Supreme Court New South Wales Medium Neutral Citation: Caird Seven Pty Ltd v Attia Pty Ltd [2016] NSWSC 1088 Hearing dates: 29 July 2016 Date of orders: 29 July 2016 Decision date: 09 August 2016 Jurisdiction: Equity - Commercial List Before: Emmett AJA Decision: 1. The Notice of Motion filed on 25 July 2016 be dismissed so far as concerns prayers 1 and 2 and be otherwise stood over for further directions on 9 September 2016. 2. The defendants pay the plaintiff's costs of that motion to date. 3. The plaintiff file and serve no later than 12 August 2016 any written submissions that it wishes to make in support of any different order for costs in respect of that motion. 4. The defendants file and serve any written submissions in response no later than 26 August 2016. 5. Leave be granted to the defendants to file a cross-claim in the proceedings no later than 2 September 2016. 6. The defendants pay the plaintiff's costs of the motion filed on 14 July on an indemnity basis. 7. The proceedings be listed for directions generally on 9 September 2016. Catchwords: PROCEDURE – application to vacate consent orders for specific performance of contract – whether order was made by consent – whether justice would be better served by vacating the order – whether prima facie case for breach of an essential term of contract of sale – whether there was a serious issue to be tried – whether there were other equitable factors to decline vacating the consent orders Legislation Cited: Australian Consumer Law (NSW), ss 18, 237 Cases Cited: JAG Investments Pty Limited v Strati [1981] 2 NSWLR 600 Category: Procedural and other rulings Parties: Caird Seven Pty Ltd (Plaintiff) Mr Mina Attia (First Defendant) Shopsmart Pharmacy Franchising Pty Ltd (Second Defendant) Representation: Counsel: Mr PD Herzfeld (Plaintiff) Mr RC Gration (Defendant) Solicitors: Meridian Lawyers (Plaintiff) Bransgroves Lawyers (First and Second Defendants) File Number(s): 2014/354640 Judgment 1. EMMETT AJA: These proceedings arose out of a contract for the sale of business (the Sale Contract) between the first defendant, Mr Mina Attia, as vendor, and the plaintiff, Caird Seven Pty Limited (Caird), as purchaser. The Sale Contract was dated 2 August 2013 and provided for the sale by Mr Attia to Caird of a retail pharmacy being conducted by him in Westfield Shopping Centre, Burwood (the Pharmacy Business) together with trading stock of the Pharmacy Business. At the same time, Caird entered into a franchise agreement with the second defendant, Shopsmart Pharmacy Franchising Pty Ltd (Shopsmart) in relation to the Pharmacy Business (the Franchise Agreement). The Pharmacy Business was conducted at premises in Westfield Shopping Centre, Burwood under a lease (the Lease) from PT Ltd (the Landlord) to Shopsmart for a term expiring on 27 November 2017. 2. The purchase price for the Pharmacy Business was $1,800,000, with a maximum sum for trading stock of $400,000, giving a total price payable of $2,200,000. The Sale Contract provided for completion on 31 August 2013. Relevantly for present purposes, cl 9.1.1 of the Sale Contract provided that it was an "essential provision" of the Sale Contract that the vendor must, between the contract date and completion, "maintain the goodwill of the [Pharmacy Business] and carry on the [Pharmacy Business] in a proper and business like way". 3. In due course, the Sale Contract was completed. However, Caird subsequently commenced proceedings in the Commercial List seeking a declaration that the Sale Contract had been validly rescinded or, alternatively, an order under s 237 of the Australian Consumer Law (NSW) rescinding the Sale Contract. Caird sought repayment of the purchase price of $1,800,000 together with the sum of $400,000 paid on account of trading stock. 4. In the proceedings, Caird alleged that Mr Attia provided to Mark Williams Management Pty Limited (the Valuer), for the purpose of obtaining a valuation of the Pharmacy Business, figures concerning the past trading history of the Pharmacy Business. The Valuer provided a report containing a valuation of the Pharmacy Business (the Report) and a copy of the Report was furnished to Caird. Caird alleged that Mr Attia represented to it that he had provided accurate figures concerning the past trading history of the Pharmacy Business or, alternatively, that the figures concerning the past trading history of the Pharmacy Business were as stated in the Report. 5. Caird alleged that those representations were false and that, but for the representations, it would not have entered into the Sale Contract or the Franchise Agreement. Caird also alleged that, at the time of making the representations, Mr Attia knew that they were false or was recklessly indifferent as to whether they were false and intended Caird to rely on them. Caird alleged that Mr Attia had engaged in conduct that was misleading or deceptive in contravention of s 18 of the Australian Consumer Law (NSW) and that it had suffered loss and damage by that conduct. It asserted that, in the circumstances, it had a right to rescind the Sale Contract and the Franchise Agreement and that, by letter dated 24 October 2014, it had elected to do rescind both. Mr Attia filed a response to Caird's allegations, in which he admitted that he had provided certain sales and profit figures for the 2012 and 2013 financial years to the Valuer and admitted that the actual sales and profit figures for the 2012 and 2013 financial years were lower than those that had been provided to the Valuer. He otherwise denied making false representations as to the accuracy of the figures. 