MILLCITY Pty Ltd v West Coast Liquor Merchants WA Pty Ltd - [2009] WASC 292

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: MILLCITY PTY LTD -v- WEST COAST LIQUOR MERCHANTS WA PTY LTD [2009] WASC 292

CORAM: BEECH J

HEARD: 17 SEPTEMBER 2009

DELIVERED : 17 SEPTEMBER 2009

PUBLISHED : 25 SEPTEMBER 2009

FILE NO/S: CIV 2234 of 2008

BETWEEN: MILLCITY PTY LTD (ACN 089 899 990)
Plaintiff
AND
WEST COAST LIQUOR MERCHANTS WA PTY LTD as Trustee for the WEST COAST LIQUOR MERCHANTS UNIT TRUST (ACN 100 780 318)
Defendant

Catchwords:

Practice and procedure - Application to strike out proceedings - Whether declaration sought by plaintiff constitutes a hypothetical question - Whether plaintiff's claim for declaration reasonably arguable - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA) O 20 r 19

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr B Dharmananda & Mr N R Stagg
Defendant: Mr R G S Harrison

Solicitors:

Plaintiff: Lavan Legal
Defendant: Tottle Partners

Case(s) referred to in judgment(s):

Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564
Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406
Australian Gas Light Co v Australian Competition and Consumer Commission (No 2) [2003] FCA 1229
Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334
CE Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256
Dormer v Solo Investments Pty Ltd [1974] 1 NSWLR 428
Galaxy Communications Pty Ltd v Paramount Films of Australia Inc [1998] NSWSC 48
Gray v Sirtex Medical Ltd Formerly Known As Paragon Medical Ltd [2009] WASC 126
JN Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432
Lessue v Quetel Pty Ltd [1993] QCA 439
Sanderson Computers Pty Ltd v Urica Library Systems BV (1998) 44 NSWLR 73
University of New South Wales v Moorhouse [1975] HCA 26; (1975) 133 CLR 1

BEECH J:
(These reasons are an edited version of the reasons delivered extemporaneously on 17 September 2009.)

Introduction

By chamber summons filed 11 September 2009 the defendant applies for the proceedings to be struck out or dismissed. The essential ground for the defendant's application is that the plaintiff's claim seeks a declaration on a hypothetical question. The defendant invokes O 20 r 19 of the Rules of the Supreme Court 1971 (WA) or, in the alternative, the court's inherent jurisdiction.
In my view, whatever the basis for the defendant's application, because the defendant's application is for summary disposal, the question is whether the plaintiff's claim for a declaration is not reasonably arguable. That proposition was properly accepted by counsel for the defendant.
In his reply, counsel for the defendant sought alternative relief, not claimed in the summons, in the form of a stay of proceedings until April 2010. I would not be prepared to grant a stay on that basis unless I were satisfied that the plaintiff's case as presently framed is not reasonably arguable.
For the reasons that follow, the defendant has not persuaded me that the plaintiff's case as pleaded is not reasonably arguable.

