The Groundsmen Cheltenham Pty Ltd (ACN 617 814 552) v Perpetual Corporate Trust Limited (ACN 000 341 533)
[2019] VSC 812
•5 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2019 05331
| THE GROUNDSMEN CHELTENHAM PTY LTD (ACN 617 814 552) | Plaintiff |
| V | |
| PERPETUAL CORPORATE TRUST LIMITED (ACN 000 341 533) | Defendant |
---
JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 December 2019 |
DATE OF JUDGMENT: | 5 December 2019 |
CASE MAY BE CITED AS: | The Groundsmen Cheltenham Pty Ltd (ACN 617 814 552) v Perpetual Corporate Trust Limited (ACN 000 341 533) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 812 |
---
INJUNCTION – Application for orders restraining the defendant from impeding the plaintiff’s access to the premises from which it previously conducted a business of a café/wine bar from – Non-payment of rent – Prima facie case that plaintiff entitled to relief against forfeiture – plaintiff incurred significant financial losses when previously trading – plaintiff likely to incur further losses if permitted to resume trading – Balance of convenience in favour of rejection of application for injunction.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J B Masters | Strongman & Crouch |
| For the Defendant | Mr S Hopper | Arnold Bloch Leibler |
HIS HONOUR:
On 2 April 2018 the plaintiff entered into a lease with Paul Maurice Pitard Pty Ltd (‘PMP’) in respect of premises at 9-11 Station Road, Cheltenham.[1] Until about April 2019 the plaintiff conducted a café/wine bar from the premises, trading as The Groundsmen.[2] In March 2019, PMP in its own capacity and as trustee of the Steller 104 Unit Trust entered into a facility agreement for $4.75m with Australian Executor Trustees Limited.[3]
[1]See the plaintiff’s written submissions filed 27 November 2019 at paragraphs [2] and [7] and the affidavit of Simon Maurice Pitard sworn 25 November 2019 at paragraph [3].
[2]See the plaintiff’s written submissions filed 27 November 2019 at paragraph [2].
[3]See affidavit of Andrew Lyall Knight affirmed 28 November 2019 at paragraph [3] and exhibit AK-1 at p 1 to that affidavit.
The mortgagee's rights under the agreement were transferred to the defendant on 2 April 2019.[4] PMP defaulted on payments due under the agreement.[5] The defendant has re-entered the premises at 9-11 Station Road, Cheltenham.[6] It did so after serving notices of termination and re-entry which asserted breaches of the lease by non-payment of rent and discontinuance of permitted use.[7]
[4]See exhibit JMO-1 to the affidavit of James Michael O’Donahue sworn 27 November 2019.
[5]See affidavit of Simon Maurice Pitard sworn 25 November 2019 at paragraph [16].
[6]Ibid at paragraph [21].
[7]See exhibit SMP-7 to the affidavit of Simon Maurice Pitard sworn 25 November 2019.
The plaintiff does not dispute that it ceased paying rent to PMP in April 2019.[8] For its part, the plaintiff contends that it was agreed as between it and PMP that the plaintiff's business would go into 'hibernation' during the winter months and reopen in Spring 2019.[9] This is disputed by the defendant. It contends that after the plaintiff sustained losses of $93,000 in the period January to March 2019, a decision was made by the Steller Group, the parent company of the plaintiff and PMP, to terminate the lease and make all staff employed in the business redundant.[10] I will return to this issue in due course.
[8]See affidavit of Simon Maurice Pitard sworn 25 November 2019 at paragraph [16].
[9]Ibid at paragraphs [11]-[13] and exhibit SMP-5 to that affidavit.
[10]See the affidavit of Nicholas Smedley affirmed 28 November and the defendant’s written submissions filed 3 December 2019 at paragraph [15].