6. Thereafter, the parties engaged in a mediation, which resulted in the execution by the parties of a Deed of Rescission Settlement and Release dated 31 July 2015 (the Rescission Deed). By the Rescission Deed the parties agreed, relevantly, as follows: 1. The Sale Contract and the Franchise Agreement would be rescinded; 2. The most equitable way to effect the rescission was for Caird to "revert" the Pharmacy Business to Mr Attia on the same terms and conditions pursuant to which Caird acquired it from Mr Attia, varied only so far as was needed to reflect the current circumstances; 3. They would undertake all actions on the same terms as the Sale Contract, save, relevantly, that: 1. Caird would be the vendor and Mr Attia would be the purchaser, 2. the completion date would be 17 August 2015, 3. the trading stock maximum sum would be $372,727.24, 4. the special condition relating to the lease of the premises where the Pharmacy Business was carried on would be taken to require the transfer of the Lease from Caird to Shopsmart. 1. On or before 17 August 2015 Mr Attia would pay to Caird $2,200,000 in reimbursement of the purchase price; 2. Subject to Mr Attia making that payment, Caird would immediately pay to Mr Attia $150,000 to compensate Mr Attia for the disposal by Caird of certain fixtures and fitting; 3. On completion of the arrangements described above (defined as "the Retransfer Contract"), including payment of the reimbursement of the purchase price by Mr Attia and the transfer of the lease, the rescission would have been effected and the Pharmacy Business would have reverted to Mr Attia; 4. Within 14 days after the completion of the Retransfer Contract, including payment of the reimbursement of the purchase price, the parties would apply for orders discontinuing the proceedings with no order as to costs; 5. Caird and Mr Attia would take all necessary steps and prepare all necessary documents to enable transfer of the Lease to Shopsmart. 1. Following alleged delay on the part of Mr Attia and Shopsmart in giving effect to the requirement of the Rescission Deed to take steps to enable transfer of the Lease to Shopsmart, Caird amended its Commercial List Statement on 4 September 2015 to claim an order that Mr Attia and Shopsmart forthwith specifically perform the Rescission Deed, including the Retransfer Contract. The delay concerned the assignment of the Lease from Caird to Shopsmart, as provided for in the Rescission Deed. On 11 December 2015, the proceedings were set down for hearing on 26 April 2016. On 15 March 2016, Hammerschlag J refused an application by the defendants to vacate the date for hearing. 2. It appears that, at some stage before 19 March 2016, an application was made to the Landlord for consent to the assignment of the Lease. On that day, Caird received a letter from Scentre Shopping Centre Management Pty Limited (Scentre), the manager of the Westfield Shopping Centre, Burwood. The letter said that consent to the proposed assignment of the Lease was not granted because the prospective assignee's application for consent did not contain sufficient information. The letter said that certain items were outstanding or incomplete, including a business plan. 3. On 29 March 2016, Bransgroves Lawyers (Bransgroves), who are acting for Shopsmart and Mr Attia, wrote to Meridian Lawyers (Meridian), who are acting for Caird. Bransgroves said that its client was collating the financial statements and letters of reference referred to in the letter from Scentre of 19 March 2016. Bransgroves said that, in respect of the business plan, their client was not in a position to prepare a plan of any meaning and value without financial and operational information from Caird. The letter said that the material in the possession of Bransgroves' client was out of date and therefore Caird was requested to provide certain information as a matter of urgency. 4. By letter of 30 March 2016, Meridian wrote to Bransgroves, in response to the letter of 29 March 2016, attaching the information requested by Bransgroves. The information included trading results for the Pharmacy Business for the following periods: * 1 July 2015 – 31 December 2015 * 1 July 2014 – 30 June 2015 * 1 July 2013 – 30 June 2014 * 1 July 2012 – 30 June 2013 The information also included a balance sheet for the Pharmacy Business as at 20 February 2016 and as at 30 June 2015 and profit and loss statements for the 2015 financial year and the year to date to 29 February 2016. Following receipt of that material, a business plan was prepared and submitted to Scentre. 1. The proceedings came before Hammerschlag J on 21 April 2016 for directions when the defendants contended that they had been unable to perform the Rescission Deed until Caird had provided the financial information requested in the letter of 29 March 2016. In effect, the defendants accepted that, having been provided with the information by the letter of 30 March 2016, they had no defence to a claim for specific performance of the Rescission Deed, apart from the requirement to obtain the consent of the Landlord to the assignment of the Lease. Accordingly, on that day, Hammerschlag J made orders as follows: "1. Subject to Westfield granting its consent to the assignment of the lease presently held by Caird, Mr Attia and Shopsmart are specifically to perform the Deed dated 31 July 2015. 2. Mr Attia and Shopsmart are to take all necessary steps and prepare all necessary documents to enable the transfer of the lease. 3. The parties have liberty to apply on three days' notice. 4. The hearing date of 26 April 2016 be retained for the purpose only of the Court considering the costs of the proceedings to date. 5. The balance of the proceedings be stood over to 22 July 2016." 