Masters Home Improvement Aust Pty Ltd v Aventus Cranbourne Thompsons Road Pty Ltd

[2019] VSC 428

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2019 01003

MASTERS HOME IMPROVEMENT AUSTRALIA PTY LTD (ACN 066 891 307)	Plaintiff
v
AVENTUS CRANBOURNE THOMPSONS ROAD PTY LTD (ACN 155 857 426)	Defendant

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JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	3, 4, 5, 6 and 12 June 2019
DATE OF JUDGMENT:	8 August 2019
CASE MAY BE CITED AS:	Masters Home Improvement Aust Pty Ltd v Aventus Cranbourne Thompsons Road Pty Ltd
MEDIUM NEUTRAL CITATION:	[2019] VSC 428

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LANDLORD AND TENANT – Tenant seeking to sub-let parts of leased premises – Landlord withholding consent – Whether landlord entitled to withhold consent on the basis of prejudice to its commercial proprietary interests - International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 (Ca) – Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 – Cathedral Place Pty Ltd Hyatt of Australia Ltd [2003] VSC 385 – Allmere Pty Ltd v Burbank Trading Pty Ltd [2008] VSC 139 – Boss v Hamilton Island Enterprises Ltd [2009] QCA 229 – St Barbara v Hockley [No 2] [2013] WASC 358 – Dogrow Pty Ltd v Teakdale Pty Ltd [2013] NSWSC 1380 – Property Law Act 1958 s 144.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Peters QC with Mr C. Salpigtidis and Mr A.J. Bailey	Baker McKenzie
For the Defendant	Mr J.H. Karkar QC with Mr K.A. Loxley and Mr E.J. Batrouney	Herbert Smith Freehills

HIS HONOUR:

Introduction

1. This proceeding concerns a lease of premises known as the Cranbourne Home Improvement Store (“the Lease”).  The present parties to the Lease are Aventus Cranbourne Thompsons Road Pty Ltd (ACN 155 857 426) (“Aventus”) as Landlord and Masters Home Improvement Australia Pty Ltd (ACN 066 891 307) (“Masters”) as Tenant.  The Cranbourne Home Improvement Store (“the Premises”) was constructed specifically for and to meet the requirements of Masters, which was then opening a network of, what might be described generally, as home improvement and hardware stores throughout Australia.  These stores, commonly referred to as “big box” or large format retail stores, were broadly similar to the Bunnings “big box” network of stores also established throughout Australia.

1. The Masters national store networking venture was driven by Woolworths Limited (“Woolworths”).  Consequently, it is no surprise to find that Woolworths is the guarantor of the obligations of Masters under the Lease.

1. This proceeding comes to Court as a result of Masters, which is no longer trading, seeking to sublease part of the Premises and to make various alterations in circumstances where Aventus has not provided this consent.  Masters claims that Aventus is unreasonably withholding its consent in breach of its obligations under the Lease.

1. More specifically, Masters seeks orders from the Court by way of declarations that Aventus is in breach of cl 8.2(b)(iii) of the Lease, a covenant which Masters contends is a covenant not to unreasonably withhold or delay its consent to the sublease of part of the Premises by Masters to Amart Furniture Pty Ltd (“Amart”).  Masters also seeks an order that Aventus execute such documents or assurances as may reasonably be required to provide its consent to various alterations proposed and to the sublease from Masters to Amart of part of the Premises.

1. Additionally, Masters seeks damages for breaches of the Lease, together with costs and interest.  Assuming that the question of damages, costs and interest arises, and that there is some basis under the provisions of the Lease for such a claim or claims, the parties have agreed to place the question of damages “on hold” pending the decision of the Court on whether Aventus is in breach of cl 8.2(b)(iii) of the Lease.  The parties agree that if Masters is successful, the issue of damages can be assessed by an Associate Justice.

1. In support of its position, Masters makes reference to, what it says, is the acceptance by Aventus that Amart is a suitable tenant at the Cranbourne Home Centre.[1]  Thus, it is said that Aventus must show a strong reason for withholding its consent.[2]  However, as is discussed further in the reasons which follow, the position of Aventus in this respect is that it does want Amart as a tenant at the Cranbourne Home Centre, but on vacant land in that Centre, and not in the Premises.[3]

   [1]Transcript (Wednesday 5 June 2019), 341.

   [2]Bates v Donaldson [1896] 2 QB 241 at 244 (CA).

   [3]Transcript (Wednesday 5 June 2019), 341.

1. Moreover, it is contended by Masters that Aventus has not acted on the basis of matters the subject of the Lease in refusing its consent to the sublease.  Rather, it is said that Aventus is acting on the basis of matters extraneous to the Lease and matters extraneous to the relationship of landlord and tenant and is, therefore, acting unreasonably.  These extraneous matters are said by Masters to be evident in the conduct of Aventus since 20 November 2018 and its broader commercial objectives, which include those of its ultimate shareholder and related corporations within the Aventus Group.

1. Another, or more particular, aspect of these extraneous considerations are said, by Masters, to be the application of a “guiding principle” by Aventus that does not allow it to consent to any scenario where Masters subleases the Premises as Aventus loses “control” in those circumstances.  Aventus, with some exceptions such as medical centres in pharmacy leases, does not generally allow subleases at its centres on the basis that maintenance of the direct landlord and tenant relationship enables it to control tenancy mix, rents and incentives and the management of the centre, and thereby enhance and deepen tenant relationships because of the direct relationship, rather than through an agent or through a tenant with a sub-tenancy.[4]  Aventus described this approach as not a policy across the whole group of Aventus, but, rather, “… a guiding principle, and that’s part of why we’re able to achieve strong returns for our unitholders”.[5]  Nevertheless, it was conceded that Aventus would “consider” subleasing the Masters box to a single anchor tenant, but that this would be “not ideal”.[6]

   [4]Transcript (Wednesday 5 June 2019), 355–356.

   [5]Transcript (Wednesday 5 June 2019), 356.

   [6]Transcript (Thursday 6 June 2019), 428–429.

Background

The Premises and surrounding land

1. The Premises are described in the Reference Schedule to the Lease as being “that part of the Centre identified on the Plan as the [Masters Home Improvement Store]”.[7]

   [7]Agreement for Lease (6 May 2013), Reference Schedule, 49.

1. The land on which the Premises is situated includes, in addition to the Premises, land which is described as “Surplus Land” which is owned by Aventus and currently partly leased to Bliss Early Learning Centre.  The land on which the Premises is situated and which also includes the Surplus Land is contained in three titles,[8] with the remainder of the Centre, to the west and south-west of this land comprised of a strip of tenancies south of land – a “big box” – leased by Bunnings.  This part of the Centre – the remainder, which does not include the Premises or the Surplus Land – is contained in two Certificates of Title, the registered proprietor of each being Aventus Cranbourne Pty Ltd,[9] a different but related corporation to Aventus.  Apart from the Bunnings store, which is located in reasonably close proximity to the Premises, the evidence is that it would take approximately ten minutes to walk from the Premises – the Masters “big box” from the southernmost point of the remainder of the Centre.

   [8]Certificates of Title, volume 11837, folios 314, 315 and 316 (the registered proprietor of each being Aventus Cranbourne Thompsons Road Pty Ltd – i.e. Aventus, the defendant in these proceedings).

   [9]Certificate of Title, volume 11838, folio 321 and volume 10694, folio 223.

1. At the time of execution of the Agreement for Lease (“the AFL”) in relation to the Premises on 6 May 2013, and during the negotiation of the terms of the Lease, the Premises was owned by Barbara and John Dunscombe.  Aventus did not become the registered proprietor of the freehold of the Premises until 9 March 2015.  The remainder of the Centre, which does not include the Premises or the Surplus Land, was transferred to Aventus Cranbourne Pty Ltd after the date that company was incorporated, namely, after 8 September 2015 and by 29 November 2016.

Agreement for Lease and Lease

1. The AFL in relation to the Premises included as parties Barbara Annie Dunscombe and John Francis Dunscombe as landlords, Masters, as tenant, and Woolworths Limited as the guarantor.  The AFL annexed the Lease to be entered into between Aventus, then known as BBJ Thompsons Road Pty Ltd, as trustee for the BBJ Thompsons Road Unit Trust, as landlord, Masters, as tenant, and Woolworths Limited, as guarantor.

1. It is common ground between the parties that cl 10.3 of the AFL operates so that from the Commencement Date of the Lease, the landlord and the tenant are bound by it even where the Lease is not executed by either the landlord or the tenant. Thus, the Lease is the written agreement which governs the landlord and tenant relationship between the parties with respect to the Premises.

1. The Commencement Date of the Lease was 1 October 2015 and the demise was of a term of 15 years from the Commencement Date – that is, from 1 October 2015 to 30 September 2030, with options for renewal for up to four further terms (the first renewed term being ten years and the three remaining possible renewed terms of five years each).  On any view, these are long-term leasing arrangements and they reflect a substantial commitment by the parties; particularly as the Premises were built for Masters during 2014 and up to September 2015 pursuant to the AFL, according to the Masters’ specifications and for a sum in the vicinity of $27 million.

1. On 9 March 2015, Aventus became the registered proprietor of the Land of which the Premises is a part and, consequently, became the Landlord under the terms of the Lease.

1. Masters began trading from the Premises in October 2015 but, in January 2016, Woolworths announced that it would be selling or closing the Masters Home Improvement chain.  As a result, Masters ceased trading from the Premises in December 2016 and the Premises have been empty ever since.

1. In October 2017, Home Investment Consortium Company Pty Ltd (“Home Co”) acquired Masters’ parent company, Hydrox Holdings Limited, from Woolworths.  Home Co is now the ultimate parent company of Masters.

1. In spite of having ceased trading, Masters has continued to comply with its rental obligations under the Lease.  Masters currently pays substantial rent to Aventus under the Lease.  Additionally, Masters pays utility charges in relation to the Premises.

1. In mid-2018, Masters entered into negotiations with Amart for Amart to sublease part of the Premises from Masters.

1. It is common ground that Amart is a suitable tenant and that Aventus is not concerned with Amart competing with other retail tenants at the Centre.[10]  The difference between the parties with respect to Amart is where that tenancy should be located and whether or not the tenancy is within the control of Aventus in the sense of Amart being Aventus’ direct tenant, rather than a sub-tenant, according to its guiding principle to which reference has already been made.  Mr Holland’s evidence at trial was that Amart would “add to the tenancy mix and they wouldn’t actually impact existing tenants within the centre”.[11]  This evidence was, Masters contends, inconsistent with Mr Holland’s first witness statement, where he stated, as a matter said to give rise to adverse economic and commercial consequences for Aventus and/or the Aventus Group, that ”if granted the Proposed Sublease, Amart would be competing with other tenants in the Cranbourne Home Centre, including future tenants of the Surplus Land”.[12]  Moreover, Masters submits that, following its approach to Amart, Aventus approached Amart as a “defensive measure”[13] to propose a lease between Amart and Aventus for a newly built store on a portion of the Surplus Land.[14]  It is not entirely clear whether Masters, in putting this, is seeking to imply a strategy on the part of Aventus to deprive Masters of a possible sub-tenant or that this approach by Aventus is merely consistent with the position that Amart is not an unsuitable tenant for the Centre, but that Aventus seeks, consistently with its guiding principle, to control the location and relationship with tenants in the Centre on a direct – landlord and tenant, rather than landlord and sub-tenant relationship.

   [10]Transcript (Thursday 6 June 2019), 374.

   [11]Transcript (Thursday 6 June 2019), 374.

   [12]Witness Statement of Darren Andrew Holland (8 May 2019), 20 [77(d)] (‘Holland Witness Statement’).

   [13]Transcript (Thursday 6 June 2019), 457.

   [14]Transcript (Thursday 6 June 2019), 373 and 418.

