Bright Horizons Australia Childcare P/L v Childcare Providers P/L
[2017] QSC 51
•7 April 2017
SUPREME COURT OF QUEENSLAND
CITATION:
Bright Horizons Australia Childcare P/L v Childcare Providers P/L [2017] QSC 51
PARTIES:
BRIGHT HORIZONS AUSTRALIA CHILDCARE PTY LTD ACN 125887 050
(applicant)
v
CHILDCARE PROVIDERS PTY LTD ACN 113 987 143(respondent)
FILE NO/S:
No 2727 of 2017
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
7 April 2017
DELIVERED AT:
Brisbane
HEARING DATE:
16 & 21 March 2017
JUDGE:
Ann Lyons J
ORDER:
1. The interim injunction granted on 21 March 2017 is extended until trial or further order of the Court.
2. I will hear the parties as to the form of the Orders and as to Costs.
CATCHWORDS:
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – INJUNCTIONS TO PRESERVE THE STATUS QUO OR PROPERTY PENDING DETERMINATION OF RIGHTS – where the applicant manages two childcare centres at premises leased by the respondent – where the respondent is the licensed operator of the childcare centres – where the parties entered into business sale agreements for the childcare centres – where the respondents terminated the agreements – where the applicant in the substantive proceedings seeks a declaration that inter alia the business sale agreements remain on foot - where the applicant seeks an interim injunction to restrain the respondent from interfering with its possession of the business premises and operation of the childcare centres until trial – whether an interim injunction should be granted
Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 80 ALJR 1672
Brown v Heffer [1967] 116CLR 344
Businessworld Computers Pty Ltd v Australian Telecommunications Commissioner (1988) 82 ALR 499Cowell v Rosehill Racecourse Company Limited [1937] HCA 17; (1937) 56 CLR 605
Ferguson v Hullock (1955) VLR 202
Gallagher v McClintock [2014] QCA 224
Gillion & Anor v Casserly & Anor [2005] QSC 144; (2005) Q ConvR 54-626
Halliday v Nevill (1984) 155 CLR 1; Mackay v Abrahams [1916] VLR 681
Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd (2010) BFRA 76
Molina v Leask [1998] ANZ ConvR 361
Norman v Federal Commissioner of Taxation [1963] 109 CLR 9
Vella v Wah Lei Investment Proprietary Limited [2004] NSWSC 748COUNSEL:
K E Downes QC and F Y Lubett for the applicant
A Pomerenke QC for the respondent
SOLICITORS:
Acuity Legal for the applicant
Johnson Winter & Slattery for the respondent
History of the application
This application for an interim injunction pending trial came on for hearing urgently on Thursday 16 March 2017 in the Applications List. The applicant Bright Horizons Australia Childcare Pty Ltd (Bright Horizons) was seeking injunctions up until trial restraining the respondent Child Care Providers Pty Ltd (CCP) from interfering with Bright Horizons’ possession of premises from which it ran childcare businesses, in Ballarat and Wodonga, Victoria, or interfering with the operation of the childcare businesses. Orders were also sought to restrain CCP from restricting Bright Horizons’ access to the business bank accounts or from taking any steps to resume operational control of the businesses.
Interim injunctions were granted in those terms on Thursday 16 March 2017 restraining CCP until 21 March 2017. On that date further arguments were heard in relation to an application for an extension of the injunctions until trial. That application was opposed by CCP. On that date I extended the existing orders until delivery of judgment in relation to the interlocutory application heard on 21 March 2017.
Background to the applications
Bright Horizons either owns or manages a number of childcare centres in Australia and New Zealand under a brand called Bright Horizons, including two childcare centres at Ballarat and Wodonga.
The Ballarat and Wodonga child care premises are leased by CCP pursuant to two Leases dated 20 July 2006 and 7 July 2005 respectively. The landlord of both premises is Arena REIT Management Ltd (the Landlord). Between 2005 and 2007 CCP was the licensed operator of the two childcare centres in dispute and also held licences after 2005 to operate 26 other childcare centres throughout Australia. CCP currently has the Licences to operate the Ballarat and Wodonga Centres as the Approved Provider under the Service Approval required by the relevant National Law.
On 29 June 2007 Bright Horizons advanced the sum of $3,548,781.26 to CCP to enable it to pay out a loan which it owed to ABC Developmental Learning Centres. It would seem that CCP had purchased a number of childcare centres from ABC in circumstances where ABC had advanced the purchase monies to CCP. When the ABC Board demanded repayment of the loan Bright Horizons was approached to advance the money to CCP. The loan was documented by a Loan Agreement dated 29 June 2007 and secured by a Deed dated the same day.
Significantly Clause 4.1 of the Loan Agreement permitted Bright Horizons to elect to purchase various childcare businesses from CCP and to offset the purchase price against the debt owed by CCP. Clause 9.15 of the Loan Agreement provided that if within six months from the date of agreement CCP failed or refused to enter into business sale contracts for the purchase by Bright Horizons of a number of childcare centres, including Ballarat and Wodonga, it was an event of default. Business Sale Agreements (BSAs) were not however entered into until some four years later.
