Haroon and Verrocchi v Lindisfarne (Health) Pharmacy Pty Ltd
[2012] TASSC 70
•24 October 2012
[2012] TASSC 70
COURT: SUPREME COURT OF TASMANIA
CITATION:Haroon and Verrocchi v Lindisfarne (Health) Pharmacy Pty Ltd [2012] TASSC 70
PARTIES: HAROON, Azman
VERROCCHI, Mario
v
LINDISFARNE (HEALTH) PHARMACY PTY LTD SARAMASKOS, Nicolas
SARAMASKOS, Iris
FILE NO/S: 773/2012
JUDGMENT APPEALED
FROM:Haroon and Verrocchi v Lindisfarne (Health) Pharmacy Pty Ltd [2012] TASSC 65
DELIVERED ON: 24 October 2012
DELIVERED AT: Hobart
HEARING DATE: 18 October 2012
JUDGMENT OF: Wood J
CATCHWORDS
Equity – Equitable remedies – Injunctions – Interlocutory injunctions – Serious question to be tried – Other particular cases – Appeal against refusal to grant an injunction to prevent the sale of a retail pharmacy business.
Aust Dig Equity [1158]
REPRESENTATION:
Counsel:
Appellants: S P Estcourt QC and C J Gunson
First Respondent: K A M Pitt QC and M Chambers
Second and Third Respondents: No Appearance
Solicitors:
Appellants: Rotstein Commercial Lawyers
First Respondent: Shields Heritage
Second and Third Respondents: No Appearance
Judgment Number: [2012] TASSC 70
Number of paragraphs: 25
Serial No 70/2012
File No 773/2012
AZMAN HAROON and MARIO VERROCCHI v
LINDISFARNE (HEALTH) PHARMACY PTY LTD,
NICOLAS SARAMASKOS and IRIS SARAMASKOS
WOOD J
24 October 2012
The plaintiffs, Azman Haroon and Mario Verrocchi, have appealed an order made by Holt AsJ on 8 October 2012 dismissing their application for an interlocutory injunction. The plaintiffs sought an interlocutory injunction pending the trial of an action. In the action the plaintiffs claim specific performance of a contract of sale entered into with the first defendant, Lindisfarne (Health) Pharmacy Pty Ltd, involving a retail pharmacy business. If the interlocutory injunction were to be granted in the terms sought it would prevent the sale of the pharmacy business pending the determination of the action. The trial is set down to commence in less than four weeks' time.
The appeal point is whether the Associate Judge erred in law by concluding that there was not a serious issue to be tried. An error as to this conclusion is determinative of the appeal as the learned Associate Judge reasoned that if there was a triable issue, the balance of convenience and the nature of the right claimed by the plaintiffs rested with granting an injunction. His Honour held that the practical consequences to the first defendant which would arise consequent upon the granting of an interlocutory injunction were significantly less than the detrimental consequences for the plaintiffs if an injunction was not granted: Haroon and Verrocchi v Lindisfarne (Health) Pharmacy Pty Ltd [2012] TASSC 65, at par[10]. If it were demonstrated that the plaintiffs had an arguable chance of success, that would be sufficient to warrant the order sought. It is not a case where the chance of success had to reach some level of strength in order to counter the effect of the balance of convenience. His Honour's summary of the principles applicable to applications for interlocutory injunctions, and his conclusion that the interlocutory injunction should be granted if the plaintiffs could demonstrate at least an arguable chance of success, are not disputed by the parties and are set out in his reasons for judgment at pars[2] and [11] respectively.
The two central issues raised by the grounds of appeal are:
· Whether the date for completion had arrived at the time the first defendant, Lindisfarne (Health) Pharmacy Pty Ltd, purported to terminate the contract.
· Whether the first defendant had failed to take all reasonable steps to obtain the consent of the second and third defendants, the landlords, to the assignment of the lease.
