the Property dated 15 May 2023 (Contract); 2. A declaration that a notice of termination of the Lease dated 24 May 2024 (Purported Notice) is void; and 3. Interim orders restraining the defendant from selling, mortgaging, alienating or otherwise dealing with the Property, pending completion of the Contract, and from acting on or implementing the Purported Notice (Interim Relief).
On 1 July 2024, sitting in the Equity Duty List, I granted the Interim Relief sought by the plaintiff, in the form of the following orders: 1. Upon the Plaintiff giving to the Court the usual undertaking as to damages; and 2. Upon Mr Jack (Rongtao) Peng personally giving to the Court the usual undertaking as to damages and, within 3 days of the date of these orders, paying the sum of $250,000 to his solicitors, Proctor Phair Lawyers, such sum to be held by those solicitors in a separate account on trust as security for the undertakings as to damages given by the Plaintiff and Mr Peng until further order of the Court, 1. The Defendant is restrained, pending the determination of these proceedings or further order, from acting on or implementing a purported notice of termination dated 24 May 2024 and served on the plaintiff on 24 May 2024; and 2. The Defendant by its servants and agents be restrained pending the determination of these proceedings or further order from selling, mortgaging, alienating or otherwise dealing with the Property.
These are my reasons for so doing.

Overview of the facts

The relevant facts were in short compass and may be summarised as follows.
On or about 10 November 2017, the plaintiff as purchaser entered into a contract for sale of the Motel Business, carrying on business at the Property, with Alacritous Pty Limited and Triple Gen Pty Limited as vendors, for the purchase price of $745,000. The purchase was settled on or about 5 December 2017.
On 5 December 2017, the Lease was assigned and transferred to the plaintiff.
The Motel Business consists of 56 motel rooms, a reception and common areas situated on the Property.
Since the plaintiff took over the Motel Business in late 2017, the plaintiff contends that it has made substantial improvements to increase the turnover.
Prior to 24 June 2022, a dispute arose between the plaintiff and the defendant relating to the Lease. On 24 June 2022, the plaintiff commenced proceedings in this Court relating to the Lease.
Those proceedings were subsequently settled by a Deed of Settlement dated 15 May 2023 (Deed).
Recital G to the Deed is in the following terms: G. Various Disputes have arisen between the Parties including: a. Baset issuing a Notice of Breach of Covenant (of the Lease) to J Family on 23 February 2022; b. The assertion by Baset that J Family did not exercise the option in the Lease; c. J Family (as plaintiff) instituting proceedings against Baset (as defendant) in the Supreme Court of New South Wales proceedings number 2022/00184696; and d. Baset filing a Cross Claim against J Family in the said Supreme Court of New South Wales proceedings number 2022/00184696. e. J Family has made application for a motion seeking determination that Baset offer to J Family to purchase the Land and Buildings for the price of $1,600,000 pursuant to clause 5.8 of the Lease. Baset resists the Orders contended for by J Family in the said Motion.
The substantive terms of the Deed include the following.
In clause 1.1, the following terms are defined: Claim means any dispute, arbitration, cost, debt, cause of action, liability, claim, proceedings, suit or demand in respect of damages and any other benefit verdict and judgement whatever both at law or in equity arising under the provisions of any statute, award or determination whether or not known at the date of this Deed (excluding any breach of this Deed); Current Market Rent means the determination made by a licensed valuer for the Land and improvements at 359 - 361 Goonoo Goonoo Road, Tamworth (being all the land in folio identifier 1/111474) as determined by the procedure set out in Clause 1.1 and Clause 3.3(b) of the Lease. Current Market Value means the average of the two selected licensed valuations of the freehold interest of Baset in the Land and improvements on the basis that from 1 July 2022 the said freehold interest of Basel in the Land and improvements is the subject of the lease. Costs means legal costs of $100,000 payable by J Family to Baset in addition to the Current Market Value on Completion of the Contract. Completion means completion of the Contract. Completion Date means a date being six months from the receipt by the parties of the Current Market Value pursuant to Clause 2.2 (e) of this Agreement. … Deposit means $160,000 payable on the same date as this Deed, being the deposit referred to in the Contract. Dispute or Disputes means all disputes between the Parties whether notified to date or not: (a) which are the subject of the Proceedings or which relate to any of the allegations raised In the Proceedings; and/or (b) In connection with the Lease. … Lease means lease registered no. AH235519 dated 1 July 2012 as varied by Variation of Lease registered Al577253 dated 2 May 2014 and Variation of Lease registered AM581629 dated 4 July 2017.
Clause 2 sets out the terms of the settlement of the dispute, relevantly as follows: 2.1 Settlement The Parties agree to settle the Dispute on a confidential and without admissions basis on the terms set out in this Deed 2.2 Sale of Land By the Contract (dated the same day as this Deed) Baset sells and J Family purchases the Land for the purchase price calculated as being the Current Market Value plus the Costs, plus or minus the adjustments referred to in the Contract, where the Current Market Value is to be determined as follows: (a) If not already, within 2 days of the date hereof the Parties will in accordance with the terms of the Lease jointly apply to the President of the Australian Property Institute (NSW Division) lo have nominated a licensed valuer to value the Current Market Rent as of 1 July 2022 of the Land and improvements in accordance with Lease AH235519S, and in particular Clause 1.1 and Clause 3.3(b) of that Lease, and otherwise complying with that clause and the Parties are bound by the determination of that licensed valuer for the determination of the Current Market Rent commencing 1 July 2022. … (e) On receipt of each Current Market Value determined by the two valuers referred to at Clause 2.2(d) above, Baset and J Family agree that the purchase price for the Contract is the average of the two valuations referred to at Clause 2.2(d), plus the Costs (as defined, being $100,000.00), plus all adjustments as referred to in the Contract. (f) For clarity, at completion of the Contract, J Family will pay to Baset, as an adjustment in the Contract, all rent calculated from 1 July 2022 at the Current Market Rent determined by Clause 2.2(a), with Baset to allow J Family credit for all rent J Family has actually paid Baset for the period commencing 1 July 2022 to Date of Completion.
