Supreme Court New South Wales Medium Neutral Citation: Can-Aus Fitness Pty Limited v Bobo Nominees Pty Limited [2012] NSWSC 228 Hearing dates: 12 March 2012 Decision date: 12 March 2012 Jurisdiction: Equity Division - Duty List Before: White J Decision: Order that the plaintiff's claim for interlocutory relief in paragraph 5 of the summons be dismissed. Catchwords: PRACTICE AND PROCEDURE - interlocutory issues - claim for interlocutory relief -whether serious question to be tried - predominant consideration as to where the balance of convenience lies - where greater risk of injustice - balance of convenience does not favour grant of interlocutory relief - absence of an adequate undertaking as to damages CONTRACT - intention of parties - nature of document - question as to whether parties bound by Heads of Agreement Cases Cited: Picwoods Pty Limited v Panagopoulos [2004] NSWSC 978 Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 Category: Interlocutory applications Parties: Can-Aus Fitness Pty Limited (Plaintiff) Bobo Nominees Pty Limited (Defendant) Representation: V R Gray (Plaintiff) D Robinson SC (Defendant) McCoy Grove & Atkinson (Plaintiff) Robert Napoli & Co (Defendant) File Number(s): 2012/72287 Judgment 1HIS HONOUR : By its summons filed on 5 March 2012 the plaintiff seeks an order for specific performance of an agreement said to be contained in a document entitled " Heads Of Agreement " dated 31 October 2011. The plaintiff says that it was agreed that it would take a lease of premises in Bridge Road, Hornsby for use as a health club. The term of the lease was five years with a five-year option for renewal. The plaintiff says the lease was to commence upon its obtaining DA approval from the local council. It thereafter incurred expenses in obtaining development approval. On 28 February 2012 it was told by a Mr Corneliu Plaiasu that the lessor had a potential buyer for the premises who wanted vacant possession. 2No lease in registrable form had been signed, although one was submitted by the defendant's solicitor under cover of letter dated 31 January 2012. That document, with amendments, was returned by the plaintiff's solicitor on 28 February 2012 after the conversation referred to above. 3The issues for final hearing would be whether the Heads of Agreement signed for both parties contained all the essential terms of an agreement for lease, and if so, whether the parties intended to be immediately bound by the Heads of Agreement, albeit that they intended that a later more formal agreement in the form of a registrable lease would be entered into that would contain a fuller expression of the terms agreed, and which might, by consent, contain additional terms. If it were found that the parties intended to be immediately bound by an agreement on terms made on 31 October 2011, but the Heads of Agreement document did not include all of the necessary terms for a binding agreement for lease, there may be a question whether an oral agreement which included all the necessary terms could be enforceable by reasons of acts of part performance. 4The present application is not a final hearing of the claim for specific performance. When the matter was opened, counsel for the plaintiff sought to have the application heard on that basis, contending that all of the evidence that would be required for a final hearing was on. However, counsel for the defendant made it plain that so far as the defendant was concerned, that there could be additional evidence to be relied on at a final hearing, other than that obtained for the purposes of today's hearing. As the proceedings only commenced a week ago, it was not possible to deal with the matter on a final basis today. 5On the claim for interlocutory relief the question is whether there is a serious question to be tried that the plaintiff is entitled to final relief, and if so, where the balance of convenience lies. The prima facie strength of the plaintiff's case is a relevant factor. But if I am satisfied there is a serious question to be tried, the predominant consideration is then where the balance of convenience lies. 6For the defendant it was contended that the Heads of Agreement does not contain all of the terms required for there to be a binding agreement for lease. In particular, it was said that the document does not specify a commencement date for the lease. The identification of the commencement date for a lease, as well as the duration of the term of lease, are essential terms of a contract for a lease for a fixed term. It is sufficient if the commencement date can be inferred from the instrument. (See Picwoods Pty Limited v Panagopoulos [2004] NSWSC 978 at [60] ff. and cases there cited.) 7The Heads of Agreement states: " Lease Commencement Date: 8 weeks to lodge D.A (starting Nov 2011)Subject to D.A approval ". 8I think there is substance in the plaintiff's argument that it can be inferred from those words that the parties intended that the lease would commence upon the lessee obtaining the DA approval, which it was required to seek within eight weeks. If that is found to be the position on a final hearing, then it would follow that all of the essential terms of a contract for lease were embodied in the document signed on behalf of the defendant. 9However, there will be a substantial question as to whether the parties intended to be immediately bound by the terms to which they then agreed. 10The defendant points to two matters in particular. The lease was for a term of five years with an option for renewal for a further five years. The Heads of Agreement document states: " Rental PA: $100,000 pa plus GST ". There is no provision in the document for rent to be adjusted either according to changes in market rental or by changes to the Consumer Price Index. It is said with some force that it is unlikely the parties would have intended to be bound by a term which, it is said, reflects only the rental to be paid for the first year of the lease. 11The other matter to which the defendant points is a paragraph of the Heads of Agreement stating: " Would you please provide this office with a deposit of one () month's gross rent (plus GST) payable to Camelle Real Estate Pty Ltd. The deposit will be held in our trust account pending lease completions [sic]. Should the lessee not proceed with the matter after lease preparation has commenced, the Lessee will be liable to pay 50% of the holding deposit. " 12The defendant says that by this clause the lessee was to have the right to elect not to proceed with " the matter ". The clause dealt with the consequences of such an election where the defendant had incurred expense in having a lease document prepared. It is said that it is unlikely that the parties intended to be bound by an agreement for lease where the lessee was to have the right to elect not to proceed. In response, counsel for the plaintiff says that although the paragraph quoted above does not expressly say so, it should be inferred that the lessee's election not to proceed would only be available if development approval was not obtained. 