The grounds of appeal include:
"3 The grounds of appeal are:
(a) The learned Associate Judge erred in law and/or fact in finding that there was no serious question to be tried in that it is reasonably open for the plaintiffs to argue at trial that:
aat the time the first defendant purported to terminate the contract the completion date for the contract had not passed, and hence the first defendant had no right to terminate the contract, because the parties had agreed to defer completion of the contract beyond the original date expressed for completion, pending obtaining the consent of the second and third defendants to the assignment of the lease;
b….
chaving failed to take all reasonable steps to obtain the consent of the second and third defendants to the assignment of the lease it was not, in any event, entitled to rely on clause 3.1.2 of the contract to purport to terminate the contract, and/or that it would be unconscionable for the first defendant to do so; …"
The second and third defendants did not seek to be heard on the appeal. It is convenient to refer to them as the landlords, and the other parties by reference to their status in the action.
For the purpose of the appeal there is a significant degree of consensus about the facts and no argument about the principles of law relied upon by the plaintiffs in these proceedings. The facts relevant to the appeal are set out in the plaintiffs' written contentions of fact and law. The contentions of fact are largely accepted as correct by the first defendant, and the submissions on the appeal revolved around them. These contentions of fact are:
"4The plaintiffs are pharmacists and own or have proprietary interests in a number of pharmacies in Australia. The plaintiffs' pharmacies trade as part of the 'Chemist Warehouse' network of pharmacies.
5The plaintiffs seek to establish a pharmacy on Hobart's Eastern Shore. In about March and April 2012 negotiations took place between the first plaintiff and the first defendant regarding the sale of a pharmacy owned by the first defendant. That pharmacy is located at Lindisfarne. The negotiations took place between the first plaintiff and Ms Diana Cubit on behalf of the first defendant.
6Those negotiations led to the signing of heads of agreement on 20th April 2012 (AB 1.42 and AB 1.143).
7On or about 13th June 2012 the agreement reflected in the heads of agreement was formalised by the parties executing counterparts to a formal contract of sale (AB 1.42 and AB 1.46).
8The contract was subject to conditions. The relevant conditions for the purposes of this appeal are (AB 1.55):
3.1.1Completion of the transactions contemplated by this Contract is subject to and conditional upon:
…
(e) the assignment of the Lease to the Purchaser pursuant to clause 3.2.
3.1.2The Vendor and Purchaser respectively covenant and agree that they will forthwith and in a proper business-like manner attend to all acts, matters and things as may be reasonably necessary on their part in relation to satisfaction of the conditions in clause 3.1.1 but in the event that such conditions in clause 3.1.1 (a), (b), (c) and (d) are not satisfied on or before the Completion Date as herein provided then this Contract shall at the option of the Purchaser (and in the case of clause 3.1.1 (e), at the option of either party) be declared null and void and have no effect and all moneys paid hereunder by the Purchaser shall thereupon be returned to the Purchaser forthwith in full and without deduction or set-off.
3.1.3The condition in clause 3.1.1 (e) is for the benefit of both the Vendor and Purchaser and cannot be waived unless both agree to do so in writing.
9Clause 3.2 dealt with the assignment of the lease. A copy of the lease was annexed as Schedule C to the contract (AB 1.81). Clause 3.2 relevantly provided (AB 1.56);
3.2.2On the Completion Date the Vendor must transfer the Lease to the Purchaser on terms satisfactory to the Purchaser (acting reasonably) with the Landlord's written consent.
3.2.3The Vendor shall seek the consent of the Landlord to the transfer of the Lease to the Purchaser at or prior to the Completion Date and subject to the provision of such consent, will do all things and sign all documents reasonably required to give effect to such transfer.
3.2.4Landlord's Requirements
(a) both parties must take all reasonable steps to obtain the Landlord's written consent to the transfer of the Lease as soon as possible.
…
10Clause 1.1 of the contract provided a definition of 'Completion Date' as (AB 1.52):
Completion Date means the date set out in Item 18 or such other date as the Vendor and the Purchaser may agree in writing.
11Item 18 of the particulars of sale provided that Completion Date was (AB 1.49):
The earlier to occur of:
(a) Sixty (60) days from the day of sale; or
(b) Fourteen (14) days after the date that written notice is given by the Purchaser to the Vendor notifying the Vendor of the date that settlement is to occur.