1. As the freehold and leasehold ownership and arrangements with respect to the Cranbourne Home Centre indicate, Aventus is the only company which has undertaken any obligations to Masters.  Neither Aventus Cranbourne Pty Ltd, the listed Aventus Group, nor any other Aventus Group entity has undertaken any obligations to Masters under the Lease.  The Aventus Property Group – which charges leasing, management and other fees to Aventus[15] – the transient shareholding and unitholding population of Aventus Group have different interests and Aventus, as landlord, has distinct and different interests to others in the Aventus Group, even though many interests would be likely to coincide.  The ongoing fees payable by members of the Fund are payable to Aventus Funds Management Pty Ltd (“the Manager”) and Aventus Property Management Pty Ltd (“the Property Manager”).  These companies are part of the Aventus Property Group which, after the restructure of 2018, was controlled by Aventus Holdings Limited (“AHL”).  After the 2018 restructure, AHL controlled the Aventus Property Group.  Shares in AHL were “stapled” to units in the Fund.[16]  Interests of landlords, including Aventus, differ and may possibly conflict with those of the Aventus Property Group.[17]

   [15]Aventus Retail Property Fund, Product Disclosure Statement, 243, 245–249, 249–252.

   [16]Transcript (Wednesday 5 June 2019), 331–334, 339 - 340; 345–350.

   [17]Transcript (Wednesday 5 June 2019), 349–350.

Initial Request for Consent for Amart sublease

1. On 20 November 2018, Mr Andrew Selim, General Counsel and Company Secretary of Home Co, sent a letter to the Directors of Aventus seeking the written consent of Aventus (“the Request for Consent”) for a proposed sublease of part of the Premises to Amart (“the proposed Sublease”) and for alterations to the Premises (“the Alterations) in order to create the sublet premises.[18]

   [18]Affidavit of Andrew Nabil Selim (Sworn 8 March 2019) 3 [13] (‘Selim Affidavit’).

1. The Request for Consent to sublease was sent pursuant to cl 8.2(b)(iii) of the Lease and the request for consent to Alterations to create the sublet premises pursuant to cl 7.6(b) of the Lease.[19]  The Alterations sought to create the sublet premises were set out in Attachment 2 to the 20 November 2018 letter.[20]  Shortly following the Request for Consent, on 23 November 2018, Masters and Amart, together with BBQSAM Holdings Pty Ltd (as guarantor), entered into an Agreement for Sublease (“the Amart AFL”).[21]

   [19]Letter from Home Consortium to Aventus Cranbourne Thompsons Road Pty Ltd (20 November 2018). 

   [20]Selim Affidavit 4 [16].

   [21]Selim Affidavit 4 [17].

1. By the Amart AFL, Masters seeks to sublease approximately 6000m² of the currently vacant Premises for a term of ten years with options to renew.  The Amart AFL contains the following provisions as to timing:

(a)An Estimated Completion Date of 1 April 2019[22] extended to 1 July 2019.[23]  This date relates to completion of the works required to make the Alterations;[24]

(b)A sunset date for approval (consent) to the Sublease of nine months after the date of the Amart AFL – i.e. by 23 August 2019;[25]; and

(c)A sunset date for completion of the works required to make the Alterations of nine months after the date of the Amart AFL – i.e. by 23 August 2019.[26]

[22]Amart AFL (23 November 2018), 28, Item 5.  

[23]Amart AFL (23 November 2018), 10 [3.4].

[24]Amart AFL (23 November 2018), 10 [3.4].

[25]Amart AFL (23 November 2018), Schedule 2, Reference Schedule 1, Item 11.

[26]Amart AFL (23 November 2018), Schedule 2, Reference Schedule 1, Item 12.

Correspondence regarding Request for Consent

1. From the date of the Request for Consent, the parties have corresponded.[27]  Correspondence relevant to the Request for Consent to the proposed Sublease, is outlined in Mr Selim’s affidavit dated 8 March 2019.[28]  From the date of the Request for Consent – 20 November 2018 to 8 February 2019 – no formal position has been communicated by Aventus to Masters as to whether or not it would consent to the proposed Sublease.  Rather, Aventus sought information.[29]

   [27]Letter from Herbert Smith Freehills to Masters Home Improvement Australia Pty Ltd (3 December 2018).

   [28]See Amart AFL (23 November 2018) and Exhibit AS–4 to the Selim Affidavit.  

   [29]Selim Affidavit, 5 [22].

1. Aventus contends that its seeking of information was entirely appropriate and necessary for it to consider the Request for Consent.  On the other hand, Masters contends that when this correspondence is reviewed, a pattern is quickly identified whereby Aventus initially focused on various technical aspects of the proposed Alterations in order to create the sublet premises.  Moreover, it says that each of the technical issues raised by Aventus have now fallen away and that some issues, despite being pushed by Aventus in early correspondence, were not relied on in the pleadings by Aventus in these proceedings.  In this respect, Masters says that, by way of example, the correspondence from Aventus prior to the issue of proceedings focused on objection to the proposed Amart signage and painting of the exterior of the building, stating:

The proposed external signage distracts from the previous quality and visual amenity of the building and [Aventus] notes in particular that the repainting of the exterior of the building in a bright blue colour is visually very different from the previous colour of exterior of the premises.[30]

It was, Masters says, only after commencement of the proceedings that Aventus discovered documents revealing its own attempts, in early 2019, to acquire Amart as a tenant of the Surplus Land, employing very similar signage and the same, bright blue, Amart exterior.[31]  Aventus does not now rely on the signage and painting of the exterior to the building as a basis for withholding consent.

[30]Letter from Herbert Smith Freehills to Baker & McKenzie (6 March 2019).

[31]See Transcript (Wednesday 5 June 2019), 341–342; Transcript (Thursday 6 June 2019), 373–374.

1. More generally, in response to the Request for Consent of 20 November 2018, Aventus raised a number of issues which have been the subject of correspondence between the parties between December 2018 and May 2019.  On 7 December 2018, Aventus made numerous requests for further information, including in relation to details of any planning advice or approvals obtained by Masters, an estimation of make good costs, a complete schedule of works (including structural drawings, fit out plans, engineering and traffic advice), and signage plans.[32]  Masters responded to each request, and also the subsequent follow-up requests, on multiple occasions from December 2018 to May 2019 by providing further explanation and, where requested, plans, reports and assessments prepared by the relevant consultants.[33]  However, in its Amended Defence filed on 3 May 2019, Aventus raised new concerns in relation to the necessary approvals required, the proposed structural works and traffic assessments provided by Masters.

   [32]Letter from Herbert Smith Freehills to Masters Home Improvement Australia Pty Ltd (7 December 2018).

   [33]Letter from Masters Home Improvement Australia Pty Ltd to Herbert Smith Freehills (12 December 2018); Letter from Baker & McKenzie to Herbert Smith Freehills (14 February 2019); Letter from Baker & McKenzie to Herbert Smith Freehills (17 April 2019); Letter from H&H Consulting Engineers Pty Ltd to Masters Home Improvement Australia Pty Ltd (9 May 2019).

1. Whilst Masters did not accept that any of the issues raised were a reasonable basis to withhold consent, between 6 May and 27 May 2019, the parties negotiated a form of undertaking to be provided by Masters to both Aventus and the Court to resolve the outstanding issues relating to the Alterations and ultimately remove them as matters in issue from the current proceedings.[34]

   [34]Letter from Herbert Smith Freehills to Baker & McKenzie (21 May 2019); Letter from Baker & McKenzie to Herbert Smith Freehills (24 May 2019);Letter from Baker & McKenzie to Herbert Smith Freehills (27 May 2019); Letter from Herbert Smith Freehills to Baker & McKenzie (27 May 2019).

1. The undertaking relates to Masters obligations concerning the necessary approvals for the Alterations, its make good obligations, compliance with the Building Code of Australia, and traffic and OH&S requirements. The undertaking was executed by Mr David Di Pilla and Mr Andrew Selim as Director and Company Secretary of Masters respectively, and a copy of the signed undertaking was emailed to the Court on 3 June 2019. The undertaking states that:

(a)Masters will not commence the Alterations until the McKenzie Group has assessed the entire Premises for compliance with the Building Code of Australia (BCA);

(b)Masters will comply, at its cost, with any recommendations made by the McKenzie Group to bring the Premises into compliance with the BCA:

(c)Masters will, when the Lease ends, return the Premises to the same layout and condition as they were in at the date of the undertaking including repairing any damage to the Premises caused by the removal of the Alterations and reinstating the Premises to the same layout and condition as they were in at the date of the undertaking;

(d)Masters undertakes that it will not commence the Alterations until Presna Pty Ltd is engaged by Masters to undertake a risk assessment for the purposes of compliance with the Occupational Health and Safety Act 2004 regarding the use of the service vehicle area as a goods received loading area and a customer collection point in relation to the health and safety of any person entering or leaving the Premises or using the service vehicle car park or service vehicle area.

(e)In the event that the risk assessment referred to above identifies a risk that is not sufficiently controlled, Masters must identify and implement any additional risk controls necessary to eliminate or reduce these risks so far as reasonable practicable prior to commencing the Alterations; and

(f)If consent for the Sub-Lease and Alterations are given by the defendant (either voluntarily or upon order by the Court), Masters will not commence the Alterations until it has obtained all relevant Authority approvals.

1. At the conclusion of the hearing in these proceedings, Senior Counsel for Masters specifically reaffirmed this undertaking at the request of Aventus.

The position of the parties

Aventus’ Shopping Centre Performance and Strategy

1. The evidence appears to indicate the Aventus Group shopping centres are performing well.  On 14 February 2019, Aventus Group publicly announced its half year result to 31 December 2018.[35]  Key achievements included:

·“revaluation gains of $26m [on its portfolio of properties] driven by income growth”.

·“Consistently high occupancy of 98.5% including 16 of 20 centres at 100% occupancy.

…

·Strong leasing demand with 81 leases negotiated across 74,000sqm of GLA achieving positive leasing spreads and with low incentives.

…

·High exposure to national tenants, comprising 86% of the portfolio by GLA.

·Diversifying tenancy mix with 37% of the portfolio in the Everyday-Needs category”.

[35]Aventus Group, ‘Aventus Delivers Strong Half Year Results’ (14 February 2019).

Additionally, in this public announcement, Aventus told the market that:

Active Portfolio Management

Aventus continues to enhance the customer experience in its centres.  Opportunities to improve and increase the range of offerings for customers through tenant remixing resulted in the negotiation of 81 leases covering 74,000sqm and these leases were achieved with positive leasing spreads and low incentives.  Strong like-for-like NPI growth 3.3% continued for the 2018 calendar year and the portfolio has an occupancy rate of 98.5%.

In introducing new tenants, the focus has been on the Everyday-Needs category which includes products and services such as food, health and well-being, services and childcare.  These tenants contribute to increased weekday traffic and improved customer linger time, and accounted for more than 50% of our new leasing deals in the last 12 months.[36]

[36]Aventus Group, ‘Aventus Delivers Strong Half Year Results’ (14 February 2019).

1. The Aventus website describes the Cranbourne Home Centre as benefitting from “a high profile corner location … [and] includes a vacant development site adjoining Bunnings which could increase the size of the centre to over 60,000sqm, making it one of the largest LFR [Large Format Retail] centres in Australia”.

1. On 14 February 2019, Mr Holland, as the Chief Executive Officer and Managing Director of Aventus, briefed the market and investors and referred to various slides in a brochure entitled “FY19 Half Year Results Aventus Group 14 February 2019”.[37]  During that briefing, Mr Holland referred to a document – identified as slide 7[38] - which outlined the portfolio highlights as follows:

   [37]Aventus Group, ‘FY19 Half Year Results Aventus Group’ (14 February 2019).

   [38]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 2.

… the standout metric on this slide is the record leasing deals negotiated during the half, which underlines strong demand from tenants.  Tenants are attracted to our centres for a range of reasons including the continual rollout of listed large format retailers such as Baby Bunting, Beacon Lighting and Nick Scali.  Additionally, the migration of every needs, or non-household, tenants particularly in services, health and wellbeing continued to seek the affordable rent and the convenience of on-ground car parking that our centres offer.

