Mr A Herskope of counsel with Mr C Dawlings of junior counsel

1 This is an application by the applicant landlord for an interlocutory injunction to restrain the third respondent from dealing with the proceeds of sale of a property at 2/47 Drummond Street Chadstone Victoria (the property).

2 Much of the evidence is not in dispute. The background facts are set out below.

3 The applicant is the registered proprietor of a property at unit 6, 1 Queens Road, Melbourne (the leased property).

4 At the time the applicant purchased the leased property it was tenanted by Empire on Queens Pty Ltd (original tenant) and the third and fourth respondents were guarantors under the lease (original lease).

5 On 30 July 2018 the original lease was transferred from the original tenant to the first respondent. The third and fourth respondents executed the transfer of lease dated 27 July 2018 agreeing to continue to be bound as guarantors if the first respondent breached the lease unless s 62 of the Retail Leases Act 2003 (RLA) or the guarantee in the lease required otherwise.

6 The applicant's position is that at the time of the transfer of lease, no disclosure statement by the original tenant was provided pursuant to s 61 (5A) of the RLA and as a consequence s 62 of the RLA did not apply.

7 The first respondent vacated the leased property in December 2018 with two years remaining on the initial term. The applicant's position is that the lease remained on foot and notwithstanding the abandonment by the tenant, the landlord did not re-enter the premises.

8 On about 3 May 2021 the applicant made written demand on all of the respondents for the sum of $286,117.59 being for unpaid rent and outgoings owing under the lease.

9 The second respondent, a guarantor of the obligations of the first respondent to the applicant, transferred his interest in a property in Kew to his wife on 14 May 2021. At the same time his father lodged a caveat over the Kew property. The applicant obtained an injunction in the Supreme Court on 25 June 2021 restraining the second respondent's wife from dealing with the Kew property until further order.

10 Since the 3 May 2021 letters of demand the applicant's claim has increased to $277,597.02 for rent, outgoings and interest and $63,500 for make good costs.

11 The third respondent is the sole proprietor of the property having purchased it in 2009. The property was sold by auction on 16 July 2021. Settlement is due on 18 October 2021.

12 The applicant's evidence is that neither the third or fourth respondent own any other real estate in Victoria. The applicant is concerned given the proximity of the sale to the applicant's 3 May 2021 demands that the third respondent has sold the property in order to put the net proceeds of sale out of the applicant's reach if and when the applicant obtains a judgement against the third respondent. The applicant is concerned that unless restrained there is a danger that a judgement or prospective judgement will be wholly or partially unsatisfied because the assets of the first respondent will be removed from the jurisdiction.[1]

13 The applicant seeks to restrain from the surplus of the sale proceeds after sale costs and payment to the mortgage provider, $341,097.02 to cover the amount due to it.

14 The question before me is whether to grant an injunction.

15 To establish an entitlement to interlocutory relief, the applicant must first demonstrate that there is a serious question to be tried. In respect of the question, the applicant must make out a prima facie case in the sense of demonstrating that, in the circumstances, there is a sufficient likelihood of success at trial, in respect of the question, to justify the preservation of the status quo pending the determination of the parties' rights at trial. This does not mean that the applicant must establish that it is more likely than not that it will succeed at trial. How strongly the probability needs to be depends upon the nature of the rights asserted and the practical consequences are likely to follow from the relief sought.[2]

16 An applicant must also establish that the balance of convenience favours the granting of an injunction. I should take whichever course appears to carry the lowest risk of injustice should it turn out to have been "wrong", in the sense of granting an injunction to a party who fails to establish its rights at trial or failing to grant an injunction to a party who succeeds at trial.[3]

17 In determining whether to grant an injunction I must consider the two limbs referred to together. In considering where the lower risk of injustice lies all relevant factors are to be weighed in the balance. The strength of the applicant's case may be relevant in assessing the balance of convenience.

18 The applicant submits that the issues for determination, i.e. whether there is a serious question to be tried, are;-

1. Is there a liability to the applicant and if so, who is liable for the outstanding rent, outgoings and makegood costs?: and
2. Whether the respondents can rely upon s 61(5) of the RLA.

19 Section 61 of the RLA provides as follows:

(1) A retail premises lease is taken to provide as set out in this section.

(2) A request for the landlord's consent to an assignment of the lease must be in writing and the tenant must provide the landlord with such information as the landlord reasonably requires about the financial resources and business experience of the proposed assignee.

(3) Before requesting the landlord's consent, the tenant must give the proposed assignee -

(a) a copy of any disclosure statement given to the tenant concerning the lease; and

(b) details of any changes of which the tenant is aware, or could reasonably be expected to be aware, that have affected the information in the disclosure statement since it was given to the tenant.

