Timbercorp Ltd v Shuttleworth
[2010] VSC 650
•11 June 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
No. S CI 2010 00463
| TIMBERCORP LIMITED (in liquidation) (ACN 055 185 067) | Plaintiff |
| v | |
| MARTIN JAMES SHUTTLEWORTH | Defendant |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 May 2010 | |
DATE OF JUDGMENT: | 11 June 2010 | |
CASE MAY BE CITED AS: | Timbercorp Ltd v Shuttleworth | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 650 | |
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APPLICATION FOR SUMMARY JUDGMENT pursuant to order 22 of the Supreme Court (General Civil Procedure) Rules 2005 ― Claim by liquidators that lessee unreasonably withholding consent to assignment of lease to assignee ― No triable issue as to whether lessor has unreasonably refused consent ― Application for summary judgment granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr O. Bigos | Arnold Bloch Leibler |
| For the Defendant | Mr P. H. Barton | HHG Legal Group |
HIS HONOUR:
On 7 April 2010, the plaintiff (Timbercorp) made application for summary judgment pursuant to O 22 of the Supreme Court (General Civil Procedure) Rules 2005 against the defendant (Mr Shuttleworth). Timbercorp also made application to file and serve an amended statement of claim which is not resisted.
On the same date, Mr Shuttleworth made application by summons seeking a stay of the proceeding or alternatively that the writ be set aside or cross-vested. On 9 April 2010, Judd J ordered that both applications be referred to an Associate Justice for hearing and determination.
At the outset of the hearing of this matter on 12 May 2010, I determined that Timbercorp’s application for summary judgment should be heard and determined before Mr Shuttleworth’s application was considered.
Timbercorp’s affidavit in support of the application
In support of its application, Timbercorp relies on an affidavit of Scott Langdon, sworn 7 April 2010. Mr Langdon is an assistant to and works under the supervision of the liquidators of Timbercorp, Mr Korda and Ms Chesser. A good deal of Mr Langdon’s affidavit is uncontroversial and uncontradicted. Subject to the matters referred to by Mr Shuttleworth in his affidavit relied upon in opposition to the application, it serves as a summary of the factual position under consideration.
Mr Langdon deposes that by a lease dated 12 March 1999, Mr Shuttleworth leased land near Albany in Western Australia to Timbercorp. Clause 5.1 of the lease provided that the lessee was obliged to use the land for the purpose of “growing, tending and harvesting plantation or plantations of eucalyptus trees”. Originally the lease to Timbercorp (then named Timbercorp Eucalypts Limited) comprised three lots and was for a term of 12 years with one option to renew for a further period of up to 12 years. The yearly rental is $58,000 subject to review by reference to increases in the CPI. The property is a tree farm planted with blue gum eucalypts. In 2008, one of those lots was transferred by Mr Shuttleworth to Ms Joanne Leeson, and Ms Leeson became the lessor of that part of the leased premises.
On 23 April 2009, Mark Korda and Leanne Chesser were appointed as administrators of Timbercorp. On 29 June 2009, by a resolution passed at a meeting of creditors of Timbercorp, Mr Korda and Ms Chesser became the liquidators of Timbercorp. They and the liquidators appointed to other members of the Timbercorp group began realising the forestry assets of the Timbercorp group of companies which were used in the operations of the Timbercorp groups’ managed investment schemes.
As part of that process, the liquidators wrote to Mr Shuttleworth on 4 September 2009 requesting him to assign the lease to a prospective purchaser. They enclosed a form of deed of assignment for signature and return to them by 11 September 2009. Mr Shuttleworth did not return the document to the liquidators as requested.
Clause 12.2(b) of the lease provides:
Assignment or Transfer
The Lessee may with the consent of the Owner (which consent must not be unreasonably withheld) assign or transfer this Lease upon the Lessee arranging (at Lessee’s cost) for the assignee to enter into a deed of covenant with the Owner under which the assignee agrees to comply with and be bound by the provisions of this Lease as if the assignee were named in this Lease in the place of the Lessee
In late September 2009, Mr Langdon, wrote to Mr Shuttleworth’s then solicitor, Mr Swann, and indicated that the forestry assets of Timbercorp would be sold to a purchaser, Australian Bluegum Plantation Pty Ltd (ABP), and asked that Mr Shuttleworth execute a deed of assignment to effect the transfer of the lease to ABP. The document effecting the sale of those assets was entered into on 30 September 2009 and is described as the Sale and Purchase Deed (SPD). Amongst the assets which are to be sold under the SPD include the lease the subject of this proceeding, hence the need for Timbercorp to procure an assignment of the lease.
On 1 October 2009, Mr Swann emailed the liquidators’ representatives asserting that his clients were entitled to require that all outstanding rent be paid in full before agreeing to an assignment.[1] In that email, Mr Swann also sought further information in relation to the proposed assignee, ABP. The email stated, among other things:
The material that you have supplied indicates that Australian Blue Gum Plantations Pty Ltd (“ABP”) is a newly incorporated Australian company which is a subsidiary of Global Forest Partners (“GFP”). You have not disclosed the actual capitalisation of ABP. My concern is that:
(a)ABP could be a company with one issued share of $1 held by GFP;
(b)the amount of $345 million being paid by ABP could be a secured loan to ABP by GFP;
(c)in the event that ABP encounters financial difficulties, my clients do not have any assurance that GFP will not exercise its security, withdraw its funds in preference to unsecured creditors leaving my clients with a tent that is a company in liquidation. Accordingly please provide me with the proposed balance sheet of ABP and also advise me as to whether GFP is going to guarantee the debts and obligations of ABP. This is not an unreasonable request as I have previously encountered some situations with wholly owned subsidiaries of overseas entities.