12Clause 27 of the contract included a further obligation on the parties to do all things necessary to give full effect to the contract. Clause 27 provided (AB 1.74):
27 Further Assurances
27.1Each party must do all things and execute all further documents necessary to give full effect to this Contract and refrain from doing anything that might hinder the performance of this Contract.
13At the time the contract was entered into, therefore, it was contemplated by the parties that settlement would occur by 13th August 2012.
14In relation to assignment of the lease between the first defendant and the second and third defendants the lease provided, relevantly, at clause 3.12 (AB 1.103):
3.13.1Other than by way of assignment, not to sublet or part with possession of the demised premises or any part thereof without the prior consent in writing of the Landlord, which consent shall not be unreasonably withheld in the case of a person, persons or corporation who or which is to the reasonable satisfaction of the Landlord of sufficient financial standing, possesses the necessary business skills and is respectable and responsible and will not in the opinion of the Landlord act unreasonably, hinder or damage any of the Landlord's other business activities conducted at the balance of the demised premises (the onus of satisfying the Landlord of which shall be on and at the expense of the Tenant).
3.13.2Not to assign this lease without the prior written consent in writing of the Landlord.
3.13.3Subject to clause 3.13.1 the Landlord must not unreasonably withhold consent to the Tenant's request to assign this Lease.
…
3.13.5The Landlord may require the Tenant to provide the following:
(a) information on the financial standing of the prospective assignees, including any approval for finance;
(b) information on the relevant business skills of the prospective assignees;
(c) information on the financial standing of any prospective guarantors;
(d) information as to the proposed use of the premises by the proposed assignee;
(e) two (2) references.
3.13.6The Landlord is to give written notice of the Landlord's approval or rejection of an assignment within twenty one (21) days of receiving all information required to be given.
3.13.7If no objection is made within the twenty one (21) day period, the Landlord will be taken to have approved the proposed assignment.
3.13.8The Landlord may reject a proposed assignment of this Lease if:
(a) the proposed assignee intends to change the use of the demised premises; or
(b) the proposed assignee does not have the financial standing to conduct the business carried on at the demised premises; or
(c) the proposed assignee does not have the necessary business skills to conduct the business carried on at the demised premises; or
(d) the proposed assignee does not enter into a written agreement with the Landlord in accordance with some or all of the terms of this Lease or as otherwise reasonably requested by the Landlord;
(e) in the opinion of the Landlord, acting reasonably, the assignment to the proposed assignee is likely to hinder or damage the Landlord's other business activities conducted at the balance of the demised premises.
15The lease defined 'demised premises' in item 4 of the reference schedule to mean (AB 1.125):
Shop 2, being part of the property situated at 121 East Derwent Highway, Lindisfarne in Tasmania known as 'Lindisfarne Pharmacy' and more particularly comprised in Certificate of Title Volume 197988 Folio 1 having an area of approximately 70 square metres as inspected and currently occupied by the existing tenant Teresa Niekrasz.
16By notice of nomination dated 20th June 2012 the first plaintiff nominated the second plaintiff as substitute purchaser under the contract (AB 3.443).
17On 2nd July 2012 the plaintiffs' solicitor provided information to the first defendant's solicitor to assist in obtaining the second and third defendants' consent to the assignment of the lease (AB 3.445).
18That information was not provided by the first defendant to the second and third defendants until 18th July 2012 (AB 3.450).
19On or about 30th July 2012 the second and third defendants sought further information regarding the assignment of the lease (AB 3.460).
20On 2nd August 2012 the plaintiffs' solicitors forwarded further information to the first defendant's solicitor (AB 3.463).
21Completion did not in fact occur on 13th August 2012.
22By letter dated 27th July 2012 the first defendant's solicitors indicated that the first defendant was agreeable to extend the time for satisfaction of clause 3.1.1 (e) until 29th August 2012 (AB 4.529).
23It subsequently appears that completion was scheduled for 20th August 2012, but it was acknowledged by the parties that the date might need to be reviewed (AB 3.473).
