New South Wales Supreme Court CITATION : Symbion Medical Centre Operations Pty Ltd v Lawton Pty Ltd [2008] NSWSC 1043 HEARING DATE(S) : 3 September 2008 JURISDICTION : Equity Division Duty List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 3 September 2008 DECISION : The covenant did not impose a positive obligation to carry on business. To cease business was not to do "anything" on the premises. Declaration that notice of termination was void and order restoring plaintiff to possession. CATCHWORDS : REAL PROPERTY – LEASES – construction – where covenant provided that the lessee shall not do anything which in the lessor's reasonable opinion may cause damage to the lessor, its tenants or other persons in or using the premises or neighbouring properties – where lessee has ceased to operate business from the premises – whether covenant imposed a positive obligation to maintain business at all times – whether ceasing to operate business was doing "anything" that may cause damage to the lessor, etc – whether lessor could reasonably form opinion that cessation of business would cause such damage – whether lessee entitled to relief against forfeiture. - INTERLOCUTORY APPLICATIONS – application by lessee for interlocutory injunctions – where question posed by application is mainly a question of law – balance of convenience – where resolution of question of law largely disposes of question for main proceeding. CATEGORY : Principal judgment Australian Safeway Stores Pty Ltd v Toorak Village Development Pty Ltd [1974] VR 268 D'Arcy v Burelli Investments Pty Limited (1987) 8 NSWLR 317, 320 (Young J)]. EMS Quarries Pty Limited v Beaumont [2001] NSWSC 355 Jegon v Vivian (1871) LR6ChApp 742 Jervis v Tomkinson (1856) 1 H & N 195 CASES CITED : Kinsmen v Jackson (1880) 42 LT 80 Krstic v Brindley [2006] NSWSC 1414 Moteks Pty Ltd v Matthews Pastoral Co Pty Ltd [1998] NSWCA 287 Oblift Pty Ltd v Liquor Administration Board [2006] NSWSC 1279 Tsangaris v Gaymark Investments Pty Ltd (1986) 82 FLR 269 Turvern Pty Ltd v Jemwire Pty Ltd [2008] NSWSC 420 Wheatley v Westminster Brymbo Coal Company (1869) LR 9 Eq 538 PARTIES : Symbion Medical Centre Operations Pty Ltd (plaintiff) Lawton Pty Ltd (defendant) FILE NUMBER(S) : SC 4375/08 COUNSEL : Mr R R I Harper SC w Mr M R Pesman (plaintiff) Mr T A Alexis SC w Ms Z Steggall OAM (defendant) SOLICITORS : Massey Bailey Solicitors (plaintiff) Rosier Partners Lawyers (defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST BRERETON J Wednesday 3 September 2008 4375/08 Symbion Medical Centre Operations Pty Ltd v Lawton Pty Ltd JUDGMENT (ex tempore) 1 HIS HONOUR: By registered lease AD858617S the defendant Lawton Pty Limited ("Lawton") leased to the plaintiff Symbion Medical Centre Operations Pty Limited ("Symbion") Suite 16 on the ground floor of a building known as the Barwell Centre at Castle Hill, for a term of five years, commencing on 1 October 2006 and terminating on 3 September 2011, with two options to renew each of a further five years. In or about March 2008, Symbion was the subject of a hostile takeover and the shares in it were acquired by Primary Health Centre Care Limited ("Primary"). Primary thereafter undertook a review of the operations of the medical centres which it operated and those which Symbion operated. Primary already occupied a nearby medical centre in Castle Hill, and some time prior to 25 April this year determined to close the Barwell Centre health practice which had been operated by Symbion from the demised premises. By 25 April, with the exception of a dentist who continued to operate from the Barwell Centre, the doctors had ceased to provide medical services from the Barwell Centre, many relocating to the nearby Primary Centre and others going elsewhere. Symbion has, at least from time to time, maintained some presence in the demised premises, but has not conducted a general medical practice from it since prior to 25 April. The furniture and the medical files have been removed, and there does not appear to be any tenable basis for suggesting that a general medical practice is still conducted there. 2 Although there had been earlier notices to remedy breaches served between 25 April and early August 2008, it suffices for the purpose of this application to record that on 5 August 2008 Lawton served on Symbion a Notice of Breach of Convenant under (NSW) Conveyancing Act 1919, s 129, which referred to the Lease (albeit by an incorrect identifying number), and specifically to a covenant in clause 7(b) said to require the Lessee not to: Use or permit or suffer to be used, the Leased Premises in any noisy, noxious, immoral or offensive manner or do on the Leased Premises or the Centre anything which in the Lessor's reasonable opinion may be or become a nuisance hazard disturbance or cause damage to the Lessor, its tenants or other persons in or using the Centre or neighbouring properties. 