[1]The lease does not contain a stipulation that the lessee not be in breach of the lease as a pre-condition to the granting of consent to a proposed assignment.
In response, Mr Langdon emailed Mr Swann on 8 October 2009 and stated that the rent for the period to 2 November 2009 had been paid on 1 October 2009, and that the rent for the period 3 November 2009 until 31 December 2009 would be paid shortly, after settlement of the transaction for the sale of the forestry assets with ABP.
The rent for the period 3 November 2009 to 31 December 2009 was paid on or about 2 November 2009.
On 8 October 2009, Mr Swann sent Mr Langdon an email which requested information about ABP and voiced concerns about its financial position.
A week later, on 15 October 2009, Mr Langdon sent Mr Swann an email in response, which responded to Mr Swann’s questions about ABP. Paragraph 2 of Mr Langdon’s email stated:
Australian Blue Gum Plantations Pty Ltd (ABP) is not a subsidiary of Global Forest Partners Ltd (GFP), but rather an investment vehicle of an international investment fund, AIF Properties Limited (AIF), which was advised and managed by GFP. AIF is fully funded by its investors (with no third party debt) at a level of approximately US$310 million. AIF will in turn finance this acquisition through its wholly owned subsidiary, ABP Finance Pty Ltd (ABP Finance). ABP will be a wholly owned subsidiary of ABP Finance. AIF, ABP Finance and ABP are all part of the international timber funds managed by GFP. GFP is a significant US-based timber investment management organisation. Commencing activities through its predecessors in 1982, GFP has been involved in international transactions since 1992, and in that time has, through over 40 significant completed international transactions, established itself as one of the largest international timber investment management organisations – with investments outside of North America and Australia, New Zealand, Brazil, Argentina, Chile, Uruguay and Guatemala. GFP represents blue chip institutional investors within its co‑mingled investor funds (it is currently investing its eighth international fund) and its separate account clients. GFP has over A$2.5billion in assets under management in the southern hemisphere alone. GFP has been invested (sic) in Australia for over 10 years and currently manages forestry investments representing approximately 42,500 net stocked hectares in Australasia. GFP is an internationally established, credible, financially capable and Australian proven, forestry investor and manager.
At completion ABP will have total paid in capital of approximately A$345 million. The sole third party debt existing anywhere in the funds capital structure will be a working capital bank facility of A$68,900,000 at the ABP level, giving that company total assets of approximately A$395 million. There will be no shareholder loans or other debt in the ABP capital structure.
Because ABP will have significant assets it is not necessary for any of ABP Finance, AIF or GFP to guarantee ABP’s debts and obligations.
The email also attached a letter from ABP providing details as to how the rental would be paid beyond 3 November 2009.
On several occasions in October and November 2009, Mr Langdon and others associated with Timbercorp’s liquidators wrote to Mr Shuttleworth and his solicitor, attaching forms of deeds of assignment for execution by Mr Shuttleworth and requesting that they be returned. Despite these approaches, no response was received. There was no request for further information about ABP and its financial capacity to meet the obligations under the lease if it was assigned to it. During that period, Mr Swann also continued to act on behalf of Ms Leeson, the owner of the transferred lot.
In addition to the written requests for execution and return of the deed of assignment, Mr Langdon made several oral requests in telephone conversations with Mr Swann and with Mr Shuttleworth in September and December 2009. Mr Langdon says that following his email of 15 October 2009, which contained details concerning ABP’s financial position, neither Mr Swann nor Mr Shuttleworth made any further enquiries about ABP’s financial position.
On 24 December 2009, in a conversation between Mr Langdon and Mr Shuttleworth, Mr Langdon asked Mr Shuttleworth to indicate why he was refusing to execute the assignment of lease. Mr Shuttleworth stated that he believed that Timbercorp or another Timbercorp entity owed him money under a separate agreement. Mr Langdon deposes that in that conversation Mr Shuttleworth did not raise the issue of the financial position of ABP.
On 19 January 2010, after further discussions between Mr Langdon and Mr Shuttleworth, Mr Shuttleworth sent an email to Mr Langdon which attached a statement of account indicating that a company associated with Mr Shuttleworth, Armogedin Pty Ltd, which traded as Great Southern Sand and Landscaping Suppliers (Great Southern), claimed to be owed $451,460.19. The statement provided by Mr Shuttleworth did not specify which particular Timbercorp group entity was liable to Great Southern. In that email Mr Shuttleworth stated:
Scott, I haven’t heard from you so I have forwarded a copy of the money I lost as stated. If you get a chance please call so as we can discuss if there is any middle ground.
Enquiries conducted by persons associated with the liquidators and the other liquidators of the Timbercorp group of companies have revealed that Great Southern filed a proof of debt in that sum with the liquidators of another member of the group, Timbercorp Forestry Pty Ltd, in May 2009.
Mr Langdon states that if Mr Shuttleworth does not assign the lease to the purchaser, Timbercorp will suffer loss by reason that the amount paid by ABP under the SPD will be reduced by an undisclosed confidential amount. Mr Langdon says that Timbercorp and ABP are ready, willing and able to execute the deed of assignment and ABP is prepared to comply with and be bound by the lease.[2] The other lessor represented by Mr Swann, Ms Leeson, executed the deed of assignment pertaining to her lot on 31 December 2009.