1. The record shows that the orders were made by consent. However, there was a dispute between the parties as to whether the orders were truly by consent. In the course of argument on 22 July 2016 and 29 July 2016 and in their written submissions, Mr Attia and Shopsmart, through their counsel, asserted that they had not been given an opportunity to agree to or object to the orders made by Hammerschlag J, and that, despite what the court record states, the orders were not made by consent. It is clear from the transcript of the proceedings on 21 April 2016 that counsel for Mr Attia and Shopsmart did in fact have the opportunity to object either before or at any time after the orders were made. The fact that counsel did not object gives rise to the inference that he did not think there was anything that he could say or was entitled to say in opposition to the orders. It is clear from the context revealed by the transcript that the orders were in fact made by consent. 2. Having made those orders, Hammerschlag J indicated that, on 26 April 2016, the day fixed for the hearing of the proceedings, he would deal with the question of costs. On that day, his Honour made orders as to costs and also gave leave to the defendants to file an amended response in court. 3. On 17 May 2016, a representative of Scentre forwarded an email to Meridian stating that the Landlord had consented to the assignment of the Lease and would prepare transfer documentation accordingly. A copy of that email was sent by Meridian to Bransgroves. Thus, by that time, the condition of Order 1 made by Hammerschlag J was satisfied. 4. On 1 July 2016, the solicitors for the Landlord sent the foreshadowed documentation to Meridian and Bransgroves. The original documents were received by Meridian on 6 July 2016. On that day, Meridian forwarded the documents to Bransgroves after they had been executed by Caird. There was therefore no impediment to the completion of the Retransfer Contract as required by the Rescission Deed. 5. However, by letter of 14 July 2016 from Bransgroves to Meridian, Mr Attia and Shopsmart purported to terminate the Retransfer Contract on the basis that there had been a breach of an essential term of the Retransfer Contract. Bransgoves' letter relevantly said as follows: "Good will / proper and business like manner 13. The Pharmacy was making a profit when it was transferred to your client. Your letter of 8 April 2016 sets out the losses your client is suffering in operating the Pharmacy. 14. When it was operating as a Shopsmart Franchise your client failed to comply with the Franchise Agreement in a way which was detrimental to the Shopsmart name, and damaged the goodwill of the Pharmacy. For example, it did not: a. offer to its customers the required discounts and exclusive buys; b. distribute discount catalogues; and c. conform to the standard retail pricing required; d. permit an area manager to inspect the business; e. provide the quality of service expected of a Shopsmart Franchise due to a reduction in staff members / payroll; 15. These requirements are an important factor in building rapport and loyalty from customers. The conduct of your client is such that it will take our client significant time and cost to re-build the name of Shopsmart within the community and win back its customer base (if that is possible at all). As a result, the goodwill of not only the Pharmacy, but Shopsmart Franchises in general has been eroded. 16. Further, your client has now operated a non-compliant Shopsmart Franchise without passing on the required discounts and has, since establishing a Local Value Chemist, continued to erode any goodwill which may then have existed. 17. This is abundantly clear from the trading figures provided which indicate that non-prescription / general merchandise sales have dropped from $570,000 in the 2015 financial year, to $2,600 to date in the current year. Thus, whilst your client appears to continue to receive some business from the nearby medical centre, it has lost all other business. 18. We are instructed that this is as a result of: a. Loss of image as a successful discount pharmacy as a result of failure to provide discounted pricing; b. No longer being cheaper than other pharmacies; c. Deterioration of stock levels such that customer cannot purchase their desired products; and d. Reduction of staff and therefore diminution of service levels. 19. The goodwill of the company has deteriorated so far that it is irreparable. Consumers have seen it as a failed Shopsmart Franchise, and then as a failed Local Value Chemist. Simply returning the business to a Shopsmart Franchise will not re-establish the goodwill, or correct your client's failure to operate in a business like manner. 20. In addition, the turn over of the Pharmacy have plummeted beyond repair. It will require substantial injection of capital from our client to even begin to rectify turn over levels, which will rely heavily on its ability to re-establish the goodwill, which, as indicated above, is unlikely to be able to occur." The letter asserted that, in terminating the Rescission Deed, Mr Attia and Shopsmart had complied with their obligations "to specifically perform" the Rescission Deed. 1. On 14 July 2016, following receipt of the letter of that date, Caird filed a notice of motion seeking specific orders for the performance of the Rescission Deed. The motion was made returnable on 22 July 2016, when it came before me for hearing. After hearing argument from both parties, it became apparent that Mr Attia and Shopsmart sought to resist specific performance of the Rescission Deed on the basis that they had purported to terminate it by reason of the alleged breach by Caird of cl 9.1.1, as outlined in the letter of 14 July 2016. 