Pazta Company Pty Ltd v Idelake Pty Ltd

[2008] NSWSC 941

CITATION:	Pazta Company Pty Ltd v Idelake Pty Ltd [2008] NSWSC 941
HEARING DATE(S):	26 August 2008
JUDGMENT DATE :	11 September 2008
JURISDICTION:	Equity Division Duty List
JUDGMENT OF:	Brereton J
DECISION:	Arguable case for final injunction based on equitable estoppel. Balance of convenience overwhelmingly favours grant of interlocutory relief. Interlocutory injunction granted upon undertaking of plaintiff’s director to continue paying rent to first defendant.
CATCHWORDS:	INJUNCTIONS – interlocutory injunctions – application to restrain landlord from acting on notice to quit – family business – where daughter’s company had taken over business from father’s company – where father retained as general manager – where father’s company leased premises to daughter’s company – where plaintiff remained in occupation for four years after lease expired and parties had otherwise departed from its terms – where daughter had provided considerable funding to the business pursuant to representations from father – whether seriously arguable case for final injunction based on equitable estoppel – whether daughter had reasonable expectation that her company would be allowed to remain in possession of property until business established – balance of convenience – whether granting injunction would practically decide final relief – where plaintiff’s director offered undertaking to continue to pay rent until final hearing – whether plaintiff should be required to pay rent in arrears as a condition of being granted interlocutory relief – whether seriously arguable case for final relief based on alleged compromise of proceedings – policy considerations. - EQUITY – ESTOPPEL – extent to which expectation must be clear and unequivocal.
LEGISLATION CITED:	Uniform Civil Procedure Rules (2005), r 25.8
CATEGORY:	Principal judgment
CASES CITED:	Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 Australian Crime Commission v Gray [2003] NSWCA 318 Crabb v Arun District Council [1976] Ch 179 Flinn v Flinn [1999] 3 VR 712 Galaxidis v Galaxidis [2004] NSWCA 111 Grundt v The Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641 Hill v AWJ Moore & Co Ltd (1990) 5 BPR 11,359 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Legione v Hateley (1983) 152 CLR 406 Low v Bouverie [1891] 3 Ch 82 Plimmer v Mayor of Wellington (1884) 9 App Cas 699 Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 Thompson v Palmer (1933) 49 CLR 507 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Ward v Kirkland [1967] Ch 194 Willmott v Barber (1880) 15 ChD 96 Woodhouse A C Israel Cocoa Ltd SA v Nigerian Produce Manufacturing Co Ltd [1971] 2 QB 23
PARTIES:	The Pazta Company Pty Ltd (first plaintiff) Felieze Pty Ltd (second plaintiff) Idelake Pty Ltd (first defendant) Guillermo Szczesny (second defendant) Erica Reidmaier (third defendant)
FILE NUMBER(S):	SC 3916/08
COUNSEL:	Ms L Paraska (sol) (plaintiffs) Mr T Maltz (defendants)
SOLICITORS:	Youth & Enterprise Legal Centre (plaintiffs) Henry Davis York (defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

BRERETON J

Thursday, 11 September 2008

3916/08 The Pazta Company Pty Ltd v Idelake Pty Ltd

JUDGMENT

1 HIS HONOUR: The plaintiffs The Pazta Company Pty Ltd (“Pazta”) and Felieze Pty Ltd, whose principal is Veronica Szczesny, operate a business of manufacturing and distributing food products from two buildings (respectively Buildings B and A) at 5 Grosvenor Place, Summer Hill, which they have occupied under leases from the second defendant, Veronica’s father Guillermo (Bill) Szczesny, and the third defendant, Bill’s defacto partner Erica Riedmaier, commencing on 1 July 2000 for a term of four years, with an option to renew for a further four years. It is no longer in dispute that, not later than 27 June 2008, the lessors gave the lessees notice to quit expiring on 1 August 2008. On 30 July 2008, the lessees obtained an interim injunction from Austin J, restraining the lessors from disturbing their possession until further order, on the basis that there was a serious question as to whether there had been effective service of a notice to quit, and probably also as to an equitable estoppel entitling the lessees to remain in occupation, where the balance of convenience plainly favoured preservation of the status quo for a relatively short time until the defendants could put on their evidence and a closer albeit still interlocutory examination of the issues could take place. The question now is whether the interim injunction should be dissolved, or continued on an interlocutory basis.

