Lineablu Pty Ltd v St George Sailing Club Ltd [2004] NSWSC 1199

New South Wales Supreme Court

CITATION : Lineablu Pty Ltd v St George Sailing Club Ltd [2004] NSWSC 1199 HEARING DATE(S) : 3 December, 2004 JUDGMENT DATE : 3 December 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Interlocutory injunction continued.

CATCHWORDS : INTERLOCUTORY INJUNCTION - Defendant seeks to eject from its premises operator of restaurant business on ground that operator has committed breach of agreement - whether serious question to be tried - balance of convenience - whether damages adequate - other discretionary factors - no question of principle. CASES CITED : London & Blackwall Railway Company v Cross (1885) 31 ChD 354 PARTIES : Lineablu Pty Ltd - Plaintiff St George Sailing Club Ltd - Defendant FILE NUMBER(S) : SC 6169/04 COUNSEL : A.R.R. Vincent - Plaintiff G. Inatey SC, P. Mansfield SOLICITORS : Costa & Associates - Plaintiff Diamond Peisah - Defendant

JUDGMENT – Ex tempore

1 On 3 December 2004, Bergin J granted an interlocutory injunction restraining the Defendant from denying access or occupation to the Plaintiff of premises at Sans Souci owned by the Defendant. The injunction was continued up until today. Mr Vincent now appears on behalf of the Plaintiff. Mr Inatey SC and Mr Mansfield of Counsel appear on behalf of the Defendant. The Defendant resists the continuation of the injunction. The Plaintiff seeks the continuation of the injunction until further order. The circumstances giving rise to the application may be summarised thus. 2 The Defendant operates a sailing club at the premises. By an agreement dated 9 May 2002 between the Defendant and the Plaintiff, the Defendant agreed to licence certain restaurant and catering premises and facilities within the club to the Plaintiff upon certain terms. 3 An option to extend the catering agreement was exercised in mid-2002 and at present the agreement, if it still is on foot, has another three years or so to run. The Defendant has purported to terminate the agreement for alleged breaches of its terms by the Plaintiff. The notice of termination was given on or about 15 November 2004 and on that day the Defendant re-took possession of those parts of the club premises which had been occupied by the Plaintiff. 4 The Plaintiff denies that it is in breach of the catering agreement and says that the purported termination is invalid. 5 The Plaintiff, as I have noted, approached the Court on 17 November 2004 and obtained an injunction which, in effect, let the Plaintiff back into occupation of the premises pursuant to an order limited in its effect up until and including today. 6 The first issue raised is whether an injunction should be continued, having regard to what the Defendant says is the unsatisfactory financial position of the Plaintiff. The Defendant says that there is a serious doubt whether the usual undertaking as to damages, if given by the Plaintiff, would be worth anything at all. 7 The second issue is whether, on the evidence adduced by the Plaintiff and in the light of the terms of the catering agreement, there is a serious question to be tried as to whether or not there has been an invalid termination of the catering agreement, as the Plaintiff asserts. 8 The third issue is whether, in any event, damages would be an adequate remedy for the Plaintiff if an injunction were refused. 9 I will deal with each of those issues in turn. They are helpfully covered by Mr Inatey's informative and full written submissions. 10 As to the first issue, that is, whether there is sufficient doubt about the financial ability of the Plaintiff to meet an undertaking as to damages such as to warrant refusal of an injunction, I should say, firstly, that the evidence as to the Plaintiff's position is very meagre. It consists only of this: that the Plaintiff has been running the catering business in the Defendant's premises since 2002, that the catering business is the sole source of income for the Plaintiff, and that the Plaintiff has borrowed $350,000 from a third party lender and has granted a fixed and floating charge as security for that loan. 11 There is no evidence which suggests that the Plaintiff is in default of the terms of its borrowing. There is no evidence which suggests that the Plaintiff is in any financial difficulty. There is no evidence generally as to the Plaintiff's assets and liabilities. The mere fact that the Plaintiff has borrowed a substantial sum from a third party and that the Plaintiff's sole source of income is the subject business does not, in itself, lead to a conclusion that the Plaintiff has no ability to meet any substantial award of damages which may be made against it pursuant to the usual undertaking. 12 However, in the present case, as a condition of granting the interlocutory injunction on 17 November 2004, her Honour required a personal undertaking to the Court as to damages to be given by the Plaintiff's director, Angelo Battaglia. That undertaking is proffered as well today in support of the continuation of the injunction. 