2. Under the terms of the Rescission Deed, the parties agreed that they would undertake all actions on the same terms as the Sale Contract save for the matters briefly referred to above. Mr Attia and Shopsmart contended that, by that provision, cl 9.1.1 was incorporated, such that it was an essential provision of the Retransfer Contract, as evidenced by the Rescission Deed, that Caird, as vendor, would, between 31 July 2015 and completion of the Retransfer Contract, maintain the goodwill of the Pharmacy Business and carry on the Pharmacy Business in a proper and businesslike way. However, in the course of the argument on 22 July 2016, counsel for Mr Attia and Shopsmart accepted that it was not open to Mr Attia and Shopsmart to terminate the Deed of Rescission, without the leave of the Court, in circumstances where the Court had made an order for its specific performance. 3. After the making of a decree for specific performance of the contract, the plaintiff cannot determine the contract except with the approval or order of the court. However, it is well established that the contractual rights of the parties do not merge in a decree for specific performance. Nevertheless, the order of a court for specific performance is binding until the court that made it orders that it shall in effect be no longer binding, by discharging the contract in respect of which it was made. The rights that either of the parties has under a decree for specific performance cannot be taken from the party by an extra judicial act. While, an order for specific performance does not supersede the contractual rights and obligations of the parties, it subjects the future exercise of those rights and performance of those obligations to the control of the court. A vendor who seeks and gets specific performance is merely electing for a course that may or may not lead to implementation of the contract. What he elects for is not eternal and unconditional affirmation but a continuance of the contract under control of the court, which involves the power, in certain events, to terminate the contract. However, the power of the court is a discretionary one to be exercised on equitable principles according to the qualms of justice as between the parties. The court's judicial discretion is one that should be directed to considering whether, having regard to all the circumstances, justice would be better served by dealing with the matter in a particular way. [1] 4. Thus, the submissions made by counsel for Mr Attia and Shopsmart, in their written submissions and in the course of argument on 22 July 2016 and 29 July 2016, that all that was needed to be established for the consent order to be vacated, was that there was a prima facie case of breach by Caird of the Retransfer Contract, should not be accepted. I made it clear, during the hearing on 22 July 2016, that Mr Attia and Shopsmart needed to persuade me that there is good reason why the consent order should be set aside. Therefore, whilst establishing a prima facie case that there had been a breach was necessary, that would not, of itself, be sufficient. 5. In the course of the hearing on 22 July 2016, counsel for Mr Attia and Shopsmart foreshadowed that they would make an application for an order that the order made by Hammerschlag J on 21 April 2016 be vacated. It was accepted by the defendants that, if that order were not vacated, Mr Attia and Shopsmart would have no answer to the notice of motion seeking specific orders for the performance of the Rescission Deed. 6. At that stage, neither Caird nor Shopsmart and Mr Attia were in a position to deal with an application to vacate the orders for specific performance made on 21 April 2016. Accordingly, I made orders in terms of the prayers in the notice of motion of 14 July 2016, apart from variation of the dates on which particular steps were to be taken. I indicated, however, that I would vacate those orders if Mr Attia and Shopsmart succeeded in having the orders made by Hammerschlag J vacated. I therefore stood over the balance of the motion to 29 July 2016 and gave directions for Mr Attia and Shopsmart, if so advised, to file a notice of motion seeking the vacation of the orders for specific performance made on 21 April 2016 and the orders that I had then made. 7. In accordance with those directions, Mr Attia and Shopsmart filed a notice of motion on 25 July 2016 seeking an order that Orders 1 and 2 made by Justice Hammerschlag on 21 April 2016 be vacated and that Orders 1 to 4 made by me on 22 July 2016 be vacated. The motion also sought directions for further pleadings in order to bring before the Court the question of whether or not Mr Attia and Shopsmart were entitled to rescind the Rescission Deed by reason of breach of cl 9.1.1 of the Retransfer Contract. 8. The motion of 25 July 2016 came before me for hearing on 29 July 2016. After hearing evidence from both parties and considering both written and oral submissions, I made the following orders, thereby refusing to vacate the orders made by Hammerschlag J on 21 April 2016 and the orders made by me on 22 July 2016: 1. The Notice of Motion filed on 25 July 2016 be dismissed so far as concerns prayers 1 and 2 and be otherwise stood over for further directions on 9 September 2016. 2. The defendants pay the plaintiff's costs of that motion to date. 3. The plaintiff file and serve no later than 12 August 2016 any written submissions that it wishes to make in support of any different order for costs in respect of that motion. 4. The defendants file and serve any written submissions in response no later than 26 August 2016. 5. Leave be granted to the defendants to file a cross-claim in the proceedings no later than 2 September 2016. 6. The defendants pay the plaintiff's costs of the motion filed on 14 July on an indemnity basis. 7. The proceedings be listed for directions generally on 9 September 2016. 