Haroon and Verrocchi v Lindisfarne (Health) Pharmacy Pty Ltd
[2012] TASSC 65
•8 October 2012
[2012] TASSC 65
COURT: SUPREME COURT OF TASMANIA
CITATION:Haroon and Verrocchi v Lindisfarne (Health) Pharmacy Pty Ltd [2012] TASSC 65
PARTIES: HAROON, Azman
VERROCCHI, Mario
v
LINDISFARNE (HEALTH) PHARMACY PTY LTD (ACN 125 726 945)
SARAMASKOS, Nicolas
SARAMASKOS, Iris
FILE NO/S: 773/2012
DELIVERED ON: 8 October 2012
DELIVERED AT: Hobart
HEARING DATE: 1 October 2012
JUDGMENT OF: Holt AsJ
CATCHWORDS:
Equity – Equitable remedies – Injunctions – Interlocutory injunctions – Serious question to be tried – Generally – Standard of proof.
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, referred to.
Aust Dig Equity [1156]
REPRESENTATION:
Counsel:
Plaintiffs: C J Gunson
First Defendant: K A M Pitt QC
Second and Third Defendants: No appearance
Solicitors:
Plaintiffs: Rotstein Commercial Lawyers
First Defendant: Shields Heritage
Second and Third Defendants: Murdoch Clarke
Judgment Number: [2012] TASSC 65
Number of paragraphs: 27
Serial No 65/2012
File No 773/2012
AZMAN HAROON and MARIO VERROCCHI v
LINDISFARNE (HEALTH) PHARMACY PTY LTD (ACN 125 726 945),
NICOLAS SARAMASKOS and IRIS SARAMASKOS
REASONS FOR JUDGMENT HOLT AsJ
8 October 2012
An application for an interlocutory injunction
By their statement of claim, the plaintiffs claim specific performance of a contract wherein the first defendant agreed to sell to them a retail pharmacy business operating from leased premises at Lindisfarne within a shopping centre owned by the second and third defendants. For reasons which I will refer to in detail later, the plaintiffs say that the contract has survived the landlords' refusal to consent to an assignment of the lease to them and a purported notice of termination, consequent upon that refusal, issued by the first defendant. The trial has been set down to commence in about six weeks' time. The plaintiffs seek an interlocutory injunction preventing the first defendant from selling the pharmacy business pending the determination of the action. An interim injunction has been granted to maintain the status quo operative until the determination of this application.
The principles applicable to applications for interlocutory injunctions
The principles applicable to the consideration of whether or not interlocutory injunctive relief ought to be granted are set out in the judgment of Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at pars[65] – [72]. The plaintiff must show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the likelihood needs to be depends upon the nature of the rights which the plaintiff asserts, and the practical consequences likely to flow depending upon whether or not injunctive relief is granted. For example, as was the case in O'Neill, if the right claimed is a right to be protected from injury to reputation by the prospective publication of defamatory material, the public interest in free speech would be impinged by the grant of an interlocutory injunction and so having regard to the nature of the right asserted and the practical consequences of granting interlocutory relief, injunctions in defamation cases are rare and only granted after the exercise of exceptional caution.
The application of the principles
Accordingly, in order to determine the degree of the likelihood of success needed to justify the grant of the interlocutory injunction sought, it is necessary to consider the nature of the right claimed and the practical consequences which will follow depending upon whether an injunction is granted or refused.
The nature of the right claimed
Here, the right claimed by the plaintiffs is a private contractual right. Public interests and the rights of persons not parties to the action are not impacted.
The practical consequences which will follow depending upon whether an injunction is granted or refused
The first defendant wishes to sell its business. It claims that the contract for the sale to the plaintiffs has come to an end, but it does not claim that it has found another purchaser. The grant of an appropriately worded interlocutory injunction will not prevent the search for another purchaser. All an injunction will prevent is the disposal of the business pending further order or the final determination of the action, expected to have occurred within a few weeks' time. Accordingly, if a new purchaser is found, and an injunction is in place, the signing of the sale contract will need to be deferred for a short period or made conditional upon the plaintiffs failing in their claim for specific performance.
The first defendant claims that if it has to exercise an option for renewal of the lease, because in the meantime the business has not been sold, it will be bound by the tenant’s covenants throughout the extended term. The option for renewal is exercisable no later than 26 March 2013.
