MIR Holdings Pty Ltd v Marina Square Retail Pty Ltd

Judgment

1. BATHURST CJ: I agree with Bell P.
2. BELL P: MIR Holdings Pty Ltd (MIR) and SKRG Pty Ltd (SKRG) (together the applicants) were the lessees of commercial retail premises in the Marina Square shopping centre at Wentworth Point, New South Wales. Marina Square Retail Pty Ltd (the respondent) was the lessor of each set of premises. Each of the applicants operated restaurant businesses, MIR trading as "Hiew Thai" and SKRG as "Masuya Suisan".
3. Both of the leases commenced in November 2018. MIR and Marina Square entered into a written retail lease agreement for a period of nine years (the MIR Lease), whilst SKRG's lease was for a period of eight years (the SKRG Lease). The MIR and SKRG Leases were drafted in materially identical terms.
4. On 11 September 2020, the respondent served on each of the applicants a Notice of Breach of Covenant (Notice of Breach) pursuant to s 129 of the Conveyancing Act 1919 (NSW), notifying that they were in default under cl 21.1 of the Lease Agreement for failure to:

• pay rent and other specified charges;
• contribute to outgoings; and
• contribute to a marketing fund.

1. The Notices of Breach related to rent and other charges and contributions that were due up to 31 March 2020. It was not in dispute between the parties that these amounts were due as at that date.
2. The Notices of Breach required MIR to pay $97,812.39, and SKRG to pay $29,120.90. The Notices stated that, pursuant to cl 21.2 of the Lease Agreements, if the specified total was not paid with 14 days of receipt, the respondent would: (a) serve written notice of termination of the lease; and (b) re-enter and take possession of the premises.
3. Neither of the applicants complied with the Notices of Breach and, on 1 October 2020, the respondent served on each of them a Notice of Re-Entry and Termination which provided that: "as a consequence of the Lessee's failure to comply with a Notice of Breach of Covenant dated 11 September 2020, the Lessor has RE-ENTERED and taken possession of the premises, ejected the Lessee therefrom and terminated the Lease today, 1 October 2020, with the intent that the Lease is determined with immediate effect. The re-entry and termination of the Lease is without prejudice to the Lessor's rights, including, inter alia, the Lessor's rights to claim damages for breach of the Lease and the re-entry and termination."
4. The premises were re-let to new lessees (the new lessees), pursuant to lease agreements entered into on 31 August 2020 and 21 September 2020 respectively. On 1 October 2020, the agreements with the new lessees (the new agreements) became unconditional upon the respondent securing vacant possession of the premises as defined in cl 2 of the new agreements. By 8 October 2020, the new lessees had received keys to the premises and "Handover Notices" from the respondent.

The proceedings

1. On 2 October 2020, the applicants commenced proceedings by Summons seeking interlocutory and final relief coupled with a Notice of Motion seeking interlocutory relief in the Equity Division.
2. The final relief sought in the Summons included that: "The plaintiffs be permanently relieved against the forfeiture of: a. Lease AP363386T between the Lessor and MIR, registered with respect to the Hiew Thai Premises; and b. Lease AP483601W between the Lessor and SKRG, registered with respect to the Masuya Suisan Premises. Damages associated with the lessor's re-entry to the Hiew Thai Premises and Masuya Suisan Premises."
3. The interlocutory relief sought in the Summons and the Notice of Motion was relevantly as follows: "Upon the condition that the plaintiffs pay, by delivery of a bank cheque or electronic transfer to the defendant's solicitors the sum of $126,933.29 by 6pm today, orders that the defendant take such steps as are necessary to restore possession of the premises at: a. TRT 414, Marina Square, 5 Footbridge Boulevard Wentworth Point NSW 2127 (Hiew Thai Premises) to the first plaintiff forthwith and in any event by no later than 10:00am on 3 October 2020; and b. RT 412/413, Marina Square, 5 Footbridge Boulevard Wentworth Point NSW 2127 (Masuya Suisan Premises) to the second plaintiff forthwith and in any event by no later than 10:00am on 3 October 2020."
4. The matter first came on for hearing before Rein J sitting as the Equity Duty Judge on the afternoon of Friday 2 October 2020. On that occasion, whilst his Honour did not formally dismiss the Notice of Motion, he indicated that he was not prepared to grant the relief sought on that occasion for reasons that appeared in the transcript.
5. One of the reasons was the potential impact of the relief sought on the new lessees of the premises who had not been joined as parties to the proceedings. Rein J observed in the course of the hearing before him on 2 October 2020 that:

• "It is a relevant factor that there are third parties that are affected by any order": at tp.5;
• "I don't think you can say that the landlord can be put into the position/will be put into the position by simply paying the rental. It won't. It will have a problem because it's got new tenants": at tp.13;
• "PALMER: Your Honour, our position remains that we consider that in light of the fact we have agreed to pay all that rent we ought to be able to re‑enter‑‑ HIS HONOUR: It doesn't deal with the new leases. That's what I am saying. It doesn't deal with it": at tp.14;
• "HIS HONOUR: I think what it also highlights is that you'd probably need to join these new tenants to these proceedings, Ms Palmer. PALMER: Yes, your Honour. HIS HONOUR: Look, the reality is, can I put it this way, I'd be very reluctant to make any orders today in the light of what I've seen. PALMER: Yes. HIS HONOUR: Partly because I think you accept the COVID case is either weak or non‑existent but it's very weak probably at best. PALMER: Yes": at tp.17;
• "HIS HONOUR: I'm not saying, by the way that ‑ I mean, your clients might have to consider whether they do wish to proceed with the case in terms of some further relief but they would have to join I think those tenants, seek to join them, and then that would be a further complication with further expense and risk I suppose, and, again, undertakings as to damages in respect of them as well I suppose. PALMER: Yes, I hear your Honour on those points": at tp.18.

1. For whatever reason, notwithstanding these exchanges, the new lessees had not been joined when the proceedings came before Stevenson J (the primary judge) on 13 October when the applicants renewed their application for interlocutory relief.
2. The renewed application was in turn dismissed by the primary judge, his Honour delivering reasons for judgment on 14 October 2020: MIR Holdings Pty Ltd v Marina Square Retail Pty Ltd [2020] NSWSC 1418 (the primary judgment). The application was dismissed on three bases, although the primary judge noted that the first alone was in his opinion sufficient to decline the relief sought by the applicants. These three bases were as follows: 1. the new lessees, who were not aware of the applicants' claim for relief against forfeiture (and who had still not been joined to the proceedings) had what appeared to be an unconditional entitlement to occupy the premises and the primary judge was not prepared to grant the relief sought without hearing from them (primary judgment at [38]); 2. clause 6 of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation) did not apply to the applicants' circumstances (primary judgment at [45]); and 3. the applicants' default under the Leases was "persistent and significant" (primary judgment at [61]).
3. In relation to the second basis, the primary judge held that the Regulation did not apply to the respondent's Notices of Re-Entry and Termination, which specified default of rent and outgoings payment "up to 31 March 2020". His Honour held that: "55 The provisions are not concerned with defaults prior to the COVID-19 pandemic and prior to the prescribed period [commencing on 24 April 2020]. 56 The failure by the [applicants] to comply with the 11 September 2020 notices under s 129 of the Conveyancing Act was not itself a breach of the relevant leases. There is nothing in the leases requiring compliance with s 129. The s 129 Notice was required as a condition precedent to the [respondent's] entitlement to exercise its rights under the leases to re-enter. 57 The 1 October 2020 Notice of Re-Entry and Termination did not assert that the [applicants'] failure to comply with the s 129 Notice was a breach of the relevant leases. Rather it said that as a 'consequence of' the [applicants'] failure to comply with the notices it had re-entered and taken possession; that is, exercised its rights under the leases to do so." (footnote omitted)
4. The primary judge thus concluded (at [58]) that: "The 'breach' upon which the [respondent] relied to re-enter was the [applicants'] failure to pay rent and outgoings due prior to the prescribed period. The [respondent] did not rely upon a breach that occurred 'during' the prescribed period."
5. On 27 October 2020, the applicants filed in this Court a Summons Seeking Leave to Appeal from the primary judge's orders declining relief against forfeiture and dismissing the Notice of Motion. As the proceedings were the first to reach this Court concerning the Regulation, the application was listed expeditiously on a concurrent basis to be heard on Tuesday 10 November 2020. Notwithstanding the observations of both Rein J and of the primary judge as to the significance of the fact that the new lessees were not party to the proceedings, no attempt was made to join them to the proceedings commenced in this Court.

