Aventus Cranbourne Thompsons Road Pty Ltd v Home Consortium Leasehold Pty Ltd
[2020] VSCA 199
•5 August 2020
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2019 0093
| AVENTUS CRANBOURNE THOMPSONS ROAD PTY LTD (ACN 155 857 426) | Applicant |
| v | |
| HOME CONSORTIUM LEASEHOLD PTY LTD (FORMERLY MASTERS HOME IMPROVEMENT AUSTRALIA PTY LTD) (ACN 066 891 307) | Respondent |
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| JUDGES: | KYROU, NIALL and HARGRAVE JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 1 June 2020 |
| DATE OF JUDGMENT: | 5 August 2020 |
| MEDIUM NEUTRAL CITATION: | [2020] VSCA 199 |
| JUDGMENT APPEALED FROM: | [2019] VSC 428 (Croft J) |
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LANDLORD AND TENANT – Long term lease of large retail premises in shopping centre complex – Tenant ceased trading and sought to sublease part of premises – Whether proposed sublease was permitted under lease – Meaning of ‘Home Improvement Store’ – Whether landlord unreasonably withheld consent to proposed sublease – Application for leave to appeal granted – Appeal allowed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant: | Ms W A Harris QC with Mr E J Batrouney | Hebert Smith Freehills |
| For the Respondent: | Mr J W S Peters QC with Mr A J Bailey | Baker McKenzie |
KYROU JA
NIALL JA
HARGRAVE JA:
The applicant (‘Aventus’)[1] and the respondent (‘Masters’) are landlord and tenant, respectively, of a large retail premises — of approximately 13,000 sqm — on the corner of the South Gippsland Highway and Thompsons Road, Cranbourne (the ‘Premises’) pursuant to a long commercial lease (the ‘Lease’).[2] The Lease requires that the Premises be used as a ‘Home Improvement Store’. From the start of the Lease, on 1 October 2015, Masters offered a vast array of home improvement goods for sale but, in relatively short order, the business failed. As a result, in December 2016, Masters ceased trading from the Premises. Despite not trading, Masters has continued to pay rent and outgoings and remains in possession. Pursuant to a clause in the Lease, Masters sought the consent of Aventus to sublease part of the Premises to Amart Furniture Pty Ltd (‘Amart’) for the retail sale of furniture and furnishings. Aventus did not consent to the proposed sublease.
[1]Originally called BBJ Thompsons Road Pty Ltd.
[2]The term is for 15 years. Options to renew in favour of Masters, if exercised, would extend the term of the lease to a total of 25 years.
In an action brought in the Trial Division of this Court, Masters succeeded in obtaining a declaration that Aventus had unreasonably withheld its consent to the proposed sublease to Amart and an order that it ‘is entitled to sublease part of the Premises to Amart without the consent of Aventus’. An order was also made requiring Aventus to provide its consent to consequential alterations to the Premises and (if required) to the proposed sublease. Aventus seeks leave to appeal those orders on the basis that the proposed sublease does not fall within the kind of sublease permitted by the Lease and there was no obligation on it to provide consent. Alternatively, it contends that the judge erred in concluding that consent was unreasonably withheld.
The issues raised by the proposed appeal have two distinct aspects. The first group of issues, under cover of ground 1, concern whether the proposed sublease to Amart falls within the specific clause allowing for a sublease, licence or concession. They turn on the correct construction of the Lease including whether the proposed use of the Premises by Amart would be a ‘Permitted Use’ under the Lease. In order to resolve those issues, it will be necessary to refer to some of the circumstances in which the Lease was entered into.
The second issue, under grounds 2 to 5, only arises if Aventus fails on the first, and concerns the reasonableness of Aventus’ decision to withhold consent to the proposed sublease to Amart. It arises because the Premises are adjacent to, and in practical terms, form part of, a larger shopping centre complex, the Cranbourne Home Centre (the ‘Home Centre’) owned and operated by what may be broadly described as the Aventus Group, a listed property trust related to Aventus. The land on which the Home Centre is located is contained in five titles and is registered to two entities within the Aventus Group — Aventus and Aventus Cranbourne Pty Ltd (‘ACPL’) — each of which holds its respective titles on a trust forming part of the listed property trust. The Premises are on land registered to Aventus.
Aventus submitted that it could take into account the interests of other members of the Aventus Group in determining whether it should consent to the proposed sublease because they are related entities and both Aventus and ACPL are trustee companies which hold the relevant legal interests beneficially for holders of stapled securities in a listed holding company. The judge held that these matters did not arise from, and were not associated with the Lease, and were therefore irrelevant.[3] This issue requires consideration of the matters that a landlord might legitimately take into account in granting or withholding consent to a sublease. Factually, it also requires examination of the relevant corporate structure and landholding within the Aventus Group.
[3][2019] VSC 428, [166], [171] (Croft J) (‘Reasons’).
For the reasons that follow, we would grant leave to appeal and allow the appeal on ground 1. The use of the Premises that would be permitted under the proposed sublease to Amart is not a ‘Permitted Use’ pursuant to the Lease. The parties agree that in that circumstance, Aventus was not obliged to consent to the proposed sublease. It is neither necessary nor desirable to consider the other grounds.
Background to the Lease
The Masters store concept was a combined venture of two large retail entities — Woolworths Ltd (‘Woolworths’) and Lowe’s — the latter a well-known American retailer. They intended to roll out a number of large format home improvement stores under the Masters banner across Australia.
On 2 May 2011, Masters issued a media release, announcing that the first Masters store would open in Braybrook, Victoria, comprising a 13,500 sqm outlet with a separate trade-only area dedicated to the building and professional industries. The Chief Executive Officer of Masters was quoted as saying that the Masters brand would become ‘very familiar’ to ‘Australian DIY’ers’, with staff trained a minimum of 100 hours, and that a ‘huge range of more than 35,000 products and an air conditioned, clean and comfortable store environment will differentiate Masters from many of its competitors.’ The media release went on:
Masters’ vast range of product categories will include lighting, paint, flooring, kitchens, outdoor furniture, appliances, gardens, walls and windows, power tools, storage, plumbing and bathrooms. Products will include many not previously available in a single location in the Australian market.
Following the opening of the Braybrook store, a number of additional stores will open in quick succession in Victoria and Queensland. The business is on track to achieve its initial target of 150 property sites secured within 5 years.
