Westend Entertainment Centre Pty Ltd v Equity Trustees Ltd [1999] VSC 514

Supreme Court of Victoria|1999-12-10|Before: Mandie J

Westend Entertainment Centre Pty Ltd v Equity Trustees Ltd

PRACTICE AND PROCEDURE - application for interlocutory injunction by tenants to restrain mortgagee from re-entry or forfeiture of lease. MORTGAGE - tenants claim equitable set-off against rent payable to registered mortgagee in possession - whether serious question to be tried. LEGAL PRACTITIONERS - whether solicitors should be restrained from acting for defendant.

In one of these two proceedings the plaintiff ("Entertainment") seeks an injunction restraining the defendant from re-entering demised premises or forfeiting a lease, a declaration that a lease as varied by certain deeds is binding on the defendant as mortgagee, a declaration that it is not in arrears of rent and a declaration that it is entitled to set-off against the rent certain costs, or certain damages said to be payable by the defendant.

At this interlocutory stage, Entertainment by two summonses seeks an injunction restraining the defendant's solicitors ("Deacons") and counsel from acting for the defendant in this proceeding and an interlocutory injunction restraining the defendant mortgagee from forfeiting a lease or re-entering demised premises. The plaintiff is the tenant under an unregistered lease dated 1 July 1997 (which it entered under its former name of Minneken Pty Ltd) from Westend Properties Pty Ltd ("Properties") of part of a building "complex" situated at 47 McIntyre Road, Sunshine comprising a "Gaming & Reception Area" on the ground floor and professional suites on the first floor for a term of 10 years with an option of renewal for a further five years at an initial rent of $108,333.33 per calendar month. Under the lease the tenant agreed to "pay the rent without any deductions "(cl. 2.1.1) and also agreed to pay 30% of the defined outgoings. The landlord is entitled to re-enter the premises and end the lease if the tenant does not pay the rent for 14 days, no demand being necessary. Under Item 22 of the Schedule the lease containing additional provisions, the landlord agreed to attend to certain refurbishment works to the tenant's specifications to a maximum expenditure of $400,000 to commence within 30 days and to be completed within six months.

Mr Anthony Cerantonio, an accountant and described as a partner in the firm of Cerantonio & Salvalaggio (although it is, I think, incorporated), who had a long association with the complex, became a director of Entertainment in June 1997 and its Managing Director more recently. Mr Cerantonio was involved in negotiating the lease with Mr Sam D'Abico, a director of Properties.

In or about late May or early June 1987 Properties had applied to ANZ Funds Management for and were offered first mortgage finance of about $13M to assist with the purchase of the complex. ANZ Funds Management received a valuation and copies of the relevant leases. The monies were advanced and a mortgage over the complex dated 4 July 1997 from Properties to the defendant, Equity Trustees Ltd, as mortgagee (and trustee of the ANZ Mortgage Fund) was registered on 11 July 1997. A debenture charge was also taken. Deacons had acted as solicitors for the defendant in this transaction.

Entertainment commenced to carry on an existing business (which it had purchased) in the demised premises, that business being "a large 100 machine gaming room and a bistro bar" which was open 24 hours per day, seven days per week with statutory exceptions only. As I understand the affidavit material, although it is not clear, the proposed refurbishment works on the demised premises were to be part of a larger and more expensive refurbishment project for the complex as a whole. In any event, Properties had difficulty obtaining finance and were unable to commence the works as promised. An agreement was reached between Entertainment and Properties which was recorded in a letter of agreement dated 4 July 1997 which, so far as relevant, provided that:

"Recognising the commitment by [Properties] to undertake the redevelopment and upgrade of the complex, which was the understanding at the time of the signing of your lease (including acknowledgment of the hiatus period and the disruption that will occur during the development) it is agreed that [Properties] will pay to [Entertainment] a Market Development Establishment Allowance of $54,000 per month until December 1998 or the agreed effective commercial completion of the redevelopment whichever occurs first."

Entertainment treated the agreed allowance of $54,000 per month as a set-off against the rent paid to Properties and initially paid the balance of rental irregularly. According to Mr Cerantonio, Entertainment's cash flow improved from December 1997 and it began to pay the reduced rent in advance to assist Properties due to their mutual interest in advancing the total project. The refurbishment never commenced apparently due to both finance and planning problems but Entertainment's business was improving and it continued to pay the reduced rent. In early January 1999 D'Abico and Mr Cerantonio orally agreed that the $54,000 monthly set off against the rent should continue. In June 1999 Mr Cerantonio commenced to negotiate a variation of the lease and also assisted one Charles D'Abico, a director of Melbourne Westend Market Pty Ltd ("Market"), the plaintiff in the parallel proceeding, to achieve a similar result.