1. Since, by that time, it was 4.30 pm, I indicated to the parties that I would give formal reasons for making those orders as soon as possible, although I indicated in the course of argument the general basis of my reasons for reaching that conclusion. What follows are my reasons for refusing prayers 1 and 2 of the notice of motion of 25 July 2016. 2. It is clear that the material relied upon in making the assertions made in the letter of 14 July 2016, which purported to terminate the Retransfer Contract, was the material that had been provided to Bransgroves by Meridian in correspondence prior to 21 April 2016. That is to say, at the time when Mr Attia and Shopsmart consented to the orders made by Hammerschlag J on 21 April 2016, the material and information relied upon to terminate the Rescission Deed was available to Mr Attia and Shopsmart. However, at no time during the hearing before Hammerschlag J on 21 April 2016 and the subsequent hearing on costs on 26 April 2016, was a suggestion advanced on behalf of Shopsmart and Mr Attia that, in answer to the claim for specific performance, Mr Attia and Shopsmart would rely on an entitlement to rescind the Rescission Deed and that that was the basis upon which specific performance ought not to be ordered. That being so, I would not vacate the orders made, by consent, for specific performance of the Rescission Deed, on the grounds asserted in the letter of 14 July 2016. Mr Attia and Shopsmart are bound by their conduct in consenting to the orders. They cannot now seek to raise, as a basis for setting aside the orders made by consent, material that was available when the consent was given. In any case, at the hearing on 29 July 2016, those grounds were not pressed by Mr Attia and Shopsmart. 3. However, on the hearing of the motion of 25 July 2016, Shopsmart and Mr Attia contended that there was sufficient evidence before the Court to conclude that there was at least a serious issue to be tried as to whether Caird acted in breach of cl 9.1.1 after the making of the consent orders of 21 April 2016. The evidence consisted of photographs of the shop premises where the Pharmacy Business is conducted, observations that staffing levels had decreased and promotional marketing had been limited to leaflet distribution, a comparison of the turnover figures and profits for the second quarter of 2016 with the turnover figures and profits for the second quarter in 2015 and a comparison between the figures for the second quarter in 2016 and the figures for the first quarter in 2016, and affidavit evidence of Mr Attia's sister in law, Ms Mona Giurguis. 4. Shopsmart and Mr Attia asserted that that evidence indicated that, during the period after 21 April 2016, the goodwill of the Pharmacy Business was not being maintained and that the Pharmacy Business had not been carried on in a proper and businesslike way. They contended, in effect, that an inference should be drawn that, once the order for specific performance had been made, Caird had simply decided to "drop the ball" in running the Pharmacy Business. I am not persuaded by the evidence that there was a serious question to be tried as to whether, after 21 April 2016, the goodwill of the Pharmacy Business has not been maintained or that the Pharmacy Business was not being carried on in a proper and businesslike way. 5. The photographs in evidence indicated some empty shelves. However, there was no evidence at all at to the extent of shelving in the premises. Indeed, some of the photographs also showed well-stocked shelves. The photographs were quite equivocal. 6. The defendants sought to rely on an affidavit sworn by Mr Geoffrey Brooks, who was said to be able to give evidence of usual or common trends in sales in a retail pharmacy business. The affidavit was served well outside the time that I directed in order to have the prepared application to vacate the 21 April 2016 orders heard as a matter of urgency. I therefore did not permit the affidavit to be read unless the hearing was vacated at the cost of the defendants. In the circumstances, the defendants did not press the affidavit. 7. A matter of concern in relation to the comparison of the figures of turnover and profit since April 2016 to which I have referred was that they appear to have been obtained by reason of a breach of confidence on the part of Shopsmart. The Pharmacy Business was at one stage conducted under the Franchise Agreement. While the Franchise Agreement was in operation Shopsmart had access to the financial records of Caird. When the Franchise Agreement came to an end, the right to access was terminated. Notwithstanding that termination, Mr Attia admitted to accessing these financial records. According to the affidavit of the director of Caird, these records were protected by a password login and accessed without Caird's authority. This allegation was not denied by Shopsmart and Mr Attia in the course of argument. 8. In any case, the comparisons of figures as well as the observations about staff and promotional materials were also quite equivocal. Caird conceded that the manner of operating the Pharmacy Business had been changed to some extent. That of itself, however, would not amount to failure to maintain the goodwill or a failure to conduct the Pharmacy Business in a proper and businesslike way. I am by no means persuaded that any inference could be drawn from those comparisons and observations that would lead to a prima facie conclusion that there may have been a breach of cl 9.1.1. 