Block 27 Pty Ltd v Qursa Pty Ltd
[2023] ACTSC 139
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Block 27 Pty Ltd v Qursa Pty Ltd |
Citation: | [2023] ACTSC 139 |
Hearing Dates: | 9 May 2023 – 11 May 2023 |
DecisionDate: | 7 June 2023 |
Before: | Curtin AJ |
Decision: | See [160] |
Catchwords: | CONTRACTS – Interpretation – whether sublease is inconsistent with terms of Crown Lease – proper construction of the sublease and Crown Lease – whether there was an obligation to give consent and allow transfer – whether there was a breach of the Crown Lease EQUITY AND TRUSTS – equity regards as done what ought to be done – application of equitable maxim to contracts – registered proprietor is a bare trustee of purchaser – whether breach of trust by consenting to transfer the sublease |
Legislation Cited: | Land Titles Act1925 (ACT) s 58 |
Cases Cited: | AMP Financial Planning Pty Limited v CGU Insurance Limited [2004] FCA 1330; 139 FCR 223 ASSK Investments Pty Ltd v AMA Group Limited [2020] NSWSC 1756 Love v Rowtor Steamship Co ltd [1916] 2 AC 527 Peter Holmes Investments Pty Ltd v S&C Nicola Pty Ltd [2021] NSWSC 1174 Sabah Flour and Feedmills Sdn. Bhd. v Comfez Ltd [1988] 2 Lloyd’s Rep 18 Slough Estates Ltd v Slough Borough Council [No. 2] [1970] 2 WLR 1187 Walker v Giles (1848) 6 CB 662 Walsh v Lonsdale (1882) 21 Ch D 9; [1881-5] All ER Ext 1690 Westfield Management Ltd v Perpetual Trustee Co Ltd [2007] HCA 45; 233 CLR 528 |
Texts Cited: | Young, Croft, Smith, On Equity (LawBook Co, 2009) J D Heydon, M Leeming, P G Turner, Meagher, Gummow & Lehane’s Equity: Doctrine & Remedies (LexisNexis Butterworths, 5th ed, 2014) H Beale, Chitty on Contracts (Vol 1) (Sweet & Maxwell Ltd, 29th ed, 2004) |
Parties: | Block 27 Pty Ltd (Plaintiff) Qursa Pty Ltd (First Defendant) Takeshi Pty Ltd (Second Defendant) The Registrar-General of the ACT (Third Defendant) |
Representation: | Counsel P Walker SC w/ WDB Buckland (Plaintiff) RJ Arthur w/ M Hassall (First Defendant) J Larkings (Second Defendant) |
| Solicitors Moulis Legal (Plaintiff) Capital Solicitors (First Respondent) Gil-Jones Barker Solicitors (Second Respondent) | |
File Number: | SC 182 of 2022 |
Curtin AJ:
Introduction
This matter concerns a dispute about the purported consent to the transfer of a sublease by a sublessor at a time when that sublessor held the sublease as bare trustee and in circumstances where the terms of the sublease were not wholly in the terms required by the Crown Lease.
For the reasons that follow the application is dismissed with costs.
In these reasons I shall refer to the plaintiff as the Crown lessee (under the Crown Lease) or sublessor (under the sublease) as the context dictates. I shall refer to the second defendant as the sublessee (under the sublease).
Background
The land the subject of these proceedings is Block 27, Section 32 in Dickson known as 18 Challis Street, Dickson ACT (the Land).
On 19 December 1996, the Crown Lease for the Land was granted to Dickson Developments Pty Ltd for a term of 99 years.
There is a multi-level carpark on the Land and the Crown Lease provided that the Land will only be used for that purpose.
The carpark was required to provide a minimum of 325 carparking spaces.
The Crown Lease included terms requiring the Crown lessee to grant a sublease to each of the lessees of each unit in Units Plan 1491 (which consisted of a building constructed on an adjoining block to the carpark, being Block 22, Section 22, Dickson) for a certain number of carparking spaces in the carpark at the rate of five cents per annum and for a term equivalent to that in the Crown Lease less one day.
Clause 3(l) of the Crown Lease said:
That the Lessee shall grant a sublease of or transfer to the lessee under each lease of each unit created in registered Units Plan 1491 and any subsequent Units Plan (hereinafter called "the Units Plan") in respect of the building erected on Block 22 Section 32 Dickson the number of carparking spaces in the carpark set opposite the units in the following table:
Unit 1 4 carparking spaces
Unit 2 2 carparking spaces
Unit 3 7 carparking spaces
Unit 4 2 carparking spaces
Unit 5 3 carparking spaces
Unit 6 4 carparking spaces
Unit 7 8 carparking spaces
Unit 8 3 carparking spaces
Unit 9 21 parking spaces
The relevant unit in this case is Unit 1.
Critically, the Crown Lease obliged the Crown lessee to include certain terms in the subleases concerning a transfer of the subleases and to whom the subleases could be transferred.
Clause 3(n) and 3(p) of the Crown Lease said:
(n) The subleases shall contain the following covenants on the part of the sublessee:
(i) The sublessee shall not transfer assign mortgage sublet or share or part with the possession of or grant any licence whatsoever in respect of any of the sublessee’s right title or interest in this sublease other than to a person who becomes a lessee of (Unit [1-9] in the Units Plan as the case may be);
(ii) The sublessee must transfer all of the sublessee’s right title and interest in the sublease to any person who becomes the lessee of (Unit [1-9] in the Units Plan as the case may be);
…
(p)(vii) The sublessor shall at all times observe the covenants and provisions of the Crown Lease of the carpark
In short, the sublease (in this case) was required to contain terms that the sublessee could not transfer the sublease to any person other than a person who owned Unit 1 (I use the term “own” to describe in simple terms the Crown lessee of Unit 1), and that the sublessee “must” transfer the sublease to any person who became the owner of Unit 1.