The current arrangements
Mr Zullo is the sole director of Bright Horizons, and states that a pre-condition of him agreeing to the loan to CCP was an arrangement whereby he would take over some of the childcare centres which had a positive cash flow. He then commenced to operate the two childcare centres under that arrangement. Mr Zullo argues that this arrangement constitutes an Oral Management Agreement or a Management Agreement by conduct. At the hearing on 16 March it was submitted that an oral agreement had been entered into between Mr Zullo from Bright Horizons and representatives from CCP. It would now seem clear that the oral agreement was actually between Mr Zullo on the one hand and Mr Eddy Groves and Mr Martin Kemp from ABC, on the other.
In any event it would seem that an arrangement has been in place since 2007 and it is this arrangement which Counsel submits is the management agreement by conduct. The arrangement was essentially as follows:
(i)CCP would maintain the necessary licences;
(ii)Bright Horizons would enter into possession of the premises and would operate the business with responsibility for all operational issues including employment, management of receipts, payment of expenses etc;
(iii)Bright Horizons would have control of the bank account in the name of CCP into which fees and government benefits are receipted; and
(iv)Bright Horizons was entitled to all the profits.
The evidence indicates that the centres are profitable and in the financial year ending 2015 the Wodonga Centre made a profit of around $200,000 and the Ballarat Centre made a profit of around $475,000. CCP has received no profits or any benefits from those centres since Bright Horizons commenced operating them ten years ago in 2007. There is currently a contest between the parties as to who currently employs the staff. There is some evidence that indicates that the staff at Wodonga are employed by CCP but the staff at Ballarat are employed by Bright Horizons. It is argued by CCP that the agreement was that the staff would be employed by Bright Horizons only after the sale of the business.
Ultimately on 25 November 2011 the parties entered into two Business Sale Agreements (BSAs) for the Ballarat and Wodonga centres. The BSAs are in identical terms except for the description of the childcare centre, the location and the purchase price.
The Business Sale Agreement
The following clauses are of significance in the determination of this application:[1]
[1] Affidavit of F G Zullo sworn 17 March 2017 (Court Document 2), Exhibit “FZ8”.
“3. PAYMENT OF PURCHASE PRICE
The Purchaser must pay the Purchase Price at Completion. However, the Purchaser may elect by notice in writing to the Vendor to offset the Purchase Price against any amounts then owing by the Vendor to the Purchaser.
4. CONDITIONS
4.1 Condition Precedent to Completion
Completion of this Agreement is conditional upon:
(a) the Business continuing as a going concern from the date of this Agreement up to and including the Completion Date;
(b) the Vendor securing an assignment of the Lease or a new lease of the Premises on terms acceptable to the Purchaser (acting reasonably); and
(c) the Purchaser being granted a licence or approval to operate the Business by the authority that issues such licences or approvals to prospective child care centre operators.
4.2 Termination on failure of condition
If a Condition Precedent is not satisfied or waived in accordance with clause 4.5 by Completion, then provided that the Party has first complied with its obligations under clause 4.4, the Party for whose benefit the Condition Precedent has been inserted (as set out in clause 4.5(b)) may terminate this Agreement by notice in writing to the other Party.
4.3 Consequences
On termination of this Agreement under clause 4.2:
(a) accrued rights and remedies of a Party are not affected; and
(b) subject to paragraph (a), this Agreement will be of no further effect and no Party will have any further obligations to any other Party.
4.4 Satisfaction of Conditions Precedent
Each Party must use its reasonable endeavours to satisfy each of the Conditions Precedent. In particular:
(a) the Vendor must promptly after the date of this Agreement apply for and pursue the consent of the landlord of the Premises to either an assignment of the Lease to the Purchaser or the surrender of the Lease to facilitate the entry by the Purchaser into a new lease with the landlord of the Premises;
(b) the Purchaser must promptly supply to the Vendor on request copies of any information or documentation required by the Vendor in order to apply for and obtain the consent of the landlord of the Premises to the assignment of the Lease to the Purchaser or entry into a new lease by the Purchaser;
(c) the Purchaser must supply any security reasonably required by the landlord of the Premises as a condition of giving its consent to an assignment of the Lease or grant of a new lease to the Purchaser, including (without limitation) a security deposit, bank guarantee or director’s guarantee; and
(d) the Purchaser must promptly after the date of this Agreement apply for any licence or other approval necessary to operate the Business. The Vendor must, if required by the Purchaser, sign any documents reasonably required by the Purchaser to allow the Purchaser to make and pursue any such application.
4.5 Waiver
(a)A Condition Precedent may be waived if, and only if:
(i) the Party with the benefit of the Condition Precedent (as set out below) gives a notice in writing to the other Party waiving the benefit of the Condition; or
(ii)the Parties agree in writing to waive the Condition.
(b)For the purposes of clause 4.5(a)(i), the Party with the benefit of each Condition Precedent is:
(i)for the Condition Precent in clause 4.1(a), both the Vendor and the Purchaser;
(ii)for the Condition Precedent in clause 4.1(b), both the Vendor and the Purchaser; and
(iii)for the Condition Precedent in clause 4.1(c), the Purchaser.
5. CONDUCTING PENDING COMPLETION
The Vendor must use reasonable endeavours to maintain the Goodwill of the Business and carry on the Business in the Vendor’s usual manner until the Completion Date. The Vendor must not do anything which prejudices any Asset or engage in any conduct that is outside the ordinary course of business or which may impact on the ‘going concern’ provisions of the GST Act.