The plaintiff contends that it did not intend to cease paying rent to PMP. Rather, it contends that its failure to do so was a consequence of the corporate downturn which afflicted the Steller Group from early 2019, resulting in the demise of the group in mid-2019.[11] In this regard, Mr Pitard deposes that the number of accountants employed by the Steller Group fell from 15 to two.[12]
[11]See affidavit of Nicholas Smedley affirmed 28 November 2019 at paragraph [16].
[12]Ibid.
Mr Masters, who appeared for the plaintiff, advanced three propositions in support of the plaintiff's claim that the defendant should be restrained until further order from: (a) impeding, instructing, refusing or denying access to the premises to the plaintiff or any of the plaintiff's officers, employees, agents or licensees; or (b), interfering with the plaintiff's use of the premises as a café/wine bar.[13]
[13]See the plaintiff’s written submissions filed 27 November 2019 at paragraph [5].
First, he submits that there is a serious question to be tried that the lease remains on foot and that there has been no surrender by the plaintiff of its rights under the lease; second, he submits that there is a serious question to be tried that the plaintiff is entitled to relief against forfeiture; third, he submits that the balance of convenience favours the grant of the injunction sought.
I turn first to consider the question of whether the plaintiff has established a serious question that the lease is still on foot. If the lease has been surrendered, there is no basis for the plaintiff to be granted relief against forfeiture. On the evidence before the court, it is plain that The Groundsmen café/wine bar lost significant amounts of money during the first three months of 2019.
The evidence is that the business lost approximately $93,000 during this period.[14] Mr Pitard has sworn an affidavit in which he deposes that it is critical to the viability of the plaintiff's business for it to be operating during the summer period.[15] This evidence must be weighed against the evidence before the court which supports a conclusion that the business was trading unprofitably when it operated during the first three months of 2019.
[14]See Exhibit NS-6 to the affidavit of Nicholas Smedley affirmed 28 November 2019.
[15]See affidavit of Simon Maurice Pitard sworn 25 November 2019 at para [29].
Mr Smedley was the sole director of PMP from 31 May 2016 until 1 May 2019. Annexed to his affidavit affirmed 28 November 2019 is an email dated 8 April 2019 from the chief financial officer of the Steller Group, Justin Brown, to Mr Alistair Williams, one of the co-owners of the Steller Group, in which Mr Brown states, inter alia:
In my view, Groundsmen is clearly not something we should continue losing money on. My advice would be: close Groundsmen immediately and stop incurring expenses….[16]
[16]See exhibit NS-6 to the affidavit of Nicholas Smedley affirmed 28 November 2019.
Mr Pitard deposes at paragraph 11 of his affidavit of 25 November 2019:
In about February, March and April 2019, there were discussions at meetings of the Board of the Steller group about whether the Business should continue to operate in the colder months of 2019. About one or two weeks before Easter 2019 (that is, in about mid-April 2019), the Board decided at a meeting that the Business should temporarily cease operating for a few months after Easter 2019. This decision was made on the basis that the profits of the Business had declined during the colder months of 2018, and that the Business had attracted greater clientele during the warmer months of the year and particularly in summer 2018/19. Nicholas Smedley, who at that time was a director of the Landlord, attended that Board meeting.
Mr Smedley deposes that he recalls attending a meeting in April 2019 at which Mr Pitard was present and at which the Groundsmen business was discussed. He deposes:[17]
I only recall one meeting between me, Mr Pitard, Mr Williams and Mr Cirelli where the Groundsmen business was discussed. That meeting occurred in April 2019 at the Steller Group's office at 840 Dandenong Road Caulfield East. I believe that this is the mid-April 2019 meeting referred to in paragraph 11 of the Pitard Affidavit.
At that meeting, we reviewed the restaurant business conducted by Grocer Co, and concluded that the business should be shut down because it was not generating sufficient cashflow or any profit. We agreed that the Groundsmen business would close and all staff would be made redundant.
We did not discuss at any stage the possibility that the Groundsmen would "temporarily cease operating" in the colder months and re-open in the warmer months.