[2]This is confirmed by Carl Andrew Richardson, the regional manager of ABP in his affidavit of 7 May 2010 at paragraph 6. It is a requirement of the provision in the lease which deals with assignments, clause 12.2(b), which is extracted in paragraph 8 above.
Mr Shuttleworth’s affidavit in opposition to the application
Mr Shuttleworth has sworn an affidavit on 27 April 2010 which he relies upon in opposition to the summary judgment application. That affidavit is directed to establish that his refusal to provide an assignment is not unreasonable. It is submitted on his behalf that by reason of such matters, a full hearing of the proceeding is warranted because there are matters requiring further investigation.
In his affidavit, he states that he does not dispute telling Mr Langdon in the telephone conversation of 24 December 2009 referred to that another Timbercorp entity owed money to Great Southern. He says that in that conversation, he told Mr Langdon that his email to Mr Swann of 15 October 2009 did not provide him with sufficient financial and background information on the purchaser to make him feel comfortable to agree to assigning the lease. In addition, he stated that he raised the subject of Timbercorp’s defaults in not paying the rent quarterly in advance and described the difficult financial situation which he suffered because of this.
Mr Shuttleworth states that he had not heard of the purchaser referred to in the material sent to him (ABP), despite the fact that he had worked in the plantation industry in Western Australia for 10 years and been involved in the establishment and infrastructure aspects of the industry. He says that the information contained in the website in respect of the purchaser’s adviser, Global Forest Partners, was very vague and not supported by documents or evidence.
Mr Shuttleworth says that, on 1 October 2009, his solicitor requested information including the full name and corporate details and an ASIC search of ABP, and a current balance sheet for it. He states that as an accountant and businessman he was particularly interested in the balance sheet.
Mr Shuttleworth states that apart from the complexity of the description of the transaction, he was not satisfied that ABP’s alleged assets would provide the ongoing cash flow to punctually pay the rent under the lease or that it would have the financial capacity or ongoing cash flow to indemnify him for actions or losses. He describes other incidents involving Great Southern’s account staff and ABP whereby ABP declined to complete the credit application form forwarded to it by reason that it was not ABP’s policy for the directors to sign documents of that nature. As a result, Mr Shuttleworth states that he declined to enter into an agreement with ABP to set up an account with Great Southern.
In addition, Mr Shuttleworth speaks of misgivings that he has in regard to ABP’s experience with blue gum plantations, including harvesting. He states that, having not been given adequate information by Timbercorp, he has had to make his own enquiries and find out what he could about ABP. The results of those enquiries are detailed in paragraph 11 of Mr Shuttleworth’s affidavit. These include recent redundancies of ABP’s staff at Albany in Western Australia and contracting out of the harvesting work which was formerly performed by Timbercorp. He observes that there have been significant reductions in the number of people employed at ABP’s office in Albany (which was formerly Timbercorp’s office). Previously, at least two dozen people employed there, whereas he estimates that no more than six people presently work there. He concludes that ABP is operating with a very small number of staff and virtually no harvesting division and that it intends to outsource its harvesting operations. He states that he has concerns about whether ABP will comply with rule 5.1 of the lease, which requires the property to be used for the purpose of, among other things, “harvesting … plantations of eucalyptus trees”. He points to other concerns about compliance with the lease including conformity with sound forestry practice, the prompt carrying out of repairs on the property, care of dangerous chemicals and substances on the property and not damaging native vegetation. Other than asserting that he has such reservations, he does not develop why he holds these concerns by reference to any supporting evidence.
Mr Shuttleworth concludes by contrasting the provision of information by Timbercorp when it came to entering into the lease with him in 1999 with ABP’s conduct in and about the proposed assignment. He states that neither Timbercorp or ABP has provided any information to him regarding ABP’s capacity and experience in forestry practice, forestry management, occupational health and safety, environmental procedures and other issues in relation to plantation forestry management and harvest activities. He states that this information was and remains crucial in his consideration of whether ABP is a sound and competent assignee able to comply with the obligations under the lease. He does not specify how the information which has been provided, particularly that in the email of 15 October 2009 from ABP, is deficient or unsatisfactory.
Timbercorp’s affidavits in reply
Timbercorp has filed several affidavits in reply to Mr Shuttleworth’s affidavit. They consist of a further affidavit of Mr Langdon of 4 May 2010 and affidavits of Carl Richardson of 6 and 7 May 2010.
In his affidavit of 4 May 2010, Mr Langdon states that the reason the rent instalments due on 1 July and 1 October 2009 were not paid was because Timbercorp and its associated entity, Timbercorp Securities Limited, were insolvent. Several landlords had served notices under s 568(8) of the Corporations Act2001 giving Timbercorp 28 days within which to disclaim the leases. It was necessary to make application to Court for an extension of time in respect of such disclaimers, which applications were granted. Mr Langdon says that when the SPD was entered into, the rental arrears were paid to all landlords including Mr Shuttleworth. The payments of that rental are detailed in paragraph 5 of Mr Langdon’s affidavit. Mr Langdon states that as of 4 May 2010, the rental obligations are up to date and the next rental payment is not due until 30 June 2010.