A Deed of Variation of Lease, involving substantial rent reductions, was made between Entertainment and Properties on 11 June 1999. The agreed variations were:

"1. In consideration of the Lessor's failure to:- (a) attend to the refurbishment work set out in Clause 22 of the Lease; (b) refurbish the existing entertainment facilities and; (c) proceed with development in accordance with the agreement between the parties to obtain all necessary permits and to carry out all capital works to enable Westend Market to operate 7 days a week. the Lessor has agreed that the rent payable for the period commencing 1st June, 1999 to the 31st May, 2000 shall be 50% of the amount determined in accordance with the Rent Review to Market provision set out in Clause 11.1 of the Lease and excluding 11.1.5 of the said lease. 2. The rental for the period 1st June, 2000 to 31st May, 2001 and for each 12 month period thereafter shall be determined in accordance with the Rent Review to Market provision set out in Clause 11.1 of the Lease and excluding 11.1.5 of the said lease. 3. The parties hereby agree that the rental payable by the Lessee shall be reinstated to that specified in the Lease dated the 1st day of June, 1997 upon the Lessor completing the works referred to in Clauses 1(a), (b) and (c) above and in accordance with the annexed plans. 4. Upon the Lessee providing to the Lessor in a form acceptable to the Lessor an irrevocable Bank Guarantee equivalent to three (3) months rental the Lessor shall release the Guarantors from their obligations under the Lease. 5. The Lessor hereby waives its right to claim from the Lessee and/or the Guarantors any rental arrears outstanding as at the date hereof."

It will be noted that the rent was to be reinstated upon completion of the works in accordance with certain plans which were annexed to the deed of variation.

On 2 August 1999, a further Deed was entered into between Entertainment and Properties as a result of negotiations between Sam D'Abico and Mr Cerantonio. This Deed provided for the total amount of $500,000 said to have been lent interest-free, by this stage, by Entertainment to Properties to be set-off against future rental so that no rent would be paid until that amount was fully offset.

On 19 August 1999 Deacons on behalf of the defendant and Properties and the Receivers of Properties wrote to Entertainment advising of the appointment of Receivers and Managers to Properties. The letter referred to defaults by Properties under the mortgage as at 11 June and 2 August 1999 constituted by failures to pay group tax, land tax and council rates and asserting that even if the Deeds of Variation would otherwise have been binding on the mortgagee they were not by reason of these defaults. The evidence supports the existence of these defaults. On 15 September 1999 Deacons wrote to Entertainment asserting by reference to a detailed statement that there were arrears of rent in the sum of $1,768,038.96.

Entertainment's solicitors replied by letter dated 17 September 1999 denying indebtedness for rent and referring to substantial payments made by Entertainment to or on behalf of Properties since 1 July 1997, to the market development allowance and to the Deed dated 11 June 1999. Entertainment's solicitors also referred to the loss and damage suffered due to the breach of Item 22 of the lease (the refurbishment obligation) and to an assessment that was being made of damages which might be set-off against future rent. They also referred to an independent assessment of the market rental for the demised premises at $575,000 (approximately one-half of the lease rental) and invited discussions.

By letter dated 12 October 1999 Deacons advised Entertainment that the receivers and managers had retired and that the defendant was now "in possession of the rents and profits" of the property which included the demised premises. The letter demanded payment of full rental (including arrears) totalling $2,223,309 and referred to the monthly rental amount of $113,817.80. I note that s. 78(1)(a) of the Transfer of Land Act 1958 provides that the mortgagee upon default in payment of the principal sum or interest may enter into possession of the mortgaged land by receiving the rents and profits thereof.

By letter dated 14 October 1999 Deacons served "Notice pursuant to Section 146 of the Property Law Act 1958" which recited that the defendant was mortgagee in possession, that Entertainment was a tenant of part of the property under a lease dated on or about 1 June 1999 (an error for 1997), that the defendant was entitled to all the rents and profits, that the lease provided for payment of all rent without deduction and which demanded payment of $2,223,309.75 within 14 days failing which the defendant "may re-enter the premises or forfeit the lease without further notice".

No payment of rent or arrears as claimed has been made.

