Solomon v Firstline Holdings Pty Ltd

[1999] WASC 143

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   SOLOMON -v- FIRSTLINE HOLDINGS PTY LTD [1999] WASC 143

CORAM:   McKECHNIE J

HEARD:   5 AUGUST 1999

DELIVERED          :   5 AUGUST 1999

FILE NO/S:   CIV 1803 of 1999

BETWEEN:   CHRISTOPHER BLAIR SOLOMON

Plaintiff

AND

FIRSTLINE HOLDINGS PTY LTD (ACN 056 998 353)
Defendant

Catchwords:

Equitable lease - Lessee's claim to possession - Injunction to put lessee into possession - No new principle

Legislation:

Nil

Result:

Injunction granted

Representation:

Counsel:

Plaintiff:     Mr J C Curthoys

Defendant:     Mr L A Tsaknis

Solicitors:

Plaintiff:     Slee Anderson & Pidgeon

Defendant:     Beere May & Meyer

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

Abjornson v Urban Newspapers Pty Ltd (1989) WAR 191

Auto Masters Ltd v Bruness Pty Ltd WASC 39

Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471

Case(s) also cited:

Chan v Cresdon Pty Ltd (1989) 168 CLR 242

Heavener v Loomes (1924) 34 CLR 306

Nicholas v Thompson (1924) VLR 554

Patrick Stevedores Operations (No 2) Pty Ltd & Ors v Maritime Union of Australia & Ors [1998] HCA 31; (1998) 153 ALR 641

Taylor v Johnson (1983) 151 CLR 422

Wentworth v Woollahra Municipal Council (1982) 149 CLR

1. McKECHNIE J : In April 1999 Mr Solomon wanted to start a business in Margaret River.  To that end he inspected a vacant shop at the Freycinet Centre on Bussell Highway.  Unit 1 was apparently available and suitable for his purposes.  Next door was a shop occupying three units and trading as Kookaburra Krafts.  Accordingly, Mr Solomon went along the street and spoke with a real estate agent, "The Professionals Leeuwin Realty", who were agents for the landlord.  Mr Tamblyn owned the land which he in turn leased to the defendant of which he is a director.

2. Mr Solomon spoke with Miss Langusch, a real estate representative.  What passed between them is the contentious subject of this action.  I will return to the conversation in more detail, but in all events Mr Solomon and Miss Langusch discussed terms and commencement dates.  A little later Miss Langusch contacted Mr Solomon and after some further discussion about the date of commencement and a rent increase, Mr Solomon and she agreed on a lease.  On 19 May 1999 he signed an offer to lease which was prepared by her and gave her a cheque for $2708.16.

3. The next day he was given the keys and commenced the business of getting ready to trade.  He purchased $2000‑worth of fittings from the previous tenant.  He was given permission to replace the carpets and he readied the shop for business.  The offer to lease was accepted by the landlord on 25 May 1999.  No doubt Mr Solomon looked forward to the next two years without a worry, except the normal vicissitudes of trading.  How wrong he was.

4. On 18 June 1999 he received his cheque back.  On 30 June 1999 the locks were changed preventing access.  Solicitors' letters were exchanged.  Mr Solomon has issued proceedings against the landlord.  He seeks an injunction permitting him to regain possession of the shop.

5. The plaintiff claims that the circumstances I have outlined gives him the right at equity to a lease the equivalent of a lease at law.  The defendant concedes that the plaintiff has raised a serious question to be tried.  However, the defendant argues that the balance of convenience is strongly against the plaintiff and that what is in effect a mandatory injunction should not issue.

The legal principles

1. Notwithstanding the plaintiff's submission that what is sought is not really in the nature of a mandatory injunction, but rather in the nature of an injunction to preserve the status quo ante, I propose to deal with the application on the basis that the injunction is mandatory in nature.

2. The principles in relation to mandatory injunctions are set out in Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471 and recently restated in Auto Masters Ltd v Bruness Pty Ltd WASC 39, 72 -75.

3. In particular, the court should have a high degree of assurance that at trial the injunction will turn out to be rightly granted.  Even if that degree of assurance is felt, the balance of convenience is nevertheless a matter for consideration.