6. LEASE
6.1 Assignment or Surrender of Lease
The Vendor must at its cost either (at the Purchaser’s election):
(a) obtain the consent of the landlord of the Premises to an assignment of the Lease of the Premises to the Purchaser on terms acceptable to the Purchaser (acting reasonably); or
(b)with the landlord’s consent, surrender the Lease and facilitate entry by the Purchaser into a new lease with the landlord of the Premises on terms acceptable to the Purchaser (acting reasonably). For the avoidance of doubt, the Purchaser must pay the landlord’s costs associated with the preparation, negotiation and entry into the new lease.
6.2 Parties’ Cooperation
(a) If the Purchaser elects to take an assignment of the Lease in accordance with clause 6.1(a):
(i)the Purchaser must co-operate with the Vendor and provide any assistance reasonably necessary to obtain the consent of the landlord to an assignment of the Lease to the Purchaser; and
(ii)subject to Completion, the Vendor assigns the lease and the Vendor’s rights and obligations under the Lease to the Purchaser and the Purchaser accepts the assignment of the Lease from the Vendor.
(b)If the Purchaser elects to enter into a new lease in accordance with clause 6.1(b), the Vendor must co-operate with the Purchaser and do all things (including execute all documents) reasonably necessary to surrender the Lease and facilitate entry by the Purchaser into a new lease with the landlord of the premises to commence on the Completion Date and on all other terms acceptable to the Purchaser (acting reasonably).
…
7. COMPLETION
7.1 Time of Completion
Completion will take place on the Completion Date at the offices of the Vendor’s solicitor or such other place in Brisbane nominated by the Vendor.”
Those agreements therefore indicate that CCP is the Vendor and the owner of the relevant childcare business at the premises. Each BSA also contained an express term requiring Bright Horizons to either obtain a new Lease of the premises from which the childcare centres operated, or obtain an assignment of the Lease held by CCP.
Each of the BSAs also enable Bright Horizons to set off the purchase price against the amount owing to it by CCP instead of paying the purchase price. The Purchase Price for the Wodonga Centre was listed in the Schedule as $300,000 and for Ballarat it was listed as $700,000.
Each of the BSAs provide, pursuant to clause 7.1, that completion will take place on “the Completion Date”. The Completion Date is defined as 1 March 2012 or such other date as agreed between the Parties in writing. The BSAs did not complete on 1 March 2012 and no other date has been mutually agreed in writing between the parties.
Counsel for Bright Horizons argues that it has endeavoured to obtain from the Landlord an assignment of the existing leases held by the CCP to itself. It is clear however that there has been no assignment of either Lease as required by the BSA.
In November 2015 the Landlord indicated to CCP that Bright Horizons’ occupation and management of the Centres may constitute a breach of the Leases.
The debt
The affidavit material indicates that between 2012 and 2014, Mr Zullo held discussions about the debt owed by CCP with Mr Andrew Williams, the solicitor for CCP, and Mr Matthew Loveday, an employee of CCP. It was agreed that the date for settlement of the BSAs would be extended by the same time as the date for repayment of the debt owed by CCP, which was 1 July 2014.
Pursuant to the Fourth Deed of Variation (of the loan agreement), the date for repayment of the reduced debt (at that stage, being $2 million) was extended to 1 July 2014. The debt was not paid by that date and the date was not further extended. CCP however did not call for settlement of the BSAs by that date. The debt currently stands at $1,000,000 which is the amount outstanding to Bright Horizons.[2]
[2] Clause 3 BSA, Exhibit “FZ8” to the Affidavit of F G Zullo sworn 17 March 2017 (Court Document 2).
The dispute
Counsel for Bright Horizons contends that prior to 24 December 2014, the parties and their solicitors acted as if the BSAs could be settled at a future date. Mr Zullo deposes that he considered that the BSAs would settle in due course and that the debt owing to Bright Horizons would be reduced by way of set off under the BSAs, as had occurred with other business sale agreements in relation to other childcare centres.
By letter dated 2 February 2015, CCP nominated 23 March 2015 as the proposed Completion Date of the BSAs.
On 10 April 2015, CCP terminated the BSAs pursuant to clause 4.2 because of non-fulfilment of a Condition Precedent relating namely to the failure to obtain an assignment of the leases from the Landlord. Proceedings were commenced in this Court (No 3604/15) by CCP for a declaration as to the validity of the termination of the BSAs. On 29 September 2015 Jackson J dismissed the proceedings and declared and that the BSAs remained on foot. In his reasons, Jackson J stated[3] that “in relation to the proposed date for settlement of 23 March 2015 [the parties did not] expressly agree for a new completion date for the purposes of clause 1.1 [of the BSAs]”.
[3] Affidavit of R B Winter sworn 20 March 2017 (Court Document 8), Exhibit “RBW5”.
Counsel for Bright Horizons argues that since Jackson J’s decision in September 2015 Bright Horizons have been endeavouring to obtain the Landlord’s consent to the assignment of the Leases. Between October and November 2015 there was correspondence between solicitors for Bright Horizons, CCP and the Landlord about matters relating to the assignment of the Leases. Between November 2015 and March 2016 there was correspondence between the parties’ solicitors about information requested by the Landlord from Bright Horizons for the purposes of determining whether to consent to the assignment of the Leases.
