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Interlocutory injunctions and ADR in VCAT: Link and Connect Pty Ltd v Seng

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By Alicia Hill, Principal and Sian Harding, Law Clerk

The decision in Link and Connect Pty Ltd v Seng (Building and Property) [2021] VCAT 735 considers the circumstances in which a notice of re-entry to leased premises will or will not be validated and whether an interlocutory injunction from re-entry will be granted pending the resolution of the substantive issues in dispute in a separate proceeding or the conduct of an ADR process.

Background

Link and Connect Pty Ltd (Link and Connect) was the tenant of a retail premises in which it operates a real estate business (Premises), and the respondents, trustees of the JPA Seng Super Fund, were the owners of the land and building in which the Premises are located (Landlords).

Link and Connect had been in possession of the premises initially according to a lease dated 21 October 2014 which was then renewed in July 2020.

The parties fell into dispute over issues concerning the lease, culminating in Link and Connect filing an application in VCAT in late 2020 (Substantive Proceeding).

The factual background of the Substantive Proceeding is that the Landlords installed plant and equipment in the carpark and external walls of the building where the premises are located. This installation was for the benefit of an unrelated tenant and reduced the number of car spaces available in the carpark. Link and Connect argued that the reduction of carpark spaces had materially compromised the business being able to be conducted form the Premises to the extent that no business can be carried out.

On 22 June 2021 the Landlords gave Link and Connect a notice of breach of lease (Default Notice) that alleged Link and Connect was in arrears of rent and outgoings totaling $6,065.08.

The Default Notice stated that if the breaches of the lease were not remedied by a specified time, the Landlords may re-enter the premises.

Link and Connect made an application seeking an interlocutory injunction to restrain the Landlords from re-entering the Premises. In support of this application Link and Connect argued the following

  • The Landlords’ right to terminate the lease should be suspended until the Substantive Proceeding has been resolved;
  • There were errors in the Default Notice that render it invalid;
  • Link and Connect was not obliged to pay rent and outgoings claimed in the Default notice as it is not required to pay rent pursuant to s 26(4)(a) and s 57(1)(a) of the Retail Leases Act 2003 (RLA);
  • Link and Connect were not required to pay outgoings per s 46(4) of the RLA;
  • Link and Connect had a claim against the Landlords for damages which may be set off against any claim for rent and outgoings; and
  • The Landlords have repudiated the Lease and therefore Link and Connect is not obliged to pay rent and outgoings.

Decision

Deputy President Reigler refused the application, however, on a principle of fairness in the circumstances, ordered an injunction restraining the Landlords from terminating the lease or from re-entering the premises, for a period of one week after the date of the court’s order.

The Tribunal took the usual approach to considering whether an injunction should be granted, considering first whether there is a serious issue to be tried as to Substantive Proceeding.

Serious issue to be tried?

Errors in the Default Notice

Link and Connect submitted that the Default Notice is invalid as it incorrectly references the lease dated 21 October 2014, rather than the lease as renewed in July 2020 following an agreement reached during a mediation. The Tribunal rejected this argument, stating that the lease dated 21 October 2014 was accepted by both parties as containing the terms of the starting lease, which was subsequently renewed. There was no deed of renewal, and therefore the 21 October 2014 lease document is the only document setting out the general terms and conditions of the renewed lease, and it was appropriate to refer to it in the Default Notice.

Additionally, Link and Connect submitted that the Default Notice should be invalidated as it refers to a clause which has no relevance to the claim that outgoings and rent are in arrears. The relevant clause refers to an obligation on the tenant to “produce receipts for paid building outgoings within 7 days of a request”. The Tribunal observed that the Default Notice erroneously referred to this clause numbered 2.1.2 rather than Clause 2.1.3. Deputy President Riegler concluded that such an error is not fatal to the Default Notice as it still clearly set out what the Landlord says constitute unpaid amounts under the lease, it is sufficiently clear such that Link and Connect could reasonably understand what is required to remedy the alleged breach and avoid forfeiture.