3 The Notice then alleged that on or about 25 April 2008, in breach of that covenant and without notice or explanation to the Lessor, the Lessee abandoned the leased premises or otherwise vacated, ceased to occupy or use them as a general practitioner centre, and has since ceased to operate any business on the leased premises but has left them vacant. The Notice required the Lessee to remedy the breach within 14 days. 4 After some correspondence – in which the Lessee denied that it was in breach of clause 7(b) of the Lease – the Lessor served notice of termination on 22 August 2008, and retook possession of the premises that same day. 5 On the same day, Symbion approached the Court on an application for an abridgement of time for service. Directions were made for the exchange of affidavit evidence, and an interlocutory regime – which protected the position in the interim of the dentist, and prohibited Lawton from creating rights in third parties but did not restore Symbion to possession – was agreed. Now before the Court is Symbion's application for interlocutory injunctions, as follows: 3. Until further order of the Court and upon the usual undertaking for damages by the Plaintiff: (a) The defendant, its servants and agents, be restrained from treating as valid a purported Notice of Breach of Covenant dated 5 August 2008 in relation to lease AD80862 in respect of the premises described in the lease AD858617S dated 28 November 2007 (the Lease) between the Plaintiff and the Defendant of the premises, being part of lot 115 in deposited plan 631759 being Suite 16 on the Ground Floor in the Barwell Centre at 7-9 Barwell Avenue, Castle Hill and comprised in folio 14/LF 311 known as the Barwell Family Centre ("the premises"); (b) The defendant, its servants and agents, be restrained from treating as valid a purported Notice of Termination dated 22 August 2008 in relation to Lease AD80862 in respect of the premises. (c) The defendant, its servants and agents, be restrained from interfering in any way, including denying the plaintiff, its servants and agents access, with the plaintiff's use and occupation of the premises." 6 The Lease contains the following relevant definitions: Permitted Use: is a general practitioner medical centre including pathology and any allied medical and related use but excluding diagnostic imaging and pharmacy uses. 7 Clause 7 of the Lease, entitled "Use", relevantly provides as follows: The Lessee shall not: (a) use or permit or suffer to be used the Leased Premises other than for the permitted use; (b) use or permit or suffer to be used, the Leased Premises in any noisy, noxious, immoral or offensive manner or do on the Leased Premises or the Centre anything which in the Lessor's reasonable opinion may be or become a nuisance hazard disturbance or cause damage to the Lessor, its tenants or other persons in or using the Centre or neighbouring properties. 8 It is on clause 7(b) that Lawton relied in its Notice to Remedy, and subsequently for termination. 9 On an application such as the present for an interlocutory injunction the question is whether there is a sufficiently seriously arguable case for a final injunction that, having regard to the balance of convenience, the granting of interlocutory relief is warranted. The dual elements of a seriously arguable claim for a final injunction and the balance of convenience are interrelated, in that the stronger the case on the claim for final relief the less will be required to tilt the balance of convenience, and similarly where the balance of convenience is firmly in favour of interlocutory relief, then a less strongly arguable case than otherwise might be required will suffice to justify an interlocutory injunction. 10 Where, in an interlocutory application for an injunction, a question of law arises, the prevailing view is that that question of law should be decided on the interlocutory application, unless the Judge considers that there are good reasons for not doing so – usually because there has been insufficient time to research the question, or that the question might be affected by the facts [D'Arcy v Burelli Investments Pty Limited (1987) 8 NSWLR 317, 320 (Young J)]. On this application, one of the important issues at least, which is potentially decisive, is a question of law; it seems to me possible to decide that question on this application. 11 Symbion founds its claim for final relief on three alternative bases. The first is essentially a question of law – namely, that assuming for the same sake of argument that it has ceased forever to conduct a general medical practice from the premises, that could not be a breach of clause 7(b) on its proper construction. The second is a factual issue, namely, that as a matter of fact Symbion has not ceased to carry on a general medical practice, nor done anything else such as to found a reasonable opinion on the part of Lawton that it would cause damage to the Lessor or tenants of the centre. The third alternative contention is that Symbion would in any event be entitled to relief against forfeiture. 12 As to the first of those contentions, I have already set out the terms of clause 7(b). The fundamental question for present purposes is whether (to take the words from the s 129 Notice of 5 August 2008) – assuming that the Lessee has "abandoned the leased premises or otherwise vacated, ceased to occupy or use them as a general practitioner centre and has since failed to operate any business on the leased premises and left them vacant" – it can be said that the Lessee, in contravention of clause 7(b), has done on the leased premises or the Centre anything which in the Lessor's reasonable opinion may cause damage to the Lessor, its tenants or other persons in or using the Centre or neighbouring properties. 