Following that meeting, all staff at Groundsmen were made redundant, including Mr Stewart, who managed the Steller Group's restaurant business, was also made redundant, although I do not recall exactly when that occurred.
Following the April meeting and agreement to close down the Groundsmen business, I acted on behalf of the Landlord on the basis that the Property was vacant, including in my interactions with potential lessees like Coles and Safeway, as described above at paragraph 13. At no time did I consider that there was any plan for Groundsmen to re-commence trading from the Property.
[17]See affidavit of Nicholas Smedley affirmed 28 November 2019 at paragraphs [17]-[22].
The accounts given by Mr Pitard and Mr Smedley are plainly irreconcilable. As this is an interlocutory hearing, it is not possible to make a clear finding as to which account is to be believed. Nevertheless, I place weight on the fact that Mr Pitard's statement that the board decided in April 2019 to temporarily cease operating the Groundsmen business for a few months on the basis that profits for the business had declined during the colder months of 2018 and that the business had attracted greater clientele during the warmer months of the year, particularly summer 2018/19, flies in the face of the evidence regarding the poor financial performance of the business during January to March 2019.It is also inconsistent with the clear advice of the Steller Group’s Chief Financial Officer to shut down the business.
It is not disputed that in or about May or June 2019 the plaintiff sold the kitchen fit out and fixtures in the premises to PMP. It does not appear to be in dispute that the proceeds of sale, $66,000, were used by the plaintiff to pay employees' entitlements upon termination of their employment with the balance being used to pay trade creditors who were paid 50 cents in the dollar.[18]
[18]See paragraph 15 of the affidavit of Andrew Knight affirmed on 3 December 2019 and Exhibit AK-2 to that affidavit at p 50.
There is a dispute as to whether PMP purchased the fit out and fixtures in its own right or in its capacity as trustee for the Paul Maurice Pitard Trust. The defendant contends that PMP purchased the fit out in its own right and that as mortgagee in possession it has control over the fit out, thereby having the capacity to preclude the plaintiff from resuming its business.[19]
[19]See transcript of proceedings, 4 December 2019 at pp 79-80.
The plaintiff submits that PMP purchased the fit out in its capacity as trustee.[20] It submits that PMP has been replaced as trustee and that the new trustee has consented to the plaintiff utilising the fixtures and fittings if it is permitted to re-enter the premises.[21] I am not in a position to resolve the issue as to the capacity in which PMP contracted to purchase the fit out. However, it is clear that the sale of the fit out was necessary to inject funds into the plaintiff's business in order to pay employees their termination entitlements and to pay trade creditors.
[20]See affidavit of Simon Maurice Pitard sworn 3 December 2019 at paragraphs [5]-[6].
[21]Ibid.
I infer from the payment of 50 cents in the dollar to trade creditors that the plaintiff did not have other financial resources available to it to pay the trade creditors in full. Further, the evidence of the sale of the fittings and fixtures weighs against Mr Pitard's evidence that the plaintiff's failure to pay rent post April 2019 was simply an oversight due to the reduction in the number of accountants employed by the Steller Group. Rather, the non-payment of rent is more explicable by the fact that the plaintiff had little, if any, financial resources available to it.
On the evidence currently before the Court, at trial the defendant will have a strong case that the cessation of trading in April 2019 was not merely by way of suspension/hibernation but was permanent. Nevertheless, the defendant's position is not so strong as to preclude the plaintiff having established a prima facie case that the lease was not surrendered in April 2019. In this regard, I accept Mr Masters' submission based on s 87C of the Transfer of Land Act 1958 (Vic) that there is no evidence before the court that to date the defendant has consented in writing to a surrender of the lease by the plaintiff. However, equally, there would not appear to be any impediment to the defendant doing so at any time between now and the commencement of a trial with the consequence that if a trial judge finds that there has been a surrender of the lease, such surrender would be valid and binding as against the defendant.