Background

2 The following summarises the lessees’ case, based on the evidence presently available.

3 Prior to 2000, the third defendant Idelake Pty Limited (“Idelake”), whose shareholders were Bill and Erica, owned and operated a pasta production business from the property; however, production had ceased and renovations were required to make it compliant with health regulations. In about mid-February 2000, Bill on behalf of the lessors proposed to his daughter Veronica on behalf of the lessees that they purchase the business, lease the premises and expend about $100,000 on the requisite renovations, and he would assist in re-establishing and enhancing the business, for which purpose he would act as a consultant, to be provided for that purpose by Idelake.

4 Veronica raised with Bill her concern at the risk that, if she agreed to Bill’s proposal, Erica might later “pull the rug out” or jeopardise the security business:

Veronica: If you want me to put money into the property and the business, I need to be sure that I can use that long enough to make a decent living. I need to know that Erica will not one day kick me out.

Bill: We will formalise everything to make sure that Erica can’t interfere. I will give you a long enough lease to ensure that the business is viable and at the end of the time that we choose, you can either buy the property from us if the business is doing well enough or continue renting .

5 On 4 December 2000, Pazta purchased the business from Idelake for $80,000, and Pazta and Idelake entered into a consultancy agreement whereby Idelake agreed to procure Bill to provide engineering and management services for the development of the business at a fee of $70,000 per year for a term of two years and thereafter until terminated on one month’s notice. Thereafter, the lessees expended funds, which were provided by Veronica, on renovations and improvements, amounting to some $431,419 in all – well over and above the $100,000 originally contemplated. The formal leases (each with a four year term and a four year option to renew) were prepared by solicitors, and executed on 18 April 2001.

6 In an affidavit sworn 15 August 2008, Veronica reiterated that her father had made many statements to the effect that the purpose of her investment was to assist the future of the family, and that she always believed that it was a long-term investment for everyone in the family. She attributed to him the statement: “The investment is to benefit the whole family. You can stay in there until the business is making enough money to provide a decent living for all of us”, and added:

This is why we agreed on a four-year lease with a four-year option.

7 Pursuant to the consultancy agreement, Idelake provided Bill to render consulting services to Pazta, and Bill was involved in the management of its business, until about 2006 when illness interfered with his ability to do so. In that capacity, he paid the rent and the consultancy fees, and made significant decisions about the equipping and fitting out of the factory and its internal construction.

8 Veronica says that in February 2004, there was a further conversation, as follows:

Veronica: Dad, I need to plan for the future. I need to have some money in the bank so that I can have some time off with the baby when it arrives. I’ve just received an offer to work with Westpac. I can’t keep putting money into the business like I have been. If the business is not going to start soon, I would rather keep the money I am going to earn in order to spend time with my baby. I need to think about the baby.

Bill: The business will provide you with the money you will need to spend time with the baby and provide flexibility in order to raise the child. We are almost ready to start production and you should hold on .

Veronica: How much money do we need to start production?

Bill: Ten thousand would be needed and that would be the end of your financial commitment to keep the business afloat.

Veronica: OK. $10,000 it is; let’s make sure we hold to our promises.

9 Veronica says that she assumed from this discussion that if she invested a further $10,000, the business would in the long term provide for her new family. In fact, substantially in excess of $10,000 proved to be required, and was provided by the lessees.

10 Under the lease, the initial term expired on 30 June 2004. There is no evidence that the option was ever exercised, but the lessees remained in occupation, and so far as can be ascertained from the present state of the evidence, no attention appears to have been given to the option.

