New Tech v Masterfunds
[2012] VSC 583
•30 November 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. S CI 2012 4223
| NEW TECH ENGINEERING PTY LTD (ACN 087 123 493) | Plaintiff |
| v | |
| MASTERFUNDS PTY LTD (ACN 082 647 792) | Defendant |
JUDGE: | BELL J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 November 2012 | |
DATE OF JUDGMENT: | 30 November 2012 | |
CASE MAY BE CITED AS: | New Tech v Masterfunds | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 583 | |
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LANDLORD AND TENANT – commercial lease of factory premises – interpretation and application – questions arising for determination – whether tenant’s use of premises restricted to steel fabrication – whether premises prohibited from being used for spray painting of steel used in steel fabrication – whether storage of materials outside premises and in car park prohibited – whether tenant obliged to enter into lease on more onerous rent and rent review terms – whether landlord has grounds of re-entry and termination of lease – Property Law Act 1958 (Vic) ss 137 and 146.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr J Doherty | McNab, McNab & Starke |
| For the defendant | Mr Z Partos | LN Christie & Co |
HIS HONOUR:
New Tech Engineering Pty Ltd operates a business out of a factory at 29 Merola Way, Campbellfield which it leases from Masterfunds Pty Ltd. The lease is constituted by a document entitled ‘Offer and Acceptance to Lease’ which was signed by the parties on 18 and 19 August 2009. As disputes have arisen in relation to the interpretation of the lease, New Tech has submitted questions for determination by the court pursuant to s 137 of the Property Law Act 1958 (Vic).
In the preamble to the lease, the ‘Applicant’, ie the tenant New Tech, ‘agrees that I (it) will on demand execute a lease which shall be prepared for the premises and which is to include (inter alia) the following terms and conditions’. Then follow the terms and conditions of the lease.
The lease specifies in cl (13) a term of ‘2 years’ and in cl (14) further terms of ‘2 years X 2 years’. The starting rental specified in cl (17) is ‘$19,800.00 + GST Per Annum, Monthly Payment of Rental $1,650.00 + GST (Per Calender Month)’. That would appear to be a rather low rental for premises of this kind, but that is what the lease plainly states. Apparently there are serious disputes between Masterfunds and its agent in relation to that and other aspects of the lease. Clause (20) contains several possible rent review options in a tick-the-box format. The market review options have not been ticked. The only option ticket is the one specified in cl (20.5), which is ‘CPI increase every 12 months’. I will refer to other provisions later.
The lease has been renewed for one further term. Another is available at New Tech’s option.
New Tech has refused to sign a new lease on the ground that Masterfunds has proposed leases with terms which are materially different and more onerous on New Tech than those specified in the lease.
The present proceeding was commenced by New Tech after Masterfunds served notice under s 146 of the Property Law Act 1958 (Vic) alleging that New Tech was in breach of the lease in various respects and giving notice of intention to re-enter the premises and terminate the lease. New Tech disputes those allegations, although it does concede that, due do an administrative issue arising out of the adjustment of the rent in accordance with CPI increases, it was late with payment of some of one instalment of monthly rental. It is common ground that the outstanding part of that instalment was paid shortly after the service of the notice and within the notice period. As will be seen, that is not the main issue between the parties.
Now to the first question.
Does the lease restrict the plaintiff to use of the premises to steel fabrication?
This is the question specified in paragraph 1(a)(i) of the originating motion.
On the facts, the real and only issue in dispute in relation to the inside use of the premises is whether spray painting of steel is part of the process of ‘steel fabrication’ as specified in cl (27(d)) of the lease on the proper interpretation of that provision. In my view, it plainly is (see my answer to question 1(a)(ii) below).
Whether the lease restricts the use of the premises to steel fabrication, or any use at all as was ventilated in argument, does not arise on the facts. I would not wish to resolve such an important question in the abstract.
I answer question 1(a)(i) by saying that spray painting of steel is part of the process of steel fabrication.
Does the lease prohibit the premises from being used for spray painting of any kind within the factory?
This is the question specified in paragraph 1(a)(ii) of the originating motion.
The question arises because New Tech is operating a steel manufacturing business in the premises and it is spray painting the steel as part of that process. Masterfunds objects to its premises being used for that purpose and contends that it is contrary to the terms of the lease.
