CDLC Pty Ltd v Capital Estate Developments Pty Ltd (No 2)

[2023] ACTSC 321

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:

CDLC Pty Ltd v Capital Estate Developments Pty Ltd (No 2)

Citation: 

[2023] ACTSC 321

Hearing Date: 

7 November 2023

Decision Date: 

9 November 2023

Before:

McCallum CJ

Decision: 

(1)    Dismiss the application for orders 4, 5 and 6 sought in the application filed on 7 November 2023.

(2)    Stand the matter over for mention before me on 14 November 2023 at 9:30am. 

Catchwords: 

CIVIL LAW – APPLICATION – Application for interlocutory relief pending final hearing  – commercial tenancy – where original lease terminated by agreement – where interim lease granted pending sale of business on terms providing for new lease with purchaser – where sale subject to lessor’s consent – where lessor entitled to refuse consent only if it is reasonable in all the circumstances to do so – where lessor refused consent – substantive claim by lessee for specific performance on ground that refusal of consent was not reasonable  – where interim lease terminated by effluxion of time – application by lessee for interlocutory relief permitting it to occupy premises on terms of proposed new lease pending determination of substantive claim    

Legislation Cited: 

Leases (Commercial and Retail) Act 2001 (ACT) ss 11, 95, 100

Cases Cited: 

CDLC Pty Ltd v Capital Estate Developments Pty Ltd [2023] ACTSC 284

Trident General Insurance v McNiece (1988) 165 CLR 107

Parties: 

CDLC Pty Ltd (ACN 624 214 400) (First Plaintiff)

Pouring Pty Ltd (ACN 637 678 310) (Second Plaintiff)

Capital Estate Developments Pty Ltd (ACN 137 573 623) as trustee for Capital Estate Developments Trust (First Defendant)

NURCAF Pty Ltd (ACN 663 819 216) (Second Defendant)

MDPUB Pty Ltd (ACN 663 819 243) (Third Defendant)

Representation: 

Counsel

B Buckland ( Plaintiffs)

P Walker SC with J Nottle ( Defendants)

Solicitors

McGilvray Law ( Plaintiffs)

Trinity Law ( Defendants)

File Number:

SC 494 of 2022

McCALLUM CJ:       

1․By application filed 7 November 2023, CDLC Pty Ltd seeks interlocutory orders pending a final hearing listed in May 2024.  The application was said to be urgent.  Before addressing the relief sought and the reason for the contended urgency, it is necessary to explain the circumstances in which the application is brought. 

2․The first defendant, Capital Estate Developments Pty Ltd, is the owner of two separate commercial premises.  The plaintiffs are the sublessees of those premises.  For present purposes it is enough to consider the position concerning the premises subleased to CDLC, at which a cafeteria is operated.  I will refer to the sublease of those premises as the Morning Dew lease. 

3․The Morning Dew lease was a turnover lease, that is, one in which the rent required to be paid by CDLC to Capital Estate was a percentage of the turnover of the cafeteria business.  A dispute concerning alleged breaches of the lease consisting in alleged failures to provide the financial information required under the lease was resolved by a deed of settlement.  Importantly, that is the document that governs the relationship between CDLC and Capital Estate and creates their respective rights. 

4․The deed of settlement relevantly provides:

(a)that the Morning Dew lease was terminated with effect from 31 July 2022;

(b)that CDLC would enter into an interim lease with the lessor until the earlier of the sale of the Morning Dew business or 15 December 2022;

(c)that CDLC was required to request the lessor’s consent to the proposed purchase of the business, which was taken to be a request for consent to an assignment to the purchaser under s 95 of the Leases (Commercial and Retail) Act 2001 (ACT), and that CDLC was required for that purpose to provide certain information to the lessor;

(d)that the lessor had seven days to advise of its decision after a request for consent to the purchase was made;

(e)that the lessor was permitted to refuse consent to the proposed purchase only on the terms of s 100 of the Leases (Commercial and Retail) Act.

5․The drop-dead date for the sale of the Morning Dew business was accordingly 15 December 2022.  If the business had been sold by that date, the incoming purchaser would have obtained the benefit of a new lease in accordance with the terms of the deed.  If the business was not sold, any proprietary interest CDLC had in the subleased premises came to an end on and from that date.

6․In the period leading up to 15 December 2022, CDLC duly sought Capital Estate’s consent to a proposed sale to the second defendant, NURCAF Pty Ltd.  On 13 December 2022, that was refused.  CDLC contends that it was not reasonable to refuse consent to the sale in all the circumstances.   

7․As noted by Mr Walker SC, who appears for Capital Estate, those circumstances did not give rise to a dispute as to consent to the assignment of a sublease under the Leases (Commercial and Retail) Act. While the terms of s 100 were incorporated by reference into the deed of settlement and adopted as the test for the lessor’s consent to the sale, the parties’ rights are contractual, being governed by the deed of settlement.

