Harmony Operations Australia v GG Feedlot
[2019] VSC 132
•4 MARCH 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
S ECI 2019 00864
| HARMONY OPERATIONS AUSTRALIA PTY LTD (ACN 609 788 114) | Plaintiff |
| v | |
| GG FEEDLOT PTY LTD (ACN 166 014 4460) | Defendant |
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JUDGE: | MACAULAY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 MARCH 2019 |
DATE OF RULING: | 4 MARCH 2019 |
CASE MAY BE CITED AS: | Harmony Operations Australia v GG Feedlot |
MEDIUM NEUTRAL CITATION: | [2019] VSC 132 |
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INTERLOCUTORY INJUNCTION — Where vendor of property has allegedly refused to settle contract of sale to company related to lessee in breach of contract — Where pending determination of an interlocutory injunction application with respect to settlement of the sale, the vendor, as lessor, purports to take possession of the property under the lease — Serious questions to be tried whether lessee remains entitled to possession as overholder and whether it would be entitled to injunctive relief under alternative causes of action —Balance of convenience favours grant of injunction — Damages not an adequate remedy — Interim injunction granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms V Plain | Cornwall Stodart |
| For the Defendant | Mr M Wolff | Mulcahy & Co Legal |
HIS HONOUR:
On Friday 1 March 2019 I made urgent orders in the Practice Court restraining the defendant, GG Feedlot Pty Ltd (GG Feedlot) and its officers, servants or agents from giving effect to a notice dated 26 February 2019 relating to a lease between Harmony Operations Australia Pty Ltd (Harmony) and GG Feedlot in respect of rural land at Gerang Gerung in Victoria, or from interfering with that property. I said I would give short reasons for my decision later. These are those reasons.
Harmony is related to another company, Sequoia Agriventures Pty Ltd (Sequoia). Each has the same parent company, Harmony and Agriculture Food Company Pty Ltd (HAFC). They are collectively involved in an agricultural enterprise of grazing cattle and selling Wagyu beef. The land in question is a property suitable for grazing cattle for that purpose.
On 1 February 2018:
(a) Sequoia entered a contract to purchase the property from GG Feedlot for $3.1M, with settlement on 1 February 2019; and
(b) Harmony entered a lease of the property from GG Feedlot for 12 months expiring 1 March 2019.
Without more, from these facts it may be evident to any objective onlooker that it was the intention of the parties that Harmony’s possession of the property as lessor would seamlessly pass to Sequoia, its ‘sibling’ company, as purchaser, upon settlement of the sale on 1 February 2019.
But this outcome has not occurred seamlessly as I will explain in a moment.
Harmony took possession as lessee and has paid $300,000 of rent over the 12 months. As the operating arm of the group, and while in possession as lessor, Harmony has spent a further $500,000 making improvements to the property for the purpose of conducting the Wagyu beef operation.
Sale dispute: Sequoia proceeding
Settlement of the purchase by Sequoia, due on 1 February 2019, has had its problems. Those problems are the subject of another piece of litigation in which Sequoia is plaintiff and GG Feedlot is defendant (Sequoia proceeding). In the Sequoia proceeding, commenced 14 February 2019, Sequoia seeks specific performance of the contract of sale, and GG Feedlot is opposing it.
The problems with settlement are explained in the affidavit of Anthony Fellowes,[1] the chief commercial officer of HAFC, the parent company of Sequoia and Harmony, in the Sequoia proceeding. His affidavit has been relied upon as evidence in this application. Initial obstacles to settlement on the due date appear to be that, one, Sequoia did not have its finance available on 1 February and, two, important water entitlements that were to be transferred to Sequoia at settlement were not ready for transfer.
[1]Affidavit of Anthony Fellows sworn 15 February 2019.
GG Feedlot threatened to rescind the contract by notice dated 3 February giving Sequoia 14 days to remedy its default. According to Sequoia’s evidence, finance was available to it by 5 February and it was ready, willing and able to settle from as early as 7 February with or without transfer of the water entitlements or retention of moneys in lieu of them being transferred. Sequoia claims that since 7 February GG Feedlot has been refusing to settle without proper cause.
An interlocutory injunction was sought on 15 February to prevent GG Feedlot relying on its rescission notice. By an order I made in the Practice Court on that date with the consent of both parties, GG Feedlot was restrained from relying upon or giving effect to its notice pending the further return of the application. The further hearing of that application was adjourned to 27 February, since again adjourned by consent to 6 March with the interim injunction remaining in place, and time was given and then extended for GG Feedlot to file and serve its answering material.
