MIR Holdings Pty Ltd v Marina Square Retail Pty Ltd

1. [1]

   BATHURST CJ: I agree with Bell P.

2. [2]

   BELL P: MIR Holdings Pty Ltd (MIR) and SKRG Pty Ltd (SKRG) (together the applicants) were the lessees of commercial retail premises in the Marina Square shopping centre at Wentworth Point, New South Wales. Marina Square Retail Pty Ltd (the respondent) was the lessor of each set of premises. Each of the applicants operated restaurant businesses, MIR trading as “Hiew Thai” and SKRG as “Masuya Suisan”.

3. [3]

   Both of the leases commenced in November 2018. MIR and Marina Square entered into a written retail lease agreement for a period of nine years (the MIR Lease), whilst SKRG’s lease was for a period of eight years (the SKRG Lease). The MIR and SKRG Leases were drafted in materially identical terms.

4. [4]

   On 11 September 2020, the respondent served on each of the applicants a Notice of Breach of Covenant (Notice of Breach) pursuant to s 129 of the Conveyancing Act 1919 (NSW), notifying that they were in default under cl 21.1 of the Lease Agreement for failure to:

5. [5]

   The Notices of Breach related to rent and other charges and contributions that were due up to 31 March 2020. It was not in dispute between the parties that these amounts were due as at that date.

6. [6]

   The Notices of Breach required MIR to pay $97,812.39, and SKRG to pay $29,120.90. The Notices stated that, pursuant to cl 21.2 of the Lease Agreements, if the specified total was not paid with 14 days of receipt, the respondent would:

7. [7]

   Neither of the applicants complied with the Notices of Breach and, on 1 October 2020, the respondent served on each of them a Notice of Re-Entry and Termination which provided that:

8. [8]

   The premises were re-let to new lessees (the new lessees), pursuant to lease agreements entered into on 31 August 2020 and 21 September 2020 respectively. On 1 October 2020, the agreements with the new lessees (the new agreements) became unconditional upon the respondent securing vacant possession of the premises as defined in cl 2 of the new agreements. By 8 October 2020, the new lessees had received keys to the premises and “Handover Notices” from the respondent.

The proceedings

1. [9]

   On 2 October 2020, the applicants commenced proceedings by Summons seeking interlocutory and final relief coupled with a Notice of Motion seeking interlocutory relief in the Equity Division.

2. [10]

   The final relief sought in the Summons included that:

3. [11]

   The interlocutory relief sought in the Summons and the Notice of Motion was relevantly as follows:

4. [12]

   The matter first came on for hearing before Rein J sitting as the Equity Duty Judge on the afternoon of Friday 2 October 2020. On that occasion, whilst his Honour did not formally dismiss the Notice of Motion, he indicated that he was not prepared to grant the relief sought on that occasion for reasons that appeared in the transcript.

5. [13]

   One of the reasons was the potential impact of the relief sought on the new lessees of the premises who had not been joined as parties to the proceedings. Rein J observed in the course of the hearing before him on 2 October 2020 that:

6. [14]

   For whatever reason, notwithstanding these exchanges, the new lessees had not been joined when the proceedings came before Stevenson J (the primary judge) on 13 October when the applicants renewed their application for interlocutory relief.

7. [15]

   The renewed application was in turn dismissed by the primary judge, his Honour delivering reasons for judgment on 14 October 2020: MIR Holdings Pty Ltd v Marina Square Retail Pty Ltd [2020] NSWSC 1418 (the primary judgment). The application was dismissed on three bases, although the primary judge noted that the first alone was in his opinion sufficient to decline the relief sought by the applicants. These three bases were as follows:

   1. (1)

      the new lessees, who were not aware of the applicants’ claim for relief against forfeiture (and who had still not been joined to the proceedings) had what appeared to be an unconditional entitlement to occupy the premises and the primary judge was not prepared to grant the relief sought without hearing from them (primary judgment at [38]);

   2. (2)

      clause 6 of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation) did not apply to the applicants’ circumstances (primary judgment at [45]); and

   3. (3)

      the applicants’ default under the Leases was “persistent and significant” (primary judgment at [61]).

8. [16]

   In relation to the second basis, the primary judge held that the Regulation did not apply to the respondent’s Notices of Re-Entry and Termination, which specified default of rent and outgoings payment “up to 31 March 2020”. His Honour held that:

9. [17]

   The primary judge thus concluded (at [58]) that:

10. [18]

    On 27 October 2020, the applicants filed in this Court a Summons Seeking Leave to Appeal from the primary judge’s orders declining relief against forfeiture and dismissing the Notice of Motion. As the proceedings were the first to reach this Court concerning the Regulation, the application was listed expeditiously on a concurrent basis to be heard on Tuesday 10 November 2020. Notwithstanding the observations of both Rein J and of the primary judge as to the significance of the fact that the new lessees were not party to the proceedings, no attempt was made to join them to the proceedings commenced in this Court.

11. [19]

    In circumstances described more fully below, the Court dismissed the application for leave to appeal but made no order as to costs.

Draft Notice of Appeal

1. [20]

   In the Draft Notice of Appeal which accompanied the application for leave to appeal, the applicants identified the following two grounds of appeal:

2. [21]

   Notably, the Draft Notice of Appeal did not challenge the primary judge’s discretionary finding that he was not prepared to grant the applicants relief against forfeiture “in circumstances where the [n]ew [l]essees now have what appears to be an unconditional entitlement to occupy the premises” without hearing from the new lessees (primary judgment at [38]).

3. [22]

   The Draft Notice of Appeal identified that the following orders were sought in the event the appeal was allowed:

4. [23]

   Four features of these proposed orders stand out.

5. [24]

   First, the applicants sought in proposed order (a) a declaration of rights on an interlocutory appeal.