4. With these general principles in mind, I now return in more detail to the issues in contention.

The agreement for lease

1. The defendant does not dispute that the parties entered into an agreement for lease.  Rather, the defendant asserts that the plaintiff made misrepresentations as to the contract such as to entitle it to set it aside.

2. The defendant intends to defend the plaintiff's claim on the basis that:

   "(a)The representation of the Plaintiff as to the purposes for which the premises would be put constituted 'misleading or deceptive conduct' within the meaning of that expression in sections 9 and 10 of the Fair Trading Act1987;

   (b)the Offer to Lease was executed as a result of the fraudulent, negligent or innocent misrepresentation of the Plaintiff; and

   (c)the Plaintiff was aware that in permitting the Plaintiff to operate a retail business pursuant to the Offers to Lease, the Defendant, through its agent Leeuwin Real Estate, was labouring under a mistake as to the content or existence of a fundamental term, namely that the actual business of the Plaintiff would be limited to the marketing of clothing to the hospitality industry …"

The discussion between the lessee and the estate agent

1. It is asserted by the defendant that in each case the defendant is entitled to rescind the agreement.  This proposed plea directs attention to the first conversation between Mr Solomon and Miss Langusch.  Mr Solomon deposes as to that conversation as follows:

   "In this conversation I expressed interest in leasing the Shop and advised that the intended use was for retail and wholesale clothing outlet.  The sort of wholesale business contemplated was selling advertising lines to wineries and other commercial ventures."

2. Miss Langusch, on advice from solicitors to her professional indemnity insurers, has declined to swear an affidavit at this stage.  However, the solicitor for the defendant did take instructions from her and has subsequently sworn an affidavit setting out the basis of the instructions taken on 29 July.  What he says in par 10 of an affidavit sworn 2 August 1999 is as follows:

   (a)She told me that she was aware that in endeavouring to lease shop 1 no such lease could be granted to a business which competed with that of the other tenant, Roystone Pty Ltd.  She was not, however, specifically aware of Clause 11.03 of the Sub‑Lease to that company and in fact understood that any decision relating to whether or not the business in respect to shop 1 competed with that of Roystone Pty Ltd rested with the Defendant.  She was unaware at the time she first met the Plaintiff that the Defendant needed Roystone Pty Ltd's consent where a potential conflict arose.

   (b)With respect to paragraph 8 of the Plaintiff's affidavit, she told me that she did have a conversation with the Plaintiff but not in the terms set out therein.  She said that because she was aware of the need to ensure that any new business did not compete with the business of Roystone Pty Ltd she made specific enquiries of the Plaintiff as to the type of business he intended to carry out.  In response to those enquiries she told me that he informed her that the business would be limited to the marketing of clothing for the hospitality industry, such as hotels, motels and wineries within the Margaret River area and that predominantly it would be a wholesale business with only a small amount of retail sales.  She told me that at no stage did the Plaintiff ever indicate that the business would extend beyond marketing clothing for the hospitality industry and based on that advice she said she formed the conclusion that there was no potential competition with the business being operated by Roystone Pty Ltd.

   (c)She told me that it did not occur to her to limit the extent to which the Plaintiff could operate the business by describing it in the terms of the statements made by him to her when they first discussed the matter and she simply wrote into the Offer to Lease the description 'wholesale/retail clothing' but on the understanding it was in fact limited in the manner described by the Plaintiff."

3. It is to be observed that the disclosure statement in the Commercial Tenancy (Retail Shops) Agreements which was forwarded to Mr Solomon, and signed by him, did take note of the fact that the trading hours were tourist-town trading hours and that this was to be a retail shop next to a craft shop.  Those matters of themselves might suggest that there was an element of retail trading always implicit.

