Pacific Brands Household Products Pty Ltd v Singan Investments Pty Ltd
[2003] VSC 76
•21 March 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2010 of 2003
| PACIFIC BRANDS HOUSEHOLD PRODUCTS PTY LTD (ABN 23 098 742 584) | Plaintiff |
| v | |
| SINGAN INVESTMENTS PTY LTD (ACN 005 605 578) | Defendant |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 21 FEBRUARY 2003 | |
DATE OF JUDGMENT: | 21 MARCH 2003 | |
CASE MAY BE CITED AS: | PACIFIC BRANDS HOUSEHOLD PRODUCTS PTY LTD v SINGAN INVESTMENTS PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 76 | |
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Practice and Procedure – Option to purchase clause in lease – Option not exercised – No certainty that option would be exercised – Whether application for a declaration concerning the proper construction of phrase in option to purchase clause involved hypothetical decision or advisory opinion.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Delany | Allens Arthur Robinson |
| For the Defendant | Mr P. Bick QC | Herbert Geer & Rundle |
HIS HONOUR:
By a writ issued on 17 February 2003 in the Commercial List the plaintiff, Pacific Brands Household Products Pty Ltd (ABN 23 098 742 584), sought a declaration concerning the proper legal construction of the same phrase in two related leases. In the Statement of Claim it was alleged that the defendant, Singan Investments Pty Ltd (ACN 005 605 578), was the beneficial owner of Lots 2 and 3 on Plan of Subdivision No. 94383, Parish of Mooroolbark, County of Mornington, being the land comprised in Certificates of Title Volume 8927 Folio 438 and Volume 8927 Folio 439 respectively. It was further alleged that on 29 August 1973, the then registered proprietor of Lot 2, S.N.G. Pty Ltd ("SNG") leased it to Vitafoam Australia Pty Ltd ("Vitafoam") and that on a date between 29 August 1973 and 11 November 1983, the defendant purchased Lot 2 from SNG. Then, it was alleged that on 11 November 1983, the defendant and Vitafoam entered into an extension of the lease of Lot 2 and a new lease of Lot 3. Finally, it was alleged that on 10 October 2002, by deeds of assignment between the plaintiff, the defendant and Ativ Pac Pty Ltd (formerly Vitafoam) the plaintiff took an assignment of the rights and obligations of Vitafoam pursuant to the lease and extension of lease of Lot 2 and the lease of Lot 3 and that the defendant consented to such assignments.
Both the extended lease of Lot 2 and the lease of Lot 3 contained the following term:
"6.The Lessee shall have an option (to be exercised by notice in writing given by the Lessee to the Lessor at any time during the said term) to purchase the freehold of the demised premises for a purchase price equal to the market value of the said freehold at the time of such exercise of option, the then market value to be such market value as the Lessor and the Lessee shall mutually agree upon and failing agreement such market value as shall be determined by a Valuer (acting as an expert) to be appointed by the President for the time being of the Real Estate and Stock Institute of Victoria (the cost of any such valuation to be borne by the Lessee) AND the following provisions shall apply upon any such exercise of option: …"
By a letter dated 29 October 2002, the plaintiff informed the defendant that it wished to purchase Lots 2 and 3 by exercising the options referred to in the previous paragraph, subject to confirmation of the defendant's agreement (or a court's determination, if that became necessary) that the correct basis on which to determine the market value of the freehold of the demised premises under the options to purchase was vacant possession. The letter went on to say that it was understood that the defendant maintained that the current passing rent under the two leases, which had approximately 6.5 years left to run, should be taken into account. Potentially, this approach added some millions of dollars to the purchase price. After further correspondence, the defendant's solicitors advised by a letter dated 10 December 2002, that the defendant disputed that "vacant possession" was the correct basis under the option to purchase provisions of the leases. Thus, it was said by the plaintiff that a dispute had arisen between the plaintiff and the defendant over the proper construction of the phrase "market value of the said freehold" (being "the freehold of the demised premises") and the declaration was sought from the Court concerning that proper construction.