24On Friday, 17th August 2012 the plaintiffs' solicitors sent an email to the first defendant's solicitors which included the following (AB 4.537):
Settlement
As the landlord of the business premises has not yet consented to the assignment of the lease to our client, settlement cannot take place on 20th August 2012 as previously scheduled.
Kindly confirm that your client agrees to reschedule the completion date of the transaction to the date which is the first Monday after the date which is four (4) Business Days after the landlords consent (or are deemed to have consented) to the assignment of the lease to our client.
25The response of the same day included:
We are instructed to confirm that if the Lessor consents to the assignment of the lease the completion date can be extended to enable the requirements of the completion to be attended to. If this can be done in four Business Days that is agreeable.
26On 23rd August 2012 the second and third defendants informed the solicitors for the first defendant that they did not consent to the assignment of the lease to the second plaintiff (AB 4.553). Immediately thereafter the first defendant purported to declare that the contract was at an end, relying on clause 3.1.2 (AB 4.552)."
In the letter dated 27 July 2012, referred to in the contentions at par22 above, the solicitors for the first defendant stated, in part: "Our client will continue to use all reasonable endeavours to secure the landlord's consent. If no response is received from the landlord to the requested consent by the 13th of August 2012 our client is agreeable to extend the time for satisfaction of the condition by 16 days to the 29th August, 2012. Please confirm your client is agreeable."
The communication referred to in the contentions at par23 is an email dated as sent on 10 August 2012, again from the solicitors for the first defendant, stating, in part: "Subject to the Lessor's consent to the assignment our client acknowledges that settlement will need to be on a date which is practical taking into account the need to address matters such as staff and stocktake. The 20th August would be acceptable but may need to be reviewed."
In three emails to the solicitors for the first defendant, the solicitors for the plaintiffs referred to the date of 20 August 2012 as a date for settlement. In an email of 10 August 2012, and evidently before the email from the first defendant of the same date was received, it was said: "We suggest that subject to the landlord's consent to the assignment of the lease of the business premises to our client being given, settlement of the above matter be re-scheduled to Monday 20 August, 2012". Subsequently, in an email of 13 August, it was said: "In anticipation of settlement taking place on 20 August 2012 …". Later, in an email sent on 15 August 2012 there was a reference to the "provisional settlement date of 20 August 2012".
The letter dated 23 August 2102, referred to in the contentions at par26, stating that the landlords did not consent to the assignment of the lease, was in the following terms:
"…
We note that your client has requested that our client, the landlord, consent to the assignment of the lease of the above premises to Mario Verrocchi.
Our client has considered the request, including the information provided and also conducted their own enquiries in this matter including having had due consideration of the matters which our client is entitled to rely upon pursuant to clause 3.13 of the lease.
Our client rejects the tenant's request to assign the lease to Mario Verrocchi."
The correspondence from the first defendant purporting to declare that the contract was at an end, referred to in the contentions at par26, was an email to the plaintiffs' solicitors, forwarding the landlords' response as an attachment and stating: "As the lessor has not consented to an assignment of lease the Contract is at an end". The email was sent on 23 August 2012.
The contentions regarding the completion date
It is contended for the plaintiffs that on a proper construction of the contract neither party can elect to terminate the contract in reliance upon the landlords' lack of consent to the assignment of the lease pursuant to cl 3.1.1(e) until the time for completion of the contract has passed. In summary, the contentions advanced for the plaintiffs in relation to the question of the completion date are:
· The completion date of 13 August 2012, fixed by reference to the contract of sale being 60 days from the date of sale, being 13 June 2012, had passed with the forbearance of the parties.
· The parties extended the date for completion by consent to 29 August 2012. The date of 20 August 2012, referred to in the correspondence between the parties, was merely an aspirational date for settlement.
· When the first defendant purported to terminate the contract on 23 August 2102, the completion date had not yet arrived and the exercise of the right to terminate was premature.