Mr Holland noted that leasing deals had increased from 38,000sqm [FY18 second half] to 74,000sqm [FY19 first half].[39]  Mr Holland later said:

Our largest single category and one that we continue to evolve is what we are now calling the everyday needs category.  It was called non household but the increase in prevalence of food and services to this mix have led to the description everyday needs.  These uses account for 37% of the income, well above the industry average and 273 tenancies – it’s actually about 50% of the portfolio by number of tenancies.  The description everyday needs also better accounts for the way in which these tenants drive recurring weekday traffic, boost linger time and are complementary but unrelated to household goods retail.[40]

Mr Holland continued: “The biggest increases in new stores added to the portfolio in this category during the half have been in the health and wellbeing sector, followed by food and services”.[41]  Mr Holland then referred to “sales growth” and said “we are seeing sales growth in manchester and everyday needs category. Specifically, pets, food, leisure and sports.  Categories that are moderated or reduced during the period have been furniture, bedding and home appliances”.[42]  Shortly thereafter, Mr Holland said “Aventus continues to stand apart from the national average in achieving high occupancy and therefore low vacancy rates”.[43]  Mr Holland later said:

Our focus is to continue to actively diversify our tenant base with a priority on everyday needs to continue to drive weekday traffic and importantly energise our centres.  And we’ll also continue to invest in the expansion and development of the portfolio to enhance the shopper experience and to capitalise on attractive development terms.[44]

[39]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 2.

[40]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 3.

[41]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 3.

[42]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 4.

[43]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 4.

[44]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 7.

1. It is clear from these statements that there is strong tenant demand for properties at Aventus Home Centres. Moreover, under cross-examination, Mr Holland accepted the following with respect to tenant demand at the Cranbourne Home Centre, namely, that it is “100 per cent leased”,[45] and that there is evidence of strong demand for space at the Centre.[46]  These statements also reveal that the Aventus Group is expanding into the Everyday Needs category, which is distinct from the Permitted Use under the Lease to Masters – or, for that matter, the proposed Sublease to Amart.[47]  Mr Holland accepted this under cross-examination.[48]

   [45]Transcript (Thursday 6 June 2019), 396.

   [46]Transcript (Thursday 6 June 2019), 396 and 450.

   [47]Transcript (Wednesday 5 June 2019), 315; Transcript (Thursday 6 June 2019), 393–396, 398.  

   [48]Transcript (Wednesday 5 June 2019), 309, 315, 353.

Aventus’ position with respect to the Masters site

1. Aventus has indicated its position regarding the Masters site – the Premises – since Masters ceased to trade.  Its attitude to Masters’ parent company, Home Co, is set out in the valuation of Savills of 31 December 2017 under the heading “Risk Assessment”.  Without breaching confidentiality, it may be noted that comment is made in that report that:

Being a competitor to Aventus, the landlord will not allow any lease assignment or works deed for Home Co to take possession of the premises for conversion.  The lease income is guaranteed by Woolworths Limited which mitigates any income risk.

1. Documents discovered by Aventus in the week prior to the hearing in these proceedings revealed dealings between Aventus and Bunnings. Aventus’ documents also reveal enquiries from various entities regarding the possibility of those retailers moving into the Premises. Under cross-examination, Mr Holland accepted that Aventus has been thinking about a long-term solution for the Masters box for a few years.[49]  Mr Holland also accepted under cross-examination that an option that has been pursued by Aventus is to “put Bunnings in the Masters box” and that “those plans involve expanding the Masters box from 13,000 square metres to 17,000 square metres … if planning allows”.[50]

   [49]Transcript (Wednesday 5 June 2019), 336.

   [50]Transcript (Wednesday 5 June 2019), 338.

1. It is clear that control of the Cranbourne Home Centre is important to Aventus and the Aventus Group.  Part of Aventus’ plan for the Masters premises requires Aventus to have control of it in order to develop it.  Under cross-examination, Mr Holland accepted: “that’s the intention, yes”.[51]  Mr Holland accepted the following with respect to the Masters premises: “Control is our preference.  However, there is a long-term lease in place which has a guarantee by Woolworths”.[52]  Mr Holland also said under cross-examination: “we’re obviously generating stronger demand for our real estate than the general market industry is, and part of that’s because we control the real estate. We don’t have sub-tenants, we don’t have leaseholds…”.[53]

   [51]Transcript (Wednesday 5 June 2019), 340.

   [52]Transcript (Wednesday 5 June 2019), 341.

   [53]Transcript (Wednesday 5 June 2019), 355.

1. As might be expected, Aventus has been considering and testing its options with respect to the Masters site.  This is clear from Mr Holland’s evidence, and is particularly illustrated in the following evidence he gave in cross-examination:[54]

   [54]Transcript (Wednesday 5 June 2019), 340-342.

Right.  And part of that plan is you’ve got to have control of that site, obviously to develop it?---That’s the intention, yes.

That’s the intention; correct?---To develop a site, you ideally have control of the real estate, yes.

I was talking to you about the Cranbourne centre?---Yes.

Yes.  The intention is to get control of the site at Cranbourne.  It’s obvious isn’t it?---Control is our preference.  However, there’s a long-term lease in place which has a guarantee by Woolworths.

I’ll come to that, but we’re in agreement.  Control of the site at Cranbourne is your preference, rather than Masters having a tenancy there?---Rather than Masters creating a centre within a centre that’s going to compete with our existing centre and impact, um, the development of the vacant land.

HIS HONOUR: Yes, could you answer the question?---Yes.  In that context, yes.

Yes.  That’s what this case is all about, isn’t it, as a businessman?---This case is about protecting, our rights as a landowner.  Control is an aspect of that.  There’s a – value concerns.  There’s a whole lot of concerns that I’ve mentioned in all three of my witness statements about the grave concerns we’ve got if this sublease is, in fact, approved.  They’ll be creating a multi-tenanted centre and being a de facto landlord on our land.

Can we agree about this: you want Amart as a tenant of the Cranbourne Home Centre somewhere?---We only approached Amart - - -

Can you just answer my question.  Yes or no.  Do you want Amart as a tenant at the Cranbourne Home Centre?---On the vacant land, yes.  Not in the Masters premises.

And they would be a first class addition to the tenancy mix at the Cranbourne Home Centre, wouldn’t they?---I wouldn’t say first class.  They’re a – they’re a good tenant.  They’re not a Bunnings.  They’re not a – they’re not a Masters.  They’re not a single large anchor tenant.

1. Control of premises developed and leased by Aventus and/or the Aventus Group is, as the evidence indicates, a fundamental part of its business model and, it is claimed, its success.[55]  In addition to the material to which reference has already been made, it is helpful to have regard to further evidence with respect to this aspect given by Mr Holland, again in cross-examination:[56]

   [55]Transcript (Wednesday 5 June 2019), 355–356.

   [56]Transcript (Wednesday 5 June 2019), 355–357.

Yes.  Yes?---But demand is not the only solve, because you can see demand is – um, we’re obviously generating stronger demand for our real estate than the general market industry is, and part of that’s because we control the real estate.  We don’t have sub-tenants, we don’t have leaseholds; we own 100 per cent of all of the 20 centres.

All right?---And that’s part of what drives the strong occupancy.

Mr Peters.

WITNESS: Thank you.

MR PETERS:  Did you just say you don’t have sub-tenants?---To the best of my knowledge, we don’t have approved sub-tenants.

Anywhere?---My understanding is, um – and I asked the question of my team this morning ‘cause, um – other than, um, ah, medical centres – ah, sorry – um, chemists often have medical centres that are sub-tenants.  That’s standard practice. We’ve only got a couple of examples of those, but to the best of my knowledge, out of the 584 leases, there’s no sub-tenants.  We’ve got direct relationships with all of those tenants.

And that is an attractive feature of the portfolio of the Aventus Group, as you see it?---It’s – ah, yes, it is.  It’s part of being able to control the real estate.

Can you explain to His Honour why it’s attractive from a control point of view?---You get to control tenancy mix.  You get to control, um, who goes in, what rents they pay, the incentives that are actually paid.  You get to control the management.  You get to, um, manage and enhance and deepen tenant relationships because you have direct relationships rather than through an agent or through another sub-tenant, and you get to manage and market to those individual tenants.

And that’s a – I take it that’s a policy across the whole group of Aventus?

---Yes.

And that policy continues to this day?---It’s not – it’s not so much a policy.  It’s a – it’s a– it’s a principle.  Um, it’s not a formal written policy but it’s a – it’s a guiding principle, and that’s part of why we’re able to achieve strong returns for our unit holders.

That guiding principle continues to this day?---Yes, it does.

And it’s applied to all the decisions you make across the group?---Yes.

Including the facts of this case?---Absolutely

Right.  And that’s a primary principle?---It’s not primary.  It’s just one of the many principles of managing retail real estate.

And it’s a principle that enables the Aventus Group to manage all of its portfolio as a whole for the benefit of its shareholders – unit holders?---Its individual assets plus the portfolio, yes.

Well, let me take you up on that.  The individual assets are owned by individual companies, aren’t they?---The individual assets are owned by the Aventus Group, ultimately.

That’s how you view it?---Yes.

So you had no regard to the leases of the individual landlords within the group?---Well, the landlords all form part of the Aventus Group.

I take that as you’ve had no regard to the leases of the individual companies of the landlord – as landlords in the Aventus Group?---That’s not correct.  We do have regard to all of our leases.  They’re – they’re important.  They’re – that’s – they’re income-producing, um, leases so we know all of the – the leases.  They’re important to us.  My point is, um, there’s 584-odd leases and they sit between centres.

You view Home Co as a competitor to Aventus?---At Cranbourne, yes.

Generally in the market.  Large format retail?---They’re in large format retail, yep.

Masters/Home Co’s plans for the Premises

1. Masters accepts that Home Co’s general strategy with respect to the former Masters premises is expressed accurately in the presentation dated 10 October 2016.[57]  The following text from this presentation was quoted in Aventus’ opening submissions as follows:[58]

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.

In what was characterised by Masters as a “glaring omission”, this passage in the Aventus opening omitted the final four words of that statement as presented in the Home Co proposal, which read: “subject to required consents”.  In this respect, the evidence of Mr Selim was clear and consistent that, despite whatever aspirations Home Co may have for the Masters site – the Premises – including with respect to keeping all options open, testing the market and accepting all inquiries, this occurs in a context of Masters “knowing full well, ultimately, it’s subject to the landlord’s consent if those discussions evolve into a real live heads of agreement down the track”.[59]

[57]Defendant’s Opening Submissions (29 May 2019), [19].

[58]Defendant’s Opening Submissions (29 May 2019), [19].

[59]Transcript (Monday 3 June 2019), 102.

1. In this context, Aventus contends that it is entitled to have regard to the prospect that Masters will seek to repurpose the box – the Premises – as a retail destination or retail precinct.[60]  In other words, a shopping centre within Aventus’ shopping centre.  Examples of other such repurposing by Masters were referred to and it would be reasonable to conclude that Masters may, in due course, seek to achieve a similar arrangement for the Premises.  At this point, the future in this respect is uncertain, though the evidence does, as Aventus contends, support this view.[61]  However, Aventus currently must consider the Masters Request for Consent – for the single, Amart, proposed Sublease.  What may or may not happen in the future is a matter Aventus will need to consider at the relevant time when any further request or requests are made by Masters.

   [60]Defendant’s Closing Submissions (11 June 2019), [108]-[120].

   [61]See particularly the evidence of Mr Selim, General Counsel of Home Co, which is referred to and discussed in Defendant’s Closing Submissions (11 June 2019), [109], [110].

1. Moreover, Aventus has been informed by Masters repeatedly that whatever aspirations it may have for the Premises, these plans remain subject to the Permitted Use clause under the Lease and Aventus’ consent.[62]  Masters says that Aventus, therefore, misstates the practical reality when referring to its concern – or suspicion[63] – that Masters intends to open a multi-tenant, multi-use retail centre within the Premises.  Indeed, Mr Holland accepted in cross-examination that any plan Masters had for the Premises would need to accommodate any consents required of the landlord.[64]  When I asked Mr Holland to clarify whether it was his evidence that Masters has to ask Aventus each time it wants to create a sublease, Mr Holland said:

They have to ask us, but I’m – I’m very…concerned and very suspicious that if – the unlikely event the sub-lease is approved to Amart, they will just sub-divide the balance of the seven and a half thousand square metres create more supply.[65]

[62]See, for example, the correspondence from Baker & McKenzie to Herbert Smith Freehills on 14 February 2019 and 10 April 2019.

