New South Wales Supreme Court CITATION : Softplay v Perpetual [2002] NSWSC 1059 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 5344/02 HEARING DATE(S) : 06/11/02 JUDGMENT DATE : 7 November 2002 Softplay Pty Limited - Plaintiff PARTIES : Perpetual Trustee WA Pty Limited - First Defendant P T Limited - Second Defendant Didus Pty Limited - Third Defendant JUDGMENT OF : Barrett J COUNSEL : Mr A J L Ogborne - Plaintiff Mr R S Angyal - Defendants SOLICITORS : John P McKeon & Company - Plaintiff Landerer & Co - Defendants CATCHWORDS : LEASES - statutory duty of lessor under Retail Leases Act not to engage in unconscionable conduct - covenant for quiet enjoyment - derogation from grant - implied good faith obligation - proposal by shopping centre lessor to supply to shoppers free of charge services supplied by tenant's business - INJUNCTION - interlocutory injunction - whether serious question to be tried - balance of convenience LEGISLATION CITED : Retail Leases Act 1994 Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 76 ALJR 1 Blomley v Ryan (1956) 99 CLR 362 Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 Cameron v Qantas (1995) 55 FCR 147; (1996) 66 FCR 296 CASES CITED : Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Commonwealth Development Bank v Cassegrain [2002] NSWSC 940 Kazaz & Associates v Multiplex (Mountain Street) Pty Ltd [2002] NSWSC 840 Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304 DECISION : Interlocutory injunction granted - 2 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J THURSDAY 7 NOVEMBER 2002 5344/02 - SOFTPLAY PTY LTD v PERPETUAL TRUSTEES WA PTY LTD JUDGMENT 1 On 31 October I granted an interim injunction until 5pm yesterday restraining the defendant lessors of three Westfield shopping centres from taking steps to implement plans to install children's playing facilities with adjacent refreshment facilities in the common areas of the centres. The plaintiff's business consists of operating play centres in leased premises at shopping centres for paying customers on a commercial basis, with parents and other carers paying to obtain access to the plaintiff's premises and play facilities for their children. The plaintiff's premises are specially fitted out with play equipment such as climbing frames and also have cafe facilities, both for parents and carers and for children's functions such as birthday parties. 2 The plaintiff applies for renewal of the restraints until further order, that is to say, pending a full hearing of its claims. I heard that application for several hours yesterday and indicated that I would give my decision this afternoon, at the same time extending the original orders until 5pm today. 3 The plaintiff's complaint arises from the lessor's proposals to install free play centres at three Westfield shopping centres, being those at Hornsby, Miranda and Chatswood. At this stage there are concrete and imminent plans afoot in relation to Hornsby and Miranda, with contracts let by Westfield for the installation of the play equipment. Things are less developed at Chatswood, as an appropriate site within the shopping centre there has not yet been identified. 4 There was, in the course of yesterday's hearing, a fuller exploration of the question whether there is a serious issue to be tried. I must say that while the plaintiff's case seems to face some difficulties in certain respects, I am persuaded that there is a serious question to be tried. 5 The plaintiff's first basis for its claims is several provisions of the Retail Leases Act 1994. The claims based on ss.33 and 34 of that Act are available but not strong. The claim based on s.62B is, to my mind, plainly arguable. That section says that a lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable. The section identifies certain matters that are to be taken into account in judging what is unconscionable but makes it clear that the generality of the expression is not cut down by the reference to the particular matters. Also while the examples or particular matters are directed towards formation and concluding of the lease, the section does not say in any explicit way that the words "in connection with a retail shop lease" are confined by matters going to the granting and taking of the lease. 6 The scope of unconscionability as a statutorily imposed determinant is illustrated by cases arising under ss.51AB and 51AC of the Trade Practices Act. Case law there suggests that the statutory concept extends beyond equitable approaches exemplified in cases of vulnerability such as Blomley v Ryan (1956) 99 CLR 362 and Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. There is arguably a statutory remedy in cases of conduct that is clearly unfair or unreasonable or irreconcilable with what is right or reasonable, to adopt language used by the Federal Court in the Cameron v Qantas litigation (1995) 55 FCR 147; (1996) 66 FCR 296. 