Supreme Court of WA|2002-03-22|Before: Pullin J

Madaffari & Anor v Labenai Nominees Pty Ltd [2002] WASC 67 (22 March 2002)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : MADAFFARI & ANOR -v- LABENAI NOMINEES PTY LTD [2002] WASC 67

Mott v Mount Edon Goldmines (Australia) Ltd (1994) 12 ACSR 658

Total Marine Services Pty Ltd v Waller & Anor [2002] WASC 8

1 PULLIN J: I have before me applications for injunctions by the plaintiffs and the defendant, details of which I will refer to later in these reasons. The defendant is the registered proprietor of land at 299 Victoria Road, Malaga. On the land, there is a building set up as an indoor sports centre. Pursuant to a lease dated 16 April 1997, an assignment of lease dated 15 July 2001, and a deed of variation of assignment dated 27 July 2001, the defendant leased the premises to the plaintiffs. The term was for 10 years with options, and at present the rent is $11,000, payable on the first of each month, with outgoings to be added to that sum. The lease contains the following covenants. Covenant 2.1.1 provides that the tenant shall:

"Pay the Rent free of all deductions to the Landlord or as the Landlord directs on the days and in the manner specified in Item 9 of the Schedule."

2 Item 9 of the schedule as amended by the deed of assignment provided for rent to be paid on the 1st of each month at the rate of $11,000 per month. Covenant 2.1.5 provided for the payment of interest on demand on rent which remained unpaid for a specified period of time. Covenant 7.1 provided:

"The Landlord may re-enter the Premises and put an end to this Lease if: ... the rent is not paid after formal notice of demand for payment has been made allowing the Tenant fourteen (14) days to rectify the same and the Tenant fails to rectify the breach within the fourteen (14) days ... "

"If any part of the Premises is destroyed or damaged and as a result is unfit for the Permitted Use and the payment of any insurance moneys is not lawfully refused as a result of any act or negligence of the Tenant or the Tenant's employees or agents then:

8.1.1. the rent and outgoings or a fair proportion of the rent and outgoings according to the nature and extent of the damage shall be suspended until the Premises are again fit for the Permitted Use ..."

4 The permitted use was as "indoor sports centre". The plaintiffs carry on business at the premises, that business consisting of the letting out of three multi-purpose sports courts and two indoor cricket courts. The plaintiffs claim that towards the end of July 2001, rainwater entered the premises through the roof and leaked onto the wooden floors of the sports centre and caused damage to these surfaces. The plaintiffs claim that they were unable to use the courts, and allege that no games could be played on the courts on 30 July 2001 and 14 August 2001, and only a part of the games allocated could be played on 31 July, 13 August, 20 August and 22 August 2001.

5 The damage to the courts and to the roof had all been repaired by mid-October 2001. On 14 January 2002, there was a violent storm; there was a further problem with the roof, and water again came into the building. The damage to the roof was repaired on the next day.

6 The plaintiffs allege that parts of the premises have been damaged and as a result are unfit for the permitted use in terms of Covenant 8.1.1. The plaintiffs, as a result, have claimed an entitlement to suspend payments of part of the rent since September 2001. Particulars are set out in par 11 of the statement of claim and par 8 of the defence. In general terms, about one-half of the rent has not been paid as a result of this deduction.

7 The defendant denies there has been any damage or, in the alternative, if there has been any damage then it was repaired in October 2001 at the latest or, in the alternative, if there was any damage after October 2001, denies that the plaintiffs have suspended payment of a fair proportion of the rent and outgoings. The defendant claims that a grossly excessive proportion has been deducted from the rent payments.

8 The defendant claims that it has issued formal notices to the plaintiffs, requiring the default in payment of rent for September and subsequent dates to be remedied within 14 days, and that there has been failure to comply with those notices. This continued through until February. On 1 February 2002, rent was due. On 8 February 2002, a notice was issued on behalf of the defendant to the plaintiffs, requiring that unpaid rental up to and including February in the sum of $32,354.84 be paid within 14 days, and on 26 February 2002, a notice on behalf of the defendant issued and was served on the plaintiffs, terminating the lease.

9 The defendant wishes to sell the freehold and has a purchaser willing to treat at the sum of $1.3 million. If the defendant is restrained from re-entering the premises, then the defendant will not be able to sell with vacant possession, and may lose the potential sale.

10 The plaintiffs seek an injunction restraining the defendant from exercising, or attempting to exercise, any right of re-entry, or attempting to take possession of the premises. The defendant, on the other hand, seeks an injunction restraining the plaintiffs from interfering with the defendant taking possession of the premises.

11 The battle lines have therefore been drawn, with each party seeking interim relief which the other party claims would create injustice to it. If relief is granted as asked by the plaintiffs, it will prevent the defendant from taking possession of the property so that it can give vacant possession to a purchaser. The defendant's injunction would allow the defendant to retake possession and would put the plaintiffs out of possession, which would be a serious interference with the plaintiffs' rights as lessee if their deduction of rent is correct and their contentions are upheld.

12 The principles of law which apply in relation to an interlocutory injunction are well known.

13 There must be a serious question to be tried, or that the plaintiff has made out a prima facie case in the sense that if the evidence remains as it is, there is a probability that at the trial of the action the plaintiff will be held entitled to relief, that he will suffer irreparable injury for which damages will not be an adequate compensation unless the injunction is granted, and that the balance of convenience favours the granting of the injunction: Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148 at 153.

