TWINSIDE PTY LTD -v- VENETIAN NOMINEES PTY LTD [2008] WASC 110 (10 June 2008)

Supreme Court of WA|2008-06-10|Before: Beech J

1 On 6 January 2006 the plaintiffs as lessees and the defendant as lessor entered into a lease of premises owned by the defendant at which the first plaintiff (Twinside) has, since about then, been conducting its business.

2 On 20 May 2008 the defendant re‑entered into possession of the leased premises, on the ground of non‑payment of rent by the plaintiffs.

4 On that day, I made programming orders for the exchange of affidavits. The matter was listed for hearing on an urgent basis.

5 For the reasons which follow, I would grant the interlocutory relief sought by the plaintiffs.

6 I begin with an outline of the principles relevant to the grant or refusal of an interlocutory injunction, drawing on my summary in Topseal Concrete Services Pty Ltd v Sika Australia Pty Ltd [2008] WASC 57 [4] ‑ [7].

7 In Castlemaine Tooheys Ltd v The State of South Australia [1986] HCA 58; (1986) 161 CLR 148, 153, Mason ACJ summarised the principles governing the grant or refusal of an interlocutory injunction as follows:

In order to secure such an injunction the plaintiff must show (1) that there is 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; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction.

8 That summary was adopted by Gleeson CJ in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199, 217. These principles have been routinely applied in this and other courts in Australia.

9 These principles were further explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57, [65] ‑ [71] (Gleeson CJ and Crennan J agreeing). Their Honours stated that the relevant principles are those stated in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, where the two main inquiries were said to be whether the plaintiff had made out a prima facie case and whether the balance of convenience favours the grant of the injunction. The phrase 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks: [65], [71].

10 The apparent statement by Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396, 407 that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, there will be a serious question to be tried, is not to be followed. The governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought. These principles make it clear that the various considerations identified by Mason ACJ in Castlemaine Tooheys are to be considered together.

11 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, 54 ‑ 55; 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; Madaffari v Labenai Nominees Pty Ltd [2002] WASC 67 [14].

12 In some senses, the plaintiffs' application seeks interlocutory mandatory relief, in that it seeks an order compelling the defendant to undo its re‑entry and permit the plaintiffs back into possession of the premises. The principles relating to interlocutory mandatory injunctions were explained in Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471, 483 ‑ 484, and Films Rover International (679 ‑ 682). In some cases, it is said that an interlocutory mandatory injunction should be granted only if the court has a high degree of assurance that the plaintiff will succeed at trial. However, ultimately the question is as to the balance of the risk of injustice. In considering that balance the court must take into account the nature and consequences of the particular injunction sought.

13 In this case, the defendant did not submit that the principles relating to the grant of an interlocutory mandatory injunction required that the court have a high degree of assurance as to the plaintiffs' success at trial before an interlocutory injunction ought to be granted. That is understandable because, in my opinion, the nature of the relief sought in this case and the factual context in which it arises are such that the considerations calling for caution in the grant of interlocutory mandatory injunctions do not apply with the same force in this case as in many other cases. Here, the nature of the relief sought does not give rise to the same risk of injustice as the grant of an interlocutory mandatory injunction may do in many other cases.

15 A number of factual matters were in dispute between the parties. The parties accepted that an application for an interlocutory injunction is not an occasion to attempt to resolve the disputes on affidavit.

16 The parties entered into a lease (the Lease) on 6 January 2006. The Lease was for a term of 10 years commencing on 1 November 2005, with the plaintiffs having a right of renewal for a further 10‑year term. The rent was for an amount of $105,000 per annum, payable in advance by equal monthly instalments.

17 By cl 3(a) the defendant was given a right to re‑enter the premises if rent was not paid for 14 days after it became payable.

18 Since January 2006 the vast majority of monthly rental payments have not been made on time. The history of the delay in making rental payments is summarised in the schedule which is attachment GRD 1 to the affidavit of Mr Glenn Durrant sworn 3 June 2008. Mr Durrant is the financial controller of the defendant. There was, as I understood, no dispute as to the accuracy of that schedule. It reveals numerous delays of substantial duration. Only a small minority of payments have been made on the due date.

19 The defendant regularly chased up the outstanding rent due to it from the plaintiffs. There are disputes in the parties' affidavit evidence as to a number of aspects of conversations said to have occurred. It is not in dispute that on a number of occasions Mr John Caratti and Mr Durrant, as agents for the defendant, spoke with representatives of Twinside regarding outstanding rent payments. Default notices were issued by the defendant, including on 31 July 2006, 16 February 2007 and 7 March 2008. The default notices stated that Twinside was in default and that unless the overdue rent was paid immediately legal action would be taken.