7 The second avenue of attack by the plaintiff is based on the covenant for quiet enjoyment in each lease and the wider proposition that a landlord who has demised premises for a particular permitted use derogates from the grant by engaging in activities that impair or make less advantageous the pursuit of that use by the tenant. Against that, the defendants point to lease provisions making it clear that the common areas of the centre where the proposed free play facilities will be installed are controlled in each case by the lessor to whom are reserved a number of rights in respect of the common areas, including a right to construct buildings or improvements in the common areas and to do anything else that the lessor thinks will be for the convenient use of common areas by tenants' customers. 8 The plaintiff's case on this footing might involve some expansion of approaches that recognise that alterations to premises which will physically disrupt the flow of customers to a tenant's premises or will place physical interferences in the way of regular and convenient carriage of merchandise to and from tenants' premises entail, potentially at least, either breach of the covenant for quiet enjoyment or derogation from the grant or generally speaking other conduct inconsistent with what it is that a landlord gives by granting the lease. Both the forms of derogation from commercial advantage or utility to which I have just referred have been recently considered in cases to which I was taken, being the decision of Campbell J in Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304 and that of Palmer J in Kazaz & Associates v Multiplex (Mountain Street) Pty Ltd [2002] NSWSC 840. These and analogous cases concern physical impediments but there is no clear reason in principle why non-physical acts of a landlord – acts of economic significance – could not be subject to the same principles. 9 The plaintiff's case based on the lease has a further limb to it, namely, the argument that there must be taken to be implied by law a term requiring the exercise of good faith by the parties to a commercial lease. It was held by the Court of Appeal in Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187 that an obligation of good faith performance is an incident of every commercial contract according to the law of this State. The precise parameters of the relevant "good faith" doctrine are perhaps not as clear as they might be. I refer in that connection to the recent discussion by Einstein J in Commonwealth Development Bank v Cassegrain [2002] NSWSC 940. There is, nevertheless, a cogent argument that such a term is to be implied here. The implied term would have the capacity to bolster significantly the arguments based on the covenant for quiet enjoyment and derogation from grant. 10 The defendants point out that the leases expressly reserve the possibility of the lessor's letting other premises in the particular centre to tenants whose businesses may compete with the plaintiff's business. But being subjected to competition with another commercial operator does not necessarily have the same connotation as having one's landlord supply competing facilities free of charge. 11 The question to be determined at this point was stated by Mason ACJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 as whether, if the evidence remains as it is, there is a probability that at the trial of the action the plaintiff will be held entitled to relief. In Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 76 ALJR 1 Gleeson CJ referred to the need for the plaintiff to show at least a probability that he will succeed in establishing his entitlement to the relief sought at the final hearing. Kirby and Callinan JJ emphasised that a somewhat broad view is to be taken of the serious question to be tried issue. Callinan J said: "In my opinion the correct test is whether the applicant can demonstrate either a reasonably arguable case on both the facts and the law or that there is a serious question to be tried. These tests, it seems to me, are to the same effect." 12 In the present case I am persuaded that there is at least a probability that the plaintiff will succeed in establishing its entitlement at trial and that it has a reasonably arguable case on both the facts and the law. I therefore proceed to the balance of convenience. 13 The question at this stage is whether the plaintiff has shown that if the injunction were refused, he would suffer a greater injury than the defendant would suffer if the injunction were granted. Another matter to be taken into account is whether damages would be an adequate and more appropriate remedy than an injunction. 14 The major issue placed before me on this front was whether the opening of free play areas by the lessor or Westfield, as the shopping centre operator, is, in the whole of the circumstances, likely to conflict with the plaintiff's business in such a way as to harm it. That issue is posed both in a general way and by reference to particular factors relevant to the two centres where concrete plans exist, being Hornsby and Miranda. 