In March 2016 the then solicitors for CCP wrote to Bright Horizons nominating a Completion Date for the BSAs. This date was rejected by Bright Horizons and on 16 March 2016 Bright Horizons wrote to the then solicitors of CCP proposing a formula for fixing a Completion Date. Between March and November 2016 a further six letters were sent from Bright Horizons to CCP to which no response was received. I note however that in May 2016 solicitors for CCP wrote to Bright Horizons reiterating previous requests from the Landlord for further information. It is understood Bright Horizons did not respond to this letter.
In late 2016 CCP instructed new solicitors and pursuant to a letter dated 27 October 2016 the Landlord’s solicitors advised them that the Landlord considered that CCP was in breach of the Leases.
On 8 November 2016 the solicitors for CCP wrote to Bright Horizons’ solicitors and nominated 4pm Friday 24 February 2017 as being the date for the Conditions Precedent to be satisfied and for completion of the BSAs to occur. That letter indicated that “In circumstances where there is no longer an agreed Completion Date under the BSAs or, therefore, a specified time for satisfaction of the conditions precedent, a reasonable time for satisfaction of the conditions precedent is to be implied.”[4]
[4] Affidavit of R J B Winter sworn 17 March 2017 (Court Document 3), pp 64, 68.
On 19 December 2016, Bright Horizons’ solicitors advised that they did not agree to the proposed completion date.
On 21 December 2016 CCP were served with two Notices pursuant to s 146 of the Property Law Act 1958 (Vic) by the solicitors for the Landlord.
On 23 December the solicitors for CCP wrote to the Landlord’s solicitors denying the breaches and requesting that no further action be taken until 30 January 2017. On 23 December 2016, CCP’s solicitors also advised the solicitors for Bright Horizons that 24 February 2017 provided the parties with a reasonable time to satisfy the Conditions Precedent.
Counsel for Bright Horizons indicates that on 9 January 2017, Mr Zullo spoke to Mr Bryce Mitchelson, the Managing Partner of the Landlord, who provided Mr Zullo with information by email as to what the Landlord required to approve the assignment of the leases.
On 11 January 2017 the Landlord’s representative indicated that the Landlord did not intend to take any further action under the Notices whilst the assignment of the Leases was being considered and, should the Landlord consent to the assignment of the Leases, then it would take no further action and waive the alleged breaches by CCP.
Counsel for Bright Horizons argues that Bright Horizons later met those requirements and caused its accountants, Harris Black, to write to the Landlord on 20 January 2017 and provide it with financial and other information. Counsel also argues that on 14 February 2017, Bright Horizons’ solicitors wrote to the solicitors for CCP and advised that the Landlord had approved the assignment of the Leases.
On 16 February 2017, CCP’s solicitors wrote to Bright Horizons’ solicitors denying that the assignment of the lease had been approved by the Landlord and indicated that consent was subject to Bright Horizons or its director providing “appropriate certification of information that has been provided by Bright Horizons to date, and providing guarantees, to the satisfaction of the landlord.”[5]
[5] Affidavit of R J B Winter sworn 17 March 2017 pp 165-166.
On the same date the solicitors for Bright Horizons replied and advised that the Landlord’s conditions had been met.[6]
[6] Ibid, p 167.
By letter dated 23 February 2017 however, CCP’s solicitors wrote advising that the Landlord had not consented to an assignment because Bright Horizons had not provided, amongst other things: (a) certification that the financial position of Bright Horizons and Frank Zullo, as set out in Harris Black’s correspondence to the Landlord of 20 January 2017, were “true and correct”; and (b) an update on the status of the dispute between the respondent and Bright Horizons. The letter extended the time for compliance with the Conditions Precedent until 4pm on 8 March 2017.[7]
[7] Ibid, p 169.
Further correspondence then ensued on 1 March 2017 in relation to the further information required by the Landlord. CCP’s solicitors wrote to Bright Horizons’ solicitors setting out the information which was required, including an explanation from CCP about the current status of the dispute between it and Bright Horizons and a letter from Harris Black accountants “certifying that the financial statements provided to our client by Bright Horizons, on 20 January 2017, are complete and correct in all respects.”[8]
[8] Ibid, p 180.
On 8 March 2017 the accountants Harris Black sent the following letter to Bryce Mitchelson at Arena:
“We refer to correspondence from Hall & Wilcox Lawyers addressed to Johnson Winter & Slattery Lawyers dated 1 March 2017 stating that Harris Black Chartered Accountants has been requested to provide a letter “certifying that the financial statements provided to our client by Bright Horizons, on 20 January 2017, are complete and correct in all respects”
We note that no Financial Statements were provided in the correspondence sent by Harris Black on 20 January 2017 (the “Letter”), notwithstanding we can make the following statements, subject to the disclaimer below, in relation to the financial information provided in that correspondence:
·Paragraphs 1 and 4 of the Letter, which deals with the financial information requested for Bright Horizons Childcare Australian Pty Ltd, are true and correct;
·Paragraph 7.2 of the Letter, which deals with the financial information requested in relation to Frank Zullo, is true and correct.
We have applied our expertise in accounting and financial reporting and complied with the relevant ethical requirements of APES 110: Code of Ethics for Professional Accountants to compile the information included in the Letter.
As per our understanding of the agreement between Mr Zullo and Mr Bryce Mitchelson of Arena Asset Management Ltd, the provision of the information requested was not required to be audited. Since the preparation of the financial information included in the Letter was not an assurance engagement, we are not required to verify the reliability, accuracy or completeness of the information provided to us by the client except to the extent of verifications carried out as stated in the Letter. Accordingly we do not express an audit opinion or a review conclusion.”