Also on 19 December 1996, Dickson Developments entered into a sublease for four carparking spaces on the Land to Takeshi Pty Ltd, the then owner of Unit 1 in the Unit Plan, for a term of 99 years less one day (as required by the Crown Lease).
Critically, the sublease contained certain terms concerning any transfer of the sublease. Those terms included a term concerning the procuring of consent of the sublessor (Crown lessee), a prohibition against the termination of the sublease by mutual agreement (of the sublessor and sublessee) and a covenant that the sublessor (Crown lessee) shall observe the covenants of the Crown Lease.
Those clauses said:
18.1(a) Subject to clause 18.1(b), the Lessee shall not transfer assign mortgage sublet or share or part with the possession of or grant any licence whatsoever in respect of any of the Lessee’s right title or interest in the Lease;
(b) The Lessee must at its own cost procure consent from the Lessor to transfer all of its right title and interest in this Lease to any person who becomes the Crown Lessee of the Unit.
…
18.3 …
(g) The Lessor shall at all times observe the covenants and provisions of the Crown Lease;
This dispute arises out of the fact that, contrary to clause 3(n) of the Crown Lease, the sublease did not contain the two clauses referred to in clauses 3(n)(i) and (ii) of the Crown Lease. That is, the sublease did not contain clauses to the effect that the sublessee could not transfer the sublease to any person other than a person who owned Unit 1 and that the sublessee “must” transfer the sublease to any person who became the owner of Unit 1.
The sublease did, however, contain (as it was required to contain) a clause that the sublessor (Crown lessee) shall at all times observe the covenants and provisions of the Crown Lease.
The sublease also contained a termination clause (upon which the plaintiff relies), being clause 4. That clause said:
4. TERMINATION
This Lease terminates (without any right of the Lessee to claim compensation or to make any other claim against the Lessor) on the earlier of:
(a) the expiration of the Term; or
(b) at the Lessor's absolute discretion, upon breach of any provision in this Lease by the Lessee.
On 8 May 2001 Dickson Developments sold the Land (transferred the Crown Lease) to Garaton Pty Ltd.
On 25 August 2020 Garaton entered into a contract for sale of the Land (the Crown Lease) to the plaintiff, Block 27 Pty Ltd.
On 1 October 2020 the sale from Garaton to the plaintiff was settled.
On or by that date Garaton had been paid the full purchase price by the time of settlement and had provided a transfer in registrable form to the plaintiff.
The transfer was lodged for registration on 10 November 2020 but a caveat by a third party prevented its registration until 6 April 2022.
This meant that, until 6 April 2022, Garaton remained on the title as the lessee of the Land under the Crown Lease. The plaintiff contends, and I am inclined to agree, that during this time when Garaton was a fully-paid vendor but remained as the registered proprietor of the Land, it held the Land under a bare trust in favour of the plaintiff and owed the plaintiff certain duties as a bare trustee and as a fiduciary. I shall return to these duties in due course.
From 25 August 2020 to March 2022 the directors of Garaton and Takeshi were identical. That is, between the entry into the contract for sale between Garaton and the plaintiff (25 August 2020) up until the date Garaton was de-registered on 21 March 2022, both Garaton and Takeshi had two directors each, and both directors in both companies were Loretta Cheung and Stephen Cheung.
The significance of those common directorships is that Garaton’s knowledge of the terms of the Crown Lease and the sublease was the same knowledge as that of Takeshi. Suffice to say for present purposes that the plaintiff contends that in the events which I am about to relate, Takeshi knew or ought to have known that what Garaton did in providing consent to the transfer of the sublease was (allegedly) legally wrongful.
On 29 March 2021, Takeshi entered into an agreement to sell Unit 1 to Qursa. That agreement was settled on 31 March 2021.
On 7 June 2021, Qursa became the registered owner of Unit 1.
At some time between March and June 2021 Takeshi sought consent from Garaton for Takeshi to transfer the sublease to Qursa.
At some unidentified date but before 7 June 2021, Garaton expressed its consent to the transfer of the sublease from Takeshi to Qursa.
Consent to the transfer was neither sought nor obtained from the plaintiff.
On 7 June 2021, Qursa lodged for registration a transfer of the sublease.
I presume that transfer was not registered because of the caveat mentioned at [24] above, but in any event when the plaintiff came to register its transfer (having agreed with the third party to removal of the third party’s caveat) on 6 April 2022, the plaintiff lodged its own caveat to prevent registration of the transfer of the sublease.
At some point after the sale of Unit 1 to Qursa, Takeshi parted with possession of the lessee’s right, title or interest in the sublease.
On 21 March 2022, Garaton was de-registered.
On 9 May 2022, the plaintiff issued a Termination Notice to Takeshi in relation to the sublease asserting that Takeshi had defaulted under the sublease by:
(1)transferring and/or assigning and/or parting with possession in respect of your right, title or interest in the Sublease;
(2)failing to obtain consent from the Lessor to transfer the Lessee's right, title or interest in the Sublease.
The plaintiff then commenced proceedings in this Court on 9 June 2022 against Qursa as first defendant, Takeshi as second defendant and the Registrar-General as third defendant.
The Registrar-General filed a submitting appearance on 16 June 2022.
On 29 July 2022, the plaintiff filed an Amended Originating Application, and the defendants have filed defences to that pleading (including an Amended Defence filed by Qursa pursuant to leave I granted during the hearing on 9 May 2023) and the plaintiff has filed a Reply to each defence.