[63]Holland Witness Statement, 25 [89].

[64]Transcript (Thursday 6 June 2019), 403, 408.

[65]Transcript (Thursday 6 June 2019), 409.

I accept the submissions of Masters with respect to this evidence of Mr Holland that it cannot be reconciled with his evidence that each time Masters wished to create a sublease, it would require Aventus’ consent.  Moreover, I accept that the fact that Masters, Home Co or their agents have been in discussion with a number of parties to test the market is not inconsistent with the acknowledgment that Masters remains bound by the terms of the Lease and accepts this position.

Construction of the Lease

Questions of construction

1. The following questions of construction with respect to the provisions of the Lease arise in this proceeding:

(1)Whether the use of the Premises under the Proposed Sublease is inconsistent with the permitted use under the Lease.[66]

(2)Whether clauses 6.3 and 8.2 of the Lease are interdependent, and, if so, whether that means that the effect of Masters not trading at the Premises is that there is no “trading area” to sublease under clause 8.2(b).[67]

(3)Whether the fact that Masters is in breach of clause 6.3 of the Lease means that Aventus does not have to consider the Request for Consent at all;

(4)Whether clause 8.2(b) of the Lease is to be interpreted restrictively to the exclusion of clause 8.2(a) because clause 8.2(a) is “totally obliterated”[68] with no work to do; and

(5)Whether the Lease affords Masters the right to licence certain areas of the Premises to allow Amart to operate its business and whether the Lease allows for the Fit-out Works to be undertaken by Amart.[69]

[66]Further Amended Defence, [29(b)(i)]. Masters notes that the Further Amended Defence, [29(b)(ia)] alleges that the Sublease will create a division of the Premises into separate areas with multiple tenancies which is outside the Permitted Use.  This is not a question to be determined in this proceeding as the Request for Consent is a request for consent to one sublease to one tenant and not multiple tenancies.

[67]Defendant’s Opening Submissions (29 May 2019), [61]–[62].

[68]Defendant’s Opening Submissions (29 May 2019), [85].

[69]Further Amended Defence, [29E].

Before turning to these questions of construction, which are discussed, in turn, in the reasons which follow, it is helpful to make some reference to the principles of construction of a commercial contract such as the Lease; though reasonably briefly, as the principles themselves are not in controversy between the parties, though that does not necessarily apply to their application.

Principles of Construction

1. It is trite that the Lease is, in this context, a commercial contract and is to be construed accordingly.  In construing such a contract, the Court is required to ascertain the meaning which the words of the contract would convey to a reasonable businessperson with the knowledge of the contracting parties.[70]  That process involves identifying the meaning of the words used and then giving effect to that meaning within the context of the contract construed as a whole.[71]  It is clear from the authorities that in doing so, the Court is to take a common-sense approach.[72]  Moreover, in striving to give the contract an interpretation that avoids absurdity, the Court must strive to give all the parts of the contract effect in a way so that they can operate harmoniously together.[73]

   [70]Pacific Carriers v BNP Paribas (2004) 218 CLR 451, [22] (‘Pacific Carriers’).

   [71]Australian Broadcasting Corporation v Australasian Performing Rights Association (1973) 129 CLR 99, 109 (‘ABC v APRA’).

   [72]Gollin & Co Limited v Carenlee Nominees Pty Ltd (1983) 153 CLR 455, 464 (‘Gollin’).

   [73]Gollin (1983) 153 CLR 455, 464.

1. It is clear that the Court’s task is to ascertain the objective intention of the parties to the contract, an intention which is discoverable partly by reference to the genesis, aim and background of the transaction – as well as any common assumption – but which must always yield to the actual words the parties chose to express their intention.[74]  The meaning of a commercial contract is to be construed objectively by reference to what it conveys to a reasonable person.  This normally requires consideration not only of the text of the relevant document or documents, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction.[75]

   [74]Franklins Pty Ltd v Metcash Trading (2009) 76 NSWLR 603, [19]–[23].

   [75]Pacific Carriers (2004) 218 CLR 451, [22]; see also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40].

1. A commercial contract must be read in a manner that gives each word of the contract meaningful work to do and in a manner that is consistent with the commercial purpose and objects of the contract.[76]  Surrounding circumstances can be assessed to confirm, inform, or illuminate the interpretation of a contract, however, the primacy of interpretation is with regard to the text and the internal context of the contact.[77]  Whilst dictionaries can be used as an aide in identifying the conventional meaning of a word, they are no substitute for the interpretative process.[78]

   [76]McDougall, R, ‘Construction of Contracts: The High Court’s Approach’: Paper delivered at the Commercial Law Association Judges’ Series on 26 June 2015, Sydney NSW.

   [77]Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640; WestfieldManagement Limited v AMP Capital Property Nominees Limited (2012) 247 CLR 129.

   [78]House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498, [28].

1. The primary duty of the Court in construing a contract is to discover the intention of the parties from the words of the instrument in which the contract is embodied.  The whole of the instrument has to be considered since the meaning of any one part of it may be revealed by other parts and the words of every clause must, if possible, be construed so as to render them all harmonious with one another.[79]

   [79]ABC v APRA (1973) 129 CLR 114 [109].

1. Applying these authorities,[80] Palmer J, in Euphoric Pty Ltd v Ryledar Pty Ltd,[81] provided a statement of the process of construction to be applied by the courts:

30.The Court does not, therefore, need to find that the language of a contract is ambiguous before considering its meaning as it may be revealed in the commonly known context and purpose of the transaction.

31.However, that does not mean that when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction, often only by resolving a strenuous contest between the parties.  The Court does not, once it has found the commonly known factual context and purpose, then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation.

32.When the Court is construing a commercial contract, it begins with the words of the document: there it often finds expressed the factual context known to both parties and the common purpose and object of the transaction.  But the Court is alive to the possibility that what seems clear by reference only to the words on the printed page may not be so clear when one takes into account as well what was known to both parties but does not appear in the document.  When that is taken into account, the words in the contract may legitimately have one or more of a number of possible meanings.  It is then that the Court’s task to identify which of the possible meanings represents the parties’ contractual intention.

33.However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit.

[80]See also the discussion of the authorities by Finn J in Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2000] FCA 1812, [78]–[79].

[81][2006] NSWSC 2, [30]-[33]. The decision of Palmer J in Euphoric was endorsed by the New South Wales Court of Appeal (Tobias JA) at [108] and [109]).  Euphoric has also been cited with approval by the Western Australian Supreme Court of Appeal (Newnes J, Murphy JA, Beach J) in Blackbox Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 2019 at [fn 57] and by Edelman J in Minerology Pty Ltd v Sino Iron Pty Ltd [2013] WASC 194 at [fn 39].

As is made clear in the concluding paragraph of this statement, a distinction is to be drawn between the process of construction of a commercial contract and a rectification suit.  Masters contends that rectification is the very thing which Aventus seeks to do in these proceedings.  Aventus rejects this contention and argues its position on the basis of what it says is the proper construction of the Lease provisions.

Surrounding circumstances

1. As the authorities to which reference has been made indicate, the surrounding circumstances known to the parties may well be matters to which the Court should have regard in order to ascertain the objective intention of the parties by reference to the genesis, aim and background of the transaction, as well as any common assumption – perhaps more generally put as part of the process of ascertaining the purpose and object of the transaction.  Indeed, that is clearly the position with respect to a commercial contract such as the Lease.  Nevertheless, as has also been discussed, the authorities emphasise the primary weight that must be given to the words of the contract.

1. Prior to 2011, the Cranbourne Home Centre development was confined to the land abutting the South Gippsland Highway and Thompsons Road, Cranbourne.  In other words, it did not include the land upon which the Premises is situated.[82]

   [82]Defendant’s Closing Submissions (11 June 2019), Annexure A, [1]-[3].

1. The then Cranbourne Home Centre was part of a portfolio of large format retail centres owned and operated by BB Retail Capital Pty Ltd (“BB Retail Capital”).  In 2001, after Woolworths had announced “Masters” as the brand name for its joint venture with Lowe’s – a large and well-known US retailer – in the Australian home improvement sector, BB Retail Capital negotiated the acquisition of the land upon which the Premises is situated from the Dunscombe family and, at the same time, negotiated with Woolworths and Masters for the construction and lease of the building on that land.  In the result, this land was acquired by a company which represented a joint venture between BB Retail Capital and the Dunscombe family.[83]  That company was then called BBJ Thompsons Road Pty Ltd and held this land as trustee for the BBJ Thompsons Road Unit Trust.[84]  As has already been observed, that company changed its name to Aventus Cranbourne Thompsons Road Pty Ltd, the defendant in this proceeding – Aventus.

   [83]Holland Witness Statement, 15–16 [56]–[59].

   [84]Holland Witness Statement, 16 [59].

1. On 18 May 2011, Woolworths provided the terms upon which it would be prepared to lease the Premises to be constructed on this land “within an area identified for expansion of the Cranbourne Home Maker Centre”.[85]  As recorded in the Heads of Agreement,[86] the key aspects of the proposed deal were that:

   [85]Letter from Woolworths Limited to Darren Holland (18 May 2011).

   [86]Letter from Woolworths Limited to Darren Holland (18 May 2011).

(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 of 13,909sqm on a site area of approximately 37,214sqm;

(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).[87]

Mr Holland’s evidence is that he decided that proceeding with a Masters tenancy and expanding the Cranbourne Home Centre, rather than adopting other options available, was the most attractive option for BB Retail Capital because it enabled the Aventus interests to control the land upon which the Premises is now constructed, land which includes the Surplus Land.  Moreover, the Masters tenancy, he said, provided a long-term income stream and avoided “leakage” from the Cranbourne Home Centre that would have resulted if Masters opened a store in the vicinity of the Centre.  This, Mr Holland considered, was a real possibility if Masters did not secure premises in the Cranbourne Home Centre.[88]

[87]Holland Witness Statement, 11 [44].

[88]Holland Witness Statement, 12 [45]–[47].

1. As part of the process of bringing the proposed deal to fruition, attention was directed to the drafting and negotiation of the Lease.  In the present context, attention is given to the drafting and negotiation of clause 8.2 with respect to subletting, licences and concessions.  Aventus placed particular reliance upon this process of drafting and negotiation as going to the proper construction of the provisions of the Lease.

1. In the first draft of the Lease – which was distributed by Allens Arthur Robinson (“AAR”), solicitors for Masters, to Craig Hailes, for Aventus, and Russell Kennedy for the Dunscombes, on 26 July 2011 – clause 8.2, in relation to the right of Masters to sublease the Masters Premises, took the following form:[89]

The Tenant may without the Landlord’s consent:

(a)sublet, or grant licences to any person for the occupation or use of, the whole of any part of the Premises; and

(b)grant concessions to any person for the use of any part or parts of the Premises.

[89]Draft Lease Agreement (BB Retail Capital Pty Limited, Coloskye Pty Limited and Masters Home Improvement Australia Pty Ltd) (26 July 2011), [8.2].

1. On 6 September 2011, Mr Hailes responded to AAR stating, among other things, that the proposed form of clause 8 was unacceptable and that BB Retail Capital required that the clause be amended to make any sublease or licence of the Premises conditional on the Landlord’s consent.[90]  On 14 September 2011, AAR responded rejecting BB Retail Capital’s proposed amendment to clause 8.2.[91]  On 27 September 2011, Mr Hailes responded to AAR.[92]  In relation to clause 8.2 he said that his clients, the landlord, required the ability to know who is trading from the Cranbourne Home Centre and asked AAR to amend the sublease clause.  On 4 October 2011, following further email correspondence regarding the negotiations, AAR wrote asking to meet with Mr Hailes and his client to finalise the AFL and Lease.[93]  In relation to clause 8.2, AAR rejected his request for an amendment to the clause to ensure that the Landlord knew the identity of any sub-lessee or licensee.

   [90]Email from Craig Hailes to Alanah Barham (6 September 2011).

   [91]Email from Michael Graves to Craig Hailes (14 September 2011).

   [92]Email from Craig Hailes to Michael Graves (27 September 2011).

   [93]Email from Michael Graves to Craig Hailes (4 October 2011).