Counsel for the first defendant presented no argument in support of the claim that if assignment occurs before renewal, the original tenant will not be bound during the renewed term. I find the bare assertion unconvincing. Counsel's assertion appears to be inconsistent with the decision in Baker v Mercker [1960] 1 QB 657. There it was determined that if a tenant has a unilateral right to extend the term of a lease, and the renewal option is exercised by the assignee of the tenant, there is not a surrender of the old lease and the grant of a new one, and so the original tenant remains liable for any breach by the assignee of the tenants' covenants during the renewed term. The Conveyancing and Law of Property Act 1884, s71A, provides that unless a contrary intention is expressed, a covenant relating to land is deemed to be made on behalf of the covenantor and the covenantor's successors in title, and persons deriving title under the original covenantor. The lease, cl 3, expressly provides that the first defendant covenants on behalf of its successors in title to the intent that the tenant’s obligations continue "throughout the full term … granted" [emphasis added]. The lease refers to the initial period of duration of the lease as "the term" and so the phrase "the full term" appears to encompass any extended term created by the exercise of the tenant’s unilateral right to exercise the renewal option. Unlike, for example, the position in the Australian Capital Territory under the Leases (Commercial and Retail) Act 2001, s103, the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas), by cl 28(12) only releases the original tenant if the terms of the lease, other than as to rent, are changed after assignment.
Even if counsel for the first defendant is correct in his submission that the covenants are not binding on the original tenant during a renewed term, the option for which was exercised by an assignee, I would not be persuaded that the grant of an interlocutory injunction would have any material adverse consequence for the first defendant. The fact is that the trial, having been set to commence in about six weeks' time, the first defendant, if successful in resisting the claim for specific performance, will have an opportunity to sell the business and assign the lease before the renewal option must be exercised.
The unchallenged evidence of the first plaintiff is that he and the second plaintiff own a number of pharmacies, which are amongst a group of approximately 280 pharmacies, trading in Australia under the name "Chemist Warehouse". The first plaintiff says that when it becomes known that "Chemist Warehouse" wishes to acquire a pharmacy, pharmacists in the locality commonly make competing offers for the purpose of preventing "Chemist Warehouse" from becoming a competitor in the area. The evidence continues that, following the execution of the contract, the sole director of the first defendant company advised the first plaintiff that "other people have offered me more money for the business". The evidence of the first plaintiff that he does not consider that a "Chemist Warehouse" can be established in the Lindisfarne locality if the sale by the first defendant does not proceed, was neither the subject of evidentiary objection nor challenge. If the plaintiffs are left to recover damages, it is likely that extensive evidence will need to be obtained and presented to quantify the sum required to put the plaintiffs in the position which they would have been in had there been no breach of contract, and it is likely that the appropriate damages will not be capable of precise calculation.
I conclude that the practical consequences to the first defendant which would arise consequent upon the grant of an interlocutory injunction are significantly less than the detrimental consequences for the plaintiffs if an injunction is not granted.
The required standard of proof in the circumstances of the present case to establish the existence of a serious question to be tried
Having regard to the nature of the right claimed and the balance of convenience, I consider that an interlocutory injunction should be granted if the plaintiffs can demonstrate at least an arguable chance of success. Counsel for the first defendant opposed the application on the basis that the plaintiffs had no chance of success in the action. There was no submission that if a chance existed, it was not sufficiently strong to justify court interference. Accordingly, my conclusion as to the likelihood of success needed to be shown on the hearing of this application, accords with the way in which the first defendant's argument was presented on the matter of whether there is a serious question to be tried.
The background
The purchase contract provides that completion is conditional upon the lease of the shop being assigned to the plaintiffs, with the assignment being with the written consent of the landlords, on or before the date specified in the contract as the completion date. It provides that if the condition is not satisfied by the completion date, either the vendor or the purchaser may declare the contract to be "null and void and have no effect". The completion date was specified to be no later than 60 days from the date of the contract. According to the evidence of the director of the first defendant the contract was executed on 13 June 2012. According to the evidence of the first plaintiff the contract was executed on 16 June. It follows that the latest completion date was either 12 or 15 August.