By consent orders in this Court and agreement between the parties the status quo was agreed to be maintained until the matter was heard.
On 4 April 2023, Qursa’s solicitor wrote to the ACT Government Solicitor (as the body to notify concerning the possible involvement of the lessor under the Crown Lease) informing the latter of these proceedings, their general content and the view that the lessor under the Crown Lease may be a necessary party given the apparent breach of the Crown Lease by the lessee under the Crown Lease insofar as the sublease did not contain the terms required by clauses 3(n)(i) and (ii) of the Crown Lease.
By letter dated 21 April 2023 the ACT Government Solicitor indicated that the Territory, as represented by the Environment, Planning and Sustainable Development Directorate, did not intend to join the proceedings.
The issues
The plaintiff’s case
The plaintiff’s case was that during the period 1 October 2020 to 6 April 2022, while Garaton remained the registered lessee (under the Crown Lease) of the Land, it held the Land under a bare trust in favour of the plaintiff. This trust arose because Garaton was a fully paid vendor. As trustee, Garaton also owed the plaintiff (as the beneficiary of the trust) certain fiduciary duties.
The plaintiff contended that as bare trustee, Garaton was obliged to preserve the Land, the Crown Lease and the sublease (together making up the trust property) until such time as the title to the Crown Lease could be transferred to the plaintiff in accordance with the contract of sale.
The plaintiff contended that Garaton breached its duties as trustee (including its fiduciary duties) in providing consent to the transfer of the sublease.
The plaintiff contended that Takeshi had breached the sublease in failing to obtain the plaintiff’s consent to the transfer to Qursa, and had breached the sublease in parting with possession of the subleased premises.
Accordingly, the plaintiff sought the following orders:
(a)a declaration that the consent to transfer the sublease was granted by Garaton in breach of trust or alternatively in breach of fiduciary duty;
(b)an order rescinding Garaton’s consent to transfer the sublease ab initio;
(c)a permanent injunction restraining the third defendant from registering the transfer of the sublease; and
(d)a declaration that the sublease had been validly terminated.
The second defendant’s case
It is convenient to consider Takeshi’s case first.
Takeshi denied that the clause requiring the sublessee to obtain the consent of the sublessor (the lessee under the Crown Lease) is enforceable in circumstances where such a requirement is not a provision of the Crown Lease and is inconsistent with the provisions of the Crown Lease.
Takeshi submitted it had standing to enforce or otherwise rely on the Crown Lease because, if it was still the registered sublessee, it had standing under that sublease because the sublease contained clause 18.3(g) which said that the plaintiff would at all times observed the covenants of the Crown Lease.
Takeshi denied that the plaintiff was entitled to terminate the sublease in those circumstances.
The plaintiff’s reply to the second defendant’s case
In reply to Takeshi’s defence the plaintiff contended that Takeshi had no standing to enforce or otherwise rely upon the terms of the Crown Lease.
The plaintiff submitted that the obligation in clause 3(l) of the Crown Lessee to grant a sublease to the holders of units in Unit Plan 1491 was a one-off obligation that was complied with on or about 25 January 2000, and therefore had been exhausted and had no further operation.
The plaintiff denied that the obligation to obtain the consent of the sublessor was inconsistent with the Crown Lease and denied that it was unenforceable.
The plaintiff pleaded that Takeshi was estopped from claiming that it was not bound by the requirement to obtain the sublessor’s consent in circumstances where it agreed to that term (by signing the sublease). However, this particular claim was abandoned during final submissions.
The first defendant’s case
Qursa defined what it called the “disputed terms” in the sublease as being clauses 4(b) and 18. They were to the effect (according to Qursa) that any breach of the sublease by the sublessee was ground for termination of the sublease and that the sublessee was required to obtain consent of the sublessor for the transfer of the sublease.
Qursa contended that the disputed terms were invalid because they did not conform to what was required by the Crown Lease and that, in relying on the disputed terms, the plaintiff was in breach of the Crown Lease.
Qursa said that it sought declarations to the effect that the disputed terms were invalid, and said it sought orders requiring a new sublease to be granted to Qursa. However, no counterclaim had been filed seeking that relief.
Qursa contended that it had standing to argue these matters on the basis that clauses 3(l)-(q) of the Crown Lease were held by the Territory on trust for the owners of Unit 1, being the persons for whose benefit the Territory obtained the covenants. As a beneficiary of that trust Qursa claimed to be entitled to enforce those covenants.
Alternatively, Qursa contended that it was entitled to the declarations sought in its filed defence on the basis that, having purchased Unit 1 (including the right to possession of the four carparking spaces as an incident to ownership of Unit 1), it had a beneficial interest in the sublease (and was therefore privy to it) such that it had a relevantly special interest in the ascertainment of the proper construction and effect of the provisions of the Crown Lease.
On the assumption it had standing, Qursa contended that the disputed terms did not conform to the terms stipulated in the Crown Lease and therefore there was no basis for the sublease to be terminated either by agreement or on breach.
The plaintiff’s reply to the first defendant’s case
In response, the plaintiff contended that Qursa did not have standing to make the arguments it did as it was not a party to either the Crown Lease or the sublease and therefore could not sue under or enforce either of them.
The plaintiff maintained that it was both entitled and obliged to rely on the terms of the sublease as registered.
Decision summary
In summary, my view is that the sublease did not (and ought to have) contained the terms set out in clauses 3(n)((i) and (ii) of the Crown Lease. Equity regards as done what ought to have been done, and so I should treat the sublease as if clauses 3(n)(i) and (ii) were in it.