Counsel for Bright Horizons therefore argues that prior to 4pm on 8 March 2017, both requirements of the Landlord as identified expressly in the letter of 23 February 2017 had been met. In the covering email which the solicitors for Bright Horizons sent with the letter from Harris Black it was stated, “Please let me know if anything further is required.”[9] It is argued that no response was received by them to that letter of 8 March 2017.
[9] Ibid, p 186.
On 9 March 2017 however an email was sent from the solicitors for the Landlord to the solicitors for CCP in the following terms:[10]
“I refer to our brief telephone discussion and confirm that Acuity wrote to us yesterday, providing a letter from Harris Black. As you know our client’s consent to the assignment is conditional on the matters contained in our letter of 1 March, including a condition that Harris Black certify that the financial information attached to their of 20 January is “complete and correct in all respects”. The letter provided by Acuity yesterday does not satisfy that condition.”
[10] Affidavit of R J B Winter sworn 17 March 2017 (Court Document 3), p 197.
On 10 March 2017, CCP sent Notices of Termination to Bright Horizons terminating the BSAs and seeking possession of the business premises by 17 March 2017. The Notices of Termination relevantly stated that,[11] “In the absence of an agreed Completion Date, the Conditions Precedent had to be satisfied or waived within a reasonable time”. The letter also stated “…for the avoidance of doubt, any such right arising outside of the Agreements is hereby revoked by Childcare Providers…”[12]
[11] Ibid, p 199.
[12] Ibid.
Arguments by counsel for Bright Horizons
I note at the outset that the originating application was filed on 16 March 2017 and that the final relief sought includes the following:
(i)Declarations that the BSAs are still on foot;
(ii)Specific performance of the BSAs;
(iii)A declaration that the Applicant is an equitable assignee of the Respondent’s interest in the leases;
(iv)A declaration that the Notice of Termination dated 10 March was of no effect; and
(v)Permanent injunctions restraining CCP from interfering with Bright Horizons’ possession of the premises, restricting access to the business bank account or interfering with the operational control or running of the business.
In relation to the requirements for the granting of an interlocutory injunction it is clear that the two issues are whether Bright Horizons has established firstly, that it can show it has a prima facie case; and secondly, whether it can show that the balance of convenience favours the granting of the relief.[13]
[13] Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 80 ALJR 1672.
In relation to the argument by Bright Horizons that it has a prima facie case, counsel argues that the serious question to be tried has a number of aspects to it. One aspect relates to what it calls the ‘Management Agreement’ and whether there has been a notice that it has been terminated. The second aspect relates to whether CCP’s purported termination by the Notices of Termination of the BSAs on 10 March 2017 was valid. A further issue which was argued at the resumed hearing on 21 March 2017 was whether Bright Horizons has a right to possession pursuant to an equitable assignment of the lease.
The Business Sales Agreements
In relation to the BSAs there is no doubt that both parties had allowed the Completion Date to pass and cl 1.1 required written agreement between the parties about a new date for completion. In this regard, Bright Horizons does not accept that CCP is entitled to terminate the BSAs if Bright Horizons does not fulfil the condition precedent in cl 4.1 within a reasonable time rather than pursuant to the contractual stipulation, which was “by completion”. In this regard cl 4.1(b) of the BSAs provided that the completion of the BSAs was conditional upon CCP “securing an assignment of the Lease or a new Lease of the Premises” on terms acceptable to Bright Horizons acting reasonably. That Condition Precedent is clearly one which essentially has to be performed by CCP.
Clause 4.4 then provided that each party must use its reasonable endeavours to satisfy each of the Conditions Precedent. The other requirements of cl 4.4 were that CCP had to promptly apply for and pursue the consent of the Landlord to either the assignment or the new Lease, and that Bright Horizons had to promptly supply information or documentation requested by CCP for the purposes of the assignment or new Lease.
Clause 4.2 then sets out what is to occur if there is a failure of a Condition Precedent. It provides that if a Condition Precedent is not satisfied or waived in accordance with cl 4.5 by Completion, then provided that the Party has first complied with its obligations under cl 4.4, the Party for whose benefit the Condition Precedent has been inserted can terminate the Agreement by notice in writing.
Counsel for Bright Horizons argues that one of the factual issues at trial will be whether CCP has in fact complied with its obligations under cl 4.4. Counsel argues that there is a serious question to be tried as to whether CCP has complied with its obligations under that clause. It is submitted that CCP has not complied with its obligations and therefore it did not in fact have a right to terminate. Another issue to be determined will be whether Bright Horizons has been afforded a reasonable time within which to complete the conditions precedent. It is argued that this will turn on the evidence adduced by both parties at trial against a background where it is alleged that there is no response to correspondence from the solicitors for Bright Horizons between May 2016 and November 2016, aside from one letter received in May 2016.
I accept that there is on the face of it an issue as to whether the termination of the BSAs by CCP was valid. It would seem to me that there is some force in the argument by Bright Horizons that the present circumstances mirror to a large extent the circumstances in the application before Jackson J in 2015 where it was held that the parties had not expressly agreed the new completion date as required by the BSAs.