9. Ms Giurguis said in her affidavit that she no longer goes to the Pharmacy Business and had not done so for several months. She said she stopped going there for several reasons as follows: * The shelves were empty; * She would ask for products in the catalogue and was told that they were not in stock; * The prices increased and were a lot higher than what she was used to and it was not worth travelling there anymore; * The staff are inexperienced and unhelpful; and * The staff did not know the products, were unprofessional and would often pass her on to another staff member who was also not very helpful. No more specific evidence was adduced beyond those bare assertions. Ms Giurguis was not available for cross-examination, notwithstanding that notice was given that she was require to attend for cross examination. No evidence was given that she could not have been present for cross-examination. In the circumstances, I gave no weight whatsoever to the affidavit. 1. Further, it is to the discredit of Mr Attia and Shopsmart that Ms Giurguis was put forward and relied upon in their written submissions as a disinterested disgruntled former customer of the Pharmacy Business. The defendants did not disclose that Ms Giurguis is Mr Attia's sister in law. That fact emerged only when documents were tendered by Caird disclosing the relationship. 2. I accept that, between 22 July and 29 July 2016, not a great deal of time was available for gathering evidence. However, the complaint by Shopsmart and Mr Attia is that the breach occurred after 21 April 2016. Counsel for Shopsmart and Mr Attia conceded in the course of argument on 22 July 2016 that the possibility of a breach of cl 9.1.1 "was certainly in the back of the defendant's mind" at the time of 21 April 2016 and in the course of argument on 29 July 2016, counsel for Shopsmart and Mr Attia noted that "Mr Attia's frankly admitted he had some concerns [and] had started to worry" at that point about such a breach. Mr Attia therefore had ample opportunity to adduce evidence demonstrating that there was a downturn in the business such that an inference could be drawn that there was a breach of cl 9.1.1 since April 2016. 3. I was not persuaded that there is a prima facie case that there has been a breach of cl 9.1.1. Accordingly, I was not satisfied that there was material before me that indicates that justice required the vacation of the orders made by Hammerschlag J. I therefore dismissed the motion of 25 July 2016 so far as concerns prayers 1 and 2. Shopsmart and Mr Attia should pay Caird's costs of the notice of motion of 25 July 2016 on the ordinary basis. I will hear any further argument, if the parties wish, on the payment of costs on a different basis. 4. I also ordered that Caird's costs of the motion of 14 July 2016 be paid on the indemnity basis. Caird was compelled to seek specific orders for performance of the Rescission Deed in circumstances where an order for specific performance was already on foot yet Mr Attia and Shopsmart purported to rescind the Rescission Deed, thereby indicating that they did not intend to perform under the orders made by Hammerschlag J. Caird's motion of 14 July 2016 should not have been necessary. It was not until the hearing of the motion that the defendants foreshadowed their intention to seek vacation of the orders of 21 April 2016. Until that occurred, there was no possible basis for refusing to perform the Rescission Deed. 5. I indicated in the course of the hearing that, although I would not make orders in terms of prayers 1 and 2 of the motion of 25 July 2016, I would do so on the basis that the refusal of the order to vacate the order for specific performance would be without prejudice to the right of Shopsmart and Mr Attia to claim damages for breach of cl 9.1.1 if such a breach can be established. Accordingly, I gave leave to Shopsmart and Mr Attia, if so advised, to file and serve a cross-claim in the proceedings no later than 2 September 2016. I directed that the proceedings be listed for further directions in the Commercial List on 9 September 2016. 6. Counsel for Caird relied on two further matters as a reason why the Court should, in the exercise of its discretion, decline to vacate the orders made by Hammerschlag J. The first concerned the history of the proceedings. The second was an assertion that the defendants did not come to the Court with clean hands. 7. Caird contends that following the entry into the Rescission Deed, there were many further delays by the defendants in the performance of the Rescission Deed. It asserts that the defendants failed to assist in attempts to obtain the consent of the Landlord to the assignment of the Lease. That, it says, resulted in the need to commence the proceedings for orders for specific performance of the Rescission Deed. It says that, notwithstanding the claim for specific performance, there were other further delays by the defendants. I have included in the Schedule to these reasons the contentions advanced by Caird as to those delays. That history gives rise to an inference that Mr Attia and Shopsmart are willing to take all steps available to avoid performance of the Rescission Deed. 8. In relation to the defence of lack of clean hands, Caird relies on several matters. The first is the failure to disclose at the hearing before Hammerschlag J on 21 April 2016 and at the further hearing on the question of costs on 26 April 2016 that a contention would or might be advanced that the Rescission Deed should not be enforced because of breach on the part of Caird. Notwithstanding the failure to indicate any such possibility to the Court, the purported termination of the Rescission Deed on 14 July 2016 was based on information that was available to the defendants prior to the hearing before Hammerschlag J on 21 April 2016. The second matter relied on was the failure to disclose the relationship between Mr Attia and Ms Mona Guiguis, his sister in law. I have already referred to that matter. A third matter is the manner in which Shopsmart obtained Caird's confidential financial information without its authority, to which I have also already referred. 