20 Further, on 4 April 2008, the defendant sent a facsimile to the plaintiffs demanding payment of arrears, failing which the lease would be terminated.

21 On 7 April 2008 Mr Caratti had a conversation with the plaintiffs' accountant in which the plaintiffs' accountant promised that $10,000 would be paid that day and another $10,000 would be paid the following week.

22 There is quite limited evidence from the plaintiffs to explain the numerous and substantial delays in payment of rent. Mr Raymond Bride, who is the second plaintiff and sole director of Twinside, swore an affidavit on 29 May 2008. Mr Bride's evidence is that Twinside performed some construction work, on a separate site, for the defendant and that the defendant consequently owes it just over $22,000. The plaintiffs' evidence is that, on various occasions, Mr Bride and Twinside's accountant said to the defendant that the defendant's failure to pay the $22,000 debt was a reason for the delay in payment of the rent. The defendant's evidence disputes the existence of this debt and disputes that it was mentioned as a reason for delays in payment of rent. Those disputed matters need not and cannot be resolved in this application. In any event, the $22,000 debt allegedly owed to Twinside does not explain, and is not said to explain, all of the numerous and substantial delays in payment of rent.

23 On 20 May 2008 the defendant exercised its right of re‑entry into the premises. When Mr Bride attended on the morning of 20 May 2008 he was unable to obtain access to the premises.

24 The plaintiffs adduced no evidence and made no submissions disputing the validity of the defendant's termination of the lease by re‑entry.

25 Later on 20 May 2008 the plaintiffs paid the sum of $33,000 to the defendant.

26 It is not in dispute that the rent for June 2008 has been paid.

27 After 20 May 2008 there was correspondence between the parties and their solicitors.

28 On 23 May 2008 solicitors for the defendant wrote to the plaintiffs' solicitors. The letter attached a lease instrument, being an offer to the plaintiffs to lease the premises, with a commencement date of 1 June 2008, an initial rental of $185,000 per annum plus GST and outgoings, and an initial term of 10 years with an option to renew for a further term of five years. The letter stated that apart from the rent review provisions the lease was essentially on the same terms and conditions as the terminated lease. The letter stated that if an amount of about $17,000 was paid and two copies of the deed were signed and returned, then Twinside would be given immediate possession of the premises.

29 In his affidavit sworn 3 June 2008, Mr Caratti said that he had no expectation that the offer of a new lease made in the defendant's solicitor's letter of 23 May 2008 would be accepted, and further that he did not want the proposal to be accepted because he did not believe that the plaintiffs would be able to afford to pay the increased rent. Mr Caratti says that he made the offer 'in order to bring the negotiations to an end'. At first blush, it is not easy to reconcile that evidence with what was in fact done on behalf of the defendant, namely the making of a firm offer to lease (acceptance of which would have given rise immediately to a binding lease). However, it is neither appropriate nor necessary to form any final judgment about the weight to be given to that evidence. In any event, the objective fact is that on 23 May 2008 the defendant offered a lease to the plaintiffs on substantially similar terms to the terminated lease, although at considerably higher rent.

30 I will deal with the evidence as to Twinside's financial position later in these reasons.

31 I turn to the principles relevant to the grant of relief against forfeiture.

Relief against forfeiture for non‑payment of rent: principles

32 Section 81(2) of the Property Law Act 1969 (WA) does not apply to forfeiture for non‑payment of rent: s 81(9).

33 The equitable jurisdiction to grant relief against forfeiture for non‑payment of rent is not open to doubt. See, for example, Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279.

34 Whether relief is to be granted involves the exercise of a broad discretionary power. The purpose of the power is to prevent a person forfeiting what in fair dealing belongs to someone else, by taking advantage of a breach by which he or she is not commensurately or irrevocably damaged: Hyman v Rose [1912] UKLawRpAC 52; [1912] AC 623, 631; Love v Gemma Nominees Pty Ltd [1983 ‑ 1984] ANZ Conv R 68; Westbrook Holdings Pty Ltd v Roseramble Pty Ltd (1994) 13 WAR 273, 281.