The lease does not contain a permitted or prohibited use provision expressed as such.
Clause (24) provides:
The Applicant will comply with all planning laws and regulations with respect to the premises, and without prejudice to the foregoing the lessor gives no warranty as to the use to which the premises may be put and the applicant makes this offer with full knowledge of and subject to any prohibitions or restrictions on the use of the premises.
‘The Applicant’ is the tenant, ie New Tech. This clause requires New Tech to comply with planning laws and regulations with respect to the premises. But the clause does not specify a permitted or prohibited use and does not imply that there is any such use.
Clause (27) provides:
Company Details.
(a)Full registered Name of Company, Registration Number and date of Incorporation See over
(b)Registered address of Company See over
(c)Principal Trading Address See over
(d)Nature of Business currently conducted by Applicant Steel Fabrication
(e)Nature of Business to be conducted in tenancy applied for
As above(f)Full Names and private address of directors See over
This clause is expressed in terms of the details of the ‘Company’. It is only applicable where the applicant is an incorporated company. If the applicant is not an incorporated company, the details do not have to be supplied. This clause also does not appear to specify a prohibited or permitted use. But I will not determine that matter finally as the real question in dispute between the parties is whether the lease prohibits the premises from being used for spray painting of any kind.
Counsel for Masterfunds submits that I should interpret the lease as containing that prohibition by reason of the negotiations which occurred between the parties before the lease was signed. Although there are serious legal hurdles which must be jumped before this submission can be accepted, I am prepared to determine whether Masterfunds has established the factual foundation on which it relies.
The evidence on the side of Masterfunds is that, before entering into the lease, the sole director and secretary of the company, Theodoros Sioklis, spoke with Peter Dunne, the sole director of New Tech. Mr Sioklis deposed that Mr Dunne, ‘placing his hand on his heart’, materially told him:
(ii)… that he does some welding. He would need to do some touch up painting. This would be done with a small brush to simply paint the weld and he would ensure that when this was being done it would be protected with appropriate plastic sheeting. I accepted that that would occur as that did not indicate a significant form of painting or spray painting.
(iii)That he was not a steel fabricator or involved in large jobs. His working was that he did small jobs. He confirmed that he needed the premises urgently.
Mr Sioklis also told Mr Dunne: ‘Peter don’t start painting blue in here’.
The evidence on the side of New Tech came from Mr Dunne, who said that he had been in the business of steel fabrication for 25 years. Mild steel must be primed with zinc phosphate or it will rust. This is done by spray painting. He met with Mr Sioklis and his parents before signing the lease and told them that spray painting was part of his business, but that he would reinstate the premises at the end of the lease. Masterfunds’ agent, Joe Merola, well knew the nature of New Tech’s business, including the need for spray painting the steel, because he had visited its previous premises and observed the process of steel manufacture, including spray painting. Mr Dunne denied Mr Sioklis’s version of the conversation referred to and reiterated the above.
Of the two accounts, I find Mr Dunne’s to be the more probable. Without explanation, Masterfunds has not called Mr Merola. I infer that his evidence would not have assisted Masterfunds’ case. Having regard to the nature of New Tech’s business, it is inherently improbable that Mr Dunne would have told Mr Sioklis only that he needed to do touch up painting of the steel with a small brush and that New Tech was not a steel fabricator or involved in large jobs. ‘Steel fabrication’ was the nature of New Tech’s business as specified in the lease.
Even if the legal foundation for interpreting the lease by reference to the pre-contractual negotiations were to be established, there is no evidentiary foundation for interpreting the lease as containing a prohibition on spray painting. There is no express or implied prohibition to that effect. Further, as a matter of objective interpretation according to the ordinary rules and without the assistance of evidence, I would regard spray painting of steel as a normal incident of steel fabrication. The only evidence in the case supports that interpretation. I reject Masterfunds’ submissions to the contrary.
Question 1(a)(ii) will be answered ‘No’.
Masterfunds did not press the claims giving rise to paragraphs 1(a)(iii) and (iv) of the originating motion and these questions therefore did not arise.
Does the lease prohibit the storage of any materials outside the factory and specifically in the car park area?
This is the question specified in paragraph 1(a)(v) of the originating motion.