The lease of the adjacent shops

1. In fact, several matters emerge from this account given on behalf of Miss Langusch.  Roystone Pty Ltd, referred to by her, is the lessee of the three adjacent units and trades as Kookaburra Krafts.  In the Roystone lease there is a clause requiring the consent of Roystone to the lease of other premises within the Freycinet Centre if they are to be used for the same purpose.  Clause 11.03 states:

   "LESSOR MAY GRANT OTHER LEASES

   The lessor shall not without the lessee's consent grant any lease or leases or other parts of the Land for the same purpose or purposes for which the Lessee is entitled to use the Demised Premises for the time."

2. It is to be observed that there was a typographical error in 11.03 and the word "lessor's" appearing a second time has been corrected to "lessee's" and initialled by the parties, including, it would appear, Mr Tamblyn.

3. Part of Kookaburra Krafts' business is retail clothing.  The offer to lease prepared by Miss Langusch for Mr Solomon specifies the type of business, as "wholesale retail clothing".  She told the defendant's solicitors the extent of her knowledge of that clause in the passage to which I have already referred; that is, Mr Beere's affidavit, par 10(a).

4. The defendant, through its director, was also said to be unaware of that clause.  Mr Tamblyn, who appears to have actually signed the typographical error in cl 11.03, swore an affidavit on 3 August 1999 in which he states at par 4:

   "Although I signed the Sub‑Lease I was unaware of the existence of Clause 11.03 which provided that the Defendant could not grant any lease or leases of any other parts of the land on which the shops are located for the same purpose or purposes for which Roystone Pty Ltd was entitled to use shops 2, 3 and 4.  I only became aware of the existence of that provision as a result of advice from Kevin Fox, a director of Bactwin Pty Ltd which advice was given to me in June of 1999."

5. The affidavits filed on behalf of the defendant provide no evidence that Miss Langusch ever told Mr Solomon of the existence of cl 11.03.  Both Mr Solomon and Miss Langusch agree in their recollection that Mr Solomon's business would involve both wholesale and retail aspects, as indeed is reflected in the written offer to lease.

6. In all the circumstances, I have difficulty in seeing how the facts, even on a version most favourable to the defendant, give rise to any misleading conduct by Mr Solomon.  The discussions clearly raised the issue of retailing clothing from the premises.

7. The degree of that business might be in issue, but the fact is not.  Retailing of clothing was not in any event a prohibited use of the premises.  That fact simply triggered the provisions of cl 11.03 in the Roystone lease which gave Roystone the right to refuse consent to the Solomon lease.  The difficulties in the lease arrangements appear to have arisen not by anything that Mr Solomon said, but rather by Mrs Langusch's misapprehension of the terms of the Roystone lease, coupled with Roystone's independent right to refuse consent.

8. Clearly the circumstances outlined by the plaintiff are capable of supporting an equitable lease - Abjornson v Urban Newspapers Pty Ltd (1989) WAR 191. Necessarily, the application for an interlocutory injunction requires the Court to predict the future. The Court must make an assessment now of the likely success or otherwise of the litigation at a preliminary stage and without the advantage of a full trial when all the evidence is in. Nevertheless, the Court should not shrink from the task in appropriate cases where the plaintiff seeks assistance to enforce his or her present rights.

9. In my opinion the plaintiff has established a high degree of likelihood that he will ultimately succeed in the relief being claimed.  At the present stage of the proceedings, I consider his claim to an equitable lease to be very strong and the defendant's assertion as to an operative misrepresentation to be weak.  That finding, however, does not dispose of the matter.  I turn now to consider the balance of convenience.

The balance of convenience

The interests of the third party

1. There is no question that the interests of the third party, especially an innocent third party, are relevant to the exercise of a discretion whether or not to grant an injunction.  The chief matter raised by the defendant is the loss and damage caused to Roystone which is said to come about in two ways:  first, it will be unable to sell its business Kookaburra Krafts; second, it will be subject to a competing business in contravention of cl 11.03.  I will deal with each of these in turn.

(i) Sale of the business

1. The defendant points to an offer and acceptance made by Outback Souvenirs to purchase Kookaburra Krafts, the business operated by Roystone.  The offer is subject to special conditions.  The offer was entered into two days after the plaintiff's cheque was returned to him, but there may not be any significance in that.  It is for a gross purchase price of $245,000 and the special condition which is of relevance reads:

   "(3)This offer is subject to the purchasers negotiating a new lease for shops 1, 2, 3 and 4 within 14 days of acceptance."