As part of the Masters roll out, on 18 May 2011, Woolworths and BB Retail Capital Pty Ltd (‘BB Retail Capital’) entered into a heads of agreement setting out the terms of a proposed lease of premises to be constructed on land ‘within an area identified for expansion of the Cranbourne Home Maker Centre.’ As recorded by the judge, the main components of that document were:
(a)the Masters hardware store would be a long-term anchor tenant of an expanded Cranbourne Home Centre on a lease term of up to 35 years (being an initial term of 15 years and two 10 year options);
(b)the Masters store would become the single largest tenancy in the expanded Cranbourne Home Centre, comprising a GLA[4] of 13,909 sqm on a site area of approximately 37,214 sqm;
(c)the Masters store would be approximately 20% of the GLA of the entire expanded Cranbourne Home Centre;
(d)the Masters store would be purpose-built to Woolworths’ specifications in accordance with a design brief; and
(e)Woolworths acknowledged that BB Retail Capital had the right to develop the Cranbourne Home Centre (referred to in the Heads of Agreement as ‘the estate’) in a pre-determined, orderly manner).[5]
[4]Gross Lettable Area.
[5]Reasons [52].
The ‘Permitted Use’ under the heads of agreement was for a home improvement store and substantially reflected the terms ultimately contained in the Lease to which we shall come.
An article published in a marketing magazine in June 2012, which the judge held formed part of the factual matrix in which the Lease was made,[6] described the Masters brand in some detail. It noted that the purpose behind Masters was for Woolworths to break into the $42 billion home improvement market, then dominated by Bunnings Warehouse. It referred to the proposed range of 35,000 home improvement products and the intention to expand to 150 sites across Australia over a five year period.
[6]Ibid [80].
The article noted that the name ‘Masters’ was chosen to echo the master builder, master painter and master craftsman, and that the range of products and services, extending to ‘non-hardware’ lines such as white goods, was ‘intended to create a completely satisfying in-store Master’s [sic] brand experience.’
By a series of interrelated transactions anticipated by the heads of agreement, Aventus acquired and developed land on three titles, immediately adjacent to the Home Centre, and leased the Premises it had constructed to Masters. The Premises occupy part of the acquired land. The balance of the land, referred to as the ‘surplus land’, has been earmarked for further development, with part of it presently leased to a childcare centre.
Relevantly, for present purposes, the key documents recording these transactions were an Agreement for Lease dated 6 May 2013 (‘AFL’) and an attached proposed lease. The Lease itself was not executed by the parties, however, it is common ground between them that, pursuant to cl 10.3 of the AFL, the parties are bound by it from 1 October 2015.
The parties to the AFL included Mr and Mrs Dunscombe (who then owned the land) as landlord, Aventus, Masters as tenant and Woolworths as guarantor. In summary, it was agreed that the landlord would construct a building on the land to Masters’ specifications; Masters would enter into a lease for the Premises in the form annexed to the AFL to commence once the building was ready for occupation; Masters’ obligations under the AFL and lease would be guaranteed by Woolworths; and the landlord would give Aventus an option to acquire the land. All of those things occurred, the option to purchase the land was exercised, and resulted in the Lease with Aventus as landlord and Masters as tenant. Aventus spent in the order of $27 million constructing the Premises to meet Masters’ requirements.
Aventus became the owner of the land and the landlord on 9 March 2015. On 1 October 2015, after the building was complete and Masters took occupation, the Lease commenced.
The Lease
Clause 6.1 of the Lease provides that: ‘[Masters] must not use the Premises for any use other than the Permitted Use, unless [Aventus] consents to another use.’ It will be necessary to refer to the ‘Permitted Use’ clause in detail below.
The definition of ‘Permitted Use’ in the Lease is as follows:
Home Improvement Store allowing for retail, wholesale and bulk sale and display of goods, materials, products, merchandise and items of any description (including home improvements including household goods and appliances, building, hardware, timber and nursery products or materials) associated café or restaurant and any other ancillary or associated use permitted by Law.[7]
[7]Emphasis added.
Clause 6.3 is a covenant to trade and provides that Masters must be open during stipulated business hours, seven days per week subject to certain temporary closures.
Clause 7.6 permits Masters to alter or refurbish the Premises, including external signage, without the consent of Aventus. However, Masters is prohibited from carrying out any works that affect the structure of the Premises without Aventus’ prior consent, which must not be unreasonably withheld or delayed.
Clause 8 concerns dealings with the Lease and Premises. Clause 8.2 provides:
(a)Subject to paragraph (b), the Tenant may without the Landlord’s consent:
(i)sublet, or grant licences to any person for the occupation or use of, the whole or any part of the Premises; and
(ii)grant concessions to any person for the use of any part or parts of the Premises.
The Tenant must provide the Landlord with a list of the names of all sub-tenants, licensees and concessionaires occupying or using the Premises promptly upon request, together with a description of the part of the Premises being occupied or used by each sub-tenant, licensee and concessionaire. The Landlord must not request a list under this clause more than once in any 12 month period.
(b)Despite paragraph (a), the Tenant may not without the Landlord’s prior written consent (which consent must not be unreasonably withheld or delayed), sublet, grant licences or concessions which (in aggregate) exceed:
(i)5% of the trading area of the Premises where the sub-leases, licenses or concessions do not form part of a sub-lease, licence or concession programme conducted by the Tenant with respect to 5 or more home improvement stores operating under the same trading name in Australia;
(ii)15% of the trading area of the Premises where the sub-leases, licences or concessions form part of a sub-lease, licence or concession programme conducted by the Tenant with respect to 5 or more home improvement stores operating under the same trading name in Australia; and
(iii)20% of the trading area of the Premises in total.[8]
[8]Emphasis added.
Clause 13.3 is a ‘whole agreement’ clause, and provides:
The provisions contained in this Lease and the Agreement for Lease comprise the whole of the agreement between the parties in respect of the Premises. No other provisions, whether in respect of the Premises or otherwise, will be implied or arise between the parties by way of collateral or other agreement made by or on behalf of the parties on or before or after the execution of this Lease.