Those two clauses are prima facie inconsistent with clauses 18.1(a) and (b) of the sublease which required the procuring of consent from the sublessor before any transfer of a sublease could be effected. They are inconsistent if the consent referred to in clause 18.1(b) could be withheld by the sublessor.
Therefore, to avoid an inconsistency, clauses 18.1(a) and (b) should be construed as meaning that consent could never be withheld, in effect turning the clause 18.1(b) into a notice provision. Alternatively, if they are construed to mean that consent may be withheld, they are therefore inconsistent with clauses 3(n)(i) and (ii) and, to the extent of that inconsistency, should be ignored.
If I was wrong about the construction point, or ignoring clauses 18.1(a) and (b), I nevertheless would have declined relief to the plaintiff because clauses 18.1(a) and (b) are inconsistent with the plaintiff’s obligations under the Crown Lease (because on the plaintiff’s case they entitled the plaintiff to withhold consent) and equity will not assist a wrongdoer.
The proper construction of the Crown Lease
I shall first construe the Crown Lease although mention shall also be made of the sublease where necessary to understand the facts, or because it is otherwise convenient to do so because the same principles apply to the construction of the sublease.
The starting point for the proper construction of the Crown Lease, and the sublease, is that not all of the ordinary principles applying to the construction of contracts apply to those two instruments because they were registered.
In Westfield Management Ltd v Perpetual Trustee Co Ltd [2007] HCA 45; 233 CLR 528, a case which considered the proper construction of a registered easement, the High Court said at 539; [37] that (footnote omitted):
… [the] rules of evidence assisting the construction of contracts inter partes, of the nature explained by authorities such as Codelfa Construction Pty Ltd v State Rail Authority of NSW, did not apply to the construction of the Easement.
The rationale behind that holding was explained at 539; [39] as follows (footnote omitted):
The third party who inspects the Register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing and placing the third party (or any court later seized of a dispute) in the situation of the grantee.
That holding in Westfield was applied in Springrange Pty Ltd v Australian Capital Territory and ACT Planning and Land Authority [2010] ACTCA 17. Springrange involved the proper construction of a Crown Lease. In that case Gray P and Penfold J said at [12], citing Westfield in support:
Because the lease is a registered lease under the Torrens titles system, its terms fall to be construed without the aid of extrinsic materials that might cast light on the intention of the original parties.
That principle is not absolute. Gray P and Penfold J went on to say at [15]:
That is, of course, not to say that reference may not be had to documents the terms of which are incorporated into the public document (see Leichhardt Municipal Council v Terminals Pty Ltd (1970) 21 LGRA 44 at 50-51, Hope J citing Slough Estates Ltd v Slough Borough Council [No. 2] [1970] 2 WLR 1187 and Ryde Municipal Council v The Royal Ryde Homes (1970) 19 LGRA 321. Nor is it to disagree with the comment of Gyles J in Bowler v Hilda at [59]:
Evidence, for example, might be relevant to identify the land and the parties or to give context to particular covenants in the ordinary way: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367.
Of course, in this case both the Crown Lease and the sublease were registered, with the Crown Lease being registered on 16 January 1997 and the sublease being registered on 25 January 2000.
In this case, the plaintiff accepted (at T 185.15) that if the sublease made a reference to another document so that it could not be understood without looking at that other document, then the other document could be examined to “give full faith and credit to the registered document.” That may be putting the matter a little high expressed in those general terms, but what the plaintiff was really expressing was that the Crown Lease could be considered when construing the sublease because the Crown Lease is referred to in the sublease. I think the plaintiff’s submission is correct for two reasons.
First, the Crown Lease was registered and so would have been available to a third party inspecting the register and thus appears to fall within the High Court’s rationale in Westfield referred to above if, which I think is the case, the High Court’s reference to “look[ing] further” means looking beyond the Register.
Second, the sublease expressly obliges the sublessor to observe the covenants and provisions of the Crown Lease: clause 18.3(g). It follows that the full extent of the sublessors obligations in the sublease could not be identified and understood without reference to the covenants and provisions of the Crown Lease. Clause 18.3(g) does not incorporate the terms of the sublease by reference, but it does refer to them and, within the sublease, does oblige the sublessor to observe them.
Having noted that in construing these registered instruments one should not look at extrinsic material beyond the Register, it can be said that the other principles of construction of contracts apply.
Those principles have been mentioned in a number of High Court decisions but were summarised in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640. In that case French CJ, Hayne, Crennan and Kiefel JJ said at 656–657; [35] (footnotes omitted):
Both Verve and the Sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
Of course, I do not apply any statements in that paragraph which conflict with Westfield and Springrange.
I have set out the relevant terms of the Crown Lease above. Clause 3(n) is clear and there was no dispute about its meaning in this case. The sublease was required to contain the terms specified.
There was a dispute as to the proper construction of clause 3(l) of the Crown Lease. For convenience I set out the relevant words of the clause minus its Table. The clause said:
That the Lessee shall grant a sublease … to the lessee under each lease of each unit created in registered Units Plan 1491 and any subsequent Units Plan … in respect of the building erected on Block 22 Section 32 Dickson …
Clause 3(m) is also relevant. It said:
The subleases granted pursuant to subclause (l) ("the subleases") shall be for a term equivalent to the term of the leases granted under the Unit Titles Act 1970 less one day.
It was common ground between the parties that the term required by clause 3(m) was 99 years less one day.
The plaintiff submitted that the obligation in clause 3(l) to grant a sublease was a one-off obligation and once a sublease had been granted to the first owner of Unit 1, the obligation was exhausted or fulfilled and there was no continuing obligation under that clause for the sublessor to grant subleases to future owners of Unit 1.