Clause 3 sets out the releases and covenants not to sue, in the following terms: 3.1 Release by J Family, Jack and Judy On and from the date of this Deed, J Family, Jack and Judy releases each of the Baset, Bruce and Susan from all actions, proceedings, accounts, rights, claims, demands, liabilities, costs and expenses wherever and however arising known or unknown arising out of or relating in any way to the Dispute. 3.2 Release by Baset, Bruce and Susan On and from the date of this Deed, Baset, Bruce and Susan releases each of J Family, Jack and Judy from all actions, proceedings, accounts, rights, claims, demands, liabilities, costs and expenses wherever and however arising, known or unknown arising out of or relating in any way to the Dispute. 3.3 Bar to claims Except in relation to a breach of the terms of this Deed this Deed may be pleaded as a full and complete defence by any party words related body corporate to any claim by on behalf of the other party or its Related Body Corporate in relation to any matter in respect of which the Parties have been released under this Deed. 3.4 Covenants not to sue Other than in relation to any claim action for breach or enforcement of this Deed the Parties must not: (i) commence legal proceedings; (ii) make any other claim or demand: or (iii) provide any assistance to anyone seeking to commence any claim demand or proceedings; against the other in relation to any matter which is the subject of the releases in this Deed.
After entry into of the Deed, and as contemplated by the definition of "Current Market Rent" in the Deed, a valuer, Mr Lockwood, provided a report to the parties on 26 July 2023, determining the rent value of the premises as at 1 July 2022. By letter dated 17 August 2023, the solicitors for the defendant wrote to the solicitors for the plaintiff setting out, on their view, the increased rent that was now payable by the plaintiff, having regard to Mr Lockwood's valuation.
The process for determining the purchase price thereafter progressed, culminating in a report being received from Mr Scott Robertson, a valuer, dated 16 January 2024, to the effect that the current market value of the Property is $4,350,000. A report dated 7 February 2024 from another valuer, Mr Sanidas, was thereafter received on 8 February 2024, expressing the opinion that the current market value of the Property is $2,100,000.
The plaintiff's position, having regard to these two reports, is that the purchase price under the Deed is the average of the two valuations, being $3,225,000, plus $100,000 on account of costs, plus or minus adjustments. The plaintiff's position is also that completion is to occur six months from the receipt of the second of the two valuation reports, i.e. by 8 August 2024.
The plaintiff's solicitors wrote to the defendant's solicitors to this effect in late March 2024. By email dated 20 May 2024 from the plaintiff's solicitors to the defendant's solicitors, the plaintiff's solicitors foreshadowed making an application to the Court seeking orders for specific performance of the Deed if the defendant did not confirm that it would settle on 8 August 2024 for $3,325,000, plus or minus adjustments.
By email dated 24 May 2024, the solicitors for the defendant served the Purported Notice on the solicitors for the plaintiff dated 24 May 2024. Relevantly, the Purported Notice stated: 2. The term of the Lease (as varied) expired on 30 June 2022. 3. On and from 1 July 2022, J Family Motel Group Pty Limited has remained in occupation of the Property on a monthly tenancy which may be terminated by other party by giving the other party one month's written notice. 4. Baset Super hereby gives written notice to J Family Motel Group Pty Limited that its monthly tenancy of the Property is terminated as from the end of 30 June 2024.
Thereafter ensued correspondence between the solicitors for the plaintiff and defendant which failed to settle the dispute. That correspondence included some detail as to why the defendant contended that the Contract had been frustrated - to the effect that Mr Sanidas had, contrary to the joint instruction given to the two valuers, failed to apply the current market rent as determined by Mr Lockwood. The proceedings were commenced by the Summons.
The plaintiff also put into evidence a letter from the Commonwealth Bank of Australia approving a business finance facility to the proposed purchaser for a loan of $3,325,000. The letter confirmed that the facility was subject to certain conditions.
The defendant also put into evidence the most recent financial statements for the plaintiff. Those financial statements reveal that, whilst the Motel Business appears to have recently been run at a profit, the plaintiff company has negative net assets.
On the balance of convenience, Mr Rongtao (Jack) Peng, a director of the plaintiff, deposed to the fact that if the plaintiff is forced to vacate the Property, he will lose the business that he paid for, which cannot be sold without the Lease and cannot be relocated to another location. Further, he stated that he relies upon the income from the business to support his wife and three children. The business also employs, as casuals, one hotel manager, five cleaners and one handyman, employed as casuals.
It was also not in dispute before me that the additional rent for the period 1 July 2022 to 30 June 2024 was $219,641.94, with the additional rent per month from 30 June 2024 being in the order of $9,700.

