Rizky Management Pty Ltd v Billabong Hotel

Rizky Management Pty Limited (P) PARTIES : Billabong Hotel (St Marys) Pty Limited (D)

D L Warren (P) COUNSEL : J M Miller then T J Hancock (D)

Macquarie Lawyers (P) SOLICITORS : R E Barros & Company (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2787/05 RIZKY MANAGEMENT PTY LIMITED v BILLABONG HOTEL (ST MARYS) PTY LIMITED JUDGMENT 1 HIS HONOUR: This is an application under s 74K of the Real Property Act 1900 to extend a caveat. 2 It raises questions in two areas. The first is as to the principles on which the discretion to extend caveats should be exercised and, in particular, to what degree those principles are analogous to those applied in case of interlocutory injunction applications. The second is as to how that discretion should be exercised in this particular case. 3 The proceedings concern a development which involves the construction and letting of 22 commercial units at St Marys. The caveat has been lodged to protect an equitable interest arising under an agreement for lease ("the agreement for lease"). The problems arise from what appear to be errors in the agreement for lease. The area to be leased is described as Unit 2 with an area of 200 square metres. The area is now known as Unit 1, but that does not create any problem. It is apparent from the agreement that the purpose of the lease is the conduct of a service station. It is also apparent that a service station could not be conducted in the area of 200 square metres, which is in fact the area of a shop which is to be used for payment for fuel, together with a convenience store. It is clear that the lease would have to include an outside area for the fuel tanks, for the bowsers and for the access and movement of vehicles. The agreement for lease contains an estimate of the annual rent at $130,000. There is an issue between the parties as to whether this estimate was in respect only of the 200 square metres of the shop or of the total rent for the whole area of the service station. 4 The plaintiff, the proposed lessee, commenced the proceedings by a summons, which claims specific performance of the agreement for lease as well as the extension of the caveat. The plaintiff contends that, with rectification if necessary of the agreement, it has an arguable case that it will obtain specific performance at the trial of the proceedings. The defendant contends that without rectification the plaintiff has no case for specific performance and that, in any event, the Court would reach the conclusion that the parties were never ad idem as to the subject matter of the agreement or that the agreement was void for uncertainty. It says that therefore the plaintiff has no arguable case for specific performance. On the foregoing basis, it purported to rescind the agreement for lease in April 2005. It will avowedly proceed to relet the service station area if the caveat is not extended. 5 Each side has put forward a substantial case as to the balance of convenience. The defendant says that the development is due to be completed within six to eight weeks, but that the defendant will not be able to obtain occupation certificates to permit tenancies to commence unless the fuel bowsers are installed and the fuel system in the service station is up, running and certified by the appropriate authority. This will prevent the commencement of leases and the earning of any income from the development. The value of the development is said to be $20-22 million and the rent the defendant's only source of income. It has heavy liability for interest on borrowings to construct the development. It says that the plaintiff entered into the lease, not for the purpose of itself conducting the service station, but only to profit from assigning the lease or subletting the service station. It says that, in these circumstances, damages would be an adequate remedy and that the caveat should not be extended. It also objects to the sufficiency of the undertaking as to damages proffered on behalf of the plaintiff to support the extension of the caveat. 