13 Mr Harper SC, for the Lessee, submits that clause 7(b) is a prohibition on certain uses of the premises, or on doing positive acts on the premises or the Centre, but does not impose a positive obligation to maintain the business. He submits that it is not contravened by the Lessee ceasing to carry on business, even if as a result of the cessation of the business some damage is indirectly caused to the Lessor, tenants or other persons. Mr Alexis SC, for the Lessor, submits that the concept of "doing anything" in clause 7(b) extends, in effect, to permitting nothing to be done on the premises and their not to be used at all. 14 The question is illuminated by a number of cases. In Australian Safeway Stores Pty Ltd v Toorak Village Development Pty Ltd [1974] VR 268 the lease of premises used for a supermarket contained a covenant by the lessees: Not without the consent in writing of the Lessor to use the demised premises for any other purpose than the purpose stated in the first Schedule hereto. The Schedule stated: The purpose for which the demised premises are to be used is for a supermarket business of the type customarily operated from time to time by the Lessee in its other stores of a similar size and type in the Melbourne metropolitan area. 15 It is well enough known that Australian Safeway Stores conducts very large supermarkets; it is likely that it was an anchor tenant. After unsuccessful negotiations by Safeway for the termination of the lease, it opened a new supermarket business a short distance away, and ceased actively to carry on business in the leased premises, but used them for no other purpose. The Supreme Court of Victoria held that Safeway's conduct did not breach the covenant nor contribute a repudiation of the lease. In particular, it was not a breach of the covenant not to use the premises for any propose other than a supermarket business. 16 In Tsangaris v Gaymark Investments Pty Ltd (1986) 82 FLR 269, a lease contained a covenant not to use the demised premises for any purpose other than an authorised purpose – namely, supermarket and storage – and a further covenant that the lessee would conduct its business on the demised premises in an orderly and a respectable manner. Maurice J in the Federal Court of Australia held that imposed no positive obligation on the lessee to conduct a business. 17 The distinction can be seen when those cases are compared to Moteks Pty Ltd v Matthews Pastoral Co Pty Ltd [1998] NSWCA 287, where there was a covenant: To carry on in and upon the demised premises the business of a motel and licensed restaurant and to keep open and use the premises for that purpose at all times during the time of this lease ... 18 That covenant imposed a positive obligation to use the premises for the stipulated purpose, and was breached by the lessee when it opened the restaurant only on occasions when group bookings had been made. 19 In EMS Quarries Pty Limited v Beaumont [2001] NSWSC 355, Windeyer J examined those cases, and a number of cases in the context of mining or quarrying leases. His Honour referred to Jervis v Tomkinson (1856) 1 H & N 195, in which a lease of a rock salt mine contained a covenant by the lessee: During the conveyance of the term, to work the mine in a proper and workmanlike manner. 20 The Court of Exchequer held that in circumstances where there had been an influx of brine into the mine before the lease was executed that covenant imposed some obligation to do some work. But Windeyer J observed that the leading case was Wheatley v Westminster Brymbo Coal Company (1869) LR 9 Eq 538, which concerned a covenant that during the continuance of the term the lessees would: … work and carry on the said mines of coal and ironstone thereby demised, uninterruptedly, efficiently, and regularly (except in the event of strikes of workmen or other casualties), according to the usual or most approved practice adopted and used in the working of mines of coal and ironstone. 21 Vice-Chancellor Malins (at 553) said that, in a lease which obliged the lessees to pay a sleeping rent and to work the colliery efficiently, then provided that the sleeping rent was paid and there was nothing more than a covenant to work efficiently, that covenant meant no more than if the lessee did work, it must do efficiently and regularly in a workmanlike manner, but there was no obligation on him to work if he did not chose to do so being obliged only to pay the sleeping rent. Accordingly, there was no positive obligation to carry on the business. 22 In Jegon v Vivian (1871) LR 6 Ch App 742 a coal-mining lease contained a covenant by the lessee to work the mines in a proper and workmanlike manner and to deliver up at the end of the term the work seams and veins of coal in good repair and condition so that the coal works might be continued. Lord Hatherley LC rejected an argument that because the lessee covenanted that he would do the work in a workmanlike manner, he had covenanted to be always working. Again, the covenant imputed no obligation to carry on business. Windeyer J observed that that decision had not been followed by Lord Jessel in Kinsmen v Jackson (1880) 42 LT 80, but that that case was an interlocutory proceeding and involved a much stronger covenant. 23 In EMS Quarries itself, Windeyer J was concerned with a lessee's covenant "to work the said quarry in a proper and efficient manner according to the best and most approved method practised in similar undertakings...". His Honour held that it did not impose an obligation on the lessee to conduct an uneconomic enterprise, and that it did not require continuous operations. 