13 There is no information about Mr Battaglia's personal position. However, it is not usual to require plaintiffs who are to give undertakings as to damages in support of an interlocutory injunction to prove, as it were, in their case in chief their full financial position to demonstrate an ability to meet such award of damages pursuant to the undertaking as may ultimately eventuate. Defendants resisting an application for such injunction sometimes bring forward doubts about the plaintiffs' ability to honour such an undertaking. If there be any doubts, then the question of the plaintiffs' ability to honour such an undertaking is a material factor to be taken into account. It may not always be decisive, however. Where a plaintiff's inability to demonstrate financial ability to honour an undertaking as to damages can be sheeted home to what is alleged to be the wrongful conduct of the defendant, that inability is often disregarded and either an undertaking may be dispensed with entirely or it may be accepted by the Court, even though there are reservations about the plaintiff's ability to meet it fully. 14 In the present case, bearing in mind that not only the Plaintiff but the Plaintiff's director, Mr Battaglia, will be required to give an undertaking as to damages, I do not think that there is sufficient ground demonstrated by the Defendant to refuse an injunction on the ground that the undertakings as to damages proffered are likely to be worthless. 15 I turn now to the second point, whether there is a serious question to be tried. The Defendant alleges that the Plaintiff has committed a breach of clause 3.7 of the catering agreement which is to the following effect: "The caterer will run the canteen located on land during the club's sailing activities." 16 The Plaintiff concedes that it has not operated the canteen within the club's premises for a considerable period of time. However, the Plaintiff says that it is justified in doing so because performance of its obligation under clause 3.7 is predicated upon performance by the Defendant of the Defendant's obligation in Clause 7.4. Under that clause the Defendant covenants that it will not permit food to be supplied on the club premises by the Defendant or by anyone else other than the Plaintiff. There is an exception to that restriction, but the exception is confined to the operation of a coffee shop, provided that the coffee shop does not sell certain items of food and drink. Those items of food and drink are restricted apparently because items of that character are to be sold within the canteen operated by the Plaintiff. That, at least, is the contention which the Plaintiff has raised consistently in correspondence passing between the parties and their solicitors. 17 It seems to me that there is a serious question to be tried as to whether performance of the obligations of the Plaintiff under clause 3.7 is in any way conditioned upon the performance by the Defendant of its obligations under Clause 7.4 or else whether there is an implied term that the Defendant cannot insist upon performance by the Plaintiff of clause 3.7 if the very basis of that clause, which is provided in the Defendant's covenant under 7.4(b), is not complied with by the Defendant. There may also be recourse to the implied duty of good faith on the part of a party to a contract. I am satisfied that there are arguments available to the Plaintiff to counter the allegation by the Defendant that there has been a breach by the Plaintiff of clause 3.7 such as to warrant termination of the catering agreement. 18 The second alleged breach of the catering agreement by the Plaintiff is a breach of clause 3.14. Under that clause the Plaintiff must ensure during the term of the agreement that there is a restaurant open during certain hours. The Plaintiff must operate an a la carte restaurant from the restaurant portion of those premises for seven days and nights a week during the term. 19 The Defendant alleges that the Plaintiff has failed to comply with this covenant. The Plaintiff alleges that it has complied with the covenant. There is clearly a dispute as to fact which cannot be resolved in an interlocutory application of this character. It seems to me that, having regard at least to the evidence which the Plaintiff has put forward in support of its contention, there is a serious question to be tried as to that issue. 20 Accordingly, I am of the view that overall there is are serious questions to be tried as to whether or not the termination by the Defendant of the subject agreement was a valid termination. I do not think that there is much point in spending any time, as the Defendant urges, in analysing the differences, if there are any, between the classifications of "serious question to be tried", "strong prima facie case", and similar formulations of the test required to found the first limb of consideration as to whether an injunction should go. They amount to much the same thing, as the Courts apply them in practice. 