The proposed sublease to Amart
In October 2017, Home Investment Consortium Company Pty Ltd (‘Home Co’) acquired Masters’ parent company, Hydrox Holdings Ltd, from Woolworths, and thereby became the ultimate parent company of Masters. By that acquisition, Home Co effectively acquired most of Masters’ freehold and leasehold premises, including the Lease of the Premises. Home Co’s business includes the repurposing of the former Masters stores into large format retail shopping centres and, as part of that business, leasing premises within those centres to retail tenants for diverse uses, subject to the landlord’s consent, if required.
By letter dated 20 November 2018, Masters / Home Co, requested Aventus to consent to a sublease of part of the Premises to Amart and for structural alterations to the Premises to create the sublet premises. These requests were made pursuant to cls 8.2(b)(iii) and 7.6(b) of the Lease, respectively.
On 23 November 2018, Masters and Amart entered into an agreement for sublease in respect of part of the Premises (the ‘Amart AFL’). By the Amart AFL, Masters agreed to sublease approximately 6,000 sqm of the Premises to Amart for a term of 10 years with options to renew.
The ‘Permitted Use’ under the proposed sublease to Amart is for the display, sale and warehousing of furniture and furnishings, generally.
The proposed sublease to Amart contemplates that there will be significant alteration to the building by partitioning part of the Premises to allow for the Amart store. Masters has executed a written undertaking concerning the necessary approvals for the alterations, its make good obligations and compliance with building, traffic and occupational health and safety requirements.[9]
[9]Reasons [28]–[29].
The reasons of the judge
After referring to various introductory matters canvassed above, the judge set out the respective positions of the parties. The judge noted that the Aventus Group, of which Aventus formed part, successfully operated a number of shopping centres, including the Home Centre.[10] He noted strong tenant demand for properties.[11]
[10]Ibid [31].
[11]Ibid [34].
The judge noted that control of its shopping centres, including the Home Centre, is important to the Aventus Group. This extends to control over the identity and diversity of tenants which the Aventus Group regards as a fundamental part of its business model and its claimed success.[12] The Aventus Group was acutely aware that Home Co, which also operated shopping centres around Australia, had taken over ownership of Masters and had a strategy of ‘repurposing’ the former Masters’ stores through subtenancies. The Aventus Group, including Aventus, was opposed to that strategy because, if implemented, it would allow Home Co to gain effective control over a vital part of the Home Centre.
[12]Ibid [39].
The judge noted that Masters intended to implement Home Co’s general strategy at the Premises, which was described as follows:
The strategic plan of the Home Consortium is to repurpose the former Masters sites into vibrant ‘value for money’ destination shopping precincts ... [and] to ensure that each of the centres is repurposed to create an attractive, purpose designed retail environment.[13]
[13]Ibid [40].
The judge referred to some matters of background, and the terms of the Lease, including the definition of ‘Permitted Use’ and cl 8.2,[14] and then addressed five questions of construction. In summary, he concluded as follows:
[14]The definition of ‘Permitted Use’ is set out at [18] above. Clause 8.2 is set out at [21] above.
(a) The use of the Premises in the manner contemplated by the proposed sublease to Amart would be a ‘Permitted Use’ under the Lease because furniture and furnishings, homewares, flooring products, blinds, etc, are ‘household goods’ and therefore come within the items permitted to be sold under the Lease.[15] He did not accept that the term ‘trading area’ was relevant to the meaning of ‘Permitted Use’, or was the subject matter of a sublease He held that the power to sublease contemplated exclusive possession and the partition of the Premises and there was no impediment to making alterations to accommodate Amart;[16]
[15]Reasons [90].
[16]Ibid [93].
(b) Clause 6.3 (which, as we have said, imposes an obligation on Masters to be open for business seven days per week) and cl 8.2 are independent covenants. That Masters had ceased trading did not mean that Aventus was freed of the obligation to consider whether or not to consent to the proposed sublease.[17] It was intended that cl 8.2 would be available even if Masters ceased to trade, which was always a possibility given that it was a new venture and a long term lease;[18]
[17]Ibid [101] and [112].
[18]Ibid [103].
(c) Clauses 8.2(a) and (b) both had work to do and he rejected Aventus’ argument that cl 8.2(a) was ‘obliterated’ or rendered otiose;[19] and
(d) He rejected Aventus’ argument that the power to sublease in cl 8.2(b) was confined to a lease of the trading area. He also rejected the further argument that the proposed sublease to Amart impermissibly sought to grant a licence or rights with respect of access to common areas and licensed areas.[20]
[19]Ibid [114].
[20]Ibid [129].
Thus, the judge held that the proposed sublease to Amart was a sublease of the Premises permitted by cl 8.2. That conclusion hinged around two concepts: ‘trading area’ and ‘Permitted Use’.
The judge then turned to whether consent was unreasonably withheld. On that question, the judge applied the principle that reasonableness is to be assessed on an objective basis and is confined to issues arising under the Lease.[21] He held that the reason for refusal must be something affecting the subject matter of the Lease which formed the relationship between the landlord and tenant and not something extraneous and disassociated from the subject matter of the Lease.[22]
[21]Ibid [133].
[22]Ibid [134].
The judge ultimately concluded that consent was unreasonably withheld, principally because it was driven by the perceived impact that the proposed sublease to Amart would have on the Home Centre and this was extraneous to the Lease. In that respect, the judge emphasised that the Lease was on land owned by Aventus but the Home Centre was owned by a different entity. Further, there was nothing in the Lease itself which directed attention to the broader Home Centre. In arriving at that conclusion, the judge ignored the fact that the corporate structure of the Aventus Group meant that the income received from rents generated by assets including the Premises, were held by sub trusts within the Aventus Retail Property Fund for the ultimate benefit of the Aventus Group’s security holders.[23]
[23]Ibid [161].
Grounds of appeal
Ground 1
Ground 1 of the grounds of appeal[24] contains the following subparagraphs:
[24]Although unless and until there is a grant of leave to appeal, the grounds of appeal remain proposed grounds, for convenience, I refer to them simply as grounds.
(a)The Judge erred in holding that the words ‘trading area of the Premises’ in cl 8.2(b) do not provide any restriction or limitation on the right of the respondent to sublease the Premises (Reasons for Judgment, [93], [101] and [103]).
(b)The Judge erred in holding that, upon its proper construction, cl 8.2(b) provides for parts of the Premises to be sublet and for multiple subtenancies in those parts, and is not limited to subleases within a single, trading Masters store (Reasons for Judgment, [75] and [93]).