24 Similar issues have also arisen in the context of hotel leases. On the one hand, in Krstic v Brindley [2006] NSWSC 1414, a covenant imposed a specific obligation on the lessee: … to use the best endeavours to maintain and extend the business of the Terminus Hotel, Temora and to preserve and improve the character thereof with the licensing authorities and the public and will properly and adequately equip and keep so equipped the premises and all partes thereof with furniture furnishings and plant of as high a standard as from time to time may be reasonably be required by the Lessor having regard to the nature of the trade at the commencement of this Lease and which may be reasonably be expected to be provided for by the premises … 25 Campbell J concluded that a proposal to transfer a poker machine entitlement away from the hotel would likely result in some loss of revenue to the hotel and in those circumstances was a breach of the covenant, which imposed a positive obligation to maintain and extend the business. 26 In Oblift Pty Ltd v Liquor Administration Board [2006] NSWSC 1279, a covenant imposed specific obligations on the lessee to manage and conduct the business, and to procure the same to be conducted in a proper and orderly manner. This was held to impose a specific obligation to operate the business. 27 On the other hand, in Turvern Pty Ltd v Jemwire Pty Ltd [2008] NSWSC 420, the relevant covenant was: At all times to manage and conduct the business in a proper business-like, efficient and orderly manner... 28 I concluded that that covenant did not prohibit the sale of three poker machine entitlements, as the realisation of the value of three poker machine entitlements was not inconsistent with the management of the business in an efficient and orderly manner. There was no separate obligation to conduct the business simpliciter. 29 This examination of the cases, albeit in slightly different fields, tends to show that where it is sought to impose on a tenant a positive obligation to maintain a business or actively use premises, clear words to that effect are required. 30 The object of clause 7(b) in my view is, as Mr Harper has submitted, to prevent or prohibit certain uses of the premises and to prevent or prohibit certain acts on the premises or the centre – that is, positive acts which may be a nuisance or which may cause damage. In my view, it does not impose a positive obligation to maintain the business. Similarly, a prohibition on doing "anything … which may … cause damage" is not a prohibition on doing. It does not seem to me that, by ceasing to conduct any business at all, the lessee can be said to be "doing anything which in the lessor's reasonable opinion may cause damage to the lessor …". 31 Accordingly, it seems to me that upon the proper construction of clause 7(b), assuming all factual matters in favour of Lawton, a basis for the s 129 Notice was not made out, and accordingly Lawton was not entitled to terminate the lease. 32 That relieves me of the necessity to decide the second and third issues. However, lest I be wrong on the first issue, I will simply indicate that I would not have found in Symbion's favour on either of those issues. If to cease to carry on business were to do something within clause 7(b), then it seems to me practically undisputable that the Lessor could reasonably form the opinion that such non-feasance (failing to carry on the practice of a general medical practice in premises proximate to a specialist medical centre and a pharmacy), would cause damage to tenants of the Lessor and ultimately to the Lessor. So far as relief against forfeiture is concerned, in circumstances where a plainly deliberate decision to cease to carry on the business had been made and announced to the public as such, and their appears slight prospect of such a business being re-established in the foreseeable future, even if there is an intention to endeavour to re-establish it, the Court would not as a matter of discretion compel the Lessor to accept that situation. 33 However, because the Plaintiff succeeds on the first issue, and because it is a question of law not dependent on any controversial facts, that means that analysis of the balance of convenience begins very strongly tilted in Symbion's favour. But for that factor, I would have thought that the balance of convenience was fairly finely balanced, although a significant factor would have been that, whereas if an injunction were wrongly granted Lawton's position would largely be protected by the continuing payment of rent and the undertaking as to damages, if an injunction were wrongly declined Symbion's leasehold interest could be forever destroyed by the potential creation of rights in third parties. But given the conclusion I have reached on the strength of Symbion's claims for final relief, the balance of convenience plainly favours the grant rather than the withholding of interlocutory relief. Accordingly, I will grant the interlocutory relief sought. 34 In those circumstances counsel for Lawton has indicated that, unless possession is required forthwith, the keys will be delivered to Symbion at 8:00am tomorrow morning at the premises. 35 The parties, if I may say so, have economically and sensibly agreed that the conclusions I have reached should be given effect as the final judgment in the proceedings, subject of course to any rights of appeal. 36 Accordingly I make declarations in accordance with paragraphs 2 and 3 of the Summons filed 22 August 2008. I make an order in terms of paragraph 7 of the Summons. I order that the defendant pay the plaintiff's costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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