21 The third question is whether damages are an adequate remedy if the injunction is refused. Mr Inatey relies upon a statement by Lindley LJ in London & Blackwall Railway Company v Cross (1885) 31 ChD 354, at 369. His Lordship said: "The very first principle of injunction law is that, prima facie, you do not obtain injunctions to restrain actionable wrongs for which damages are the proper remedy." 22 What alleged wrongs are amenable to an award of damages solely and what are better remedied by prevention of loss through injunction has been the subject of some change in judicial thinking since 1886. It is now common for injunctions to be granted on an interlocutory basis to preserve the status quo in circumstances which, a hundred years ago, would have led to refusal of such an injunction on the ground that damages were an adequate remedy. 23 However, I do not found my decision in this case on any perceived change in the law. In my opinion, the facts of this case demonstrate that, on an interlocutory basis at least, damages should not be regarded as an adequate remedy if an injunction were to be refused. I say this because the Plaintiff was, until ejected a short time ago, carrying on an operating business within the premises. It is a business which employs a number of staff. They no doubt depend, at least in part, if not in whole, for their income on the continued operation of the Plaintiff's business. The Plaintiff's sole source of income is that business. The Plaintiff has also given evidence that it is endeavouring to sell the business as a going concern. Under the catering agreement, the Plaintiff has a right to sell the business as a going concern to a caterer approved by the Club, which approval shall not be unreasonably withheld, provided that the Defendant receives a percentage of the purchase price. It seems, therefore, that the agreement itself contemplates a situation in which the Plaintiff can take advantage of the worth of the business as a going concern to sell it for the Plaintiff's own profit. 24 It seems to me that if the business is destroyed as a going concern by the wrongful termination of the catering agreement and the ejection of the Plaintiff, the Plaintiff will be left with nothing. The Plaintiff's quantification of damages in those circumstances will be difficult. Loss of profits, particularly for a business to be conducted three years into the future, is a matter notoriously difficult to calculate. 25 I do not think that in all of these circumstances an interlocutory injunction should be refused on the basis that the Plaintiff should be left to its remedy in damages. 26 Mr Inatey submits that the Court should refuse the injunction because to grant it would require the Court to supervise a continuing relationship between hostile parties. That consideration is relevant only when relief is sought by way of final injunction. The Court will refuse to grant an injunction on a final basis if the grant of the injunction would require continuing supervision by the Court. The same consideration does not usually apply when the application is for an interlocutory injunction simply to reserve the status quo pending final determination of the proceedings. 27 Finally, I should add that Mr Inatey says that, as a matter of discretion, the injunction should be refused because to continue it will force upon the parties the continuation of a hostile relationship when it is clear that the parties have lost mutual trust and confidence in each other. 28 I do not accept this submission. I do not think that this relationship is one which depends upon personal trust and mutual confidence. It is a commercial relationship. It is not very much different from the relationship that exists between a lessor and a lessee who conducts in the leased premises a business in which the lessor has no direct financial interest. 29 The relationship in this case might be attended with personal animosity between the people who operate the Defendant's club and those who operate the Plaintiff's restaurant business, but that personal animosity does not, or should not at least in the short term, impede the ability of the Defendant to conduct its club operations as it seeks to do and the ability of the Plaintiff to conduct its restaurant business as it seeks to do. In my opinion, this is not the sort of personal relationship which depends upon trust and confidence to such a degree as to justify the refusal of an injunction on an interlocutory basis. 30 For those reasons, I propose to continue the injunction granted by her Honour on 17 November 2004 upon terms that both the Plaintiff and the Plaintiff's director, Angelo Battaglia, give to the Court the usual undertaking as to damages. I note that the undertakings are given by Mr Vincent on behalf of his clients. 31 I order that the costs of the motion, including the costs of 17 November, will be paid by the Defendant. ~ oOo ~