9. It is not necessary for Caird to rely on the alleged delays or lack of clean hands. I have indicated why I was not persuaded that the material presently before the Court gives rise to a prima facie case that there was a breach of cl 9.1.1 of the Retransfer Contract after 21 April 2016. That is to say, I was not satisfied that there is a serious question to be tried as to that matter. Nevertheless, the conduct of the defendants gives rise to considerable disquiet as to whether, in any event, the Court would intervene to grant relief by way of the indulgence of setting aside final orders made by consent. Schedule 1: Allegations made by Caird of Delay by Mr Attia and Shopsmart (a) Negotiation of the Settlement Deed 1. The terms of settlement agreed at the mediation on 20 April 2015 contemplated finalisation of a more detailed settlement deed by 24 April 2015. 2. The solicitors for Caird Seven provided a draft of the deed to the then solicitors for the defendants on 23 April 2015. For the following three months, the solicitors for Caird Seven repeatedly sought the defendants' comments on the draft without any real responses. As part of these communications, on 13 July 2015, the solicitors for Caird Seven provided to the solicitors for the defendants a deal of financial information concerning the pharmacy. It was not until 23 July 2015 that there was any real negotiation of the deed. The Settlement Deed was finally signed on 31 July 2015. (b) The Pharmacy Council 1. While it was not a condition of the Settlement Deed, consent of the Pharmacy Council, at a monthly meeting, was required to transfer authority to operate the pharmacy from Caird Seven to the defendants. On 27 July 2015, the solicitors for Caird Seven provided to the solicitors for the defendants the relevant documents to complete. On 31 July 2015, the solicitors for Caird Seven agreed to lodge the application form on behalf of the defendants, because their solicitors were not based in Sydney. 2. However, this process was then delayed because Mr Attia's credit card details for payment of the fee, which had been provided by the defendants, were incorrect. The solicitors for Caird Seven repeatedly followed up with the Pharmacy Council and the solicitors for the defendants, the former saying that the fee had not been paid and the latter saying that it had been. The Pharmacy Council finally approved the transfer on 10 September 2015. (c) First dealings with Scentre Group 1. The Settlement Deed contemplated transfer of the lease and obliged both parties to take the necessary steps to procure the transfer. 2. On 21 July 2015, the solicitors for Caird Seven first made contact with the manager for Westfield, Scentre Group, about the assignment of the lease. On 31 July 2015, Caird Seven provided by hand an application for assignment to Scentre Group. On 5 August 2015, the solicitors for Caird Seven emailed the solicitors for the defendants that the defendants had to make contact with Scentre Group. On 10 August 2015, the solicitors for the defendants requested financial information. Some had already been provided on 13 July 2015; the rest was provided on 10 August 2015. 3. Then, over the following two weeks, as with the Pharmacy Council, the solicitors for the defendants reported to the solicitors for Caird Seven that Mr Attia had made contact with Scentre Group, but the latter reported to the solicitors for Caird Seven that that was not so. As part of the correspondence in this period the solicitors for Caird Seven threatened an application for specific performance of the Settlement Deed. 4. On 28 August 2015, Scentre Group emailed the solicitors for Caird Seven an application form to be completed by the defendants, and this was forwarded to the solicitors for the defendants. From this time, the defendants knew what completion of the application required, including a business plan, trading references and bank references. 5. On 31 August 2015, the solicitors for Caird Seven emailed Scentre Group a copy of the application by Caird Seven for assignment of the lease (which, as noted in paragraph 45 above, had previously been provided to Scentre Group by hand). (d) The claim for specific performance 1. In light of the delays by the defendants in relation to the negotiation of the settlement deed, the dealings with the Pharmacy Council and the dealings with Scentre Group, the intended date for completion of the settlement of 17 August 2015 had been exceeded. In this context, on 4 September 2015, Caird Seven amended its commercial list statement to seek specific performance of the Settlement Deed. (e) The defendants' new plan 1. Over the next month, the solicitors for Caird Seven continued to follow up with the defendants to no avail. 2. There then emerged a new plan on the part of the defendants. On 23 September 2015, they proposed that, rather than simply take an assignment of the lease, they would seek to negotiate a new lease, with a longer term, because the existing lease was to expire on 27 November 2017. This was not what the Settlement Deed required, but Caird Seven sought to assist the defendants with this course over the next two months, including by agreeing to a surrender of the existing lease as Scentre Group required (held in escrow pending the finalisation of a new lease). Despite many requests for updates by the solicitors for Caird Seven, they did not hear of any progress by the defendants in the negotiation of the new lease. Finally, after several warnings and extensions, on 1 December 2015, Caird Seven withdrew its surrender of the existing lease and insisted on transfer of the original lease in accordance with the Settlement Deed. 3. In fact, an affidavit of Mr Attia sworn 10 December 2015 at paragraph [38] [CB tab 12] shows that, on 6 November 2015, Scentre Group agreed to the longer lease but Mr Attia sought lower rent. That lower rent was the defendants' concern was never communicated to Caird Seven. It was always said by the defendants that the new lease was sought because of the desire for a longer term. The agreement of Scentre Group to a longer term was never reported to Caird Seven. (f) Further delays by the defendants 1. On 8 December 2015, the solicitors for Caird Seven confirmed with Scentre Group that Caird Seven sought, once again, to assign the lease. There was then yet a further delay by the defendants. 