Pursuant to the terms of the lease it cannot be assigned without the consent of the landlords, but the requirement to obtain consent is qualified by the proviso that such consent shall not be unreasonably withheld. The lease provides that, within 14 days of receiving a request to consent to an assignment, the landlords may require further information, including information as to the financial standing of the prospective assignee, and information as to the proposed use of the premises by the prospective assignee. Within 21 days of the receipt of any further information requested, the landlords must approve or reject the assignment and absent a response within the 21 day period, the landlords are taken to have approved the assignment.
The lease sets out a number of grounds upon which a proposed assignment might be rejected. One of those grounds is that "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". The plaintiffs nominated the second plaintiff as the proposed assignee. The evidence is that on 3 July, the plaintiffs provided the information necessary for the first defendant to submit to the landlords a request for consent to the proposed assignment to the second plaintiff. The first defendant submitted the request on 18 July. The landlords requested further information on 30 July. The further information was provided on 3 August, and so the landlords had until 24 August to respond or there would be a deemed consent. On 23 August, the landlords advised in writing that a consent would not be forthcoming. Later on the same day, the first defendant advised the plaintiffs' solicitor by email that consent had been refused and that the first defendant was exercising its option to put the contract to an end. In a document delivered subsequently, the landlords set out their reasons for rejecting the proposed assignment.
The information provided at the request of the landlords was that the proposed assignee was an operator in the "Chemist Warehouse" group, but that the proposed assignee intended to continue to operate the pharmacy at the premises, trading under the business name owned by the first defendant. Some financial information concerning the second plaintiff was also provided. The landlords stated in their reasons for refusal that they considered that there was a likelihood that once the second plaintiff had obtained the pharmacy licence, he would relocate the pharmacy to bigger premises nearby, making it unlikely that another pharmacist would be found by the landlords willing and able to take over the existing shop. The landlords stated that this would result in a reduction of patronage in their shopping centre, which patronage included "a large proportion of older clientele and retirement village residents". In addition, the landlord contended that an intensification of the pharmacy business from the existing shop would put pressure on parking, the availability of which was important to other shop owners in the vicinity. The landlords also said that proceedings were pending in the Supreme Court of Victoria in which damages of $1 million were being sought against the second plaintiff for false and misleading conduct. They said that the litigation caused them to doubt the credibility, financial standing and character of the second plaintiff. There were other reasons for refusal, but for the purpose of determining whether there is a serious question to be tried, I do not need to go into them.
A failure to establish the existence of a serious question to be tried
The plaintiff’s arguments are premised upon it being arguable that the landlords' consent was unreasonably withheld (which I make no finding about). However, there are other matters which need to be addressed to give rise to an arguable claim.
The covenant in the lease given by the first defendant to the landlords not to assign the lease without consent is qualified by the proviso that such consent will not be unreasonably withheld. The effect of this is that if the consent is unreasonably withheld, the lessee may assign the lease and not be in breach by so doing. See for example, Cominos v Rekes (1979) 2 BPR 9619. However, here the contract of sale by cl 3.1.1(e), provided that completion was conditional upon "assignment of the lease to the purchaser pursuant to clause 3.2". Clause 3.2.2 provides:
"On the completion date the vendor must transfer the lease to the purchaser on terms satisfactory to the purchaser (acting reasonably) with the landlords' written consent." [Emphasis added.]
The uncontested fact is that the landlords specifically refused to give consent. It is that refusal which the first defendant says triggered the right to put the contract to an end. Counsel for the plaintiffs submitted that because the refusal was unreasonable (if that be the case) the first defendant could and should have proffered the assignment to the plaintiffs without the landlords' consent, or engaged in further negotiation with the landlords to try and resolve the matter, or commenced proceedings against the landlords for declaratory relief.
I pause to note that if the first defendant had assigned the lease without consent, and the consent had not been unreasonably withheld, the first defendant would be exposed to the risk of a substantial claim for damages being brought by the second and third defendants for breach. If the viability of the landlords' shopping centre was undermined by the loss of a pharmacy (if "Chemist Warehouse" relocated), the damages award against the first defendant might be very large.
Counsel for the plaintiffs did not present an argument based on principles of contract interpretation as to why the written consent of the landlords, despite the wording of cl 3.2.2, was not a condition of completion. There was no contention that the unreasonable withholding of the consent created a deemed consent rather than simply allowing the first defendant to assign the lease without being in breach. In the absence of such an argument being presented, I am unpersuaded that there is a serious question to be tried between the plaintiffs and the first defendant based solely upon an asserted unreasonable withholding of a consent to the assignment by the landlords.