(c)The Judge erred in not holding that the proposed Sublease extended beyond the trading area of the Premises and accordingly was not a sublease of the kind contemplated by cl 8.2(b)(iii).
(d)The Judge erred in apparently holding that the right to sublet the trading area of the Premises included a right to grant the licences and permissions encompassed in the proposed Sublease and the Amart AFL (Reasons for Judgment, [128]).
(e)The Judge erred in holding that cll 8.2 and 6.3 are independent provisions, meaning that the breach of the trading provision in cl 6.3 did not affect the operation of cl 8.2(a) or (b) (Reasons for Judgment, [95]–[101]).
(f)The Judge erred in not holding that, by reason of Masters’ ceasing to trade from the Premises, there was no ‘trading area of the Premises’ capable of being subleased.
(g)The Judge erred in finding that the permitted use under the Lease accommodates the use under the Sublease (Reasons for Judgment, [90]).
Principles of construction
The general principles applicable to the construction of contracts apply equally to leases.[25] The general principles to be applied in the construction of commercial contracts were summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd in the following terms:
[25]Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 29 (Mason J), 40–1 (Brennan J) and 51–2 (Deane J); [1985] HCA 14.
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. It may be necessary in determining the proper construction where there is a constructional choice.
…
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties ... intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.[26]
[26](2015) 256 CLR 104, 116–7 [46]–[51]; [2015] HCA 37 (citations omitted).
In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd, Kiefel, Bell and Gordon JJ said:
It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
Clause 4 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the lease. It follows, as was pointed out in the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd, that the court is entitled to approach the task of construction of the clause on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires that the construction placed upon cl 4 be consistent with the commercial object of the agreement.[27]
[27](2017) 261 CLR 544, 551 [16]–[17]; [2017] HCA 12 (citations omitted).
In addition, the Court must have regard to all of the words used in the agreement ‘so as to render them all harmonious one with another’[28] and to ensure the ‘congruent operation [of] the various components [as] a whole’.[29] In Kosciusko Thredbo Pty Ltd v Commissioner of Taxation (Cth), the High Court observed that: ‘permitted use provisions, like any other provision in a written document, must be construed according to their terms and as part of the entire document.’[30]
[28]Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109; [1973] HCA 36 (Gibbs J).
[29]Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, 529 [16]; [2005] HCA 17 (Gleeson CJ, McHugh, Gummow and Kirby JJ).
[30](1987) 168 CLR 147, 155; [1987] HCA 64 (Mason CJ, Wilson, Dawson and Gaudron JJ).
Is the ‘Permitted Use’ under the proposed sublease a ‘Permitted Use’ under the Lease?
In its grounds of appeal, Aventus focuses on two critical and interrelated components which, it contends, limit the right to sublease: ‘trading area’ and ‘Permitted Use’.
Trading area
Aventus submits that ‘trading area’ in cl 8.2(b) — which is set out at [21] above — are words of limitation on the power to sublease.[31] It submits first that the relevant power to sublease is in para 8.2(b) and is in respect of the ‘trading area’. It contends that ‘trading area’ means the area of the Premises where the buying and selling occurs and, where there is no trading, there can be no ‘trading area’ and therefore no sublease.[32] Second, because the subject matter of a sublease under cl 8.2(b) is limited to the trading area, the proposed sublease to Amart extends beyond the permitted bounds by including access to other parts of the Premises beyond the trading area.[33] Third, the Lease contemplates a single trading area (as part of a single home improvement store) and does not allow for structural subdivision of the trading area into separate tenancies.[34] This argument stands alone and is also tied to the ‘Permitted Use’ under the Lease.
[31]Ground 1(a).
[32]Ground 1(f).
[33]Grounds 1(c) and (d).
[34]Ground 1(b).
Aventus also relies on the fact that Masters is not trading to make a more specific submission. Aventus submits that by reason of its failure to trade, Masters is in breach of cl 6.3 of the Lease (which, as we have said, imposes an obligation on Masters to be open for business seven days per week) and that cl 6.3 and cl 8.2 are interdependent, with the consequence that there can be no sublease if the tenant is not trading.[35]
[35]Ground 1(e).
In order to make those points, Aventus starts with the overarching submission that paras 8.2(a) and (b) provide two separate and discrete powers to sublet in relation to different parts of the Premises. It submits that para (a), which does not require its consent, permits subleases or licences of: (1) the whole of the Premises; (2) that part of the Premises which is not a trading area; or (3) small parts of the trading area that do not exceed the limits in para 8.2(b). So, for example, a sublease of 4% of the trading area could be granted under para 8.2(a) and does not require consent.
Aventus submits that once the limits in para (a) are reached, any sublease, licence or concession of a trading area is dealt with in para (b), which confers on Masters the power to sublet the trading areas but makes it subject to obtaining Aventus’ consent. Thus, in this case, because the proposed sublease to Amart would be a sublease of a trading area (and other areas) the power is found in para 8.2(b). We do not accept the submission.
The first reason why that submission cannot be accepted is that it is not supported by the text of the Lease. Only para (a) confers a power to sublease. The power, in its terms, extends to the entirety of the Premises and allows for a sublease of ‘the whole, or any part of the Premises’. The words ‘whole or any part’ are unequivocal and do not support a construction that excludes the trading areas of the Premises.
Aventus’ construction also requires reading words into para (a), so as to read: ‘the whole or any part of the Premises other than a trading area’ or ‘other than a trading area dealt with in paragraph (b)’. Given that the two paragraphs can be read harmoniously, there is no warrant for reading words into para (a). That is especially so where the Lease has been prepared carefully, with legal advice and following extensive negotiation.
By contrast, para (b) is not expressed as a grant of power to sublease but more naturally reads as a limit on the power by imposing a requirement for consent in certain circumstances. It is expressed in the negative and proceeds on the unstated assumption that the power to sublease is otherwise available. On Aventus’ construction, it would be necessary to imply the power in para (b). However, such an implication is unnecessary given the express grant in respect of all or any part of the Premises in para (a).
The text also supports reading the two paragraphs together, rather than as distinct grants of power. The introductory words to both paragraphs make it clear that they are connected. First, para (a) is expressed as being ‘[s]ubject to paragraph (b)’. The use of that phrase strongly suggests that the two deal with the same topic but the second qualifies the ambit of the first. That is reinforced by the words: ‘[d]espite paragraph (a)’, which introduce para (b).