The car park is part of the leased area of which New Tech has taken exclusive possession under the lease. There is no express restriction on the use to which the car park can be put. Use of the car park for storage of materials is not alleged to be a breach of cl (24).
Again, Masterfunds’ case was that the lease should, in the factual circumstances, be interpreted in the light of the pre-contractual discussions. The same legal hurdles would have to be jumped before that submission could be accepted. As with the earlier question, I will determine whether the submission is open on the facts.
Mr Sioklis deposed that Mr Dunne, placing his hand on his heart, said there would be no storage in the car park. Mr Dunne denies Mr Sioklis’s version of the conversation.
Storage of materials outside a steel fabrication factory is hardly unusual. But this is a situation of oath against oath. I have no basis for preferring the evidence of one person over the other on this point. The onus is on Masterfunds to establish the factual foundation for its case in this respect: it is seeking to have the lease interpreted so as to include this prohibition when none appears expressly. I find that Masterfunds has not established on the balance of probabilities that Mr Dunne made the statement alleged.
There is no evidentiary foundation for interpreting the lease as including a condition prohibiting the storage of any materials outside the factory and specifically in the car park area.
Question 1(a)(v) will be answered ‘No’.
If the lease contains any of the terms specified in paragraphs 1(a)(i), (ii) or (v), has New Tech breached those terms?
This is the question specified in paragraph 1(b) of the originating motion.
The lease does not contain the terms specified in paragraphs 1(a)(ii) or (v) of the originating motion.
No question arises as to the breach of the terms specified in paragraph 1(a)(i).
The question will be answered accordingly.
What grounds (if any) give rise to a right of re-entry and termination of lease on the part of Masterfunds as alleged in its notice under s 146 of the Property Law Act?
The notice referred to is dated 9 July 2012 and, as pressed, alleges that New Tech has breached the lease in that it:
·Has failed to pay the increased rent for the period 1 October 2010 to 30 September 2011 in the sum of $671.00.
·Has not used the premises for the purpose of Steel Fabrication.
·Has used the premises for spray painting.
·That materials have been stored outside the factory and in particular the car park area.
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·Has failed to execute a New Lease of Real Estate.
None of the alleged breaches are established.
As to the failure to pay the specified rent, New Tech was late in payment of an amount but made the payment shortly after the notice was served and within the 14 day period. Masterfunds has proceeded by way of notice under s 146 and, the rent having been paid in full within the notice period, it would not now be allowed to exercise any right of re-entry and termination on that ground.
As to using the premises for purposes other than steel fabrication, the evidence establishes that New Tech has not done so. I have found that spray painting of steel is part of the process of steel fabrication. That is not a prohibited use.
As to using the premises for spray painting, New Tech is permitted to do so because spray painting of steel is part of the process of steel fabrication.
As to the storage alleged, the lease does not prohibit materials being stored outside the factory and in particular in the car park area.
As to failing to execute a new lease, the evidence establishes that the leases proposed by Masterfunds have been inconsistent in various important ways with the terms of the lease. In particular, the new leases have sought to impose a higher rent and rent reviews based on the principle of market review. The lease clearly specifies the rent in cl (17) and the principle of review in cl (20.5) is ‘CPI increase every 12 months’. There is nothing ambiguous about the rent or the principle of review which are there specified. It is a particular amount of rent and CPI review. That is different to the rent which Masterfunds has sought to impose and market review. In refusing to execute the proposed new leases, New Tech has been within its rights. The lease does not enable Masterfunds to insist that New Tech enter into new leases or leases for further terms which are materially inconsistent with the lease. None of the authorities relied on by counsel for Masterfunds support a different conclusion. There is no foundation in the evidence for interpreting cl (20.5) otherwise.
There will be a declaration that none of the grounds in the notice give Masterfunds a right of re-entry and termination of the lease.
In the light of the answers which I have given to these questions, the other questions in paragraph 2 of the originating motion do not arise.
There will be answers to questions and declarations in favour of New Tech accordingly.
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CERTIFICATE
I certify that this and the 7 preceding pages are a true copy of the reasons for judgment of Bell J of the Supreme Court of Victoria delivered on 30 November 2012.
DATED this 30th day of November 2012.
Associate
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