Draft Notice of Appeal

1. In the Draft Notice of Appeal which accompanied the application for leave to appeal, the applicants identified the following two grounds of appeal: "1. The primary judge erred in finding that re-entry and taking of possession of the premises and termination of the leases by the respondent on 1 October 2020, was not prohibited by the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW), clause 6(1). 2. His Honour should have found that the respondent's 'prescribed actions' on 1 October 2020 were unlawful and that the appellants were entitled to be immediately restored to possession of the premises."
2. Notably, the Draft Notice of Appeal did not challenge the primary judge's discretionary finding that he was not prepared to grant the applicants relief against forfeiture "in circumstances where the [n]ew [l]essees now have what appears to be an unconditional entitlement to occupy the premises" without hearing from the new lessees (primary judgment at [38]).
3. The Draft Notice of Appeal identified that the following orders were sought in the event the appeal was allowed: "Order that the order dismissing the Notice of Motion made on 14 October 2020 be set aside and in lieu thereof: (a) Declare that the respondent's re-entry into premises RT 414 and RT 412/413 (premises), retaking possession of the premises, ejecting the appellants and terminating registered lease AP483601W and registered lease AP363386T (leases) on 1 October 2020, was prohibited by the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW), clause 6(1) and was unlawful; (b) order that the Notice(s) of Re-Entry and Termination dated 1 October 2020 be set aside; (c) order that the respondent take all steps as are necessary to reinstate the leases, forthwith; and (d) order that the respondent restore possession of the premises to the appellants pursuant to the leases, forthwith."
4. Four features of these proposed orders stand out.
5. First, the applicants sought in proposed order (a) a declaration of rights on an interlocutory appeal.
6. Second, order (b) may well have had the effect that, if made, the new lessees would be trespassers on the premises or, at the very least, complex questions may well have arisen given what would then have been, prima facie, concurrent leases. These questions may have been rendered even more complex if the new leases had been registered.
7. Third, proposed orders (c) and (d) amounted to a mandatory interlocutory injunction, a comparatively rare remedy only available in limited circumstances: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, LexisNexis Butterworths, 2015) at [21-395] (Meagher Gummow Lehane).
8. Fourth, even if the new lessees would not have been bound by the declaration sought in proposed order (a), they would plainly have been affected by proposed orders (c) and (d).
9. In their Summary of Argument (ASA), the applicants framed the issue before the Court as whether Marina Square's actions on 1 October 2020 were prohibited by cl 6 of the Regulation, which relevantly provides that: "(1) If a lessee is an impacted lessee, a lessor must not take any prescribed action against the lessee on the grounds of a breach of the commercial lease during the prescribed period consisting of - (a) a failure to pay rent, or (b) a failure to pay outgoings … Note. See leasing principles No. 1, 11 and 14 in the National Code of Conduct." [1]
10. The ASA also asserted in [31] that the applicants were entitled to relief if there had been a breach of the Regulation and that this was so "irrespective of any rights the respondent granted to new lessees". Argument was not developed in writing to support this assertion other than a submission that the applicants did not rely on discretion to grant relief against forfeiture on the application.
11. In its Summary of Argument, the respondent did not take any point as to the fact that the new lessees had not been parties to the proceedings at first instance, that the primary judge's dispositive holding on this ground did not feature as a ground of appeal, or that the new lessees had not been sought to be joined as parties to the proceedings in this Court.