The application by Entertainment to restrain Deacons and counsel retained by them from acting for the defendant

For approximately six years, Deacons have acted on behalf of Cerantonio & Partners Pty Ltd and Cerantonio & Salvalaggio Pty Ltd, which Mr Cerantonio describes as his "previous and present accountancy firms", in a Supreme Court Proceeding ("the Buksh proceeding") in which allegations are made against those firms and Mr Cerantonio by former clients in relation to the sale of a property. The Buksh proceeding and the matters involved in that proceeding are unrelated to the present dispute, the present parties and the Westend complex. However, Cerantonio and Salvalaggio Pty Ltd act as accountants for Entertainment and Mr Cerantonio is the managing director of Entertainment and licensee under the gambling licence and has been a director since June 1997. He is also a director of the company which sold the complex to Properties.

Mr Cerantonio deposed that over the years he had had a number of discussions with various solicitors from Deacons concerning the Buksh proceeding and in the course of doing so provided "background material" including information about his and his firm's involvement with the Westend complex but he was unable to recall precisely what information was provided. Some months ago he worked with Mr Kambovski of Deacons in preparing a detailed statement concerning the Buksh proceeding which makes some reference to activities concerning the Westend complex. The Buksh proceeding is in the course of finalisation of a settlement reached at a mediation.

Mr Cerantonio deposed that he also feared that his partners (with two of whom he was in bitter conflict) may have supplied relevant confidential information of some detrimental kind concerning him to Deacons.

It is unnecessary to refer to the evidence about the way in which the alleged conflict of interest came to the attention of Mr Cerantonio save that when Deacons on 2 December 1999 gave a notice of intention to cross-examine him on this application (subsequently not acted on), this matter came to a head. I formed the view that although Entertainment's concerns might be genuine, they were also tactical, and because they were raised when they were they gave little time to Deacons to consider its position and more importantly little time for the defendant to avoid the prejudice involved in a change of representation. The defendant has indicated that, although not relied on at this interlocutory stage, the defendant will be contending at trial that "links" between various persons (including Mr Cerantonio) and various companies are factually relevant and that the defendant will be contending that the Deeds of Variation and other transactions between Properties and Entertainment were "not at arm's length".

Mr David Fogarty, who is the partner in Deacons acting for the defendant and in charge of this proceeding, deposed that until recently he did not know of the existence of the Buksh proceeding and that he knew nothing of the instructions given in it.

Mr Patrick Montgomery, who is also a partner in Deacons, has acted in the defence of the Buksh proceeding since about late 1995 and Mr Kambovski is handling that proceeding under his supervision. Mr Montgomery deposed that he had been unaware of this proceeding until recently and that there were only brief and incidental references to the Westend complex in Mr Cerantonio's statement in the Buksh proceeding.

After argument was heard in support of the plaintiff's application against Deacons and counsel (and a related application by Market), I indicated that the application by Market against Deacons and counsel would be dismissed and reasons would be given later, that the application against counsel would be dismissed but that I would reserve judgment in relation to the application by Entertainment against Deacons. As a result of that announcement, a notice of change of practitioner for the defendant was filed in relation to the Entertainment proceeding but counsel indicated that Deacons wished to return to the record if not restrained from so doing.

I will therefore now deal with Entertainment's application against Deacons and counsel. Mr Golvan QC who appeared with Mr Langmead of counsel for Entertainment submitted that there was a "real and sensible possibility" of a conflict of interest and of a misuse of confidential information, citing Farrow Mortgage Services Pty Ltd v Mendall Properties Pty Ltd [1995] VicRp 1; [1995] 1 VR 1, 4-5 per Hayne J. Mr Golvan submitted that the knowledge of one partner should be imputed to the other, citing Mallesons Stephen Jaques v KPMG Peat Marwick (1991) 4 WAR 357, 374 per Ipp J. Mr Golvan submitted that Deacons' duty in acting for Entertainment might conflict with its duty to the defendants in the Buksh proceeding in relation to the use of confidential information received from Mr Cerantonio and others in the latter proceeding because credit issues relating to Mr Cerantonio were to be a central part of the defendant's case in this proceeding. A number of staff of Deacons were involved. Information might be used in cross-examination, in selecting witnesses or in strategy generally.