Contrary to Mr Shuttleworth’s evidence in this regard, Mr Langdon reiterates that in his conversation on 24 December 2009 with Mr Shuttleworth, Mr Shuttleworth did not raise any concern as to the adequacy of the information provided to him regarding the purchaser’s financial and background information. It is not possible or appropriate to resolve in the context of an application for summary judgment whether Mr Shuttleworth made such a comment. Mr Langdon states that until he received Mr Shuttleworth’s affidavit, he had no reason to believe that Mr Shuttleworth was concerned about the financial position or capacity of the purchaser and understood that these issues had been resolved after the exchange of emails in 2009[3].
[3] These emails are exhibits SL6-SL9 of Mr Langdon’s first affidavit.
Mr Langdon states that after the last of these emails, on 15 October 2009, Mr Swann’s other clients, including Ms Leeson, the owner of the other lot, executed the assignment documents. He states that between 15 October 2009 and 27 April 2010, there was no indication from Mr Shuttleworth or his solicitors that ABP’s financial position was an issue, let alone that it was a reason for Mr Shuttleworth withholding his consent to an assignment. He states that had Mr Shuttleworth or his solicitors raised any further concerns of this nature, he would have taken immediate steps to provide them with the additional information, which they requested.
Mr Langdon states in the final paragraph of his affidavit (without evidentiary support) that the motive for the refusal of Mr Shuttleworth to execute the assignment is in order that he can claim that there is default by Timbercorp in the payment of the rental and that this would entitle him to the trees on the leased land when he recovered possession of it. I would disregard this statement as it is unsupported assertion.
In his affidavit of 6 May 2010, Mr Richardson, who is the regional manager for Western Australia of ABP, states that in January 2010 he met with Mr Shuttleworth at the offices of Great Southern, in Albany, Western Australia. In that meeting, he stated that ABP would contract the harvest and haulage operations and sell all its harvesting equipment, as this would result in a more efficient operation. In response, Mr Shuttleworth said to him that Timbercorp had invested too much capital in its harvesting operations and it was appropriate that ABP contract out all harvesting and haulage operations. He said that his company would be interested in buying some of ABP’s excess equipment and providing harvest and haulage contract services to ABP. He said that this would complement the operations of another one of his companies, which conducted a bio fuels business.
Mr Richardson says that Mr Shuttleworth requested ABP to provide his company with the opportunity to tender for the harvest and haulage contract works, and Mr Richardson agreed to give Mr Shuttleworth’s company that opportunity. Mr Shuttleworth told Mr Richardson that Timbercorp owed his company a substantial sum for unpaid works but that he had “no beef” with ABP and that “the past was the past”. He stated that he would like to provide services to ABP as a forestry contractor, and to have the opportunity to tender for and provide harvesting and haulage contract works to ABP and to purchase equipment from ABP. He exhibits a letter of 22 February 2010, in which Mr Shuttleworth writes to Mr Richardson and confirms the matters referred to by Mr Richardson.
Mr Richardson states that ABP staff are in the course of preparing a contract for forestry services whereby Great Southern will be engaged as a forestry contractor in 2010. He says that ABP is currently hiring equipment from Great Southern. He states that in addition, Mr Shuttleworth has visited a number of other plantations managed by ABP to discuss specific forestry works and estimated costs for Great Southern to undertake the works. Mr Richardson says that on 16 April 2010, Mr Shuttleworth attended ABP’s office in Albany at ABP’s invitation to make a presentation to ABP staff who were to become redundant.
Mr Richardson says that on 23 April 2010, he sent Mr Shuttleworth an email which attached ABP’s harvest and haulage tender document in order that Mr Shuttleworth could submit a tender. The cut-off date for submission of the tender was 30 April 2010. Mr Richardson states that he has been informed and believes that on 24 April 2010, Mr Shuttleworth called a representative of ABP to discuss the details and requirements of a tender. In addition, Mr Richardson states that on 24 April 2010, a representative of ABP provided an emailed list of equipment owned by ABP for sale to Mr Shuttleworth.
Mr Richardson says that he met with Mr Shuttleworth at Great Southern’s office on 29 April to discuss the harvest and haulage of timber and asked if he had any questions before submitting his tender on the due date. In that conversation, Mr Shuttleworth enquired whether, given the statements made by him about ABP in his affidavit of 27 April 2010 in this proceeding, ABP was still prepared to engage his company as a harvest and haulage contractor. Mr Richardson stated that at that point, he was unable to confirm this. He then discussed the assignment of the lease of the property from Timbercorp to ABP. Significantly, he stated that Mr Shuttleworth said that he was comfortable with ABP’s financial position and the ABP management team in place.
Mr Richardson deposes that on 30 April 2010, Mr Shuttleworth’s company submitted a tender to undertake harvest and haulage contract works and to purchase some of ABP’s equipment. The communications passing between ABP and Mr Shuttleworth in respect of the tender are exhibited.
In his affidavit of 7 May 2010, Mr Richardson deposes as to the financial position of ABP. He states that ABP was incorporated on 11 September 2009 in order to acquire Timbercorp’s forestry assets in the “green triangle” region of south‑west Victoria, south‑east South Australia and south‑west Western Australia.
Mr Richardson states that on 30 September 2009, ABP and Timbercorp entered into the SPD whereby the assets of Timbercorp would be purchased for a value in excess of $340 million, including many leases of land used in forestry operations. Settlement of the SPD occurred on 2 November 2009, after which ABP took assignment from Timbercorp of 350 leases of land used in forestry operations, many of which are in similar terms of that of the lease the subject of the present proceeding. The lease the subject of this proceeding is the only remaining lease which is yet to be assigned to ABP. Mr Richardson states that ABP presently has in excess of $3 million in cash and $5.5 million on term deposit and access to undrawn shareholder funds in excess of $20 million[4]. He states that ABP agrees to comply with and be bound by the provisions of the lease as if ABP were named as the lessee under the lease in place of Timbercorp.