It is against that background that the events of last Friday, 1 March, took place.
Lease dispute: Harmony proceeding
At 7am on Friday, 1 March 2019, Matthew Albrecht, the director of GG Feedlot, attended at the Gerang Gerung property purporting to take possession of it on the footing that Harmony's lease had expired and thus GG Feedlot was entitled to resume possession.
To understand the significance of this event, it is relevant to know that Harmony has 5000 head of cattle on the property whose value as finished product is $23M, and it has six employees. The property is one of only two sites on which the group conducts its business. The other site has a further 8000 head of cattle.
By application on Friday afternoon, before me sitting in the Practice Court, Harmony sought an urgent interim injunction to restrain GG Feedlot from terminating the lease or entering or interfering with the property until further order.
Principles
In deciding whether to exercise its discretion to grant an interim injunction, a court will ensure that there is some available cause of action based on a recognised legal or equitable right. In that context, the court considers whether there is a serious question to be tried the determination of which, in favour of the plaintiff, would entitle the plaintiff to an injunction in one form or another at trial. Next, the court considers where the balance of convenience lies: in short, does the granting of the injunction carry a lower risk of injustice than withholding it? The court will not usually grant an injunction where it considers damages would be an adequate remedy if the plaintiff were to succeed at trial.
Serious question to be tried
Was Harmony entitled to remain in possession as an overholder?
Debate took place as to whether Harmony was entitled to remain in possession under the lease upon the overholding clause, clause 4.1. If it was so entitled it would have right to possession for a further 3 months from 1 March 2019 terminable by a quarter’s notice by GG Feedlot which, plainly, has not been given.
GG Feedlot asserts that there cannot be any question of there being an overholding because such overholding must occur with the ‘consent’ of the lessor. It maintains that it explicitly denied any such consent by a notice that its solicitor sent to Harmony at its registered office in Perth by pre-paid post. The letter was posted from Wendouree, Victoria, at 4:39pm on Tuesday, 26 February 2019. Harmony disputes such letter was received by it in Perth before Friday, or at all, and questions whether the letter was sent as claimed. Even so, it argues that if the letter was sent on the day claimed, under the provisions of s 160 of the Evidence Act[2] it would not be deemed to have been served until the fourth working day after postage, that is, not until Monday 4 March. If so, it would follow that the letter would not be taken to have been received before GG Feedlot purported to take possession on 1 March.
[2]Evidence Act 2008 (Vic).
GG Feedlot further submits that, in any event, it did not need to send the notice denying its consent — the letter was merely sent as a ‘courtesy’ — and Harmony cannot prove such consent. Harmony argues that if it remained in possession without GG Feedlot objecting, which was the case at the stroke of 12:01am on Friday 1 March, then GG Feedlot is taken to have consented to it doing so on an overholding basis.
In my opinion, there is a serious question to be tried whether GG Feedlot was entitled to enter possession as lessor on Friday 1 March, or whether Harmony was entitled to remain in possession under the overholding clause.
Does Harmony have an entitlement to injunctive relief even if not an overholder?
Even if GG Feedlot is entitled under the lease to enter possession – that is, because it had not consented to the overholding and the lease simply expired at 12:01am on Friday 1 March by the effluxion of time – Harmony raises other potential causes of action against GG Feedlot. It argues that, if made out at trial, those causes of action would enable the court to craft a remedy which would preserve to it the right to remain in possession of the property, at least until the resolution of the outcome of Sequoia's claim for specific performance of the contract of sale, including, potentially, an estoppel against exercising strict legal rights.
Those potential causes of action were only outlined in a broad fashion in the urgent circumstances that existed last Friday, but in substance they are as follows:
(a) Unconscionable conduct in contravention of ss 20 and 21 of the Australian Consumer Law,[3] constituted by the conduct of GG Feedlot:
[3]See Competition and Consumer Act 2010 (Cth), Schedule 2.
(i) as vendor of the property, consenting to be restrained from acting upon the rescission notice against the purchaser and obtaining adjournments of the purchaser’s specific performance action to enable it to defend that action; while
(ii) as lessor of the property, planning to retake, and retaking, possession as against the purchaser’s related company without any or any effective communication of its intention to do so; and
(iii) in circumstances where GG Feedlot has deliberately impeded the settlement of the Sequoia contract which would have delivered possession of the property to it.