Reading the two paragraphs together, para (a) confers a right, without the need for consent, to sublease, license or grant concessions in respect of ‘the whole or any part of the Premises’. That right is expressly granted subject to para (b).
The obligation in para (a) to provide a list of subtenants, licensees and concessionaires to the landlord would, as a matter of logic and common sense, apply to every sublease, licence or concession. It points strongly to the two paragraphs being read together.
There are also a number of anomalies that would flow from Aventus’ proposed construction and render it improbable. First, the tenant would be free to sublet the whole of the Premises without the consent of the landlord. The landlord would be denied the protection that consent provisions provide against concerns relating to the character and personality of the proposed subtenant or the use or occupation of the Premises.[36]
[36]Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385, [19] (Nettle J).
Given that, on any view, consent is required where the dealing relates to as little as 6% of the trading area, it is anomalous that Masters could sublease the entirety of the leasehold without consent. Aventus’ answer on this point, that a sublease of the whole of the Premises could not give rise to any legitimate concern because the landlord is getting ‘like for like’, ignores the real advantage of allowing the landlord to assess the probity and solvency of the subtenant and the terms of any proposed sublease.
Second, if trading ceased altogether, and there were no trading areas, then on Aventus’ construction, para (b) would be inapplicable but para (a) would be unaffected and there could be a sublease of the whole or any part of the Premises without consent. Aventus seeks to meet that concern by arguing that the whole clause is dependent on trading continuing. We shall return to this aspect when considering cl 6.3, however, it is sufficient to note that cl 8.2 is not expressly conditioned on trading occurring and the capacity to sublease the whole would plainly be apt where the tenant has been unable to continue to trade.
It follows that the term ‘trading area’ in cl 8.2, a term not defined in the Lease, is not the subject matter of the power to grant a sublease, licence or concession, but determines when consent of the landlord is required. As explained, the trading area, which can be calculated by reference to the floor space available for trade (whether or not sales are actually occurring), is used to determine when Aventus’ consent is required for Masters to sublease the Premises. Read in that way, the consent requirement remains in place even where trading has ceased.
That conclusion also disposes of ground 1(d). By that ground, Aventus asserted that the proposed sublease to Amart impermissibly conferred on Amart rights of use of areas that were not trading areas. This ground must fail once it is recognised that the trading area is not the subject of the power to grant a sublease, licence or concession and does not limit the parts of the Premises that may be the subject of a sublease, licence or concession. Again, it points up the unrealistic construction advanced by Aventus because it would authorise a subtenancy of part of the trading area but deny the ability to give the subtenant rights of access to other parts of the Premises such as access points, staff areas or toilets. That would be inconsistent with any reasonable commercial understanding of the right to grant a sublease, licence or concession in the context of the Lease as a whole.
Aventus also submits that cls 8.2(b) and 6.3 have to be read together and are interdependent. It says that its obligation to consider whether or not to consent to a sublease of the trading area only arises if the tenant is not in breach of the covenant to trade in cl 6.3. It says that the trading covenant, the obligation on Masters to be open for business seven days per week, is an essential precondition to the ability to sublease.
The principles involved in determining whether performance of a covenant or other contractual obligation is a pre-condition to the enjoyment of other contractual rights were recently summarised by the New South Wales Court of Appeal in Kay v Playup Australia Pty Ltd:[37]
… ‘whether obligations are dependent or independent depends upon the intention of the parties’.[38] In ascertaining that intention, ‘the more closely the obligations are linked to the rights, the easier it will be to construe the instrument as granting merely qualified rights’.[39] Relevant considerations include the express provisions of the contract in respect of interdependence, the extent of any connection between the obligations, whether the respective covenants go to the whole consideration, whether breach of the obligation goes to the root of the contract, or whether breach may be compensated by damages.[40]
[37][2020] NSWCA 33, [62] (Brereton JA) (citations in original).
[38]Burton v Palmer [1980] 2 NSWLR 878, 895 [76].
[39]Tito v Waddell (No 2) [1977] Ch 106 at 297 (Megarry V-C).
[40]See Huntoon Co v Kolynos (Incorporated) [1930] 1 Ch 528, 548–549, 557–559, 563–564; Highfield Property Investments Pty Ltd v Commercial & Residential Developments (SA) Pty Ltd [2012] SASC 165, [213]; Masters Home Improvement Aust Pty Ltd v Aventus Cranbourne Thompsons Road Pty Ltd [2019] VSC 428, [96] (Croft J).
The obligation to trade, and in doing so observe the ‘Permitted Use’, are important covenants in the Lease. The inclusion of them suggests that the interests of the landlord are not confined to the receipt of rent and keeping the Premises in good order. However, the ability of the tenant to sublet the whole or any part of the premises and the obligation on the landlord not to unreasonably withhold consent, gives an important degree of flexibility in a long term lease. The fact that the whole of the Premises may be subleased proceeds on the assumption that Masters will cease to trade from the Premises. That might occur where Masters is by force of circumstance compelled to cease trading. It would be anomalous if the facility of subleasing the whole of the Premises evaporated once Masters had ceased to trade. It would deny the benefit of the covenant in a circumstance in which it was plainly intended to operate.
Further, the principal benefit of a lease derived by the landlord is the receipt of rent and outgoings. Where the tenant continues to pay rent and outgoings it is not self-evident, at least in the short term, that the landlord would sustain any additional loss by the failure of the tenant to trade;[41] and it would be a drastic consequence for the tenant to be precluded from seeking ways to defray the ongoing liabilities under a lease by means of a subtenancy, licence or concession. The breach can be adequately addressed by damages. Here, Aventus enjoys a measure of control of the power to sublease in cl 8.2 both by the obligation to use the Premises for a ‘Permitted Use’ and by its ability to withhold consent. There is, in our view, no reason to impose an additional constraint that the tenant continue to trade as required by cl 6.3 in circumstances where there is no express or logical connection between the two clauses. Given the detail in the Lease, it is improbable that the landlord’s obligations in cl 8.2 being subject to the tenant continuing to trade would be left to implication. As Masters correctly points out, the wording of cl 8.2 may be contrasted with cl 8.1 (relating to assignment) where there is no right to assign if the tenant is in ‘Substantial Breach’ of the Lease.