Mr N. Young QC who appeared with Mr Connock of counsel for the defendant submitted that the two proceedings were unrelated, that Mr Cerantonio was not a party in either of them, that Mr Cerantonio had known of Deacons involvement for some time, and most importantly that no confidential information had been identified which might be misused. Mr Young referred to Yunghanns v Elfic Ltd (Supreme Court of Victoria, unreported, 3/7/98) in which Gillard J said:

"The authorities establish that there are a number of factors which must be considered and weighed on an application such as the present, namely - (i) the right of a solicitor to act for any client and the right of all members of the community to retain a solicitor of their own choice;

(ii) the right of a client to the maintenance of all confidential information obtained by the solicitor during the course of the retainer, which right continues until the client expressly or impliedly consents to the discharge of the obligation of confidence;

(iii) that as a general rule it is necessary to identify and establish that there was some confidential information provided (see Bricheno v. Thorp (1833) 2. Cr. and M. 183[1833] EngR 139; , 149 E.R. 725.) But the degree of particularity of the confidential information must depend upon all the circumstances. Often it cannot be identified for fear of disclosure. In considering this factor it must be borne in mind that a solicitor makes notes, forms views and opinions of clients and observes things that the client may have forgotten or overlooked. In some cases the circumstances of the retainer and the nature of the legal work will be sufficient to establish the nature of the confidential information. In this regard the relationship between solicitor and client may be such that the solicitor learns a great deal about his client, his strengths, his weaknesses, his honesty or lack thereof, his reaction to crisis, pressure or tension, his attitude to litigation and settling cases and his tactics. These are factors which I would call the 'getting to know you' factors. The overall opinion formed by a solicitor of his client as a result of his contact may in the circumstances amount to confidential information that should not be disclosed or used against the client.

(iv) That a solicitor must, consistent with his retainer, act in the best interest of his client which means not only exercising skill but also putting at his client's disposal all relevant knowledge and if a solicitor is in a position where he is unable to reveal all his knowledge to a client he should not act for him. See Spector v. Ageda (1973) 1 Ch. 30 at p.48. This must be especially the position where the solicitor has acted for two clients in relation to one transaction and then thereafter acts for one against the other in relation to matters arising out of the same transaction."

Mr Young submitted that it was a rebuttable presumption that the knowledge of one partner was to be regarded as the knowledge of another partner or partners (referring to Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 17 WAR 98 in which Ipp J moved from his previous position (at p. 108).

Having regard to the fact that Deacons are not, for the time being, acting for the defendant, I need not consider the factors of convenience and the like affecting the present application for an interlocutory injunction save to say that there was no evidence either actual or to be inferred that Mr Fogarty or counsel had at this stage received or were likely to have received confidential information obtained by Deacons in the Buksh proceeding. The only question is whether Deacons should be restrained from acting in the future conduct of this proceeding.

While the confidential information is somewhat nebulous to say the least, I consider that, although it is a borderline case, there is a real and sensible possibility of some information being used to the detriment of Mr Cerantonio and hence Entertainment in terms of the defendant's general approach to strategy, cross-examination and the like. I have considered a solution whereby those partners and others in Deacons who had an involvement in the Buksh proceeding would not become involved with this proceeding or communicate information to those involved in it.

However, Mr Golvan also adverted to the importance of the fiduciary relationship between solicitor and client. I would add that there is in addition to the risk of misuse of confidential information, the consideration which arises from the solicitor's duty of loyalty and the need to avoid the appearance of disloyalty (see McVeigh v Linen House Pty Ltd [1999] VSCA 138; Wan v McDonald [1992] FCA 4; (1992) 33 FCR 491, 512-3). That principle is of particular application in cases where a solicitor seeks to act against a former client in litigation arising out of or in relation to the same subject-matter. This case does not involve that aspect. However, Mr Cerantonio is, through his accountancy companies, in substance the client (or soon to be the former client) of Deacons in a proceeding in which serious allegations were made against him. His sensitivity can be well understood in circumstances where it would seem that Deacons on behalf of the defendant is now likely to be the channel for other potentially serious allegations to be made against him and both cases thus involve questions of the propriety of his conduct in a commercial context. I have concluded that for the reason of appearance of disloyalty the injunction sought would have been granted against Deacons had they not removed themselves from the record. I see no basis for any order in relation to counsel.