The management arrangements
It is further submitted by Bright Horizons that it is entitled to occupy the premises from which the businesses operate until trial because it has occupied and managed the businesses under an agreement with CCP since 2007. Bright Horizons consider this is a Management Agreement which has not as yet been terminated. Counsel argues that whilst the purported Notices of Termination of the BSAs contained a statement that CCP was revoking any rights Bright Horizons had to occupy the premises, there was no express termination of the Management Agreements which had been in place for over a decade. The legal basis for termination of the BSAs was also not specified.
Counsel for CCP contends however that the letter is unambiguous as to its meaning. I accept that the letter which accompanied the Notices does state in clear terms that Bright Horizons has no further rights to operate the businesses or to take any profits.[14] However in this regard Bright Horizons wishes to contend at trial that whilst the letter purported to be a termination of the management arrangement, the lawful basis upon which that was done was not set out in the covering letter, particularly in circumstances where CCP still owes Bright Horizons an amount of $1,000,000. Bright Horizons also contends that CCP had acknowledged in 2015, through its then solicitors Porter Davies, that there was a management arrangement and that reasonable notice had to be given in order to terminate the arrangement. CCP submits however that there was no management arrangement as contended and that the letter does not constitute an admission about reasonable notice. Clearly that is a matter which cannot be resolved on this application.
[14] Affidavit of R J B Winter sworn 17 March 2017 (Court Document 3), p 198.
A significant issue at the first hearing on 16 March 2017 related to the proposition that there was an Oral Management Agreement between the applicant and the respondent which had been in place for 10 years and which bound the parties. It was initially contended that the Oral Management Agreement was such that it gave rise to a proprietary right. Since that initial hearing it has become clear however that CCP was not a party to that Oral Agreement given it was made between Mr Zullo and the representatives from ABC. It is now conceded by the applicant that there was no oral agreement as such between Mr Zullo and Mr Sheehan from CCP as contended for at the first hearing. I accept the circumstances which led to such a belief have been explained. It seems to now be argued that the ABC representatives acted as agents of CCP during those discussions.
The existence of the Oral Management Agreement assumed some significance at the initial hearing because it related to the question as to whether Bright Horizons had a right to possession. It became clear at the hearing on 21 March that not only is there no evidence of a written agreement but also no evidence that anyone from CCP was actually a party to any oral agreement that was made. There is however evidence that the parties have conducted themselves pursuant to an arrangement for the last decade which is basically as set out in paragraph [8] of these reasons. There is a real issue as to Bright Horizons’ right to the exclusive possession of the premises on the basis of this management arrangement. Can that management arrangement give Bright Horizons a right to exclusive possession? Indeed Counsel for the respondent submits that the applicant has not established a legal right to possession at all and that Courts will not generally intervene to prevent the revocation of what he contends is just a licence.
In this regard Counsel for CCP argues that CCP has the exclusive right to possession of the premises and that at most, Bright Horizons has only a licence to enter and remain on the premises. Furthermore it is submitted that such a licence was revocable and it has in fact been revoked. Reference has been made by Counsel to the decision of the High Court in Cowell v Rosehill Racecourse Company Limited[15] where Dixon J stated the following:
“A licence which is not coupled with or granted in aid of an interest is revocable at law. It operates as a bare permission to do what would otherwise be an invasion of the licensor's rights. If the permission is terminated, further continuance of the acts it authorized becomes wrongful. A licensee does not become a trespasser until he has received notice that the licence is countermanded and until a reasonable time has elapsed in which he may withdraw from the land and remove whatever property he has brought in pursuance of the licence (Cornish v. Stubbs...). But, if he then refuse to leave the premises, he cannot complain of his forcible removal.
"A licence under seal (provided it be a mere licence) is as revocable as a licence by parol" (per Alderson B., Wood v. Leadbitter…]). Further, a licence is revocable at law notwithstanding an express contract not to revoke it. By revoking it, the licensor commits a breach of contract exposing him to an action of damages ex contractu. But the licensee cannot further avail himself of the licence and the licensor is not precluded in an action of tort from relying upon the termination of the licence (Wood v. Leadbitter…]; Taplin v. Florence…]). This is in accordance with the general rule of the common law that a landowner's possessory rights cannot be renounced or altered by mere contract. The rights continue to subsist notwithstanding the contract, which operates only to impose obligations and not otherwise to prevent the exercise of rights arising from property.””
[15] [1937] HCA 17; (1937) 56 CLR 605 at 630.
Furthermore Counsel argues that the decision of the Court of Appeal in Gallagher v McClintock[16] held that such a licence is revocable at will without prior notice or reason:
“Any right that the appellant had to be upon Church land prior to 1 September 2013 was subject to implied limitations. The first was that the appellant’s licence was revokable at will by the owner of the land without prior notice or reason.[17] The appellant’s licence to be upon Church land would also be subject to him complying with all statutory requirements touching upon religious worship. This would include section 207 of the Criminal Code (Qld) which provides:
“Any person who wilfully and without lawful justification or excuse, the proof of which lies on the person, disquiets or disturbs any meeting of persons lawfully assembled for religious worship, or assaults any person lawfully officiating at any such meeting, or any of the persons there assembled, is guilty of an offence, and is liable on summary conviction to imprisonment for 2 months, or to a fine of $10.””
[16] [2014] QCA 224 at [25].
[17] Kuru v New South Wales (2008) 236 CLR 1, 14 - 15 [43]; Lambert v Roberts [1981] 2 All ER 15, 19;
Halliday v Nevill (1984) 155 CLR 1; Mackay v Abrahams [1916] VLR 681, 684.