Necessary and proper parties

1. On the morning of the hearing of this matter, the Court drew the parties' attention to the decision of the High Court in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [131] ff, an authority that should be well known by all practitioners in the Equity Division.
2. That decision quoted with approval (at [132]) the well-known observations of the Full Court of the Federal Court in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 524-525; [1996] FCA 870: "Where the orders sought establish or recognise a proprietary or security interest in land, chattels or a monetary fund, all persons who have or claim an interest in the subject matter are necessary parties. This is because an order in favour of the claimant will, to a corresponding extent, be detrimental to all others who have or claim an interest."
3. The same basic point was made in a related context by Edelman J in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2015) 329 ALR 1; [2015] FCA 825 at [942]-[944] where his Honour observed: "942 It is well established that a declaration generally should not be made unless all persons interested in the declaration are made parties to the application: Cordina Chicken Farms Pty Ltd v Poultry Meat Industry Committee [2004] NSWSC 197 at [101] (Young CJ in Eq); Dairy Farmers' Co-operative Milk Co Ltd v Commonwealth [1946] HCA 49; (1946) 73 CLR 381 at 392 (Latham CJ, Rich, Dixon, McTiernan and Williams JJ). 943 In Sons of Gwalia Ltd (subject to deed of company arrangement) v Margaretic (2006) 149 FCR 227; [2006] FCAFC 17 at [9], Finkelstein J explained the basis for this principle: 'An action for a declaration of rights serves a legitimate purpose where all persons who are interested in or might be affected by the enforcement of such rights and who might question in a court the existence and scope of such rights, are parties to the action and have an opportunity to be heard. Persons who are not parties to a declaratory judgment are not bound by it: London Passenger Transport Board v Moscrop [1942] AC 332 at 345. For them the declaratory judgment is a mere academic pronouncement. For this reason a court will not ordinarily grant declaratory relief unless all persons interested are made parties by representation orders and otherwise.' 944 In other words, the reason why a declaration will not usually be made where all interested parties have not been joined is because it can be futile to grant a declaration that would otherwise affect the rights of interested parties, where the interested parties have not been afforded sufficient procedural fairness for them to be bound by the declaration."
4. That the new lessees were not joined at first instance as necessary parties, given the relief that was being sought and in light of the multiple observations of Rein J as to the importance of this on the occasion the proceedings were first before the Court, was surprising and ran contrary to the authorities referred to above.