1. On 19 October 2011, Mr Hailes replied to AAR and attached a table detailing his client’s instructions in relation to the outstanding matters in the draft documents.[94] In relation to clause 8.2, he wrote:

The Tenant will not require consent to sub-lease or license an area greater than 5% of the Premises.  However, this proviso is based on such occupants not placing the Landlord in breach of any of its leases with other tenants in the centre whom enjoy exclusivity.  Details to be provided

This item in the table was amended at the meeting of 27 October 2011, where it is said that the parties agreed that the word “not” was to be deleted.[95]

[94]Email from Craig Hailes to Michael Graves (19 October 2011). 

[95]See the version of Lease circulated following the meeting by AAR on 3 November 2011 which stated that the Landlord’s consent was required to sublet, licence or concession in the manner set out in clause 8.2(b) (ie, the Tenant could not without the Landlord’s consent so sublease, licence or concession).

1. In its submissions, Aventus makes reference to the 27 October 2011 meeting in the following terms:[96]

On 27 October 2011, Mr Holland attended a meeting in Melbourne with Mr Holland and representatives of Masters and AAR at which negotiations continued regarding the terms of the AFL and the Lease.[97]  Clause 8.2 was discussed at this meeting. Mr Holland recollects that the Masters representatives at the meeting said Masters had or proposed to have arrangements with certain traders under which the traders were or would be permitted to trade from 5 or more Masters’ premises in Australia.  He recollects that McDonalds was an example of such a proposal at the time.[98]

[96]Defendant’s Closing Submissions (11 June 2019), Annexure A, [13].

[97]Holland Witness Statement (8 May 2019) [50].

[98]Holland Witness Statement (8 May 2019) [50].

1. Mr Holland’s oral evidence concerning the negotiations which took place at that 27 October 2011 meeting included the following:[99]

Mark Delaney [Woolworths’ representative] was talking about that clause that got constructed as the sub-lease and concession clause and licensing clause relating to a store within a store, like the DJs or the Myers example, where you have concessions.  And we said, ‘What’s an example of that?’.  And he gave the example of McDonald’s and he said, ‘We’re attempting to roll out McDonald’s across all of our Masters stores’, and that’s an example of a store within a store.  The other examples might be trade suppliers or a – there might be a Makita with a concession store, and to the naked eye of the customer you don’t know that that’s a concession store ‑… just like if you go in to David Jones or Myers.

[99]Transcript (Thursday 6 June 2019), 389.

1. Following the 27 October 2011 meeting, AAR circulated a revised draft of the Lease on 3 November 2011 which amended clause 8.2 (as track changed) to read as follows:[100]

   [100]Revised Draft Lease (BB Retail Capital Pty Limited, Coloskye Pty Limited and Masters Home Improvement Australia Pty Ltd) (3 November 2011), [8.2].

…

(a)The Subject to paragraph (b), the Tenant may without the Landlord’s consent:

1.sublet, or grant licences to any person for the occupation or use of, the whole or any part of the Premises; and

2.grant concessions to any person for the use of any part or parts of the Premises.

(ii)       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:

1.5% of the trading area of the Premises where the sub-leases, licensees 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;

2.15% 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

3.20% of the trading area of the Premises in total.

BB Retail Capital agreed to the amendments.[101]

[101]Table of Amendments to Revised Draft Lease (As at 15 November 2011),

1. In its final form, following the conclusion of negotiations, clause 8.2 of the Lease was settled and agreed in the form set out below, in the context of the relevant provisions of the Lease.[102]

   [102]See below, [70].

1. Masters, on the other hand, contends that Aventus’ evidence of the parties’ negotiations ought to be rejected.  It is submitted that this evidence is not admissible to construe the Lease.  Alternatively, it is said, if the evidence is led to establish the surrounding circumstances, in the sense of objective facts known to both contracting parties and therefore being capable of bearing upon the meaning of the words contained in the contract, it fails to do so.  It is relied upon by Aventus to evidence the genesis, aim and background of clause 8.2.  Nevertheless, Masters contends that this does not assist the Court.  For the reasons which follow, I am of the opinion that this evidence does not assist the Court other than, perhaps, in the most general sense of reaffirming the intention of the parties to provide for the construction of a purpose-built Masters store, built to the specifications of Woolworths, in accordance with a design brief.  The motivations of Aventus with respect to the securing of a Masters tenancy on land which it owned and controlled is a subjective matter which does not aid the construction and process.  None of these subjective matters are in the nature of objective surrounding circumstances.

1. More particularly, the evidence of the pre-contract negotiations does, as Masters submits, “boil[s] down” to Mr Holland’s recollection of a meeting which took place in Melbourne over eight years ago – Aventus having decided not to call Mr Hailes.  There are no file notes or any other written documents in evidence which record the negotiations.  According to the few short sentences dedicated to it in Mr Holland’s witness statement, the meeting took place on 27 October 2011, “in Melbourne”.[103]  Under cross-examination, the following became clear.  Mr Holland could not recall what year the meeting was, let alone what date.[104]  He could not recall where the meeting took place.[105]  He could not recall which firm of solicitors was present acting for Masters.[106]  Whilst Mr Holland recalled talking about “a range of issues”,[107] surprisingly, Mr Holland specifically recalled the “clause around licenses – licensing and concessions”,[108] whilst not clearly remembering any of the other clauses being discussed.[109]  Moreover, Mr Holland could not recall the individual names of attendees present at the negotiations;[110] how many attendees were present at the negotiations;[111] or the precise length of the negotiations.[112]

   [103]Holland Witness Statement, [50].

   [104]Transcript (Thursday 6 June 2019), 385–387.

   [105]Transcript (Thursday 6 June 2019), 386.

   [106]Transcript (Thursday 6 June 2019), 386.

   [107]Transcript (Thursday 6 June 2019), 387.

   [108]Transcript (Thursday 6 June 2019), 388.

   [109]Transcript (Thursday 6 June 2019), 388.

   [110]Transcript (Thursday 6 June 2019), 386.

   [111]Transcript (Thursday 6 June 2019), 387.

   [112]Transcript (Thursday 6 June 2019), 387.

1. Consequently, I accept the submission on the part of Masters that this evidence is vague and unreliable.  It is in conclusionary form which could not reflect the actual words used.  Importantly, the owners of the land upon which the Premises are situated in 2011 and 2012 – who had not yet transferred that land to Aventus – were not included in the discussions.  There is no reference to the Dunscombes or any solicitor acting for them.  As I have indicated, this evidence does not and ought not inform the Court’s interpretation of the Lease for all these reasons.

Terms of the Lease relevant to the construction questions

1. As indicated previously, the Lease is for an initial term of 15 years, with further terms totalling another 25 years in aggregate.  I turn now to the provisions of the Lease which are of particular relevance to the construction questions.

1. The Lease contains a “whole agreement” clause at clause 13.3 which 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

1. Clause 1.2 of the Lease sets out rules of interpretation, including the following:

(a)The singular includes the plural and conversely;

…

Unless stated otherwise, one word or provision does not limit the effect of another;

...

(j)Reference to the whole includes part;

…

(o)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.

Each of these rules does, as Masters contends, guide the reader towards an expansive and not a restrictive interpretation of the Lease.

1. Clause 6.1 of the Lease is entitled “Use of Premises” and provides:

The Tenant must not use the Premises for any use other than the Permitted Use, unless the Landlord consents to another use.

1. Clause 6.3 of the Lease is entitled “Trading Hours” and provides:

The Tenant … must open for business during the hours of 9 am to 5 pm 7 days per week ….

1. By clause 7.2 of the Lease is entitled “Structural Work” and provides:

Subject to clause 7.5(b) [which is not presently relevant], nothing in this Lease imposes any obligation on the Tenant to do any Structural Work or to make any alterations or additions to the Premises whether required by any Authority or for any other reason.  The Landlord is responsible for carrying out any such work at its own cost.

The expression “Structural Work” is defined in clause 1.1 of the Lease as meaning, inter alia, any works to the structure of any of the Landlord’s Property.[113]

[113]Paragraph (h) of the “Structural Work” definition in clause 1.1 of the Lease.

1. Clause 8.2 of the Lease is entitled “Subletting, Licences and Concessions”, and provides as follows:

(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.

1. The permitted use for the Premises as stated in the Reference Schedule to the Lease is as follows:

Permitted Use           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 associate use permitted by Law.

Application of the principles of construction to the Lease

1. As indicated, it is helpful in the present context to consider the construction issues with reference to the construction questions arising in this proceeding, as set out previously.[114]

Construction Question 1 – Permitted Use of the Premises

[114]See above, [42].

1. Aventus alleges that Masters aims to subdivide the Premises into separate areas with diverse retail uses in circumstances where, to the knowledge of the parties to the AFL and the Lease, the Premises were originally constructed, and it was “always known and contemplated”, that the Premises would be used as a single Masters store with Sub-leases, licences or concessions within that single Masters store in furtherance of the permitted use in the Lease under the Masters brand.[115]  Masters responds that this is a fundamental misconception with respect to the Masters request, which, it emphasises, seeks only to create one sub-tenancy.  Masters readily concedes that any further request to sublease would be subject to the Permitted Use and subject to the consent of Aventus.  Neither does Masters seek to vary the permitted use of the Premises for the purpose of its present request for consent to sublease.  Consequently, Masters contends that the only relevant question is whether the use of the Premises under the Proposed Sublease is consistent with the permitted use under the Lease.[116]

   [115]Further Amended Defence, [29(b)(ii)].

   [116]Further Amended Defence, [29(b)(i)].

1. Aventus, on the other hand, says that whilst the parties to the Lease remain the same today as they were when the Lease was consummated, the economic and commercial reality with respect to Masters has significantly altered.  When the Lease was entered into, it says, Masters was in the business of trading home improvement stores and was controlled by two retailing giants – Woolworths and Lowe’s.  Aventus further observes that, today, Masters is a vastly different business and controlled by Home Co which, through Masters, is in the business of repurposing real estate into large format retail shopping centres and, as part of that business, leasing premises to retail tenants for diverse uses.  It is conceded that whilst it may have been in contemplation of the parties at the time of entering into the Lease that parts of the trading area of the Premises may be sublet, licenced or concessioned in the course of Masters’ home improvement trade at the Premises, it could never have been contemplated by the parties at that time that the ownership of Masters would change in a fundamental way, or that the Premises would be structurally subdivided into parts for subleasing, licencing or concessioning to other tenants to ply their trade separately from the Masters home improvement store.  Still less, it is said, would it have been contemplated by the parties that trading from the Premises would cease within the space of one year and that the Premises would be structurally subdivided into parts for subleasing, licencing or concessioning to diverse tenants.  There appears to be little doubt that it is the position that the parties did not contemplate the closure, much less the imminent closure, of the Masters home improvement stores in Australia when the Lease was entered into.  However, the reality is that this is exactly what did occur and, accordingly, absent any claim that the Lease has thereby been frustrated, its provisions, properly construed, must be applied to the present reality.

1. A further matter raised by Aventus goes to possible future use of remaining areas of the Premises, not the subject of the proposed Sublease.  Aventus contends that the evidence puts beyond doubt that the proposed Sublease is the first step in the Masters and Home Co strategy of structurally partitioning the Premises and repurposing them as a large format retail shopping centre consisting of several retail tenancies for sublease.[117]  Moreover, Aventus submits that such a structural partitioning of the Premises by the Tenant into separate premises for separate tenancies is not permissible under the Lease.  It says that on a fair reading of clause 8.2(b) of the Lease, it does not contemplate the physical/structural partitioning of the Premises, let alone the trading area of the Premises, into several different premises for subleasing, licensing or concessioning into different tenancies and uses.  There is evidence of repurposing of former Masters’ stores at other shopping centres in a manner which Aventus contends is the  Home Co plan for the Premises. Nevertheless, it should be stressed that the proposed Sublease and the Request for Consent to the proposed Sublease is confined to the subleasing of one part only of the Premises.

   [117]Defendant’s Closing Submissions (11 June 2019), [151]-[158].