I was not initially attracted to this submission but on reflection I have come to the view that the plaintiff’s submission is correct for two reasons.
First, clause 3(m) required the subleases for each of the nine Units to be of the same duration as the Crown Lease less one day, and in this case that was the fact. Both the Crown Lease and sublease contained the same commencement date (19 December 1996). The term of the Crown Lease was 99 years and the term of the sublease was 99 years less one day.
If the plaintiff was obliged to grant subleases to future owners of the Units, then clause 3(m) would require those subleases to be for a term of 99 years less one day. As those subleases would have commencement dates after, and some well after, the commencement date of the Crown Lease, their term would extend beyond the expiry of the Crown Lease. That could not have been intended.
Second, if the effect of the inclusion in the subleases of the terms referred to in clauses 3(n)(i) and (ii) is that the subleases must be transferred to incoming purchasers of the Units, which is the view I have taken, then imposing an obligation on the sublessor to also grant a sublease to an incoming purchaser would be absurd. There would be no need for the sublessor to grant a sublease to someone who had just taken a transfer of a sublessor from the outgoing vendor of a Unit.
Clause 3(o) also requires mention. That clause says that the sublease had to contain a term that the sublessor and sublessee could not terminate the sublease by mutual agreement. The meaning of that clause is free from doubt, but its importance in this case is the complexion it gives to the commercial purpose of the Crown Lease and, in turn, the proper construction of the sublease.
Returning to clauses 3(n)(i) and (ii), those clauses required the sublease to contain terms to the effect that:
(a)the sublessee could not transfer the sublease to anyone other than a person who became a lessee (owner) of Units 1-9 in the Units Plan; and
(b)the sublessee “must” transfer all of the sublessee’s interest in the sublease to any person who became the lessee (owner) of Units 1-9.
In my view a reasonable businessperson reading the clauses together would understand those terms to mean that, for the duration of the sublease (99 years less one day) any sublessee was not only prohibited from transferring the sublease to someone other than a subsequent owner of a Unit, but was obliged to transfer (“must transfer”) the sublease to an incoming purchaser of the relevant Unit.
Thus, the commercial purpose of the clauses I have referred to was to oblige the sublessor to enter into one sublease per Unit for a certain number of carparking spaces, each sublease being for 99 years less one day. The subleases were not terminable by mutual agreement. Each sublessee was prohibited from transferring a sublease to anyone other than an incoming purchaser of the relevant Unit and each sublessee was obliged to transfer the relevant sublease to the incoming purchaser.
Put more simply, the commercial purpose or the commercial result sought to be achieved by the Crown Lease was to secure the specified number of carparking spaces for each of the owners (from time to time) of the Units for the term of the Crown Lease less one day.
Equity regards as done what ought to have been done
The modern formulation of this maxim is that equity often (not always) regards as done that which ought to be done: Young, Croft, Smith, On Equity, LawBook Co, 2009 at [3.450].
The maxim applies to trusts, Orders of a Court and, relevantly, to contracts which are specifically enforceable: Young at [3.470], Meagher, Gummow & Lehane Equity Doctrine & Remedies, LexisNexis Butterworths, 5th ed, at [3-215].
In this case the plaintiff (as successor in title to the original sublessor) had agreed with Takeshi in clause 18.3(g) of the sublease that the plaintiff would, at all times, observe the covenants and provisions of the Crown Lease.
Two of those covenants and provisions were clauses 3(n)(i) and (ii) which required the sublease to contain the terms specified.
There is no doubt that the sublease did not contain the specified terms.
It follows that Takeshi had a right (per clause 18.3(g)) to seek specific performance of clause 18.3(g) against the plaintiff, namely, to grant Takeshi a sublease in the terms required by the Crown Lease (namely, to include the terms specified in clauses 3(n)(i) and (ii)), or to have the existing sublease rectified to include those terms.
In answer to that proposition, the plaintiff argued that specific performance would not be available, or would be refused, because Takeshi had agreed to the terms of the sublease as executed (and which omitted clauses 3(n)(i) and (ii)).
However, I do not see that as an answer in this case for two reasons.
First, whilst it is true that clauses 3(n)(i) and (ii) are not in the sublease, and if one assumes that Takeshi at least ought to have known of that fact, it remains the case that clause 18.3(g) is also in the sublease, and that clause (by express agreement between the parties) requires the plaintiff to “at all times” observe the covenants and provisions of the Crown Lease. That is, clause 18.3(g) is on ongoing obligation which both parties agreed to and which, at all times, obliges the sublease to contain the terms specified in clauses 3(n)(i) and (ii).
In other words, clause 18.3(g) is an objective indication (indeed, an agreement) that both parties expected the plaintiff to do things after execution of the sublease and the execution of the sublease in the terms it does contain did not amount to some acceptance of a sublease without clauses 3(n)(i) and (ii).
Secondly, the Crown lessor would also have a right to seek specific performance against the plaintiff, the specifically enforceable right being to enforce the obligation on the plaintiff to insert the terms specified in clauses 3(n)(i) and (ii) into the sublease. It did not consent to the omission of the terms specified in clauses 3(n)(i) and (ii) from the sublease. Therefore, it would be inconsistent to say that the sublessee could not obtain the same relief as the Crown lessor when seeking specific performance of the same obligation.
For those reasons I am of the view Takeshi had a specifically enforceable right (which would not be refused) under clause 18.3(g) to require the plaintiff to include the terms specified in clauses 3(n)(i) and (ii) into the sublease. That could be achieved by issuing a new sublease containing the required terms (but otherwise with identical terms) or by rectifying the existing sublease.