6 The plaintiff's case on the balance of convenience is that, the subject matter being an interest in real estate, damages should not be taken to be an adequate remedy. This is particularly so, since, in the light of the events that have happened, the plaintiff, whose principals conduct other service stations, now contemplates occupying and operating the service station itself. Furthermore, the damages issue is complex and difficult, because it involves questions of what profit may be made from the operation of the service station. Even on the basis of assignment or subletting, the annual profit may be as high as $70,000 and the period of loss may be as much as thirty years, the term of the lease including option periods. In these circumstances, the assessment of damages would be complex and difficult. Furthermore, it says, bearing in mind the availability of expedited hearing, the central question could be determined without holding up or substantially holding up the defendant in commencing to earn income. It suggests that the defendant's estimate of six to eight weeks to completion is rubbery. It argues that development consent (for which applications have not yet been lodged) would be necessary for the commencement of any use of the premises by tenants. On the evidence admitted before me, the only prospective tenant with a firm interest in taking a lease is Subway, which does not contemplate commencing occupation for three to four months. 7 So far as an undertaking as to damages is concerned, the plaintiff concedes that it does not have substantial funds. However, it proffers the personal undertaking as to damages of its principal, Tony Rizk. Mr Rizk has given evidence of owning substantial assets, including joint interests with his wife in a valuable residence and two other service stations. He also has unencumbered interests in two residential developments. The Rizk residence is encumbered by a mortgage securing various borrowings for Mr Rizk's business enterprises. He has, however, on the evidence, a substantial surplus of assets over liabilities. 8 The plaintiff has further indicated that, if granted an extension of the caveat, it will mitigate the defendant's disadvantage and delay by itself installing in the proposed service station petrol bowsers and a console, which it has already ordered. The plaintiff will also purchase whatever fuel is necessary to put in the tanks to permit the appropriate authority to certify the fuel system and this can be done in a short time. The equipment will cost some $177,000 (but may be acquired on lease). The relevant fuel may cost more than $100,000. The defendant has indicated that if the caveat is extended it should be on the basis of the plaintiff giving to the Court an undertaking that it will carry out these matters. The defendant will accept the undertaking being given on terms that it will acknowledge that, in the case of the plaintiff's failure in the specific performance proceedings, the plaintiff will retain property in the equipment and the fuel, with the right to remove or dispose of the same. 9 So far as the law is concerned, it has often been said that applications to extend caveats are by analogy dealt with on the same principles as interlocutory injunction applications. However, caution must be exercised as to the application of the analogy. It must never be forgotten that, although both jurisdictions are discretionary, the discretion to grant interlocutory injunctions arises out of the Court's equitable jurisdiction, whereas the undoubtedly discretionary jurisdiction to extend caveats is conferred by statute. The situation was discussed as follows by Young J (as his Honour then was) in Kingstone Constructions Pty Limited v Crispel Pty Limited (1991) 5 BPR 11987 where his Honour said at 11,990 -11,991: "Normally, when a caveat is proper in form and substance it will be retained even though this will cause harm to the registered proprietor. After all, the whole purpose of a caveat is to enable a brake to be put on the registered proprietor's dealings with his property whilst the claim of the caveator is resolved.