I turn now to consider whether the plaintiff has established a serious issue to be tried that it is entitled to relief against forfeiture. Relief from forfeiture for non-payment of rent is available if the tenant pays the arrears in rent, interest and the landlord's costs, save in exceptional circumstances.
Exceptional circumstances can be shown if the court is satisfied that the tenant is unlikely to comply with the lease in the future and/or is insolvent.[22]
[22]Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584 at 590-91; Direct Food Supplies (Victoria) Pty Ltd v DLV Pty Ltd [1975] VR 358 at 359.
Mr Masters submits that the Court should be satisfied that all arrears of rent will be paid. He points to an undertaking proffered by the present director of the plaintiff, James Michael O'Donoghue, who deposed that if required by the Court as a condition of the interlocutory injunction sought, the plaintiff is willing to provide an undertaking to the court that it will (a), within seven days of the injunction being ordered pay all outstanding amounts due under the lease, being the amount previously tendered by the plaintiff, and the rent due under the lease for the remainder of the term of the lease; and (b), otherwise comply with its obligations under the lease until the conclusion of the proceeding.[23]
[23]See affidavit of James Michael O’Donahue sworn 27 November 2019 at paragraph [8].
Immediately prior to the cessation of trading in April of this year, the plaintiff's business incurred losses of approximately $93,000[24] during what should have been its most profitable trading period. If the plaintiff is granted the injunction it seeks, there is no guarantee that the trial in this proceeding would take place prior to
mid-2020. In order to comply with its obligations under the lease, the plaintiff would therefore have to continue trading through less favourable conditions of April through June 2020.[24]See affidavit of Nicholas Smedley affirmed 28 November 2019 at paragraph [16].
There is no evidence before the court which permits a finding that losses equal to or greater than those sustained early this year would be unlikely to be repeated. In particular, there is no evidence of the plaintiff having turned its mind to addressing the causes of the losses sustained early this year. I note that the premises are not currently licensed to sell food. The plaintiff has only put in train the process for obtaining a licence since this proceeding was commenced.[25]
[25]See transcript of proceedings, 4 December 2019 at pp 51-2.
I am satisfied there is a significant question as to the capacity of the plaintiff to pay its employees and trade creditors throughout the period up to a full trial in this proceeding if the business were to trade at a loss as it did earlier this year. Further, it must be borne in mind that, if the plaintiff were to recommence trading, it has not traded for the last eight months, it does not have any employees, presumably it would have to reconnect with trade suppliers; those who previously have been paid 50 cents in the dollar may expect to be paid in full as a condition of doing business again with the plaintiff.
Shortly stated, there is a legitimate basis for inferring that upon resumption of trade there is a real risk of the business incurring losses equal to or greater than those incurred when it last traded. As such, there is a real question as to its capacity to comply with the obligations under clause 12.4 of the 9-11 Station Road Commercial Lease Agreement which prevents the plaintiff from discontinuing the permitted use of the premises without the prior written consent of the landlord.[26] Once again, the defendant's case is not so strong as to preclude a finding that the plaintiff has established a prima facie case that it is entitled to relief against forfeiture.
[26]See exhibit SMP-1 to the affidavit of Simon Maurice Pitard sworn 25 November 2019.
However, the plaintiff's case is not strong. There is a real prospect that if it does establish that the lease has not been surrendered, relief against forfeiture will be refused at trial.
I turn now to the balance of convenience. At paragraphs 30 to 31 of his affidavit of 25 November 2019 Mr Pitard deposes:
The plaintiff applies to this Honourable Court for relief on an urgent basis because, as referred to above, the plaintiff is now locked out of the Premises and is therefore unable to operate the Business. It is critical to the viability of the plaintiffs business that it be permitted to recommence operating the Business as soon as possible, including in order to minimise those losses. The Business is the plaintiff's only undertaking.