35 Whether relief is appropriate involves consideration of, amongst other things, the conduct of the applicant for relief, whether the default was wilful, the gravity of the breaches, and the disparity of the value of the property of which forfeiture is claimed as compared with the damage caused by the breach: Shiloh Spinners Ltd v Harding [1973] AC 691, 723 ‑ 724; Love v Gemma Nominees; Westbrook Holdings (281); Esther Investments (289, 307); Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11 [122].

36 In Butt P, Land Law (5th ed 2006) [15224], the following summary is set out:

Courts normally relieve against forfeiture for non‑payment of rent. Provided the landlord is compensated for all arrears of rent and any loss arising from the non‑payment, the tenant will generally succeed in having the lease restored [citing numerous authorities including Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VicRp 54; [1989] VR 584] ...

In line with this principle, a history of tardy payments is not of itself grounds for refusing relief against forfeiture [again citing numerous authorities including Jam Factory]. Nevertheless, the tenant is not entitled to relief as of right ...

Relief generally will be refused where the tenant is hopelessly insolvent, for in such a case an order re‑instating the lease would be futile. This is so even though the tenant is able to pay the arrears of rent at the time of the proceedings, because the court is entitled to take into account the improbability that rent will be paid in the future, or that its payment may be a preference for creditors. [Citing, among other cases, Direct Food Supplies (Vic) Pty Ltd v DLV Pty Ltd [1975] VicRp 34; [1975] VR 358, 360 ‑ 361]. But where the tenant's financial position was not hopeless, and the tenant had entered into a scheme of arrangement with creditors to try to trade out of its difficulties, relief was granted on payment of arrears to date. [Citing Greenwood Village Pty Ltd v Tom The Cheap (WA) Pty Ltd [1976] WAR 49, 53]

37 I accept the summary in these passages as an accurate statement of the law, supported by the authorities to which reference is made.

38 It is notable that in Greenwood Village Pty Ltd v Tom The Cheap (WA) Pty Ltd [1976] WAR 49, the lessee had entered into a scheme of arrangement with its creditors. Nonetheless, relief against forfeiture was granted.

39 In Old Papa's Franchise Systems [131] ‑ [132], McLure J (Murray and Parker JJ agreeing) said as follows:

There is authority to the effect that where a tenant undertakes to remedy the breaches giving rise to forfeiture, relief against forfeiture should be granted usually as of course and refused only in exceptional circumstances: Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VicRp 54; [1989] VR 584; Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49. In both cases there was evidence of reasonably based concerns as to the financial ability of the lessees to comply with their financial obligations under the relevant leases. Indeed, in the Greenwood Village case the lessee had entered into a scheme of arrangement with its creditors. The approach in these cases is a reflection of the principle that equity regards forfeiture of the lease as an ultimate security mechanism to ensure compliance with the agreement and if that can be achieved without forfeiture, relief will be granted: Love v Gemma Nominees Pty Ltd [1983‑ 84] ANZ ConvR 68 at 71.

Seen in that light, a lessee may properly be given the benefit of any uncertainty concerning its financial capacity to comply with its obligations because any subsequent breach of the lease can be met with a further termination for which relief from forfeiture is unlikely to be granted ...

40 It is evident that the starting point is a general rule that relief against forfeiture for non‑payment of rent will be granted to a lessee which has remedied its defaults in payment of rent. However, the remedy is discretionary and in exceptional circumstances relief may be refused for reasons arising from the lessee's poor financial position.

41 In Direct Food Supplies (Vic) Pty Ltd v DLV Pty Ltd [1975] VicRp 34; [1975] VR 358, 361 relief was refused on the ground that the lessee company was insolvent and so could not pay its debts, including the rent, and if rent was paid the lessor may well have been asked to disgorge those payments by a liquidator. In that case, a director of the lessee had conceded that the company could not pay its debts as and when they fell due.

42 The existence of serious grounds for concern as to whether the lessee is able to pay rental in the future is not a sufficient reason to refuse relief. That is because, as McLure J explained in Old Papa's Franchise Systems, any subsequent breach of the lease will lead to a future termination by the lessor from which relief against forfeiture is most unlikely to be granted.

43 Indeed, there is authority that even if a lessee is insolvent a court may, nonetheless, exercise its discretion to grant relief against forfeiture: Hayes v Gunbola (1986) 4 BPR 9247, 9250 ‑ 9251; Wynsix Hotels (Oxford Street) Pty Ltd v Toomey [2004] NSWSC 236 [32].