[41]See, eg, G & A Lanteri Nominees Pty Ltd v Fishers Stores Consolidated Pty Ltd [2007] VSCA 4.
Aventus’ arguments on interdependency also require giving primacy to the term ‘trading area’ in cl 8.2. It is that term which Aventus says provides the supposed link between the clauses. However, for reasons we have explained, the concept of ‘trading area’ performs a very limited role in cl 8.2. It is not the subject of the power to grant a sublease and can easily be applied even where trading has ceased, having regard to the physical layout of the Premises. Mr Holland, a principal witness called by Aventus, used the term ‘trading area’ in his evidence when referring to the Masters’ tenancy even though no trading was occurring.
It follows that the term ‘trading area’ and the covenant to trade do not preclude the proposed sublease to Amart coming within the potential reach of cl 8.2. Subject to the interaction with ‘Permitted Use’, to which we now turn, grounds 1(a) to (f) must be rejected.
Permitted use
The second limitation on which Aventus relies relates to the ‘Permitted Use’ under the Lease. Aventus submits that the ‘Permitted Use’ requires a single home improvement store.[42] It submits that the genesis, purpose and object of the transaction was for it to construct purpose-built premises from which Masters would trade as an anchor tenant within the Home Centre. This feeds into its submission that Masters cannot, by a series of subleases, carve up the single space to create separate and discrete stores. Aventus also submits that in any event, the use permitted under the proposed sublease to Amart does not correspond with the ‘Permitted Use’ under the Lease.[43]
[42]Ground 1(b).
[43]Ground 1(g).
As noted earlier, cl 6.1 of the Lease provides that: ‘[Masters] must not use the Premises for any use other than the Permitted Use, unless [Aventus] consents to another use.’
It is useful to set the two permitted uses side by side. As we have already stated, the definition of ‘Permitted Use’ in the Lease is as follows:
Home Improvement Store allowing for retail, wholesale and bulk sale and display of goods, materials, products, merchandise and items of any description (including home improvements including household goods and appliances, building, hardware, timber and nursery products or materials) associated café or restaurant and any other ancillary or associated use permitted by Law.
The ‘Permitted Use’ under the proposed sublease to Amart is as follows:
Display, sale and warehousing of furniture and furnishings, generally but not limited to furniture, homewares, flooring products, blinds and other window dressing, manchester and ancillary office space furnishings, together with any other use permitted by law subject to the landlord’s consent (not to be unreasonably withheld).
The definition in the Lease gives rise to two interrelated questions. First, what is a ‘Home Improvement Store’? Second, does the Lease require that there can only be a single store operating from the Premises?
What is a ‘Home Improvement Store’?
The task of this Court is to determine what a reasonable businessperson would have understood the words ‘Home Improvement Store’ to mean, in the context of the Lease as a whole, and having regard to the circumstances addressed by the Lease and the commercial purpose or objects to be secured by it. The admonition that it is necessary to have regard to the whole of the Lease in construing any of its terms does not mean that it is not important to have regard to the text of the individual components. The definition of ‘Permitted Use’ is introduced by the words ‘Home Improvement Store’.
It was not suggested by either party that the phrase ‘Home Improvement Store’ has a technical meaning. Nor did they submit that the phrase came to have a settled meaning as a matter of ordinary usage. To the extent that there was evidence as to the range or type of goods sold at other stores of a comparable kind, it was not tendered, and not admissible, as evidence of opinion as to the technical meaning of the term. To the extent that it was relevant, that evidence went to the commercial circumstances and environment known to the parties at the time of the execution of the AFL.
Aventus submits that the first three words of the definition of ‘Permitted Use’ — ‘Home Improvement Store’ — are critical and that the balance of the definition sets the parameters of what that home improvement store can sell and display. That construction is said to be bolstered by context in which it was known and intended that the Lease would be for a single home improvement store operated by Masters, offering a range of home improvement and DIY products as a competitor to Bunnings.
The words ‘home improvement’ are apt to extend to goods and services that improve the home. Such items may relate to the construction, repair, decoration and furnishing of homes. They would comfortably extend to items for the establishment and maintenance of gardens. Although it is hard to draw a line, ‘home improvement’ is less easily seen to extend to personal items such as clothing, toiletries, electronic devices or cookware.
There can be no doubt that the balance of the definition of ‘Permitted Use’ is broadly drawn. The items that may be offered for retail, wholesale and bulk sale are extremely wide. They extend to: ‘goods, materials, products, merchandise and items of any description.’[44] The inclusive list in parentheses serves to emphasise the amplitude of the definition. That list is:
… (including home improvements including household goods and appliances, building, hardware, timber and nursery products or materials) …
[44]Emphasis added.
The interpretation clause in the Lease provides that the use of the word ’”include” (in any form) when introducing a list of items does not limit the meaning of the words to which the list relates to those items or to items of a similar kind.’ The phrase ‘household goods’ is not a technical term and extends to non-consumable items used for household living, including furniture, furnishings and homewares. There was evidence, again as part of the context known to the parties, that the term is used in contradistinction to non-household goods or items for ‘everyday needs’ such as food and beverages, groceries, liquor, pet supplies, office supplies, discount variety and the like.
The use of the phrase ‘home improvements’ after the initial reference to a ‘Home Improvement Store’, and the repetition of the word ‘including’, indicates that the parties were not minded to draw tight distinctions on what products could and could not be sold from the store. However, it is equally clear that they were not seeking to authorise the tenant to operate a general emporium, department store or supermarket.
The critical constructional issue concerns the relationship between the words ‘Home Improvement Store’ and the balance of the definition. The use of the word ‘allowing’ is significant to an understanding of that relationship. It introduces the very extensive list that follows. Textually, it suggests that the Premises will be used as a store that allows for the presentation and sale of a variety of different products connected by the overarching requirement that they be related to home improvement. Certainly, when regard is had to the introductory phrase, the use of the umbrella term ‘Home Improvement Store’ does not suggest that a store which sells any one of the listed items would be considered to be such a store. Rather, it describes the general nature of the store informed by the types of goods available.
For example, household paint is obviously an item that would be used in home renovation or improvement. It is the kind of product that one would expect to find in a home improvement store. However, in light of the extended definition, a store that only sold house paint would not readily be considered to be a home improvement store of the kind described in the Lease.
The scale of the floor space also supports the notion that the parties intended that the Premises would be used as a store that provided the panoply of things that together make up a home improvement store.