8․On 15 December 2022, CDLC brought an application for urgent interlocutory relief to prevent its entitlement to remain in possession of the Morning Dew premises from coming to an end.  That application came before McWilliam AsJ (as her Honour then was).  Over the objection of Capital Estate, her Honour made the following orders:

1.     The plaintiffs are permitted to continue in occupation of the premises which are the subject of the interim leases, and are required to observe the terms of those leases save as to any term of the said leases, the deed of settlement, or heads of agreement requiring the plaintiffs to vacate the premises.

2.     The defendants are hereby restrained from taking any other steps to take possession of the premises, including seeking any warrant for eviction. 

3.     The hearing of the proceedings is expedited and the matter is listed for hearing before the Associate Judge on 2 March 2023. 

9․Her Honour did not publish reasons for making those orders.  In saying so, I acknowledge the difficult circumstances in which the application had to be determined.  The hearing commenced after usual court sitting hours on the second last day of the law term and concluded at 6:00pm that day.  I simply observe that it is not possible to know the kind of interest her Honour intended to protect by the relief granted or how her Honour characterised that interest.

10․Unfortunately, the hearing contemplated for 2 March 2023 did not proceed as a substantive hearing of CDLC’s claim in respect of the alleged lack of reasonableness of the refusal of consent. The reason, as I understand it from the brief information provided during the urgent hearing before me, is that there was an intervening dispute between the parties as to the categories of information to which the Court was entitled to have regard in determining the reasonableness of the refusal of consent in accordance with the terms of s 100 of the Act, which (as I have explained) was incorporated into the contract as the test for refusal to consent to the sale of the business. McWilliam AsJ heard argument on that confined issue and determined it in a judgment published on 12 October 2023: CDLC Pty Ltd v Capital Estate Developments Pty Ltd [2023] ACTSC 284. Following the publication of that judgment, the final hearing was fixed for May 2024.

11․It is the effluxion of time that has created the urgency contended for by CDLC in bringing its application last Tuesday, 7 November 2023.  The allocated duty judge for the day being in Court at the time, I listed the application before myself in circumstances where it was contended that it had to be heard and determined before close of business on 8 November 2023.  As I was due to be absent from the Court on 8 November 2023, Capital Estate agreed that it would not take any point as to the passage of an additional two days before the determination of the present application.

12․I come then to explain the alleged urgency of the application.  It is that the interim lease, the terms of which were attached to the deed of settlement and the operation of which McWilliam AsJ continued by her interim orders of 15 December 2022, contains no option for the incoming purchaser/sub-lessee to renew the lease.  Had Capital Estate given its consent for the sale before 15 December 2022, the incoming purchaser would, in accordance with the deed of settlement, have obtained a new lease under which it would have had an option to renew the lease beyond its initial term, which expires next May.  The option would have been required to be exercised on or before 8 November 2023 (yesterday). 

13․CDLC accordingly attempted to preserve the benefit of its proposed sale by writing to inform Capital Estate that the incoming purchaser wished to give notice (under cl 27 of a lease to which it is not yet a party) purporting to exercise the option.  The terms of the correspondence by which CDLC did so are in a letter from McGilvray to Trinity Law, the respective law firms representing CDLC and Capital Estate, which concluded as follows:

We are instructed that the proposed purchaser wishes to exercise its option to renew the new lease.  This letter hereby serves as notice to your client under clause 27 of the new lease.

14․In the circumstances I have described, the giving of such notice was understandable but, with respect, misconceived.  Capital Estate rejected the purported notice to exercise the option on the basis that no relationship exists between it and the proposed purchaser.  That is the fact.  The new lease does not exist. 

15․Capital Estate explained its position in a response to the correspondence from McGilvray dated 6 November 2023 as follows:

As we noted in the writer’s email to you this morning, the purported exercise of the option assumes, wrongly, that there exists a relationship between [Capital Estate] and Nurcaf, the purported buyer.  A relationship may come into existence if [CDLC] is successful in seeking declaratory relief, and if [CDLC] is granted specific performance by the Court in exercising the whole of its equitable jurisdiction. 

In relation to the latter point, and putting the [CDLC]’s case at its highest, there is no guarantee that a Court exercising its equitable jurisdiction will grant the order of specific performance.  It is our view that the Court will have regard to the conduct of all parties including that of [the proposed purchaser], and the events occurring since the institution of the proceedings including the behaviour of [the proposed purchaser]’s director and its purported guarantor.  When it does undertake that task, the Court may well come to the view that damages may be a more appropriate remedy insofar as the [CDLC and the second plaintiff]’s claims are concerned.  We suggest that the Court will have regard to the reasoning in Waltons Stores (Interstate) Ltd v Maher, for example.  In that case, the High Court upheld the primary Judge’s decision at first instance (as did the New South Wales Court of Appeal) that damages were an adequate remedy in lieu of specific performance. 

As we said, that puts [CDLC]’s case at its highest, which as you know, is not [Capital Estate]’s position.  Rather, it is the case that the [Capital Estate] was reasonably entitled to withhold its consent.

(Footnote omitted.)