· Alternatively, as at 23 August 2012, there was no date set by the parties for completion. In the absence of a stipulated time for performance, the contractual obligation was to be completed in a reasonable time. For the general statement of principle where a contract does not specify the time for performance see: Hick v Raymond [1893] AC 22 at 32 and Canning v Temby [1905] 3 CLR 419 at 424; and where the time stipulated in a contract for completion passes with the forbearance of the parties see: Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 at 297; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 543 per Gibbs CJ, and at 567 - 568 per Brennan J.
· A reasonable time had not passed as at the date that the first defendant purported to terminate the contract.
· A reasonable time is to be calculated with reference to the consideration of what is fair to the parties to the contract and taking into account the obligation of the first defendant to take all reasonable steps to obtain the assignment of the lease.
The contentions advanced for the first defendant in relation to this question are in summary:
· The original completion date of 13 August 2012 had passed and had been varied by the parties to 20 August 2012.
· While the plaintiffs had sought that the completion date be rescheduled to a later date, being "the first Monday after the date which is four (4) Business days after the landlords' consent" and the first defendant consented to that (see pars24 and 25 of the contentions), the consent given by the first defendant was conditional on the basis that the landlords consented.
· The date of 29 August 2012 was proposed as a completion date but was no more than a suggestion by the first defendant's solicitors, and it was not an agreed completion date.
· The completion date remained 20 August 2012 unless the landlords consented. As the contingent event of consent by the landlords did not occur, the completion date was not extended beyond 20 August 2012. This was not a contract to be completed within "a reasonable time".
Discussion about completion date
The question about the completion date is not straightforward. On any view, the completion date fixed by the contract had passed. The communications between the parties thereafter do not put the question easily to rest. There is merit in the proposition that a reasonable time for completion was to be implied. Whether a reasonable time may extend beyond the landlords' refusal, or coincided with the refusal, is yet to be fully explored in argument. The contentions for the first defendant did not provide an incontrovertible answer to the plaintiffs' submissions. They involve the proposition that a new completion date of 20 August 2012 was set by the parties. This proposition is problematic in some respects. That date passed, seemingly with the forbearance of the parties, with a new date agreed upon by the parties contingent on the landlords' consent to the assignment of the lease. It follows from the contentions for the first defendant that when the landlords refused to consent, the date for completion remained 20 August 2012, a date which predated the landlords' refusal, and which had passed with the parties' forbearance.
The contentions reveal a level of uncertainty at this stage of the proceedings, about the agreement reached as to the completion date. It is at least arguable that a reasonable time for completion was to be implied. What is reasonable is a question of fact and depends on all the circumstance."Its limit is determined by reference to what is fair to both parties": Perri at 568. Having regard to the contractual obligations of the parties, their express stipulations and all the surrounding circumstances, "the time for fulfilling the contingent condition expires when further extension would be inequitable": Perri at 568, Electronic at 298.
It is arguable that the implied completion date had not arrived at the time that the first defendant exercised the option to terminate the contract. That is a point that is worthy of the consideration of the Court hearing the matter. The question of time for completion by implication is a matter which will turn on the evidence and the trial judge's findings with respect to the evidence.
There is a serious issue to be tried. That conclusion is sufficient for the appeal to succeed. The plaintiffs further argue that even if the time for exercising that option had arisen at the time it was exercised, the first defendant was precluded from exercising it because it was in default.
Contentions as to all reasonable steps to obtain the landlords' written consent?
It was common ground on the appeal that the nature of the relevant contractual provisions are to be construed as voidable, not void. This means that if "one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract": Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 441. The rationale for this principle is that it prevents a party to a contract from gaining some advantage from his own conduct in securing or contributing to, the non-fulfilment of a condition bringing the contract to an end: Gange v Sullivan (1966) 116 CLR 418 per Taylor, Menzies and Owen JJ at 441.
