Baycolt Investments Pty Ltd v Raynard Pty Ltd - [2002] WASC 11

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: BAYCOLT INVESTMENTS PTY LTD -v- RAYNARD PTY LTD [2002] WASC 11

CORAM: PULLIN J

HEARD: 21 & 23 JANUARY 2002

DELIVERED : 1 FEBRUARY 2002

FILE NO/S: CIV 2942 of 2001

BETWEEN: BAYCOLT INVESTMENTS PTY LTD (ACN 091 471 171)
Plaintiff
AND
RAYNARD PTY LTD (ACN 009 085 296)
Defendant

Catchwords:

Injunction - Application to discharge injunction granted ex parte - Non-disclosure of material facts and misrepresentation of material facts to Judge granting ex parte injunction

Legislation:

Nil

Result:

Application to discharge injunction granted
New injunction granted on conditions

Category: B

Representation:

Counsel:

Plaintiff: Mr D E Eley
Defendant: Ms A J Robertson

Solicitors:

Plaintiff: Eley Palmer Archer
Defendant: Phillips Fox

Case(s) referred to in judgment(s):

Australian Ferries Pty Ltd v State of South Australia [1999] SASC 103
Bentley v Nelson [1963] WAR 89
Thomas A Edison Ltd v Bullock (1912) 15 CLR 679
Westwind Air Charter Pty Ltd v Hawker De Havilland (1990) 3 WAR 71

Case(s) also cited:

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Ali & Fahd Shobokshi Group Ltd v Moneim [1989] 2 All ER 404
Dominion Nominees Pty Ltd v Coolmo Pty Ltd & Ors [1999] WASC 199
Evans Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992
Glandore Pty Ltd v Elders Finance & Investment Co Ltd (1984) 4 FCR 130
Harvey v McWatters (1948) 49 SR (NSW) 173
National Australia Bank Ltd v Golden Sea Dragon (Hobart) Pty Ltd (1992) 4 Tas R 250