11 In late 2004 and early 2005, in response to Bill’s suggestion that Veronica’s brother and his family live in part of the premises, her partner Chris Mateer fitted out part of the premises, and the lessees expended a further $3,500 on renovations for that purpose.

12 In November 2005, Veronica suggested taking on a milk packing contract in order to enhance the business, to which Bill agreed. Veronica calculated that further expenditure of $50,000 would be required to establish it, and told her father that if she was going to spend more money to secure the future viability of the business, “I want to make sure that we can purchase the property once the business is viable”, to which Bill replied: “That’s what we’ve talked about and that is the plan”. Reassured, Veronica agreed to provide $50,000 to establish the milk line.

13 In the first half of 2007, the lessees made an offer to purchase the property for $1,000,000, but the price was unacceptable to the lessors. On 28 June 2007, Dibbs Abbott Stillman, for the lessors, wrote to Soothill & Associates, for the lessees, denying that the lessees (who had lodged a caveat claiming an equitable interest in the property) had any caveatable interest, rejecting an offer of $1,020,000 for the property, asserting claims for outstanding and unpaid rent ($250,000), outstanding and unpaid wages for Bill ($225,000) and interest on each of them ($48,750 and $43,875 respectively), and offering to sell the property “at a discount” from market value (which they asserted to be $1,300,000), for $1,150,000 payable as to $1,020,000 on completion and the balance by vendor finance. On 3 July 2007, Dibbs Abbott Stillman demanded that the rent be brought up to date by payment of arrears of $1,008. A further demand for arrears of rent was made on 13 July 2007, and on 23 July 2007 a demand was made for payment “of all outstanding rent”, said to amount to $211,600 calculated in accordance with the lease for the period 1 July 2001 to 30 June 2007. On the same date, Dibbs Abbott Stillman indicated to Soothills that the lessors would accept $1,150,000 for the property, inclusive of outstanding rent and wages.

14 In December 2007, Bill informed Veronica that upgrade works were required to obtain a fire certificate “to make sure that you can continue to operate at the property”. As a result, between January and March 2008, the lessees spent about $8,000 for this purpose, on wiring for emergency exit signs, fire extinguishers and roof maintenance.

15 On 21 April 2008, Henry Davis York – who by now were acting for the lessors – wrote to Soothills, advising that the lessors did not intend to renew the lease and required vacant possession with effect from 1 July 2008, and suggesting that the lessees take steps to find alternative business premises, but inviting “a formal written settlement proposal”.

16 As has been earlier recorded, on 30 July 2008, the lessees obtained an interim injunction from Austin J. In a late affidavit, Veronica deposed to a conversation she says she had with her father on 22 August 2008, to the effect that they agreed to a compromise whereby the lessees would be allowed a further four months in the property before vacating. Within hours of the conversation, the lessors’ solicitors had confirmed that there would be no settlement until it was “put into writing and executed as a deed”.

Interlocutory injunction

17 Although the interim injunction granted by Austin J was expressed to be until further order, it was common ground that, insofar as there was any question of onus, this was properly to be seen as the lessees’ application for continuation of the interim injunction, rather than the lessors’ application for its dissolution.

18 On an application such as the present for an interlocutory injunction, the test is whether the plaintiff has established a sufficiently seriously arguable case for a final injunction as to justify the grant of interlocutory relief, having regard to the balance of convenience. The two elements of "seriously arguable case" and "balance of convenience" are interrelated, in that the stronger the apparent case for final relief, the less will be required to tip the balance of convenience in favour of the grant of an injunction, and the disparity of convenience and inconvenience resulting from the grant or withholding of an injunction will affect how strong a case is required to justify an interlocutory injunction.

Seriously arguable case for final injunction?