16․Against that background, I return to the application that came before me last Tuesday.  The relief sought by CDLC in respect of the Morning Dew premises is as follows:

4.     On the usual undertaking as to damages being given by the director of the First Plaintiff, namely Arthur Choi, through his counsel until further order:

a.the First Plaintiff is permitted to continue in occupation of the Morning Dew premises in accordance with the terms of the new Morning Dew lease and is required to observe the terms of the said lease;

b.the first defendant is required to observe the terms of the new Morning Dew Lease; and

c.the first defendant is hereby restrained from taking any steps to take possession of the Morning Dew premises, including seeking any warrant for eviction.

17․It is necessary to pay close attention to the nature of the interest sought to be protected by the relief sought.  As already explained, CDLC’s claim is in contract.  Following the termination of the interim lease by force of the operation of the deed of settlement on 15 December 2022, CDLC has no proprietary interest in the Morning Dew premises and no ongoing entitlement to remain in possession of those premises. 

18․Conversely, however, if it is determined that Capital Estate was in breach of the deed of settlement by refusing consent to the sale of the business, it is not necessarily the case that CDLC’s remedy lies only in damages.  Mr Walker submitted that that would be the appropriate remedy, but there is insufficient information before me to be satisfied that that is the case.

19․The incoming purchaser, which is not the applicant for the present relief, may have a species of inchoate proprietary right, in that the deed of settlement provides for it to obtain the new lease, which is the lease referred to in the relief sought, including the option under cl 27 to renew the lease.  However, the fact that the incoming purchaser is neither the applicant for the relief sought nor a party to any relationship with Capital Estate poses an obvious difficulty. 

20․Mr Walker submitted, I think correctly, that the circumstances of the case would not fall within the principles discussed in the decision of the High Court in Trident General Insurance v McNiece (1988) 165 CLR 107. Conversely, I think it is recognised that the principles in Trident do not cover the universe of circumstances in which an inchoate proprietary right might be recognised and indeed might be capable of protection by interlocutory injunction. 

21․Whether Mr Walker’s submission based on the decision in Trident is the end of the matter is not able to be determined on the material before me and in the urgent timeframe within which I have been called upon to determine the present application.  The important point is that, upon analysis, the real interest which is sought to be protected by the application is not the incoming purchaser’s inchoate proprietary right (if any such right exists) but CDLC’s interest in remaining in possession of the premises, notwithstanding the absence of any legal entitlement to do so, to protect its goodwill in the business in the period between the time it says consent was unreasonably refused by Capital Estate and the determination of that dispute.

22․That is an interest which might be capable of being protected by an interlocutory injunction.  It is accepted that an interlocutory injunction may be granted to prevent a defendant owner of land from disposing of its interest in the land or altering the proprietary rights of a tenant or from alienating the land in respect of which a decree of specific performance is sought until the hearing and determination of the main proceedings. 

23․The complication of the fact that the incoming purchaser is not a party to any existing lease is an issue which I am unable to analyse in the timeframe available to me.  The short point is that the applicant for the relief sought currently has no right to remain in possession of the premises.  Certainly, it has no entitlement to interlocutory relief on the premise on which it is sought, which is that it should be entitled to occupation of the premises on the terms of the new lease.  That is the point that was made by Trinity Law against McGilvray in the correspondence to which I have referred. 

24․Furthermore, applying orthodox principles as to the grant of an interlocutory injunction to preserve the status quo until the hearing of an action, while CDLC has no current right of possession, its possession is not presently under threat.

25․It follows, in my respectful opinion, that the relief sought in the application dated 7 November 2023 both overreaches and is premature.  If there was a threat to CDLC’s possession of the Morning Dew premises, the Court would consider the strength of the claim and the balance of convenience by reference to up-to-date evidence as to the existence of the threat and the potential hardship to CDLC.  All that is before the Court on that issue at present is the affidavit that was relied upon in the application before McWilliam AsJ in December last year, which addressed the fact that the business was being run as a going concern, the number of employees and so on.  It would not in my view be appropriate to restrain Capital Estate from enforcing its right of possession at present, without up-to-date evidence about those matters.

26․It remains to hear the parties as to the relief that should be granted, if any, today.  The application sought an order (order 3) that order 1 made on 15 December 2022 be vacated.  Order 3 was sought by CDLC only to pave the way for the relief I have now indicated I refuse to grant but embraced by Capital Estate opportunistically as the outcome for which it contends.  I do not use the word “opportunistically” in any pejorative sense but simply to explain the circumstances in which, by its application, CDLC has exposed itself to denying itself of the benefit of the orders granted by McWilliam AsJ.  Before taking that course, it is appropriate to hear the parties further on that issue.

Orders

27․For those reasons I make the following orders:

(1)Dismiss the application for orders 4, 5 and 6 sought in the application filed on 7 November 2023.

(2)Stand the matter over for mention before me on 14 November 2023 at 9:30am. 

I certify that the preceding twenty-seven [27] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Chief Justice McCallum.

Associate:

Date: 14 November 2023