PULLIN J: On 19 December 2001, Justice Miller granted an injunction which ordered inter alia:
(a) the defendant to desist from refusing the plaintiff its servants or agents uninterrupted access to the premises known as Knutsford Arms Hotel;
(b)the defendant to grant to the plaintiff its servants and agents uninterrupted access to the said premises forthwith;
(c)the plaintiff to pay into Court the sum of $8,000 pending determination of the action commenced in the District Court; and
(d)the plaintiff to recommence payment of rent as required under the lease with effect from Friday 21 December 2001 and continue payments in relation thereto at the rate of $1,000 per week until the 16th of January 2002.
These orders were later extended until further order.
The defendant now seeks orders discharging the orders made by his Honour.
The dispute between the parties arises in the following way. By a sale agreement dated 13 March 2000, the defendants sold to the plaintiff the goodwill of the Knutsford Arms Hotel, plant and equipment, the benefit of various trade contracts including an agency agreement with the TAB and the business name and the "benefit of the Liquor Licence", for the sum of $340,000, payable by a deposit and two other payments, the last payment being $170,000 plus interest due on 2 July 2001.
By cl 17.2 of the sale agreement, it was provided that if the buyer failed to pay a part of the purchase price or any interest payable on the purchase price by the due date, or failed to pay other money due under the agreement on the due date, the seller could terminate the agreement by notice to the buyer. The right of equitable set‑off was not excluded by the sale agreement.
By a lease of the same date, the defendant agreed to lease the premises on which the hotel was located, to the plaintiff for a term of 20 years from April 2000, at the rate of $500 per week for the first three months of the term and then at $1,500 per week subject to review.
The covenant to pay rent excluded any right of set‑off.
Covenant 30(3) of the lease provided:
"… if the Tenant fails to pay the whole or a part or parts of the Purchase Price or any interest payable on the Purchase Price on the due date or dates for payment under the Agreement for the Sale of Business dated on or about 13 March 2000, the Landlord may terminate this Lease immediately by notice to the Tenant."
This clause did not exclude the right of set‑off.
The plaintiff went into possession of the hotel premises on 18 May 2000.
The plaintiff concedes that it had not (as at the date of the injunction application to his Honour) paid all of the rent due. Mrs Parsons who is one of the directors, states in her affidavit that the amount of rent which had fallen due for payment until that date was $111,500 and that payments of $103,840 had been made.
The defendant had, on 27 November 2001, commenced proceedings in the District Court against the plaintiff. In that writ, which was exhibited to an affidavit read to his Honour, the defendant claimed that the rent inclusive of GST which was unpaid, was $35,750. The writ also claimed other moneys, being amounts due under the lease for reimbursement of rates and taxes.
The District Court writ also made a claim in relation to a management agreement between the plaintiff and defendant, whereby the plaintiff was said to have agreed to manage some apartments or units which were on the premises for and on behalf of the defendant. The details of this management agreement and how it is that the defendant had rights to the apartments on premises leased by the plaintiff, are not of any concern to me, save that it was a term of the agreement that the amount which would be paid by the defendant to the plaintiff for managing the apartments was $500 per week. This appears to have been taken into account by his Honour in making one of the orders referred to above. That is, he set off the management fee of $500 per week against the rent due by the plaintiff, arrived at the figure of $1,000 per week, and directed the plaintiff to make those payments. That suggests that his Honour was left with the impression that the management agreement regarding the apartments was still on foot. It was not.
On 2 July 2001, the plaintiff failed to make the final payment of $170,000 plus interest (a total of $189,848). On that day, the plaintiff raised a claim that the defendant had made deceptive and misleading statements about the turnover for the hotel. The affidavit of Mrs Parsons, which was put before his Honour, states that Mr McGrath (a director of the defendant) represented to the plaintiff in a one‑page handwritten letter, that the turnover of the hotel for the six months from 1 July 1999 to 31 December 1999 was $791,490, which the plaintiff said it "annualised" by multiplying by two and arriving at a turnover figure of $1,582,980 per annum. Mrs Parsons, in that same affidavit, also deposed that in the twelve months from 1 July 2000 to 30 June 2001, the hotel's turnover was only $1,105,816.