Returning to the equitable maxim, its operation in relation to contracts originally stems from Walsh v Lonsdale (1882) 21 Ch D 9; [1881-5] All ER Ext 1690.
This maxim was considered by the High Court in The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; 157 CLR 17. In that case the High Court was concerned with a dispute arising in relation to an unregistered lease. Mason J, with whom Wilson, Deane and Dawson JJ agreed, said at 26 (footnotes omitted):
In equity, however, a written lease not under seal was regarded as evidencing an agreement for lease. As an agreement for lease was capable of specific performance equity would decree specific performance of the written lease by ordering the execution of a lease under seal. In the meantime, in accordance with the doctrine of Walsh v. Lonsdale, the relationship between the parties in equity was that of landlord and tenant: Carberry v. Gardiner.
(Emphasis added)
His Honour then explained at 26–7 (footnotes omitted):
An understanding of the position as it now obtains in New South Wales, following the enactment of the Supreme Court Act 1970 (N.S.W.), may be gleaned from the observations of Jordan C.J. in Dockrill v. Cavanagh. His Honour said:
After the passing in England of the Judicature Acts, which invested the superior courts with jurisdiction in both equity and common law, it was held that in a court which possessed the combined jurisdictions … a party to an agreement for a lease, if the lease was specifically enforceable … could obtain against the other all the remedies which would be available to him if a proper lease had actually been executed …
(Emphasis added)
That is, if specific performance would be granted, then (in this case) Takeshi could obtain all the remedies which would have been available to it had a sublease with all the terms required by the Crown Lease to be in it been executed.
In Chan v Cresdon [1989] HCA 63; 168 CLR 242 the Court was concerned with a guarantee given in relation to an unregistered lease. So far as concerned the lease, Mason CJ, Brennan, Deane and McHugh JJ described the respondent’s contention at 250 in the following terms (footnote omitted):
The respondent's next contention is that the unregistered lease amounts to an equitable lease to which the relevant covenants may be related. The argument, which invokes the doctrine in Walsh v. Lonsdale, is that the lease, though ineffective to create a "legal" lease until registration, was effective to bring into existence an equitable lease for a term of five years on the footing that equity regards as done what ought to be done.
After discussion of the authorities, their Honours said at 252 that the authorities established two propositions. Their Honours said:
For present purposes these authorities establish two propositions. First, the court's willingness to treat the agreement as a lease in equity, on the footing that equity regards as done what ought to be done and equity looks to the intent rather than the form, rests upon the specific enforceability of the agreement. Secondly, an agreement for a lease will be treated by a court administering equity as an equitable lease for the term agreed upon and, as between the parties, as the equivalent of a lease at law, though the lessee does not have a lease at law in the sense of having a legal interest in the term.
Their Honours cited with approval Cotton LJ’s decision in Lowther v Heaver (1889) 41 Ch. D. 248 to the effect that the rights of a tenant holding under an agreement for lease of which specific performance would be decreed ought to be dealt with in the same way as if a lease had been granted to him.
The result is that I should treat the parties’ contractual rights as if the sublease was as it should have been, namely, that it contained the terms specified in clauses 3(n)(i) and (ii) of the Crown Lease.
The proper construction of the sublease
I have referred above to my view that clauses 3(n)(i) and (ii) obliged the sublessee (Takeshi) to transfer the sublease to the subsequent owner of Unit 1 (Qursa).
I have also referred above to clause 18.3(g) of the sublease obliging the sublessor to at all times observe the covenants and provisions of the Crown Lease.
In my view, as expressed at [76]–[78] above, the sublease should be construed in light of the provisions of the Crown Lease, it being available to someone who inspects the Register and it being specifically referred to in clause 18.3(g).
The question then is, are the terms specified in clauses 3(n)(i) and (ii) inconsistent with clauses 18.1(a) and (b). Put another way, can the sublessor prohibit a transfer of the sublease by withholding its consent (which is the plaintiff’s case)?
In my view the sublessor cannot.
It must be remembered that the effect of the term specified in clause 3(n)(ii) is to oblige Takeshi to transfer the sublease to Qursa. The clause uses the word “must” which is a word of obligation. Takeshi accordingly had no choice but to transfer the sublease. I note that the word “must” is used and not an expression such as “shall use its best endeavours” or something similar.
Nor does the term specified in clause 3(n)(ii) contain any words of limitation such as “unless the consent referred to in clause 18.1(b) is not procured”.
I have found above at [94]–[95] that the commercial purpose of the Crown Lease was to provide the first and each subsequent owner of each Unit with a sublease for the specified number of carparking spaces. That consideration, and the terms of the Crown Lease, inform the construction of the terms of the sublease.
In my view the clause requiring the procuring of consent of the sublessor is, to the extent that the clause may allow consent to be withheld, directly inconsistent with the clause requiring Takeshi to transfer the lease to Qursa (being the term specified in clause 3(n)(ii)) and indirectly inconsistent with the term of the sublease being 99 years less one day. Withholding consent (if the clause allows it on its proper construction) would prevent Takeshi from complying with its obligation to transfer the sublease.
The plaintiff submitted that such a situation would be allowable, and Takeshi could simply say to Qursa that it had done its best. But I do not agree. That submission could only be accepted if one read the word “must” as “must use its best endeavours”. I do not think that it should be construed that way for two reasons.
First, it would be to add words that do not appear in the term, thereby fundamentally altering the agreed obligation and fundamentally altering the bargain reached.
Second, it would run counter to the commercial purpose of the Crown Lease and subleases, namely, to provide carparking spaces for each owner (from time to time) of each Unit for the term of the Crown Lease less one day.