13I think there is a serious question to be tried that the parties did intend to be immediately bound by the document entitled Heads of Agreement, but I do not think that the plaintiff's prospects of success on that claim are so strong that they materially affect the assessment of where the balance of convenience lies. As this is a question which will need to be addressed at a final hearing, it is preferable that I not express any prima facie view beyond what I have just said. 14On the question of balance of convenience, the question is where the greater risk of injustice lies. Would it be a greater injustice to the defendant if an injunction were given requiring the plaintiff to be let into the premises, but it was held at a final hearing that there was no binding agreement for lease, or would there be a greater injustice to the plaintiff if the application for an injunction were refused, but the plaintiff succeeded at a final hearing? (See Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670.) 15The plaintiff's evidence is that it is essential that it be given immediate possession of the premises to commence fit-out and pre-sales of health club or gym memberships as a competitor has lodged an application for development approval of a gym approximately a kilometre away from the premises. The plaintiff's director deposes that the plaintiff has engaged tradesmen who are ready to commence work and is working towards an opening day on 16 April 2012. Any delay in commencing work and opening would be detrimental to its business. The plaintiff says that it has spent approximately $47,000 to date. 16The defendant points to two matters in particular going to the balance of convenience. First, there is a potential buyer in the wings who apparently wants vacant possession. That buyer may be deterred from proceeding if the plaintiff is let back into possession. On the other hand, the plaintiff has lodged a caveat in respect of the property claiming an interest under the alleged agreement for lease. One would think that the pendency of the plaintiff's claim for specific performance of the alleged agreement would itself be sufficient to deter such a prospective purchaser. If the pendency of the dispute was a deterrent, the letting of the plaintiff into possession on an interim basis pending final hearing should not materially change the risk a prospective purchaser who wants vacant possession would face. 17The second matter to which the defendant points is that if the plaintiff is let into possession, it will carry out a refitting of the premises. If the plaintiff ultimately fails, the work which the plaintiff does may have to be undone. However, the cost of that work should be readily quantifiable. 18The plaintiff offers the usual undertaking as to damages and I am told the directors of the plaintiff are likely to provide their personal undertakings as to damages. 19The quantification of damages would be more difficult if an injunction is refused, but the plaintiff succeeds, than they would be if the injunction is granted, but the plaintiff fails at a final hearing. This is because it would be well nigh impossible to identify what loss the plaintiff might have suffered by reason of being delayed in its taking possession of the premises. In my view, the balance of convenience is the decisive consideration. 20I bear in mind that the parties would be expected to do all that they can to have the matter determined expeditiously on a final basis. They both have an interest in the final determination of the plaintiff's claim. The hearing should be reasonably short, and whether or not an order for expedition is sought, one would expect that a hearing date should not be too long in the offing. 21For these reasons, I will grant the interlocutory relief in substance as sought in paragraph 5 of the summons until further order, upon the plaintiff and its directors giving the usual undertaking as to damages. [Counsel addressed.] 22Following the delivery of the above reasons, I sought confirmation from counsel for the plaintiff that the usual undertaking as to damages would be given, not only on behalf of the plaintiff, but by its directors. There is no evidence as to the financial position of the plaintiff. I think I can infer from its name that it was a company incorporated for the specific purpose of the business venture which it proposes. If the plaintiff fails at a final hearing, there would be a real question of its ability to satisfy the undertaking as to damages. 23The absence of an adequate undertaking as to damages is a powerful reason against the grant of interlocutory relief. Hence, the importance of the undertaking, that I understood, would be proffered by the directors of the plaintiff. However, I am now informed that the directors of the plaintiff would proffer an undertaking as to damages confined to two matters. First, the reimbursement of any expense incurred by the defendant in making good or reinstating the premises after work was done to them by the plaintiff, if it is to be found at a final hearing the plaintiff is not entitled to a lease. Secondly, as I understand it, payment of mesne profits for which the plaintiff would be liable if it is allowed back into possession, but fails at the final hearing. It was specifically said that the plaintiff's directors do not consider they could proffer an undertaking as to damages which might cover any loss which the defendant might establish if it could show that it lost a purchaser by reason of the grant of the interlocutory injunction. 24For the reasons I gave earlier, there would no doubt be considerable difficulties in the defendant's establishing that any such loss was due to the grant of the interlocutory injunction, as distinct from the pendency of these proceedings. But it is possible that the defendant might suffer such a loss and be able to establish that the loss is covered by the usual undertaking. 25Whilst it is understandable that the directors might not be prepared to put their personal assets on the line by themselves offering an unqualified undertaking as to damages, I think that an adequate undertaking as to damages is the necessary price that would have to be paid for the grant of interlocutory relief. The qualified nature of the undertakings proffered by the directors of the plaintiff do not persuade me that the undertakings as to damages proffered are adequate. 26In those circumstances, and notwithstanding the reasons I gave earlier as to why the balance of convenience favoured the grant of interlocutory relief, I now consider the balance of convenience does not favour the grant of interlocutory relief, that is, because of the absence of an adequate undertaking as to damages. 27For these reasons, I order that the plaintiff's claim for interlocutory relief in paragraph 5 of the summons be dismissed. No order is necessary extending the operation of the caveat as sought in paragraph 6 of the summons because there is no evidence of service of any lapsing notice. That caveat will continue unless and until a lapsing notice is duly served or until an order is sought by the defendant for the removal of the caveat. [Orders were then made in relation to the progress of the proceedings and 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. 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. Decision last updated: 15 March 2012