Il mien] CATCHWORDS Prade Practices — Covenant by lessor - Interlocutory Injunction. Trade Practices Act 1974 ss.45B, 47(4) and 52. A. D. C. CENTRES PTY.- LIMITED v. KILSTREAM PTY. LIMITED No, G 35 of 1979 Coram: Franki J. Sydney 23 July 1979 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G 35 of 1979 GENERAL DIVISION BETWEEN : A.D.C. CENTRES PTY. LIMITED Applicant AND % KILSTREAM PTY, LIMITED Respondent QO R DER SUDGE MAKING ORDER: Franki Jd. DATE OF ORDER : Monday 23 July 1979 WHERE MADE : Sydney THE COURT ORDERS THAT: 1. Application refused. 2. Liberty to either party to apply on two days notice to the other party to have the matter re-listed for directions or for any other application that either party may be advised to make. 3. Parties to have an opportunity to address on the question of costs. 4, Matter to be listed for mention on 8 August 1979. IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No.G 35 of 1979 GENERAL DIVISTON ) BETWEEN : A.D.C. CENTRES PTY. LIMITED Applicant AND : KILSTREAM PTY. LIMITED Respondent Coram: Franki J. Sydney 23 July 1979 REASONS FOR JUDGMENT FRANKI J. A.D.C. Centres Pty. Limited, the applicant, on 5 July 1979 commenced an action by way of statement of claim against Kilstream Pty. Limited, the respondent, seeking certain declarations, injunctions and other relief and claiming that the respondent had contravened or attempted to contravene ss.45B, 46, 47(4) and 52 of the Trade Practices Act 1974 ("the Act"). On the same day the applicant filed a notice of motion seeking certain interlocutory relief and I now give judgment in that application. In the proceedings for interlocutory relief, no reliance was placed on s.46 of the Act. cow ee The correct approach which this Court should take to applications under s.80 of the Act for interlocutory relief has been considered in a number of cases and I mentioned some of them in McDonald's System of Australia Pty. Ltd. v. McWilliam's Wines Pty. Ltd. (1979) A.T.P.R. 40-108. This application raises a number of difficult questions of law but because these proceedings are interlocutory and because of the complexity of some of those questions, I have deemed it inappropriate to express any concluded views. In the subject proceedings there was evidence before me that the applicant had leased to the respondent, by memorandum of lease dated 26 April 1977, a part of certain premises at a shopping centre at Dee Why and that item 12 of the said memorandum of lease provided: "Permitted Use of Premises: Tennis and squash amusement and recreational centre and retail shop for the sale of sporting goods, clothes and refreshments including cigarettes, food, confectionary." There was also evidence that clause 12(h) of the said memorandum of lease contained the following provision: "The Lessor will not lease any other adjacent premises for the purposes of any sports amusements or recreation usage or for the retail sale of sporting goods or associated businesses Provided that the provisions of this Clause mee FS Reereyen ent ~3- shall not apply in relation to leases or tenancies existing at the date of this Lease." There was also evidence that a company, Randall Fadie i] Gartner Sports Centre Pty. Ltd. ("Randall") had been desirous of obtaining a lease of a certain part of the applicant's shopping centre at Dee Why adjacent to that occupied by the respondent for a leisure and sports complex incorporating a general gymnasium fitted with certain special equipment, an exercise area, two indoor cricket pitches and nets, one sauna, one swirlpool, five or six batball or racquetball courts and male and female change rooms. There was also evidence that negotiations had taken place between the respondent and Randall prior to and in June 1979 during which it appears that the respondent sought to impose certain conditions before it would consent to a proposed lease by the applicant to Randall apparently upon the basis that its consent was necessary because of the provisions of clause 12(h) of the said memorandum of lease. The applicant rested its case for interlocutory relief upon an alleged contravmtion firstly of s.47(4), secondly of s.45B and thirdly of s.52 of the Act. I will consider first the question of the application of s.47(4). No reliance was placed in the interlocutory proceedings before me upon the argument that, since the application of the definition of services in s.4(1)is subject to any contrary intention appearing, that definition does not apply to the word "services" in s.47(4), because the section shows a contrary intention. Since I am only required to decide whether a prima facie case has been established and, if it has, whether on the balance of convenience, or for any other reason, interlocutory relief should be refused I will proceed first upon the basis, but without deciding, that the word "services" in s.47(4) includes rights in relation to, and interests in real property. The