19 In their Statement of Claim, the lessees do not claim a final injunction; the final relief claimed is compensatory and restitutionary in nature. That, it might be thought, itself tells against the existence of a seriously arguable case for a final injunction. Further, one of the bases on which, in granting an interim injunction, Austin J thought that there was a serious question to be tried – namely whether there had been valid service of the notice to quit – is no longer pressed. The lessees now put their claim for a final injunction on two bases:

· First, an agreement said to have been made for the compromise of their claim on 22 August 2008 – only a few days before the interlocutory hearing – to the effect that they would be allowed to remain in occupation for a further four months from that date; and

· Secondly, an equitable estoppel said to arise from their detrimental reliance on an assumption known to the lessors that they would be permitted to remain in occupation for some indefinite period extending beyond the term of the lease.

The compromise case

20 The lessees contend that they are entitled to remain for a period of a further four months, by a compromise said to have been made in a conversation between Veronica and Bill on 22 August 2008.

21 There are serious difficulties with this contention. First, the relevant conversation was between Veronica and Bill alone; Erica was not a party, and there is no sufficient basis for supposing that Bill was authorised to bind her; if anything the evidence suggests that Bill needed her specific approval and she took a more hardline position than he. Secondly, the conversation took place when litigation was on foot and the parties had lawyers acting for them, and it envisaged that the solicitors would then be instructed and the settlement “fixed up”. In that context, the Court will be slow to conclude that a binding settlement was reached until its terms have been documented and executed. Thirdly, the Court must be cautious in resolving applications for interlocutory relief on a side allegation that the substantive case has been compromised pending the hearing of the interlocutory application, lest the ease with which such a case could be mounted deter parties to interlocutory proceedings from negotiating, for fear that such a basis for interlocutory relief might be facilitated.

22 In my view, there is not a sufficiently arguable case for final relief on this basis to justify the grant of an interlocutory injunction.

The estoppel case

23 Although it does not explicitly claim a final injunction, the Statement of Claim does contain (in paragraph 26) a contention to the effect that the lessees are entitled to remain in occupation of the premises for a reasonable time, extending beyond 1 August 2008, or “for such further period as [the Court] deems just”. The basis pleaded for this is as follows:

· in February 2000, Bill on behalf of the lessors represented to Veronica on behalf of the lessees that if the lessees purchased the business thitherto operated by his company Idelake, and leased the premises for that purpose and expended about $100,000 on renovations, she would be secure in occupation of the premises “for an indefinite period” (paragraph 6);

· as the lessors knew and intended, in reliance on that representation, the lessees between 2000 and 2004 effected renovations and repairs to the premises at a cost to them of about $431,419 (paragraph 15), and Pazta purchased the business from Idelake for $80,000 on 4 December 2000 (paragraph 16);

· but for the representation, the lessees would not have expended $431,000 on renovations and improvements, nor purchased the business, nor entered into the leases (paragraph 22);

· if the representation is falsified, the lessees will suffer detriment by loss of the ability to recoup their investment, destruction of their business, and displacement of Veronica’s brother and his family who reside in the premises.

24 The lessees invoke the doctrine of equitable estoppel. Equity comes to the relief of a plaintiff who has acted to his or her detriment on the basis of a fundamental assumption in the adoption of which the defendant has played such a part that it would be unfair or unjust if he or she were left free to ignore it, on the footing that it would be unconscionable for the defendant to deny the assumption [Grundt v The Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641, 675 (Dixon J); Thompson v Palmer (1933) 49 CLR 507, 547 (Dixon J); Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 404 (Mason CJ and Wilson J)]. Generally speaking, the matters that a plaintiff must establish to found such an equitable estoppel may be characterised as including certain conduct of the plaintiff, certain conduct of the defendant, and certain qualities of the subject matter, which, for present purposes, may sufficiently be summarised as follows. First, as to the conduct of the plaintiff, that the plaintiff acted, or abstained from acting, in reliance upon an assumption or expectation that a particular legal relationship existed, or would exist, between the plaintiff and the defendant, or that the plaintiff had or would acquire some interest in the defendant's property. Secondly, as to the conduct of the defendant, that the defendant induced the plaintiff to adopt the assumption or expectation and encouraged the reliant activity of the plaintiff, or at least failed to deny the assumption or expectation with knowledge that the plaintiff was relying on it to the plaintiff's potential detriment and that the expectation could be fulfilled only by transfer of the defendant's property, a diminution of the defendant's rights or an increase in the defendant's obligations. Thirdly, as to the subject matter, that the assumption or expectation in respect of it was one that the defendant could lawfully satisfy [see generally Brennan J’s six proofs in Waltons Stores v Maher, at 428-429; cf Fry J's five probanda in Willmott v Barber (1880) 15 ChD 96; Priestley JA's seven propositions in Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466, 472, as modified in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 610].