[4] The evidence indicates that ABP was only incorporated in September 2009 and it would not be expected to have produced a balance sheet at the time of the enquiry. In submissions, Mr Barton, Counsel for Mr Shuttleworth, indicated that this very fact gave rise to his client’s misgivings about the assignment.
Mr Richardson deposes that ABP is in a very strong financial position and that he has been informed by the chief financial officer of the company that it has net assets of several hundred million dollars. He states that for this reason, ABP’s policy is not to provide directors’ guarantees as requested by suppliers as it considers these are appropriate for small businesses. He says that ABP is prepared to sign a credit application with Great Southern, as it has done with numerous other suppliers in the Albany area.
Mr Richardson describes his experience in the forestry industry in response to the matters put by Mr Shuttleworth in his affidavit. He states that he has worked in the forestry industry in Australia for more than 14 years, including in senior management positions. He has extensive experience in plantation management and has relevant academic qualifications. He was formerly employed as the General Manager of forestry of a company which is now Elders Forestry Limited, and, whilst there, he first met Mr Shuttleworth. He worked at that company for more than 11 years and before that at Bunnings Tree Farms, a major Western Australian plantation management company.
He states that the person responsible for the management of ABP including oversight of its forestry assets is Michael Edgar of Global Forest Partners L/P, a US based limited partnership specialising in investments in wood plantations of various species and end products around the world. Global Forest Partners currently manages a US$2.5 billion portfolio of “closed-end” timber funds on behalf of institutional and other investors. Mr Richardson states that he has been informed by Mr Edgar and believes that Mr Edgar has worked in the international forestry products industry for over 35 years. Mr Edgar has informed him that, since 1987, Global Forest Products and its predecessor have invested in and actively managed over 600,000 hectares of timber on several continents, and, on behalf of investor clients, has acquired and manages three other plantation forestry investments in Australia. Those three other plantations are Hume Forests Limited, a 14,000 hectare estate in the Tumut and Oberon areas of New South Wales, Murray River Forests, a 6,500 hectare estate in New South Wales, and Green Triangle Forest Products, a 23,000 hectare estate in the Mt Gambier region of South Australia.
Mr Richardson states that ABP employs seven people to run its operations in Western Australia and is in the process of employing two additional persons. ABP has entered into a series of contracts with outside contractors to conduct forestry services. It will soon enter into a series of contracts with a third party to conduct harvest and haulage services in Albany, as it is considered to be more efficient and economical to engage contractors rather than retain internal staff for the purpose. Mr Richardson concludes by stating that ABP has plantation estates comprising some 92,000 hectares of trees originally established between 1992 and 2008. He asserts that ABP has the ability, financial capacity and industry know‑how to meet all its obligations to Mr Shuttleworth under the lease.
Legal Principles
In the recent decision of the Court of Appeal of the Supreme Court of Victoria in Daniel Simon Hausman and Lance Vincent Hodgkinson v Abigroup Contractors Pty Ltd[5] [2009] VSCA 288, the Court stated:
[5][2009] VSCA 288
[58]The key to summary judgment lies in Rule 22.02(1), which is in the following terms:
Where the defendant has filed an appearance, the plaintiff may at any time apply to the Court for judgment against that defendant on the ground that the defendant has no defence to the whole or part of a claim included in the writ or statement of claim, or no defence except as to the amount of a claim.
[59]Speaking of this Rule in a passage that has often been quoted, Lord Woolf MR, in Swain v Hillman said:
…the court now has a very salutary power, both to be exercised in a claimant’s favour or … a defendant’s favour. It enables the court to dispose summarily of both claims [and] defences which have no real prospect of being successful. The words ‘no real prospect of succeeding’ do not need any amplification, they speak for themselves. The word ‘real’ distinguishes fanciful prospects of success … they direct the court to the need to see whether there is a ‘realistic’ as opposed to a ‘fanciful’ prospect of success.
And at [63]…
The defendant must satisfy the court that, in respect to the claim to which the application for judgment relates, a question ought to be tried, or there ought for some other reason to be a trial of that claim. The court, if so satisfied, will give the defendant leave to defend and the proceeding will continue to trial in the ordinary way. The court will normally require an affidavit by, or on behalf of, the defendant before it will be satisfied that the defendant is entitled to leave to defend. The standard of diligence required of the defendant in preparing a case in opposition to the application, especially under pressure of time, is perhaps not as high as that required in preparing for trial.
The issue is whether, having regard to the material before me, a triable issue exists as to whether Mr Shuttleworth’s refusal to consent to the assignment is unreasonable. Mr Barton, counsel for Mr Shuttleworth, expressed the issue in terms of whether Timbercorp has established that there is no real question to be tried on whether Mr Shuttleworth has unreasonably refused consent. The onus is on Timbercorp to prove that the refusal is unreasonable[6] however once Timbercorp has established the elements of its cause of action there is “something akin” to a shifting of the evidential burden to Mr Shuttleworth[7].
[6]See Commercial Tenancy Law in Australia, Bradbrook and Croft at para 15.05.5 and the cases there cited.