The question arises as to whether the first defendant was in default in failing to take all reasonable steps to procure the landlords' written consent to the transfer of the lease as required by cl 3.2.4. If the first defendant was in default, then it was argued that the first defendant was not entitled to rely upon cl 3.1.2 to avoid the contract. In summary, it was contended for the plaintiffs that:
· in the circumstances of the case, the obligation on the first defendant to take all reasonable steps to procure the consent of the landlords to the assignment of the lease went further than simply passing on the information requested by the landlords;
· the first defendant had, at the very least, an obligation to advocate to the landlords the suitability of the plaintiffs to take an assignment of the lease;
· in assessing the circumstances it is relevant that one of the plaintiffs had net assets in the order of $55 million, proprietary interests in and operated more than 30 pharmacies throughout Australia, and was a founder of the "Chemist Warehouse" and "My Chemist" pharmacies that collectively operated over 250 pharmacies throughout Australia. On the face of it, there was no justifiable reason for the landlords to refuse their consent to the assignment of the lease on any of the grounds permitted by cl 3.13.8 of the lease, or s28(7) of the Fair Trading (Code of Practice from Retail Pharmacies) Act 1998;
· in this case, the obligation of the first defendant to take all reasonable steps included:
"a seeking reasons for the refusal;
b directly negotiating with the second and third defendants with a view to persuading them to reconsider their decision and to convince them to change their mind and in fact consent to the assignment of the lease;
c invoking the dispute resolution procedures under clause 5.9 of the lease; …"; and,
· it can be inferred that the first defendant had at least contributed to the failure of the landlords to consent to the assignment of the lease.
A summary of the competing contentions for the first defendant is that:
· there is no evidentiary material placed before the Court by the plaintiffs indicating that any act or failure to act by or on behalf of the first defendant, including advocacy by the first defendant, might have been effectual in obtaining the landlords' consent to the assignment;
· none of the steps set out above, at a, b, or c in par[19], could reasonably have been considered to be effective in obtaining written consent; and,
· the only reasonable conclusion upon the undisputed evidence was that the first defendant's conduct was not related to, and did not cause, or contribute to or bring about in any way, the landlords' refusal of consent.
There was reliance on numerous items of correspondence between the parties in the lead up to the landlords' refusal to consent. It is said that they show that the first defendant has not been remiss in providing information to the landlords and that there is no suggestion that the first defendant has contributed to the landlords' refusal by any default or action on its part.
It is noted that the documents do not shed much light on the landlords' reasons for refusing consent. The letter of 23 August 2012 from the landlords' solicitors to the first defendant's solicitors, set out at par[10] above, makes scant reference to the reasons.
Detailed reasons are set out in a document titled "Landlord's reasons for refusal" which are relied upon by the first defendant as establishing that there is no default by it and particularly, that its conduct could not have had any relevance to or bearing upon those reasons. These reasons were prepared after court proceedings were instituted for this action. The weight to be attributed to them will be a matter for the trial judge.
Discussion about all reasonable steps
The area of dispute before me is whether the failure of the first defendant to take all reasonable steps contributed to the landlords' refusal. The plaintiffs' case, at this stage, does not seem hopeless. There are scant reasons for the refusal and, on any view, no steps were taken by the first defendant after the landlords' letter indicating they refused to consent without providing reasons. Assisting the plaintiffs is the onerous nature of the obligation upon the first defendant to take all reasonable steps. Depending on the findings of fact to be made at the hearing regarding the steps that were taken, the reasonable steps that could have been taken, and the reasons of the landlords for refusing to consent to the assignment of the lease, the Court may infer that the failure to take all reasonable steps contributed to the landlords' refusal. Evidence about the landlords' reasons which led to the refusal may well be elicited at trial, and the obligation of the first defendant to take all reasonable steps will no doubt receive careful attention in submissions. There is a second issue that warrants consideration at trial.
Conclusion
On the materials before me, the plaintiffs have demonstrated that there are two triable issues to be decided. It follows that the learned Associate Judge's conclusion that there was not a serious issue to be tried is founded, at least in part, on an erroneous determination in point of law. As noted, other relevant considerations such as the practical consequences of granting interlocutory relief do not weigh against granting the injunction. The appeal will be upheld. I will make an order granting an interlocutory injunction preserving the subject matter of the litigation until the determination of the proceedings. I will hear from the parties before making that order, as to any other orders sought and the undertaking to be given by the plaintiffs.
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