25 In this case, some of the elements are quite clear:

· reliant activity on the part of the lessees is plainly established by their expenditure on the property and the business;

· knowledge and encouragement of the lessees’ reliant activity is established through Bill’s role as a consultant to the business who was – at least on the lessees’ case – substantially responsible for its management, at least until 2007; he requested much of the expenditure and himself wrote many of the cheques;

· the detriment if the expectation is falsified is clear: If forced to quit the premises, at least without several months’ time to locate and move to alternative premises, the business will have to be wound up, the seven full-time employees will be terminated, the machinery and fitout will be seriously diminished in value, the capital investment would be lost and the expenditure will have been wasted (Pazta has so far recouped only about $40,545 of its capital expenditure of $431,419), and Veronica will remainder liable on the machinery leases that she has guaranteed.

26 The difficulty in the present case pertains to the precise content of the lessees’ assumption or expectation, and the lessors’ implication in its adoption. The plaintiff’s expectation or assumption lies at the core of equitable estoppel. It describes the scope of the equity. The defendant’s knowledge of it is equally fundamental, as the unconscionability which attracts the intervention of equity is the failure of the defendant, having induced or acquiesced in the adoption of the assumption or expectation, with knowledge that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion [Waltons Stores v Maher, 423 (Brennan J)]. The requisite knowledge or intention of a defendant that the plaintiff will act or abstain from acting in reliance on the relevant assumption [see Crabb v Arun District Council [1976] Ch 179, 188 (Lord Denning MR); Waltons Stores v Maher, 423 (Brennan J)] may easily be inferred where the adoption, assumption or expectation is induced by the making of a promise, though it may also be found where the defendant encourages a plaintiff to adhere to an assumption or expectation already formed, or acquiesces in an assumption or expectation when, in conscience, objection ought to be stated [Waltons Stores v Maher, 423 (Brennan J)].

27 As pleaded, the lessees’ expectation was that they would be secure in occupation of the premises “for an indefinite period”. According to Veronica:

· in the February 2000 conversation, Bill spoke of a long enough lease “to ensure that the business is viable and at the end of the time that we choose, you can either buy the property from us if the business is doing well enough or continue renting”;

· her father’s statements to the effect that the purpose of her investment was to assist the future of the family, and that she could remain “until the business is making enough money to provide a decent living for all of us”, led her to believe that it was a long-term investment for everyone in the family;

· in the February 2004 conversation, Bill said that the business would provide the money and flexibility she would need to spend time with her baby, and as a result she assumed that if she invested the further $10,000, the business would in the long term provide for her new family;

· in November 2005, Bill confirmed that Veronica would be given an opportunity to purchase the property once the business was viable;

· in December 2007, Bill informed Veronica that upgrade works were required to obtain a fire certificate “to make sure that you can continue to operate at the property”, and as a result, between January and March 2008, the lessees spent about $8,000 for this purpose, on wiring for emergency exit signs, fire extinguishers and roof maintenance.