(b) Breach of a collateral contract between the parties, implied from the circumstances described, to the effect that GG Feedlot as lessor would not disturb Harmony's possession as lessee if, in breach of the sale contract, it refused to settle the sale and transfer the property to Sequoia prior to the expiry of the lease.
GG Feedlot raised a number of potential reasons why such causes of action might not ultimately succeed. For example, in respect of both, it disputed the existence of any objective evidence of an intended link between the sale contract and the lease to sustain arguments that the outcome of one should in anyway bear on the outcome of the other. In that respect counsel for GG Feedlot pointed out that the only term in the lease which refers to a contract of sale of the land refers to a contract between Harmony and GG Feedlot, not between Sequoia and GG Feedlot. There is no such contract. So, it was said, there is nothing to indicate any objective intention to link the two transactions. Harmony says that the reference to Harmony instead of Sequoia is, plainly, a mutual mistake and it would be rectified as such.
GG Feedlot also submitted that any contention there was an implied contract would inevitably fail as there was no chance the tests enunciated in BP Refinery (Westernport) v Shire of Hastings[4] could be satisfied, including that it must be so obvious it goes without saying, or that such a contract could be established against ‘entire contract’ clauses he expected would be found in the lease and the sale contract.
[4](1977) 180 CLR 266
It suffices to say that I did not accept that, on the facts presented, Harmony's potential causes of action failed to raise any serious question to be tried. On the contrary, upon the evidence that was before the Court – limited as it was, and untested – I considered there were serious questions to be tried on both causes of action framed by Harmony as alternatives to its claim that it was entitled to remain in possession as overholder under the lease.
Balance of convenience
In my view the balance of convenience overwhelmingly favoured the grant of the injunction. I took into account the detailed evidence given by Mr Fellows in his affidavit in the Sequoia proceeding, about:
·the scale of the operation conducted by Harmony;
·the money already spent on improvements to the property;
·the serious disruption and cost it would cause to the group of which Harmony is a member, if the 5000 cattle and six employees had to be redeployed;
·the imperilling of valuable contracts for supply of meat and acquisition of further stock; and, in turn,
·the jeopardy to the viability of the business of the whole group.
Against that, GG Feedlot, through its solicitor Bradley Matthews, indicated that if it could not regain possession:
·it would lose the chance to lease the property to a party who is willing to pay market rent, as opposed to the allegedly below-market rent Harmony is paying;
·that, in turn, would impact its ability to pay off debts Mr Albrecht, its director, owes; and
·it would prevent Mr Albrecht and his family being able to resume living in the residence on the property.
Given that GG Feedlot had contracted to sell the property outright by 1 February for $3.1M – and still could if it withdrew its opposition to the specific performance action by Sequoia – such claims of prejudice appear somewhat hollow and inconsistent with the apparent intent of the bargains GG Feedlot had entered. In any event, even accepting those matters as likely consequences, I think the potential consequences to Harmony of being ousted from possession significantly outweigh them.
Damages an adequate remedy?
Although, in its written outline of submission, GG Feedlot succinctly contended that damages for Harmony would be an adequate remedy, it did not address that issue in oral argument. In any event, I am far from satisfied that damages would be an adequate remedy for Harmony should it turn out that GG Feedlot was not entitled to retake possession of the property having nevertheless evicted Harmony with the consequent effect on its business as I have outlined.
It appears that GG Feedlot has secured debts encumbering the property, arguably approximating the sale price under the Sequoia contract. It also appears there are other pressing debts that Mr Albrecht apparently wishes to meet. The damage to Harmony if it is not able to conduct its business from the property is likely to be substantial, potentially fatal. Damages will not restore the business it has developed on the Gerang Gerung property, and, in any event, there must be real doubt whether GG Feedlot could meet the scale of damages which would be awarded if Harmony was successful in a claim.
A consideration of the adequacy of damages as a remedy was no bar to the grant of the injunction.
Undertakings as to damages were proffered by the plaintiff. I also directed the plaintiff to file an indorsement of claim conforming to r 5.04(2)(b) on the basis that this claim, initiated by originating motion, should continue as if commenced by writ.[5] The summons for interlocutory relief is made returnable before the judge in the Practice Court on Wednesday 6 March 2019 along with the return of the summons for interlocutory relief in the Sequoia proceeding.
[5]Supreme Court (General Civil Procedure) Rules 2015 (Vic).
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