Howell, D. v Bostaran P/L

[1993] FCA 370

DENISE HOWELL v. BOSTARAN PTY. LIMITED; GINO BIGAZZI; ELVIO RAVASIO; ENALESE
DI FUCCIA and GUISEPPE DI FUCCIA
No. G0020 of 1993
FED No. 370
Number of pages - 7
Interlocutory Application

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beazley J(1)

CATCHWORDS

Interlocutory Application - whether applicant lessee should pay a licence fee as a condition of remaining in possession pending final hearing in circumstances where no interlocutory relief is sought by applicant - power of court to make such an order - whether mandatory interlocutory injunction available - whether payment of rent a condition of allowing lessee to rely on an equitable set-off to resist the lessor's claim for possession.

Federal Court of Australia Act 1976 s.23

Trade Practices Act s.82

Federal Court Rules O.20 r1, O.1 r5, O.11 r12

Inglis and Anor. v. Commonwealth Trading Bank of Australia (1972) 126 CLR 161.

Blundell v. Associated Securities Ltd (1971) 19 FLR 17.

Forsyth and Anor. v. Blundell and Anor. (1973) 129 CLR 477.

Harvey v. McWatters (1949) 49 SR(NSW) 173.

Glandore Pty. Limited and Ors. v. Elders Finance and Investment Co. Ltd. (1984) 4 FCR 130.

Town and Country Sport Resorts (Holdings) Pty. Ltd. and Ors. v. Partnership Pacific Limited 20 FCR 540.

Aerospatiale Societe Nationale Industrielle v. Aerospatiale Helicopters Pty. Limited (1986) ATPR 40-700.

Businessworld Computers Pty. Limited v. Australian Telecommunications Commission (1988) 82 ALR 499.

Tomlinson v. Cut Price Deli Pty. Limited and Ors. (Drummond J unreported, Federal Court 18 November 1992).

High v. Bengal Brass Co. and Bank of New South Wales (1921) 21 SR(NSW) 232.

HEARING

SYDNEY, 12 March 1993

#DATE 4:6:1993

Counsel for the Applicant: P. Stone

Solicitors for the Applicant: Snelgrove and Partners

Counsel for the Respondent: P. Maiden

Solicitors for the Respondent: Denis Solari, Son and Associates

COURT

The Court orders that:

I. The Notice of Motion dated 26 February 1993 be dismissed. II. The First and Second Respondents pay the Applicant's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

BEAZLEY J The first and second respondents are the registered proprietors and lessors of premises at 104 Darlinghurst Road Darlinghurst. The applicant is the lessee of the premises, from which she conducts a restaurant/coffee bar known as "Formula 1" (the business). The applicant purchased the business from the first and second respondents for $250,000 on 9 November 1990, and simultaneously entered into the lease of the premises (the lease).

1. The first and second respondents allege the applicant is in arrears in the payment of rent and have brought an application, by way of notice of motion, seeking interlocutory relief that the applicant be ordered to pay rent pending the hearing of the proceedings brought by the applicant in this court.

2. It is necessary to examine briefly the proceedings which have been brought by each of the parties. On 19 January 1993, the applicant filed an application claiming relief, including pursuant to ss.82 and 87 of the Trade Practices Act ("the TPA") in respect of the purchase of the business and the lease. On 5 March 1993, the applicant filed an amended application seeking an order that the first and second respondents be restrained from re-entering the premises; an order that the lease be varied to provide for a weekly rental in an amount which the court deems fit; alternatively a declaration that the weekly rent for the premises for the year commencing November 1991 was $2,570 and for the year commencing November 1992 is $2,000; an order that the purchase price of the restaurant/coffee bar business be varied to an amount which the court deems fit and an order restraining the respondents from conducting a restaurant or coffee bar business under a name containing the words "Formula 1". A claim for interlocutory relief to restrain the first and second respondents from re-entering the premises is made in the application, but has not been pursued.

3. I have already identified the first and second respondents. The third to fifth respondents are Elvio Ravasio, a director of Bostaran Pty. Limited, and Enalese Di Fuccia and Guiseppe Di Fuccia, who conducted a restaurant business on the first and second floors of the premises.

4. In her Statement of Claim, the applicant alleges that she was induced to purchase the business and enter into the lease as a result of false and misleading representations, made to her by the first, second and third respondents: as to the weekly takings of the business; as to the anticipated takings of the business once the mezzanine floor of the premises was open for the applicant's business; as to the name of a restaurant business which was to be conducted on the first and second floors of the premises; and that the fourth and fifth respondents would cease to use the name "Formula 1" in respect of the restaurant to be conducted on the upper floors. It is further alleged, that in November 1991, the first and second respondents agreed with the applicant that the rent for the ensuing 12 month period should be $2,550 per week and that in October 1992 there was a further agreement that the rent for the third year of the lease should be $2,000 per week, and that by virtue of those two "agreements", the first and second respondents are estopped from alleging that the amount of rent payable is other than in these amounts. There is also an allegation that the applicant's quiet enjoyment of the premises was disturbed by the first, second, fourth and fifth respondents.