[7]See footnote 13 in the reasons of the Court of Appeal in the Abigroup case where it was stated: “Whether there is in fact such a burden upon a plaintiff, once the prerequisites for summary judgment have been satisfied, is a difficult question. Rule 22.04 requires a defendant, who is the subject of an application, in proper form, for summary judgment, to ‘show cause’ why such judgment should not be granted. It may be that this imposes upon a defendant an evidential burden, or something akin thereto.”
In considering the application, it is necessary to consider what factors are relevant on the issue as to whether the refusal to consent to the assignment is unreasonable. This question was the subject of detailed consideration by Nettle J as he then was in Cathedral Place Pty Ltd v Hyatt of Australia Limited.[8] The lease in that case contained an assignment clause which provided that the lessee should not assign or transfer its interest in the lease “without the prior written consent of Hyatt, which consent shall not be unreasonably withheld; … “. Nettle J considered the authorities which are applicable from paragraph 18 onwards of his judgment. His Honour’s exposition of the principles began with the statement that the principles of contract apply to leases as much as to other contracts. He then considered the position in the United Kingdom beginning with the decision of Tomlin J in Re Gibbs Houlder Brothers and Co Ltd’s Lease[9] in which it was held that the only acceptable basis for refusal of consent to the assignment of a lease was concern as to the character and personality of the proposed assignee or with matter affecting the use or occupation of the premises. The decision of Tomlin J in Houlder’s case was upheld on appeal. In the reasons given by the Court of Appeal, Warrington LJ observed:
The first question that arises is: what is the inference to be drawn as to the intention of the parties in inserting in the lease a provision of this kind? What was the danger which the lessor contemplated, and against which the lessee was content to allow the lessor to protect himself?
[8] (2003) VSC 385.
[9][1925] Ch 198 at 209.
Nettle J then moved on to a consideration of the Australian authorities commencing with the New South Wales decision in Colvin v Bowen[10] where Walsh J stated:[11]
According to the view thus preferred, the grounds upon which a refusal may be based must be concerned either with the character and personality of the proposed assignee, or with matter affecting the use or occupation of the premises which may result from the proposed assignment. The somewhat less narrow view, to which reference is made by Sargant LJ in Houlder’s case, requires that the reason for refusal must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and not something extraneous and dissociated from the subject matter of the contract. It appears to me to be clear from the judgments in the cases mentioned that the principles contained in those cases would exclude from consideration, as a ground for refusal of consent, the circumstance that the lessor desires to resume possession of the property in order to occupy it. Despite the critical remarks and expressions of doubt to which those principles were subjected in Tredegar v Harwood, the authority of Houlder’s case has been affirmed subsequently, and it must be regarded by me as binding in cases to which the principles it contains are applicable.
[10](1958) 75 WN (NSW) 262.
[11]At p.264.
Nettle J then referred to the decision of the High Court of Australia in Secured Income Real Estate (Australia) Limited v St Martin’s Investments Pty Ltd[12] where Mason J stated[13] accepting the reasoning of Walsh J in Colvin v Bowen:
Approaching the contract in the present case in the light of these observations, I conclude that the respondent was not entitled to refuse to grant a lease to the appellant so as to deprive the appellant of a benefit which would otherwise accrue to it under the contract. A refusal on that ground would be capricious and arbitrary. On the other hand, a refusal on the ground that there were doubts that the appellant could or would pay the rent promptly would, if the ground were made out, not be capricious or arbitrary. I say “promptly” because the respondent as owner was entitled to look for a tenant who would not only pay the rent, but would pay it promptly and in accordance with the provisions of the lease. If the evidence established that the respondent entertained doubts, reasonably based, that the appellant would pay the rent promptly and without difficulty, then it was reasonable to refuse to grant the lease on that ground …
… In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.
[12](1979) 144 CLR 596.
[13]At 607-8.
At [27] Nettle J stated:
As a matter of principle, the question is one of contract and therefore the terms of the contract must always be determinative. It is just that while in one set of circumstances fear of a particular consequence may be seen as falling short of the sort of danger against which the lessee contracted to allow the lessor to protect, in another set of circumstances fear of a similar danger may well be a reasonable basis for the lessor to withhold consent. Consequently, while considerations of the kind identified as relevant in Houlders may prove determinative of the outcome of cases in which the contract and facts are similar to Houlders, in other cases the terms of the contract and therefore the supposed intention of the parties and the facts, may reveal a conception of reasonableness of broader dimension. In those sorts of cases there may be relevant considerations apart from the character and personality of the proposed assignee and matters affecting the use or exploitation of the rights assigned. It will depend on the contract.
And at [28]…
All that having been said, however, in this case the assignment provisions of the Hotel Management Agreement present as routine. Looked at in context they support a conclusion that the parties’ purpose was to allow Hyatt to protect itself against the danger of an assignee who might not be a satisfactory substitute for the Owner – which is to say, might not be able to sustain the Hotel Management Agreement for the remainder of the term – but I see nothing in the terms that points in the direction of any wider or different considerations. … But given the terms of the contract, the scope of permissible considerations is in my view relatively constrained.
As in the Cathedral Place decision, the assignment provisions of the lease under consideration here are in my view conventional and designed to ensure that the assignee should be a solvent and satisfactory replacement for the lessee and able to perform the lease for the remainder of the term. Clause 12.2(b) requires the assignee
…to enter into a deed of covenant with the Owner under which the assignee agrees to comply with and be bound by the provisions of this Lease as if the assignee were named in this Lease in the place of the Lessee.