relevant words of s.47(4) appear to be "A corporation...engages in the practice of exclusive dealing if the corporation acquires...services...on the condition that the person from whom the corporation acquires services ...will not supply services or services of a particular kind or description to any person or will not...supply services...or services of a particular kind or description to particular persons or classes of persons...or in particular places or classes of places..." So far as 1s relevant this section can only apply to an acquisition of a service by the respondent. Assuming that the definition of "acquire" is relevant and that the word "acquire" is to be read as "accept" because of the definition of "acquire" in s.4(1) it may be that the section applies to the acceptance of rights to and interests in real property under the terms of an existing lease. No argument was addressed to me that I should consider the position when the lease was entered into at a time before the amendment introducing s.47(4) in its present form had been made. If it be assumed that s.47(4) may be read as applicable to a -5- lease one has to consider whether the restriction in clause 12(h) of the said memorandum of lease is a condition that the lessor will not supply services of a particular kind or description to any person. No detailed argument was directed to the meaning of the words "of a particular kind or description" put it is by no means clear that the provision of an interest in real property under a lease containing a covenant restricting the use to which the premises the subject of the lease may be put constitutes the provision of "services of a particular kind or description"* If such an interest arising under a lease does not fall within the words "services of a particular kind or description" it is then necessary to decide whether the addition of the words "except to a particular extent" or "to particular persons or classes of persons or to persons other than particular persons or classes of persons" or "in particular places" alters that conclusion. No detailed argument was addressed to these questions. I am by no means satisfied that a prima facie case of the contravention of s.47(4) by the respondent has been established but assuming,for the sake of argument, that it has,then it is necessary to consider s.47(10) and to decide whether the respondent by engaging in the conduct alleged is engaging in conduct that "has a purpose or is likely to have the effect of substantially lessening competition". In examining this question it is necessary to have regard to the provisions of ss.4G and 47(13). Submissions were made to me by the applicant that the relevant market was, broadly, either the market of leasing premises in the relevant area or alternatively the market of providing the services which Randall was proposing to ee ee RR RE nee A enn sage ee mee ogpteesnunes soa at nn ee ere re RE TE SE SE pe -6- provide within the relevant area. It seems that the conduct referred to in s.47(13)(b) is the conduct of the respondent being the person who is alleged to be engaging in the relevant conduct or "any person whose business dealings are restricted, limited or otherwise circumscribed" by that conduct. It is by no means clear to me that these words include the pusiness dealings of the applicant or that the business dealings of Randall are "restricted, limited or otherwise circumscribed" by the conduct of the respondent in accepting any interest 1n the premises. I emphasise that no argument was addressed to me as to the position at the time the lease was entered into which was before the amendments to the Act effective from 1 July 1977. For reasons which I will give later I find it unnecessary to express a concluded view upon whether a prima facie case of contravention of s.47(4) has been established. I pass now to consider the position in relation to s.45B. Section 45B(5) provides that s.45B does not apply to or in relation to engaging in conduct in relation to a covenant by way of conduct that contravenes s.47 and it was common ground before me that if s.47 applied s.45B did not. I now assume that s.47 does not apply for the purposes of examining whether a prima facie case of a contravention of s.45B has been made out. Section 45B(1) provides, so far as 1s relevant, that a covenant whether given before or after 1 July 1977 is unenforceable in so far as it confers rights or benefits or imposes duties or obligations on a corporation if the -7- "covenanthas, or is likely to have, the effect of substantially lessening competition in any market in which the corporation .. supplies or acquires, or is likely to supply or acquire,... services or would, but for the covenant, supply or acquire, or be likely to supply or acquire, ... services." It is to be noted that the only effect of s.45B(1) 1s to render a covenant unenforceable (see s.4(3)) which presumably means legally