1. Aventus seeks to read down the Permitted Use under the Lease to a single home improvement store, with any allowable subleases, licences or concessions being confined to subleases, licences or concessions by Masters of areas within the overall, single, Masters home improvement store.  As to this, Masters contends that, in the words of Palmer J in Euphoric, to do so would be more rectification than construction.[118]  Moreover, Masters makes the point that, during negotiations for the AFL and the Lease, the parties were represented by experienced legal advisors.[119]  Thus, it is said, it would not be unrealistic to expect that if the parties contemplated such a specific restriction on the right to sublease so that the Premises could only be let by a single home improvement store, then the Permitted Use of the Premises, clause 8.2 of the Lease, would have accurately and specifically reflected this.  Aventus contends, however, that these provisions only contemplated the subleasing, licencing or concessioning of the “trading area” of the Premises, and always in aid of carrying on the Permitted Use of a Home Improvement Store within that store.  The parties are at odds as to whether the express words of the Lease, or textual indications in the language of the Lease, are inconsistent or consistent with such an intention.  Moreover, Masters makes the point that it was also always open to Aventus to negotiate to have a “no sublease” clause in the Lease, or to make express reference to Masters in the Permitted Use clause, or to limit Masters’ ability to deal with third parties to concessionaires only.  It did none of these things.

   [118]See above, [47].

   [119]Holland Witness Statement, 13 [48].

1. Masters contends that clause 8.2 of the Lease, on its face, clearly allows subleasing or the granting of licences to any person for the occupation or use of, the whole or any part of the Premises.  Clause 8.2(a) contemplates the provision to the landlord of a list of the names of all sub-tenants, licensees and concessionaries occupying or using the Premises every 12 months.  A sublease involves a grant of exclusive possession of the subleased part of the Premises.  It is of importance to note that in order to grant exclusive possession to a sublessee physical works are required.  To that end, Mr Brown, Aventus’ expert, in re-examination gave evidence that in order to sublease, physical works to the Premises would be required as “You couldn’t have half a dozen tenants locate in open space”.[120]  However, as Masters observes, the structure of clause 8.2(a) clearly distinguishes between subleases and licences (at (i)) and then concessions (at (ii)).

   [120]Transcript (Thursday 6 June 2019), 504–505.

1. Aventus contends that the Permitted Use under the Lease is inconsistent with the permitted use proposed under the Sublease.[121]  That proposed use is as follows:[122]

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).

This permitted use provision should be contrasted with the Permitted Use of the Premises as provided for in the Lease, the text of which is set out in the immediately preceding paragraphs in these reasons.[123]  In my view, for the reasons which follow, there are no relevant inconsistencies and the Permitted Use under the Lease does accommodate the permitted use under the proposed Sublease.  In any event, cl 29.1 of the proposed Sublease specifically requires consent for any matter for which the consent of Aventus is required under the Lease (the “headlease” to Masters).[124]

[121]Defendant’s Closing Submissions (11 June 2019), [151]-[158].

[122]Amart AFL (23 November 2018), Schedule 2, Reference Schedule 1, Item 14.

[123]See above, [71].

[124]See Proposed Sublease at Exhibit AS–4 to Selim Affidavit, [29.1]. 

1. More particularly, Aventus submits that there are clear indications in the AFL and the Lease that it was objectively intended that the Premises would be used as a single home improvement store.  In this respect, Aventus makes reference to the following provisions:

(a)the AFL defines “Premises” as “the home improvement store building”;

(b)the Lease defines “Premises” as “That part of the Centre identified on the Plan as the [Masters Home Improvement Store]”; and

(c)the Permitted Use is defined as “Home Improvement Store allowing for…”.

Moreover, Aventus contends, in its opening submissions, that Masters misconstrues the Permitted Use clause by minimising the significance of the opening words “Home Improvement Store” and seeking to elevate the “allowed” uses within that Home Improvement Store.[125]

[125]Plaintiff’s Opening Submissions (29 May 2019), [83].

1. Aventus also contends that the “Permitted Use” provisions of the Lease must be interpreted in the context of the facts known to both parties at the time it was entered into.  Those facts are said to include the following:[126]

   [126]Defendant’s Closing Submissions (11 June 2019), [155].

(a)Masters’ media release of 2 May 2011:[127]

[127]Masters Home Improvement ‘NEW BRAND, NEW ERA IN HOME IMPROVEMENT’ (Media Release dated 2 May 2011).

(i)“NEW BRAND, NEW ERA IN HOME IMPROVEMENT …;

(ii)“Masters first store [will include] a separate trade-only area dedicated to the building and professional industries”;

1. The second lay witness, Mr Holland, was, as was Mr Selim, an impressive witness, but also a person with very considerable experience in the management of large format retail centres.  As Chief Executive Officer of one of the largest fully integrated groups in the sector, Mr Holland is well placed to speak to the issues confronting shopping centre owners and managers.  He is, indeed, in a position where he might be said to be “uniquely placed” to speak to the issues confronting Aventus with respect to the Cranbourne Home Centre and the issues which it says would arise in the event that Masters produced a situation of creating a “competing centre” within that Centre”.  The difficulty, however, with Mr Holland’s evidence, and this is not a criticism, is that it is given from a commercial perspective.  Moreover, however colloquially, generally or commercially the Cranbourne Home Centre is referred to by Mr Holland or Mr Selim or the expert witnesses as (or implying that it is) one centre, the position from a landlord’s consent perspective is, as a matter of law, that it is not one centre but, rather, two centres; each owned by separate corporations in the Aventus Group.  In my view, the effect of this position is to render the lay and expert evidence that relies upon the assumption that there is only one Centre largely irrelevant and, in any event, without any significant weight; a position not enhanced by Mr Brown’s brief reference in his Report to the position with respect to Aventus as a separate entity.[354]

   [354]Expert Report of Les Brown (May 2019), [158]-[163].

1. On this basis, I turn now to the expert evidence of Mr Schuh and Mr Brown.  Mr Schuh’s evidence was criticised by Aventus, generally on the basis that it is said that he presented as an advocate on behalf of Masters and would not, for example accept that a reasonable expert could have arrived at different answers to the ones he arrived at and sought to downplay the significance of judgment in the valuation process.  In any event, Mr Schuh ultimately agreed that, as a matter of practice, valuation involves matters of judgment and that reasonable valuers may come to different conclusions.[355]  Mr Schuh agreed with the observations of Croft J (unaware when those observations were being put to him that I was also the judge in that case) in ChallengerProperty Asset Management Pty Ltd v Stonnington City Council,[356] including that valuation practice is principally an art rather than a science, and is an art that continues to evolve.[357]  Continuing, Aventus submits that in those circumstances, the fact that Mr Brown and Mr Schuh have come to different conclusions about the probable effects of the Sublease on Aventus’ commercial and economic interests is unremarkable.  Certainly, Aventus contends, this does not establish that its withholding of consent was unreasonable.  In this regard, reference is made to the statement of principle in Commercial Tenancy Law:[358]

The court will not interfere if a reasonable person in the lessor’s position might have regarded the proposed transaction as damaging to his or her own property interests, even though some persons might take a different view.

It is, of course, as indicated elsewhere in these reasons, a different matter if the landlord regards the proposed transaction as damaging to the property interests of other corporations not its own property interests.

[355]Transcript (Tuesday 4 June 2019), 152.  See also Transcript, (Tuesday 4 June 2019), 156–158.

[356](2011) 34 VR 445, [24].

[357]Transcript (Tuesday 4 June 2019), 151.

[358]Justice Clyde Croft, Robert Hay and Luke Virgona, Commercial Tenancy Law (LexisNexis Butterworths, 4^th ed, 2018), [15.14].

1. In any event, returning to Mr Schuh and the criticisms of his evidence, the second point raised against his evidence by Aventus is as follows:[359]

Second, Mr Schuh was instructed to proceed on the erroneous basis that the Masters Premises did not form part of the Cranbourne Home Centre.[360]  Instead, based on the instructions given to him,[361] Mr Schuh divided the Cranbourne Home Centre into several different components. As explained above, the fact that the Masters Premises is part and parcel of the Cranbourne Home Centre is beyond dispute, and is confirmed by all of the evidence in the case, including that of Mr Selim[362] (and was also ultimately accepted by Mr Schuh himself[363]).  Mr Schuh acknowledged that the division of the Cranbourne Home Centre into separate areas was an important element in the approach he adopted, and had consequences for the opinions expressed in his report.[364]  As explained further below, Mr Schuh’s failure to consider the Cranbourne Home Centre as a single retail shopping centre seriously undermines the opinions expressed in his report, including because the report fails to properly assess the adverse effects on Aventus’ commercial interests.

It will, however, be appreciated that, having regard to the present state of the law with respect to the property interests to which a landlord may have regard for the purpose of granting or withholding consent, I do not regard these matters as a criticism of Mr Schuh’s evidence.  Quite the contrary, in my opinion, he has properly distinguished between the parcels of land owned by Aventus and the parcels of land owned by Aventus Cranbourne for the purpose of expressing his opinion.  That being the case, the other criticisms fall away, either in substance or significance.  Moreover, it matters not that Mr Schuh was not given a copy of Mr Holland’s witness statement and thereby “deprived” of information about the structure of the Aventus Group.[365]

[359]Defendant’s Closing Submissions (11 June 2019), [84].

[360]Transcript (Wednesday 5 June 2019), 255–256.

[361]Letter from Baker & McKenzie to Michael Schuh (17 May 2019). See also Transcript (Wednesday 5 June 2019), 256–257, 260–261.

[362]Transcript (Monday 3 June 2019), 55.

[363]Transcript (Wednesday 5 June 2019), 263–264.

[364]Transcript (Wednesday 5 June 2019), 261 and 266.

[365]See Defendant’s Closing Submissions (11 June 2019), [86].

1. Mr Brown, who has had extensive experience as a valuer in the retail property sector, clearly did his best to assist the Court and made appropriate concessions and demonstrated a detailed understanding of the large format retail sector.  Mr Brown was, as the following passage in his evidence indicates, cognisant of the fact that his expertise is in valuation and that he has never owned or operated a shopping centre:[366]

I guess the issue is, um, getting the right tenancy mix - - - in the centre, and that’s not an easy thing.  And I’m not a shopping centre manager.  I’m a valuer.  I have an understanding of the concepts, but I don’t do it.  But I think it’s important to understand that you don’t just fill space with a tenant to fill the space because that may actually be detrimental to your other tenants and may be detrimental to your long-term cash flow.

Aventus concludes its written submissions in relation to Mr Brown’s evidence with the comment that there was no serious challenge made to his opinions in cross-examination and no reason why his conclusions should not be accepted.  This is, of course, a fair comment as far as it goes.  The problem is that, as I have already indicated, Mr Brown’s evidence is founded on the erroneous proposition that the issues upon which he was asked to opine lie in the context of one single shopping centre in the hands, effectively, of a single landlord.  As a result, Mr Brown’s evidence must be regarded as largely irrelevant and unhelpful, save for the general comments such as those contained in the just quoted passage from his oral evidence.

[366]Transcript (Thursday 6 June 2019), 472–473.

1. In spite of the difficulties with the expert evidence to which reference has been made, there are, particularly as submitted by Masters, a number of matters that do emerge from it, and it is to these that I now turn.

1. Mr Schuh’s evidence as to the effect of granting the sub-lease to Amart on the commercial and property interests of Aventus and Aventus Cranbourne is to the effect that if the sub-lease were granted: the rental return for Aventus would be unchanged; the vacancy risk at the conclusion of the Lease would be reduced; the renewal prospect at the expiry of the Lease would be increased; there would be a capital value benefit to Aventus in not having a vacant “box”; Amart would form a potential anchor tenant for the Premises; Amart would form a potential anchor tenant for the leasing of tenancies on the Surplus Land, which tenancies being smaller in size to Amart attracted higher returns such as the potential lease to Officeworks at the rate of $265sqm; and Amart would improve the total offer for the Cranbourne Home Centre was not seriously challenged in cross-examination.