Application by Entertainment to restrain the defendant from re-entering the premises or forfeiting the lease

The issues were narrowed to some extent because, on the one hand, the defendant stated that it would seek to re-enter the premises and forfeit the lease at this stage only upon the ground of non-payment of rent due since 12 October 1999 when it "took possession", and on the other hand, Entertainment conceded for present purposes both that the Deeds of Variation of Lease were not binding on the defendant as mortgagee and that insofar as rent had been "paid in advance" this could not be relied on in relation to rent since the mortgagee took possession. Mr Golvan in substance submitted that Properties' covenant in relation to the refurbishment was a covenant touching and concerning the land, the burden of which ran with the reversion, and that accordingly Entertainment was entitled in equity to set-off against the rent a claim against the defendant for unliquidated damages for a continuing breach of covenant. Those unliquidated damages were to be measured by the cost of the refurbishment or the loss of profits suffered by Entertainment as a result of the continuing failure to carry out the refurbishment works.

Mr Young in substance submitted that there was no serious issue to be tried because Entertainment was not entitled to set-off a personal claim for damages from Properties against the rent to which the defendant was entitled, as mortgagee, pursuant to ss.78 and 81 of the Transfer of Land Act 1958.

Section 81(1) of the Transfer of Land Act 1958 relevantly provides that a first mortgagee shall have the same rights and remedies at law and in equity as he would have had if the legal estate in the mortgaged land had been vested in him as mortgagee with a right in the mortgagor of quiet enjoyment until default in payment of any principal or interest or a breach of some covenant.

It is necessary in order to consider whether there is any serious question to be tried to refer as briefly as possibly to a number of authorities.

In Reeves v Pope [1914] KB 284, a building company entered into an agreement with the defendant to erect and complete a hotel so as to be ready for occupation by a certain date and the defendant agreed to take a lease of the hotel for 28 years at a specified rent as soon as it was ready for use. The building company made default in completing the hotel but on its subsequent completion the defendant accepted a lease for the stipulated term without prejudice to any claim for damages for breach of the agreement. The building company had a head lease of 99 years which it mortgaged to the plaintiffs. The plaintiffs, as mortgagees in possession, claimed against the defendant arrears of rent accrued since the date of the mortgage. The defendant sought to set-off a claim for damages arising from the delay in completing the hotel. The Court of Appeal held that the claim to damages was a claim for breach of a personal covenant or a personal right and not an interest in land. As such, it could not be set-off against the rent. Buckley LJ also noted (at 289) that the mortgagees were entitled as mortgagees to the reversion expectant on the determination of the lease and as such were entitled to the rent but they were not assignees of the rent.

The facts of Reeves v Pope are arguably significantly different to those in the present case: the agreement to do the work was not contained in the lease and preceded the lease; the lease was entered into after reserving any claim to damages which had accrued and there was no continuing obligation involved, the hotel having been erected; the rental obligation was assumed independently of the claim to damages which was preserved.

In Citibank Pty Ltd v Simon Fredericks Pty Ltd [1993] VicRp 66; [1993] 2 VR 168, a registered mortgagee in possession contended that it was entitled to the rent due under a lease without any set-off or deduction by the tenant. The tenant claimed to be entitled to a set-off or deduction in the amount of an award in the tenant's favour for damages against the landlord for loss of profits arising from breaches of the covenant for quiet enjoyment in an earlier lease (not the current lease). Beach J distinguished the case of British Anzoni (Felixstowe) Ltd v International Marine Management (U.K.) Ltd [1980] 1 QB 137, a case of equitable set-off against rent, on the basis that British Anzoni was a case between lessor and lessee whereas the case before him was one between lessee and mortgagee in possession. Beach J referred to s. 42(2)(e) of the Transfer of Land Act 1958 and to Reeves v Pope and said that "a right of damages for breach of a covenant of quiet enjoyment... is a consequential personal right and not an interest in land" (at p. 173). Beach J went on to say (at p. 175):