The pleadings

The facts of the case are to be understood by reference to cl 12.33 of the Deed of Lease of Curtin Tavern between the plaintiff and the defendant (the lease). Clause 12.33 is in the following terms:
12.33Redevelopment
(a)The Lessee acknowledges and agrees the Lessor shall be entitled at any time during the term or any extension or renewal of the term to alter or add to or subdivide the leased premises.
(b)(i) If at any time during the term or any extension or renewal of the term the Lessor requires possession of the leased premises in whole or in part for the purposes of any proposed alteration or addition to the leased premises or subdivision or redevelopment of the leased premises or for the purpose of accommodating other tenants in the leased premises the Lessor shall be entitled to terminate this lease by notice in writing to the Lessee ('termination notice');
(ii)This lease shall terminate upon expiry of 6 months after service of the termination notice on the Lessee ('termination date');
(iii)On the termination date the Lessee shall quit and deliver up vacant possession of the leased premises to the Lessor and this lease shall be deemed to be surrendered so that the leasehold estate of the Lessee shall merge with the freehold estate of the Lessor but without prejudice to the rights of the Lessor and the Lessee relating to any antecedent breach of the express or implied provisions of this lease up to and including the termination date;
(c)In the event the Lessor terminates this lease under this clause 12.33 then:
(i)if the termination occurs prior to the first anniversary of the commencement date then the Lessor will pay compensation to the Lessee in the amount of $200,000.00 on the termination date;
(ii)if the termination occurs prior to the second anniversary of the commencement date then the Lessor will pay compensation to the Lessee in the amount of $160,000.00 on the termination date;
(iii)if the termination occurs prior to the third anniversary of the commencement date then the Lessor will pay compensation to the Lessee in the amount of $120,000.00 on the termination date;
(iv)if the termination occurs prior to the fourth anniversary of the commencement date then the Lessor will pay compensation to the Lessee in the amount of $80,000.00 on the termination date;
(v)if the termination occurs prior to the fifth anniversary of the commencement date then the Lessor will pay compensation to the Lessee in the amount of $40,000.00 on the termination date; and
(vi)if the termination occurs after the fifth anniversary of the commencement date then the Lessee is not entitled to be paid any compensation.
(d)The Lessee acknowledges if the Lessor exercises its right to terminate this lease under this clause 12.33 that the only compensation or other amounts payable by the Lessor to the Lessee are the amounts specified in subclause 12.33(c), whichever is the applicable amount.
(e)Simultaneously with service of the termination notice the Lessor shall offer to lease to the Lessee ('new lease') replacement premises situate on the land known as the Karawara Shopping Centre which is adjacent to the land comprised in Strata Plan 20961 to enable the Lessee to carry on in the new premises the business carried on in the leased premises upon the same terms and conditions of this lease but subject to amendments that may be necessary due to the expiry or partial expiry of the term or any extension or renewal of the term and any difference in the lettable area of the new premises.
(f)The Lessee shall be entitled to accept the offer to lease described in subclause 12.33(e) at any time within 3 months after the date of service of the termination notice by notice in writing served on the Lessor within that period;
(g)If the Lessee accepts the offer to lease described in subclause 12.33(e) the parties shall forthwith execute a new deed of lease for the new premises at the expense of the Lessor.
The amended statement of claim dated 1 September 2009 (the statement of claim) pleads various terms of the lease, including cl 12.33.
In par 8 of the statement of claim, the plaintiff pleads that it proposes to give a termination notice under cl 12.33. In response to that plea, on this application the defendant adduced evidence of the history of previous notices given and then withdrawn or not acted upon. Those notices are summarised in par 7 of the defendant's additional outline of submissions dated 16 September 2009. However, as counsel for the plaintiff points out, on a strike‑out application the facts pleaded are to be accepted. It is not appropriate on a strike‑out application to seek to determine whether a pleaded fact will ultimately be accepted in light of other evidence. This is not an application under O 16 r 1 of the Rules of the Supreme Court 1971 for summary judgment by the defendant. It is therefore irrelevant that the plaintiff has not adduced evidence to establish that it has made a decision under cl 12.33. The facts as pleaded by the plaintiff are to be accepted for the purposes of this application.
Paragraph 9 of the statement of claim and the prayer for relief reads as follows:
9.A dispute has arisen between the parties as to whether, on the proper construction of the clauses of the Lease referred to at sub-paragraphs 7.1 to 7.6 above, the fit-out of the Replacement Premises is to be carried out by or at the cost of the plaintiff, or whether the fit-out is to be carried out by or at the cost of the defendant.
…
AND THE PLAINTIFF CLAIMS:
1.A declaration that on the proper construction of clause 12.33 of the Lease, the plaintiff will not be liable to carry out, or meet the cost of, the fit-out of the Replacement Premises to be constructed by the plaintiff.

The defendant's contention

The defendant contends that unless and until the plaintiff gives a notice under cl 12.33, the question the subject of the declaration sought is hypothetical. Indeed, the defendant goes further and submits in par 11 of its additional outline of submissions that the plaintiff must have served a notice of termination together with an offer, and the defendant must have accepted the offer, before a real, not hypothetical question arises.