44 That brings me to the question of whether the plaintiffs have established a serious question to be tried (in the sense explained in ABC v O'Neill) that it will obtain relief against forfeiture at trial.

45 It is common ground that, with an insignificant exception which the parties agree will be resolved, the plaintiffs have remedied their defaults in payment of rent and outgoings. That being so, the plaintiffs would generally succeed as of course in obtaining relief against forfeiture.

46 The defendant submits that the application for interlocutory relief should be refused on the grounds that there is no serious question to be tried on the claim for relief against forfeiture. The defendant says that the only conclusion available is that at trial relief will be refused on the ground that Twinside is insolvent. I do not accept that submission. I accept that on the evidence presently available there will, at trial, be a real issue as to whether relief against forfeiture should be refused on grounds of Twinside's financial circumstances. However, in my opinion, it cannot be said that the position is, at this stage, sufficiently certain that there is no serious question to be tried.

47 The defendant developed its submissions in this regard by reference to a comparison between the facts of some of the authorities and the evidence in this case. However, the cases to which counsel for the defendant referred were all decisions made after a trial. In this application, the question falls to be asked in the framework of an application for an interlocutory injunction. At this stage, the evidence is incomplete.

48 The defendant objects to a substantial proportion of the evidence adduced by the plaintiffs as to Twinside's financial position. There seems to me to be considerable merit in many of those objections. However, it is not necessary to resolve all of those objections in the context of this application for urgent interlocutory relief. That is because the application can be resolved without regard to the evidence to which objection has been taken.

49 The defendant points to the absence of the financial records of Twinside which would enable an analysis of the company's debtors and creditors to be made. In particular, an analysis of the age of the company's debtors and creditors would be central to a determination of the solvency of the company.

50 I accept that, as the defendant submits, the solvency of a company is to be determined by analysis of the cashflow of a company and not simply by reference to whether its balance sheet reveals positive equity: see, for example, Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWSC 222; Leslie v Howship Holdings Pty Ltd [1997] FCA 133; (1997) 15 ACLC 459.

51 There is no doubt that the evidence adduced by the plaintiffs in support of this application falls well short of being sufficient to positively establish the solvency of Twinside. However, proof of solvency is not a necessary element for proof by an applicant for relief against forfeiture. Rather, relief will generally be given unless it is shown that it ought to be refused on grounds of the insolvency or likely insolvency of the lessee. Moreover, as I have said, this is an application for interlocutory relief, not the final hearing of the application for relief against forfeiture.

52 In its submissions, the defendant emphasised the absence of evidence from the plaintiffs on a number of topics. For example, it was said that there was no evidence as to the financial position of the second plaintiff, Mr Bride, or as to his willingness or ability to provide financial support to Twinside.

53 In that context, the limit to which inferences may be drawn based upon the absence of particular evidence should be borne in mind. The failure to call a witness or tender a document or ask questions on a particular topic, may, where an inference is open from the facts otherwise proved, support the drawing of the inference. However, the absence of a witness or document or evidence on a topic cannot be used to make up any deficiency of the evidence. It cannot be used to support an inference which is not otherwise sustained by the evidence, or used to fill gaps in the evidence, or to convert conjecture and suspicion into an inference: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 308, 312 and 320 ‑ 321; Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121 [53].

54 Further, in considering what inferences can be drawn from the plaintiffs' lack of financial evidence, it must be borne in mind that the application is for urgent interlocutory relief. Moreover, the plaintiffs were locked out of the premises, where Twinside's financial records were stored, from 20 May 2008 until at least late on 30 May 2008.

55 On 4 June 2008, the defendant's solicitors wrote to the plaintiffs' solicitors. The letter set out objections to the affidavit of Mr Stanley Grygorcewicz sworn 3 June 2008. The letter proposed that Twinside make available its books and records to the defendant's accountant. The plaintiffs' solicitors' response was sent late on 4 June 2008. (Until then, the plaintiffs' solicitors had been occupied preparing the plaintiffs' affidavits in reply.) By letter of 4 June 2008, the plaintiffs' solicitors declined the request to permit Twinside's books and records to be made available to the defendant's accountant. The plaintiffs' solicitors' letter suggested that any report as to the solvency of Twinside should be prepared by an independent accountant. The plaintiffs offered to agree that the hearing listed for 6 June 2008 be adjourned to allow an independent accountant's report to be prepared and that, in the meantime, Twinside be permitted back into the premises. That proposal was not accepted by the defendant.