28 As Mr Maltz, for the lessors, submits, none of those matters evinces a “clear and unequivocal” representation that the lessors would be permitted to remain for any particular term beyond the duration of the lease [see Legione v Hateley (1983) 152 CLR 406, 436-437 (Mason and Deane JJ); Woodhouse A C Israel Cocoa Ltd SA v Nigerian Produce Manufacturing Co Ltd [1971] 2 QB 23, 60 (Lord Denning MR); Low v Bouverie [1891] 3 Ch 82, 106 (Bowen LJ), 113 (Kay LJ)]. However, requirement that a representation (or assumption) must be clear if it is to found an estoppel, does not mean that it must be express, and a sufficiently clear representation (or assumption) may properly be implied from words, conduct or even silence. A promise may be definite, in the sense that there is a clear promise to do something, even though exactly what is promised is not precisely defined [Flinn v Flinn [1999] 3 VR 712, 738 (Brooking JA, Charles and Batt JJA concurring); see also Australian Crime Commission v Gray [2003] NSWCA 318, [184]-[200] (Ipp JA; Mason P and Tobias JA agreeing on this point)]. The requirement that a party should not be estopped on an ambiguity does not mean that the precise terms of the assumption or representation which founds the claimed estoppel must be entirely and unequivocally clear: an estoppel can arise even though the precise terms of the assumption or representation may be difficult to ascertain, so long as it is clear that there was an assumption, and its scope – although its full extent may be uncertain – is at least sufficient that it can be said that the defendant’s conduct would involve a departure from it. It is not necessary that a representation (or assumption) be clear in its entirety, and it suffices that so much of it as is necessary to found the propounded estoppel satisfies the requirement: as Mason and Deane JJ explained in Legione v Hateley, a representation that a particular right will not be asserted for at least x days is not rendered, for the purposes of promissory estoppel, unclear or equivocal merely because the words used are equivocal as to whether the relevant period is x days, x plus one day or x plus two days, so that if what is said or done amounts to a clear and unequivocal representation that the particular right will not be asserted for a period of at least x days, a representation to that effect can be relied on to found an estoppel [Legione v Hateley, 438-439]. And as Tobias JA has observed, even if a representation is insufficiently precise to give rise to a contract, that does not necessarily disqualify the representation from founding an estoppel, much depending upon the circumstances in which the representation is made and the context against which it is to be considered, so that a representation will be sufficiently clear and unambiguous if it is reasonable for the representee to have interpreted it in a particular way which it is clearly capable of bearing and upon which it is reasonable for the representee to rely, and in such circumstances it would be unconscionable for the representor to deny responsibility for the detriment that arises because of that reliance. On the other hand, if it is not reasonable for the representee to rely on the meaning he attributes to the representation, then it cannot be unconscionable for the representor to deny responsibility for the detriment that the representee sustains because of that unreasonable reliance [Galaxidis v Galaxidis [2004] NSWCA 111, [93]-[94]].

29 Accordingly, it is not fatal for present purposes that the lessors cannot establish a precise expectation as to how long they would be permitted to remain. The essential question for present purposes is whether their expenditure was referable to an expectation, known to the lessors, that they would be permitted to remain in occupation until sometime beyond 1 August 2008.

30 There are not insignificant contra-indications. Bill denies the oral representations on which the lessees rely, and there are no contemporaneous records of them. However, that factual dispute cannot be resolved on an interlocutory application, and does not deny the existence of a seriously arguable case. Nor does the circumstance that Bill disputes that he understood that the lessees were under any misapprehension as to their true position, if on the present state of the evidence it is seriously arguable that he knew of their assumption.

31 The strongest matter against the lessees entertaining any relevant assumption, or the lessors knowing of it, is the lease itself, which was negotiated after the February 2000 representation – it was executed on 18 April 2001 – and apart from the option term said nothing as to any further right of occupation. At least on one view, it gave content to the concept of “a long enough lease to ensure that the business is viable” referred to in the representation. Indeed, Veronica said that it was because of Bill’s representations – to the effect that the lessees could stay in occupation until the business was making enough money to provide a decent living for all the family – that they agreed on a four-year lease with a four-year option.

32 However, there are also indicia that the parties did not regard their relationship as being exclusively or strictly governed by the formal lease terms. One important instance of this is that the lessees remained in occupation after the first four years without any formal exercise of the option. Another is that arrangements in respect of payment of rent departed from those prescribed by the lease and were varied, from time to time, by Bill in his managerial role.