As a matter of text and structure, and having regard to the surrounding circumstances that explained the type of enterprise the parties had in mind could be conducted from the Premises, the ‘Permitted Use’ relates to a store offering for sale a range of goods falling within a very broad category and covering the main trades undertaken by master tradespersons. It thus addresses both range and type of goods. Whether the Premises are being used as a home improvement store will be a function of what is sold as well as what is not sold. That reflects all of the admissible contextual material and the emphasis that the parties placed on the use of the store as a single, broadly based home improvement store that was capable of competing with the incumbent (Bunnings) — which operated a warehouse style retail offering containing an extensive product list.
More than one store?
Aventus also submits that there must be single store of the requisite kind. Aventus points to the fact that the definition of ‘Permitted Use’ refers to a ‘Home Improvement Store’ expressed in the singular, arguing that this connotes that a single store will occupy the Premises. It relies on the fact that Masters was aiming to compete with Bunnings and that a central aspect of its operation was the enormous range of goods that it would offer for sale.
Although both the interpretation provisions of the Lease,[45] and general experience, dictates that care must be exercised before gleaning anything from the use of the singular rather than the plural, in context, the use of the singular ‘Home Improvement Store’ is of some relevance. What it suggests is that the tenant will aggregate the products and services within the one store rather than house a series of separate free standing stores.
[45]Clause 1.2(c) provides that the singular includes the plural and the plural includes the singular.
On the other hand, Masters correctly points to the terms of the Lease that allow for subleasing, and the grant of licences and concessions, as indicating that the Lease expressly contemplates that a person other than the tenant may operate from the store, and in the case of a subtenant, would be entitled to exclusive possession of the subtenancy. The terms of the Lease allowing for structural change to the fabric of the building also import a degree of flexibility which would indicate that the ‘Permitted Use’ might, in the future, occur in a different format or in a different way to that initially contemplated by the tenant.
Given the distinction between sublease, licence and concession, it is clear that the Lease uses the term ‘sublease’ in its technical sense of an interest in land giving exclusive possession. Where, as might be expected, the sublease is for less than the whole of the Premises, exclusive possession would require the ability to delineate the area of the sublease in order to give the subtenant the benefit of exclusive possession. In the context of a retail setting, this would require, or at least necessarily contemplates, that a subtenant may erect an internal boundary or wall. It connotes a degree of functional separation from the tenant.
A prohibition on any physical change to the Premises would be inconsistent with the power to grant a sublease. The Lease expressly contemplates that the tenant may undertake structural changes to the building and requires a separate consent to be obtained under cl 7.6. That express power to alter or refurbish the Premises, including by works that effect the structure of the Premises, provided consent of the landlord is obtained, tells against any view of the Lease that prohibits alterations to the fabric of the building.
The broader context also provides some support for Masters. First, the Lease related to a greenfield site and Masters, the initial tenant, was a new entrant to the market, intent on competing with Bunnings, a well-entrenched and longstanding incumbent. As the judge observed, commercial reality meant that there was some risk and therefore some need for flexibility which would be significantly truncated if only a single store could operate from the site.[46]
[46]Reasons [93].
Although the Lease was for a long period, in a retail environment that was liable to change having regard to the terms of the AFL and the public announcements of May 2011 and June 2012, the purpose and object of the transaction was for Aventus to construct a purpose built premises according to Woolworth’s/Aventus’ detailed specifications — from which Masters would trade as a large scale, diverse home improvement store with a view to competing, in size, scale and offering, with Bunnings as the incumbent and dominant national trader.
Although it may not matter because under the proposed sublease to Amart, at least when it takes effect, only one store will be operating from the Premises, ultimately, we are persuaded that the ‘Permitted Use’ requires that there be a single home improvement store. The Lease contains enough flexibility for the tenant to sublease or license part of the Premises to a free standing business. However, that business must be functionally connected in a way that means that there is a single home improvement store operating from the site. Viewed objectively, that is the only form of trading that the parties to the Lease had in mind.
The subtenancy clause allows for some flexibility but it cannot be used to fundamentally alter the nature of the tenancy. Clause 8.2(b) of the Lease is inconsistent with the parties intending that Masters might in effect sublet the larger Premises and divide it up into a series of specialty stores connected by the home improvement theme. That would be a significantly different use of the Premises.
Whether a subtenant or licensee may be considered to be operating its own store within the Premises or remain functionally part of the one store may be a matter for debate. For example, a subtenant, licensee or concessionaire with its own inventory, staff, point of sale and other retail paraphernalia may still be operating as part of a single store. Questions of fact and degree will be involved.
Accordingly, the relevant inquiry is whether, under a proposed sublease, licence or concession, the Premises will be used as a home improvement store. Whether that is so requires consideration of how the area of the subtenancy, concession or licence is to be used and also how the balance of the store (assuming that the arrangement does not capture the entire Premises) is to be used.
Of course, the use of the Premises, or even a small part of the Premises, for a use that is inconsistent with the store being a home improvement store, would mean that there would be a breach of the ‘Permitted Use’ clause. For example, the subleasing of part of the Premises as a medical clinic, even if it only involved a small part of the floor space, would mean that the Premises are not being used as a home improvement store. Rather, they are being used as both a home improvement store and a medical clinic. The conduct of the medical clinic would be a non-compliant use and would be in breach of the Lease.
Is the Amart use permitted?
At the risk of repetition, the proposed sublease to Amart allows the subtenant to use the Premises for:
Display, sale and warehousing of furniture and furnishings, generally but not limited to furniture, homewares, flooring products, blinds and other window dressing, manchester and ancillary office space furnishings, together with any other use permitted by law subject to the Landlord's consent (not to be unreasonably withheld).
In support of its contention that the proposed sublease to Amart is of a type contemplated by the Lease, Masters relies on the breadth of the definition of ‘Home Improvement Store’ and the fact that it is not a term of art. Masters submits that it is not necessary for Amart, in and of itself, to be a home improvement store. However, even if that were required, it says that Amart falls within the definition because the concept is a broad one which involves the improvement of the home. Products which Amart offers, such as rugs, storage units, lighting and furniture, improve the home —they are ‘household goods’ and a subset of the products offered by a home improvement store like Bunnings.