5. Save for admitting that a representation was made that the takings were $10,000 per week, the representations alleged by the applicant are denied by the respondents. They also deny the falsity of the representation as to the $10,000 takings. The balance of the claim is denied or not admitted.

6. The first and second respondents have brought a cross-claim against the applicant, alleging breaches of the lease due to non-payment of rent and outgoings as required by the terms of the lease. They seek declarations as to the amount of the weekly rent and their entitlement to forfeit the lease and re-enter the premises; an order that they be given leave to issue a writ of possession, damages for non-payment of rent and outgoings, interest pursuant to the terms of the lease and mesne profits from the date of service of the cross-claim until the applicant gives up possession of the premises. A claim for interlocutory relief was included in the cross-claim, however it has been superseded by two notices of motion, the second of which was the subject of the hearing before me on 12 March 1993. Relevantly in that notice of motion orders are sought:
   

"2(a) That the Applicant forthwith vacate the subject premises at Ground Floor, Mezzanine Floor 104 Darlinghurst Road,

Darlinghurst and deliver up possession to the First and

Second Respondents; or, alternatively

(b) That the Applicant pay forthwith to the First and Second Respondents an amount by way of licence fee as from 9th

December, 1992 in the sum of $3,025.47 per week until final order by this Honourable Court".

1. However, counsel for the respondents informed the court that the relief sought by his clients was that contained in subparagraph (b).

2. Save for the allegations made in the Statement of Claim, the background facts are, in large measure, not in dispute. The premises comprise a four storey building. The applicant conducts her restaurant/coffee bar on the ground and mezzanine floors. The term of the lease is 3 years. The rental was $2,500 per week payable monthly in the first year, $3,000 per week in the second year, and $3,025.47 per week in the third year. The applicant has been in arrears of rent since January 1992 and has paid no rent since late November or early December 1992. Another restaurant business is conducted on the first and second floors which, since 25 January 1993, has been leased at a monthly rental of $3,033.33. At one time during the currency of the applicant's lease the fourth and fifth respondents conducted a restaurant called "Formula 1" on these two upper floors.

3. The applicant alleges that the takings of the business have consistently fallen short of the amount that she was told by the respondents would be the likely takings of the business. She says that in order to keep the business going she has had to refinance and to borrow money from friends and relatives. She has refinanced her loan from Westpac, borrowing an additional $55,000 on 7 July 1992, and has also further borrowed or obtained credit from others to the extent of almost $130,000. She says that her indebtedness has increased by over $180,000 since starting the business. The applicant at one stage attempted to sell the business. She does not have a current valuation of the business, but estimates the value to be less than $100,000.

4. The first and second respondents purchased the property in 1988 and redeveloped it in 1989-1990. They financed the purchase and redevelopment by way of a joint loan from the ANZ Bank secured by first mortgage over the property. As at February 1993, the principal amount of the loan was $870,000, the interest rate 16.1% per annum and the monthly interest payments, $13,000. The first respondent borrowed another $300,000 from the ANZ Bank to assist with the purchase of the property. Interest payments on that loan are $2,400 per month. Outgoings on the property are $11,859.40 per annum.

5. The respondents had commenced proceedings in the Local Court for the eviction of the applicant from the premises, the applicant having been served with a notice to quit on 14 December 1992. However, upon the institution of the applicant's proceedings in this court, the first and second respondents abandoned the Local Court proceedings.

6. As a result of the applicant's non-payment of rent, the first and second respondents allege that they have had to draw from resources unrelated to the premises to meet their loan commitments and have had to borrow additional funds. In January 1993, the first and second respondents borrowed further funds by way of overdraft, with a limit of $35,000, to meet their various property and personal expenses. They have drawn down approximately $8,000 on this account. Mr. Ravasio has had to borrow a further amount of $6,000 from a personal friend in January 1993, to assist him in making the interest payment of $2,400 to the ANZ Bank due in January and for his personal living expenses. He states that his income from Bostaran is the only source of income for the personal support of him and his wife. In this regard he alleged that the partners need $700 per week each for their personal living expenses.

7. Counsel for the respondents submitted that although the respondents had brought the application for interlocutory relief, the matter should be viewed in the context of the application as filed, that is as one which claimed, by way of interlocutory relief, orders restraining the respondents from taking possession of the leased premises or disturbing the applicant's quiet enjoyment thereof. It was submitted that as the applicant was still pressing for the right to remain in possession, the court could require "the payment of moneys by the applicant as a condition of withholding an entitlement to possession". The court had power, it was said, to make such an order under s.23 of the Federal Court of Australia Act 1976 which provides:
   

"The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including

interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate".