Next, counsel for the plaintiffs submitted that the date for completion had not arrived at the time the first defendant issued the notice terminating the contract. On 17 August, the solicitor for the plaintiffs sent an email to the solicitor for the first defendant requesting a change of the completion date "to the date which is the first Monday after the date which is four business days after the landlords consent (or are deemed to have consented) to the assignment of lease to our client". On the same day, the solicitor for the first defendant responded by email conditionally agreeing to an extension in terms "if the lessor consents to the assignment of lease the completion date can be extended to enable the requirements for completion to be attended to. If this can be done in four business days that is agreeable." [Emphasis added.]
Counsel for the first defendant submitted that all the first defendant had done by the solicitor's email was to advise that if the landlords consented to the assignment, the first defendant would then agree to extend time to facilitate an orderly settlement. Counsel for the plaintiffs submitted that the first defendant was obliged to pursue all opportunities of procuring the landlords' consent to the assignment before the new completion date could be ascertained.
At the time of the exchange of the emails, the landlords had not said whether or not consent would be forthcoming. They had until 24 August to give their answer and in default, pursuant to the terms of the lease, the landlords would "be taken to have approved the proposed assignment". Counsel for the plaintiffs did not make any submission as to how, in the context of the situation pertaining at the time, the email from the solicitor for the first defendant might arguably be construed as an agreement to challenge the landlords in the face of an unreasonable refusal, and extend time until all such avenues for challenge had been exhausted.
Without being given the basis upon which the plaintiffs might argue at a trial for the interpretation of the email suggested, I am unpersuaded that there is a serious question to be tried in respect of the ascertainment of the date for completion. Accordingly, I am unpersuaded that it is arguable that the first defendant's notice of termination was invalid for being premature. I note, in any event, that the plaintiffs' statement of claim does not, as it presently stands, raise the issue. It contains no mention of the completion date, or the exchange of emails.
Another matter put forward on behalf of the plaintiffs to establish the existence of a serious question to be tried, was the contention that the first defendant had failed to undertake all reasonable endeavours to be in a position to assign the lease to the second plaintiff. It was submitted that the first defendant, having had access to the information provided to the landlords, should have recognised that there could be no reasonable basis for withholding consent, and accordingly proffered to the second plaintiff an assignment without the consent of the landlords, or taken court action. The submission fails to recognise and deal with the point that the contractual ability of the first defendant to terminate the contract is triggered by the absence of the landlords' written consent, rather than the absence of a deed of assignment. I am not persuaded that the fact (if it is the fact) that there was a possibility, or even a probability, that the first defendant could assign the lease without the consent of the landlords and without breach of the lease or, alternatively, that the first defendant might obtain court declaratory relief, or an order compelling the landlords to provide their consent, is to the point.
There was also an argument that the first defendant had delayed in the necessary communications with the landlords concerning the consent. This may be so, but there was no submission on behalf of the plaintiffs that this had any impact on the landlords' decision to withhold consent. I am not persuaded that delay by the first defendant in communicating information to the landlords gives rise to any serious questions to be tried which might result in the plaintiffs succeeding against the first defendant.
The final submission on behalf of the plaintiffs, which I have been asked to consider, is that the completion date, and hence the time within which the landlords’ consent to the assignment could be procured, did not arise until the time provided in the contract for completion had been made of the essence with the time to be given in the notice making time of the essence such as to afford a reasonable opportunity for the first defendant to obtain a declaration that consent had been unreasonably withheld and an order requiring the landlords to give their consent. However, it was not said why making time of the essence was needed as a prerequisite to the exercise of the first defendant’s power to end the contract. Neither party sought termination on the ground that the other party was in breach by failing to complete on the contract date for completion. I am not persuaded that the absence of a notice making time for completion of the essence gives rise to a serious question to be tried.
Conclusion
The plaintiffs have not elucidated in a satisfactory preliminary way any basis upon which they might succeed against the first defendant at a trial. It necessarily follows from their failure to demonstrate the existence of a serious question to be tried that the application for an interlocutory injunction should be dismissed and there will be an order accordingly.
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