(5) For the purpose of complying with subsection (3), the tenant may ask the landlord to give the tenant a disclosure statement that is current from a specified date that is within 3 months before the statement is given and, if the landlord does not give the tenant such a statement within 14 days -

(a) the tenant is not required to comply with that subsection; and

(b) the landlord is guilty of an offence and liable to a fine not exceeding 10 penalty units.

(5A) If the assignment is in connection with the lease of retail premises that will continue to be used for the carrying on of an ongoing business, the tenant must give the landlord and the proposed assignee a disclosure statement in the form prescribed by the regulations (but the layout of the statement need not be the same as the prescribed disclosure statement).

(6) The landlord must deal expeditiously with a request for consent and is taken to have consented to the assignment if -

(b) the landlord has not, within 28 days after the request was made, given written notice to the tenant consenting or withholding consent.

20 Section 62 of the RLA provides that the original guarantors under a lease (being the third and fourth respondents) will not be liable to the landlord for any monies due by the proposed assignee (being the first respondent) provided the original tenant gives the landlord and proposed assignee (first respondent) a copy of the disclosure statement in accordance with s 61 (5A) of the RLA.

21 The applicant says no disclosure statement was provided meaning the third and fourth respondents remain liable to the landlord. The applicant relies upon an affidavit of Lana Wright [4] a senior asset manager who throughout 2018 to the present day managed the leased premises. She deposed that in July 2018 she was involved in the communications relating to the transfer of lease from the old tenant to the first respondent. Settlement of the transaction took place on 30 July 2018 in her employer's offices, and she was in attendance. Her evidence is that she was not provided with a disclosure statement by the old tenant at that time or at any time.

22 The applicant's affidavit material includes a letter from the third and fourth respondent's solicitors dated 30 June 2021 to the applicant's solicitor. The letter states that a disclosure statement was provided at the settlement conference and attaches a copy.

23 The third and fourth respondents did not file any evidence addressing the disclosure statement issue.

24 The third and fourth respondents do not dispute that there are serious questions to be tried. They contend however that the balance of convenience favours them because the evidence before the Tribunal is not of sufficient cogency to give rise to a risk of dissipation.

25 The evidence of the third and fourth respondents can be summarised as follows:-[5]

1. they are married and resided in the property with three children aged seven and below. The property is a three bedroom townhouse with one bedroom used as a study. For some years they had intentions of purchasing a larger dwelling;
2. in December 2019 the fourth respondent signed a contract for the purchase of a four bedroom home for $1,317,500. The sale was subject to finance. Finance was not obtained and the sale did not proceed;

1. they deferred moving until their financial position improved. As a result of lockdown restrictions[6] five people sharing a small townhouse motivated a move. They decided to rent another residence, sell the property and then purchase a new home using the proceeds of sale;

1. on 17 March 2021 the third respondent met with Buxton Real Estate to discuss the sale of the property. On 18 March 2021 he met with Ray White Real Estate to discuss the sale of the property. Both agents were told of the need to locate a rental property before listing the property for sale. Ray White was engaged to secure a rental property in chance Chadstone which is where the third and fourth respondent and their family currently reside since signing a lease on 6 May 2021;
2. on 11 May 2021 the third and fourth respondents received the May 2021 letter of demand.
3. They have no intention of putting any assets out of the applicant's reach.

1. the third and fourth respondents have given no evidence of the amount owing to their mortgage provider or of the sale price or of any other assets they have within the jurisdiction. It was noted that the third and fourth respondents did not contradict the applicant's evidence of there being no other property owned by them in Victoria;
2. no evidence of prejudice has been provided by the third and fourth respondents and on that basis the balance of convenience favours the applicant; and

1. in the absence of a restraint there is a real risk that the proceeds will be dissipated.

27 Both parties made submissions in relation to the decisions of Yadlamalka Land Pty Ltd v Ragless & Anor[7] and Zhen v Mo.[8]

28 The decision in Yadlamalka involved an application to quarantine a portion of the proceeds of sale of a pastoral lease. Justice Hinton of the South Australian Supreme Court held that "a court will conclude that there is a danger that a judgement or prospective judgement will be wholly or partially unsatisfied if the court is satisfied on the evidence adduced that the refusal to make a freezing order would involve a real risk of such consequence.[9] His Honour stressed that "the relevant danger must be established by evidence and not merely asserted."[10]

29 Forrest J in Zhen v Mo had to consider whether a freezing order ought to be continued. The case helpfully sets out the relevant legal principles in determining such an application. Forrest J said:-

21. In determining this application I have applied the following principles.

22. First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party's capacity to deal with his or her assets.

23. Second, the order is not designed to provide security for the applicant's claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.