Mr Hodgekiss points to the fact that judges have said that the court approaches questions as to whether a caveat should be extended in much the same way as it considers whether to grant interlocutory relief by way of injunction: see, for example, Ralph Symonds Australia Pty Ltd v Pacific Property Investments Pty Ltd (SC(NSW), Bryson J, 19 October 1988 4335/88, unreported) extracted in Leslie's Equity and Commercial Practice, vol 1, para C10:60. Such statements must, however, be read sub modo. It must be remembered that when dealing with extensions of caveats the court is not exercising its equitable jurisdiction but a statutory jurisdiction. As Powell J said in Bethian Pty Ltd v Green , above, at 11,582, discretionary bars to relief in equity are not necessarily relevant to the statutory discretion contained in what is now s 74K of the Real Property Act 1900; see also World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 at 185 and Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd (1988) 97 ALR 315 at 319. Thus, I have little sympathy with Mr Hodgekiss's submission that clean hands are a relevant matter in this case and I rejected evidence going towards this so-called defence accordingly.

So far as balance of convenience generally is concerned, it is certainly the case that this court has ensured that caveats are not used as a blackmailing device so that a caveat can legitimately be lodged in respect of a relatively small claim and force the registered proprietor to pay out such a claim even though it is bitterly contested. The court has consistently taken the attitude that if the registered proprietor is prepared to put up an alternate [sic] security, then it will remove the caveat, even though, as I have said, the caveat may be completely valid. ……. It may be that the discretion vested in the court under s 74K(2) is wider than what I have just indicated and indeed, some passages in Martyn v Glennan [1979] 2 NSWLR 234 and Wildschut v Borg Warner Acceptance Corp (Aust) Ltd (1987) NSW ConvR 55-344, indicate that this is so. However, whatever the extent of the discretion is, in my view it would not be an appropriate exercise of that discretion to remove the caveat in the instant case on the grounds of balance of convenience. In any event, one would have to balance the 'convenience' of the registered proprietor being able to deal with the land with the 'inconvenience', if a court should hold that the caveator has a valid equitable charge, of its interest losing priority to any interest which would be created by the registered proprietor if the transactions which that proprietor wishes to enter into proceeded." 10 Young CJ in Eq reiterated the potential relevance of the balance of convenience in Dunecar Pty Limited (In Liq) v Colbron (2001) 40 ACSR 342 at [20]. Kingstone Constructions was quoted with approval by Barrett J in Renascent Interiors and Refurbishers Pty Limited v ASEL Property Group Pty Limited (2002) 10 BPR 97,956 at [13], [14] and by Hely J in Ipandco (Australia) Pty Limited v Australian Technology Park Precinct Management Limited [2003] FCA 1322 at [8]. 11 These principles were dealt with by Palmer J in Lawrence v Appleby [2001] NSWSC 649, partially reported in (2002) NSWConvR 55-993. His Honour at [20] - [24] inclusive referred to the discretion under s 74K(2); the analogy with interlocutory injunction applications; and the limitations of that analogy. His Honour cited from the judgment of Young J in Kingstone Constructions and concluded that "it is still appropriate, in my view, to consider the balance of convenience in very much the same way as the Court does when considering the grant of an interlocutory injunction". That was also a specific performance case. His Honour concluded that the plaintiff had an arguable case for specific performance. In that case the property sold was a residence and the evidence showed that the purchaser had no intention to occupy the residence, but intended to resell it immediately at a profit. If the caveat were extended, the vendor would be precluded from dealing with the property until trial. Palmer J concluded that, in those circumstances, damages were an adequate remedy and the balance of convenience favoured the refusal of the extension of the caveat. This decision was cited with approval by Austin J in Lucantonio v Ciofuli (2002) 10 BPR 19,515 at [23]. 12 The principles on which the Court will deal with interlocutory injunction applications, which, with the cautions expressed above, are applicable to applications for extension of caveat, were usefully set out by McLelland J (as his Honour then was) in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, where his Honour said at 535 - 536: "As I see it, the position is as follows. Where a plaintiff's entitlement to ultimate relief is uncertain, the Court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled: see, eg, Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208 at 216; A v Hayden (No 1) (1984) 59 ALJR 1 at 4 - 5; 56 ALR 73 at 79. Where the uncertainty depends in whole or in part on a contested question of fact it is not appropriate for the Court to decide that question on the interlocutory application. Where the uncertainty depends in whole or in part on a contested question of law, it may or may not be appropriate for the Court to decide that question on the interlocutory application, depending on circumstances, eg, whether the question is novel or difficult, or is susceptible of resolution on the present state of the evidence, or whether the urgency of the matter renders it impracticable to give proper consideration to the question: see, eg, A v Hayden (No 1) (at 4; 78); Cohen v Peko-Wallsend (1986) 61 ALJR 57 at 59; 68 ALR 394 at 397. If the Court does decide the question of law the uncertainty is to that extent removed.

Unless the plaintiff shows that there is at least a serious question to be tried which if resolved in its favour would entitle it to final relief, then the requirements of justice as between the parties will dictate that an interlocutory injunction should be refused: Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 57 ALJR 425; 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 58 ALJR 283; 52 ALR 651; A v Hayden (No 1) ; Castlemaine-Tooheys Ltd v South Australia (1986) 60 ALJR 679; 67 ALR 553 and Cohen v Peko-Wallsend Ltd .