15 Westfield's proposal to establish free play areas is part of a strategy to make its shopping centres more attractive to mothers with young children. This strategy is directed, obviously enough, to obtaining greater customer numbers to the benefit of retailing tenants and therefore to the enhancement of the value of a shopping centre. Shopping with small children can be stressful for mothers. The strategy aims to ease the stress. One of the ways in which this might be done is to provide a free play area where mothers can sit for a short period while their children are diverted on the play equipment. A very small facility occupying four square metres, which was referred to as a "coffee cart", and selling a narrow range of drinks and snacks will be adjacent to the play area. The play facility itself will be relatively small, with accommodation for some twenty children. I should say that the age group in question in these proceedings is from two up to five or six. 16 Referring to the shopping centres at Hornsby and Miranda, each of which has over 300 specialty shops in addition to anchor tenants such as supermarkets, department stores and major chain retailers, the defendant's witness, Mr Hardy, deposed that more than 1.2 million children aged six or under visit each centre each year. The number of visiting children will increase if Westfield's mother-targeting strategy is successful with the result, the defendants say, that there will be a greater number of potential customers for the plaintiff's play centres. 17 The plaintiff's response to this is that at present only three per cent of visiting children become its customers which shows that commercial play centres face enough difficulties now in attracting custom. Paying children are, it was said, a scarce commodity. They will become scarcer, so the argument runs, if a free play area is available, even if there is an increased child visitor rate. Some ninety-two per cent of the children who visit the plaintiff's centres are under five which is generally, as I have said, the group around which Westfield's strategy is based. 18 There is then the issue of the comparability of the respective play centres. The evidence indicates that those that Westfield plans will be smaller than the plaintiff's. The free play areas will each have a capacity of about twenty children, whereas the plaintiff's centres can cater for about forty-five children, although the plaintiff's attendance figures show an average of around twenty, with an upper figure of about thirty at peak times. The play equipment in both will be generally similar and of similar construction, although the plaintiff's is more extensive. A greater range of food and drink is available to mothers and carers at the plaintiff's centres than is contemplated for the coffee cart adjacent to each Westfield free area. The minimum time that can be purchased at one of the plaintiff's centres is thirty minutes. For mothers wanting to get their money's worth, a longer stay at one of the plaintiff's centres is therefore indicated, compared with perhaps a short rest stop at the proposed free area. 19 The defendants contended, by reference to handbills produced by the plaintiff, that the plaintiff's centres are held out as, and in fact are, more in the nature of event locations for birthday parties and special treat visits specifically planned, as distinct from places where mothers drop in for a short rest while shopping. It is not disputed by the plaintiff that it does cater specially for parties and the like or that it promotes that part of its activities. However, the evidence of its director, Mr McKeon, is that more than ninety per cent of visits to the plaintiff's centres are single child visits rather than group visits. The fact nevertheless remains that the plaintiff's centres are party venues, in part at least, whereas the free areas will not be. 20 The defendants point to what they say is peaceful co-existence at other locations between pay centres and free play areas. They led evidence of a Lollipop play centre at Fox Studios, adjacent to a free play area, with the suggestion that Lollipop is trading successfully. However, the comparability of that co-existence with what is proposed for the Westfield shopping centres cannot be said to have been clearly shown. The free equipment at Fox Studios seems to be confined to sprung seesaws and the suggestion is that the Lollipop equipment is more extensive and challenging with a greater variety, added to which a leisure or entertainment complex such as Fox Studios is said to be different in character to a suburban shopping centre. I draw little assistance for present purposes from this evidence about the Fox Studios situation. 21 I come next to the issue of physical proximity at Hornsby and Miranda. 22 The Hornsby complex consists of two buildings that were originally separated by a street or mall. The two buildings are now joined by what is presumably a tunnel on the lower ground level and a bridge at first floor level, with access across the mall at ground level. The plaintiff's premises are on the first floor level in the southern building, adjacent to the bridge. The defendant's proposed free area is some 150 metres away, in the northern building near the exit from the northern car park. The plaintiff's premises are near the car park in the southern building. 23 At Miranda there will be a much greater degree of physical separation. The proposed free area will be two levels above the plaintiff's premises and at a walking distance of 500 metres. 