unenforceable. There was evidence before me that the applicant, on the day on which it commenced proceedings in this Court, commenced proceedings in the Supreme Court of New South Wales seeking a declaration that the said clause 12(h) of the memorandum of lease was void as contravening the doctrine of restraint of trade or as contravening the Restraint of Trade Act 1976 (N.S.W.) and seeking certain other relief in that Court. The respondent has filed a cross claim in the Supreme Court asking that the applicant be restrained from granting any lease of any part of the shopping centre for the purpose of any sports, amusements or recreation usage or for the retail sale of sporting goods or associated businesses and also claiming certain other relief. It was submitted by the applicant that this cross claim by the respondent meant that it was in breach of s.45B(2)(c) in that it was engaging "in particular conduct by reason that a person who, but for sub-section (1), would be bound by a covenant has failed to comply, or proposes or threatens to fail to comply, with the terms of the covenant." I find it very difficult to conclude that the conduct referred to in s.45B(2)(c) includes the conduct of setting up a cross -8- action in proceedings in a Court but for reasons which I will set out later it is unnecessary for me to express a concluded opinion on this question. Section 45B(1) appears only to make a ccvenant unenforceable. No argument was developed that that section was contravened by an allegation that such a covenant was enforceable. I pass now to consider whether a prima facie case has been established in relation to an alleged contravention of s.52(1) of the Act. So far as is relevant that section provides that: "A corporation shell not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." The applicant pointed to the width of the provisions of s.52 and submitted that any allegation that clause 12(h) of the memorandum of lease was enforceable constituted misleading or deceptive conduct in trade or commerce. Again I do not wish to express any concluded view but I have grave doubt whether the conduct referred to in s.52(1) (and as defined in s.4(2)) includes representations by a lessee to a prospective lessee of adjacent premises from the same lessor that a term in his lease is enforceable unless that question has been the subject of a determination by a Court. Again for reasorsSwhich I will set out leter it 1s unnecessary for me to express a concluded view. -9- I have not thought it necessary to consider in any detail whether the conduct alleged to be in contravention of s.47(4) has the purpose or has or is likely to have the effect, of substantially lessening relevant competition or whether the covenant in clause 12(h) has, or is likely to have, the effect of substantially lessening relevant competition within the meaning of s.45B(1). The conclusion to which I have ultimately come is based upon the assumption, but without so deciding, that the requirement of substantially lessening relevant competition has been made out so far as is necessary to establish a prima facie case. I have now dealt with the three sections of the Act which are alleged to provide the basis for relief in these proceedings. I have considerable doubt whether the applicant has established a prima facie case under any of those sections but I will assume that it has for the purpose of considering where the balance of convenience lies. Whether or not a prima facie case has been established I consider that, upon the balance of convenience, interlocutory relief should be refused. The applicant initially sought orders in substance restraining the respondent its servants and agents, pending final determination of these proceedings, from: (a) Enforcing or seeking to enforce clause 12(h) of the memorandum of lease and (b) Expressly or impliedly representing to Randall or any other third party that clause 12(h) is valid and enforceable. (Or ere n re ee ee ee wae eee rapgh ere, ae (i eee re ~10- The applicant did not press the first order it had sought in its notice of motion and it should be pointed out that it seemed to be directed to asking this Court to restrain the respondent its servants and agents from taking legal action to enforce clause 12(h) of the memorandum of lease. In regard to the second order sought the applicant indicated that it did not wish to prevent the respondent from expressing a view as to the validity and enforceability of clause 12(h) but ultimately the respondent sought an order in the following terms: "An order restraining the defendant by its servants or agents pending final determination of these proceedings from requiring Randall Eadie Gartner Sports Centre Pty Limited to a) obtain the defendant's consent to a lease of premises in 'Dee Why Stroll't from plaintiff to Randall Eadie Gartner Sports Centre Pty Limited b) agree to the terms set out in the letter dated 12 