The plaintiff asserted that there had been no downturn in trade to explain that downturn in turnover, and that the inference was that there was a misrepresentation about turnover inducing the purchase. In fact, the defendant pointed out, via counsel, that the handwritten sheet did not suggest that the hotel business had turnover of $791,490. That figure is stated to be the turnover including the income from the apartments. Counsel for the defendant pointed out that it was clear from the handwritten sheet that the turnover for the stated period in relation to the hotel was $687,395 for the 27‑week period covered. If that figure is converted into a weekly figure of $25,459 and multiplied by 52, then the represented annual turnover is $1,323,871 and not the figure of $1,582,980 which Mrs Parsons set out in her affidavit. The plaintiff knew that the turnover for the hotel (ie excluding the income from the units) as shown on the one‑page handwritten letter and about which it complained, was $687,395 because in a letter from its then solicitors, Karp Steedman Ross‑Adjie, dated 2 July 2001, to the defendant's solicitors, this is stated to be so. That letter has been produced by Mr McGrath (a director of the defendant) in his first affidavit filed in these proceedings. This letter was not disclosed by the plaintiff to his Honour.
Mr McGrath states in his affidavit, which was before me but was not before his Honour, that he was given handwritten figures about Baycolt's bar turnover on 24 April 2001 by Mrs Parsons (and that is not disputed by the plaintiff), and when those figures are annualised it reveals that Baycolt's bar turnover (ie excluding TAB commission) was $1,205,917. Counsel for the plaintiff advised me that his instructions were that these figures were likely to be more accurate than the figures which were given to his Honour as Ex LP3 to Mrs Parsons' affidavit. To these bar turnover figures has to be added the TAB Commission which, according to the information put before his Honour, was $81,840 for the financial year ending 30 June 2001. On those materials, the total turnover of the business purchased by the plaintiff for 30 June 2001 was $1,287,757.
His Honour had been given the impression that there had been a 30 per cent reduction in turnover, ie from $1,582,980 to $1,105,816. The defendant says that was a misrepresentation of the facts. I agree. The plaintiff should have put before his Honour the figure of $1,323,871 as the represented turnover and should have informed his Honour of the 24 April 2001 figures which, if "annualised" in the same way as the represented figures (and supplemented by the TAB income), produced a figure of $1,287,757 as Baycolt's turnover for the financial year ending 30 June 2001. This is a reduction of turnover of only 2.7 per cent.
It was also revealed in the materials before me (but not in the materials before his Honour) that the TAB Agency had been terminated on 14 December 2001. The agency was only restored on 22 January 2002, which was the day when this application was part heard before me.
Another factor which is known to me but which was not known to his Honour, was that Mr Parsons, who was one of the two directors of the plaintiff company, had "disappeared". Counsel for the plaintiff said that Mrs Parsons now knows that Mr Parsons has left Western Australia. His precise whereabouts are still unknown to her.
On 3 July 2001, the defendant gave notice to the plaintiff that there had been default in making the final payment due under the sale agreement.
On 7 August 2001, the defendant terminated the sale agreement pursuant to cl 17.2 of the sale agreement and terminated the lease pursuant to Covenant 30(3).
On 9 August 2001, the defendant's solicitors advised the plaintiff that the defendant would not retake the premises without 14 days' notice to quit.
On 29 and 30 November 2001, notices to quit were served on the plaintiff, requiring the plaintiff to quit the premises on 14 December 2001.
By letter dated 12 December 2001, the plaintiff's solicitors advised the defendant's solicitors that the plaintiff would not vacate the premises without a court order. By letter dated 13 December 2001, the defendant's solicitors reasserted the defendant's claimed right to retake possession.
On 17 December 2001, the defendant attempted to gain entry into the hotel. There was a standoff at the hotel, during which the plaintiff's solicitor and the defendant's solicitor attended.
At 3.45 am on 19 December 2001, the defendant's representatives again attended at the premises and took possession of the premises and changed locks. The plaintiff's solicitors and the defendant's solicitors met at the hotel later in that morning at about 10.30 am. The police were in attendance at some stage during the morning.
Between 12.00 pm and 1.30 pm on 19 December 2001, the defendant's solicitors sent a fax to the plaintiff's solicitor, Mr David Eley which read:
"Dear Mr Eley
Knutsford Arms Hotel
I refer to your conversations with Natalie Wigg today at the Hotel.
I understand that when leaving the Hotel with Mrs Parsons today, you said words to the effect that you intend to bring an application to the Court.
If your client does intend to bring an application, please ensure that we are served with adequate notice of it, so that my client can appear and respond."
Counsel for the plaintiff concedes that this fax was received at his office at some stage during the early hours of the afternoon, before 1.30 pm and before the application was made to his Honour.
Late in the afternoon of 19 December 2001, Mr Eley of the plaintiff's solicitors appeared before his Honour and obtained the orders made on that day. The application was heard without any notice being given to the defendant's solicitors. An undertaking as to damages was given by the plaintiff. I required affidavits to be filed by the solicitors for the plaintiff explaining why the existence of the fax from Phillips Fox was not drawn to his Honour's attention. I am satisfied from the affidavits filed by Mr Eley and Mr Morton that the fax was taken off the fax machine by Mr Morton and that pressure of work prevented him from giving it to Mr Eley until after Mr Eley had returned from Court and after the orders made by his Honour had been served on the defendant.