"The decision in Reeves Case was referred to with approval by Smith J in Downie v. Lockwood [1965] VicRp 38; [1965] V.R. 257, at p.260, and is supported by Halsbury's Laws of England, 4th ed., vol. 2, para. 464. See also Lee-Parker v. Izzet [1971] 3 All E.R. 1099. In my opinion a mortgagee in possession is not bound by any claims a tenant may have against the lessor-mortgagor. Upon default in payment of principal and interest due under a mortgage, a mortgagee is given a statutory right to the rent due under a lease of the mortgage property. See s. 78 of the Transfer of Land Act. That right cannot be subject to any personal obligation of the mortgagor to the tenant. I consider therefore that the first contention must fail. Rule 13.15 of the Supreme Court Rules reads: 'Where a defendant has a claim against a plaintiff for the recovery of a debt or damages the claim may be relied on as a defence to the whole or part of a claim made by the plaintiff for the recovery of a debt or damages and may be included in the defence and set off against the plaintiff's claim, whether or not the defendant also counterclaimed for that debt or damages.' In my opinion, the rule has no application to the present case. Simon Fredericks has no claim against Citibank for the recovery of a debt or damages; its claim is against Jam Factory. As to Simon Fredericks' third contention, that is, that as a matter of justice and equity Simon Fredericks should be entitled to set off the arbitrator's award against Citibank's claim for rent, I simply say that in my opinion that cannot be so. Simon Fredericks has no claim against Citibank for breach of the covenants in the original leases. Citibank was not a party to those leases nor did it ever adopt the leases. The fact that it adopted the third lease did not render it in any way liable in respect of Jam Factory's breaches of the original lease. In the event the conclusions I have reached thus far are erroneous, nevertheless I would have found against Simon Fredericks. Clause 20.10 of the lease provides: 'Payment of money' 'All rent and other money payable by the tenant to the landlord hereunder shall be paid without any deduction whatsoever to the landlord or to such person on behalf of the landlord or to the credit of the landlord at such bank or by order on the tenant's bankers directing payment thereof to the credit of the landlord's account as the landlord may from time to time in writing direct.' In my opinion that clause expressly excludes any right Simon Fredericks may have had to set off against rent payable under the lease the award it obtained against Jam Factory. Rent falling due under the lease must be paid by Simon Fredericks without deduction no matter what claim it may or may not have against Jam Factory."

The facts in Citibank are also arguably significantly different to those in the present case: the covenant broken was in an earlier lease; the breach was a past and not a continuing breach and had merged in an award for damages against the landlord.

In Piazza Grande Pty Ltd v Portis Pty Ltd (1993) V Conv R 54-460, a lessee sought to maintain an interim injunction against ejectment by a mortgagee in possession. The lessee claimed a set-off against the rent based upon a claim for damages for breach of the lessor's covenant to provide a manager for a shopping complex of which the demised premises formed part and for breach of a covenant that only one restaurant would be operated in the complex. Beach J discharged the interim injunction and dismissed the lessee's application. So far as presently relevant, his Honour applied Citibank and Reeves v Pope. There was not a cause of action against the mortgagees but only a personal right against the lessor.

The case of Piazza Grande is directly in point but it does not appear to have been argued in that case, as it might have been and as it is in this, in short, that the covenants touch and concern the land, that the burden of the covenants runs with the reversion, that the mortgagee in possession cannot claim the benefit of the rent under the lease without accepting the burden of the covenants under the lease and that the damages claim has sufficient nexus with the claim for rent as to give rise to an equitable set-off.

In contrast to the foregoing cases, in Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410, Williams J (in a reserved judgment) held that a registered mortgagee in possession could not resist a lessee's claim to an equitable set-off against the rent. In that case, there was an anterior agreement to lease under which the lessor covenanted to perform certain lessor's work on the premises by a stipulated date and the lessee brought proceedings against the lessor claiming damages for breach of that covenant and also for breaches of the lease itself by failing to give peaceable possession and enjoyment and by unreasonably interfering with use and occupation by the lessee. The result in the case turned chiefly on the operation of the relevant Queensland legislation. Williams J said that the mortgagee's position as the owner of the reversionary interest was of critical importance in Reeves v Pope and that s.81 of the Transfer of Land Act 1958 (Victoria) produced "a vastly different position to that which exists in Queensland" and, in effect, put the Torrens title mortgagee in Victoria in the same position so far as relevant as a mortgagee under the general law (as in Reeves v Pope).

Accordingly, Williams J distinguished the decision of Beach J in Citibank as based upon s. 81(1) of the Victorian Act. I note however that Beach J did not refer to s. 81(1) of the Victorian Act and that Williams J gave a quite different interpretation to s. 60 of the Queensland Act which is in similar terms to s. 78(1) (a) of the Victorian Act upon which Beach J had relied. It may be that s. 81(1) of the Transfer of Land Act is a provision necessary to support the result in Citibank but the proper interpretation of that section is far from clear as has often been noted by commentators and as was most recently emphasised by the decision of the High Court in Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd [1999] HCA 20; (1999) 73 ALJR 720 (see especially the judgment of McHugh J).