2. Shop 1 is the subject of Mr Solomon's claim.  Shops 2, 3 and 4 are held by Roystone presently on a lease which terminates on 30 August 1999.  On analysis the special condition is one over which Roystone has no control.  The Roystone lease, as I have said, terminates on 30 August 1999, but the lease does provide for an option to renew for a further five year term.  However, the offer and acceptance is silent as to whether Roystone will exercise that option and then seek to transfer the lease to the new owners.  Rather, the special condition is dependent upon the purchasers, Outback Souvenirs, negotiating a new lease for four shops.

3. In the circumstances that can only be in negotiation with the defendant as landlord.  If the defendant has put itself in the position where it is unable to lease shop 1, then Outback Souvenirs will be unable to satisfy the condition of purchase and the offer will lapse.  Indeed, Outback Souvenirs have indicated as much.

(ii) Breach of the clause requiring the consent of the adjoining lessee.

1. Whether cl 11.03 applies to these circumstances will depend on a factual finding.  If it does, and the defendant is in breach of its contract with Roystone, then Roystone will have a remedy in damages against the defendant.  Roystone's troubles, if any, have been brought about by the mistakes of Miss Langusch and Mr Tamblyn to which I have already alluded.  Even if Mr Solomon did mislead Miss Langusch as to the extent and nature of the business, nevertheless it is common ground that at least an element of the business would be retail clothing of some sort.

2. The Roystone lease described the permitted use for Kookaburra Krafts as "Retail crafts, clothing and gift shop".  Miss Langusch did not get the consent of Roystone to the lease before putting it to Mr Tamblyn for acceptance because she thought there was no potential competition between Mr Solomon's proposed business and that of Kookaburra Krafts.  However, cl 11.03 does not speak of competition, but of use "for the same purpose or purposes".  Therefore consent was required in any event, even if Miss Langusch had been misled as to the nature of the trade.  It follows that any damage which Roystone may incur in these circumstances would be as a result of the error of the defendant's agents, not as a result of giving possession to the plaintiff.

3. Therefore, in respect of both matters raised as to Roystone, my conclusion is that it is not necessary to take into account, in assessing the balance of convenience, the effect upon Roystone because even if the plaintiff ultimately fails at trial, and the defendant is entitled to set aside the lease, any damage to Roystone will be caused either by the failure of Outback Souvenirs to complete satisfactory negotiations with the third party, the defendant, as a condition precedent for the purchase of Kookaburra Krafts, or the failure of the defendant, or its agent, to seek Roystone's consent to the lease of shop 1 before accepting that lease when the circumstances required the defendant to do so, whatever particular representations were made as to the type of clothing.

Possible remedies to each party

1. In my opinion the balance as to the ultimate remedies for either party is even.  Even if the plaintiff fails in this application, and later succeeds at trial, specific performance, as a practical reality, will be denied to him and he will be left with a claim for damages.  If the defendant fails now, and later succeeds at trial, restitution of the position will not be realistically possible and it will be left with a money claim for damages.  In either event, therefore, the likely result for a successful party will be an award of damages.

2. The defendant has raised other matters which go to the balance of convenience.  The defendant argues that interlocutory injunctive relief ought to be refused because damages will be an adequate remedy.  The plaintiff has not commenced business from shop 1 and has not incurred any out of pocket expenses, save for at most $2000.  I note that the proposed purchaser, Outback Souvenirs, is prepared in fact to reimburse the plaintiff that sum.  Furthermore, the evidence discloses that there are other premises in the vicinity which the defendant says are suitable alternative premises.

Conclusion

1. In my view these considerations, even when combined, do not outweigh the balance of convenience favouring the plaintiff's claim to immediate possession.  They may mitigate his damages, but do not of themselves avail against a strong case.  In all the circumstances, I am satisfied that this case justifies the grant of an injunction in the terms sought, even though there is a risk that in so doing the action is effectively being resolved.