It is submitted therefore that there has been a valid revocation of the arrangement or so called Management Agreement. It is further argued that equity would not order specific performance of the alleged oral management arrangement because it is essentially an agency arrangement, given that Bright Horizons has been conducting the business on behalf of the licensed operator CCP. In this regard reliance is placed on the principle that Equity will not grant specific performance of a contract of agency as discussed by Meagher, Gummow and Lehane in their text:[18]
“As a general principle, equitable remedies do not lie to compel the performance of personal work or services or to compel the maintenance of a personal relationship … against the will of one of the parties to it” (footnotes omitted).
[18] Equity: Doctrines and Remedies 5th Edition at p 659, see also p 660.
It would seem to me therefore that Bright Horizons faces some significant obstacles in relation to this aspect of their application. There is however a further basis upon which it is argued that there is a serious question to be tried, which emerged during the hearing on 21 March 2017.
Has there been an equitable assignment of the leases?
It is now argued by Counsel for Bright Horizons that the issue is whether the applicant is the equitable assignee of the leases in question. My understanding is that Counsel for Bright Horizons submits that the conduct of the parties since 2007 establishes the fundamental terms of the Management Agreement and as such, Bright Horizons is entitled to occupy the premises as an equitable assignee pursuant to that Management Agreement which Counsel submits has not been validly terminated.
Counsel for Bright Horizons argues that there is a line of authority which supports an argument that there is a prima facie case that there may have been an equitable assignment of the leases in the circumstances here. In this regard Counsel relies on the express agreement for the assignment of the lease, the occupation of the premises after the execution of the agreements and the payment of rent by Bright Horizons, together with the knowledge of the Landlord of all of those factors.
Counsel relies on the decision of Molina v Leask[19] in particular where Santow J stated:
“An assignment for value which is not a legal assignment will nevertheless be upheld as an assignment in equity where there is either written evidence or part performance of that assignment: Ferguson v Hullock (1955) VLR 202; Colman v Golder (1957) VR 19; Walsh v Lonsdale (1882) 21 ChD 9. Here there is both written evidence of the agreement by way of the contract for sale….and part performance. Mr Leask took possession of the premises and paid some rent. He also attempted to negotiate with Martins about changes to the rent, behaving as a tenant in this capacity. He was aware at the time he signed the contract that it included a transfer of the existing lease. Where an assignment has been effected in equity- as is clearly the case here- the parties should be in the same position as if there had been a legal transfer of the lease.
…
The fact of absence of consent to an assignment of lease makes such assignment in breach of covenant, but does not make the assignment ineffective.
…
Put simply, the breach of covenant to obtain consent is a matter for the lessor and cannot be relied upon by Mr Leask as a matter preventing the assignment in equity.
Tus the assignment of the lease should be treated as effective in equity, giving rise to liability on the part of Mr Leask to the Molinas.”
[19] [1998] ANZ ConvR 361.
That decision was referred to in the Queensland decision of Gillion & Anor v Casserly & Anor[20] where White J acknowledged the contention that there had probably been an equitable assignment of the lease in the circumstances there but had ultimately held that the assignment “may be, and almost certainly is, good in equity but of itself cannot defeat the covenant in the lease as between the lessee and the landlords.” The decisions of Ferguson v Hullock, which was referred to in Molinas, together with the decision of Vella v Wah Lai Investment Proprietary Limited[21] are also relied upon to support the submission that there is a prima facie case that Bright Horizons has a right to possession.
[20] (2005) Q ConvR 54-626.
[21] [2004] NSWSC 748.
Counsel for CCP however contends that the applicant will not be able to establish that there has been an equitable assignment of the leases and relies on the decision of Norman v Federal Commissioner of Taxation[22] to argue that an assignment means the immediate transfer of an existing property right vested or contingent from the assignor to the assignee. Accordingly it is contended that there must an intention on the part of the assignor to transfer ownership and the intention must be communicated. The intention must also be to effect an immediate transfer or, if it is future property, an intention to transfer upon that future property coming into existence. Counsel for CCP argues that none of the cases relied upon by Counsel for Bright Horizons assist their argument, as they can be distinguished on the basis that none of them involved a conditional promise to assign. Reference was also made to the High Court decision of Brown v Heffer[23] where the issue was whether a conditional contract could give rise to an interest in land and where the High Court held that until consent had been obtained, the purchaser’s interest there did not extend to ownership of the land.
[22] [1963] 109 CLR 9 at 26.
[23] [1967] 116CLR 344.
Having been taken to those cases by Counsel for CCP and having considered the issues in contention, I consider that despite the arguments by Counsel for CCP, there is a serious question to be tried in relation to this issue.
Has the applicant established that there is a prima facie case?
I have considered the submissions of Counsel together with the extensive affidavit material which has been filed to date, including the two affidavits of Frank Zullo, four affidavits of Robert Winter and two affidavits of Christopher Beames which set out the history of the dispute in these proceedings. Having considered that material I consider that the applicants have satisfied the onus on them to establish that there is a prima facie case. I consider that not only is there a serious issue to be tried in relation to whether there has been a valid termination of the BSAs, but also whether Bright Horizons is in reality the equitable assignee of the lease.
I need now to turn to the second issue and determine where the balance of convenience lies.