Overview of the position of the parties

The plaintiff's position was relatively straightforward - namely that there was no basis for the defendant to act on the Purported Notice in circumstances where the clear intent of the Deed was for the plaintiff to purchase the Property from the defendant and with any increased rent payable as a result of the valuation of the current market rent determined after the Deed was executed to be adjusted on completion. In circumstances where the defendant accepted that there was a serious question to be tried as to whether the Contract remained on foot or had been frustrated, the plaintiff contended that there was no basis for the plaintiff to be removed from the Property.
The defendant did not dispute, as set out immediately above, that there was a serious question to be tried as to whether the Contract remained on foot or had been frustrated. The defendant had undertaken not to dispose of the Property pending the final determination of the proceedings and this undertaking was renewed before me. The defendant contended, however, that the terms of the existing Lease remained on foot and that these terms entitled the defendant to give notice of termination if the full amount of rent was not paid as and when due. The defendant's further position was that the additional rent payable as a result of the determination of the current market rent after the Deed was entered into, was payable each month and was not simply to be adjusted on completion of the sale of the Property.
On the defendant's case, the present position should thus be seen as one where the plaintiff, as a tenant in breach, is in effect seeking relief against forfeiture from the Court. In circumstances where the plaintiff does not offer to pay the outstanding rent, or any future increased rent, any relief against forfeiture should be refused.

Relevant legal principals

Whether the Court should grant the interlocutory relief sought in the present case involves the application of the well understood test of: 1. whether the plaintiff has established a prima facie case/serious question to be tried; and 2. whether the balance of convenience favours the grant of relief. (see, generally, ABC v O'Neill (2006) 227 CLR 57 at [65]ff per Gummow and Hayne JJ, Samsung v Apple (2011) 217 FCR 238 at [52]).
The two enquiries are obviously interrelated.
An aspect of the second enquiry - the balance of convenience - involves consideration of whether damages would be an adequate remedy. In this regard, Brereton J stated in Goyal v Chandra (2006) 68 NSWLR 313 at [42] that: [41]…Properly understood, the real question is whether final injunctive relief would be declined because damages would be a sufficient remedy; if it can be seen at the interlocutory stage that that would be so, then an interlocutory injunction would be declined.
In the present case, the plaintiff has contended that it is axiomatic that damages will generally be an inadequate remedy in the context of the obtaining of an interlocutory injunction where land is involved: Goater v Commonwealth Bank of Australia [2014] NSWCA 265 at [57] per Ward JA (as the learned President then was). I did not understand the defendant to dispute the application of this principle in the present case.
A further relevant issue in the present case concerns the adequacy of any undertaking as to damages. It is clear that a further factor relevant in the assessment of the balance of convenience is the giving of an undertaking as to damages by the party seeking the interim relief. Where such an undertaking is given and, as here, the ability of that party to meet such an undertaking is called into question, as observed by Slattery J in The Cleaning Doctor NSW Pty Limited v Jeffrey Alexis Fonseca [2019] NSWSC 955 at [44]: [44]…An applicant's inability to provide an undertaking of any value should be regarded as but one factor to be weighed into the balance of convenience.
The plaintiff also relied upon the following observations of Blue J in Cooper v Moloney (No 6) [2012] SASC 212 at [75] (citations omitted): [75] In circumstances in which the grant or refusal of an interlocutory injunction will render the trial moot (either destroying the subject matter of the action for the plaintiff or destroying the defendant's defence), this circumstance affects the assessment of the balance of convenience. The fact of destruction of the subject matter of the action or of the defendant's defence needs to be weighed in the scales. Accordingly, the mere fact that a plaintiff's undertaking as to damages is not backed by any substance does not necessarily dictate the refusal of an interlocutory injunction in those circumstances.