56 The defendant's submissions pointed to the plaintiffs' failure to allow the defendant's accountant to access Twinside's books and records. However, in the context of the correspondence I have summarised, and in the context of the imminent deadlines which were in place, I would not draw any adverse inferences from the fact that the plaintiffs declined the request.

57 The defendant's submissions emphasised the payment history which it characterised, justifiably, as deplorable. However, the authorities establish that payment history in itself will not necessarily be a ground for refusal of relief against forfeiture. Whether relief is refused will depend upon all of the circumstances.

58 The defendant also submits that there is nothing in the plaintiffs' evidence to establish any ground to expect that the rent will be paid any more promptly than it has been over the 29 or so months of the duration of the Lease. In response, the plaintiffs submitted that, if relief against forfeiture is granted, Twinside and Mr Bride will know that if the rent is not paid promptly the right to re‑enter will be exercised and the prospects of further relief against forfeiture will be bleak. There is, to my mind, some force in the plaintiffs' submission. Late payments of debt may demonstrate an inability to pay debts when they fall due, or it may reflect an unwillingness to pay on time notwithstanding an ability to do so.

59 I also take account of evidence led by the defendant of statements made by other creditors of Twinside as to the difficulties these creditors have experienced or are experiencing in collecting their debts from Twinside. I also take into account the plaintiffs' evidence in response.

60 Whether the plaintiffs' financial position is so poor that relief against forfeiture should be declined is a matter which, in my opinion, is appropriately determined at trial. At trial the parties would have had the opportunity to prepare comprehensive evidence as to the financial position of the plaintiffs. They have not had that opportunity on this application.

61 In my opinion, it is not so clear that Twinside will be unable to pay the rent or is so likely to be insolvent so as to mean that the plaintiffs do not have a prima facie case, or that there is no serious question to be tried, in the sense explained in ABC v O'Neill. Thus, I find that the plaintiffs have established a prima facie case or serious question to be tried on the plaintiffs' claim for relief against forfeiture.

62 There is no question of the adequacy or inadequacy of damages. The claim for relief against forfeiture does not give rise to any claim for damages.

63 That brings me to the question of the balance of convenience.

64 The defendant conceded that if it were found that a serious question to be tried existed, the balance of convenience favoured the grant of the injunction.

65 In my opinion, that concession was properly made. To my mind the balance of convenience is overwhelmingly in favour of the grant of the injunction.

66 If the injunction is granted, the potential adverse consequences to the defendant are relatively limited in scope. The defendant points to what it says is the high likelihood that rent would not be paid. However, if the rent for any month is not paid, and remains unpaid for 14 days, the defendant can re‑enter the premises. The prospect of any further relief against forfeiture would be, to say the least, bleak. Thus the defendant would be at risk in respect of one month's rent only. Moreover, Mr Bride is a co‑lessee and so would be liable for any unpaid rent.

67 The other potential adverse consequence to the defendant if the injunction is granted, is that it would lose any increase in rent which it might now be able to obtain upon a re‑letting of the premises. Any such loss would be subject to the undertaking as to damages which is given by both plaintiffs. In that context, I do not overlook the doubts surrounding the financial position of Twinside and the absence of evidence as to the financial position of Mr Bride. The trial of this action should be able to occur within a period of months, not years. That would confine the amount of any loss which might arise in this way.

68 The risk of injustice to the plaintiffs if the injunction is not granted, and at trial relief against forfeiture is ordered, is enormous. Since the defendant re‑took possession of the premises Twinside has been unable to conduct its business of manufacturing concrete products. It has a number of orders which are partially completed and which cannot yet be filled. Relocation of the business would be very costly and could not occur quickly. Mr Bride considers it difficult to identify any suitable properties which might be available. The business would require environmental and local authority approval before it could be established at new premises. If no injunction is granted, the viability of the business is, at the least, seriously under threat. Mr Bride says that if no injunction is granted he would have no option but to terminate the employment of the 17 employees of Twinside.

69 In all the circumstances, particularly taking into account my assessment that the plaintiffs have prospects of succeeding in obtaining relief against forfeiture at trial, the consequences for the plaintiffs and its employees if no interlocutory relief is granted, and the limited potential prejudice to the defendant, I am satisfied that it is appropriate to grant the interlocutory relief sought.

70 For these reasons I would be prepared to make an order to the effect that, pending the trial of the action, the defendant permit the plaintiffs into possession of the premises pursuant to the Lease.

71 I would hear from counsel as to the precise orders which should be made.

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