Analysis of the cases relied on by the defendant

The plaintiff relies on the following well-known statements in Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 to illustrate that the court has a wide and unfettered power to make the declaration sought:
It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which '[i]t is neither possible nor desirable to fetter … by laying down rules as to the manner of its exercise.' However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have 'a real interest' and relief will not be granted if the question 'is purely hypothetical', if relief is 'claimed in relation to circumstances that [have] not occurred and might never happen' or if 'the Court's declaration will produce no foreseeable consequences for the parties' (581 - 582). (footnotes omitted)
However, the defendant draws particular attention to the statement that
relief will not be granted if the question 'is purely hypothetical', if relief is 'claimed in relation to circumstances that [have] not occurred and might never happen' (582).
The court in Ainsworth cited University of New South Wales v Moorhouse [1975] HCA 26; (1975) 133 CLR 1, 10 in support of that proposition. Of course, this statement is not to be applied in a literal and absolute way or as if it were a statutory provision. In Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 [47] the High Court referred to University of New South Wales v Moorhouse (10) and observed:
The jurisdiction [in relation to declaratory relief] includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law and such a declaration will not be hypothetical in the relevant sense.
In that regard, see also Australian Gas Light Co v Australian Competition and Consumer Commission (No 2) [2003] FCA 1229 [38] – [40].
The statement quoted above from Bass v Permanent Trustee Co Ltd does not govern the present case. However, it does demonstrate that the passage in Ainsworth v Criminal Justice Commission is not to be taken as an absolute rule.
In support of its application, the defendant also relies on other cases by analogy and for their exposition of general principles on the approach to be taken. With one possible exception, none of the cases relied on by the defendant are cases of summary disposal.
First, the defendant relies upon the following passage by Holland J in Dormer v Solo Investments Pty Ltd [1974] 1 NSWLR 428, 434E – 435B:
I should observe that, if I had been in the plaintiff's favour, I would have had doubts whether the jurisdiction of the court to make a declaration of right ought to have been exercised in the present case. I am not the least inclined to find limits on the beneficial jurisdiction of this Court to make declarations of right, but it is one thing to declare present contractual rights of the parties, another to declare them contingently on the plaintiff electing to take some course that he has not yet taken is not bound to take and may not take. In the present case the plaintiff has said that, if I were to find that he was entitled to rescind, then he would rescind, but he would not in any way have been bound to do so if I had made the declaration that is sought.
It seems to me that, although the claim in the summons is for an order that the plaintiff is entitled to rescind, in substance, the relief that is sought is a declaration that, if the plaintiff elects to give a notice of rescission, that notice of rescission will be effective to terminate the contract.
I think the court ought to hesitate to make declarations as to the potential effect on the contractual position of the parties of events upon which a party has not yet acted and which would not alter the existing contractual rights unless he did so act. As modern authority shows the court has a broad discretion as to whether to exercise the jurisdiction to grant declaratory relief, a discretion which is only limited by the need that it be exercised with a proper sense of responsibility and full realization that judicial pronouncements ought not to be made unless there are circumstances that properly call for their making: see Sutherland Shire Council v Leyendekkers (1970) 91 WN (NSW) 250; Foster v. Jododex Australia Pty Ltd (1972) 46 ALJR 701. As Else-Mitchell J observed in Ku-Ring-Gai Municipal Council v Suburban Centres Pty Ltd (1971) 2 NSWLR 335, 339, it is not generally the function of the courts to entertain applications designed primarily or solely as a means of obtaining advice as to the legal potentials of a situation that has arisen between the parties. Also the time of the Court is not to be taken up deciding hypothetical question: see also D C. Wagemaker & Sons Pty Ltd v Commonwealth Development Bank of Australia (1970) 91 WN (NSW) 617 and Sutherland Shire Council v Leyendekkers (1970) 91 WN (NSW) 250, 260.
In particular, the defendant points to the statement in which a distinction is made between declaring present contractual rights, on the one hand, and declaring rights contingent upon the plaintiff electing to take some course that it has not yet taken, is not bound to take and may not take on the other hand.
I accept that Holland J's statement provides some support for the defendant's contentions. However, the plaintiff distinguishes the present case from Dormer v Solo Investments Pty Ltd in that in the present case the plaintiff has decided to terminate. Whether that is a good ground for distinction is, in my opinion, sufficiently arguable so that the contrary should not be determined adversely to the plaintiff.
Moreover, in Dormer v Solo Investments Pty Ltd Holland J did not express absolute rules. Rather, he made statements about the approach the court should take in the exercise of a broad discretion. In that respect, I point to the expression of 'doubts' (434E), the statement that 'the court ought to hesitate' (434G), the reference to 'a broad discretion' (434G), and the reference to 'it is not generally the function of the courts' (435A-B).
Secondly, the defendant relies on Pacific Brands Household Products Pty Ltd v Singan Investments Pty Ltd [2003] VSC 76. In that case there were two leases, both containing an option to purchase and a mechanism for the determination of market value if the value were not agreed. The tenant did not exercise the options to purchase. The tenant sought declarations about the proper construction of the relevant clause, and in particular as to the correct basis for determining market value.
Pacific Brands v Singan Investments was not a case of summary disposal. The issue of whether or not the claim for declaratory relief was hypothetical was determined as a preliminary point: see [4]. Habersberger J considered a number of cases: see [9] ‑ [12]. He distinguished those cases on the ground that they concerned an existing contractual relationship, whereas the case before him did not. In that regard he held that the purchase, under the option to purchase, was separate in nature from the lease. In the present case there is an existing contractual relationship. Accordingly, the analysis in Pacific Brands v Singan Investments does not compel acceptance of the defendant's argument in this application.
One of the cases referred to in Pacific Brands v Singan Investments is the Queensland Court of Appeal decision Lessue v Quetel Pty Ltd [1993] QCA 439. In that case a majority of the Court of Appeal upheld an appeal against the summary dismissal of proceedings on the ground that the claim for a declaration was hypothetical. The present case invokes the same ground for summary dismissal of proceedings.
Fitzgerald P and Cullinane J considered a number of cases that dealt with declarations and whether a question is hypothetical. They concluded as follows:
It is a sufficient answer to the respondent's application to have the appellants' Statement of Claim struck out and its action dismissed that the authorities fall short of establishing either that (i) the Court lacks jurisdiction to grant declaratory relief to the appellants, (ii) settled principles regarding the exercise of the court's discretion to grant declaratory relief require that the appellants' claim against the respondent be dismissed or (iii) irrespective of the breadth of the Court's discretion, it is so plain that the appellants must fail that their action should be dismissed at the threshold. In these circumstances, the respondent was not entitled to the summary dismissal of the appellants' claim (15).
In my opinion, the same conclusions apply in the present case.
Thirdly, the defendant relies upon a decision of the NSW Court of Appeal in Sanderson Computers Pty Ltd v Urica Library Systems BV (1998) 44 NSWLR 73. That case was cited with evident approval by the High Court in Bass v Permanent Trustee Co Ltd [47]. Sanderson Computers concerned an appeal against a declaration that a party was entitled to terminate where an election to terminate had not been made. The essence of the Court of Appeal's decision and reasoning is to be found in (80E-G). The reasoning of the Court of Appeal focuses on considerations specific to a termination for breach or default as follows:
There will always be a problem where a claimant which has not terminated an agreement, seeks a declaration that it is entitled to do so. The declaration speaks from the time that it is made. Before a notice of termination is given or expires, events may overtake its validity (80E).
The Court of Appeal observed that questions of waiver and relief against forfeiture should not be precluded by the making of a declaration of the kind sought in Sanderson Computers.
Galaxy Communications Pty Ltd v Paramount Films of Australia Inc [1998] NSWSC 48 is another case relied upon by the defendant. In that case, the Court of Appeal determined a preliminary question of construction differently from the trial judge's construction. The Court of Appeal's views on that question were significant to whether the making of a declaration was appropriate. On the Court of Appeal's construction, the entitlement to give a notice of termination in the future depended upon insolvency at the time of giving the notice. Accordingly, an entitlement to give a notice in the future depended on future insolvency. The Court of Appeal determined that the proceedings involved hypothetical future rights and that it was therefore inappropriate to make a declaration. In those circumstances it was, in my respectful opinion, readily understandable why the Court of Appeal concluded that the making of a declaration was inappropriate. In this case, as in many other cases, the court referred to 'the circumstances of the case' [35].