24 Reverting to Hornsby, I should mention that Westfield installed a quite separate free play area there in June of this year. Evidence of the plaintiff's turnover since then shows no material decrease. However, that free play area is outside the building in the mall area near the entrance. It is not clear from the evidence just what the area consists of. There was reference to lumps of concrete but I think it probably consists of more than this. Clearly, however, it does not include the kind of climbing frames and other equipment proposed for the now contemplated free area which is of the same general kind as one finds in the plaintiff's pay centres. It is in any event, as I have said, outside the building. 25 In the light of all these matters the defendants say that the plaintiff has not shown that it will suffer any appreciable detriment or burden causing the balance of convenience to favour it; also that if any detriment does emerge and can be sheeted home to any of the legal or equitable wrongs the plaintiff asserts, detriment will (the defendants say) be wholly economic and therefore compensable in money. 26 The plaintiff, of course, sees things differently. As I have said, it points to the fact that only three per cent of children coming to the shopping centres are users of its facilities which shows that it is already hard enough to obtain custom and, on the evidence, a reduction of forty per cent in visitor numbers to the plaintiff's centres would cause the business to run at a substantial loss. The impact of the defendant's plans could therefore be highly damaging in a short time. 27 Furthermore, the plaintiff says that the market research evidence put forward by the defendants cannot be construed as showing that there will be no impact on the plaintiff. The research was done not to discover the effect of the defendant's proposals on the plaintiff's business, but for the quite different purpose of showing the benefits that will accrue to the defendants through implementation of the strategy of which the installation of the free play areas forms a part. 28 It is necessary to look next at burdens and detriments to which the defendants will be exposed if an injunction was granted until trial. The defendants have entered into contracts with the suppliers of the play equipment to be installed in the free play areas at Hornsby and Miranda. Installation is scheduled for 18 November at Hornsby (or at least to commence then) and for the first week of December at Miranda. The plaintiff says that this equipment could be diverted to other Westfield shopping centres to contain the loss that will occur if it is not possible to install at Hornsby and Miranda as scheduled. The defendant's response is that no other location is ready to receive the equipment within the time frame so the loss to the defendants or the contracted supplier or both will be inevitable if there is a delay. 29 As to the coffee cart to be associated with the free areas, the evidence is that lease terms have been settled with a tenant at least at one location but that there is, as yet, no lease or agreement for lease. The defendants will therefore not suffer on this front if there is delay. 30 The defendants are also concerned, of course, about any delay in implementation of the child friendly, mother-attracting strategy as a whole. It is, it is said, an important part of Westfield's plans to enhance the overall value of the centres. The greater the volume of traffic, the more attractive the centre is to tenants, the greater are the rents that the landlord can command and the greater becomes the value of the shopping centre business. Against this, the plaintiff says that it cannot be assumed that the strategy will produce any greater value at all, while on the other side of the coin a delay until trial in the defendant's ability to obtain whatever benefits may come from the installation of the free centres will not entail any loss or diminution in value; it will merely mean that the status quo continues. 31 The balance of convenience considerations in this case are not easy. In the end, however, I conclude that they favour the plaintiff. Despite the differences and distinctions that have been identified between the two forms of play areas, there can be no doubt that the existence of the free areas will pose an appreciable threat to the conduct of the plaintiff's business and that this threat could have far-reaching and permanent ramifications. From the defendant's perspective there will be some cost and inconvenience occasioned by the need for it to postpone the installations contracted for 18 November and early December. In comparative terms I consider the burdens faced by the defendant to be the less onerous. 32 I should add that while there is force in the defendant's submission that such damage as the plaintiff may suffer will be compensible in money, I do not in the particular circumstances regard damages as so complete a recompense as to remove the material risk of irreparable damage to the plaintiff's business. 33 The result, therefore, is that subject to the appropriate undertaking as to damages being given there will be an injunction pending the trial of the substantive proceedings, that is to say, until further order. [Undertaking as to damages proffered.] 34 Upon the plaintiff by its solicitor giving to the court the usual undertaking as to the damages, orders 1, 2 and 3 made on 31 October 2002 and continued yesterday up to and including 5pm today are extended until further order. ********** Last Modified: 11/11/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.