The Application to Set Aside the Orders Made by Miller J

The defendant seeks to discharge the injunction and other orders on grounds that:
(a)The undertaking as to damages is wholly inadequate.
(b)The plaintiff failed to make full disclosure at the ex parte hearing before his Honour.
(c)There is no serious question to be tried.
(d)Damages is an adequate remedy.
(e)The balance of convenience favours the defendant.

Non‑disclosure

Counsel for the plaintiff did not explain to his Honour that the defendant's solicitors and he had both been present at the hotel on that morning. He did, however, inform his Honour that he had been in communication with Phillips Fox concerning the dispute and that Phillips Fox had been asked to seek declaratory orders and not rely on self-help remedies.
As already mentioned, his Honour was given information suggesting that there had been a one third reduction in turnover and was not told about the information which I had referred to above which suggests that the reduction in turnover is much less. It was explained to me that this was because the books of the plaintiff were at the hotel at the time of the hearing. The hotel was in the possession of the defendant. I have some difficulty in accepting that explanation, at least in relation to the alleged misrepresented figures, because Mrs Parsons had in her possession the handwritten sheet which she said contained the misrepresented turnover figures. She had earlier instructed other solicitors about the correct figures to refer to on that sheet. In the affidavit put before his Honour, Mrs Parsons referred to figures which gave his Honour the impression that the shortfall in turnover was much greater than was the case she had advanced via the plaintiff's former solicitors. If the incorrect figures had been referred to in order to make the case against the defendant appear to be a strong one, then this would be a very serious misrepresentation and would incline the Court to discharge the injunction and not consider the grant of any further injunction. I am, however, prepared to accept that the misrepresentation can be explained. The premises had been entered by the defendant's agents in the early hours of the morning, and Mrs Parsons woke to find that locks had been changed. The police were called and the solicitors were called, the books of the business were denied to Mrs Parsons, and in those circumstances the application for the injunction was made. I am prepared to accept that circumstances of crisis led to the misrepresentation. Nevertheless, the fact is that his Honour did not have before him, material which is before me and which bears on the issue about the strength of the question to be tried. I will deal with that subject further on in my reasons for decision.
His Honour was not told that the TAB Agency had been suspended and that, at the time the hearing came on before his Honour, the TAB was operating the Agency. I will accept, however, that in the crisis of the moment it was not thought that this was sufficiently material to disclose, given that commission earned from the TAB Agency was less than $1,500 per week.
His Honour reduced the rental payable by the plaintiff by $500, which appears to be because he was left with the impression that the defendant was obliged to pay the plaintiff $500 per week under the management agreement. It is not now in dispute that on 30 November 2001 Mrs Parsons had informed Mr McGrath that "Baycolt was no longer going to manage the Units, effective immediately". His Honour should have been informed of this.
It was submitted to me on behalf of the defendant that there was non‑disclosure of certain other matters, but in my view, these were revealed in the papers in the form of the statement of claim in the District Court proceedings which the defendant had brought against the plaintiff. The statement of claim was exhibited to Mrs Parsons' affidavit, which was placed before his Honour at the hearing.
It is clear that it is the duty of a party asking for an injunction ex parte, to bring under the notice of the Court all facts material to the determination of its right to that injunction. Uberrima fides is required, and the party inducing the Court to act in the absence of the other party, fails in his obligation unless he supplies the place of the absent party to the extent of bringing forward all the material facts which that party would presumably have brought forward in his defence to that application. Unless that is done, the implied condition upon which the Court acts in forming its judgment is unfulfilled and the order so obtained must fall. See Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 at 681‑682 and Bentley v Nelson [1963] WAR 89. Where there has been no deliberate lack of candour and the matter which is not disclosed is not of major character overall and was admitted in circumstances in which extensive instructions have necessarily been taken in haste, an injunction will not necessarily be set aside. Even if there has been non‑disclosure, this does not necessarily prevent the Court in the proper case from regranting the injunction forthwith on notice and on the merits. Westwind Air Charter Pty Ltd v Hawker De Havilland (1990) 3 WAR 71 at 88.
I am satisfied that the reference to incorrect figures on the handwritten sheet prepared by Mr McGrath, was a matter which was a serious misrepresentation of the facts and material to his Honour's consideration of whether there was a serious question to be tried and as to the strength of the plaintiff's case. The failure to disclose that the plaintiff had decided not to continue managing the units was a serious non‑disclosure.
I am therefore of the view that the circumstances warrant the discharge of the injunction granted by his Honour. I am of the view, however, that I should consider afresh the question about whether an injunction should be granted which will, if granted, allow the plaintiff to remain in possession of the hotel and the leased premises until the trial of the action.
That therefore brings me to consider anew, the question about whether there is a serious question to be tried, the balance of convenience, whether damages would be an adequate remedy, and the adequacy of the undertaking as to damages.

Is There a Serious Question to be Tried?

I will deal first with the defendant's contention that no serious question is to be tried. The plaintiff alleges misrepresentation inducing the sale agreement in the lease, and the writ seeks damages under the Trade Practices Act. The quantum of damages is not disclosed, and there has been no attempt by the plaintiff to obtain any evidence suggesting what the value of the business was at the time that the representations were made. It seems clear, however, that the difference between the sale price and the value of the business (that being the usual method of assessing damages for misrepresentation) is likely to be small, based upon the information revealed to me at this hearing. The likelihood of the plaintiff succeeding in proving a 30 per cent reduction in turnover appears to be very remote indeed. There has been a reduction, but it is very much less than 30 per cent.

Counsel for the plaintiff submitted that the claim for damages will exceed the amount of the final instalment and interest which was due on 2 July 2001, and which amounts to $189,848. There is nothing by way of evidence to support the submission.
Thus, on the information before me at the moment, all that can be said is that there is a serious question to be tried in relation to liability and that the quantum of damages is unknown. The plaintiff's case is a much weaker one than the case based on the material put before his Honour.