In Partnership Pacific, the lease provided that the rent should be paid "free of exchange and/or deductions" and "without any deduction whatever". Williams J decided that those words did not exclude an equitable set-off (see reasons at pp. 424-5). Mr Golvan submitted that the reasoning was to be preferred to that of Beach J in Citibank (see too "Waite: Disrepair and Set-Off of Damages Against Rent..." [1983] The Conveyancer 373, 388-9).

In Ory v Betamore Pty Ltd [1993] SASC 3996; (1993) 60 SASR 393, a decision of the South Australian Full Court, it was held that tenants were not entitled to set-off against the rent claimed by a mortgagee a claim against the landlord relating to overpayments made to the landlord. Legoe J, with whom Matheson and Duggan JJ agreed, said (at p. 406) that "the alleged equitable set-off in these circumstances is not available to the tenants because the overpayment does not run with the lease but is a personal claim by tenant against landlord" applying Reeves v Pope. Legoe J agreed with Beach J in Citibank and also placed a construction on the South Australian equivalent of s. 78 of the Victorian Transfer of Land Act in line with that of Beach J and not that of Williams J in Queensland.

It is clear that Entertainment's case faces substantial legal obstacles notwithstanding that the arguments put by Mr Golvan do not appear to have been squarely raised or considered in the cases to which I have referred. The issue raised by the plaintiff's arguments was perhaps touched upon by Lord Wilberforce in National Provincial Bank Ltd v Hastings Car Mart Ltd [1965] UKHL 1; [1965] AC 1175, at 1253-1254. The British Anzoni equitable set-off argument has been favourably considered (see for example MEK Nominees Pty Ltd v Billboard Entertainment Pty Ltd (1993) V Conv R 54-468) but Mr Golvan was unable to cite any authority applying that approach as between landlord and tenant to the claim of a mortgagee in possession against a tenant. Nevertheless, I do not think that it can be said that there are not serious questions of law to be tried.

Entertainment's case faces some other difficulties. Mr Cerantonio's affidavit discloses, indeed emphasises, that the agreement with Properties concerning the refurbishment was only partly contained in the lease and was the subject of oral arrangements made both before and after the lease. How that would impinge on Mr Golvan's arguments remains to be debated. Further, the very large sums which the plaintiff contends were agreed to be spent on the refurbishment and the consequential damages do not appear to be consistent with the monetary cap contained in the lease.

Turning to the balance of convenience, the evidence shows that Entertainment has a valuable business operating on the premises with a large turnover and substantial profit which would be likely to be destroyed if the mortgagee were to re-enter the premises or forfeit the lease. Further, a refusal of the injunction sought might determine the question against Entertainment without full evidence and argument at trial. On the other hand, heavy financial detriment is threatened to the investors whose monies have been advanced on this mortgage. That detriment is no doubt protected by the usual undertaking as to damages but in the volatile situation affecting this property some real concern must be felt as to what might eventuate by the time a trial, even a speedy trial, (plus possible appeal) is heard and resolved.

In my view it is appropriate to grant the injunction sought but only subject to stringent conditions. I would propose to order that the defendant be restrained from re-entering the premises or forfeiting the lease for a period of 14 days and that if the plaintiff within that period pays the sum of $160,000 into an account of the Senior Master or otherwise as agreed, (representing two monthly payments in arrears of $80,000 as from 12 October 1999) and continues to pay the sum of $80,000 per month in arrears plus an amount equivalent to 30% of the defined outgoings into such account or otherwise as agreed (all such sums to abide the order of the court in this proceeding and on any counterclaim herein), the defendant continue to be so restrained until after the trial of this proceeding or further order.

I turn to the parallel proceeding (7360 of 1999) in which Market is the plaintiff in which it makes the same interlocutory applications as are made by Entertainment in the other proceeding (7361 of 1999).

It is unnecessary to repeat the facts except insofar as they are in a relevant respect different.

Mr Charles D'Abico, a director of Market, deposed that Market is a lessee of a variety market in the complex. Prior to entering the lease, Charles D'Abico negotiated the lease with his brother Sam D'Abico as a director of Properties. Part of the plan discussed was to obtain a seven day trading permit for the market. Charles D'Abico deposed that he had no involvement in Properties and his brother had no involvement in Market. Under a lease dated 1 July 1997 Properties demised to Market an area in the complex shown on an attached plan and referred to as the Market Fresh Food Hall, Take-Away Food Hall and Retail Area for a term of 5 years (with two further terms each of 5 years) at a rent of $108,333.33 per calendar month for the first year and an amount equivalent to 70% of the defined outgoings. The sheet containing Item 22 of the Schedule is missing from this lease but is contained in a previous lease dated 1 April 1997. Market may well have a good case for rectification and the defendant, on this application, did not seek to contend otherwise. Item 22 of the Schedule in the lease dated 1 April 1997 contains a covenant by Properties to attend to certain broadly defined works in accordance with the tenant's specifications, such works to commence within 30 days of the commencement of the lease and to be completed within six months at the landlord's expense to a maximum of $650,000.