1. In essence, the respondents submit that, if the applicant is to remain in possession pending the final hearing, the interlocutory relief between the parties should reflect the maxim "he who seeks equity must do equity".

2. In support of this contention, the respondents rely upon the "mortgagee cases", where the court has consistently held that, as a general rule, a mortgagor is not entitled to an order restraining the mortgagee from exercising its power of sale, notwithstanding the existence of a cross-claim set-off or cross-demand, unless the principal and interest owing under the mortgage is repaid or the amount thereof is paid into court (see Inglis and Anor. v. Commonwealth Trading Bank of Australia (1972) 126 CLR 161; Blundell v. Associated Securities Ltd (1971) 19 FLR 17; Forsyth and Anor. v. Blundell and Anor. (1973) 129 CLR 477 at 505). The respondent's submission recognised that the court mould the relief so as to require payment of only so much as suffices to give adequate protection to the mortgagee and to otherwise do justice between the parties during the period pending the final hearing. (Harvey v. McWatters (1949) 49 SR(NSW) 173; Glandore Pty. Limited and Ors. v. Elders Finance and Investment Co. Ltd. (1984) 4 FCR 130 at 135). However, it was submitted the court's discretion to mould relief will usually only be exercised where the mortgagee's case is clearly arguable and not merely colourable and where there is an obvious nexus between the allegations of misleading or deceptive conduct and the formation of the security documents sought to be varied or rendered unenforceable by the exercise of those powers (Town and Country Sport Resorts (Holdings) Pty. Ltd. and Ors. v. Partnership Pacific Limited 20 FCR 540 at 545).

3. It is also submitted that in this case, as no attack is made by the applicant upon the lease document as it originally came into existence, s.82 will provide an adequate remedy in damages for the alleged contraventions of the Trade Practices Act should the applicant be able to make out her claim. (Brown and Anor. v. Jam Factory Pty. Limited and Anor. (1981) 35 ALR 79).

4. In my opinion, I cannot approach the matter in the manner sought by the respondents. The fact is, I am not dealing with an interlocutory application made by the applicant to restrain the respondents from exercising their contractual rights.

5. To deal with the possibility that I would reject the primary way the respondents put their case, counsel submitted alternatively that the notice of motion was to be viewed as something akin to an application seeking a mandatory interlocutory injunction, requiring the applicant to pay rent pending the final determination of her claim. It was submitted that there is an undoubted discretion to grant a mandatory injunction to be exercised cautiously, depending upon the circumstances of and the balance of convenience in the particular case; (see Aerospatiale Societe Nationale Industrielle v. Aerospatiale Helicopters Pty. Limited and Ors. (1986) ATPR 40-700); Businessworld Computers Pty. Limited v. Australian Telecommunications Commission (1988) 82 ALR 499). The principal matter put forward in support of its submission that an interlocutory mandatory injunction ought to be granted, was that an order requiring the payment of moneys by way of a licence fee in the same amount as the rent provided for in the lease, from December 1992 to the date of the court's final order, would enable the maintenance of the status quo.

6. As at March 1993, the arrears of rent were approximately $90,000 and have been accumulating since then. Unless the applicant succeeds at the final hearing she will obviously be in breach of the lease. Even if she does succeed, she still may be in breach of the terms of the lease depending upon the extent to which she is successful and the final relief which is granted. However, the applicant's claim for damages which, although not well formulated at the moment, appears to be in an amount sufficient to cover the amount of the alleged arrears, and it is the alleged conduct of the respondents, which, if proved, will have placed the applicant in the position in which she now finds herself. The interlocutory relief which is sought by the first and second respondents is the order for the payment of moneys by way of a licence fee pending the final hearing. It was clear from the submissions of counsel for the respondents that this was effectively a claim for rent, including at least some arrears of rent. As part of the final relief sought, these respondents seek to recover arrears of rent (which at that time will include the rent which is presently accruing). If I grant them interlocutory relief they will in effect have obtained their final relief in this regard. There is no direct analogy with the mortgagee cases, all of which proceed upon the basis that the mortgagee is either seeking to exercise a right to possession or to exercise a power of sale and the court is requested to restrain the exercise of those rights. Here I am not asked to restrain anything. For the reasons which I have stated I do not think it appropriate to make a mandatory interlocutory order which will provide to the first and second respondents a form of their final relief. In all the circumstances, I do not consider it appropriate to grant an interlocutory injunction as sought by the respondents. In coming to this conclusion I have also taken into account that I have already made an order that the hearing of the matter be expedited.