The Balance of Convenience

The balance of convenience has to take into account the interests of both parties. The plaintiff was, until 19 December 2001, in possession of the hotel. It claims that it has a lease which the defendant was not entitled to terminate, and claims that the defendant was not entitled to terminate the sale agreement and take possession of the hotel business. Counsel for the plaintiff asserted that the plaintiff's damages claim will, by set‑off, extinguish the amount due under the agreement, thereby removing the foundation for the defendant's termination of the sale agreement and the lease. In my view, on the evidence before me, the prospect of the plaintiff establishing that to be so, is slight. However, if the plaintiff can support its assertion with evidence, then it will be very seriously disadvantaged, perhaps irrevocably disadvantaged if it has to vacate the premises.
On the other hand, the defendant's interest must also be considered. The defendant, if it has the right to terminate, which it says it has, is being held out of the hotel and its land. There is evidence that things are not well with the hotel business. It is alleged that money has been taken out of the business to feed Mr Parsons' gambling habits. The TAB Agency was suspended for a period of time. Mrs Parsons says the hotel is being run at a loss.
The defendant says that the total amount which is owed to it by the plaintiff under the sale agreement and the lease after off‑setting claims, is in excess of $235,000 (see Mr McGrath's affidavit par 88 and par 90). If the business is being run at a loss, as Mrs Parsons says, then if the defendant is held out of its right to take possession of the hotel, it may suffer loss if the plaintiff goes into liquidation.
However, the consequences are so much more drastic from the plaintiff's point of view that, even with the extremely weak case it has to advance on the damages claim, the balance of convenience favours the grant of the injunction, even though the plaintiff claims that the hotel is being run at a loss.

Undertaking as to Damages

The adequacy of the plaintiff's undertaking as to damages is therefore of critical importance. The plaintiff owns nothing by way of assets, other than the hotel business, the associated plant, equipment and stock, and the lease. The plaintiff owes money to the bank, and may owe money to the defendant. The defendant claims that in excess of $235,000 is owed to it by the plaintiff. In my view, the undertaking as to damages given by the plaintiff does not provide necessary protection to the defendant.
I was informed by counsel for the defendant that Mrs Parsons is also prepared to give an undertaking as to damages. Mrs Parsons' only asset is land jointly owned in Victoria (location undisclosed), which is said by Mrs Parsons to be worth $160,000. Secured against that is bank debt of over $110,000, which is owing in relation to the hotel business. An undertaking from Mrs Parsons is therefore of little value. The other half‑interest in the property in Victoria is owned by Mr Parsons. He is not proffering an undertaking. The undertaking as to damages, even if supported by an undertaking from Mrs Parsons, is inadequate in the circumstances. Something more is necessary to provide proper protection to the defendant. In my view, only if the plaintiff pays into Court the final instalment and interest which fell due for payment on 2 July 2001, will the defendant be protected.

Damages an Adequate Remedy?

The defendant contends that damages would be an adequate remedy and that no injunction should be granted at all. Usually a plaintiff claiming an interest in land will not be compensated by damages. The defendant submits that in circumstances where the plaintiff is trading at a loss, an injunction should not be granted. See Australian Ferries Pty Ltd v State of South Australia [1999] SASC 103. That case concerned a licence agreement, and there was evidence of the amount of the loss per week. This case involves an interest in land and a non‑particularised reference to loss. If the plaintiff can make out its case, then in my view damages will not be an adequate remedy.

Conclusion

In my view, the injunction and orders granted by his Honour should be discharged. In their place there should be a new injunction for seven days, restraining the defendant from seeking to re‑enter and take possession of the hotel business or the land the subject of the lease.
If:
(a)Mrs Parsons gives a personal undertaking as to damages within seven days;
(b)the plaintiff pays into Court within seven days, the sum of $189,848, to be held pending the outcome of the litigation and to be paid out of Court only by order of the Court (alternatively, the parties may wish to agree that the moneys should be held out of Court in an interest bearing account); and
(c)the plaintiff recommences the payment of rent and other outgoings under the lease and pays the arrears of rent and outgoings due under the lease within seven days;
then the new injunction will be continued until the final determination of the action, or until further order.
I direct the plaintiff to bring in a minute of orders which should be made to reflect these reasons. I recommend that the parties apply to have the case admitted into the expedited list.