As referred to above, it is likewise critical to the viability of the Business for it to be operating during summer. Although the plaintiff had intended to have resumed operating the Business by now, given that the plaintiff is locked out of the Premises, its commercial preference would be to recommence operating the Business before Christmas 2019. As also referred to above, it would take approximately three weeks from the plaintiff retaking possession of the Premises before the Business could recommence. If the plaintiff does not recommence operating the Business before Christmas 2019, the viability of the Business will be very substantially compromised.
This evidence has an air of unreality about it. The evidence is underpinned by an assumption that if given the opportunity to recommence the business, the business would trade profitably. However, the evidence before the court regarding the losses sustained in the first three months of 2019, coupled with the fact that the business has not traded for the last eight months, points to the opposite conclusion.
Absent any evidence indicating that the business would be operated differently to how it was operating in the first three months of this year, it is more likely than not that the business would not operate profitably. Further, there is no evidence before the Court to sustain a finding that this business, which incurred significant losses in January to March 2019, had to sell fittings and fixtures in order to be able to pay employees and part pay trade creditors and has not traded for eight months, is in fact currently a viable business.
Shortly stated, I do not accept that, 'If the plaintiff does not recommence operating the business before Christmas 2019, the viability of the business will be very substantially compromised'.[27] The plaintiff is not prejudiced by reason of being unable to operate business which, on the evidence currently before the court, if it was operating, would more likely than not be unprofitable.
[27]See the Simon Pitard affidavit sworn 25 November 2019 at paragraph [30].
As against the lack of prejudice to the plaintiff, I am satisfied that the defendant will be prejudiced if the plaintiff is granted the relief it seeks. 9-11 Station Road is one of five properties comprising 9-21 Station Road. The premises at 13-15 and 15-17 Station Road are currently leased.[28] The defendant is presently seeking to sell all five properties.[29] There is evidence that negotiations have been completed with the tenants of 13-15 and 15-17 Station Road, which would provide for vacant possession.[30]
[28]See exhibit AK-2 to the affidavit of Andrew Lyall Knight affirmed 3 December 2019.
[29]See affidavit of Haydn Law affirmed 3 December 2019.
[30]Ibid at paragraph [10].
There is evidence that on 22 November 2019 a potential purchaser of the Station Road properties told Haydn Law, a partner with KordaMentha, that he would be interested in acquiring the Station Road properties if it could be confirmed that the lease on 9-11 Station Road had been terminated. He also stated words to the effect that if the defendant did have a lease, the property would be undevelopable in the short term.[31]
[31]See affidavit of Haydn Law affirmed 3 December 2019 at paragraph 14.
Since 25 November 2019, KordaMentha have received three offers for the purchase of 9-21 Station Road, two of which are conditional on the lease claimed by the plaintiff being cancelled or confirmed to be terminated prior to entering into any contract of sale.[32] On 27 November 2019, Savills, the selling agents for 9-21 Station Road, wrote to KordaMentha stating, inter alia
For developers, the additional purported lease to The Groundsmen and not knowing what sort of payout figure would be required (even if possible) may render the property unsaleable to this property group ... All offers from developers were on the basis that 9-11 Station Road was to be provided vacant possession.[33]
[32]Ibid paragraph [15].
[33]See Exhibit HL-1 of the affidavit of Haydn Law affirmed 3 December 2019.
I accept that the defendant's capacity to sell the property at 9-21 Station Road will be adversely affected if the plaintiff is granted the relief which it seeks. Further, the debt owed by PMP to the defendant, secured by 9-21 Station Road, is currently increasing at a rate of $1,693 per day.[34] The defendant has a legitimate interest in being able to sell the properties at 9-21 Station Road for the best price it can achieve in the shortest period of time.
[34]See the defendant’s written submissions filed 3 December 2019 at paragraph [29].
I am satisfied the balance of convenience favours the rejection of the plaintiff's application for an injunction. The inconvenience or injury which the plaintiff would be likely to suffer if an injunction is refused is outweighed by the injury which the defendant will suffer if the injunction is granted. The plaintiff's application for an injunction by summons dated 25 November 2019 is dismissed.
---
0
0
0