June 1979 from Alexander and Peddley to Gye and Associates, a copy of which is - annexure 'B' to the affidavit of Gordon Harold Ward sworn on 4 July 1979 and filed herein." In substance, the final form of order sought would retrain the defendant, until the final determination of -the proceedings, from requiring Randall to obtain the defendant's consent to a lease of premises in the shopping centre and restraining the respondent from requiring Randall to agree to the terms set out in the letter of 12 June 1979. I cannot see how the respondent can require Randall to obtain its consent to a lease of other parts of the shopping -11- centre. If a lease is granted in breach of clause 12(h) and that clause turns out to be enforceable and no relevant breach of the Act is involved, then the position would be determined in accordance with ordinary principles. In addition I do not see how the respondent can require Randall to agree to terms set out in the letter dated 12 June 1979 which appears to set out the terms and conditions upon which the respondent would not oppose the granting of the lease then proposed from the applicant to Randall. In any event there is evidence before me from Mr. Ward, a director of the applicant that Randall were unlikely to proceed with the proposed lease but there is much more specific evidence from Mr. Andrews, the solicitor for the applicant, that "Upon the morning of Tuesday 3rd July 1979, Mr. Gye of Gye and Associates telephoned me saying words to the effect 'My clients Randall Eadie Gartner Sports Centre Pty. Limited resolved yesterday evening not to proceed with the proposed lease'". Gye and Associates are the solicitors who acted for Randall in the negotiations. I indicated to the parties that the Court could give an early hearing date for the final determination of these proceedings and that some time would be available as early as the middle of August 1979. The respondent indicated that it might need a period of time considerably longer than that to prepare any necessary evidence, -12- particularly in relation to the issue of the alleged lessening of competition. In fixing a date for hearing it may be necessary to consider how far, if at all, it is relevant to have regard to the proceedings which the applicant has commenced in the Supreme Court of New 1 South Wales. In looking at the balance of convenience it is relevant, at least in relation to considering the comer. position under s.52, to have particular regard to any possible damage to "consumers" if interlocutory relief is refused and it would also seem relevant to pay very RSTn St substantial regard to the public interest if interlocutory relief is refused in relation to any contravention of i s.45B or s.47(4). meg In the case before me there is some evidence that there would be difficulty in obtaining a suitable area in a relevant location for at least some of the activities which Randall proposed to conduct at the shopping centre but I consider the balance of convenience is in favour of my refusing any injunction, inter alia, for the following reasons: 1. That Randall appears to be no longer interested; : 2. That it should be possible to dispose of the action in the reasonably near future; 3. That the parties voluntarily entered into a lease in April 1977 and that, although I have MTUTO TIN reeves Ene pm ene epee ee ee ee ee ee a ~13- refrained from expressing a concluded view, it is by no means clear that a prima facie case has been made out that the injunction sought against the respondent would restrain it "from engaging in conduct that constitutes or would constitute a contravention of a provision of Part IV or V of the Act" or any other relevant conductreferred to in s.80(1). The purpose of the relief sought appears to be to facilitate the granting by the applicant of a lease of part of the shopping centre to a person or persons who would conduct a business which might well be detrimental to the business of the respondent. Presumably any such lease would be for a significant period and if it ultimately were held that no contravention of the Trade Practices Act was involved a very unsatisfactory position would arise which might be expected to give rise to further litigation. I consider that the delay before the matter can be disposed of finally is not such as is likely to cause any significant disadvantage to the public. I refuse the relief sought in this application. I indicated when I reserved my judgment I consider that As the matter should be finally disposed of at the earliest ~14- possible date. I will give the parties an opportunity to address me on the question of costs. Leave is also granted to either party to apply on two days notice to the other party to have this matter re-listed for directions or for any other application that either party may be advised to make. ea ce ce a ete et ay ¢ a ere bE le] @3) z z Dated: QS Suly 1479 en ee er ee MWR S nen me en