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  • Unreported Judgment

Valad Investments Pty Ltd v Maloney

 

[2009] QSC 246

 

SUPREME COURT OF QUEENSLAND

  

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

27 August 2009

DELIVERED AT:

Brisbane

HEARING DATE:

18 May 2009

JUDGE:

Martin J

ORDER:

The matter is adjourned.

CATCHWORDS:

LANDLORD & TENANT – LEASE – TERMINATION OF LEASE – RECOVERY OF POSSESSION – Where lease agreement executed between applicant landlord and company administered by respondents – where convening of a meeting to appoint administrators constitutes an ‘event’ giving rise to a right on the part of the applicant to terminate the lease – where applicant issued notice to remedy breach pursuant to s 124 – where respondents did not respond to notice – where applicants purported to terminate lease – where applicant continued to accept rent payments -  whether notice under s 124 required – whether applicant waived right to terminate/elected to maintain lease – whether purported termination in good faith – whether application should be dismissed to allow for discovery and trial of issues in dispute.

CORPORATIONS LAW – ADMINISTRATION OF COMPANIES – FORFEITURE OF PREMISES – Where tenant company in voluntary administration – where respondents appointed administrators - where applicant purported to terminate lease - where applicant continued to receive rent payments from respondents – where applicant asserts the existence of an alternative prospective tenant willing to pay substantial ‘key money’ – where respondents plan to sell the business of the respondent’s parent group ‘in line’ or as a large group, and as a going concern - where extension granted for the convening of a second meeting of creditors – where applicants sought consent of administrators to recover premises pursuant to s 440C of the Corporations Act – where respondents did not respond to applicant’s request – whether applicant can claim the benefit of an estoppel arising out of the conduct of administrators - whether leave should be granted pursuant to s 440C Corporations Act to enable the applicant to recover its premises - whether application should be dismissed to allow for discovery and trial of issues in dispute.

s 124 Property Law Act (Queensland) 1974

ss 440C & 435A Corporations Act (Cth) 2001

r 2.1.3 of Schedule 1A of the Uniform Civil Procedure Rules (Qld) 1999

ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited: application by Walker (No 7) [2009] FCA 454

Coastal Estates Pty. Ltd. v. Melevende [1965] V.R 433

Champtaloup v Thomas (1976) 2 NSWLR 264

Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 67 ALJR 537

Sargent v ASL Developments Ltd (1974) 131 CLR 634

COUNSEL:

T. Matthews for the applicant

G.J. Handran for the respondents

SOLICITORS:

Ramsden Bow for the applicant

Thynne & Macartney for the respondents

 

  1. The applicant in this case seeks leave, pursuant to s440C of the Corporations Act (Cth) 2001 (“the Act”), to take action to recover possession of its property which it, as lessor, leased to A.B.C. Developmental Learning Centres Pty Ltd (“ABC Developmental”). Because ABC Developmental is in administration, the applicant cannot re-enter or commence a proceeding for recovery of possession of the property without first obtaining such leave.
  1. There are two issues to be decided: first, whether the applicant validly exercised a right to terminate its lease; and, secondly, if it did, whether the court should exercise its discretion under s440C of the Act to allow the applicant to recover its premises. An intermediate issue also arises - that is, whether these matters are ripe for determination at this stage or whether there are serious questions to be tried.
  1. For the reasons I set out below, I have concluded that it is appropriate for these questions to be determined at trial.

Background

  1. The applicant, as trustee of the Valad trust, is the registered owner of the land and improvements situated at 52 Robert Stanley Drive, Mt Warren Park in the State of Queensland (“the premises”).
  1. ABC Ltd operates child care centres in Australia through some 39 subsidaries (“ABC Group”). All of the centres operate from premises leased from third parties.
  1. By a lease entered into on 29 November 2004, though commencing on 1 July 2004, the applicant granted a lease (“the lease”) over the premises to an ABC subsidiary, ABC Developmental. ABC Developmental operates a child care centre from the premises.
  1. By an Amendment to Lease and exercise of Option to Renew, entered into on 31 October 2007, the applicant and ABC Developmental extended the term of the lease by five years (until 30 June 2012), with a further option to renew.
  1. By clause 16.01 (‘Default by Lessee and termination of Lease’) of the lease agreement, the parties agreed as follows:

“Notwithstanding the waiver of any previous events defaults or acts giving rise to the Lessor’s right to re-entry hereunder and without prejudice either to any other rights powers and remedies conferred or implied hereunder or to any antecedent claim demand or action which the Lessor may have against the Lessee hereunder, in all or any of the following events that is to say:-

(iv) If the Lessee, being a corporate person shall be wound up or enter into liquidation or appoint an official manager or receiver pursuant to any resolution or petition of itself or its creditors or the Crown or if a meeting of the Lessee or its creditors be convened to consider any such petition or resolution or to consider any scheme of arrangement of administration or to consider the appointment of an administrator pursuant to the provisions of the Corporations Law.

THEN the lessor shall have the right either:

  1. directly or indirectly (by its agents or otherwise) and by force if necessary to re-enter upon and into the demised premises or any part thereof in the name of the whole and to determine this Lease; or
  1. to give written notice to the Lessee determining this Lease and thereupon from the date of giving such notice this Lease shall be absolutely determined; or

PROVIDED THAT the exercise by the Lessor of any of the Lessor’s rights hereunder shall not abrogate or lessen the obligation of the Lessee to pay the Lessor any rent or proportionate part thereof then due owing and payable, nor revoke or invalidate in any way the power of attorney hereinafter conferred upon the Lessor. This paragraph substitutes for and expressly negatives Section 107(d) Property Law Act, 1974 (as amended).”

  1. On 6 November 2008, a meeting was convened at which the respondents were appointed administrators of ABC Group, including ABC Developmental (“the event”). On the same day, a secured creditor, CBA Corporate Services (NSW) Pty Ltd appointed Christopher John Honey, Murray Campbell Smith and John Patrick Cronin of McGrath Nicol as receivers and managers of the ABC Group (“the receivers and managers”), including ABC Developmental.
  1. By 19 November 2008, the applicant was aware of the appointment of the administrators and receivers, as evidenced by an invoice sent by it to “ABC Learning Centres Ltd (Receivers and Managers appointed) (Administrators appointed)” on that date.
  1. Notwithstanding such knowledge and clause 16.01, the applicant demanded and retained rent for the premises which fell due after 6 November 2008 (namely for December 2008, January 2009 and February 2009) without reservation.
  1. On 25 February 2009 the applicant served on ABC (with copies sent to both receivers and managers and the respondent administrators) a notice to remedy a breach of covenant (“the breach notice”) pursuant to s 124 of the Property Law Act 1974 (“PLA”). The covenant listed as being breached by ABC in the notice was clause 16.01(iv) of the lease.
  1. On 27 February, the applicant accepted and retained rent for the premises for March 2009.
  1. ABC Developmental could not remedy the “breach” referred to in the breach notice and by notice of termination of lease (“the termination notice”) served on 17 March 2009 (and forwarded to the respondent administrators and the receivers and managers), the applicant purported to terminate the lease. On the same day, the applicant wrote to the administrators, requesting their consent to re-enter the premises. The applicant did not receive a response to that request.
  1. On 20 March 2009, the Federal Court of Australia (Emmett J) extended the convening period for the second meeting of creditors of the ABC Group until 20 September 2009. His Honour made the order to facilitate the continuation of the business of the ABC Group for the purposes of enabling the receiver to achieve the best price when it offers ABC Group for sale, as planned, later this year.[1] Emmett J was expressly concerned to extend the moratorium conferred by s440C of the Act to prevent lessors from being able to disrupt the continuation of the group’s business prior to the pending sale.[2]
  1. Notwithstanding the applicant’s service of the notice of termination of Lease, the applicant accepted and retained rent for the premises for April 2009 and at least one subsequent month.
  1. At the hearing of this application, the receivers and managers of ABC Developmental and ABC Developmental sought leave to be joined as a party. I gave leave for the receivers and managers and ABC Developmental under Rule 2.1.3 of Schedule 1A of the Uniform Civil Procedure Rules to appear and be heard without becoming a party in the proceedings.