14 As the apparent strength of the applicant's case diminishes, the balance of convenience moves against the making of an order: Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49 at 54-55 and Todd v Novotny [2001] WASC 171. The grant of an injunction involves balancing the injustice which might be suffered by the defendant if the injunction is granted and the plaintiff later fails at trial, against the injustice which might be suffered by the plaintiff if the injunction is not granted and the plaintiff later succeeds at trial: Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670.

15 These principles apply to the plaintiffs' application, but they also apply to the defendant's application. I should also mention that this Court has jurisdiction to grant relief against forfeiture, and relief against forfeiture may be granted when forfeiture of an estate has occurred due to non-payment of rent: Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279 and Westbrook Holdings Pty Ltd v Roseramble Pty Ltd (1994) 13 WAR 273. If there is a wilful breach of a lease, the Court will usually not grant relief, but if default is based upon a belief that the party has a genuine reason for not paying, then the Court may be more inclined to grant relief against forfeiture.

16 I now turn to the consideration of whether or not there is a serious question to be tried in relation to the plaintiffs' claim. The plaintiffs claim there has been damage to part of the premises, and that claim can relate both to the damage to the roof and the damage to the floor. The plaintiffs say they are entitled to deduct approximately one-half of the rent, as I have indicated already. That raises a question about whether the suspension of rent is a fair proportion of the rent which was to be paid under the lease.

17 There is evidence that rainwater gained access to the floor of the building, and there is evidence to support a claim by the plaintiffs that there was damage to the timber floors. On the other hand, the defendant has provided a deal of evidence which suggests that the suspension of payment of 50 per cent of the rent since September, is not a suspension of a fair proportion. The defendant claims that the suspension is in an amount which is most unfair to it. That involves questions of quantum, and that type of dispute is clearly a matter which should be dealt with at the trial of the action.

18 I am satisfied that the plaintiffs have established that there is a serious question to be tried, but the claim about their entitlement to deduct the quantum of rent which they have deducted, is much weaker than their claim that there has been damage to the premises, so that factor will be relevant when I come to consider balance of convenience.

19 There is a separate issue about the non-payment of rent on 1 February 2002. In my view, there is no serious question to be tried on the affidavit evidence before me that the plaintiffs were entitled to exercise their rights to suspend payment of rent for the February payment because, in my opinion, the evidence is that the roof was fixed immediately after the damage was done to the roof in January 2002. There is no evidence that the building was not thereafter fit for the purpose. That aspect is important, because clause 8.1.1 allows the suspension of rent until the premises are again fit for the permitted use.

20 However, in my view, there is a serious prospect that the court will grant relief against forfeiture. The plaintiffs have foreshadowed the possibility of relief against forfeiture being sought, and if the suspension has occurred in circumstances where the plaintiffs claimed they had an arguable basis for suspending payment, then their prospects of gaining relief against forfeiture cannot be said to be hopeless.

21 On that basis, I consider that the plaintiffs have established a serious question to be tried in respect of the suspension of rent.

22 I then turn to questions about the balance of convenience concerning the plaintiffs' claim for an injunction. The most important aspect, when there are competing claims of this kind, is that if an injunction is granted, whether or not the plaintiffs' undertaking as to damages is of sufficient value to provide compensation to the defendant if the plaintiffs' claim ultimately fails.

23 I am not satisfied on the material before me that the plaintiffs' undertaking is adequate to provide for compensation to the defendant if the plaintiffs do fail. In the plaintiffs' own words, they are unable to pay their way, even in the circumstances where they are paying the reduced amount of rent. See Mr Madaffari's letter to the defendant's agent on 10 January 2002. That letter also states that "we have no sufficient funds to make the payments".

24 I am not prepared to grant an injunction if it means that in the event that the plaintiffs are unsuccessful, the defendant is unable to gain compensation.

25 Putting aside for a moment the consideration of the adequacy of the undertaking, it is my view that the balance of convenience favours the grant of an injunction to the plaintiffs. Both parties claim that the other is seeking to interfere with property rights. The plaintiffs have a leasehold estate, and the defendant has a freehold estate. There is a dispute about whether or not the plaintiffs' leasehold estate should continue because of the non-payment of rent, but that is a matter for resolution at trial. The status quo will be maintained if the plaintiffs remain in possession pending trial, providing there are safeguards to the defendant. There is a much greater risk of injustice being done if I refuse to grant the injunction in favour of the plaintiffs and the plaintiffs later succeed than if I refuse and allow the defendant re-entry and the plaintiffs later win the case.

26 I therefore propose continuing the injunction until 3 April 2002. Thereafter, the injunction will be continued until trial or final determination if on or before 4 pm on 3 April 2002, the plaintiffs have paid the defendant the moneys which constitute the amount of rent and outgoings the plaintiffs have failed to pay on 1 September, October, November, December 2001, and 1 January, February, and March 2002. I will have to hear counsel about the position concerning the March payment.

27 I shall also order that the plaintiffs pay to the defendant, the rent and outgoings due on the first day of each month thereafter, without deduction, and also order that in the event the plaintiffs fail to pay the rent or outgoings referred to in the previous order, that the defendant has liberty to apply on 24 hours' notice to discharge the injunction.

28 The orders continuing the injunction after 3 April 2002 will be conditional upon the defendant filing in the Court and serving on the plaintiffs by 2 April 2002, an undertaking to repay any moneys which this Court determines the plaintiffs were entitled to deduct pursuant to the provisions of cl 8.1.1.

Madaffari & Anor v Labenai Nominees Pty Ltd [2002] WASC 67

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Judgment (37 paragraphs)

Madaffari & Anor v Labenai Nominees Pty Ltd [2002] WASC 67 (22 March 2002)

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