The judge concluded that the ‘Permitted Use’ under the proposed sublease to Amart clearly fell within the ‘Permitted Use’ under the Lease on the basis that furniture, furnishings, homewares, flooring products and blinds were all household goods and the sale of household goods is expressly provided for in the definition of ‘Permitted Use’ in the Lease.[47] That reasoning essentially involved asking whether the goods to be sold under the proposed sublease to Amart would be allowed to be sold under the Lease.
[47]Reasons [90].
In our view, such an approach is erroneous. It effectively rewrites the definition of ‘Permitted Use’ as meaning a store that sells any item within the broad category of home improvement. It gives no content to the requirement that the Premises be used as a home improvement store; albeit one ‘allowing for’ the sale of certain goods. It is akin to saying, in the context of a supermarket, that all supermarkets sell fruit and vegetables and therefore a store that sells fruit and vegetables is a supermarket.
Properly construed, the permitted use requirements involve an assessment of whether the proposed use allows for a sufficient range and type of goods so as to constitute a home improvement store. In our view, the judge erred by focussing on only one of the two critical aspects of the definition, namely, the type of goods but not the range of goods. The judge focussed only on the broad type of goods which are permitted to be sold and did not give any weight to the necessity for there to be a broad range of goods on sale. It is the combination of these features that gives a home improvement store its essential character and it is what underpins the definition.
One factor that looms large in this assessment is that, since 2016, the Premises have not been used for any purpose. Masters remains in possession of the Premises, and is paying rent, but the store remains closed. The fact that Aventus has not taken any action in respect of Masters’ breach of the covenant to trade in cl 6.3 does not mean that Aventus is not entitled to insist that any use of the Premises be confined to a ‘Permitted Use’ and nor does it alter the meaning to be attributed to the Lease. Notwithstanding that Aventus is receiving full rent for the Premises, and has not sought to bring the Lease to an end for breach, it is not precluded from insisting that the Premises only be used for a permitted purpose. Equally, Masters is not precluded from seeking consent for a sublease.
However, because Masters is not currently trading, and no home improvement store is being conducted at the Premises, the proposed Amart store must qualify as one such store. That is because it is not possible to aggregate the use that is contemplated under the proposed sublease to Amart with any other use that is presently occurring in order to satisfy the ‘Permitted Use’ covenant in the Lease. In other words, the situation with which Masters is now faced is quite different to that which would arise if Masters was still trading as originally contemplated.
Independently, it also follows that, whether the Lease requires a single store or allows for more than one store to be operating from the Premises does not matter, because under the proposed sublease to Amart only a single store will be using the Premises. Masters contemplates that Amart will be joined by other subtenancies in the future, as part of the ‘repurposing’ of the Premises, however, the question of ‘Permitted Use’ is what the proposed sublease to Amart allows rather than what might come in the future.
In the course of submissions, Masters made the legitimate point that it has to start somewhere given that the Masters concept store has failed and it wishes to sublet the Premises. However, the fact that Masters has found itself in a difficult situation does not alter the requirements of the Lease. Masters must face the reality, of its own making, that whether or not Amart’s use under the proposed sublease is permitted by the Lease must be assessed against a blank slate because no other use is presently being carried on in the Premises. We do not consider that the Lease allows for a non-compliant use to become a compliant one by factoring in other potential uses of the Premises by hypothetical future subtenants. Put simply, were Amart to commence to trade in accordance with the proposed sublease, and offer for sale the range of goods permitted under that sublease, that would not be using the Premises as a home improvement store as contemplated by the Lease.
The same point can be made by considering a proposed sublease for an ‘associated café or restaurant and any other ancillary or associated use permitted by Law’. It would be absurd to suggest that Masters could sublease part of the Premises to a café or restaurant — and maintain that the Premises were being used as a home improvement store — on the basis that in the past or in the future the Premises were or will be used as one. That example also reinforces the obvious point that the question of use is not hypothetical.
In the present case, the proposed sublease to Amart allows for the sale of household goods. However, that is not enough to constitute a ‘Permitted Use’ for the purpose of the Lease. It follows that the use of the Premises by Amart in accordance with the proposed sublease would not be a ‘Permitted Use’ of the Premises.
Accordingly, ground 1(g) is made out.
New argument on appeal
At the hearing of the appeal, and for the first time, Aventus sought to expand its complaint by asserting that the proposed sublease to Amart impermissibly allows for further subleases that would not be subject to the consent of Aventus and would not be limited to the ‘Permitted Use’ set out in the Lease. In our opinion, Aventus should not be permitted to run this point for the first time on appeal.
The circumstances in which a party may be permitted to run a new point on appeal are well-established. Leave to do so should not be given where, had the point been run below, it could have been met by evidence or the matter would have been conducted on a different basis. Had this point been run at trial, it could have been met by addressing or altering the terms of the sublease. In other words, Masters was in a position to provide a complete answer to the contention. It would not be appropriate to allow Aventus to raise the argument for the first time in this Court.
Grounds 2 to 5
Grounds 2 to 5 seek to challenge, in a variety of ways, the conclusion reached by the judge that consent was unreasonably withheld.
As already noted, the judge concluded that Aventus unreasonably withheld consent to the proposed sublease to Amart because it took into account matters that were extraneous to the Lease. The judge’s acceptance that the proposed sublease was capable of being granted under cl 8.2 and was for a ‘Permitted Use’ was a necessary premise for that analysis. Our conclusion that the use of the Premises by Amart in accordance with the proposed sublease would not be a ‘Permitted Use’ means that the judge’s analysis proceeded on a false basis.
Masters accepts that if the use under the proposed sublease to Amart was not a ‘Permitted Use’, there was no obligation on Aventus to consent to it. It must follow that its alternative contention that consent was unreasonably withheld does not arise. The reasonableness of withholding consent would need to assume that the use was a ‘Permitted Use’ and would comply with the Lease. In our view, it would be to assume a fundamentally different sublease to that which was proposed. In the circumstances, it would not be appropriate to consider grounds 2 to 5 on a hypothesis that has been rejected.[48]
[48]Boensch v Pascoe [2019] HCA 49, [7]–[8] (Kiefel CJ, Gageler and Keane JJ), [101] (Bell, Nettle, Gordon and Edelman JJ).
Conclusion
In our view, leave to appeal should be granted and the appeal should be allowed. The decision of the judge should be set aside and in its place it should be ordered that the proceeding be dismissed.
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