33 Moreover, the ongoing expenditure on the property and business, as late as early 2008, and very considerably in excess of that contemplated at the time of the original lease, provides the strongest basis for concluding that the lessees had an expectation of being able to remain in the premises after expiry of the lease on some basis. That expenditure is not easily explicable on any basis other than an expectation of a continuing opportunity to enjoy its benefit, which is inconsistent with exclusion from the property in the short term. The quantum of expenditure, and the circumstance that it was incurred not only at the outset, but also later, are suggestive of an assumption on the part of the lessees that they would be permitted to remain, notwithstanding the expiry of the formal lease. The lessees incurred additional expenditure in 2004 and 2005, apparently with the encouragement of the lessors, in the context of Veronica questioning whether – in the light of Bill’s deteriorating health, the ever-increasing expenditure required to fund the business, and an alternative employment opportunity offered to her with Westpac – she should continue to invest money in the business, and Bill representing that she should as they were almost ready to commence production, and would require only a further $10,000 for that purpose. The conversation of December 2007 in relation to the fire certificate, which contemplated continued operation of the business by the lessees from the property, tells significantly in favour of such an assumption. And as to the lessors’ role in creating the expectation, until his illness, Bill was involved in the business in a managerial role, and it was he who requested and authorised much of the relevant expenditure and made the representations on which the lessees rely.

34 It is unnecessary to conclude whether the evidence could support an expectation that the lessees would be able to remain indefinitely, in the sense that they might gain an equity to remain permanently [cf Plimmer v Mayor of Wellington (1884) 9 App Cas 699; Ward v Kirkland [1967] Ch 194; Crabb v Arun District Council; Hill v AWJ Moore & Co Ltd (1990) 5 BPR 11,359]. Ms Paraska, who appeared for the lessees, more or less accepted that they could not reasonably have expected to be permitted to remain forever – a position that is consistent with their apparent contemplation that they would be given an opportunity to purchase the property, suggestive that absent a purchase their rights were not permanent. However, they also seem to have contemplated that, before the occasion for purchase arrived, they would be afforded enough time for the business to become “viable”. On the basis of the matters to which I have referred, including the role of Bill in encouraging and implementing their expenditure, it is seriously arguable that the lessees entertained an expectation in the creation of which the lessors were implicated – to the effect that they would be permitted to remain, at least until there had been a reasonable opportunity for them to recoup the benefit of their expenditure, or if that proved impractical until an orderly removal of the business to appropriate alternative premises could take place, and that it would be unconscionable for the lessors to exclude them before then; and that, in the events which have transpired, that time has not yet arrived. While such an expectation is in a sense an imprecise one, it is not beyond the ability of the law to give content to the concept of a reasonable opportunity to recoup their investment.

35 Mr Maltz invoked the principle that where interlocutory relief will practically determine the final outcome of the case, the Court will review more closely than otherwise the relative strengths of the competing cases. [Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533]. However, this is not such a case. Granting relief will not practically determine the issue finally: it will remain for a final hearing to determine whether or not the lessees were entitled to remain and if so for how long, which might extend beyond the time of a final hearing; if it eventuates that they are not entitled to remain at all, or until the final hearing, the lessors will be entitled to invoke their undertaking as to damages; if interlocutory relief is declined, that will make it practically impossible to restore them to possession, but they would retain alternative remedies. This is not the type of case that McLelland J had in mind in Kolback Securities.

36 Damages are rarely if ever an adequate remedy for deprivation of an interest in land. It cannot be said to be plain at this stage that a final injunction would be declined upon the ground that damages would be a sufficient remedy.

37 Accordingly, although the lessors’ case has its own strengths, the lessees have a seriously arguable case for a final injunction, founded on an equitable estoppel entitling them to remain in occupation at least until there had been a reasonable opportunity for them to recoup the benefit of their expenditure, or at the very least until an orderly removal of the business to appropriate alternative premises could take place, which time has not yet arrived.

Balance of convenience?