Determination of the present case

I am satisfied that there is a serious question to be tried in relation to, in broad terms, the interrelationship between the terms of the Deed in relation to the payment of any increased rent consequent upon the determination of the current market rent after the entry into of the Deed, and the provisions of the Lease. It is at least arguable, in my view, that the effect of the Deed is that the disputes between the parties will be resolved by way of the defendant selling the Property to the plaintiff (or its nominee) on the terms set out in the Deed. Those terms include a sale at a particular price to be determined by taking the average of the valuations determined by two valuers. Those terms also include the payment, by way of adjustment on completion of any increased rent brought about by the current market rent determination after the Deed was entered into and as contemplated by the Deed. The effect of this clause is at least arguably to not make any increased rent payable on a month-to-month basis, but rather to make it payable as part of the adjustments on completion.
Had it been the intention of the parties to require any increased rent ascertained by the current market rent determination contemplated in the Deed, clause 2.2(f) of the Deed would arguably have been drafted quite differently.
To view the matter through the prism of a claim for relief against forfeiture would, in my view, effectively determine this dispute - as to the interrelationship between the terms of the Deed and the Lease - against the plaintiff. It is not appropriate, or indeed possible, to do so at this stage. That is a matter for final hearing.
Turning now to the balance of convenience, I am satisfied that, putting to one side for present purposes the issue of the adequacy of any undertaking as to damages, the balance of convenience strongly favours maintaining the status quo and thus permitting the plaintiff to continue to occupy the Property and to operate the Motel Business pending the determination of the dispute. The Motel Business is an operating business which employs a number of people. They would all be out of work if the Lease was terminated and the defendant took over the running of the Motel Business. Once removed from the running of the Motel Business, it will be difficult, if not impossible, for the plaintiff to re-establish that business should the plaintiff ultimately succeed.
On the other hand, the principal prejudice to the defendant is not being allowed to re-enter the Property now and, it would seem, resume the conduct of the Motel Business. It is speculative as to what return, if any, the defendant would earn from the conduct of a motel business. The defendant will, however, continue to receive or accrue rent, both the rent payable prior to July 2022 and, as an adjustment on completion, the additional rent since then, pending the determination of the dispute. This income would obviously not be received if the defendant was allowed to terminate the Lease and re-enter, and it is difficult to speculate as to whether the defendant will be worse off receiving, or not receiving, rent but operating a motel business.
It was not contended by the defendant that damages would be an adequate remedy at the at the end of the day. They clearly would not.
I am concerned, however, about the adequacy of any undertaking as to damages offered by the plaintiff. The financial statements in evidence for the plaintiff cast real doubt on the plaintiff's ability to satisfy any call on the undertaking as to damages. Cognisant of this, the plaintiff offered in addition to an undertaking from the plaintiff, a personal undertaking from Mr Peng. It is not clear however, what assets Mr Peng has to satisfy any call on the undertaking as to damages. This issue was raised by the solicitors for the defendant in an email to the solicitors for the plaintiff prior to the hearing. The then response, on behalf of the plaintiff, was that Mr Peng was not offering an undertaking as to damages and accordingly any request as to his asset position was irrelevant.
When I pointed out my preliminary views to counsel for the plaintiff at the hearing, a short adjournment was sought and then an undertaking was provided by Mr Peng to pay the sum of $250,000 into a controlled monies account with his solicitor, as security for the undertakings as to damages given by him and the plaintiff. This offer was also accompanied by a submission that the defendant already holds the deposit of $160,000, and the Commonwealth Bank facility has been approved in the sum of $3,325,000.
Having regard to the personal undertaking as to damages given by Mr Peng, coupled with the deposit of $250,000 into a controlled monies account, I am satisfied that the balance of convenience favours the grant of the Interim Relief sought by the plaintiff.
It is for these reasons that I made the orders on 1 July 2024 and repeated at paragraph [3] of this judgment, granting the Interim Relief sought by the plaintiff, subject to Mr Peng depositing the $250,000 as referred to above to secure the undertakings as to damages.

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: 11 July 2024

At a glance

Court

Decision date

Before

Source

Judgment (6 paragraphs)

Parties

Cases Cited (6)