Mantra Hotels Australia Pty Ltd v Palm Cove Restaurant Services
[2011] QSC 17
•17 February 2011
SUPREME COURT OF QUEENSLAND
CITATION:
Mantra Hotels Australia Pty Ltd v Palm Cove Restaurant Services [2011] QSC 17
PARTIES:
MANTRA HOTELS & RESORTS AUSTRALIA PTY LTD
ACN 079 687 326(applicant)
v
PALM COVE RESTAURANT SERVICES PTY LTD
ACN 108 996 366(respondent)
FILE NO:
SC No 12471 of 2010
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
17 February 2011
DELIVERED AT:
Brisbane
HEARING DATE:
9 December 2010
JUDGE:
Peter Lyons J
ORDER:
The option granted by the lease dated 27 October 2004, between the Respondent as Lessor, and the Applicant as Lessee, in relation to the premises located at Restaurant 1, The Beach Club – Palm Cove, 123 Williams Esplanade, Palm Cove in Queensland, was duly exercised on 23 September 2008
The Notice to Terminate, dated 5 October 2010, from the Respondent to the Applicant purporting to terminate the lease, is invalid
The Respondent to pay the Applicant’s costs
CATCHWORDS:
CONTRACT – GENERAL PRINCIPLES – BREACH - RIGHT TO TERMINATE – TERMINATION FOR BREACH OF CONDITION – TERM EXPRESSLY A CONDITION – where lessee exercised option to renew a lease – where lease contained term restricting right to assign lease, and alterations in the shareholding or control of lessee – where lessor purported to terminate the lease for breach of term of the contract
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – GENERALLY – where lessee exercised option to renew a lease – where lease contained term restricting right to assign lease, and alterations in the shareholding or control of lessee – where lessor purported to terminate the lease for breach of term of the contract
REAL PROPERTY – LANDLORD AND TENANT - OPTIONS – EXERCISE OF OPTION – where lessee exercised option to renew a lease – where lease contained term restricting right to assign lease, and alterations in the shareholding or control of lessee – where lessor purported to terminate the lease for breach of term of the contract
Arnold Electrical & Data Installations Pty Ltd v Logan Area Group Apprenticeship/Traineeship Scheme Ltd [2008] QCA 100, cited
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; [1977] HCA 40, cited
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52, cited
COUNSEL:
G Handran for the applicant
N Ferrett for the respondent
SOLICITORS:
Hickey Lawyers for the applicant
MacDonnells Law for the respondent
Introduction
In 2004, the respondent granted to the applicant a lease of a restaurant in a resort known as Peppers Beach Club & Spa Resort at Palm Cove. The expiry date of the lease was 31 March 2009, but it contained an option to renew, dependent upon compliance with the terms of the lease. The respondent contends that the applicant was not entitled to exercise the option, on the ground that it breached a term relating to continuity of shareholding in the applicant.
Terms of the lease
The option is contained in clause 16.1 of the lease, which is as follows:
“If the Lessee shall punctually properly and faithfully observe and perform the terms covenants and conditions herein contained whether expressed or implied and on its part to be observed and performed it shall have the option, exercisable by giving the Lessor notice in writing not less than six months prior to the expiry of the Term, of renewing this Lease for the further term specified in the Reference Schedule to commence on the day after the Expiry Date (‘Renewed Term’) on the same terms and conditions in all respects as are herein contained save and except:
(a) this present clause for renewal; and
(b)at a Rental to be reviewed in accordance with the method specified in the Reference Schedule under the heading ‘Rent Reviews’; and
the new lease will not contain an option for renewal, unless the item headed ‘Options to Renew’ in the Reference Schedule refers to more than one further term, in which case this clause in the new lease will be modified so that the total number of renewed terms shall not exceed the number specified in the Reference Schedule.”
The provision relating to continuity of shareholding in the applicant is found in clause 11. Clause 11.1 prohibits assignment of the lease without the written consent of the respondent, such consent not to be withheld arbitrarily or unreasonably in certain circumstances. It is unnecessary to set the clause out in full. Clause 11.2 provides a further qualification to the consent (relating to the consent of a mortgagee). Again, it is unnecessary to set out its terms. Clause 11.3 includes the following:
“If the Lessee is a company other than a company whose shares are listed on any Australian stock exchange the Lessee hereby covenants with the Lessor that no transfer of any share or shares in the capital of the Lessee shall be registered recorded or entered in its books and that no beneficial interest in any such share or shares shall be dealt with and that no new shares shall be issued or other action taken or attempted to be taken having the effect that the shareholders of the Lessee at the date hereof together beneficially hold or control less than fifty-one percentum (51%) of the voting income and capital participation rights in the Lessee or less than that percentage of any one or more of such rights or less than that percentage of the voting rights at a meeting of directors of the Lessee without the prior consent in writing of the Lessor which shall not be unreasonably withheld where:
(a) The Lessee gives to the Lessor not less than one month’s notice in writing of the intention of the Lessee’s directors to deal with any such transfer or interest or to issue such shares or to take such other action as aforesaid.