Section 26(4)(a) of the RLA

Link and Connect argued that the were not provided with a disclosure statement by the Landlords pursuant to s 26 of the RLA, and so was entitled under s 26(4)(a) of the RLA to withhold rent. However, the Tribunal highlighted that the right to withhold rent under this provision only applies if the tenant has given the landlord a written notice within 90 days after the expiration of the relevant period outlining that the tenant has not been given the disclosure statement. Therefore, Link and Connect was not entitled to withhold payment in reliance of s 26(4)(a).

Section 57(1)(a) of the RLA

This provision outlines that where the premises or building is damaged the tenant is not liable to pay rent or outgoings attributable to the period during which the premises cannot be used or are inaccessible due to the damage. Link and Connect relied on the installation of plant and equipment in the carpark and relevant external walls to constitute ‘damage’. The Tribunal rejected this. Deputy President Reigler took the view that damage means “some form of destruction or disrepair… it does not mean an alteration to the demines premises”. Although quiet enjoyment may be impacted by the installation, this is not the same as damage. Deputy President Reigler also observed that the premises could still be used despite there being one or possibly two car spaces being unavailable. Therefore, Link and Connect could not rely on s 57 of the RLA as allowing an abatement of rent or outgoings.

Set-off

The Tribunal rejected any submission that the existence of a claim against the Landlords is not a factor that permits Link and Connect to suspend the payment of rent and outgoings until finalisation of the Substantive Proceeding. In doing so, Deputy President Reigler emphasized that the express terms of the lease stated that rent and outgoings are to be paid without any deductions, and cited the Victorian Supreme Court decision of Citibank Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 158 as authority for the principle that such an express term excludes any right to set off against rent payable any claim that may exist.

Repudiation

The Tribunal rejected any submission that the Landlords had repudiated the lease, as the act of seeking payment of rent and outgoings and the issuing of the Default Notice are acts which evidence performance of the lease by the Landlords. Additionally, the present application for an interlocutory injunction evidenced that the Tenant has elected not to accept any alleged repudiation.

Section 46(4) RLA

Link and Connect submitted that a written estimate of outgoings was not provided to it as required by s 46(2) of the RLA and it is therefore not liable to contribute to any outgoings until that estimate is provided. Link and Connect argued that the Default Notice was therefore invalid. The Tribunal observed that this obligation to provide a written estimate was complicated by the lack of an executed deed of renewal. The Tribunal did not resolve this issue, and instead relied on the fact that even if such an argument was made out, it would not invalidate the Default Notice as it is only one ground.

Although there are questions that arise regarding the obligation to pay outgoings, there is no serious question to be tried with respect to an obligation or lack thereof to pay rent. The Tribunal emphasized that the Default Notice would not be invalid as a whole, even if s 46(4) is able to be relied upon with respect to there not being an obligation to pay outgoings. The Default Notice would still entitle the Landlords to exercise the right of re-entry and forfeiture based solely on the ground that rent is unpaid.

Balance of convenience?

As the Tribunal found there was no serious question to be tried, it was not necessary to determine whether the balance of convenience would otherwise favour the granting of an injunction.

7 day injunction

Despite rejecting the application to grant an injunction until the Substantive Proceeding were determined, the Tribunal granted a 7-day injunction. It did so highlighting that it was “fair in the circumstances” to allow Link and Connect to consider the present determination and reasons with the hope that the parties might discuss resolving the Substantive Proceeding informally without the need for further litigation.

Conclusion

Despite Link and Connect wholly failing to demonstrate a serious question to be tried when seeking the injunction, the Tribunal acknowledged impact of its decision and reasons in making such a finding and exercised its wide discretion.

The Tribunal observed that Link and Connect’s submissions were weak and somewhat confused at times, and the finding that there was no serious question to be tried would have had the effect of considerably altering the party’s view of its prospects of success in the Substantive Proceeding. Therefore, in the interests of avoiding further litigation, the Tribunal’s decision to exercise its discretion and injunct re-entry activity to allow the parties an opportunity to discuss and seek an alternate resolution was appropriate.

If you have any queries, please contact Alicia Hill on (03) 8540 0292 or alicia.hill@mst.com.au