Current Knowledge Print Solutions Pty Ltd v. Kent Road Holdings Pty Ltd [2004] NSWSC 1208

New South Wales Supreme Court

CITATION : Current Knowledge Print Solutions Pty Ltd v. Kent Road Holdings Pty Ltd [2004] NSWSC 1208 HEARING DATE(S) : 30 November, 2004 JUDGMENT DATE : 30 November 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Interlocutory injunction granted.

CATCHWORDS : INTERLOCUTORY INJUNCTION - Plaintiff claims interlocutory injunction restraining Defendant from drawing on bank guarantee, claiming equitable set-off against rent due under lease - whether serious question to be tried - balance of convenience - no question of principle. - Boral Formwork & Scaffolding Pty Ltd v Action Makers Limited [2003] NSWSC 713 CASES CITED : - British Anzani (Felixstowe) Limited v International Marine Management (UK) Ltd [1980] QB 137 - Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462 PARTIES : Current Knowledge Print Solutions Pty Ltd - Plaintiff Kent Road Holdings Pty Ltd - Defendant FILE NUMBER(S) : SC 6236/04 COUNSEL : D.E. Grieve QC, L. Gyles - Plaintiff R. Weber SC, K. Richardson - Defendant SOLICITORS : RBHM Commercial Lawyers - Plaintiff Morgan Lewis Alter - Defendant

JUDGMENT – Ex tempore

1 The Plaintiff seeks an interlocutory injunction restraining the Defendant from calling on a bankers undertaking or bank guarantee provided to the Plaintiff pursuant to a lease between the Plaintiff as lessee and the Defendant as lessor. 2 The circumstances giving rise to the application are as follows. The Plaintiff became a lessee of the lessor's factory premises at Mascot pursuant to a Deed of Consent and Assignment dated 3 April 2000. In the previous year the roof of the factory had been severely damaged by hail and had to be replaced. It was discovered that there was asbestos in the roof and the asbestos had to be removed as part of the replacement work. 3 By Clause 7(a) of the Deed of Consent the Defendant as lessor covenanted with the Plaintiff that the Defendant would replace the roof in accordance with certain specifications, which included the requirement for the complete and safe removal of the asbestos. The Defendant completed the roof replacement, apparently in accordance with the specifications. The Plaintiff then sub-leased the whole of the premises. The rent payable to the Plaintiff under the sub-lease is, I am told, equal to the rent payable by the Plaintiff to the Defendant under the head lease. 4 Towards the end of last year, the sub-tenant discovered that all the asbestos had not been removed from the factory roof. A dispute then arose as to who should be responsible for the cost of removing it. Ultimately, the sub-tenant gave notice to the Plaintiff on 26 October 2004 that it would withhold payment of rent to the Plaintiff under the sub-lease until the asbestos in the roof was removed. 5 The Plaintiff then withheld rent from the Defendant under the head lease, saying that it has a claim for damages for breach of the lessor's covenant in Clause 7(a) of the Deed to remove the asbestos completely. The Plaintiff says that its damages for breach of that covenant equal the rent due under the lease to the Defendant because, by reason of the breach, the sub-tenant is withholding rent from the Plaintiff in an amount which equals the rent due by the Plaintiff to the Defendant. 6 The Plaintiff says that it is entitled in equity to set-off its claim for unliquidated damages against the Defendant's admitted claim for rent under the lease. The Defendant denies that the Plaintiff is entitled to any set-off or other deduction from the rent. It has already drawn down under the bank guarantee one amount for outstanding rent and, unless restrained, it will in a day or two draw down another substantial amount. 7 The case has been brought on in a very heavy duty list as a matter of extreme urgency. These reasons must, therefore, be as brief as is permissibly possible. 8 Mr Grieve QC, who appears with Mr Gyles for the Plaintiff, says that there is, at the least, a serious question to be tried as to whether any equitable set-off or deduction from rent payable under the lease is permissible and he says that the balance of convenience favours the grant of the interlocutory injunction. Mr Weber SC, who appears with Mr Richardson for the Defendant, disputes both propositions. 9 In support of his contention that an equitable set-off is available, Mr Grieve relies on a decision of Forbes J in British Anzani (Felixstowe) Limited v International Marine Management (UK) Ltd [1980] QB 137. There, the plaintiff claimed rent due under a lease; the defendant cross claimed for damages for breach by the plaintiff of a separate agreement to repair the premises. It was held that there was such a close connection between the claim for rent of the premises and the claim for damages for breach of the covenant to repair that, in equity, the defendants were entitled to set-off against their admitted liability for rent their claim for unliquidated damages. The decision in that case was referred to with approval by the Court of Appeal in Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462, at 488. 10 Mr Weber says that in the present case, clause 3.1(a) of the lease expressly prohibits any deduction for set-off from rent due under the lease, so that any right of equitable set-off is expressly negatived by the contract between the parties. 11 Mr Grieve, however, points out that clause 3.1(a) is made subject to clause 3.4, which provides for an abatement of rent if, in the Defendant's opinion, the premises are by reason of some disabling cause substantially unfit for use and occupation. Mr Grieve says that the presence of asbestos in the roof would entitle the Plaintiff to an abatement under the provision and, in any event, the entitlement of the Defendant to payment of rent without deduction in accordance with the terms of the contract for lease must be subject to equitable principles. 12 Mr Weber says that there has never previously arisen any contest as to whether the premises were unsuitable or unfit for occupation within the purview of clause 3.4. Whether there has arisen a circumstance which gives rise, or could give rise, to an abatement under clause 3.4 is clearly a question of fact which cannot be resolved in the present application. 13 Mr Weber says that there is a strong line of authority to the effect that the Court will never interfere by injunction with the entitlement of a holder of a bank guarantee to call upon that guarantee. The reason, he says, is that the Courts treat rights under a guarantee as equivalent to cash in hand and will not jeopardise their use in commerce by injuncting payments thereunder unless fraud is made out. Mr Weber relies strongly on the decision of Austin J in Boral Formwork & Scaffolding Pty Ltd v Action Makers Limited [2003] NSWSC 713. 14 Mr Grieve responds that that line of authority is concerned with restraining bankers from complying with calls made under bank guarantees; it is not concerned with restraining the holders of bank guarantees from making a call on the banker where there is a dispute as to the holder's entitlement to do so. 15 In my opinion, the questions of law to be resolved in these issues are difficult and complex. I am far from persuaded that there is no substance in the arguments advanced by Mr Grieve. Resolution of these questions of law is quite inappropriate in an interlocutory hearing. In my opinion there is a serious question to be tried. 16 The parties have said little about the balance of convenience. If the guarantee is called upon, the Plaintiff will be out of pocket in a considerable sum of money while, at the same time, receiving no rent from the sub-tenant while the dispute is litigated to conclusion. The prejudice to the Plaintiff is self evident. On the other hand, the Defendant has adduced no evidence that it will suffer any particular hardship if it does not receive the rent for the premises until the asbestos problem is resolved. In my opinion the balance of convenience favours the grant of the injunction as sought. [Parties directed to formulate short minutes.] ~ oOo ~