(b) The Lessee is not in default under any of the covenants and conditions on the Lessee’s part contained in this Lease.
(c) The person or persons to whom it is proposed to transfer or issue shares or in whom it is proposed any of such rights shall become vested (hereinafter called ‘the proposed transferees’) prove to the satisfaction of the Lessor that they are each respectable responsible and solvent persons and that the company will remain capable of adequately carrying on the business carried on by it on the Demised Premises.
(d) The proposed transferees of the shares furnish to the Lessor a joint and several guarantee from the proposed transferees in the form required by the Lessor that the Lessee will duly perform and keep the covenants and agreements on the Lessee’s part contained in this Lease.”
Background
At the time when the parties entered into the lease, and now, all shares in the applicant were owned by Mantra Resorts Australia Pty Ltd. However, at that time, the ultimate holding company recorded in the historical extract provided by the Australian Securities & Investments Commission (ASIC extract) was Octaviar Ltd. Currently the ultimate holding company is Europe Voyager Holdings SARL. The ASIC extract indicates that this change occurred on about 1 March 2007. The respondent contends that as a result, the applicant has since that time been in breach of clause 11.3, and is not entitled to exercise the option conferred by clause 16.1 of the lease.
Some further factual matters were referred to by the parties. As well as the restaurant, the resort includes a “swim up bar and café”, of which the applicant is the licensee. Mantra Resorts Australia has the management rights for the resort.
On 23 September 2008, the applicant’s solicitors sent notice of the exercise of the option to the respondent. On 5 October 2010 the solicitors for the respondent sent a letter to the applicant, enclosing a notice terminating what was said to be a monthly tenancy, and stating that the option had not been validly exercised, “due to the failure to obtain our client’s consent to assignment of the Lease”. That led to the present application.
Contentions of parties
The respondent accepts that it has the onus of demonstrating that, at the time of the notice of exercise of the option, the applicant was in breach of the lease. It submits that on the proper construction of clause 11.3, its consent was required to any change in the ultimate holding company of the applicant; or alternatively, it submits that “there must be an implied term to similar effect”, in accordance with the criteria identified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283.
For the applicant it is submitted that the words of clause 11.3 are plain and unambiguous, and effect must be given to them. It is only in the case of ambiguity that a “commercially sensible construction” might be adopted. It also submits that the conditions for the implication of the term for which the respondent contends have not been satisfied.
It was common ground that, in construing the lease, regard could be had not only to its text, but also to circumstances known to the parties when they entered into the lease; and to the purpose and object of the transaction.[1] The respondent led no evidence to show what background circumstances were known to it at the time the parties entered into the lease. In Arnold Electrical & Data Installations Pty Ltd v Logan Area Group Apprenticeship/Traineeship Scheme Ltd[2] Fraser JA pointed out that, for the purpose of construing a contract, the surrounding circumstances to which reference may be had extend beyond those subjectively known to the parties, and include those which were reasonably available to the parties in the situation in which they found themselves at the time of the contract. Nevertheless, it was accepted in the present case that that did not include the corporate structure and ultimate holding company of the group of which the applicant then formed part.
[1]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40], citing Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451.
[2][2008] QCA 100 at [16] citing Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [11].
Construction of clause 11.3
The term “lessee” is defined in the lease to mean the lessee named at Item 3 of the lease (the applicant, identified by its then current name); as well as, in the case of a corporation, its successors in title and permitted assigns; and in the case of a natural person, that person’s heirs, executors, administrators and permitted assigns. The definition provides no support for the construction of clause 11.3 for which the respondent contends.
The natural reading of clause 11.3 would not extend its operation beyond a reference to the ownership of shares in the lessee. There was no suggestion that its terms were ambiguous; nor is any ambiguity to be identified from a reading of the clause.
The precise construction of clause 11.3 for which the respondent contends is not easy to identify. The outcome which the respondent seeks to achieve is that the clause be construed so that any change in the identity of the ultimate holding company would constitute a breach of clause 11.3, if that occurred without the consent of the respondent. It is difficult to attribute that outcome to any expression used in the clause. Nor is it easy to identify the words which are not to be read in accordance with their natural meaning; and the meaning which is to be given to those words.