In my view, the reasons for withholding consent must be confined to those grounds. Adopting Warrington LJ’s formulation when considering the appeal in the Houlder case:
What was the danger which the lessor contemplated, and against which the lessee was content to allow the lessor to protect himself?
Consideration
On an application of the above analysis, one then turns to a consideration of what Mr Shuttleworth’s bases are for withholding consent and whether they are “reasonable” in the context of the subject lease. That is, are the reasons given for the opposition properly based on Mr Shuttleworth protecting himself against the danger of an assignee who might not be able to satisfactorily substitute for Timbercorp and perform its obligations under the lease. The exercise in my view involves a consideration of Timbercorp’s response to the matters raised and whether on an application of the relevant test in an application for summary judgment, Timbercorp’s evidence overwhelms what Mr Shuttleworth puts up as his bases for withholding consent such that no triable issue or matters that warrant investigation survive.
In summary, Mr Shuttleworth puts up as the bases for withholding his consent the following matters.
(a)He complains that Timbercorp’s email to his solicitor of 15 October 2009 did not provide him with sufficient financial and background information on the purchaser to make him feel comfortable to agreeing to assigning the lease. - Aside from asserting that he raised this matter again on 24 December 2009 in a telephone conversation with Mr Langdon, he does not present any further evidence that either he or his solicitor sought any further information from Timbercorp or APB nor has he contended that what had already been provided with was unsatisfactory, implausible or otherwise deficient. As detailed above, there were numerous written and oral approaches to Mr Shuttleworth which provided ample opportunity for him to make such a complaint or make further requests.
(b)He complains of Timbercorp’s defaults in not paying the rent quarterly in advance as the lease provides. - It is not explained what the relevance of this grievance is in the context of the present matter. Timbercorp, an obviously insolvent entity, is proposed to be replaced as lessee by one which is said, by uncontradicted and plausible evidence, to be in a position to pay the rent under the lease of approximately $58,000, to conduct forestry operations by reason of its previous experience and to otherwise comply with the provisions of the lease. As I have observed above, there is, in any event, no stipulation in the lease that in order for Timbercorp to require Mr Shuttleworth to execute an assignment, it must establish that it is not in breach of the lease in regard to its obligations to pay rent.
(c)He does not dispute telling Mr Langdon about another Timbercorp entity owed money to Great Southern, an entity controlled by Mr Shuttleworth. - The indebtedness of an entity which is associated with Timbercorp to one associated with Mr Shuttleworth is not a proper reason for withholding consent to an assignment of a lease between Mr Shuttleworth and Timbercorp. To adopt the phraseology of Walsh J in Colvan v Bowen referred to above, such a matter is “extraneous and dissociated from the subject matter of the contract” and is not “something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant … “. I consider that Mr Shuttleworth’s email of 19 January 2010 to Mr Langdon, in which he forwards details of the unpaid debt owed to Great Southern by a Timbercorp entity, betrays as a motive for withholding consent, by the use of the words “so as we can discuss if there is any middle ground”, an attempt to exert some type of commercial pressure, and is not just the airing of a grievance.
(d)He had not heard of ABP previously despite working in the plantation industry for a number of years. - ABP was only incorporated in September 2009 and it would not have accrued a reputation in the marketplace. However, the material filed in response by Timbercorp on this issue establishes to a high standard in my view that those associated with it have abundant experience in the field. The United States entity associated with ABP, Global Forest Partners L/P, has been involved in forestry management of over 600,000 hectares of timber on several continents and manages three other plantation forestry investments in Australia totalling approximately 45,000. It is not contended that the material which has been put forward by Timbercorp as to ABP’s capacities in this regard is implausible or requires augmentation.
(e)On 1 October 2009 his solicitor had requested certain information, including a balance sheet for ABP which as an accountant and businessman he was particularly interested in seeing. I consider that Timbercorp’s material filed in reply to Mr Shuttleworth’s affidavit overtakes any criticism of the failure to provide information in regard to ABP’s financial position. The SPD provides that ABP would purchase Timbercorp’s assets for in excess of $340 million. ABP has presently $3 million in cash, $5.5 million on term deposit and access to undrawn shareholder funds in excess of $20 million. ABP has net assets of several hundred million dollars. This material is in the context of a proposed assignment of a lease with an annual rental of $58,000. The material provided has not been contradicted or criticised as being implausible. Further, aside from the alleged comment made by Mr Shuttleworth in regard to the issue in the conversation of 24 December 2009, the evidence is that the issue was not raised again until very late in the piece in the milieu of the current proceeding.
(f)Mr Shuttleworth was not satisfied that ABP’s alleged assets would provide the ongoing cash flow to punctually pay the rent under the lease or that it would have the financial capacity or ongoing cash flow to indemnify him for actions or losses. - The observations that I have made in (e) above are apposite here. Further, the uncontradicted evidence of Mr Richardson of ABP is that in a conversation with Mr Shuttleworth, Mr Shuttleworth said he was “comfortable” with ABP’s financial position and with the ABP management team in place. Further, Mr Shuttleworth has submitted tender documentation to ABP in respect of harvest and haulage contracts. ABP is currently hiring equipment from Great Southern. Mr Shuttleworth has attended ABP’s offices in Albany with a view to engaging ABP staff who may become redundant as a result of the rearrangement of ABP’s activities. In addition, ABP are in the process of preparing contractual documentation to engage Great Southern as a forestry contractor in 2010. The affidavit material filed in response by Timbercorp in my view overwhelms this alleged ground for withholding consent.
