Pampered Paws Connection Pty Ltd (on its own behalf and in a representative capacity) v Pets Paradise Franchising

AND: PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272)

PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391)

PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222)

PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 445)

JUDGE: MANSFIELD J DATE: 5 MAY 2011 PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 The applicant company and two of its directors each gave a written undertaking to the Court on 18 June 2010 in terms which are recorded in an earlier decision of the Court, Pampered Paws Connection Pty Ltd (on its own behalf and in a representative capacity) v Pets Paradise Franchising Pty Ltd (Qld) (No 7) [2010] FCA 626. There is now a motion that they be relieved from that undertaking to the extent that they be entitled to execute a surrender of a lease concerning the present business premises which they operate at Shop 3, 177 Reedy Creek Road, Burleigh Heads in the State of Queensland, and consequently to permit them to relocate their business to premises at Unit 5-6 Kortum Drive, Burleigh Heads. 2 The reasons why they seek relief from the undertaking to that extent are explained in the affidavit material filed in support of this application. In essence, the business of the applicant company is being operated unprofitably and they are seeking to lease alternative premises at a considerably reduced rental amount, as compared to the current leased premises. There may be issues relating to the terms of the agreement between the applicant and the first respondent in that regard but they do not concern the present application. I propose to make an order varying the undertaking to the extent necessary for the following reasons. 3 Firstly, although it is common ground that the terms of the undertaking include the lease interest of the applicant company in the premises referred to, it is my clear recollection and, I think, confirmed by counsel for the respondents, that the primary focus of the parties, when the undertaking was procured, was not upon the value of the lease premises or the value of the lease as an interest in real property, but upon other pieces of real property in the names of either the applicant company or of the two directors, Lynda Campbell and Elizabeth Campbell. There was considerable discussion at the time as to the extent to which that undertaking might operate in relation to other interests in land which might be affected by the undertaking. I do not think there was any focus at all upon the lease interest as having any significant value in terms of giving the protection which the respondents sought and procured from the undertaking. 4 Secondly, given the circumstances in which the application is made, namely, the commercial need or imperative, at least on the applicant's case, to change to premises at a considerably lower rent, I do not think that the surrender of the lease will significantly affect in a detrimental way the value of the real estate interests secured by the undertaking. The lease is granted to the first applicant and the obligations under the lease are secured in any event by guarantees of its directors. Those matters still remain. The surrender of the lease to the extent to which contractual entitlements on the part of the lessor will also remain and the lessor will have the benefit of the opportunity to relet the premises. Moreover, the proposed new premises are to be constituted by a sublease of premises from an entity called DaPaw Conxion Pty Ltd. It is prepared to provide an undertaking through its sole director not to dispose of its interest as lessee in those premises. I do not know whether there is any significant value in its leasehold interest in those premises. But to the extent to which it ensures the continued availability of the premises as a sublease to the applicant, that undertaking operates to that limited effect. 5 I propose therefore to accede to the application. The orders I make are that the undertaking provided to the Court on 18 June 2010 be varied so as to permit the first applicant to execute a surrender of lease concerning the premises situated at Shop 3, 177 Reedy Creek Road, Burleigh Heads in the State of Queensland. The costs of the motion will be the party's costs in the cause. 6 I note that the first applicant thereby intends to relocate its business to premises situated at Unit 5-6 Kortum Drive, Burleigh Heads in the State of Queensland. Whether there are contractual consequences flowing from that conduct is a matter which I do not need to address for the purposes of this motion. 7 The respondent's concern was primarily focussed upon the fact that the move of premises will itself involve the applicant company in significant expense in moving and relocating and reconstituting business premises. Understandably, the respondents say that the expense so incurred may, if they are successful in the proceedings, further diminish the resources available to the applicants to meet any liability for costs. I understand that position. I do not regard it as an inappropriate position for the respondents to take on the application. 8 However, I do not think it is possible, on the material presently before me, to make any informed judgment as to whether the net position of the applicant company and the other applicants will be better or worse by reason of the move of premises and the considerably lesser rental which the applicant company will then have to pay. 9 Nor do I think it is desirable, having regard to the financial circumstances as reported in the material to me, to embark upon a more sophisticated analysis of those issues before determining whether the application should have been acceded to. Accordingly, whilst I have noted the points made by senior counsel on behalf of the respondents, I do not think that it is appropriate in the circumstances to defer the ruling on the application to permit a more refined analysis of the relative cost benefits of the proposed move. I do not think, in any event, a costs and benefit analysis is more appropriately assessed by the court than by the applicant itself, that is, the corporate applicant itself which is in the financial circumstances reported in the affidavits. 10 Accordingly, I propose, notwithstanding those arguments, to make the orders sought today. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.