The defendant also refers to [7.17] of Young PW, Declaratory Orders (2nd ed, 1984). However, consideration of [7.17] to [17.20] seems to me to demonstrate that the question of whether an issue is hypothetical gives rise to a discretion to be exercised in all the circumstances of the case. In that regard I refer also to Meagher RP, Gummow WMC and Lehane JRF, Equity: Doctrines and Remedies (4th ed, 2002) [19-120].
Counsel for the defendant accepted that the issue of whether the question sought to be raised by the plaintiff was hypothetical was one going to discretion, not jurisdiction. That seems to me to be a concession correctly made.
The authorities show that the grant of a declaration involves a broad discretion. The limits of judicial power may confine the jurisdiction: see Ainsworth v Criminal Justice Commission (381 - 382). In Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406, 414, Lockhart J, with the concurrence of the Full Federal Court, set out matters affecting the court's discretion, including whether the question sought to be raised was hypothetical. On this issue see also JN Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432.
The question of the boundaries of jurisdiction and discretion was also considered by the Victorian Court of Appeal in CE Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256, 259 ‑ 262, 283 ‑ 285. Relevant passages from that judgment were applied by Le Miere J in Gray v Sirtex Medical Ltd Formerly Known As Paragon Medical Ltd [2009] WASC 126 [50] ‑ [51].

Conclusion

In conclusion, whether a question is hypothetical or not is a matter of discretion. That discretion is broad. Statements in the cases cited above provide valuable guidance but they do not constitute absolute rules. Further, as the application before me is for summary disposal, the question for me is whether the plaintiff's case is not reasonably arguable. I am not satisfied of that in the present circumstances.
Accordingly, I would dismiss the defendant's application.