(g)He describes matters involving Great Southern’s account staff and ABP whereby ABP declined to complete a credit application form and says that as a result he declined to enter into an agreement with ABP to set up an account with Great Southern - I note that ABP have indicated that it will complete such a document. In addition, the affidavit material filed in reply to Mr Shuttleworth’s affidavit indicates that Mr Shuttleworth seems quite prepared to treat with ABP in respect of other significant transactions associated with the forestry industry in Western Australia. I regard his maintaining of this ground for withholding of consent to be quite disingenuous.
(h)Mr Shuttleworth states he has concerns about ABP’s experience with blue gum plantations, including harvesting. In particular, he says that there have been recent redundancies with ABP staff at Albany in Western Australia and contracting out of the harvesting work performed by Timbercorp. In addition, the number of staff employed at ABP’s office in Albany has significantly declined. He concludes that ABP is operating on a very small number of staff and virtually no harvesting division with intention to outsource its harvesting operations. - The affidavit material filed by Timbercorp in reply in my view overwhelms the matters referred to in regard to this ground. While ABP has only been recently incorporated, those entities and individuals associated with it have on the material considerable experience in the forestry industry. The contention regarding outsourcing is in my view disingenuous having regard to the fact that Mr Shuttleworth’s interests have tendered to ABP for haulage and harvesting contracting work. This has not been contradicted and is corroborated by contemporaneous communications which have been exhibited.
(i)Mr Shuttleworth asserts that he has concerns about whether ABP will comply with the lease, in particular the obligation for harvesting plantations of eucalypt trees. - In the face of the uncontradicted evidence that he or interests amounted with him have tendered with ABP to perform these tasks as a contractor, raising this ground is, in my view, disingenuous. In addition, he states that he has other concerns about compliance with the lease including conformity with sound forestry practice, the carrying out of repairs on the property, care of dangerous chemicals and substances and not damaging native vegetation. This ground asserts matters but are not developed by any evidentiary support. Moreover, as with (h) above it is in my view overwhelmed by Timbercorp’s affidavit material in reply referred to in that sub-paragraph.
(j)Finally, he complains about the level of information provided to him regarding ABP’s capacity and experience in forestry practice and management and occupational health and safety and other operational matters. He states that this information remains crucial in his consideration of whether ABP as proposed assignee is a sound and competent assignee. - I repeat my observations as to sub-paragraphs (h) and (i) above. It is also to be remembered that the lessee, an insolvent entity, is to be replaced by an entity, ABP, which is to pay $340 million for the assets of Timbercorp. It has significant financial reserves. It is not said how or in what regard the information which has already been provided requires augmentation.
The facts in this case bear some close similarities to that before the Court of Appeal of New Zealand in Corunna Bay Holdings Limited v Robert Gracie Dean Limited.[14] In that case the Master who heard the matter at first instance regarded the silence by the unconsenting lessor as amounting to acknowledgement of the assignee’s solvency. The appellant argued on appeal that the lessor was not contractually obliged to accept that the assignee was solvent, nor was it estopped from denying that to be the case. Gault and Tipping JJ stated that for summary judgment purposes the Master was entitled to take a robust approach to assess the genuineness of the lessor’s belated stance. At [22] Gault and Tipping JJ observed:
As a reason to challenge the assignee’s solvency, after first appearing to accept it, the basis put forward is illogical and wholly unpersuasive. We accept that the details of its financial circumstances put forward by the assignee were sparse but they appear to have been accepted by the lessor. There is no evidence that this apparent acceptance was a mistake or an oversight. It is an obvious inference that the issue of solvency was raised simply as a lever to secure the covenant and not out of genuine concern for the assignee’s solvency. When these factors are borne in mind, along with the wholly unsatisfactory reason for the lessor now challenging the assignee’s solvency, we consider the Master was entitled to view the matter as he did, and effectively conclude that the lessor had raised a point of no substance.
At [55] McGrath J observed:
The Master’s finding of fact, reflected in his robust view of the case, was that the appellant was in fact satisfied that the purchaser was a reputable and solvent company but that it would consent to the assignment of the lease only if its requirements of a direct covenant were net. This was a finding of fact that the refusal to execute the deed was the true and only ground for withholding of consent. The change of attitude to the purchaser’s suitability was a resiling from that view to support its purpose of securing a direct covenant for the purchaser. I consider these findings of fact by the Master have not been shown to be wrong. I agree with them and that it was appropriate to make them on a summary judgment application. It follows that the only basis in fact for the refusal of consent was the unreasonable one of endeavouring to secure an additional benefit to which there was no entitlement.
[14][2001] NZCA 297,
I also consider that it is appropriate to take a “robust” view of the material in this instance. In my view there should be summary judgment in favour of the plaintiff in this application. I consider that Timbercorp have overwhelmed any notion that the matter warrants trial.
The reasons put up by Mr Shuttleworth for withholding his consent to the assignment are unconvincing and as I have said in respect of several of the grounds raised, are disingenuous when one has regard to the material filed in reply by Timbercorp. The matters put by Timbercorp in its evidence in reply are plausible, are not contradicted and in part they are supported by documentation which was contemporaneously generated. Where Mr Shuttleworth asserts that he has misgivings as to ABP’s suitability as an assignee I consider the matters he puts forward to be unconvincing and not such as to warrant further investigation.
I will hear the parties on the form of orders to be made consequent on these reasons.
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