2. On 8 December 2015, for the first time, the solicitors for the defendants requested a disclosure statement under s 41(b) of the Retail Leases Act 1994 (NSW). This subsection provides that, before requesting the consent of the lessor to a proposed assignment of a retail lease, the lessee must furnish the proposed assignee with a copy of any disclosure statement given to the lessee in respect of the lease. The request by Mr Attia for this statement was plainly confected, given that he was the tenant immediately before Caird Seven, not very long ago. 3. In any event, on 15 December 2015, as permitted by s 41(c) of the Act, the solicitors for Caird Seven requested a copy of the disclosure statement from Scentre Group. On 7 January 2016, Scentre Group confirmed that it did not have such a statement. Pursuant to s 41(c), Caird Seven was therefore excused from compliance with s 41(b). (g) Rejection of the transfer application on 15 December 2015 1. In the meantime, on 15 December 2015, Scentre Group rejected the application for transfer of the lease. One reason was a matter arguably within Caird Seven's responsibility, namely payment of the application fee. This had never been mentioned before by Scentre Group. The other reasons all concerned the lack of documentation from the defendants, which the defendants had known was required to be submitted by them to Scentre Group since August, as noted in paragraph 47 above. 2. On 22 December 2015, the solicitors for Caird Seven requested the missing information from the defendants. In January 2016, the respective solicitors agreed that Caird Seven would submit a new application form, and pay the application fee, on receipt of the outstanding information from the defendants. The solicitors for Caird Seven continued to follow up that information but the solicitors for the defendants said that they did not know when they would get it despite themselves following up on the defendants on numerous occasions. As part of this correspondence, the solicitors for the defendants confirmed they were not waiting on any information from Caird Seven. (h) New solicitors and new delays 1. On 11 December 2015, the matter had been set down for trial on 26 April 2016. 2. On 29 February 2016, the defendants' present solicitors began to act for them. In a letter of that date, they made many new assertions against Caird Seven, including that it had frustrated performance of the Settlement Deed by not seeking an assignment of the lease. In light of the history above, that was a baseless allegation. The letter also asserted that the defendants had paid the application fee to Scentre Group. 3. On the same day, the solicitors for Caird Seven provided all of the correspondence with the previous solicitors for the defendants from January to the new solicitors for the defendants. Despite this, and contrary to what had been agreed in that correspondence, on 14 March 2016, the solicitors for the defendants submitted a fresh application, to a different person at Scentre Group, missing much information. 4. The deficiency in the application was pointed out by the solicitors for Caird Seven on 16 March 2016. In addition, despite the statement from the defendants' solicitors referred to in paragraph 59 above that the defendants had paid the application fee to Scentre Group, this was not so. It was in fact paid by Caird Seven on 16 March 2016, even though what had previously been agreed was that this would not happen until the defendants had completed the documentation. 5. Not surprisingly, on 19 March 2016, Scentre Group rejected the application for the same reasons as previously, ie a lack of information from the defendants. The letter referred to not having received the application fee but this was incorrect - this was corrected on 21 March 2016. 6. On 29 March 2016, the solicitors for the defendants requested financial information from Caird Seven said to be necessary to prepare a business plan. 7. As noted in paragraphs 41 and 45 above, Caird Seven had provided requested financial information in July and August 2015. It has never been explained why, if the information requested in March 2016 was necessary to complete a business plan, it was not requested by the defendants when they learned a business plan would be necessary in August 2015 (as noted in paragraph 47 above). Nor has it ever been explained why, as noted in paragraph 57 above, the then solicitors for the defendants confirmed that they were not waiting on any information from Caird Seven. 8. In truth, it appears that no real thought was given by the defendants to the completion of a proper application to Scentre Group until the trial date was upon them. That is consistent with the fact that the defendants only made requests for trading references and bank references on 30 March 2016, despite knowing that they too were required since August 2015 (as noted in paragraph 47 above). 9. In any event, on 30 March 2016 and again on 31 March 2016, Caird Seven provided the financial information requested by the defendants. 10. A completed application was finally submitted to Scentre Group on 15 April. ********** Endnote 1. See JAG Investments Pty Limited v Strati [1981] 2 NSWLR 600 at 603-606 (Hope JA, Glass and Mahoney JJA agreeing). 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: 09 August 2016