38 The balance of convenience is clearly in favour of granting injunctive relief to maintain the status quo, if there is a sufficiently arguable case: if an injunction is wrongly granted, the lessors will be prevented from taking possession for a few months pending a final hearing, but Veronica has offered, in addition to the lessees’ usual undertaking as to damages, her personal undertaking to pay market rent during that period, which protects the lessors against the risk of loss from inability to install a new tenant, which is the probable area of any economic loss (the other such risk – of a significant depreciation in value of the property before it could be sold – is a slight one), and there may be a few months’ delay to Bill and Erica’s retirement plans; whereas if an injunction is wrongly declined, the lessees will be put out of possession, and their business assets and undertaking seriously disrupted if not destroyed, in circumstances where it would not be practicably possible to restore them to their previous possession were they to succeed at the final hearing.

39 The lessors submitted that the lessees’ undertaking as to damages was worthless, and that security should be required for it. I accept that the financial capacity of the lessees to satisfy an undertaking as to damages involving a substantial amount is dubious. However, Veronica’s personal undertaking to pay rent substantially remedies this; although it does not cover depreciation of the property, that seems an unlikely scenario. In my view, Veronica’s personal undertaking is sufficient security.

40 The lessors also submitted that the lessees should be required, as a condition of relief, to bring the rent up to date. This could involve a payment of up to $250,000. There is a substantial dispute as to whether that amount is payable (as the lessors assert), or whether (as the lessees contend) the lessors are estopped from insisting upon payment of all or any of it. It is not a sum admittedly payable to the lessors, in which case there would be a stronger argument that the lessees should be required to pay or secure it as a condition of relief. Unlike future rent, it is unconnected with the grant of an interlocutory injunction, in the sense that granting or withholding injunctive relief will not affect the ability of the lessors to recover it. In my view it would not be appropriate to require payment of the alleged arrears as a condition of relief.

41 The balance of convenience so manifestly favours the preservation of the status quo until the rights of the parties are finally determined that the lessees’ case, though far from assured of success, is more than sufficient to warrant the grant of interlocutory relief.

Conclusion

42 The alleged oral compromise between Veronica and Bill on 22 August does not afford a sufficiently arguable case for final relief to justify the grant of an interlocutory injunction. However, the lessees have a seriously arguable case for a final injunction, founded on an equitable estoppel entitling them to remain in occupation at least until there had been a reasonable opportunity for them to recoup the benefit of their expenditure, or at the very least until an orderly removal of the business to appropriate alternative premises could take place, which time has not yet arrived.

43 Notwithstanding the criticisms made of the value of the lessees’ undertaking as to damages, the balance of convenience so strongly favours the grant of interlocutory injunctive relief that the lessees’ case, though far from assured of ultimate success, is more than sufficiently arguable to warrant the grant of an interlocutory injunction.

44 The lessees have already given the usual undertaking as to damages in connection with interlocutory relief; it continues to operate in respect of any interlocutory continuation or variation of that relief and there is no requirement for it to be “renewed” [UCPR, r 25.8].

45 My orders are:

1. Upon Veronica Szczesny undertaking to the Court that she will until further order pay to the defendants an occupation fee of $1169 (GST inclusive) per week, the first such payment to be made on 18 September 2008 and weekly thereafter, order that until the hearing or further order the defendants be restrained from by themselves their servants or agents disturbing the possession or interfering with the quiet enjoyment of the plaintiffs of the premises Buildings A and B at 5 Grosvenor Place, Summer Hill.

2. Order that costs of the interlocutory application be costs in the proceedings.

3. Adjourn the proceedings to Friday 19 September 2008 at 10.00 am before the Expedition List Judge.

4. Direct that by Monday 15 September 2008 the plaintiffs file and serve a motion for expedition returnable before the Expedition List Judge on Friday 19 September 2008, together with an affidavit in support thereof.

5. Direct that by Wednesday 17 September the defendants serve and lodge with the Associate to the Expedition List Judge any affidavit in connection with the application for expedition.

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