At the first hearing of the summons for directions, Mr Bick QC, who appeared for the defendant, objected to any directions being made and sought an order dismissing, striking out or staying the proceeding on the ground that the question was hypothetical unless and until the plaintiff exercised the option. Mr Delany of counsel, who appeared for the plaintiff, informed me that if I decided in the plaintiff's favour, it would certainly exercise the option, but it might or might not do so if the decision went the other way. Mr Bick sought to have the issue of whether the claim for declaratory relief was hypothetical determined as a preliminary point and Mr Delany agreed with this course. By consent I was provided with copies of the correspondence and the relevant leasing documents.
Hypothetical Decisions and Advisory Opinions
In Swift Australian Co (Pty) Limited v South British Insurance Co Ltd[1], the Full Court of this Court, consisting of Winneke CJ, Little and Starke JJ said:
"It is established by a long line of authority that the courts will not advise parties to actions upon their rights under a hypothetical state of facts, or give to them advisory opinions, or give hypothetical decisions the effectiveness of which depends on varied states of facts which remain to be determined in the future."[2]
In refusing to deal with the question of whether the defendant was obliged to indemnify the plaintiff under a policy of insurance in advance of any finding of legal liability by the plaintiff to its injured employee, their Honours stated that:
"[W]e think the principle on which we have acted is of overriding importance in the public interest, and must be maintained."[3]
[1][1970] VR 368
[2][1970] VR 368 at 369
[3][1970] VR 368 at 370
In Ainsworth v Criminal Justice Commission[4], Mason CJ, Toohey and Gaudron JJ said:
"It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which '[i]t is neither possible nor desirable to fetter … by laying down rules as to the manner of its exercise.' However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have 'a real interest' and relief will not be granted if the question 'is purely hypothetical', if relief is 'claimed in relation to circumstances that [have] not occurred and might never happen' or if 'the Court's declaration will produce no foreseeable consequences for the parties'."[5] [References in footnotes omitted]
[4](1992) 175 CLR 564
[5](1992) 175 CLR 564 at 581-2
The question for my determination, therefore, is whether the plaintiff's claim for a declaration as to the meaning of the option to purchase clause, prior to any exercise of that option, is asking the Court to act in a "hypothetical state of facts" or to give "an advisory opinion".
Mr Delany submitted that this was not a hypothetical case because the person seeking the relief, the plaintiff, had "a real interest" in the outcome. As previously stated, he said that the plaintiff would certainly proceed to exercise the options if its construction argument was upheld. Mr Delany referred me to a number of decisions in support of his submissions.
In Russian Commercial and Industrial Bank v British Bank for Foreign Trade Limited[6], an English bank obtained a loan from a Russian bank on the security of certain bonds. A dispute arose concerning whether upon the proper construction of the contract the loan was repayable in roubles or in sterling. The borrower commenced an action against the lender claiming a declaration that it was entitled to the possession of the bonds upon payment of the amount of the loan in roubles and an injunction restraining the lender from parting with the bonds save by delivering them to the borrower against such payment. The borrower did not offer to redeem which it would have been required to do if the matter had been brought in the Chancery Division. The House of Lords was troubled by the unsatisfactory procedural history of this action but by a majority upheld the plaintiff's claim. Lord Dunedin said:
[6][1921] 2 AC 438
"The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought.
Applying this rule to the present case, this is in no sense a theoretical question. Moreover it is obvious that it is a matter of real importance to the respondents, as guiding their rule of conduct, to know whether the loan is truly a rouble loan or a sterling loan. In the one case, they will probably redeem; in the other case, they will not. Further, there is no doubt that there is here secured a proper – and, indeed, the only – contradictor.