The Applicant’s Case: valid termination and balance of convenience in favour of right to possession

  1. The applicant’s submissions in this case are essentially these:

a)The convening of the meeting on 6 November 2008 to consider administration of the ABC Group gave rise to a right on the part of the lessor to terminate the lease pursuant to cl 16.01(iv) of the lease agreement.

b)Its right to terminate was validly exercised by serving the breach and the subsequent termination notice.

c)The acceptance of rental payments throughout and after this period, is of no consequence. The final paragraph of cl 16.01 of the lease (“PROVIDED THAT …”) addresses this and should be interpreted as imposing an ongoing obligation to pay rent under the lease, nothwithstanding a purported termination of the lease by the applicant.

  1. As for the discretionary factors affecting a court’s decision on whether or not to grant leave under s 440C of the Act, the applicant submits that it will lose the opportunity to secure a commercial advantage if leave is not given. It asserts the existence of an alternative prospective tenant who is willing to pay $800,000 in ‘key money’ if granted a lease over the premises. If the applicant is not given leave to recover possession of the premises, such a lease (with concomitant ‘key money’) may not be granted. The applicants describe this potential outcome as a “significant commercial loss”, and a relevant factor to be considered when weighing the positions of the applicant and respondents in determining this case.

The Respondent’s Case: invalid termination and discretionary factors weighing against grant of leave.

  1. The respondents in this case (supported by the receivers & managers) submit that, on its proper construction, cl 16.01 of the lease does not afford an continuing right to receive rental payments. Rather, they submit that the acceptance of rental payments (including those made: after the applicant became aware of the administrators’ appointment, after the service of the breach notice and after service of the termination notice) constitutes a waiver of the applicant’s right to terminate, or, in other words, an election to affirm the lease. As such, they submit the lease was never validly terminated and so the s 440C application for leave to recover possession should be dismissed.
  1. In case the respondents’ submissions on waiver/election are not accepted, the respondents submit that there are serious questions to be tried as to whether the manner of the applicant’s purported termination pursuant to the s124 notices was valid. Questions were also raised as to the effect of the applicant’s motivations in purporting to terminate the lease, in particular, whether the applicant acted in good faith and whether this could affect the validity of the purported termination.
  1. If it were held that the applicant’s purported termination of the lease was accepted by the court as valid, and a trial of issues raised above was considered unnecessary, the respondents submitted that a grant of leave would be contrary to the objectives of the Act, in that it would frustrate the administrator’s plans to sell the business of the ABC Group ‘in line’ or, at least, in a large group, and that this would be contrary to the best interests of the creditors as a whole.

Issues

  1. It is apposite at this point to consider whether the matter is an appropriate one for determination at this stage. Ordinarily, a case like this might be resolved in a summary way and I have considered doing that but, given the nature of some of the submissions, this is a matter which should be dealt with at a trial.
  1. The factors which I consider cannot be decided at this stage and which may require consideration of matters of credit include:

a)Whether the “termination” was for an extraneous purpose and in breach of an alleged implied term that the termination power in cl. 16.01 would be exercised in good faith.

b)Whether Valad could claim the benefit of an estoppel arising out of the conduct of administrators.

There are likely to be other matters which will arise from the pleadings.

Conclusion

  1. The application will be adjourned. I will hear the parties on appropriate directions to bring the matter to trial.

Footnotes

[1] ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited: application by Walker (No 7) [2009] FCA 454 at [17].

[2] Ibid [18].

Close

Editorial Notes

  • Published Case Name:

    Valad Investments P/L v Maloney and Walker

  • Shortened Case Name:

    Valad Investments Pty Ltd v Maloney

  • MNC:

    [2009] QSC 246

  • Court:

    QSC

  • Judge(s):

    Martin J

  • Date:

    27 Aug 2009

Litigation History

No Litigation History

Appeal Status

No Status