6. [25]

   Second, order (b) may well have had the effect that, if made, the new lessees would be trespassers on the premises or, at the very least, complex questions may well have arisen given what would then have been, prima facie, concurrent leases. These questions may have been rendered even more complex if the new leases had been registered.

7. [26]

   Third, proposed orders (c) and (d) amounted to a mandatory interlocutory injunction, a comparatively rare remedy only available in limited circumstances: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed, LexisNexis Butterworths, 2015) at [21-395] (Meagher Gummow Lehane).

8. [27]

   Fourth, even if the new lessees would not have been bound by the declaration sought in proposed order (a), they would plainly have been affected by proposed orders (c) and (d).

9. [28]

   In their Summary of Argument (ASA), the applicants framed the issue before the Court as whether Marina Square’s actions on 1 October 2020 were prohibited by cl 6 of the Regulation, which relevantly provides that:

10. [29]

    The ASA also asserted in [31] that the applicants were entitled to relief if there had been a breach of the Regulation and that this was so “irrespective of any rights the respondent granted to new lessees”. Argument was not developed in writing to support this assertion other than a submission that the applicants did not rely on discretion to grant relief against forfeiture on the application.

11. [30]

    In its Summary of Argument, the respondent did not take any point as to the fact that the new lessees had not been parties to the proceedings at first instance, that the primary judge’s dispositive holding on this ground did not feature as a ground of appeal, or that the new lessees had not been sought to be joined as parties to the proceedings in this Court.

Necessary and proper parties

1. [31]

   On the morning of the hearing of this matter, the Court drew the parties’ attention to the decision of the High Court in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [131] ff, an authority that should be well known by all practitioners in the Equity Division.

2. [32]

   That decision quoted with approval (at [132]) the well-known observations of the Full Court of the Federal Court in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 524–525; [1996] FCA 870:

3. [33]

   The same basic point was made in a related context by Edelman J in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2015) 329 ALR 1; [2015] FCA 825 at [942]–[944] where his Honour observed:

4. [34]

   That the new lessees were not joined at first instance as necessary parties, given the relief that was being sought and in light of the multiple observations of Rein J as to the importance of this on the occasion the proceedings were first before the Court, was surprising and ran contrary to the authorities referred to above.

Disposition

1. [35]

   When the application for leave to appeal came on for hearing on the morning of 10 November 2020, Mr Alexis SC, who appeared with Ms Palmer for the applicants, sought to circumvent the issue of the absence of the new lessees as parties to the proceedings by indicating that he was prepared not to pursue orders (c) and (d) and to confine his clients’ ultimate claim to one for damages.

2. [36]

   Whilst this course partially recognised the significance of the absence of the new lessees as parties to the proceedings, a number of problems remained.

3. [37]

   First, the new lessees would not have been bound by the declaration sought in proposed order (a).

4. [38]

   Secondly, the making of a declaration on an interlocutory basis is problematic: see Meagher Gummow Lehane at [19-140] which notes, citing Upjohn LJ’s statement in International General Electric Co of New York Ltd v Commissioner of Customs and Excise [1962] Ch 784 at 789, that “[i]t follows from the very nature of declaratory relief that it is final relief, and that there can be no such thing as an interlocutory declaration”. See also D Wright, Remedies (1st ed, Federation Press, 2010) at 283.

5. [39]

   In Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540; [2002] HCA 54, Gummow and Hayne JJ held (at [128]) that:

6. [40]

   This position was affirmed by Hayne and Callinan JJ in Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51 at [143]–[144]:

7. [41]

   Thirdly, as observed at [25] above, proposed order (b), if made, would create a situation where there were either concurrent leases granted over or in respect of the same premises or, alternatively, the new lessees would potentially become trespassers on the premises. Either way, the new lessees’ rights and interests would be affected by the proposed order sought.

8. [42]

   Fourthly, the foreshadowed confining of the applicants’ case going forward to one for damages suffered from the fact that there had been no order for a separate trial of liability.

9. [43]

   The failure by the applicants to join the new lessees to the proceedings was unfortunate, to say the least. In an endeavour to cut through this difficulty, and to minimise the wastage in costs that would otherwise have been entailed given that the parties had prepared full arguments on the question of the proper construction of the Regulation, the Court proposed the following course in the event that the applicants confined the ultimate relief being sought in the proceedings to damages:

10. [44]

    The Court took a short adjournment to allow the respondent time to consider this course.

11. [45]

    Ultimately the respondent did not consent to the suggested course being taken. This was its entitlement and may have in part been because the respondent wished to raise arguments to the effect that the applicants were not “impacted lessees” for the purposes of cl 4 of the Regulation (the first contention) [2] and that, by force of cl 10, the Regulation did not apply to the respondent’s termination of the applicants’ leases (the second contention). [3]

12. [46]

    Upon interrogation of Mr Angyal SC, who appeared for the respondent with Mr Cominos, it appeared that these contentions may have turned on facts and events that were not necessarily uncontested, making the issue wholly unsuitable for determination in interlocutory proceedings.

13. [47]

    It was in these circumstances that the Court considered that the only appropriate course was to dismiss the application for leave to appeal. It would remain open to the applicants to seek the formulation of a separate question to be heard on a final basis but whether or not an order to that effect would appropriately be made will be a matter for the Real Property List or Equity Duty Judge.

14. [48]

    No order as to costs was made in circumstances where the fundamental reason why leave was refused was a matter raised by the Court and not by the respondent, surprising though this was in light of the intimations as to the need for the new lessees to be joined which had been made by Rein J on multiple occasions on 2 October 2020, as well as in light of the first and dispositive basis indicated by the primary judge for the dismissal of the Notice of Motion.

15. [49]

    LEEMING JA: I agree with Bell P.