In my opinion, unless you are to rob declarations of much of their real value, this is a case in which a declaration ought to be given."[7]
Lord Summer said:
"For many years it has been accepted practice in cases in the Commercial List to hear and determine claims for a declaration of right, when a real and not a fictitious or academic question is involved and is in being between two parties, in order that they may know what business course to take without having to run the risk of acting and finding themselves liable in damages, when at last the matter is brought before the Court."[8]
[7][1921] AC 438 at 448
[8][1921] 2 AC 438 at 452
In Wood Components of London v James Webster & Brother Limited[9], the parties entered into a contract for the sale of 5,100 cubic feet of Bulgarian beech squares. The contract provided for a sample shipment of about 500 cubic feet. It also provided that after approval of the sample, delivery of the balance was to follow over a specified period. Before arrival of the sample shipment, the plaintiff sought declarations concerning their rights of approval of the sample shipment and the balance of the goods. The defendant counterclaimed for competing declarations. The dispute concerned the construction of the contract. In granting the plaintiff the declarations it sought, Sellers LJ, sitting at first instance, stated:
"It is desirable that the Commercial Court should be available, and, I think, should be utilized at the earliest stage, to assist trading parties to solve any dispute and to clarify their respective duties and obligations, but it is not the function of the Court to express opinions for the benefit of parties of a solely academic or consultative nature.
At the outset, I had some apprehension that the present application to the Court was premature, for it may well be, and it is to be hoped that it will be, that no trouble of any kind will arise … ."[10]
His Lordship then referred to and relied on the decision of Channell J in Société Maritime et Commerciale v Venus Steam Shipping Company Ltd[11] in which the plaintiffs were held to be entitled to come to the Court seeking a declaration as to whether or not a contract which had a year and a half still to run was binding on them:
"They are not bound at their peril to refuse to perform it and then to be liable to heavy damages for not performing it for the space of the next year and a half."[12]
[9][1959] 2 Lloyd's Reports 200
[10][1959] 2 Lloyd's Reports 200 at 202
[11](1904) 9 Com Cas 289
[12](1904) 9 Com Cas 289 at 290
Mr Delany also referred me to the decision in Thompson v Amis[13], in which the plaintiffs sought a declaration as to whether on paying certain excess profits duty it was entitled to recover that sum from the other party to a written agreement. The surveyor of taxes had rejected the plaintiffs' argument that the duty was not payable and the plaintiffs had given notice of appeal against that decision. The surveyor agreed to stand the appeal over and not to exact payment of the duty from the plaintiffs pending the resolution of the plaintiffs' action against the defendant. Sargant J held that given the surveyor's assurance it was:
"exceedingly convenient that the Court should determine what are the rights of the parties for the purpose, amongst other things, of knowing who is the person who is interested in prosecuting this appeal."[14]
[13][1917] 2 Ch 211
[14][1917] 2 Ch 211 at 221
Mr Delany placed greatest reliance on the decision of the Court of Appeal of the Supreme Court of Queensland in Lessue v Quetel Pty Ltd[15]. In that case, the first appellant was the lessee of licensed premises owned by the respondent. The other appellants were the directors and guarantors of the lessee. The appellants claimed that, pursuant to section 18B of the repealed Liquor Act 1912 (Qld), the first appellant was entitled to make demand upon the respondent and to receive from it an amount equal to one quarter of the total annual licence fees paid to the Licensing Commission of Queensland for each of the years ended 30 June 1989, 1990 and 1991. Under the terms of the lease of the tavern, additional rent was payable by the first appellant if a demand was made. The appellants sought a declaration that, upon a demand being made for the amount to which the first appellant was entitled in respect of the licence fees, the first appellant was not obliged to pay additional rent to the respondent because the lease terms which provided for additional rent in the event of a demand were void and unenforceable by reason of the same section of the repealed Liquor Act.
[15]Unreported, 1 November 1993, CA No. 72 of 1993
By a majority, the Court of Appeal allowed an appeal from an order summarily dismissing the action on the ground that it was hypothetical. After reviewing numerous authorities, both helpful and unhelpful for the appellants, Fitzgerald P and Cullinane J emphasised that the appellants' fundamental contention was that the material provisions of the lease were void and unenforceable and that this was the subject of an existing dispute with the respondent.[16] Their Honours concluded that:
"the essence of the appellant's claim is not the possibility of a future, and as yet unthreatened, assertion by the respondent of a claim under the material provisions of the lease but the parties' present dispute concerning whether those provisions are void and unenforceable (or valid and enforceable). The resolution of that dispute will determine a real controversy between the parties and produce foreseeable consequences for them. The grant of such a declaration is well within (i) the Court's jurisdiction and (ii) a proper exercise of its discretion."[17]
[16]At p.6
[17]At p.8
Macrossan CJ dissented. Although Mr Delany is correct in submitting that the discretionary nature of the primary judge's decision played a part in the Chief Justice's decision, his Honour's comments on the main issue are apposite, in my opinion. Macrossan CJ said:
"The plaintiffs will have had all of the usual opportunities for access to their own legal advisers for assistance in making a decision about the way in which they should proceed but what is obviously sought from the declaration proceedings is advice from the court which will have the effect of further clarifying the choice for them. The plaintiffs wish, in effect, to know whether in their own interests they should proceed in one way rather than another but the situation is one where no party is threatening proceedings against them or bringing pressure to bear to force them towards any particular decision.