Nor does the position for which the respondent contends sit comfortably within the framework of clause 11.3. The clause commences by identifying the condition on which it is to operate, that is, that the applicant is a company whose shares are not listed on any Australian stock exchange. The balance of the clause has the effect that there is a breach of this term of the lease if there is a change in the shareholding of the applicant, without the respondent’s consent; and a mechanism for obtaining that consent. It would seem that at some point within clause 11.3, on the respondent’s approach, an extended meaning must be given to the expression “lessee”. However that would not be uniform throughout the clause. For example, clause 11.3(b) can only apply, sensibly, to the applicant. Otherwise, it is not clear, on the respondent’s approach, when a reference to the lessee is a reference to the applicant; and when it is a reference to some other entity.
Clause 11.3(d) requires the proposed transferees of shares to provide guarantees. It is not easy to identify the operation of this provision, on the respondent’s construction, in a case where the shares in the applicant are held by one or more companies, and the shares in those companies in turn are held by other companies, themselves, perhaps, subsidiaries of yet other companies, or some of whose shares are held by other companies. Indeed, there could be an extensive chain of shareholdings of this kind.
Further, the respondent did not explain why the clause was intended to operate if there is a change in the ultimate holding company, rather than a change in the shareholders of the applicant.
While an ultimate holding company is one that is not itself a subsidiary of another company, as defined in the Corporations Act 2001 (Cth),[3] nevertheless, corporations may own shares in an ultimate holding company. It was not explained how clause 11.3 would operate if there was a change in the shareholding of any such corporation.
[3]See ss 9 and 46.
The most attractive argument advanced on behalf of the respondent was that a literal construction would have the effect that the purpose of clause 11.3 could, in a case where the lessee forms part of a group of companies, be subverted by a change in the shareholding in a company which holds shares in the applicant; or in some other company further up what might be described as the chain of companies which link the applicant to the ultimate holding company.
Implicit in that submission is the identification of the purpose of clause 11.3. One obvious purpose is to ensure some continuity in the shareholding of the applicant, unless the respondent were to agree to a continuation of the lease after a change in that shareholding. It is not obvious from the clause itself that it has any broader purpose. As has been mentioned, this is not a matter about which the respondent has adduced any evidence. It may well be the case that the purpose of the clause was to ensure that the resort operator remained the only shareholder in the lessee of the resort restaurant, unless the respondent agreed to a change in the applicant’s shareholding.
In summary, there is in my view, no ambiguity in clause 11.3. It provides the respondent with some power in relation to those who control the lessee of the restaurant. There are uncertainties about the precise scope of the construction for which the respondent contends. While the respondent seeks to give a purposive construction to the clause, neither an analysis of the clause, or of the evidence advanced in the case, establishes that it has a purpose beyond what is achieved by a natural reading of the clause. Accordingly, I do not accept the respondent’s contention as to the proper construction of the clause.
Should a term be implied into the contract?
The submissions made on behalf of the respondent do not go so far as to formulate the term which it contends should be implied. In my view, there are difficulties in formulating such a term.
Absent the formulation of an implied term, it is difficult to see that a term generally to the effect for which the respondent contends is so obvious that “it goes without saying”. One is left to speculate what it is that is said to be so obvious: is it, for example, that there be no change to the ultimate holding company without the respondent’s consent; or no change to the shareholdings in any intermediate holding company, without that consent; or no change to the shareholding of the ultimate holding company, or companies which hold shares in the ultimate holding company, without that consent?
Further, a term is to be implied only if it is necessary to give “business efficacy to the contract”. It makes it necessary to identify what “business efficacy” is sought to be achieved; and why the implied term is, for that purpose, necessary.
It was submitted for the respondent that the question of business efficacy is to be asked, not about the contract as a whole, but about the relevant contractual provision (in this case, clause 11.3). That submission was not challenged.
It seems to me that in this context, a reference to business efficacy requires the identification of the apparent commercial purpose of the clause. As I have previously indicated, the respondent has not established any commercial purpose, apart from that which would appear from a natural reading of its words. Nor has it been shown that clause 11.3 would not work in a sensible commercial way, without the implication of some term of the kind for which the respondent contends. It follows that this condition has not been satisfied.
In the circumstances, I am not prepared to find that there is some term of the kind for which the respondent contends, to be implied in the lease.
Conclusion
It follows that, in my view, the correct reading of clause 11.3 is that it makes the respondent’s consent necessary for a change in the shareholding of the applicant; but it does not have application to a change in the shareholding of any company which might directly or indirectly be a shareholder in the applicant. The respondent has not sought to establish that on the reading of clause 11.3 which I accept, the applicant is in breach of clause 11.3. Accordingly, subject to any further submissions about the form of order to be made, I propose to make the declarations sought in the applicant’s originating application.
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