The terms specified in clause 3(n)(i) and (ii) say nothing about whether consent may be withheld, and if so, on what basis it may be withheld. Ordinarily in such circumstances one implies a term to the effect that the consent may not be unreasonably withheld, but I do not consider such a term would be implied in this case.
To construe the term specified in clause 3(n)(ii) as allowing the plaintiff to withhold consent on any basis, reasonable or otherwise, would frustrate the commercial purpose of the Crown Lease and sublease by allowing the plaintiff to bring the sublease to an end if consent were withheld, and would be inconsistent with Takeshi’s mandatory obligation to transfer the sublease to Qursa.
In ASSK Investments Pty Ltd v AMA Group Limited [2020] NSWSC 1756 Hammerschlag J noted at [29] the well-known proposition that preference is given to a construction which supplies a congruent operation to the various components of the whole contract, and which therefore avoids commercial inconvenience. His Honour noted that where language is open to more than one construction, the Court will prefer a construction which avoids consequences which are capricious, unreasonable, inconvenient or unjust.
I disagree with the defendants’ submission that because clauses 3(n)(i) and (ii) derive from the Crown Lease then they have some dominating effect. There is no warrant for such a construction. I agree with the plaintiff’s submission that those clauses fall to be construed with the other clause of the sublease on the usual principles.
In my view the construction to be given to clause 18.1(b) is that the consent referred to therein may not be withheld in any circumstances. Such a construction works harmoniously with the terms specified in clauses 3(n)(i) and (ii), is consistent with the commercial purpose of the Crown Lease and sublease and avoids, in the particular circumstances of these subleases, consequences which I regard as being unreasonable or unjust.
Another process of reasoning which arrives at the same result is to consider the approaches available when faced by inconsistent provisions. That is, if clause 18.1(b) allows for consent to be withheld, it is inconsistent with the terms specified by clauses 3(n)(i) and (ii).
Sackar J summarised the approaches available when faced by inconsistent provisions in Peter Holmes Investments Pty Ltd v S&C Nicola Pty Ltd [2021] NSWSC 1174. His Honour’s Orders were overturned on appeal (S&C Nicola Pty Ltd v Peter Holmes Investment Pty Ltd [2022] NSWCA 72), but the Court of Appeal did not disagree with his Honour’s summary of the principles mentioned below.
His Honour said:
10. An inconsistency arises where there are conflicting or contradictory provisions within the one instrument with the result that it is not possible to give effect to both (Forbes v Git [1922] 1 AC 256 at 259 ).
11. There are multiple approaches that may be taken to reconcile such provisions (see J D Heydon, Heydon on Contract (Thomson Reuters, 2019) (“Heydon on Contract”) (at [8.640]). First, as courts must construct contracts as a whole, where these inconsistencies arise, they are to be resolved, if possible, on the basis that one provision qualifies the other and they both have the same meaning and effect (Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corp Pty Ltd (No 1) (1993) 178 CLR 379; [1993] HCA 40 (“Re Media”) at 396–7). A second method is to read one provision down so that it does not deal with the field in which the second provision operates in apparent conflict (Re Media at 387). A third is to determine which the “initial and dominant” provision is and treat the other as giving way to it (Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140; [1930] HCA 10 at 151–152 per Isaacs J). Finally, a court may give effect to the provisions which best fit the construction of the contract as a whole and ignore the others (Taylor v Dexta Corp Ltd (2006) 14 ANZ Insurance Cases 61-712; [2006] NSWCA 310 at [1], [66] and [89]).
His Honour’s first page reference to Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corp Pty Ltd, namely at 396–7 contains a typographical error. The correct page reference is 386–7.
The third and fourth approaches are most apt in this case. If reasoning along these lines as an alternative to the reasoning I have adopted above, I would have regarded the terms specified in clauses 3(n)(i) and (ii) to be the initial and dominant provisions for three reasons. First, they were mandated by the Crown Lease. Second, the sublessor was obliged to include them in the sublease. Third, the inconsistent provisions were added to the sublease without the agreement of the Crown Lessor and in apparent conflict with clauses 3(n)(i) and (ii). In those circumstances they should be treated as giving way to the initial and dominant provisions identified.
Alternatively, it would be appropriate to adopt the fourth approach and ignore clauses 18.1(a) and (b) altogether because the terms specified by clauses 3(n)(i) and (ii) best fit the construction of the sublease as I have set out above.
That would accord with the principles set out in Taylor v Dexta Corporation Limited and Others [2006] NSWCA 310. In that case the Court of Appeal was concerned with a contract of insurance which contained inconsistent provisions. Beazley JA, as Her Excellency then was, agreed with both Santow JA and Ipp JA. Santow JA said at [66]:
To the extent there is an inconsistency between the schedule and Part A, it accords with well-settled principles of interpretation to give primacy to the operative provision of the policy, namely Part A. Therefore I would recognise that “where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected”; “Chitty on Contracts” (2004) at 12–078 and the authorities cited, in particular Walker v Giles (1848) 6 CB 662 at 702; Love v Rowtor Steamship Co ltd [1916] 2 AC 527 at 353; Sabah Flour and Feedmills Sdn. Bhd. v Comfez Ltd [1988] 2 Lloyd’s Rep 18, AMP Financial Planning Pty Ltd v CGU Insurance Limited (2004) 13 ANZ Insurance Cases 61–624 at [120] citing Chitty as above.
(Emphasis original)
Ipp JA said at [89]:
According to Chitty on Contracts, Vol 1, 29th ed, para 12–078:
Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected.
This passage is an unexceptional statement of the law of contract. It was approved in AMP Financial Planning Pty Limited v CGU Insurance Limited (2004) 13 ANZ Insurance Cases 61-624.