The present case lies in a sort of middle area between two contrasting categories where, on the one hand, the jurisdiction to grant the remedy of declaration should, on proof of the necessary enlivening facts, clearly be exercised and, on the other, where it should clearly be refused because of a disproportion of hypothetical elements attending the situation. … There is so much of the flavour of an advisory opinion in what the plaintiffs are asking the court to decide that the court is justified in declining to entertain the declaration proceedings and doing so summarily."[18]
[18]At pp.1-2
Mr Bick referred me to a long list of authorities which stated in various ways and in different contexts the principle that a court should not decide hypothetical questions or give advisory opinions.[19] He submitted that in the present case the plaintiff was asking the Court for an advisory opinion. He referred to the correspondence which established that the plaintiff had already received advice from an estate agent, its solicitors and a Queen's Counsel and submitted that it was now seeking a fourth opinion. Mr Bick sought to distinguish all of the cases relied on by Mr Delany on the basis that in them there was an existing contractual relationship between the parties, whereas here there was no relevant contractual relationship unless and until the plaintiff exercised the option to purchase. Mr Bick submitted that in each of the cases relied on by Mr Delany (the Russian Bank case, Wood Components, Thompson v Amis and Lessue),even though a step still remained to be taken by the plaintiff which might never occur, the dispute between the parties concerned the meaning of their existing contractual relationship. Mr Bick dismissed as irrelevant the existing landlord and tenant contractual relationship between the parties in this case. The dispute between these parties was not about their landlord and tenant contractual relationship but about the relationship of vendor and purchaser which would come into existence if the plaintiff exercised its options to purchase. Mr Bick also sought to distinguish Lessue on the basis that the majority had emphasised that there was an existing dispute between the parties about the enforceability of some of the provisions of the lease, regardless of whether or not the first appellant ever made the demand.
[19]See in addition to the authorities already referred to: University of New South Wales v Moorhouse (1975) 133 CLR 1 at 9-10 per Gibbs J; Bass v Permanent Trustee Company Limited (1999) 198 CLR 334 at 355-6 per Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ; Schnabel v A. Gange Pty Ltd. [1974] VR 286 at 288 per Winneke CJ, Adam and McInerney JJ; AMP Fire and General Insurance Company Limited v Dixon [1982] VR 833 at 837 per Young CJ, McInerney and King JJ; and Bayston v Scotch College [2002] VSC 516 at 25 per Byrne J.
In my opinion, the plaintiff is asking the Court for an advisory opinion. Unless and until the plaintiff exercises the options to purchase there is no dispute in respect of which the Court can be asked to adjudicate. The cases relied on by Mr Delany are distinguishable, for the reasons submitted by Mr Bick. Moreover, my view of the matter has been influenced by some remarks by Holland J in Dormer v Solo Investments Pty Ltd[20], which are quoted at length in the judgment of the majority in Lessue. In the earlier case, the plaintiff failed to establish that it was entitled to rescind a contract and a declaration to that effect was accordingly refused. However, his Honour added:
"I should observe that, if I had been in the plaintiff's favour, I would have had doubts whether the jurisdiction of the court to make a declaration of right ought to have been exercised in the present case. I am not the least inclined to find limits on the beneficial jurisdiction of this Court to make declarations of right, but it is one thing to declare present contractual rights of the parties, another to declare them contingently on the plaintiff electing to take some course that he has not yet taken is not bound to take and may not take. In the present case the plaintiff has said that, If I were to find that he was entitled to rescind, then he would rescind, but he would not in any way have been bound to do so if I had made the declaration that is sought.