Where does the balance of convenience lie?
Counsel for CCP refers to the significance of the fact that the Landlord has now served a formal notice of breach of the Leases on CCP and requires CCP to remedy the breach by resuming full possession of the businesses. Counsel for CCP argues that the injunction sought would stop CCP from taking the action necessary to remedy the breach pursuant to the Notice of Breach. Accordingly there would be a direct conflict between the action the Landlord requires and the injunction. It is submitted that such a conflict would place CCP in a dispute with the Landlord and that would put at risk CCP’s rights under the leases. If it loses the leases then CCP would lose its rights to the licences to operate the childcare centres at those premises because the “licences are fixed to premises.”
I accept that the relief sought is a mandatory injunction and that the effect of such an order would, in reality, compel specific performance of the alleged oral Management Agreement. In this regard Counsel for CCP submits that generally Courts will not compel, indirectly via an injunction, an agreement which they would not enforce directly by specific performance. Furthermore it is submitted that the alleged Management Agreement does not contain any implied negative stipulation of any kind. That is, it does not contain any express term to the effect that termination will occur in specified circumstances and it does not contain an implied negative stipulation that termination will only occur in those circumstances.
I also note that granting an injunction will affect a third party, namely the Landlord, who has rights under the lease. Counsel submits that the Landlord wishes to enforce those rights and the Court is being asked to interfere in the exercise of those rights. I note however the content of the correspondence between the parties on 11 January 2017 when the Landlord indicated that no further action would be taken under the Notices whilst the assignment of the Leases was being considered and if there was consent to the assignment of the Leases, then the Landlord would take no further action and waive the alleged breaches by CCP. Whilst Counsel notes that the temporary reprieve no longer applies, there is no certainty on the evidence before me as to what action the Landlord will actually take. The highest it is put is that “there’s a reasonable apprehension that the breach notices will be re-enlivened”.[24]
[24] T 1-63 ll 29-30.
I also note however that whatever it is termed there does seem to have been a clear arrangement between the parties about the conduct of the businesses for the last decade and that if interim injunctions are granted they will simply continue a decade old arrangement until trial.
Another factor which caused me significant concern at the initial hearing on 16 March 2017 was the submission that CCP had breached its obligation to act in good faith in its communications to the Landlord. There was reference to a belief that CCP had requested the Landlord not to grant its consent to the assignment of the Leases. There is no evidence before me at this point in time that CCP was responsible for any communication to the Landlord which would affect the Landlord’s independent determination of the issue. That allegation is therefore unsubstantiated.
Whilst Counsel for CCP submits that the undertaking as to damages has no value, Counsel for Bright Horizons submits that Bright Horizons will be able to meet an undertaking as to damages. I have been taken by Ms Downes to Mr Zullo’s affidavit sworn 17 March 2017[25] in which he sets out the statement of financial affairs. It is submitted that an examination of those figures indicates that Bright Horizons has a total asset value of $8.38 million and net assets of $1.018 million. I accept that on the face of these documents Bright Horizons will be able to meet such an undertaking, although I note Mr Pomerenke’s arguments in relation to Mr Zullo’s valuations.
[25] Court Document 2.
In my view there is some substance to the submission that the loss in value of the two child care centres if CCP takes over the business, and then Bright Horizons succeeds at trial and the business is returned to it, may be substantial. I accept that there is an argument that the reputational damage that would be suffered by Bright Horizons if the injunction is refused may be such that damages cannot adequately compensate Bright Horizons for that harm. In this regard I note the decision of Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd[26] which held that:
“[9] … the prospect of damage to reputation provides a sufficient reason why the Applicant has established that there is a serious question to be tried … but also that the only relevant legal remedy, namely damages, will not be an adequate remedy.”
[26] (2010) 5 BFRA 76 at [9].
I also note the arguments by Counsel for Bright Horizons that CCP’s anticipated action in relation to the two businesses poses a serious threat to the conduct of Bright Horizons’ wider business, given it conducts some 26 Childcare Centres in Australia and New Zealand. Indeed it is argued that the potential loss of goodwill would be difficult to quantify in terms of damages.[27] In the circumstances I accept there is the potential for such a consequence.
[27]Businessworld Computers Pty Ltd v Australian Telecommunications Commissioner (1988) 82 ALR 499 at 507 per Gummow J.
I also accept that if CCP were to assume possession of the businesses, there could be some upheaval in the everyday running of the centres and that may pose some uncertainty to staff as well as to parents and children involved with the two centres. There is the potential for an impact on the provision of child care services through the businesses which could lead to a disruption in care for approximately 254 children cared for through the centres.
The effect of the injunction sought is to maintain rather than alter the status quo. The orders sought do not result in any determination of Bright Horizons’ legal rights against CCP in advance of a trial. I consider therefore that the maintenance of the status quo for a matter of months while the matter progresses to trial cannot, in all the circumstances, be said to give rise to any harm suffered by CCP that is not compensable by way of damages.
Accordingly I am satisfied that the applicant has made out a prima facie case to justify the preservation of the status quo pending trial or earlier order of the Court. The harm that the applicant would be likely to suffer should an injunction be refused in my view outweighs the risk of harm the respondent may suffer should an injunction be granted.
I therefore order that the interim injunction granted by me on 21 March 2017 be extended until trial or further order of the Court. I will hear the parties as to the form of the Orders and as to Costs.
0
8
0