The landlord's works did not ever commence. In early July 1999 Mr Cerantonio told Charles D'Abico that Entertainment had obtained a reduced rent so Charles D'Abico approached Sam D'Abico and (as Charles deposes) they agreed on a $54,000 per month rent reduction for Market until the works were done and the seven day trading permit obtained. The agreement was recorded in a document which has since been lost or destroyed.

Charles D'Abico deposes that he was told by his brother in November 1998 that a seven day trading permit had been obtained but I do not think that it is clear from the material whether that was in fact the case. In early June 1999, prompted by Mr Cerantonio, Charles D'Abico authorised Mr Cerantonio to obtain a Deed of Variation of Lease for Market. A Deed dated 1 June 1999 identical to the Entertainment Deed was entered into, according to Charles D'Abico, however the document exhibited ("CSD4") is not that document but the Deed dated 11 June 1999 between Entertainment and Properties. In late July 1999 Mr Cerantonio suggested to Charles D'Abico that he should negotiate a further Deed of Variation which resulted in a Deed dated 2 August 1999 between Market and Properties. The Deed recites that between July 1997 and June 1999, Market lent a total of $100,000 to Properties. This may be contrasted with Charles D'Abico's affidavit which appears to say that the amount was $81,349. The lease also recites that "monthly payments are currently $6,775.00" If this is a reference to rent it must surely be an error. The Deed provides for the loan of $100,000 to be offset against rental payments.

The ensuing correspondence is the same or on similar lines as described in relation to Entertainment. On 15 September 1999 Deacons demanded payment of $2,179,999.92 arrears of rent. Deacons by letter dated 12 October 1999 on behalf of the defendant mortgagee in possession of the rent and profits demanded $2,223,309.75. The Notice given on 14 October demanded payment of $2,635,270.32 within 14 days failing which the defendant might re-enter the premises or forfeit the lease.

Market's application to restrain Deacons and counsel from acting for the defendant

Mr Cerantonio did not become a director of Market until 2 August 1999 and his earlier involvement with Market was limited as the above brief account shows. It was for that reason that I considered that the possibility of the misuse of confidential information was remote in relation to Market's case and stated that I would dismiss that application. However, on reviewing the material, it would seem to me that Mr Cerantonio's involvement in assisting Market in relation to Properties was such that in my view a similar conclusion should be reached as I reached on the application by Entertainment for the reasons which I have already given. Deacons should be given an opportunity to remove themselves from the record failing which an injunction should be granted. Again, I do not think that counsel are affected.

Market's application to restrain the defendant from re-entry or forfeiture

Market has in this case the same or similar difficulties both of fact and law as does Entertainment. The submissions were the same on both sides as to the law and its application to the facts and the conclusion I have reached is the same, namely, that it cannot be said that there are not serious questions to be tried notwithstanding these difficulties.

With regard to the balance of convenience, Charles D'Abico deposed that if the defendant entered the premises or forfeited the lease, this would immediately jeopardise the livelihood of Market and of about 150 stall-holders who operate weekend market stalls, under monthly licences, on the demised premises. Some 30% - 40% of the stall holders have operated stalls at the complex for 10 years or more and rely upon their stalls as a substantial, and in some cases their only, source of income.

My views with regard to the balance of convenience are the same as expressed in relation to Entertainment. There is one large difference on the facts in that the turnover of Entertainment is apparently over three times that of Market. As a result, to impose similar conditions on Market as are imposed on Entertainment would be tantamount to refusing the application outright. I will grant an injunction in favour of Market in the same terms as that granted in favour of Entertainment but with these alterations: the initial amount payable will be $50,000, the monthly payment will be $25,000, and the percentage of outgoings will be 70%.

Clearly there should be a speedy trial ordered. I will hear counsel as to the precise form of orders and as to costs.

At a glance

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Judgment (68 paragraphs)

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Legislation Cited (2)

Cases Cited (5)