… I think the court ought to hesitate to make declarations as to the potential effect on the contractual position of the parties of events upon which a party has not yet acted and which would not alter the existing contractual rights unless he did so act.
… As Else-Mitchell J observed in Ku-Ring-Gai Municipal Council v Suburban Centres Pty Ltd (1971) 2 NSWLR 335, at p.339, it is not generally the function of the courts to entertain applications designed primarily or solely as a means of obtaining advice as to the legal potentials of a situation that has arisen between the parties. Also the time of the Court is not to be taken up deciding hypothetical question …"[21]
[20][1974] 1 NSWLR 428
[21][1974] 1 NSWLR 428 at 434-5
In reaching this conclusion, I have not failed to take into account the two statements set out above of the desirability of the practice of the English Commercial Court granting declarations in order to resolve disputes between trading parties and to clarify their respective duties and obligations. However, the point of distinction remains. In the English cases, there was an existing contractual relationship in respect of which a dispute had arisen. Here, there is no relevant contractual relationship unless and until the plaintiff exercises the options to purchase. Even sitting as a Judge in the Commercial List, I do not consider that I should embark on a consideration of the plaintiff's claim, in the face of the Full Court's exhortation in Swift Australian Co (Pty) Limited v South British Insurance Co Ltd[22] in favour of maintaining the principle that courts will not decide hypothetical questions or give advisory opinions.
Section 137 of the Property Law Act 1958
[22][1970] VR 368
In response to a question from me, counsel also considered the possible applicability of s.137 of the Property Law Act 1958 to the issue I have to decide. Short written submissions were prepared after the hearing. However, I accept Mr Bick's submission that the plaintiff gains no comfort from this section. The question is still hypothetical in my opinion, whether it is dealt with in an application for declaratory relief or under the summary procedure for resolving disputes between landlord and tenant.
In Re Apps and Sons Pty Ltd and Hurley[23], an application under the predecessor of s.137 did raise the question of whether or not an option to purchase clause in a lease was valid and enforceable. But this case does not assist the plaintiff because there was no issue of a hypothetical question, as the lessee had purported to exercise the option. It is also interesting to note that the learned author of the commentary on the Property Law Act in noting this decision suggests that "it would appear to have been more appropriate to have taken out a summons under s.49 of the Act",[24] that is a vendor and purchaser summons.
[23][1949] VLR 7
[24]S. Robinson: "The Property Law Act – Victoria" at p.325
Mr Delany referred me to The University of Melbourne v Avram Hotels Pty Ltd[25] and Westpac Banking Corporation v Rabaiov[26], two decisions of Tadgell J, as his Honour then was, which he submitted established that s.137 could be invoked by a party to a lease for the determination of a question in a context where the contingency which would cause the competing constructions of the clause of the lease to impact in a commercial sense had not yet arisen. However, I found nothing in those cases to support the plaintiff's argument in this case. The Avram Hotels case was concerned with the construction of clauses in a lease dealing with the removal of fixtures and fittings and movable chattels and the ownership of replacement fixtures and fittings and moveable chattels. The particular question which arose was whether the carpet then installed throughout the demised premises was the property of the lessor or the lessee. The premises were to be sold the next day. In my opinion, there was nothing hypothetical about that question. There was an existing dispute about the construction of clauses in the lease. Its existence did not depend on a further step being taken. On the evidence, his Honour decided that the carpet was if not a fixture, at least a fitting affixed to the premises, and therefore that it was the property of the lessor. In Rabaiov, there was no s.137 application. The plaintiff bank was seeking an injunction to restrain the mortgagor from removing certain items, including carpet, from the property prior to a mortgagee's sale. Tadgell J referred to Avram Hotels simply because he found that the evidence as to the way in which the carpet was affixed to the floor was similar in both cases.
[25](1991) V Conv R 54-395
[26](1991) V Conv R 54-412
Conclusion
For the reasons given above, I have concluded that unless and until the plaintiff exercises the option to purchase in one or both of the leases, any question as to the proper construction of the relevant phrase in the option to purchase clause is hypothetical. In my opinion, the Court should not consider the question because to do so would involve it in giving an advisory opinion.
I will hear from counsel concerning the appropriate form of order.
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