7. The respondents next submitted that it should be a condition of allowing the applicant to rely upon an equitable set-off to resist the claim for possession, that she pay rent as and when due in accordance with the terms of the lease. In support of this argument, Counsel for the respondents relied upon Tomlinson v. Cut Price Deli Pty. Limited and Ors. (Drummond J unreported, Federal Court 18 November 1992). That case involved the purchase of a franchise business. The terms of the franchise agreement involved a right to occupy the shop premises from which the business was conducted. The franchisees (the Tomlinsons) brought proceedings against the franchisor, (Cut Price Deli) alleging, inter alia, that they were induced to enter into the arrangement with Cut Price Deli as a result of various false and misleading misrepresentations. Cut Price Deli defended the proceedings and also filed a cross-claim, in which it claimed possession of the shop premises, due to the alleged failure to comply with a notice of demand requiring that default in the payment of moneys due under the franchise agreement be remedied. It also sought to recover royalty payments to which it was entitled under the agreement.

8. Cut Price Deli sought summary judgment of its claim for possession. In resisting this claim, the Tomlinsons contended they had a claim for damages in excess of the amount allegedly owed to the franchisors. Drummond J accepted that there was material before him to show that the franchisees' claim for damages might be sufficient to entitle them to set up an equitable set-off, in extinguishment of the demand made by Cut Price Deli. However, even if the applicants were entirely successful the set-off would be in an amount which would not be greater than the total arrears and other claims that Cut Price Deli asserted had already accrued under the agreements.

9. His Honour then considered whether an equitable set-off was a form of relief which the court could, on equitable grounds, prevent a party from relying on or, alternatively, permit reliance but only upon appropriate conditions. His Honour had regard to the provisions of the Federal Court Rules and in particular Order 20 rule 1 under which the application for summary judgment was made, as well as Order 1 rule 5 and Order 11 rule 12.

10. These latter two rules are in the following terms:
    

"Order 1 r.5. Unless the contrary intention appears,

where under these Rules the Court has the

power to make an order or do any other act

or thing it may make that order or do that

other act or thing on terms."

"Order 11 r.12. Where a claim by a respondent to a sum of money (whether of an ascertained amount or not) is

relied on as a defence to the whole or part of a

claim made by an applicant, it may be included

in the defence and set-off against the

applicant's claim, whether or not the respondent

also cross-claims for that sum of money."

1. His Honour held that he could refuse the application for summary judgment upon the Tomlinsons complying with certain conditions. His Honour relied upon High v. Bengal Brass Co. and Bank of New South Wales (1921) 21 SR(NSW) 232, where it was held that the right of a party under the pre-Judicature Act practice to raise an equitable set-off as an answer to a claim was as much subject to the maxim that he who seeks equity must do equity as any other equitable ground for resisting a demand at law. His Honour also relied upon the statement in Equity: Doctrines and Remedies, Meagher Gummow and Lehane, 3rd Edition, (1992) paragraph 151, to the effect that while there is no system at law under the old practice of imposing conditions on a defendant's raising a particular defence, this could be done and frequently was in equity. His Honour was of the view that Order 11 rule 12 did not prevent the court following such a course where an equitable set-off is relied on. (See Moffatt v. Pinewood Resources Limited Civil Procedure - Victoria, Williams, Vol. 3, para. 16,011.)

2. His Honour thereby determined to allow the Tomlinsons to plead the equitable set-off in answer to the claim for possession, upon condition that they either pay into court the moneys which fell due under the terms of the agreement, between the date of raising the equitable set-off and the trial of the action, or provide security for such moneys. One of the circumstances which his Honour relied upon in imposing such condition, was the fact that the Tomlinsons had made it clear that they only intended to stay in possession until the determination of their claim.

3. Counsel for the applicant submitted that neither the Bengal Brass Co. case nor the decision of Hewson v. Sydney Stock Exchange Ltd. (1968) 2 NSWR 224 relied upon by the authors of Equity: Doctrines and Remedies support the proposition for which they were relied upon by Drummond J, or were distinguishable. There is merit in this latter part of this submission. The Bengal Brass Co. case involved an application for an interim injunction to restrain the defendant bank from levying execution in respect of a judgment which it had already obtained. This is not such a case. Hewson's case involved a final hearing in which the plaintiff sought a permanent injunction restraining the Stock Exchange from serving a bankruptcy petition upon him. Relief was refused, for the principal reason that Street J held that the principle "that he who comes to equity must come with clean hands" applied in such circumstances. In addition, I do not consider the provisions of Order 1 rule 5 have any application to this case as there is no order that the applicant is currently seeking.

4. Accordingly, I dismiss the summons herein. The first and second respondents are to pay the applicant's costs.