1. In relation to Mr Brown’s evidence, Masters contends that it is not relevant as he was not instructed with the following: he was not instructed as to Aventus’ guiding principles about sub-leasing properties;[367] he did not have any instructions as to the actual level of demand for premises at the property;[368] as to the Surplus Land he could not indicate an actual start date of the delay and end date to any development of the Surplus Land;[369] he was not instructed that the Aventus Group were wanting to take back the Premises for itself, including by doing a deal with Bunnings; and he was not told of the percentage of incentives given to all tenants at the Cranbourne Home Centre.  Whether, in fact, the evidence could be taken to indicate that the Aventus Group were wanting to take back the Premises for itself, including by doing a deal with Bunnings, is a matter on which it is not necessary to form any concluded view – though the evidence indicates this as a possibility.  In any event, I accept that the other matters raised do detract from the force of Mr Brown’s evidence, as indicated.

   [367]Transcript (Thursday 6 June 2019), 488–489.

   [368]Transcript (Thursday 6 June 2019), 498–499.

   [369]Transcript (Thursday 6 June 2019), 499–500.

1. Mr Brown did, however, concede or acknowledge a number of other matters, to which Masters directs attention: one of the consents that Masters would need to repurpose the former Masters sites would be the consent of the landlord;[370] the subletting clause in the Lease was subject to the consent of Aventus, such that Masters could not do whatever it liked with the Premises,[371] whereas Aventus could put whoever it liked into the Centre and there was a comparative disadvantage between the two parties;[372] he conceded that not all tenants would have the benefit of negotiating with two competing landlords as Masters was at a competitive disadvantage and he did not take that into account;[373] notwithstanding that he had the various leases to other tenants, which contained subleasing clauses, he did not mention that in his report in respect of legal monopoly;[374] he conceded that Masters is not really a “quasi” landlord as it still needed to obtain the consent of Aventus,[375] and that Masters and Aventus were not competing on an equal footing;[376] he conceded that Masters and Aventus are not competing on an equal footing but that in reaching his view he had undertaken no analysis of the permitted use clause and the types of tenants they would be competing for;[377] Amart would be a suitable tenant for the centre and would fall within the landlord’s tenancy mix;[378] and he conceded that apart from the Amart proposal he had not conducted any analysis of the incentive levels at the centre and that to determine the dilutive effect on rental levels you would need to undertake a quantitative analysis.[379]  He could not give a quantitative range of incentives;[380] his report was pure speculation as to what one particular tenant may or may not do;[381] there was no increase in supply by virtue of a tenant wanting to sub-lease;[382] the fact that premises are vacant, notwithstanding rent is being paid, was not a positive factor on the capitalisation rate and does not drive foot traffic;[383] as to the valuation of land at 1280 Thompsons Road, Cranbourne for mortgage purposes, he agreed that it was a vague proposition and that an analysis of all the factors of the centre would need to be undertaken including, how the centre is run, what its rental incentives are, the demand for the centre, what the tenant mix was and the level of vacancies;[384] the Masters box being empty and not driving foot traffic would be viewed by a valuer as a negative;[385] the vacant Masters box would not attract tenants to the Surplus Land;[386] the Masters box, if half or roughly half full, would be a positive in drawing foot traffic[387] and in attracting tenants to the Surplus Land;[388] Amart taking 6000 metres in the Masters box would be an option to drive foot traffic;[389] an owner/landlord is not competing with the tenant on an equal footing as the landlord can put in whoever it wants but a tenant is stuck with the terms of the lease;[390] demand for tenancies at the Cranbourne Home Centre would be “reasonably high”[391] although, aside from one proposed but unidentified deal at 1,751 sqm, he was not aware of any interest.  He was not aware of interest from  Nick Scali, Fernwood Gym, RSEA, and TK Maxx.[392]  He was aware of interest from the medical centre from across the road but did not take that into account in his report;[393] he did not include in his report matters relating to Bunnings wanting to expand even though it came up in a conversation;[394] he did not investigate the level of incentives offered recently by Aventus at the Cranbourne Home Centre.  He gave evidence that there had not been any recent deals, namely within the last 18 months to two years done at the centre[395], notwithstanding that he was instructed with the tenancy schedule which clearly stated that a number of leases have recently been entered into; and he agreed that a number of retailers who compete with each other had co-located to the Cranbourne Home Centre and that it is attractive to a tenant who might compete with other tenants to add to the offer at a centre.[396]

   [370]Transcript (Thursday 6 June 2019), 483–484.

   [371]Transcript (Thursday 6 June 2019), 484–485.

   [372]Transcript (Thursday 6 June 2019), 484–485.

   [373]Transcript (Thursday 6 June 2019) 490.

   [374]Transcript (Thursday 6 June 2019), 490–491.

   [375]Transcript (Thursday 6 June 2019), 492.

   [376]Transcript (Thursday 6 June 2019), 492–493.

   [377]Transcript (Thursday 6 June 2019), 494.

   [378]Transcript (Thursday 6 June 2019), 494.

   [379]Transcript (Thursday 6 June 2019), 495.

   [380]Transcript (Thursday 6 June 2019), 479.

   [381]Transcript (Thursday 6 June 2019), 497.

   [382]Transcript (Thursday 6 June 2019), 494.

   [383]Transcript (Thursday 6 June 2019), 501.

   [384]Transcript (Thursday 6 June 2019), 501–502.

   [385]Transcript (Thursday 6 June 2019) 470.

   [386]Transcript (Thursday 6 June 2019) 470.

   [387]Transcript (Thursday 6 June 2019), 470–471.

   [388]Transcript (Thursday 6 June 2019), 471.

   [389]Transcript (Thursday 6 June 2019), 471–472.

   [390]Transcript (Thursday 6 June 2019), 473.

   [391]Transcript (Thursday 6 June 2019), 475.

   [392]Transcript (Thursday 6 June 2019), 478.

   [393]Transcript (Thursday 6 June 2019), 478.

   [394]Transcript (Thursday 6 June 2019), 476–477.

   [395]Transcript (Thursday 6 June 2019), 479, 480.

   [396]Transcript (Thursday 6 June 2019), 480–482.

1. Moreover, it is also the case that, notwithstanding that Mr Brown had seen other leases for the Cranbourne Home Centre, he made no comment about the other subleasing clauses.[397]  The evidence is, however, that some other tenants have the ability to sublease a proportion of their premises without the need for consent from Aventus Cranbourne and these are other tenants with leases which included preconditions to any subleasing.  Mr Brown made no comment in his report about the ability of a landlord to include preconditions to consent to sublease clauses.

   [397]Transcript (Thursday 6 June 2019), 474.

1. In light of the evidence and matters considered thus far, I turn to the ten reasons which Aventus says demonstrate that the proposed Sublease has adverse consequences for Aventus, Aventus Cranbourne and the Aventus Group.  Each of these is now addressed in turn.

1. First, Aventus states that it will lose the benefit of the control over that portion of the Cranbourne Home Centre registered to it, and Aventus, Aventus Cranbourne and/or Aventus Group will lose the benefit of the control over the Cranbourne Home Centre.

1. Second, Aventus states it will lose control of the tenancy mix in that portion of the Cranbourne Home Centre registered to it, and Aventus, Aventus Cranbourne and/or Aventus Group will lose control of the tenancy mix in the Cranbourne Home Centre.

1. In my opinion, there is no reasonable basis for any of these contentions and, consequently, they are unreasonable considerations.  Control by Aventus is, as Masters contends, maintained by clause 8.2 of the Lease and, more particularly, the Permitted Use clause.  Indeed, it is the position that Aventus has been informed by Masters that it cannot put a sub-tenant in the Premises without Aventus’ consent.[398]  This position was accepted by Mr Holland in cross-examination.[399]  Moreover, Aventus remains the head landlord of the Premises.  Aventus Cranbourne –considerations of whose interests is extraneous to the Lease – remains the landlord of the other premises in the Cranbourne Home Centre, each of which is leased pursuant to leases which themselves contain subleasing and permitted use provisions which afford Aventus Cranbourne the same level of control that it would have irrespective of the decision on the Amart sublease.  In any event, as indicated previously, the Aventus Group consider the Request for Consent from the point of view of the Aventus Group as a whole and the whole of its property portfolio.  This is misconceived and is to misconstrue its position. Rather, as indicated previously, the Request for Consent must be looked at from the perspective of Aventus itself in the context of the terms of the Lease.

   [398]Letter from Baker & McKenzie to Herbert Smith Freehills (14 February 2019).

   [399]Transcript (Thursday 6 June 2019), 416, 454.

1. In any event, control is subject to many outside factors.  As Mr Schuh said in his evidence:[400] “The owners of the SG Centre do not have ‘total control’ of tenancy mix and income as they are not in control of market forces …”.  In terms of market forces, the evidence shows there is or could be a high level of interest in the Premises, with retailers showing interest in leasing in excess of 27,500sqm of land.[401]

   [400]Schuh Expert Report, 19 [55].

   [401]Plaintiff’s Closing Submissions (11 June 2019), [309].

1. Third, Aventus states that Masters/Home Co, as a de facto landlord, will be competing with Aventus for future tenants on the Surplus Land.

1. Fourth, Aventus states that Masters/Home Co, as a de facto landlord, will be competing with Aventus, Aventus Cranbourne and/or the Aventus Group for tenants within the Cranbourne Home Centre.[402]

   [402]See Defendant’s Closing Submissions (11 June 2019), [108]-[149].

1. In my view, there was no reasonable basis for these considerations and, consequently, they are unreasonable considerations.  Aventus – a landlord – and Masters – a tenant – are not in competition for the reasons previously set out.  Masters cannot demand that Aventus act outside the terms of the Lease and Aventus is free to pursue any tenants it wishes – such as everyday needs tenants.  Masters is, however, restricted by the terms of the Lease.  Moreover, Masters is not a de facto landlord, it is a mere tenant with a right to sublease which is subject to the consent of Aventus as landlord.  Additionally, it has only asked for consent for Amart and, to the extent it might be thought that it might seek consent for other sub-tenants, that is a matter for the future and is not a factor which is relevant in Amart’s consideration of the Request for Consent to a sublease to Amart.

1. I also accept that any competitive effect of the Proposed Sublease ought not to be given so much weight as to prevail over the clear right to sublease granted to Masters under clause 8.2 of the Lease.  As submitted by Masters, if this contention were reasonable, Aventus could reject every request to sublease on the basis of some competitive effect, thereby rendering clause 8.2 and the right to sublease worthless.  In this context, Masters also makes reference to Mr Holland’s evidence that Aventus has a “guiding principle” not to consent to subleases – although there may be a contractual right to do so in its leases.  I do not, however, regard this evidence as critical in the context of these particular issues as I think the “guiding principle” was raised by Mr Holland in the context of maintenance of the relationship between the particular Aventus Group shopping centre landlord/owner and the tenants in that shopping centre, though, it follows, also being an aspect of the maintenance of overall control of the centre.

1. Additionally, to the extent that Aventus relies on authorities in support of its position as to its entitlement to consider the competitive effect of the proposed new tenant’s business, these authorities are, rather, concerned with the competitive effect of the proposed new tenant’s business and not competition between landlords.  Any purported competitive issues between Aventus Group and Home Co/Masters in the broader Australian market are irrelevant.  Competitive concerns are only relevant to the extent that the landlord and tenant are themselves carrying on business within the subject tenancies – which is not the case here.

1. Fifth, Aventus states that the Masters/Home Co proposal will increase the supply of available tenancies both in the Cranbourne Centre as a whole and in the portion of the Cranbourne Home Centre registered to Aventus.

1. Sixth, Aventus states that the increase in supply will or may place downward pressure on rents in the Cranbourne Home Centre and potential rents in the portion of the Centre registered to Aventus.

1. There is, in my view, no reasonable basis for these considerations and, consequently, these considerations are unreasonable.  Aventus has been telling the market that: the Cranbourne Home Centre is fully let;[403] Aventus as a group is experiencing strong leasing demand;[404] Aventus as a group is actively diversifying its tenancy mix to a more profitable use of products and services including food, health and wellbeing services and childcare, pets, leisure and sports;[405] Aventus has been in discussions with such tenants in the Cranbourne area recently; and in any event, there is no “increase in supply” as Masters is seeking to sublease existing space.[406]  Further, the evidence shows that Aventus has been in discussions with parties that were interested in leasing a substantial area at the Premises, the Surplus Land and the Cranbourne Home Centre.  Masters notes that the total combined square meterage of the Masters site, the Bunnings site and the Surplus Land is approximately 29,000sqm.