Therefore, in my view clause 18.1(b) should be construed as meaning that the consent referred to therein could never be withheld. In that way the clause operates more as a notice provision than as a true consent provision.
If I am wrong about that construction, and the proper construction is that consent may be withheld, I would find that the consent provision was inconsistent with the terms specified in clauses 3(n)(i) and (ii) and should give way to those clauses or, alternatively, should be ignored.
The plaintiff submitted that the obligations in the Crown Lease requiring the sublease to contain specific terms were minimum obligations which the Crown lessee was required to include in the subleases, and the parties could agree to additional consistent terms in the sublease. I agree with the submission and on the construction I have given the consent clause (that consent could never be withheld), the terms are consistent. If the consent clause allows consent to be withheld, then the term is not, in my view, consistent with clauses 3(n)(i) and (ii) of the Crown Lease.
The plaintiff submitted that there was nothing in the Crown Lease which prevented the sublessees and sublessors from later varying the sublease. I disagree insofar as the submission encompasses a submission that the parties could agree to vary the sublease in ways inconsistent with the requirements for the sublease set out in the Crown Lease. The sublessee is not able to agree that the Crown lessee/sublessor breach the Crown Lease.
The plaintiff submitted that because the sublease was registered then none of its terms could be considered invalid (T 50-51). That is a poor summary of the plaintiff’s more eloquent submission, but it captures the essence of it.
The submission does not counter the construction I have given the consent clause (that consent can never be withheld). On the alternative construction, that the clause is inconsistent with other clauses, the submission is based on the assertion that a person would have to look outside the Register. That is not correct because the inconsistency arises from the obligations imposed on the sublessor in the Crown Lease (and which it promised to observe at all times in the sublease) which was itself a registered instrument and available to anyone inspecting the Register.
The plaintiff submitted that no “residual equity” could survive s 58 of the Land Titles Act1925 (ACT). But that section is concerned with equitable interests, whereas a decree of specific performance is an equitable remedy and, as such, does not fall within s 58. Indeed, a decree of specific performance would be to force the plaintiff to perform the legal obligations it had agreed to in the Crown Lease via its promise to the sublessee to do so in clause 18.3(g).
The question does not arise in the present case, but if I am correct about the proper constructions of these clauses, it would seem to follow that clause 4 (the termination clause) could not survive in its present absolute form. That is, for example, to allow the sublessor to terminate the sublease for a failure to give notice (as I consider clause 18.1(b) requires as a matter of substance) would be prima facie inconsistent with the proper construction of the other clauses of the sublease I have considered above. But I do not need to decide that issue as the consent of the registered sublessor was obtained (or notice was given) and so no contractual breach arises.
The bare trust and fiduciary duty
The plaintiff contended that Garaton held the land under a bare trust in favour of the plaintiff. This trust arose, the plaintiff submitted, because Garaton was a fully paid vendor and, as trustee, Garaton also owed the plaintiff (as the beneficiary of the trust) certain fiduciary duties.
Neither defendant argued to the contrary. Qursa accepted that Garaton was in the position of a bare trustee on having been paid the full purchase price (T 46.15–19) as did Takeshi (T 135.27–40).
In those circumstances I am prepared to assume that Garaton was a bare trustee as the plaintiff alleges without deciding the point myself.
As trustee, it could not be disputed that Garaton would owe fiduciary duties to the beneficiary, being the plaintiff. Neither defendant contended to the contrary.
However, as I have found that clause 18.1(b) was in effect a notice provision (consent could never be withheld) and as it was common ground between the parties that notice had been given to the registered sublessor, there was no breach of trust or fiduciary duty by Garaton. That is because Garaton only did exactly what the plaintiff would have been required to do, namely, to give consent.
A bare trustee’s duty is to preserve the trust property and the mere receipt of notice of the proposed transfer to Qursa (the asking for a consent which could not have been refused for any reason) did not detrimentally affect the trust property. In that circumstance there was no breach of trust, nor could was there a breach of fiduciary duty.
The plaintiff also pleaded that Garaton’s duty (as bare trustee or as a fiduciary) was not to deal with the trust property without first obtaining the express consent of the plaintiff. Assuming such a duty existed, Garaton did not deal with the trust property (in the relevant sense) merely by the receipt of a notice of transfer of the sublease or the giving of a consent which could never have been refused.
Bare trustees sometimes have to act without reference to the beneficiary. An example is the taking of steps to preserve the trust property. Thus, the receipt of notice of the proposed transfer by the registered sublessor complied with the sublessee’s obligation to give that notice, and there was no breach of the lease by not giving notice to the plaintiff because notice had to be given to the registered sublessor.
The plaintiff also pleaded that Garaton’s duty was not to act when it had a conflict between the duty it owed the plaintiff and duties it owed itself or its related entities. Assuming such a duty, and assuming such a conflict (which I doubt existed), Garaton did not act. It took no step of any active kind because it was a mere passive recipient of the notice. Perhaps it could be said that it acted in providing consent, but I would not take that view where Garaton could not do otherwise than to provide that consent.
It follows from the above that Takeshi was not in breach of the terms of the sublease. Indeed, Takeshi was obliged to transfer the sublease to Qursa. Accordingly, the plaintiff’s Termination Notice was invalid as there was no breach of the sublease.
Conclusion
It follows from what I have just said that the proceedings should be dismissed with costs.
I make the following orders:
(1)The proceedings are dismissed.
(2)The plaintiff’s caveat bearing dealing number 3151743 is to be removed forthwith.
(3)The plaintiff is to pay the defendants’ costs.
| I certify that the preceding one hundred and sixty [160] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Acting Justice Curtin. Associate: Date: 7 June 2023 |
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