Disposition

1. When the application for leave to appeal came on for hearing on the morning of 10 November 2020, Mr Alexis SC, who appeared with Ms Palmer for the applicants, sought to circumvent the issue of the absence of the new lessees as parties to the proceedings by indicating that he was prepared not to pursue orders (c) and (d) and to confine his clients' ultimate claim to one for damages.
2. Whilst this course partially recognised the significance of the absence of the new lessees as parties to the proceedings, a number of problems remained.
3. First, the new lessees would not have been bound by the declaration sought in proposed order (a).
4. Secondly, the making of a declaration on an interlocutory basis is problematic: see Meagher Gummow Lehane at [19-140] which notes, citing Upjohn LJ's statement in International General Electric Co of New York Ltd v Commissioner of Customs and Excise [1962] Ch 784 at 789, that "[i]t follows from the very nature of declaratory relief that it is final relief, and that there can be no such thing as an interlocutory declaration". See also D Wright, Remedies (1st ed, Federation Press, 2010) at 283.
5. In Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540; [2002] HCA 54, Gummow and Hayne JJ held (at [128]) that: "'Interlocutory declaration' is a form of order not known to the law yet that, in effect, is the nature of the order that was made, expressed, as it was, in declaratory terms: International General Electric Co of New York Ltd v Commissioner of Customs and Excise [1962] Ch 784 at 789. The making of an order in that form in this case was not only wrong, its making may obscure some questions which the claims made in the proceeding inevitably present."
6. This position was affirmed by Hayne and Callinan JJ in Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51 at [143]-[144]: "143 Apart altogether from these difficulties, there is a further and different kind of difficulty presented by taking the course which was taken in this case. If the primary judge concludes, as he did in the case against Dovuro, that negligence has been established, no final judgment can be entered. In this case, while an appeal to the Full Court of the Federal Court was pending, the primary judge made orders in the form of declarations - declaring that Dovuro 'owed a duty of care to the [Wilkins] and group members and that it was in breach of such a duty' and that 'some damage was suffered by the [Wilkins] as a result of such a breach of duty'. It seems to have been thought that the making of such orders would facilitate an appeal against the primary judge's findings. Be this as it may, orders of that kind should not be made. Interlocutory declaration is a form of order not known to the law. 144 If, as may have been the intention, all questions of liability were to be regarded as concluded as between the Wilkins and Dovuro, it may have been open to the primary judge to direct entry of judgment for the Wilkins in their proceeding against Dovuro, for damages to be assessed. But what is not clear from the orders that were made is what, if any, questions were concluded as between Dovuro and those whom the Wilkins represented. On no view of the orders was the question of liability finally determined; there was no determination that any of the represented parties had suffered damage as a result of Dovuro's breach of its duty of care. (Unlike the first declaration, which dealt with Dovuro's duty of care not only to the Wilkins but also to group members, the second declaration said only that 'some damage was suffered by the [Wilkins] as a result of such a breach of duty'. This second declaration reflected the primary judge's finding that the Wilkins had suffered some damage as a result of Dovuro's breach of duty. There was no finding that any group member had suffered damage)."
7. Thirdly, as observed at [25] above, proposed order (b), if made, would create a situation where there were either concurrent leases granted over or in respect of the same premises or, alternatively, the new lessees would potentially become trespassers on the premises. Either way, the new lessees' rights and interests would be affected by the proposed order sought.
8. Fourthly, the foreshadowed confining of the applicants' case going forward to one for damages suffered from the fact that there had been no order for a separate trial of liability.
9. The failure by the applicants to join the new lessees to the proceedings was unfortunate, to say the least. In an endeavour to cut through this difficulty, and to minimise the wastage in costs that would otherwise have been entailed given that the parties had prepared full arguments on the question of the proper construction of the Regulation, the Court proposed the following course in the event that the applicants confined the ultimate relief being sought in the proceedings to damages: (i) the Court would hear the argument as to the construction of the Regulation; (ii) the parties would formulate a separate question to be stated by the Equity Duty Judge raising purely the question of construction; (iii) if such an order were made, the question could be referred to the Court of Appeal, nunc pro tunc; and (iv) the Court having heard the argument in advance would then be in a position to deliver judgment on the question of construction on the basis that no disputed factual questions were involved.
10. The Court took a short adjournment to allow the respondent time to consider this course.
11. Ultimately the respondent did not consent to the suggested course being taken. This was its entitlement and may have in part been because the respondent wished to raise arguments to the effect that the applicants were not "impacted lessees" for the purposes of cl 4 of the Regulation (the first contention) [2] and that, by force of cl 10, the Regulation did not apply to the respondent's termination of the applicants' leases (the second contention). [3]
12. Upon interrogation of Mr Angyal SC, who appeared for the respondent with Mr Cominos, it appeared that these contentions may have turned on facts and events that were not necessarily uncontested, making the issue wholly unsuitable for determination in interlocutory proceedings.
13. It was in these circumstances that the Court considered that the only appropriate course was to dismiss the application for leave to appeal. It would remain open to the applicants to seek the formulation of a separate question to be heard on a final basis but whether or not an order to that effect would appropriately be made will be a matter for the Real Property List or Equity Duty Judge.
14. No order as to costs was made in circumstances where the fundamental reason why leave was refused was a matter raised by the Court and not by the respondent, surprising though this was in light of the intimations as to the need for the new lessees to be joined which had been made by Rein J on multiple occasions on 2 October 2020, as well as in light of the first and dispositive basis indicated by the primary judge for the dismissal of the Notice of Motion.
15. LEEMING JA: I agree with Bell P.

Endnotes

1. The "leasing principles" referred to in cl 6 are contained in the National Cabinet Mandatory Code of Conduct: SME Commercial Leasing Principles During COVID-19 (the Principles). Principle 1 requires that "[l]andlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period)". Although cl 3(2) of the Regulation stipulates that any "Notes" contained therein do not form part of the Regulation, cl 9 compels courts to have regard to the Principles when considering "prescribed actions".
2. Under cl 4, an "impacted lessee" is one that qualifies for the jobkeeper scheme under rr 7 and 8 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) and turned over less than AU$50 million in the 2018-19 financial year.
3. Clause 10 of the Regulation provides that "[n]othing in this Regulation prevents a lessor taking prescribed action on grounds not related to the economic impacts of the COVID-19 pandemic". 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 November 2020