Apart from this, although normally the Court 'does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case' ( Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622), there are some kinds of case in which for the purpose of seeing where lies the balance of convenience (or more specifically 'the balance of the risk of doing an injustice' - see per May LJ in Cayne v Global Natural Resources plc [1984] 1 All ER 225 at 237, cf per Brennan J in Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288 at 292; 46 ALR 279 at 285), it is desirable for the Court to evaluate the strength of the plaintiff's case for final relief: see, eg, Brayson Motors Pty Ltd v Federal Commissioner of Taxation (at 292; 285); Castlemaine-Tooheys Ltd v South Australia at 682; 559. One class of case to which this applies is where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue: see, eg, NWL Ltd v Woods [1979] 1 WLR 1294 at 1306 - 1307; [1979] 3 All ER 614 at 625 - 626 per Lord Diplock; Cayne v Global Natural Resources plc ." 13 I approach the facts of this matter on the basis set out above. In my view, although the evidence before me is limited, the plaintiff has established an arguable case for specific performance of the agreement for lease. The agreement for lease was entered into on 3 May 2004. The plaintiff's case is that it was entered into by reference to a plan in existence at that time, which showed the shop, but also showed an apron area surrounded by a line described as "lease line". The tanks and bowsers were shown within that area. The plaintiff's primary case is that the areas so delineated were the area to which the agreement for lease applied and that there is no difficulty in specific performance being granted. It will, if necessary, put an alternative case that the lease of the service station was to include an area sufficient to contain the tanks and bowsers, to be defined between the parties. In either case, it says that the $130,000 estimate of rent was agreed in respect of the whole service station area, not just the shop of 200 square metres. It concedes that probably it needs some rectification of the agreement for lease to succeed on its claim for specific performance. Its claim for rectification will be included in its statement of claim, which is to be filed shortly. As I have said, it seems to me that it is reasonably arguable that it may succeed in obtaining specific performance on one or other of the bases set out above. 14 It is equally clear that the defendant has an arguable case that there was no contract because the parties were never ad idem as to the area to which the agreement for lease applied, or that the agreement for lease was void for uncertainty. It is virtually impossible on the evidence available to me to determine the respective strengths of these arguments. Nor is it one of those cases adverted to by McLelland J in Kolback which require a closer analysis of the relative strengths of the arguments. Whilst the refusal of the extension of caveat might lead to the claim for specific performance being destroyed by impossibility arising from the leasing of the service station land to another party, the subject matter of the proceedings would not be destroyed, because the essential subject matter is the contract. Even if there were no specific performance, the contract, if established, could be enforced in respect of the plaintiff's substantial claim for damages. The result of the above is that the plaintiff has established a sufficient case for specific performance for the Court to pass to discretionary considerations, in this case, whether damages are an adequate remedy and the balance of convenience. 15 As to whether damages are an adequate remedy, the factual situation in this case is quite different from that in Lawrence v Appleby supra, in which Palmer J unusually held damages to be an adequate remedy in a real estate case. Lawrence v Appleby was a case where the damages claim was quite simple and clear (depending on what would be the result of immediate resale of an ordinary house property) and there was no question of the purchaser himself ever occupying the property. Essentially, I accept the plaintiff's submissions: see [6] above. I do not find damages to be an adequate remedy in this case. 16 In my view, the balance of convenience will be in the plaintiff's favour in the following circumstances: (1) If the extension of caveat is not until further order, but for a finite period, at the end of which there may be reassessment of the progress of the proceedings and the progress of the development, with the onus on the plaintiff to establish, if necessary, a case for further extension of the caveat. This will avoid the risk of the defendant being prevented for an indeterminate period from obtaining rental from the development, which would otherwise be available to it. (2) If the plaintiff does give to the Court an undertaking to install, within a short finite time, the bowsers and console and to fill the fuel tanks to the extent necessary (as required by the appropriate authority) to obtain the certificate of the fuel system. (3) If the plaintiff does procure Mr Rizk to give an undertaking as to damages, as well as the plaintiff. On the evidence, I accept Mr Rizk as having sufficient substance to meet any damages likely to be incurred during the period of the relief. I also accept that he has sufficient financial resources to fund the undertaking in (2) above. (4) If the matter goes promptly to the expedition list for the plaintiff to obtain an expedited hearing and to prosecute the proceedings with due speed and diligence. (5) If the ongoing caveat is restricted to the service station area - the present caveat also affects five other lots, on which most of the other lettable areas are situated. It also affects a large other part of Lot 1. In none of these areas does the plaintiff have any interest. These areas will cease to be directly affected by the caveat. (6) If leave is reserved to the defendant to move to discharge or vary this interlocutory regime, even within its finite period, if the plaintiff fails to meet its undertakings and obligations. 17 In coming to this conclusion on the balance of convenience, I have taken into account that, on the evidence, I do not believe that there is any realistic prospect of the defendant having a paying occupant in the development in six to eight weeks as opposed to three or four months from now. Furthermore, if the plaintiff, which has bowsers and console on order, installs them in, say, the next fourteen days, the development will progress as quickly as, if not more quickly than, under any arrangement that the defendant could now put in place. 18 In those circumstances, I propose to grant interlocutory relief along the lines set out in this judgment. Short minutes of order should be brought in to give effect to it.

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