   [403]Aventus Retail Property Fund, Annual Report 2018, 6.

   [404]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 1;  Aventus Group, ‘FY19 Half Year Results Aventus Group’ (14 February 2019), 7; Aventus Group, ‘Aventus Delivers Strong Half Year Results’ (14 February 2019).

   [405]Aventus Group, ‘Aventus Retail Property Fund (AVN) – Aventus Group – Feb 2019 Half Year Results Conference Call’ (Transcript of Audio), 4; and Aventus Group, ‘Aventus Delivers Strong Half Year Results’ (14 February 2019).

   [406]Transcript (Thursday 6 June 2019), 460–461.

1. In any event, the point should be made, again, that the “Masters/Home Co proposal” is subject to the requirement to obtain Aventus’ consent and is subject to the Permitted Use clause contained the Lease.

1. Masters also makes reference to the “agglomeration” principle referred to in Mr Schuh’s report – accepted by Mr Holland as “precincting”[407] – and Mr Schuh’s expert report where he states:

Based on my analysis … I do not consider it is likely that the Amart sublease could damage or have an adverse affect on the income of the SG Centre, the Premises or the Surplus Land…

The Brown report does not provide a comparative analysis of how the Amart Sublease could of itself create a threat now or in the future…

Mr Brown also conceded that people like choice and that businesses co-located to accommodate that choice.[408]

[407]Transcript (Thursday 6 June 2019), 372.

[408]Transcript (Thursday 6 June 2019), 480–482.

1. Seventh, Aventus states that the incentives offered by Masters/Home Co to Amart, and likely to be offered to other subtenants, will or may exacerbate the pressure on rents in the Cranbourne Home Centre and potential rents in the portion of the Centre registered to Aventus.

1. Mr Holland was, however, unable to indicate an acceptable range for incentives of this kind; though it may be that it is difficult to do so with a degree of generality.  Mr Brown, as an experienced retail valuer, was also unable to provide any acceptable range for incentives.

1. The evidence shows that Aventus is also prepared to give incentives.  In my view, any concerns expressed by Aventus as to incentives leaking out to the market would equally apply to the incentives which Aventus Cranbourne has recently provided which are more relevant to the other tenancies in the Cranbourne Home Centre, as the tenancy sizes are more similar than the size of the Amart sub-tenancy.  Moreover, Mr Schuh’s analysis is that there is not likely to be an impact on rents in either the Premises or the Cranbourne Home Centre.  Other matters already discussed with respect to the fifth and sixth claimed adverse consequences are also applicable.

1. Eighth, Aventus states that the increase in supply will or may negatively impact Aventus’ investment in, and ability to develop, the Surplus Land and the return on that investment.

1. Other matters already discussed with respect to the fifth and sixth claimed adverse consequences are also applicable.

1. Additionally, Aventus adduced no evidence as to its plans to develop the Surplus Land, aside from taking “defensive measures” to approach Amart after it learned that Masters and Amart were in negotiations and, more recently, the negotiations with Officeworks.  There has been no discovery by, nor any evidence from, Aventus of its plans to develop the Surplus Land from 2015 to 2018 or, for that matter, into the future.  Nor is there any evidence as to the timing of any development of the Surplus Land, no feasibility study has been produced, there are no plans.  Thus, it certainly appears that Aventus is not ready to develop the Surplus Land just yet.  Amart said that Aventus’ offer with respect to the Surplus Land was too high, in particular the outgoings were too high.  Thus, the position is that Aventus refuses to consent to the Sublease whilst it considers its options and plans to develop the Surplus Land without a starting date, details of tenants it intends to attract, or any other plans which must be finalised.  In my view, it is not reasonable to adopt such an approach in the present circumstances.  At least it is, I accept, wholly disproportionate when taking into account the detriment to Masters of the refusal and to the benefit to Aventus.  Perhaps, as suggested by Masters, Aventus in reality construes the right to sublease contained in the Lease as being subject to a condition precedent, namely, subject to Aventus having developed the Surplus Land, as and when it chooses.  If this were the case, this cannot be a reasonable basis for withholding consent, as Aventus may never develop the Surplus Land.  In any event, the evidence of Mr Brown was that if the Sublease were granted and Amart was in possession of approximately half of the Masters premises, this would be a positive to drawing foot traffic.

1. As considered in detail in the preceding reasons, Masters is, under the terms of the Lease, able to sublease the Premises subject to the consent of Aventus, not to be unreasonably withheld.  Clearly Masters – and Woolworths as guarantor – took the risk in entering into the Lease that they may not be able to obtain such consent and to sublet.  Masters will suffer a real detriment in loss of rent from the proposed Sublease.  It is, in my view, no answer to this position, as Aventus would have it, that “Properly analysed, the ‘detriment’ relied on by Masters arises not from the withholding of consent, but from its decision to cease trading from the Premises.  Moreover, Home Co is far from destitute and nor will it be placed under undue financial strain in meeting its obligations under the Lease”.[409]  The first point made ignores what is, in my view, the proper construction of the Lease provisions, particularly clause 8.2.  The second point is, in the context of the present circumstances and the terms of the Lease, not a decisive consideration.

   [409]Defendant’s Closing Submissions (11 June 2019), [167]; and see also [164]-[168].

1. Ninth, Aventus states that the valuation of the Cranbourne Home Centre, including valuation of the portion registered to Aventus, will or may be negatively impacted.

1. In this respect, the matters discussed with respect to the fifth and sixth reasons advanced by Aventus are also applicable.  Moreover, it should be emphasised again that the interests of Aventus Cranbourne and the Aventus Group are extraneous to the Lease as those entities are strangers to the Lease.  Thus, the effect of the granting of the Proposed Sublease on their property interests is not a relevant consideration.

1. In any event, Mr Schuh concluded that Aventus’ and Aventus Cranbourne’s prospects of attracting and retaining retail tenants and thus charging higher rents for the Surplus Land and the Cranbourne Home Centre, respectively, are not likely to be adversely affected by the presence of a trading tenant at the Premises.[410]  Moreover, Mr Holland accepted in cross-examination that foot traffic is not increased where vacant premises are located.[411]  As stated by Mr Schuh in his report and conceded by Mr Brown in cross-examination,[412] having a vacant box is not viewed by the valuers as a positive but rather a negative.  Consequently, I do not accept there is likely to be a detrimental impact on Aventus Cranbourne or the Aventus Group’s interests in the balance of the premises at the Cranbourne Home Centre.[413] But even if there were, these interests and these considerations are unrelated to the character and personality of the proposed subtenant and are extraneous and disassociated from the subject matter of the Lease.  As such, they are unreasonable considerations.

   [410]Schuh Expert Report, 34–36 [129]–[137].  

   [411]Transcript (Wednesday 5 June 2019), 310.

   [412]Transcript (Thursday 6 June 2019), 470.

   [413]Schuh Expert Report, 35–37 [135]–[137].

1. Tenth, Aventus states that the use to which the Premises are proposed to be put is contrary to the Permitted Use in the Lease, including the use as a retail centre.

1. These matters have been considered in the preceding reasons and, as indicated, I do not accept that this is the position.

1. Aventus also raises the prospect of the potential prejudice that it says may flow to it with respect to the exercise by Aventus of its rights in the future.  Thus, it says that by reason of Masters’ breach of clause 6.3(b) of the Lease, Aventus possesses a right at any time whilst this breach persists, to terminate the Lease.  For example, it says, should Aventus find an anchor tenant which fits within the desired tenant mix of the Cranbourne Home Centre, Aventus may wish to terminate the Lease.  Thus, it says that were it now to consent to Masters’ Request for Consent to the Amart sublease, it might lose, by waiver or estoppel, the right to terminate the Lease and the opportunity to re-let the Premises to such an anchor tenant.  Further, it says that if it were now to consent to the Proposed Sublease, it may also be faced with an argument in the future that it is estopped from objecting to other subleases that provide for a different use to that permitted by the Lease given the current Proposed Sublease, it says, falls outside the terms of the Permitted Use.

1. In my view, none of these matters provides a reasonable basis for Aventus now to refuse its consent to the Sublease.  In relation to the Permitted Use, I have already found that the permitted use specified in the Amart Sublease is within the Permitted Use provisions under the Lease.  Consequently, nothing flows from this.  Additionally, the current position is that Aventus has not chosen to exercise whatever rights it may or may not have to terminate the Lease and, consequently, it is bound to consider the Request for Consent while the Lease subsists.  Moreover, the possibility that Masters may seek consent to further sub-tenancies within the Premises is a matter which Aventus will need to consider on a proper basis in due course, if and when such an eventuality occurs.  Similarly, there is no basis for Aventus’ allegations that Masters has refused to inform it of its intentions regarding the repurposing, subdivision and/or use of the balance of the Premises.[414]  In my view, this allegation is misconceived.  Masters has not “refused to inform”.  The evidence indicates that it does not currently know what options may be available for the balance of the Premises, as this is dependent on both Aventus’ consent and an agreement being reached with another subtenant.  Moreover, Masters cannot sublet the Premises in a manner inconsistent with the Lease and the Permitted Use.  On 14 February 2019, Masters informed Aventus with respect to this issue that:

   [414]Further Amended Defence, [29(b)(vi)].

To the text that your client’s “concern” is based on the reference to a car yard in a plan, we confirm that this is a historic and indicative reference and that a car yard is not presently under consideration for the future use of the Premises

We can see no relevance of the proposed use of the balance of the Premises to your client’s decision in relation to our requests for consent (relating to each of the Sublease and the Alterations) that have been sought, particularly given that:

(i)our client will remain liable to fulfil all of its obligations under the Lease;

(ii)the Landlord has the benefit of the Woolworths guarantee in relation to those obligations; and

(iii)any use of the balance of the Premises will be subject to the Permitted Use specified in the Lease”[415]

On 10 April 2019, Masters informed Aventus that:

There are no current offers, agreements or negotiations with respect to the balance of the Premises, particularly given your client’s position in relation to the current Sublease is preventing our client from entering into any such negotiations, and any references in any of the documents to the proposed use of the remainder of the Premises is historic, not current”. [416]

[415]Letter from Masters Home Improvement Australia Pty Ltd to Herbert Smith Freehills, (14 January 2019).

[416]Second Witness Statement of Andrew Nabil Selim (20 May 2019) (‘Selim Reply Statement’), [3]; Letter from Baker & McKenzie to Herbert Smith Freehills (10 April 2019), 3.

1. It is clear that Masters accepts that any future sublease for the balance of the Premises would require Aventus’ consent.  As with the proposed Sublease, that consent would, necessarily, be dependent upon Masters reasonably satisfying Aventus that the proposed subtenant and the proposed use of the Premises was consistent with the Permitted Use under the Lease.  This was accepted by both Mr Holland and Mr Brown in cross-examination.[417]

   [417]Transcript (Thursday 6 June 2019), 402, 407–409.

1. Finally, it should be noted that Masters did not press at trial the allegation that Aventus unreasonably delayed in responding to the Request for Consent.[418]  Accordingly, it is not necessary to take this aspect further.

   [418]See Defendant’s Closing Submissions (11 June 2019), [169]-[174].

Conclusion

1. For the preceding reasons, I am of the opinion that Aventus’ refusal to consent to the Sublease is unreasonable in all the circumstances and that Masters is entitled to the declaratory relief it seeks and an order that Aventus execute such documents or assurances as may reasonably be required to provide its consent to the Alterations and the proposed Sublease from Masters to Amart of part of the Premises; the matters the subject of the Request for Consent.

1. Masters also seeks relief by way of damages for breach of covenant arising out of the refusal by Aventus to consent to the proposed Sublease.  This is not a matter which has been argued at trial thus far, but it was, at the commencement of the trial, agreed between the parties that any damages issues would be matters for resolution by an Associate Justice.  Having regard to this position, the issues to be referred to an Associate Justice will also include the question whether there is any basis for an entitlement to damages on the part of Masters in any event.

1. The parties are to bring in orders to give effect to these reasons, including the reference of outstanding issues to an Associate Justice.  I otherwise reserve the question of costs and will hear the parties further on this issue.

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