24 Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.

25. Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.

26. Fifth, that before such an order can be made it is necessary that the applicant establish -

(a) an arguable case against the defendant[; and

(b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant's actions in either removing the assets or disposing or dealing with them so as to diminish their value.

27. Sixth, the balance of convenience must favour the granting of the freezing order.

28. Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.

29. Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party's assets and property.

30. Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.[11]

30 Counsel for the applicant says Zhen v Mo can be distinguished because the application before me is not seeking to freeze all of the third and fourth respondents' assets but rather just the proceeds of sale from the property.

31 The solicitor for the third and fourth respondents submitted that the applicant's case is based on mere assertion noting that the applicant bears the onus of proof and that the evidence does not support the applicant's contentions. At best it is said that the evidence of the applicant is guesswork. It was submitted that the fourth respondents' intentions regarding the property were put into play before the 3 May 2021 demand which of itself is reasonable ground for not granting the freezing order. This is said to be relevant in light of the earlier evidence of the fourth respondent's intention to buy another property in December 2019.

32 It was further submitted on behalf of the third and fourth respondents that to interfere with the sale process is to drastically interfere with their capacity to deal with assets in a normal way and that it is not for the respondents to disprove or put up evidence of other assets as the applicant bears the onus of proof.

33 It was further contended for the third and fourth respondents that if in fact it is found that no disclosure statement was given at the time of the transfer of lease then they have a claim against their former solicitor who will be joined as a party to the proceeding. In those circumstances the applicant will be "covered". It is assumed that that is because the solicitor will have professional indemnity insurance so that if the applicant's case is established, there will be funds from an insurer to meet any judgement.

34 Counsel for the applicant submits that I should have no regard to mere speculation about the proposed joinder of any unnamed solicitor to a proceeding and that I should not rely on any intention of the third and fourth respondents which may change tomorrow. It was noted that the third and fourth respondents did not put on evidence addressing the solicitor's liability notwithstanding their election to put on evidence in relation to other matters. It was also noted that the sales authority appointing Ray White Real Estate to sell the property was not in evidence and on that basis there is no corroborating evidence that the property was put on the market before the 4 May 2021 demand. The affidavit of Mr Yong was said to be shadowy for what has been left out of it.

35 As agreed by the parties there are clearly triable issues between the parties including whether or not a disclosure statement was provided when the lease was transferred and what liability, if any, the third and fourth respondents have to the applicant.

36 The evidence before me is that the third and fourth respondents signed a contract to buy a new home in December 2019. The sale did not proceed. They then engaged with real estate agents in March 2021 to sell the property. Their explanation of their desire to move to a larger home is entirely plausible.

37 There are text messages between the third and fourth respondents and their real estate agent which support their claim to be seeking to rent a home and then to sell the property and purchase a larger home. In particular, there are a couple of messages informing the third and fourth respondents of upcoming auctions for them to attend and view the auctioneer's style. Implicit in this is that the auctioneer may be suitable to sell the property. There is a text message dated 19 April 2021 from the third respondent to the agent saying "we're interested in the property, 11 Ventnor Street Chadstone". This is the property they subsequently leased. The text messages are all dated before 3 May 2021. In other words, the third and fourth respondents appear to have embarked upon a course of conduct whereby they found a new home to rent and started the process of selling the property before they became aware of the applicant's claim against them.

38 The applicant has not provided any evidence of there being a real risk of the prospective enforcement process contemplated by the applicant being frustrated if a freezing order is not made. At best it is conjecture and suspicion. The applicant bears the onus of proof. The onus does not somehow shift to the third and fourth respondents because they filed affidavit material.

39 The selling of the property by the third and fourth respondent's is not sufficient evidence of itself in the circumstances of this case to prove that there is a danger that any prospective judgment will be wholly or partly unsatisfied. The balance of convenience favours the third and fourth respondents. It is too great an imposition on their ability to deal with their assets to restrain part of the proceeds of sale in circumstances where they embarked upon a course of conduct without knowledge of the applicant's claim.

40 For these reasons, the application is dismissed.

[1] Affidavit of Rita Zhang sworn to August 2021.

[2] Australian Broadcasting Corporation v O'Neill [2006] HCA 46.

[3] Bradto Pty Ltd v State of Victoria [2006] VSCA 89 at [35].

[5] Affidavit of Patrick See Yik Yong affirmed 11 August 2021.

[6] Due to the impact of the COVID pandemic.

[7] [2018] SASC 131 (Yadlamalka).

[8] [2008] VSC 300.